SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No. 0-23866
September 30, 1999
CAVION TECHNOLOGIES, INC.
(Exact name of Small Business Issuer as specified in its charter.)
Colorado 84-1472763
-------- -----------
(State of Incorporation) (I.R.S. Employer Identification No.)
7475 Dakin Street, Suite 607
Denver, Colorado 80221
-----------------------
(Address of Principal Executive Offices)
(303) 657-8212
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
The number of shares outstanding of each of the issuer's classes
of common stock, as of December 9, 1999:
Class of Securities Outstanding Securities
------------------ ----------------------
$.0001 par value 4,696,826 shares
Class A Common Stock
$.0001 par value 28,648 shares
Class B Common Stock
CAVION TECHNOLOGIES, INC.
(d/b/a cavion.com)
INDEX
-----
Page
----
Part I. Financial Information
Item 1. Unaudited Financial Statements:
Cavion Technologies, Inc. (Formerly Network
Acquisitions, Inc.)
Balance Sheets as of September 30, 1999 and
December 31, 1998 3
Statements of Operations for the three months and nine
months ended September 30, 1999 and the period from
inception (August 18, 1998) to September 30, 1998 5
Statements of Cash Flows for the nine months ended
September 30, 1999 and the period from inception
(August 18, 1998) to September 30, 1998 6
LanXtra, Inc. (Formerly Cavion Technologies, Inc. and
Sigmacom Corporation)
Statements of Operations for the three months and nine
months ended September 30, 1998 (Unaudited) 8
Statements of Cash Flows for the nine months ended
September 30, 1998 9
Notes to Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 21
Part II. Other Information
Item 1 Legal Proceedings 31
Item 2 Changes in Securities and Use of Proceeds 31
Item 3 Defaults Upon Senior Securities 31
Item 4 Submission of Matters to a Vote of Security Holders 31
Item 5 Other Information 31
Item 6 Exhibits and Reports on Form 8-K 31
Signatures
-------------------------------
This report contains forward-looking statements within the meaning of
Section 221E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities of the Securities Act of 1933, as amended,
and is subject to the safe harbors created by those sections. These
forward-looking statements are subject to significant risks and
uncertainties, including those identified in the section of this form 10-
QSB entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Factors That May Affect Future Operating
Results," which my cause actual results to differ materially from those
discussed in such forward-looking statements. The forward-looking
statements within this Form 10-QSB are identified by words such as
"believes," "anticipates," "expects," "intends," "may," "will" and other
similar expressions. However, these words are not the exclusive means of
identifying such statements. In addition, any statements which refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or
circumstances occurring subsequent to the filing of this Form 10-QSB with
the Securities and Exchange Commission ("SEC"). Readers are urged to
carefully review and consider the various disclosures made by the Company
in this report and in the Company's other reports filed with the SEC that
attempt to advise interested parties of the risks and factors that may
affect the Company's business.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Page 1 of 2
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc.)
BALANCE SHEETS
--------------
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
------ 1999 1998
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 249,217 $ 19,735
Accounts receivable 43,709 -
Prepaid assets 80,529 -
Inventories 5,832 -
Deferred offering costs 458,883 -
---------- ----------
Total current assets 838,170 19,735
---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 19,634 -
Furniture and fixtures 42,970 -
Network equipment and licensed
software 465,440 -
---------- ----------
528,044 -
Less - Accumulated depreciation (79,282) -
---------- ----------
Property and equipment, net 448,762 -
---------- ----------
DEBT ISSUANCE COSTS, net of
accumulated amortization of
$76,761, and $4,232, respectively 16,902 49,412
DEPOSIT FOR LETTER OF CREDIT 20,000 -
DEFERRED LANXTRA ACQUISITION
COSTS - 2,204,814
GOODWILL AND OTHER INTANGIBLE
ASSETS, net of accumulated amortization
of $635,369 and $0, respectively 4,129,899 -
OTHER ASSETS 51,599 -
---------- ----------
TOTAL ASSETS $5,505,332 $2,273,961
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
Page 2 of 2
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc. )
BALANCE SHEETS
--------------
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31,
------------------------------------ 1999 1998
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 571,981 $ -
Accrued liabilities 351,928 31,185
Accrued interest 92,148 2,116
Deferred revenue and deposits 363,532 -
Deferred revenue - license agreements 300,000 -
Related party collateralized loans 13,152 -
Current portion of capital lease
obligations 44,824 -
Notes payable to stockholders 300,000 -
Bridge loan 283,437 -
Revolving line of credit 600,000 -
---------- ----------
Total current liabilities 2,921,002 33,301
---------- ----------
LONG-TERM LIABILITIES:
Capital lease obligations 51,513 -
Notes payable 451,165 252,833
---------- ----------
Total long-term liabilities 502,678 252,833
---------- ----------
PUTABLE CLASS B COMMON STOCK: 30,000
shares authorized; 28,648, and 0 shares
issued and outstanding, respectively
(stated at accreted value; total
redemption value of $200,536) 196,577 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred
Stock; $.0001 par value, 10,000,000
shares authorized; 700,000 and 0
issued and outstanding,
respectively (liquidation value of
$4,200,000 and $0) 1,848,000 -
Class A Common Stock; $.0001 par
value, 19,970,000 shares authorized;
2,706,326 and 2,625,356 issued and
outstanding, respectively 271 263
Warrants 33,127 13,284
Additional paid-in capital 3,188,765 2,010,224
Accumulated deficit (3,185,088) (35,944)
---------- ----------
Total stockholders' equity 1,885,075 1,987,827
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,505,332 $ 2,273,961
========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc. )
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Inception
Three Months Nine Months (August 18,
Ended Ended 1998) to
September 30, September 30, December 31,
1999 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
REVENUE:
Network access and
connectivity fees $ 123,128 $ 273,335 $ -
Installation services 52,256 103,481 -
Software licensing fees 4,092 7,993 -
------------ ------------ ----------
Total revenue 179,476 384,809 -
------------ ------------ ----------
COST OF REVENUE:
Network access and
connectivity 79,369 179,303 -
Installation services 70,481 104,164 -
------------ ------------ ----------
Total cost of revenue 149,850 283,467 -
------------ ------------ ----------
Gross profit 29,626 101,342 -
------------ ------------ ----------
OPERATING EXPENSES:
Selling and marketing 544,270 957,590 -
General and administrative 237,137 886,896 6,877
Research and development 161,872 323,960 -
Amortization of goodwill 240,860 635,370 -
------------ ------------ ----------
Total operating
expenses 1,184,139 2,803,816 6,877
------------ ------------ ----------
LOSS FROM OPERATIONS (1,154,513) (2,702,474) (6,877)
INTEREST EXPENSE (167,835) (391,966) (29,067)
------------ ------------ ----------
NET LOSS $(1,322,348) $(3,094,440) $ (35,944)
============ ============ ==========
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS:
Net loss $(1,322,348) $(3,094,440) $ (35,944)
Dividends, convertible
preferred stock (26,250) (54,704) -
------------ ------------ ----------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS (1,348,598) (3,149,144) $ (35,944)
============ ============= ==========
BASIC AND DILUTED NET LOSS
PER SHARE $ (.50) $ (1.12) $ (0.02)
============ ============= ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING -
BASIC AND DILUTED 2,706,326 2,806,287 2,078,170
============ ============ ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
Page 1 of 2
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc.)
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
Inception
Three Months Nine Months (August 18,
Ended Ended 1998) to
September 30, September 30, December 31,
1999 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(1,322,348) $(3,094,440) $ (35,944)
Adjustments to reconcile
net loss to net cash used
in operating activities-
Depreciation and
amortization 276,945 722,522 -
Accretion of debt
discount 140,260 267,162 16,608
Accretion of putable
stock 11,880 29,380 4,232
Change in operating assets
and liabilities-
Accounts receivable (17,507) (27,251) -
Prepaids and inventories (17,480) (47,409) -
Other assets (40,301) (29,784) -
Accounts payable 186,252 286,372 -
Accrued liabilities 52,220 144,382 2,116
Deferred revenue 420,567 448,820 -
------------ ------------ ----------
Net cash used in
operating
activities (309,512) (1,300,246) (12,988)
------------ ------------ ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property
and equipment (46,205) (133,220) -
Acquisition of LanXtra - - (335,000)
------------ ------------ ----------
Net cash used in
investing
activities (46,205) (133,220) (335,000)
------------ ------------ ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from notes
payable 300,000 400,000 370,000
Repurchases of common
stock - (31) -
Proceeds from issuance
of Common Stock - 178 6,898
Proceeds from issuance of
Series A Preferred Stock - 2,100,000 -
Series A Preferred Stock
offering costs - (252,000) -
Payment of debt issuance
costs (31,045) (67,612) (9,175)
Principal payments on
capital leases (10,067) (32,454) -
Deferred offering costs (86,585) (458,883) -
Payment of dividends (26,250) (26,250) -
------------ ------------ ----------
Net cash provided
by financing
activities 146,053 1,662,948 367,723
------------ ------------ ----------
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (209,664) 229,482 19,735
CASH AND CASH EQUIVALENTS,
beginning of period 458,881 19,735 -
------------ ------------ ----------
CASH AND CASH EQUIVALENTS,
end of period $ 249,217 $ 249,217 $ 19,735
============ ============ ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
Page 2 of 2
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc.)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Period from
Inception
Three Months Nine Months (August 18,
Ended Ended 1998) to
September 30, September 30, December 31,
1999 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 34,814 $ 98,992 $ 6,111
============ ============ ==========
SUPPLEMENTAL DISCLOSURE OF
NON-CASH FINANCING
ACTIVITIES:
Value of warrants to purchase
common stock issued to
placement agent in
conjunction with bridge
loan $ 33,127 $ 33,127 $ -
============ ============ ==========
Accrued dividends $ 26,250 $ 26,250 $ -
============ ============ ==========
Property acquired with
capital leases $ - $ 63,804 $ =
============ ============ ==========
Value of warrants to purchase
common stock issued to
note holders $ - $ 35,885 $ 133,775
============ ============ ==========
Value of warrants to purchase
common stock issued to
Selling Agent $ - $ 3,590 $ 13,284
============ ============ ==========
Debt issuance costs included
in accrued liabilities $ - $ - $ 31,185
============ ============ ==========
Estimated value of shares
issued to LanXtra
management shareholders $ - $ - $1,876,068
============ ============ ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
LANXTRA, INC.
-------------
(Formerly Cavion Technologies, Inc. and Sigmacom Corporation )
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1998
------------- -------------
<S> <C> <C>
REVENUE:
Network access and connectivity fees $ 30,513 $ 102,970
Installation services 19,468 38,695
Software licensing fees 1,060 2,297
---------- -----------
Total revenue 51,041 143,962
---------- -----------
COST OF REVENUE:
Network access and connectivity 28,334 94,732
Installation services 16,523 34,522
---------- -----------
Total cost of revenue 44,857 129,254
---------- -----------
Gross profit 6,184 14,708
---------- -----------
OPERATING EXPENSES:
General and administrative 206,456 555,415
Research and development 72,343 192,520
---------- -----------
Total operating expenses 278,799 747,935
---------- -----------
LOSS FROM OPERATIONS (272,615) (733,227)
INTEREST EXPENSE (245,161) (628,734)
OTHER INCOME (LOSS) (20,986) -
---------- -----------
NET LOSS $(538,762) $(1,361,961)
========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (2.00) $ (5.40)
========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 256,464 256,464
========== ==========
</TABLE>
LANXTRA, INC.
-------------
(Formerly Cavion Technologies, Inc. and Sigmacom Corporation )
STATEMENT OF CASH FLOWS
-----------------------
(UNAUDITED)
----------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,386,961)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 46,501
Accretion of putable stock 577,500
Accretion of loan discounts 133,067
Change in operating assets and liabilities-
Accounts receivable 76,911
Prepaids and inventories (41,182)
Other assets (1,169)
Accounts payable 43,161
Accrued liabilities 32,589
Deferred revenue 48,094
------------
Net cash used in operating activities (471,489)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (56,071)
------------
Net cash used in investing activities (56,071)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 286
Proceeds from related party loans 260,000
Proceeds from notes payable 35,000
Payments on related party loans (61,780)
Payment on capital lease obligations (20,584)
------------
Net cash provided by financing activities 212,922
------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (314,638)
CASH AND CASH EQUIVALENTS, beginning of period 350,443
------------
CASH AND CASH EQUIVALENTS, end of period $ 35,805
============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES: $ 16,881
============
Property acquired with capital leases
Putable common stock issued in
conjunction with stockholder notes $ 200,536
============
Cash paid for interest $ 66,703
============
</TABLE>
CAVION TECHNOLOGIES, INC.
-------------------------
(Formerly Network Acquisitions, Inc.)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
------------------------------------------------
FOR THE PERIOD FROM INCEPTION (AUGUST 18, 1998
----------------------------------------------
TO DECEMBER 31, 1998
--------------------
(1) DESCRIPTION OF BUSINESS
-----------------------
Organization
------------
The Company was incorporated in Colorado on August 18, 1998 as Network
Acquisitions, Inc. to acquire the assets of Cavion Technologies, Inc., now
known as LanXtra, Inc. ("LanXtra"), which was engaged in providing
internet, intranet, and extranet services to the credit union industry.
On February 1, 1999, the Company acquired the business of LanXtra, and the
Company changed its name to Cavion Technologies, Inc., doing business as
cavion.com.
Prior to funds raised in an Initial Public Offering, effective October 29,
1999, the Company financed its operations through a private placement of
its 15% notes, which were offered commencing on October 20, 1998 (the
"Offering"), the sale of Series A Preferred Stock and funding through a
Bridge Loan. The Company advanced a portion of the proceeds from the
Offering to LanXtra in anticipation of the acquisition of LanXtra.
Through December 31, 1998, the Company had raised $370,000 in the private
placement and had advanced LanXtra a total of $335,000 under an agreement
dated September 14, 1998. In the Initial Public Offering, the Company
issued 1,200,000 shares of Class A common stock for $6.50 per share
raising net proceeds, after offering costs, of $6,279,000. In addition,
in November 1999, the representative of the underwriters exercised a
portion of their overallotments option, resulting in additional gross
proceeds of approximately $588,000 (See note 9).
Purchase of LanXtra's Assets, Liabilities and Operations
--------------------------------------------------------
In August 1998, the Company signed a letter of intent to purchase
LanXtra's business. In December 1998, the Company signed an Asset
Purchase Agreement (the "Purchase Agreement") with LanXtra to purchase
substantially all the assets of LanXtra in exchange for approximately
375,214 shares and 28,648 shares of the Company's Class A and B common
stock, respectively, and the assumption by the Company of certain
liabilities of LanXtra. The number of Class A common stock shares issued
to LanXtra represented approximately 12% of the Company's equity interest
at the time of the purchase agreement. The Purchase Agreement was
consummated on February 1, 1999 and the Company assumed the operations of
LanXtra on that date. Upon consummation, significant modifications were
made to LanXtra's capital structure. On December 21, 1998, the Company
issued 625,356 shares to certain shareholders of LanXtra who could
continue as management of the Company. One of these shareholders held
directly and through irrevocable proxies sufficient voting shares to
approve the transaction. The shares are non-forfeitable and not
contingent upon the management's continued employment with the Company.
As a result, the shares have been considered additional purchase
consideration and are recorded at their estimated fair value of $3 per
share.
The estimated fair value of assets acquired, liabilities assumed, and
consideration issued in the transaction with LanXtra are as follows:
<TABLE>
<CAPTION>
<S> <C>
Consideration:
Class A common stock $3,001,710
Class B common stock 167,197
Cash 338,735
----------
3,507,642
Add: Net liabilities (assets) assumed:
Working capital deficit assumed 706,044
Property and equipment (331,020)
Borrowings assumed 924,417
Other assets (41,815)
----------
Goodwill and other intangible assets $4,765,268
==========
</TABLE>
The Company has recorded the fair value of its stock issued to LanXtra at
$3 per share based principally upon its private placement of Series A
Preferred Stock completed in February 1999. The transaction with LanXtra
resulted in approximately $4,760,000 of intangible assets (primarily
technology, customer lists and goodwill). These intangible assets will be
amortized over five years. The purchase price allocation is subject to
adjustment based on the final determination of the fair value of the
assets and liabilities assumed, which could take as long as one year from
February 1, 1999. Because the business now operated by the Company has
never been profitable, and due to the other risks and uncertainties
discussed herein, it is reasonably possible that an analysis of these long-
lived assets in future periods could result in a conclusion that they are
impaired, and the amount of the impairment could be substantial.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Interim Financial Statements (Unaudited)
----------------------------------------
The interim financial statements of the Company as of and for the nine
months ended September 30, 1999, and the financial statements of LanXtra
for the three and nine months ended September 30, 1999 are unaudited and
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Company's management, the unaudited interim financial statements contain
all adjustments, consisting of normal recurring adjustments, considered
necessary for a fair presentation. The results of operations for the
interim period is not necessarily indicative of the results of the entire
year.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Concentration of Credit Risk
----------------------------
Financial instruments which subject the Company to concentrations of
credit risk are accounts receivable and cash equivalents. The Company's
receivables are concentrated among credit unions. The Company performs
ongoing credit evaluations of its customers' financial condition and
generally requires no collateral. Additionally, the Company manages a
portion of its credit risk by billing certain services in advance. The
Company has no significant financial instruments with off-balance sheet
risk of accounting loss, such as foreign exchange contracts, option
contracts or other hedging arrangements. The Company's cash balances are
maintained in demand deposits at financial institutions that the Company
believes to be creditworthy.
Fair Value of Financial Instruments
-----------------------------------
The Company's financial instruments consist of cash, accounts receivable,
short-term trade payables, putable common stock and borrowings. The
carrying values of the instruments acquired from LanXtra approximate the
fair value placed upon them on February 1, 1999, in connection with their
assumption. Fair values were principally determined by discounting
expected future cash flows at a market cost of debt. The fair value of
the Company's other borrowings approximates their carrying values based
upon current market rates of interest.
Property and Equipment
----------------------
Property and equipment acquired from LanXtra was recorded at its estimated
fair value. Additions are recorded at cost. Property and equipment are
depreciated using the straight-line method over the lesser of the lease
term or their estimated lives as follows:
Furniture and fixtures 7 years
Computer equipment 3 - 5 years
Licensed software 3 years
Leasehold improvements Life of the lease
Impairment of Long-Lived Assets
-------------------------------
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable from future undiscounted cash flows. Impairment
losses are recorded for the difference between the carrying value and fair
value of the long-lived assets. The acquisition of LanXtra generated
approximately $4,760,000 of intangible assets which are continuously
reviewed by the Company for impairments.
Deferred Offering Costs
-----------------------
The Company has recorded deferred offering costs totaling $458,883 at
September 30, 1999. Such costs represent legal and other professional
fees incurred related to the Company's proposed initial public offering.
Such costs were offset against the initial public offering proceeds upon
the consummation of the offering on October 29, 1999 (see Note 9).
Accrued Liabilities
-------------------
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
Accrued vendor payable $ 78,673 $ -
Accrued professional fees 172,620 -
Accrued wages and other liabilities 100,635 31,185
---------- ----------
Total accrued liabilities $ 351,928 $ 31,185
========== ==========
</TABLE>
Income Taxes
------------
A current provision for income taxes is recorded for actual or estimated
amounts payable or refundable on tax returns filed or to be filed for each
year. Deferred income tax assets and liabilities are recorded for the
expected future income tax consequences, based on enacted tax laws, of
temporary differences between the financial reporting and tax bases of
assets and liabilities and carryforwards. The overall change in deferred
tax assets and liabilities for the period measures the deferred tax
expense for the period. Effects of changes in tax laws on deferred tax
assets and liabilities are reflected as adjustments to tax expense in the
period of enactment. Deferred tax assets are recognized for the expected
future tax effects of all deductible temporary differences, loss
carryforwards and tax credit carryforwards. Deferred tax assets are
reduced, if deemed necessary, by a valuation allowance for the amount of
any tax benefits which, more likely than not based on current
circumstances, are not expected to be realized.
Net Loss Per Share
------------------
The Company reports net loss per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"
which requires the presentation of both basic and diluted earnings (loss)
per share. Basic net loss per common share has been computed based upon
the weighted average number of shares of common stock outstanding during
the period. Weighted average common shares excludes 28,648 shares of
putable Class B common stock as an assumed cash settlement is more
dilutive. Diluted net loss per share is computed by dividing the net loss
for the period by the weighted average number of common and potential
common shares outstanding during the period if the effect of the potential
common shares is dilutive. The Company has also excluded the weighted
average effect of common stock issuable upon exercise of all warrants,
options and convertible preferred stock from the computation of diluted
earnings per share as the effect of all such securities is anti-dilutive
for the periods presented. The shares excluded related to outstanding
options, warrants and convertible preferred stock (without regard to the
treasury stock method) at December 31, 1998 were 1,075,000 and 4,440,
respectively.
Stock Based Compensation
------------------------
The Company accounts for its employee stock option plan and other employee
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB No. 25"), and related interpretations. The Company
adopted the disclosure-only provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), which allows entities to
continue to apply the provisions of APB Opinion No. 25 for transactions
with employees and provide pro forma disclosures for employee stock grants
as if the fair-value-based method of accounting in SFAS No. 123 had been
applied to these transactions. The Company accounts for equity
instruments issued to non-employees in accordance with the provisions of
SFAS No. 123.
Revenue Recognition
-------------------
The Company generates revenue from three sources: (1) service revenue for
the installation of internet access equipment at customer sites, (2)
software license fees, and (3) recurring monthly network access and
connectivity fees. Service revenue is recognized as the services are
performed. Software license arrangements typically provide for
enhancements over the term of the arrangement, and software license fees
are generally received in advance, deferred and recognized ratably over
the term of the arrangement. Network access and connectivity fees are
typically billed in advance and recognized in the month that the
access/connectivity is provided.
Software Development Costs
--------------------------
The Company capitalizes software development costs when a software product
is determined to be technologically feasible. The Company's software
products are deemed to be technologically feasible at the point the
Company commences field testing of the software. The period from field
testing to general customer release of the software has been brief and the
costs incurred during this period were insignificant. Accordingly, the
Company has not capitalized any qualifying software development costs.
Comprehensive Income
--------------------
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting comprehensive income and its components in the
financial statements. Comprehensive income, as defined, includes all
changes in equity (net assets) during a period from non-owner sources.
From inception through September 30, 1999, there have been no differences
between the Company's comprehensive loss and its net loss.
Segment Information
-------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
("SFAS No. 131"). This statement establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company
believes it has one reportable segment.
Recently Issued Accounting Pronouncements
-----------------------------------------
Statement of Financial Accounting Standards No. 133
---------------------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), and in June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB 133" ("SFAS No
134"). SFAS No. 134 requires the Company to adopt SFAS No. 133 for all
quarters in the year ended December 31, 2001. SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging
activities. To date, the Company has not entered into any derivative
financial instruments or hedging activities.
(3) BORROWINGS
----------
The Company's borrowings at September 30, 1999 and December 31, 1998,
consisted of the following:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------- ----------------------
Unamortized Unamortized
Face Value Discount Face Value Discount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
*Bridge Loan $ 300,000 $ - $ - $ -
Notes payable 470,000 (18,835) 370,000 (117,167)
*Revolving line of
credit 600,000 - - -
*Notes payable to
stockholders 300,000 - - -
*Related party
collateralized loans 13,410 (258) - -
---------- -------- -------- ----------
$1,683,410 $(19,093) $370,000 $(117,167)
========== ======== ======== ==========
</TABLE>
*The entire amount of borrowings that mature in 1999 were paid in full
after the Initial Public Offering.
Bridge Loan
-----------
In August 1999, the Company raised $300,000 through Neidiger, Tucker,
Bruner, Inc. and First Capital Investments, Inc. (the "Placement Agents").
The bridge loan bears interest at 14% and matures upon the earlier of the
closing of Company's Initial Public Offering or one year from the date of
the note. The loan was paid in full upon closing of the Initial Public
Offering (see Note 9). First Capital Investment, Inc., ("FCI"), is a
related party through its substantial ownership of the Company's common
stock.
At the closing date, the notes were discounted to reflect their fair value
net of the value of the warrants issued to the note holders. The discount
is being amortized as interest expense over the estimated term of the
notes. Debt issuance costs in the amount of $31,045 were paid in
conjunction with the Initial Public Offering and are also being amortized
as interest expense over the estimated term of the notes.
Note Payable
- ------------
Beginning on October 20, 1998, the Company offered through its officers,
directors and FCI (the "Selling Agent"), up to $2,000,000 of 15% secured
notes due October 19, 2000 (the "Notes") along with warrants to purchase
Class A common stock (the "Warrants"). At December 31, 1998, the Company
had raised $370,000 through the Offering. The Company raised a total of
$470,000 as of March 31, 1999 and the Offering closed on February 8, 1999.
The Notes are secured by substantially all of the assets now owned and
hereafter acquired by the Company, including the assets acquired from
LanXtra in February 1999. There is no pre-payment penalty.
In connection with the Offering, the Company granted note holders warrants
to purchase 1,200 shares of the Company's Class A common stock for every
$10,000 of Notes Payable purchased. Accordingly, at December 31, 1998,
the Company had issued warrants for 44,400 shares, and in February 1999,
issued warrants for an additional 12,000 shares. Such warrants had an
exercise price of $0.01 per share. These detachable warrants were valued
at a total of $169,660 utilizing the Black-Scholes option pricing model,
assuming a volatility factor of 70%, a risk free interest rate of 4.31%
and a fair market value of the underlying common stock of $3 per share.
All warrants were exercised in early 1999.
Revolving Line of Credit
------------------------
As part of the Purchase Agreement, a $600,000 Revolving Line of Credit was
assumed by the Company. The maturity date of the line of credit was
extended to December 31, 1999 and interest accrues at a rate equal to the
Bank's reference rate plus 1.5% (9.75% and 9.25% at September 30, 1999 and
December 31, 1998, respectively). The Revolving Line of Credit is
collateralized by letters of credit issued by the Company and certain
LanXtra stockholders as well as by agreements among certain LanXtra
stockholders. No additional amounts may be drawn upon the line of credit.
The Line of Credit was paid in full and cancelled after the Initial Public
Offering proceeds were received (see Note 9), and the corresponding
collateralized letters of credit were released.
Notes Payable to Stockholders
-----------------------------
The Company assumed notes payable to certain LanXtra stockholders as part
of the Purchase Agreement. The maturity date on these notes was extended
to the date on which Cavion obtains 100 credit union customers (the "100
Credit Union Date"). Management believes the 100 Credit Union Date will
be reached on or before December 31, 1999. In addition, interest terms
were amended such that no interest will accrue for the remaining term of
the notes payable. At the acquisition date, the notes were discounted to
reflect their fair value. The discount is being amortized as interest
expense over the remaining estimated term of the notes. The notes payable
to stockholders were repaid in full after the Initial Public Offering
proceeds were received (see Note 9).
As additional consideration for shareholder notes with a face value of
$240,000, LanXtra issued 28,648 shares of its putable common stock. These
putable shares were exchanged for 28,648 shares of the Company's Class B
putable common stock. The Lenders have the right to sell these shares
back to the Company for a purchase price of $7 per share, 30 days after
the 100 Credit Union Date is reached, or can convert these shares into
equivalent shares of Class A common stock. As a result of this
transaction, the Class B shares have been recorded at their estimated fair
value of $167,197. The difference between this amount and the put value
is being accreted as interest expense over the estimated term of the
notes.
Related Party Collateralized Loans
----------------------------------
The Company also assumed certain factoring agreements (the "Agreements")
with management and a stockholder of the Company as part of the Purchase
Agreement. The interest terms were amended such that no interest will be
accrued for the remaining term of the loans and the maturity of these
loans was extended to the 100 Credit Union Date. The related party
collateralized loans were paid in full after the Initial Public Offering
proceeds were received (see Note 9) and cancelled.
Maturities of Borrowings
- ------------------------
The maturities of the Company's borrowings as of September 31, 1999 are as
follows:
1999 $1,213,410*
2000 470,000
----------
1,683,410
Less-debt discounts (18,577)
----------
$1,664,833
==========
*The entire amount of borrowing that mature in 1999 were paid in full
after the Initial Public Offering.
(4) RELATED PARTY TRANSACTIONS
--------------------------
MoneyLine America, LLC
----------------------
In August 1999, the Company entered into an agreement with MoneyLine
America, LLC, ("MoneyLine Agreement"), which provides that the Company
will receive payments under an agreement with MoneyLine to provide on-line
mortgage lending services for credit unions and their members through the
Company's network. This agreement calls for a minimum annual payments to
us of $300,000 in the first year, beginning September 1999, escalating to
$1,000,000 in years six through ten, provided the Company has at least
1,500 credit unions, or 12% of the U.S. credit unions on our network by
the end of year three. The amounts received are reflected as deferred
revenue - license agreements in the accompanying balance sheets. Fifty
percent of MoneyLine America is owned by Boutine Capital, LLC, a principal
shareholder of the Company.
(5) CAPITAL LEASE OBLIGATIONS
-------------------------
The Company assumed several capital lease agreements related to computers
and various office equipment in conjunction with the Purchase Agreement.
The Company has also entered into additional capital lease agreements
during the nine months ended September 30, 1999. The capital leases have
terms ranging from 24 to 36 months with interest rates ranging between 9%
and 20.3%.
As of September 30, 1999, the present value of future minimum lease
payments are as follows:
Period ending September 30,
2000 $ 44,824
2001 51,100
2002 11,060
--------
106,984
Less: amounts representing interest (10,647)
--------
96,337
Less: current portion (44,824)
--------
Long-term capital lease obligation $ 51,513
========
The net book value of assets under capital lease obligations as of
September 30,1999 was approximately $92,000.
(6) STOCKHOLDERS' EQUITY
--------------------
The Company is authorized to issue 20,000,000 shares of common stock, par
value $.0001 per share. The common stock is segregated into two classes;
Class A and Class B. Of the 20,000,000 shares of common stock, 19,970,000
are designated as Class A and 30,000 are designated as Class B.
Class A Common Stock
--------------------
At September 30, 1999, 2,706,326 shares of Class A common stock were
issued and outstanding. Two million shares were issued for consideration
of $.0001 per share (par value). Certain LanXtra shareholders and
management were issued 625,356 shares for cash consideration of $.01 per
share. The estimated fair value assigned to these shares was $3 per share
which is consistent with the value assigned to the 375,214 shares issued
to LanXtra in February 1999. The holders of Class A common stock are
entitled to one vote for each share held on record on each matter
submitted to a vote of shareholders. Cumulative voting for election of
directors is not permitted. Holders of Class A common stock have no
preemptive rights or rights to convert their Class A common stock into any
other securities.
Class B Common Stock
--------------------
As of September 30, 1999, there were 28,648 shares of the Class B voting
common stock issued and outstanding. These shares were issued in exchange
for similar securities of LanXtra as partial consideration for the
purchase of LanXtra's business, and are callable by the Company at $7 per
share. The holders of Class B common stock have the right to sell the
Class B common stock to the Company at $7 per share or convert their
shares to equivalent units of Class A common stock at the 100 Credit Union
Date. The Class B common stock was authorized so that the Company could
exchange its Class B common stock for LanXtra's existing nonvoting putable
common stock with similar terms.
Preferred Stock
---------------
In February 1999, the Board of Directors authorized the Company, without
further action by the shareholders, to issue 10,000,000 shares of one or
more series of preferred stock at a par value of $.0001, all of which is
nonvoting. The Board of Directors may, without shareholder approval,
determine the dividend rates, redemption prices, preferences on
liquidation or dissolution, conversion rights, voting rights and any other
preferences. In addition, the Company authorized the sale of 700,000
shares of Series A convertible preferred stock in conjunction with a
private placement offering of the stock. Each share of the Series A
preferred stock is convertible at any time at the holder's option into an
equal number of shares of Class A common stock of the Company at a
conversion price initially equal to the offering price, which was
established at $3 per share. Each share of the Series A preferred stock
is automatically convertible into an equal number of Class A shares. In
addition, each share of the Series A preferred stock is convertible into
Class A shares at the option of the Company beginning on January 1, 2004.
The Series A preferred stock will entitle each holder to receive
cumulative preferential dividends at the rate of 5% per year, payable in
cash or in shares of the Company's Class A common stock quarterly. The
Series A preferred stock also entitles the holder to a liquidation
preference at a liquidation value which is initially equal to two times
the offering price.
The Company sold 700,000 shares of Series A preferred stock at $3 per
share, raising proceeds of $2,100,000. All Series A preferred shares were
converted to Class A common stock on the effective date of the Initial
Public Offering.
Warrants
--------
In conjunction with the issuance of the August 1999 Bridge Loan, the
Company granted the Bridge Loan holders warrants to purchase 5,000 shares
of the Company's Class A common stock for every $50,000 of notes
purchased. The warrants are exercisable for a period of five years
beginning on the earlier to occur of (i) the closing of the Initial Public
Offering or (ii) one year form the date of the warrant. These detachable
warrants were valued at a total of $33,127 utilizing the Black-Scholes
option pricing model, assuming a volatility factor of 70%, a risk free
rate of 6.22% and a fair value of the underlying common stock of $6.75 per
share.
The Company issued warrants with the private placements of notes payable
in October 1998 which allow the purchase of 1,200 shares of the Company's
Class A common stock for every $10,000 of notes payable. The exercise
price was $0.01 per share. Originally, the warrant exercise period was
for a period of one year beginning on the maturity date of the notes
payable. On December 22, 1998, the Company accelerated the exercise
period to begin immediately and end one year after each note's issuance
date. All holders of warrants at that date elected to immediately
exercise their warrants. Warrants for 44,400 shares of Class A common
stock were issued and exercised at December 31, 1998. In the nine months
ended September 30, 1999, warrants for an additional 12,000 shares of
Class A common stock were issued and immediately exercised.
The Company redeemed 17,640 and 44,400 shares of Class A common stock from
its existing shareholders for a redemption price of $.0001 per share
during the nine-months ended September 30, 1999 and December 31, 1998,
respectively. The redeemed shares were reissued in connection with the
exercise of the warrants issued to note holders and the Selling Agent
(discussed below).
As part of the Selling Agent's compensation, the Company agreed to issue
additional warrants for the Company's Class A common stock. The warrants
are exercisable at any time during a five-year term at 110% of the price
paid by the holders of the Notes for the Class A common stock. At
December 31, 1998, the Selling Agent earned the right to purchase 4,440
shares of the Company's Class A common stock at an exercise price of $.011
per share. At September 30, 1999, the Selling Agent earned the right to
purchase an additional 1,200 shares under the same terms. The 4,440
warrants outstanding at December 31, 1998, were valued at a total of
$13,284 and the additional 1,200 warrants were valued at $3,590, utilizing
the Black-Scholes option pricing model assuming a volatility factor of
70%, a risk free interest rate of 4.31% and a fair market value of the
underlying shares of $3 per share. The warrants were recorded as debt
issuance costs and are being amortized into interest expense over the life
of the debt. All such warrants have been exercised.
Stock Options
-------------
Effective March 19, 1999, the Company adopted a stock option plan (the
"Plan"). The Plan provides for grants of incentive stock options,
nonqualified stock options and restricted stock to designated employees,
officers, directors, advisors and independent contractors. The Plan
authorizes the issuance of up to 750,000 shares of Class A common stock.
Under the Plan, the exercise price per share of a non-qualified stock
option must be equal to at least 50% of the fair market value of the
common stock at the grant date, and the exercise price per share of an
incentive stock option must equal the fair market value of the common
stock at the grant date. Through September 30, 1999, options for 345,000
shares of Class A common stock have been issued under the Plan. The
outstanding stock options have an exercise price of $3.00 per share and
vest over various terms with a maximum vesting period of 18 months and
expire after a maximum of 10 years.
In March 1999, the Company granted options for 65,000 shares of Class A
common stock to non-employees in exchange for services. The fair value of
these options on the date of grant was approximately $47,000. Expense
related to such options will be recorded over the term the services are
provided. The fair value of each non-employee option grant was estimated
on the date of the grant using the Black-Scholes option pricing model.
Assumptions used to calculate the fair value were risk free interest rates
of 4.48% to 4.99%, no dividend yields, an expected life of five years and
volatility of 100%.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
Legal Matters
-------------
In connection with the Purchase Agreement transaction, a shareholder of
LanXtra exercised his rights as a dissenting shareholder. The Company
assumed LanXtra's obligation (if any) to this dissenting shareholder. If
the shareholder is permitted to pursue his claim in a legal proceeding,
LanXtra could be required to pay the shareholder the fair value of his
shares immediately before the closing date of the Purchase Agreement. The
Company's and LanXtra's management believes that the value paid on account
of these shares pursuant to the Purchase Agreement is greater than the
amount which the dissenting shareholder could recover under Colorado law.
The dissenting shareholder has asserted that the value of his 50,000
LanXtra shares immediately before the closing date of the Purchase
Agreement would be approximately $250,000. The ultimate resolution of the
matter, which is expected to occur within one year, could result in an
obligation to such shareholder. Further, should LanXtra, or Cavion as
successor, be required to make a payment to this shareholder, such payment
could result in the purchase transaction being treated as a taxable
transaction which could subject Cavion to a significant tax liability.
In accordance with the Purchase Agreement, the Company may become legally
obligated to satisfy additional liabilities of LanXtra, including
liabilities arising on or after the closing date with respect to LanXtra's
assets or business. To date, no liabilities other than those identified
in the Purchase Agreement have arisen, however, other liabilities could
arise in the future. Any such liabilities would be evaluated in the
Company's determination of the fair value of liabilities assumed from
LanXtra.
The Company is exposed to legal claims arising in the ordinary course of
business. In management's opinion, none of the claims currently asserted
will result in a material liability or change to earnings.
(8) ACQUISITION OF LANXTRA BUSINESS
-------------------------------
As discussed above, the Company acquired the business of LanXtra on
February 1, 1999. The following is pro forma operating information. For
purposes of the pro forma statement of operations, the transaction was
assumed to be consummated on January 1, 1998. Pro forma earnings per
share are calculated as if the Purchase Agreement was completed on January
1, 1998 and the related 1,029,218 shares of common stock were issued on
that date.
The pro forma statement of operations for the nine months ended September
30, 1998 is as follows:
<TABLE>
<CAPTION>
Pro Forma
LanXtra Cavion Adjustments Pro Forma
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 143,962 $ - $ - $ 143,962
Cost of revenue 129,254 - - 129,254
------------ ------------ --------- -----------
Gross profit 14,708 - - 14,708
Operating
expenses 747,935 - 714,790 (1) 1,433,545
Nonoperating
expenses 653,734 - (438,360)(2) 215,374
------------ ------------ --------- -----------
Loss from
continuing
operations $(1,386,961) $ - $(276,430) $(1,634,211)
============ ============ ========= ===========
Unaudited pro
forma net
loss from
continuing
operations
per basic
and diluted
share $(.54)
=====
Weighted
average
shares
outstanding 3,029,218
=========
</TABLE>
The pro forma statement of operations for the nine months ended September
30, 1999 is as follows:
<TABLE>
<CAPTION>
Pro Forma
LanXtra Cavion Adjustments Pro Forma
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 37,850 $ 384,809 $ - $ 422,659
Cost of revenue 31,898 283,467 - 315,365
------------ ------------ --------- -----------
Gross profit 5,952 101,342 - 107,294
Operating
expenses 213,311 2,803,816 79,421 (1) 3,096,548
Interest expense
and other 64,069 391,966 (52,932)(2) 403,103
------------ ------------ --------- ------------
Net loss $ (271,428) $(3,094,440) $(26,489) $(3,392,357)
============ ============ ========= ============
Net loss per
basic share $(1.22)
======
Weighted
average
shares
outstanding 2,830,600
=========
</TABLE>
Adjustments
-----------
(1) Amortization of goodwill
(2) Reduction of interest expense to reflect Cavion's capital structure
(9) SUBSEQUENT EVENTS
-----------------
Initial Public Offering
-----------------------
On October 29, 1999, the Company's public offering became effective. The
number of shares offered and sold were 1,200,000, with an underwriter's
over allotment option for an additional 180,000 shares. Total gross
proceeds of $7,800,000 were raised in the offering and the Company, after
offering expenses, netted $6,279,000. In addition, in November 1999, the
Company sold additional shares, ("Firm Shares"), to the Representative of
the underwriter of 90,500 raising an additional gross proceeds of
$approximately $588,000, and netting approximately $513,000. The total
number of shares outstanding after the offering was 4,696,826, including
the conversion of the 700,000 convertible preferred stock upon the closing
of the offering and the additional shares issued to the Representative of
the underwriter subsequent to the original offering. In addition, at the
closing of the Initial Public Offering, the Company sold warrants to
purchase 120,000 shares of the Company's Common Stock to the
Representative at the price of 125% of the Initial Public Offering price,
or $8.125 per share.
Convergent Communications Services, Inc.
----------------------------------------
Effective October 22, 1999, the Company entered into a five-year agreement
with Convergent Communications Services, Inc., ("Convergent"). Under this
agreement, Convergent will establish, maintain and support network
connectivity between our network and our customers, including providing,
equipment, maintenance and related services for the network.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Cavion.com offers products and services for business to business
communications, secure Internet financial products such as online banking
and bill paying services, and secure Internet access and services for our
customers. We are also building and managing a secure private
communications network exclusively for the credit union industry. Our
network acts as a communication platform for the delivery of services and
information to and from credit unions and related businesses. Our
products and services utilize our proprietary software. As of September
30, 1999, 61 credit unions and two credit union leagues had contracted for
our services. As of the date of this filing, 80 credit unions, three
credit union leagues, one corporate credit union, and two credit union
vendors have subscribed to our products and services. Through our e-
commerce program, we are planning to launch during the first quarter of
2000 our affinity marketing plan to market third-party products and
services to credit union members.
We market our products and services to credit unions and related
entities, such as credit union leagues, that are located in key geographic
areas across the United States which have been selected due to their high
concentration of credit unions. We intend to focus our marketing efforts
on credit unions with $5 million or more in assets, and geographic markets
with an average concentration of more than 300 credit unions.
PRODUCTS AND SERVICES
We provide numerous products and services to the credit union
industry, such as:
o unions to offer their services to their members via the
Internet or an intranet. This network also facilitates
business to business communication.
o Secure Internet financial products, such as transactional
banking services, that enable credit union members to view
their account and loan balances and to make transfers
between accounts, as well as bill paying services which
allow credit union members to pay their bills online.
o Secure Internet access for credit unions, with multiple
layers of security features and dedicated connections
designed to satisfy credit unions' need for confidential
communications and secure transactional processing with one
connection.
o Secure consumer loan application and approval products,
with the required secure data feeds for multiple credit
bureau.
o E-commerce services to credit union members, including our
Preferred Merchant Programs (i.e. mortgage loan services
and retail ISP services), Co-branded Portals (i.e. personal
start pages, shopping and travel online) and Web Site
Promotion and Traffic Control Tools for vendors (i.e. ad
serving, search engine placement, and visitor analysis).
Our products are priced in a way that permits our credit union
customers to offer Internet banking services to their members at a flat
monthly rate.
CREDIT UNION INDUSTRY
A credit union is a non-profit, cooperative financial institution,
owned and controlled by the members who use its services. Credit unions
are either state or federally chartered. The Credit Union Membership
Access Act of 1998 allows credit unions to solicit new members outside a
once-restricted field of membership, and allows credit unions to offer
generally the same products and services as other financial institutions
such as banks and savings and loan institutions.
In the United States:
o there are approximately 12,600 credit unions with combined
assets of over $375 billion
o these 12,600 credit unions service approximately 73 million
members
o approximately 6,100 of these credit unions have assets of over
$5 million
o these larger credit unions service approximately 70 million
members and have combined assets of approximately $366 billion
INTERNET PHENOMENON
The widespread adoption in recent years of public and private
electronic communications networks, including the Internet, intranets and
extranets, has impacted the manner in which organizations communicate and
conduct business. These advanced networks provide an attractive medium
for communications and commerce because of their widespread reach,
accessibility, use of open standards and ability to permit interactions on
a real-time basis. At the same time, they offer businesses a user-
friendly, low-cost way to conduct a wide variety of commercial functions
electronically. In March, 1999 Nielsen/NetRatings estimated that the
number of online computer users in the United States by the end of March
1999 to have exceeded 95 million or nearly 40% of the U.S. population.
In recent years, the development of the Internet, intranets and
extranets has enabled users of personal computers to access and interact
with a broad range of information sources. Financial institutions are
rapidly adopting network communications to conduct electronic banking and
provide customers with access to their account information. According to
International Data Corporation estimates of February, 1999, U.S. banks
will spend $326 million on Internet banking technology in 1999 alone, more
than double the amount spent in 1998, to accommodate the expected sharp
increases in online banking.
THE INTERNET AND CREDIT UNIONS
We believe financial institution customers will increasingly demand
more convenient and interactive access to financial information and
services. Competitive pressures are driving banks and credit unions to
increase the quality and cost-effectiveness of such services. New
opportunities exist to employ available and emerging technologies to
automate and enhance a credit union's interactions with its members.
Traditionally, credit unions have used trained service
representatives to serve as the link between their customers and the
information systems that stored and processed the customers' account
information. Reliance on people alone to perform service functions is
expensive and limits growth. Labor costs tend to grow proportionately
with increased demands for service. In addition, the time required to
hire and train service personnel limits the speed with which credit unions
can respond to customer demand or new competitive service offerings. Our
solution is to provide credit unions with network-based technologies that
enable their members to serve themselves through automated, interactive
access to financial information and services.
As technologies continue to advance for network-based solutions,
financial institutions will be able to deploy increasingly sophisticated
network applications. Given its relatively late arrival, online banking
is just now beginning to build momentum. A study conducted by Gomez
Advisors found that as of the first quarter of 1999, nearly 40% of the top
100 banks in the United States are offering online services. Online
Banking Report of January, 1998 estimates that by the end of 2000, 17.5
million households will be using online banking and/or a bill payment
application.
Despite this momentum, the market for Internet based network
financial services is new and uncertain. Currently, our products and
services have been sold to credit unions located in Colorado and 18 other
states. While we are marketing our products and services across the
country, we cannot be sure that they will sell as well in the new markets
as they have in Colorado.
Important questions remain about the use of the Internet for
financial services, such as security, reliability, ease of access, cost of
access, quality of service and costs of service. The answers to those
questions may affect the growth of Internet use in ways we can't predict
today. As a result, we also can not accurately predict the size of the
market for Internet based financial services or the rate at which the
market will grow. If it fails to grow, or grows more slowly than we
expect, or it is becomes saturated with competitors, our business,
financial condition and operating results will be materially and adversely
affected.
The following discussion of our financial condition and results of
operations should be read together with the financial statements and
related notes included in another part of this report. Those financial
statements and notes should be considered to be incorporated into this
section. This discussion contains forward looking statements that involve
risk and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements.
We completed our acquisition of the assets of LanXtra on February 1,
1999 as described in the Asset Purchase Agreement. Prior to the
acquisition, we did not conduct any operations except financing activities
and other preparations for the acquisition. The following discussion
relates to LanXtra's historical results of operations since January 1,
1998, the date on which LanXtra commenced the business we acquired, our
operations of the business that we acquired and our plan of operation
following our initial public offering, which was declared effective on
October 29,1999. In the following discussion, "we" refers both to our
business as operated by LanXtra prior to February 1, 1999, and to our
business as operated by us after February 1, 1999.
Since January 1, 1998, we have been engaged in building a suite of
network products and services for the credit union industry that includes:
o a secure network that enables access to our credit union customers'
products and services via the Internet or an intranet
o secure Internet financial products, including Internet banking
software
o secure Internet access services for credit unions
o secure Internet automated loan application and approval
o E-commerce services
We are in the start-up phase of our operations and generated a net
loss of $3,094,440 for the nine-months ended September 30, 1999
($3,130,384 combined). For the year ended December 31, 1998, we generated
a net loss of $2,006,446, comprised of a $35,944 net loss for Cavion and a
net loss of $1,970,502 for LanXtra. We expect to incur substantial
monthly operating losses through most of the year 2000.
Since January 1, 1998, our revenues have been derived from recurring
monthly connectivity fees, installation services and monthly recurring
revenue associated with our secure Internet access services and secure
Internet financial products. As of November 30, 1999, 80 credit unions,
three credit union leagues, two of which provides check clearing services
to credit unions, one corporate credit union, which provides liquidity
services to credit unions, and two credit union vendors of which one is a
provider of website design, development and hosting services to credit
unions and the other provides electronic archiving service to credit
unions, have subscribed to our products and services. Approximately 40%
of these customers are located in Colorado, and the other 60% are located
in 18 other states.
Prior to our initial public offering, we financed the development of
our products and services with:
o capital provided by the sale of LanXtra's unrelated business
o a bank loan
o loans from shareholders and employees of LanXtra
o two private placements of promissory notes and related warrants
o private placement of preferred stock
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999
During the three and nine months ended September 30, 1999, we
generated $179,476 and $384,809, respectively, in revenue. This revenue
was derived from a variety of Internet/intranet activities, including
secure Internet access for credit unions utilizing dedicated lines, secure
credit union network services, secure Internet financial products such as
Internet banking software, sales of related equipment, and installation
fees charged for these services. Cost of sales during these periods were
$149,850 and $283,467, or 84% and 74%, respectively, of revenue. These
costs include Internet access fees, telephone company charges for frame
relay lines, equipment purchased for resale, service personnel and
occupancy costs, hardware repair and maintenance expenses. We believe
that our margins will improve in the future as sales discounts for
installations diminish for our customers and our connectivity costs
diminish due to the agreement with Convergent Communications Services,
Inc.
Selling and marketing expenses for these periods were $544,270 and
$957,590 or 303% and 249%, respectively, of revenue. Of these expenses,
$198,760 or 111% of revenue was attributable to salaries and wages for the
three months ended, and $418,347 or 109% of revenue of the nine months
ended. In addition, of these expenses, $21,919 or 12% of revenue was
attributable to rent payments for our sales offices around the country for
the three months ended and $39,742 or 10% of revenue was attributable to
rent payments for the nine months ended.
General and administrative expenses for these periods were $237,137
and $886,896 or 132% and 230%, respectively, of revenue. Of these
expenses, $91,793 or 51% of revenue was attributable to salaries for the
three months ended, and $253,846 or 66% of revenue of the nine months
ended. Additionally, we incurred $161,872 and $323,960, respectively, in
research and development costs during this period, which represented an
allocation of programmers' and engineers' salaries applicable to the
amount of time they devoted to development activities. We anticipate that
our salaries and wages expense will increase as we hire additional
employees to handle the expected growth of our business.
In May 1998, LanXtra issued Class B common stock which the holders
can require cavion.com to repurchase at $7.00 per share during a 60-day
exercise period beginning on the date that is 30 days after the date we
have 100 Credit Union customers on our network. For financial accounting
purposes, the cost of this "putable" common stock from its issuance price
to its redemption value is treated as interest expense. After the closing
of our initial public offering, we offered the former LanXtra
shareholders, who have rights to our Class B common stock the option to
redeem their Class B shares at $7.00 per share, or to convert each Class B
share into one share of our Class A common stock. To date, no Class B
shares have been redeemed or converted by the former LanXtra shareholders.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
COMPARISONS TO NINE MONTHS ENDED SEPTEMBER 30, 1998
The following discussion relates to our operations for the nine
months ended September 30, 1999. In 1998, LanXtra operated the business
since acquired by us, and LanXtra's operations during the nine months
ended September 30, 1998 were substantially limited due to an ongoing
liquidity shortage. Further, cavion.com was formed as Network
Acquisitions, Inc. on August 18, 1998, and our activities from that date
through September 30, 1998 consisted entirely of organizational and
initial capital formation activities, and have not been included herein as
such information is not considered meaningful for comparative purposes.
During the nine months ended September 30, 1999, we recognized
$384,809 ($422,659 when combined with LanXtra) in revenue, as compared to
$143,962 during the nine months ended September 30, 1998. Our revenue was
derived from a variety of Internet/intranet activities, including secure
Internet access for credit unions utilizing dedicated lines, secure credit
union network services, secure Internet financial products such as
Internet banking software, sales of related equipment, and installation
fees charged for these services. The increase in revenue was primarily
due to additional credit union customers, and increases in our marketing
activity made possible by the funds provided by recent offerings of equity
and issuances of debt. Cost of sales during the nine months ended
September 30, 1999 was $283,467 ($315,365 combined), or 74%, compared to
$129,254, or 90%, for the nine months ended September 30, 1998. These
costs include Internet access fees, telephone company charges for frame
relay lines, equipment purchased for resale, service personnel and
occupancy costs, hardware repair and maintenance expenses. The increase
in revenue is due to the increase in the number of credit unions using our
network and products. The decrease in the cost of sales as a percentage
of sales is due to economies of scale in delivering our services to a
larger number of installed customers.
Selling and marketing expenses for the nine months ended September
30, 1999 were $957,590 ($1,030,090 combined) or 249% of revenue, compared
to $194,300 or 135 % of revenue for the nine months ended September 30,
1998. Of these 1999 expenses, $418,347 or 109% of gross revenue was
attributable to salaries and wages. We believe that selling and marketing
expenses will continue to increase, although their percentage of revenue
will decrease based on our expected revenue growth.
General and administrative expenses for the nine months ended
September 30, 1999 were $886,896 ($996,127 combined) or 230% of revenue,
compared to $361,115 or 251% of revenue for the nine months ended
September 30, 1998. Of these 1999 expenses, $253,846 or 66% of gross
revenue was attributable to salaries and wages. Additionally, we incurred
$323,960 ($355,540 combined) in research and development costs during the
nine months ended September 30, 1999, which represented an allocation of
programmers' and engineers' salaries applicable to the amount of time they
devoted to development activities. During the nine months ended September
30, 1998, we incurred $192,520 of research and development costs.
We anticipate that our salaries and wages expenses will continue to
increase as we hire additional employees to handle the expected growth of
our business. As we expand our operations nationwide, our depreciation
expense will increase because we will be purchasing additional equipment
and infrastructure.
With the proceeds from our initial public offering, our revolving
line of credit, notes payable to former shareholders of LanXtra, back pay
to former employees and equipment purchases were paid off and, because of
that, interest expense will be reduced. As compared to the nine months
ended September 30, 1998, where interest expense was $628,734, our
interest expense was $456,035 combined, for the nine months ended
September 30, 1999. We were also required to pay dividends on our Series
A preferred stock, which totaled $54,704 for the nine months ended
September 30, 1999. These dividends were paid in cash. Our Series A
preferred stock converted to Class A common stock upon the completion date
of our initial public offering on November 3, 1999. The final dividend
payment of $9,195 was made on November 3, 1999 and was also paid in cash.
We expect to invest at least an additional $150,000 in research and
development during the fourth quarter of 1999. We have just completed
developing software for an Internet-enabled automated loan application and
approval system. We are in the early stages of designing stored value or
"smart card" capabilities for our network. We expect in the near future
to begin development of two or more additional interfaces for credit union
host data processing systems not yet supported by our network as well as
an additional Internet bill pay vendor interface. We are continuously
evaluating possible enhancements to the security and functionality of our
existing products and services. In addition, we expect to incur
development costs in launching our affinity marketing program, through
which we plan to offer products and services to credit union members via
our credit unions' websites. We expect our product development focus to
evolve continuously in the future based on guidance from our customers.
The transaction with LanXtra resulted in approximately $4,763,000 of
intangible assets, primarily technology, customer lists and goodwill.
These intangible assets will be amortized over five years. The purchase
price allocation is subject to adjustment based on the final determination
of the fair value of the assets and liabilities assumed, which could take
as long as one year from February 1, 1999. The realization of these
intangible assets is dependent upon the attainment of positive cash flows
from such assets. The business now operated by us has never generated
positive cash flows, and it is reasonably possible that our future
assessments of such cash flows could indicate that such assets are
impaired, with a resulting write-down.
LIQUIDITY AND CAPITAL RESOURCES
As of the nine-month period ended September 30, 1999, we have funded
our cash requirements primarily through the sale of equity, debt, cash
flow from operations and the proceeds from the sale of LanXtra's prior
business. On September 30, 1999, cavion.com had $249,217 in cash, current
assets of $838,170, and current liabilities of $2,921,002. We raised
$300,000 in a private offering of 14% notes and warrants to purchase
common stock which ended on August 31, 1999. The effective interest rate
of the notes was 36% because of the warrants and the expense of the
offering. Each $50,000 note entitled the purchaser to a warrant to
purchase 5,000 shares of common stock. The warrants are exercisable for a
period of five years which commenced on November 3, 1999. The warrants
are exercisable at $6.50, the price per share of the shares of common
stock offered in our initial public offering. These notes were repaid and
retired with the proceeds from that offering.
We have received payments under an agreement with MoneyLine America,
LLC to provide online mortgage lending services for our credit unions and
their members through our network. This agreement calls for minimum
annual payments to us of $300,000 in the first year, which began in
September 1999, escalating to $1,000,000 in years six through ten,
provided we have at least 1,500 credit unions, or 12% of the U.S. credit
unions on our network by the end of year three. Fifty percent of
MoneyLine America is owned by Boutine Capital, LLC, a principal
shareholder of cavion.com.
In October 1999, we entered into a five-year agreement with
Convergent Communications Services, Inc. under which Convergent will
establish, maintain and support network connectivity between our network
and our customers, including providing equipment, maintenance and related
services for the network. We will pay Convergent a monthly service fee
for these services, which began at approximately $28,000 per month and
increasing as new credit unions are added to the network. The portion of
this fee relating to each credit union telecommunications circuit will be
passed through to the customer. On October 22, 1999, the effective date
of the agreement, Convergent purchased our network equipment from us for
$286,000.
We expect to incur substantial costs in connection with expanding our
telecommunications infrastructure, establishing a sales presence in key
strategic markets, and developing new products. We also expect to incur
increased marketing, costs and general and administrative expenses in
connection with the growth of our secure network for the credit union
industry. We plan to seek additional bank financing. If we are
successful in obtaining such financing, we expect our cash needs will be
satisfied for at least the next two years.
Our September 30, 1999 balance sheet shows approximately $3.4 million
in liabilities and approximately $1.9 million of stockholders' equity.
Approximately $1.2 million of our liabilities represent obligations to
shareholders, as described in the following section.
SECURED NOTES PAYABLE. Prior to our acquisition of LanXtra's assets,
we agreed to provide bridge funding to LanXtra for its business operations
pending the raising of equity financing. In order to provide the bridge
funding, we raised $370,000 in 1998 through the issuance of 15% secured
notes due on October 19, 2000, along with warrants to purchase 2,400
shares of our Class A common stock for every $20,000 in subscriptions at
an exercise price of $.01 per share. The notes are secured by
substantially all of our assets, now owned or acquired after October 19,
1998, including, cash, equipment, fixtures, general intangibles, and all
products and proceeds of the foregoing collateral, accounts receivable,
inventory, work in process and service contracts receivables. The October
20, 1998 security agreement contains a covenant which prevents us from
incurring any other liens on our assets. We raised an additional $100,000
through this offering in 1999. The warrants were originally exercisable
only after payment of the notes. However, we subsequently agreed to
permit early exercise, and all of the warrants had been exercised for
56,400 shares, as of February 1999.
In connection with our acquisition of LanXtra's assets, we assumed
approximately $1.8 million in existing liabilities of LanXtra, not
including the bridge funding described in the preceding paragraph.
Approximately $1.1 million of these amounts became payable 15 days after
the closing of our initial public offering and have been repaid. These
obligations are described below.
In August 1996, LanXtra had obtained a $600,000 line of credit from
US Bank, Denver, Colorado in connection with its previous business.
LanXtra shareholders British Far East Holdings, Ltd., William M.B. Berger
Living Trust, Martin Cooper, and Fairway Realty Associates, provided cash
collateral for the loan. In May 1998, this line of credit was extended to
January 31, 1999. At the February 1, 1999 closing of the Asset Purchase
Agreement between us and LanXtra, we effectively assumed the loan by
entering into a loan agreement with US Bank on the same terms as the loan
from US Bank to LanXtra, with a maturity date of December 31, 1999, using
the proceeds of our loan to pay off the US Bank loan to LanXtra. The
LanXtra shareholders who provided cash collateral for the US Bank loan
agreed, however, to keep their collateral in place until the completion of
our initial public offering. All amounts available under this line of
credit were utilized. Interest accrued on all outstanding balances at the
rate of 1.5% over the reference rate, as established by US Bank, from time
to time. The reference rate closely tracked the prevailing prime rate.
On November 5, 1999, the loan agreement was repaid in full and all of the
collateral was released.
On May 28, 1998, LanXtra borrowed $260,000 from three of its
shareholders and three of our employees - David J. Selina, Jeff Marshall
and Randal Burtis - for working capital purposes. In the aggregate, we
owed these shareholders, directors and managers $260,000 in principal and
$59,480 in interest. However, an agreement was reached to defer payment
of these amounts, without the accrual of further interest, until the
completion of our initial public offering. LanXtra also issued putable
stock in connection with this debt offering. We agreed to assume
LanXtra's obligations with respect to the put agreements by issuing to
LanXtra at the closing of the Asset Purchase Agreement 28,648 shares of
our Class B common stock, which are subject to economically equivalent put
provisions. By its terms, the put feature of our Class B common stock
becomes exercisable 30 days after the date when we have 100 credit union
industry customers on our network, the 100 Credit Union Date. We had
agreed with the former LanXtra shareholders who have rights to the Class B
stock that their put rights would mature upon completion of our initial
public offering. After completion of that offering we have offered these
shareholders the option to redeem their Class B shares at $7.00 per share,
or to convert each Class B share into one share of our Class A common
stock.
Between September 8 and October 15, 1997, Herman Axelrod, a former
president and director of LanXtra, and Mr. Lassen, also a former president
and director of LanXtra, made various factoring loans to LanXtra in the
amounts of $50,190 and $25,000, respectively. Such loans were secured by
an account receivable for computer network integration work LanXtra
performed for Questar Infocomm and bore interest at the rate of 3% of the
factoring loan amount for the first 30 days and 1% for each additional 10
days until the factoring loan was paid in full. Questar disputed
LanXtra's invoice and the dispute was settled in September of 1998 for a
payment of $61,780. This amount was paid against the factoring loans on
September 21, 1998 as follows: $41,238 to Mr. Axelrod and $20,542 to Mr.
Lassen. Accordingly, as of February 1, 1999, LanXtra owed Mr. Axelrod
$28,331 and Mr. Lassen $13,441, and we assumed such obligations. Mr.
Axelrod and Mr. Lassen had agreed that the remaining balance of these
loans would be deferred until the completion of our initial public
offering and would not accrue additional interest in the interim. The
final payments were made on November 5, 1999.
On July 1 and August 1, 1992, LanXtra executed promissory notes for
$25,000 in favor of Mr. Axelrod and Mr. Lassen, respectively, each bearing
interest at the rate of 2% over prime. The principal amounts of these
notes reflected $20,000 in cash loaned by each and $5,000 each of co-
signer liability on a $10,000 credit line at the Bank of Boulder that
LanXtra took out at its inception. The credit line was paid off in August
1996, leaving an aggregate principal balance of $40,000 on the notes. We
assumed the obligation to pay Mr. Axelrod and Mr. Lassen the principal
balance of the notes together with interest as stated above. Mr. Axelrod
and Mr. Lassen, agreed that the remaining balance of these loans would be
deferred until the completion of our initial public offering, and interest
would continue to be paid on a quarterly basis until the notes were paid
in full. The notes were paid on November 5, 1999.
We owed Convergent Communications, Inc. $78,673 for equipment
purchased in connection with a customer network upgrade performed by
LanXtra in December 1997, while Convergent was completing the purchase of
LanXtra's network integration business. Convergent agreed that payment of
this amount would be deferred until the completion of our initial public
offering. We paid Convergent in full on November 5, 1999.
In addition to the obligations described above, upon the closing of
the Asset Purchase Agreement, we assumed any potential liability under a
lawsuit threatened against LanXtra by a dissenting shareholder. Although
we believe the claim in this lawsuit does not have a substantial basis in
fact, we cannot assure you that we will not be required to make a payment
to the dissenter. We have not reserved any funds to cover payment of this
liability or of the potential tax liability if such a payment is
necessary. If we are required to make such a payment, it could result in
significant adverse tax consequences to the original shareholders.
INFLATION. Although our operations are influenced by general
economic conditions, we do not believe that inflation had a material
effect on the results of our operations during the fiscal year ended
December 31, 1998, or on the nine-month period ended September 30, 1999,
nor do we expect that inflation will have a material effect on the results
of our future operations.
In April 1999 we completed a private placement of our Series A
preferred stock in which we raised net proceeds of approximately $1.8
million. These funds were used primarily to fund expansion of our credit
union industry network to key markets across the United States. The net
proceeds from our initial public offering was $6,279,000, or approximately
$6,792,000 with the proceeds from the partial over-allotment option
exercised by our underwriters, and we expect to use these proceeds
primarily for the same purpose.
TRENDS
Management expects that we will continue to operate at a loss as
additional credit unions are solicited and enter into contracts with us.
We are optimistic about our ability to add to the number of credit unions
under contract. We cannot give you any assurance, however, that actual
operating results will be as we predict today.
We plan to continue to expand our network of credit union clients.
These expansion efforts are likely to cause us to incur significant
increases in expenses, both in absolute terms and as a percentage of
revenue, as we prepare for the anticipated future growth in our credit
union customer base. Expenses will increase because of the need to
increase staffing in all categories, acquire additional equipment, and
provide for additional telephone connections. We believe our operating
results may fluctuate significantly as a result of a variety of factors,
some of which are outside of our control. Because of that, we cannot
assure you that we will achieve profitable operations even with a
significant increase in our credit union customer base.
YEAR 2000 DISCLOSURE
Many uncertainties exist within the computer hardware and software
and electronic networking industries about the changeover from the 1999 to
2000 calendar years. In 1998, we initiated a comprehensive program to
assess, plan and manage our Y2K compliance effort.
The risks posed to us by possible Y2K related problems could be
significant. Our operations rely on continuous Internet connectivity,
availability of power and communications systems, computer systems in use
by our credit union customers and their members and, in some cases,
computer systems in use by vendors to credit unions, as well as on our own
internal computer systems. Any extended damage to any of the foregoing
could have a material adverse effect on our business and operations.
While we are confident in the operability of our products, services, and
our own internal systems after the year 2000 date change, there is still
some risk that credit unions will encounter difficulties with one or more
of our products and services because of Y2K issues. Further, we cannot
accurately predict the effect of the Y2K problem on our business due to
our interdependence with numerous other systems.
In assessing the Y2K compliance of our products, services and
systems, we have identified the following seven distinct areas of focus:
o Products and services: We completed testing of all products and
services by May 1, 1999 and to our knowledge, these systems are
Y2K compliant.
o Business computer systems: This category includes computer
systems and applications relating to operations such as
financial reporting, human resources, marketing and sales,
product engineering and design, phone systems, and purchasing.
We have completed testing of these systems and believe them to
be Y2K compliant.
o Suppliers: We rely on approximately 12 critical suppliers,
including computer hardware and software vendors and
telecommunications providers. We have contacted our critical
suppliers to determine whether plans are in place to achieve
timely Y2K compliance. As of the date of this report, none of
our suppliers have informed us of any Y2K related problems which
are expected to have an adverse effect on our operations.
o Business affiliates: M&I Data Services, formerly Travelers
Express, provides our customers' members with bill payment data.
We have received documentation from M&I stating that they are
Y2K compliant.
o Product development test equipment: This category includes
equipment and systems for testing software and hardware. All of
our product development equipment has been tested and, to our
knowledge, is Y2K compliant.
o End-user computing: We use desktop and laptop computers
throughout our operations. These computers have been tested
and, to our knowledge, are Y2K compliant.
o Physical properties and infrastructure: We have assessed the
impact of Y2K on all building systems. Included in our
assessment were fire and security systems in our facilities. To
our knowledge, these systems are Y2K compliant.
We have completed our compliance efforts for existing systems. Newly
acquired facilities and equipment will require evaluation and possibly
remediation through the end of the year, and we anticipate a need to
support credit union testing and remediation efforts through the first
quarter of 2000 or beyond. We estimate these future expenditures to be
less than $50,000.
Our most likely worst case scenario with respect to the Y2K problem
is the failure of a supplier, including an energy supplier, to be Y2K
compliant so that its supply of needed products or services to one of our
facilities is interrupted. As a result, we could be unable to service our
customers for a period of time, which could then cause us to lose
customers, revenue and profits. While we are monitoring the preparedness
plans of our utility suppliers and other critical vendors, in many cases
we have little leverage or bargaining power to ensure their Y2K readiness.
We are establishing a Y2K contingency plan to evaluate business
disruption scenarios, coordinate responses to such scenarios, and identify
and implement preemptive strategies. We have established detailed
contingency plans for critical business processes. cavion.com's critical
business processes rely on Sun Microsystems, Cisco Systems and Motorola to
provide both Internet banking and ISP. Should any of these hardware
manufacturers experience an inability to supply product, this may have an
adverse effect on our business. Under normal situations cavion.com would
order hardware from Cisco Systems, Sun Microsystems and Motorola 30 days
or more after the credit union customer places their order for ISP or
Internet banking. As the turn of the century approaches, cavion.com will
order immediately on receipt of a customer order. This will ensure at
least 30 days of critical hardware and software in the supply line.
In addition, we have evaluated the impact of Y2K issues on our
customers. Based on our evaluations, we do not expect our current or
potential customers to reduce their capital expenditures budgets or to
defer the purchase of cavion.com products and services because of concern
about potential Y2K issues. The National Credit Union Association, which
insures the deposits of most credit unions in the United States, has
established detailed requirements with regard to Y2K compliance of its
member credit unions. NCUA requires its members to roll forward the
clocks on their critical systems past the year 2000 and to conduct real-
time dynamic testing prior to January 1, 2000. We are prepared to
participate in our clients' Y2K testing upon request.
We have tested all critical third party elements used in delivering
our products and services and are satisfied they are Y2K compliant. We
are, of course, reliant on infrastructure-level suppliers such as utility
companies and telecommunications carriers. We have not been able to test
the Y2K readiness of these entities nor do we have a contingency plan in
the event of a catastrophic failure of the power and/or telecommunication
infrastructure.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Office Lease with NY/BDP Flex I.,LLC. dated October 29, 1999.
27. Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during the
quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAVION TECHNOLOGIES, INC.
Date: December 13, 1999 By:/s/Marshall E. Aster
Marshall E. Aster, Chief Financial
Officer and Principal Financial
and Accounting Officer
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 249,217
<SECURITIES> 0
<RECEIVABLES> 43,709
<ALLOWANCES> 0
<INVENTORY> 5,832
<CURRENT-ASSETS> 838,170
<PP&E> 528,044
<DEPRECIATION> (79,282)
<TOTAL-ASSETS> 5,505,332
<CURRENT-LIABILITIES> 2,921,002
<BONDS> 0
0
196,577
<COMMON> 271
<OTHER-SE> 1,688,227
<TOTAL-LIABILITY-AND-EQUITY> 5,505,332
<SALES> 0
<TOTAL-REVENUES> 384,809
<CGS> 0
<TOTAL-COSTS> 283,467
<OTHER-EXPENSES> 2,803,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391,966
<INCOME-PRETAX> (3,094,440)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,094,440)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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BASIC LEASE INFORMATION
-----------------------
(Industrial Service Center Lease Agreement-Net)
LANDLORD: MONY/BDP Flex I, L.L.C.
A. BUILDING: Arapahoe Service Center 2
B. ADDRESS (for notices):
c/o Transwestern Commercial Services
600 Grant Street, Suite 630
Denver, CO 80203
C. TELEPHONE: 303 864 1795
TENANT: CAVION TECHNOLOGIES, INC.
A. PREMISES: The space containing approximately 14,400 square
feet, as shown on EXHIBIT "B" hereto.
B. ADDRESS (for notices):
Prior to occupancy: After occupancy:
Cavion.com Cavion.com
7475 Dakin Street 6446 South Kenton Street
Suite 607 Unit ----
Denver, CO 80221-6920 Englewood, CO 80111
Attn: Mr. Marshall Aster Attn: Mr. Marshall Aster
Telephone: 3036578212 Telephone: 303 -------
BASE RENTAL:
- -----------
<TABLE>
<CAPTION>
TOTAL
MONTHLY ANNUAL
RENT RENT
-------- --------
<S> <C> <C>
Year 1:
Month 1 $-0-
Months 2-12 $15,000 $165,000
Year 2: Months 13-24 $15,300 $183,600
Year 3: Months 26-36 $15,600 $187,200
Year 4: Months 37-48 $15,900 $190,800
Year 5: Months 49-60 $16,200 $194,400
Year 6: Months 61-72 $16,500 $198,000
Year 7: Month 73 $16,500 $16,500
Total Rent for the Lease Term $1,135,600
</TABLE>
INITIAL ESTIMATED
OPERATING EXPENSE RENTAL: $3.38 per square foot year
SECURITY DEPOSIT: $15,600 due and payable upon execution of the Lease.
PREPAID RENTAL: $15,000 due and payable upon execution of the Lease.
TENANT'S PRO RATA SHARE: 18.18 percent (18.18%)
COMMENCEMENT DATE: The earlier of January 1, 2000 or the date Tenant
occupies the Premises, subject to modification pursuant to Paragraph 3(a)
of the Lease.
LEASE TERM: A period of seventy-three (73) months from the Commencement
Date; provided that if the Commencement Date is a date other than the
first day of a calendar month the Lease Term shall consist of seventy-
three (73) calendar months in addition to the remainder of the calendar
month in which the Commencement Date occurs.
APPROXIMATE RENTABLE AREA IN THE PREMISES: 14,400 square feet of
Rentable Area
APPROXIMATE RENTABLE AREA IN THE PROJECT: 79,200 square feet of
Rentable Area
LANDLORD'S AGENT(S): Transwestern Property Company Colorado, LLC
TENANT'S AGENT(S): CRESA Partners
GUARANTORS(S): None
PERMITTED USE: Office/showroom use for Internet services provider,
which shall include but not be limited to offices,
conference roams, computer rooms, lunchrooms, copy
rooms and related uses.
The foregoing Basic Lease Information shall be construed in
conjunction with the references thereto contained in other provisions of
the Lease and shall be limited by such other provisions. Each reference
in the Lease to any of the foregoing Basic Lease Information shall be
construed to incorporate each term set forth hereinabove as so limited.
In the event of any conflict between any Basic Lease Information and the
Lease, the terms of the Lease shall control.
TABLE OF CONTENTS
-----------------
Page
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1. DEFINITION 1
2. LEASE GRANT 2
3. DECLARATION OF COMMENCEMENT 2
4. USE 3
5. BASE RENTAL AND OPERATING EXPENSE RENTAL 3
6. SECURITY DEPOSIT 4
7. LANDLORD'S MAINTENANCE 4
8. TENANT'S MAINTENANCE AND REPAIR OBLIGATIONS 5
9. ALTERATIONS 5
10. SIGNS 6
11. UTILITIES 6
12. ENTRY BY LANDLORD 6
13. ASSIGNMENT AND SUBLETTING 6
14. MECHANIC'S LIENS 8
15. PROPERTY INSURANCE 8
16. LIABILITY INSURANCE 8
17. FORMS OF POLICIES; INCREASE IN PREMIUMS, WAIVER OF CLAIMS 8
18. INDEMNITY 9
19. CASUALTY DAMAGE 9
20. DAMAGES FROM CERTAIN CAUSES 10
21. CONDEMNATION 10
22. HAZARDOUS SUBSTANCES 11
23. AMERICANS WITH DISABILITIES ACT 12
24. EVENTS OF DEFAULT/REMEDIES 12
25. TENANT REMEDIES 14
26. NO WAIVER 14
27. EVENT OF BANKRUPTCY 15
28. PEACEFUL ENJOYMENT 16
29. PARKING 16
30. REMOVAL OF PROPERTY AT EXPIRATION OF LEASE; HOLDING OVER 16
31. SUBORDINATION TO MORTGAGE 16
32. ESTOPPEL CERTIFICATE 17
33. ATTORNEY'S FEES 17
34. NOTICE 17
35. SEVERABILITY 17
36. RECORDATION 17
37. GOVERNING LAW 17
38. FORCE MAJEURE 17
39. TIME OF PERFORMANCE 17
40. TRANSFERS BY LANDLORD 17
41. COMMISSIONS 18
42. JOINT AND SEVERAL LIABILITY 18
43. AUTHORITY 18
44. FINANCIAL CONDITION OF TENANT 18
45. EFFECT OF DELIVERY OF THIS LEASE 18
46. ENTIRE AGREEMENT 18
47. NO PRESUMPTION AGAINST DRAFTER 18
48. LANDLORD'S LIEN 18
49. WARRANTY WAIVER 19
50. SUBSTITUTION 19
EXHIBIT "A" - Property Description
EXHIBIT "B" - Outline and Location of Premises
EXHIBIT "C" - Operating Expense Rental
EXHIBIT "D" - Work Letter
EXHIBIT "D-1" - Base Building Shell and Core Condition
EXHIBIT "D-2" - Tenant Improvement Allowance
EXHIBIT "D-3" - Landlord's Building Standard Materials
EXHIBIT "E" - Rules and Regulations
EXHIBIT "G" - Option to Renew
EXHIBIT "H" - Letter of Credit
EXHIBIT H-1 - Form of Demand Letter of Credit
EXHIBIT "I" - Parking Agreement
LEASE AGREEMENT
This Lease Agreement (the "Lease") is made and entered effective
October 29, 1999 between MONY/BDP FLEX I, L.L.C., a Delaware limited
liability corporation ("Landlord") and CAVION TECHNOLOGIES, INC., a
Colorado corporation d/b/a cavion.com ("Tenant").
W I T N E S S E T H:
1. DEFINITION: The following are definitions of some of the
defined terms used in this Lease. The definition of other defined terms
are found throughout this Lease.
(a) "Building" shall mean the industrial building located upon
the real property (the "Property") described in EXHIBIT "A" attached
hereto and incorporated herein together with all appurtenances
thereto,
(b) "Base Rental" shall mean:
<TABLE>
<CAPTION>
TOTAL
MONTHLY ANNUAL
RENT RENT
-------- --------
<S> <C> <C>
Year 1:
Month 1 $-0-
Months 2-12 $15,000 $165,000
Year 2: Months 13-24 $15,300 $183,600
Year 3: Months 26-36 $15,600 $187,200
Year 4: Months 37-48 $15,900 $190,800
Year 5: Months 49-60 $16,200 $194,400
Year 6: Months 61-72 $16,500 $198,000
Year 7: Month 73 $16,500 $16,500
</TABLE>
For a total of not less than $1,135,500.00 during the Lease Term as
adjusted pursuant to Paragraph 3 hereto. Tenant shall pay the Base
Rental due for the SECOND month during the "Lease Term" (hereinafter
defined) to Landlord contemporaneously with the execution hereof.
(c) "Operating Expenses" shall mean all direct and indirect
costs and expenses incurred in connection with the Project as more
fully defined in EXHIBIT "C" attached hereto.
(d) "Security Deposit" shall mean the sum of $15,600.00 unless
increased at some future time pursuant to the terms herein.
(e) "Commencement Date" shall mean the earlier of the date that
Tenant actually occupies the Premises or January 1, 2000 (except as
the same may be delayed pursuant to the provisions of Paragraph 3(a)
hereof).
(f) "Lease Term": A period of SEVENTY-THREE (73) months from
the Commencement Date; provided that if the Commencement Date is a
date other than the first day of a calendar month the Lease Term
shall consist of SEVENTY-THREE (73) calendar months in addition to
the remainder of the calendar month in which the Commencement Date
occurs.
(g) "Premises" shall mean the space located within the Building
and outlined on EXHIBIT "B" to this Lease. The Premises are
stipulated for all purposes to contain approximately 14,400 square
feet of "Rentable Area" (as defined below).
(h) "Approximate Rentable Area in the Premises" shall mean the
area contained within the demising walls of the Premises and any
other area designated for the exclusive use of Tenant. For purposes
of the tease it is agreed and stipulated by both Landlord and Tenant
that the Approximate Rentable Area in the Promises is 14,400 square
feet.
The Approximate Rentable Area in the Project is approximately 79,200
square feet. The estimates of Rentable Area within the Premises and
within the Project as set forth herein may be revised at Landlord's
election if Landlord's architect determines such estimate to be
inaccurate in any material degree after examination of the final
drawings of the Premises and/or the Project. ALL BUILDING
MEASUREMENTS SHALL BE IN ACCORDANCE WITH BOMA STANDARDS.
(i) "Common Areas" shall mean the portions of the Project which
are made available by Landlord for use by more than one tenant,
including without limitation (and where applicable) driveways,
parking areas and landscaping.
(j) "Building Standard", when used herein, shall mean the type,
brand, quality and/or quantity of materials Landlord designates from
time to time to be the minimum quality and/or quantity to be used in
the Building or the exclusive type, grade, quality and/or quantity of
material to be used in the Building and shall include, but not be
limited to, the Building Standard Materials defined in the Work
Letter Agreement attached hereto as EXHIBIT "D".
(k) "Maximum Rate", when used herein, shall mean the greatest
of the rates of interest from time to time permitted under applicable
federal and state law. To the extent of the applicable state and
federal law, the Maximum Rate shall be the highest permitted rate
based upon the "indicated rate ceiling", but to the extent now or
hereafter permitted by law, Landlord may from time to time implement,
withdraw and reinstate any ceiling as an alternative to the indicated
rate ceiling, including the right to reinstate the indicated rate
ceiling.
(l) "Prime Rate" shall mean the per annum interest rate
announced by and quoted by Chase Bank (or another money center bank
selected by Landlord) from time to time (whether or not charged in
each instance) as its prime or base rate.
(m) "Guarantor(s)" shall mean NONE and any other party required
by Landlord to guarantee Tenant's obligations under the Lease.
(n) "Project" means the Property, all improvements on the
Property including without limitation the Building and any parking
area or facilities thereon, and any adjacent land (and the
improvements thereon) owned or leased by Landlord and either used for
additional parking for the benefit of the Building or otherwise
operated by Landlord (together with the Property) as an integrated
project.
(o) "Default Rate" means the lower of (i) the Prime Rate plus
six percent (6%) or (ii) the Maximum Rate.
(p) "State" means the state in which the Project is located.
(q) "Tenant's Pro Rata Share" means the fraction, the numerator
of which is the Rentable Area of the Premises and the denominator of
which is the Rentable Area of the Project, expressed as a percentage.
2. LEASE GRANT. Subject to and upon the terms herein set forth,
Landlord leases to Tenant and Tenant leases from Landlord the Premises.
3. DECLARATION OF COMMENCEMENT.
(a) Subject to and upon the terms and conditions set forth in
this Lease, this Lease shall continue in force for the Lease Term.
Notwithstanding the Commencement Date provided in Paragraph 1(e) of
this Lease, Tenant's obligation for the payment of rent and the Lease
Term shall not commence until Landlord has substantially completed
all work to be performed by Landlord as set forth in the Work Letter
Agreement attached hereto as EXHIBIT "D"; provided, however, that it
Landlord shall be delayed in substantially completing said work as a
result of any of the following (a "Delay"):
(i) Tenant's failure to furnish information in accordance
herewith or to respond to any request by Landlord for any
approval or information within any time period prescribed, or if
no time period is prescribed, then within two Business Days of
such request; or
(ii) Tenant's insistence on materials, finishes or
installations other than Landlord's Building Standard after
having first been informed by Landlord in writing at or before
the time of delivery to Tenant of final construction pricing for
Tenant's approval that such materials, finishes or installations
will cause a Delay; or
(iii) Tenant's changes in any plans and specifications; or
(iv) The performance by a person, firm or corporation
employed by Tenant in the completion of any work by said person,
firm or corporation (all such work and such persons, firms or
corporations being subject to the approval of Landlord); or
(v) Any request by Tenant that Landlord delay the
completion of any of Landlord's work; or
(vi) Any breach or default by Tenant in the performance of
Tenant's obligations under this Lease; or
(vii) Any delay resulting from Tenant's having taken
possession of the Premises prior to its being substantially
completed, as defined below; or
(viii) Any reasonably necessary displacement of any of
Landlord's work from its place in Landlord's construction
schedule resulting from any of the causes for Delay; or
(ix) Any other delay chargeable to Tenant, its agents,
employees or independent contractors;
then the commencement of the Lease Term and the payment of rent shall be
accelerated by the number of days of such Delay but in no event shall such
commencement be prior to the Commencement Date stipulated in Paragraph
l(e) hereof. The Premises shall be deemed to be substantially completed
on the date that Landlord or Landlord's architect reasonably determines
that all work to be performed by Landlord pursuant to this Lease has been
performed other than punch list items. The term "punch list items" as
used herein shall mean any details of construction, mechanical adjustment
or other MINOR matters, the noncompletion of which does not materially
interfere with Tenant's use of the Premises. The abatement of rent shall
be Tenant's sole remedy and shall constitute full settlement of all claims
that Tenant might otherwise have against Landlord by reason of the
Premises not being ready for occupancy by Tenant on the Commencement Date.
If for any reason Tenant takes possession of the Premises prior to
substantial completion, Tenant's obligation to pay rent shall commence
upon the date Tenant takes possession of the Premises and Tenant shall
indemnify and hold Landlord harmless from any liability as a result of
Tenant's early occupancy of the Premises. NOTWITHSTANDING THE FOREGOING
PROVISION, IF TENANT'S INITIAL OCCUPANCY IS FOR A PARTIAL MONTH, TENANT
SHALL BE ENTITLED TO ONE FULL MONTH OF EXCUSED RENT. Landlord's
determination of the Commencement Date shall be final and binding on all
parties for all purposes hereof, including, without limitation,
determination of the date of commencement of the Lease Term and of
Tenant's obligation to pay rent hereunder.
(b) The taking of possession of the Premises by Tenant shall be
conclusive evidence against Tenant that, except for the completion of
any PUNCH LIST ITEMS AND ANY items which Landlord stipulates in
writing are remaining to be done or corrected by Landlord, (i) Tenant
warrants and represents to Landlord that it has conducted its own
independent investigation of the Premises and the Project and that
the Promises and the Project are suitable for the purpose for which
the same are leased, subject to any latent defect which is not
discoverable upon reasonable inspection, (ii) the Premises and the
Project and each and every part and appurtenance thereof are in good
and satisfactory condition, except for any latent defect which is not
discoverable upon a reasonable inspection, and (iii) Tenant waives
any defects in the Premises and its appurtenances and in all other
parts of the Project and the appurtenances thereto, except for any
latent defect which is not discoverable upon a reasonable inspection.
4. USE.
(a) The Premises shall be used for the Permitted Use and for no
other purpose. No retail sales may be made from the Premises (other
than incidental retail sales from a showroom area). Tenant shall not
use the Premises to receive, store or handle any product, material or
merchandise that is explosive or highly inflammable or hazardous.
Outside storage is prohibited. Tenant shall be solely responsible
(at Tenant's sole cost and expense) for complying with all laws
applicable to ITS use, AND occupancy of the Premises, including
without limitation obtaining all required building permits and/or
certificates of occupancy FOR THE PREMISES. Tenant shall not permit
any objectionable or unpleasant odors, smoke, dust, gas, light, noise
or vibrations to emanate from the Premises; nor take any other action
that would in Landlord's sole judgment constitute a nuisance or would
disturb, unreasonably interfere with, or endanger Landlord or any
other person; nor permit the Premises to be used for any purpose or
in any manner that would (1) void the insurance thereon, (2) increase
the insurance risk, or (3) cause the disallowance of any sprinkler
credits. Tenant shall pay to Landlord on demand any increase in the
cost of any insurance on the Premises or the Building incurred by
Landlord which is caused by Tenant's use of the Premises or because
Tenant vacates the Premises IN VIOLATION OF THIS LEASE. Tenant
agrees not to use or permit the use of the Premises for any purpose
which is illegal or dangerous to life, limb or property;
(b) Tenant will conduct its business and control its agents,
servants, employees, customers, licensees, and invitees in such a
manner as not to interfere with, annoy or disturb other tenants or
Landlord. Tenant will maintain the Premises in a clean and healthful
condition, and comply with all laws, ordinances, orders, rules and
regulations of any governmental entity with reference to ITS use AND
occupancy of the Premises. Tenant, at his expense, will comply with
the rules and regulations of the Building adopted and altered by
Landlord from time to time and will cause all of its agents,
employees, invitees and visitors to do so. ANY FURTHER REVISIONS OF
THE RULES AND REGULATIONS SHALL APPLY UNIFORMLY TO ALL TENANTS IN THE
BUILDING AND SHALL BE UNIFORMLY ENFORCED. A copy of the existing
rules and regulations is attached hereto as EXHIBIT "E" and made a
part hereof. Tenant agrees not to commit or allow any waste to be
committed on any portion of the Premises, and at the termination of
this Lease to deliver up the Premises to Landlord in as good
condition as at the Commencement Date, ordinary wear and tear
excepted, AND SUBJECT TO THE PROVISIONS OF THE LEASE CONCERNING
DAMAGE AND CASUALTY.
5. BASE RENTAL AND OPERATING EXPENSE RENTAL.
(a) Tenant covenants and agrees to pay during the Lease Term,
to Landlord, without any setoff or deduction except as otherwise
expressly provided herein, the Base Rental, and all such other sums
of money as shall become due hereunder as additional rent, all of
which are sometimes herein collectively called "rent," In the event
of nonpayment of any such rent, Landlord shall be entitled to
exercise all such rights and remedies as are herein provided in the
case of the nonpayment of Base Rental. Except as otherwise provided
herein, the annual Base Rental for each calendar year or portion
thereof during the Lease Term, together with any estimated Operating
Expense Rental pursuant to EXHIBIT "C" hereof then in effect, shall
be due and payable in advance in twelve (12) equal installments on
the first day of each calendar month during the initial term of this
Lease and any extensions or renewals hereof, and Tenant hereby agrees
to pay such Base Rental and Operating Expense Rental to Landlord at
Landlord's address provided herein (or such other address as may be
designated by Landlord in writing from time to time) monthly, in
advance, and without demand. If the term of this Lease commences an
a day other than the first day of a month or terminates on a day
other than the last day of a month, then the installments of Base
Rental and Operating Expense Rental for such month or months shall be
prorated, based on the number of days in such month. The Base Rental
and Operating Expense Rental for the first partial month, if any,
shall be payable at the beginning of said period. All such payments
shall be by a good and sufficient check (subject to collection). No
payment by Tenant or receipt or acceptance by Landlord of a lesser
amount than the correct installment of rent due under this Lease
shall be deemed to be other than a payment on account of the earliest
rent due hereunder, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment be deemed an
accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance
or pursue any other remedy provided by this Lease or applicable law.
The acceptance by Landlord of an installment of rent on a date after
the due date of such payment shall not be construed to be a waiver of
Landlord's right to declare a default for any other late payment. If
Tenant fails to timely pay any two (2) installments of rent, Landlord
at its sole option may 1) require Tenant to pay rent (as estimated by
Landlord, if necessary) quarterly in advance, and, in such event, all
future payments shall be made on or before the due date in cash or by
cashier's check or money order, and the delivery of Tenant's
collectible personal or corporate check shall no longer constitute
payment thereof or, 2) Landlord may require that the Tenant deposit
an additional Security Deposit equal to 3 months rent, from which
Landlord, at his or her sole discretion, may satisfy any future late
payments made by Tenant, and Tenant shall be required to maintain
such additional Security Deposit levels throughout the remaining
Security Deposit as described in subsection 2) above, then Tenant
shall have 5 days to deposit such additional Security Deposit as
required above. Nothing in this section shall relieve Tenant from
its duties to pay Late Charges as hereinafter provided. Any
acceptance of Tenant's collectible personal or corporate check
thereafter by Landlord shall not be construed as a waiver of the
requirement that such payments be made in cash or by cashier's check
or money order. All amounts received by Landlord from Tenant
hereunder shall be applied first to the earliest accrued and unpaid
rent then outstanding.
(b) To the extent allowed by law: all installments of rent not
paid when due shall bear interest at the Default Rate from the date
due until paid; and, in addition, all installments of rent not paid
within seven (7) days of when due and payable shall incur a Late
Charge equal to five percent (5%) of the outstanding balance due.
(c) Tenant agrees to pay Operating Expense Rental (as defined
in EXHIBIT "C") in accordance with such Exhibit and subsection 5(a)
above.
6. SECURITY DEPOSIT. The Security Deposit shall be held by
Landlord without liability for interest and as security for the
performance by Tenant of Tenant's covenants and obligations under this
Lease, it being expressly understood that the Security Deposit shall not
be considered an advance payment of rent or a measure of Tenant's
liability for damages in case of default by Tenant. Landlord may, from
time to time, without prejudice to any other remedy and without waiving
such default, use the Security Deposit to the extent necessary to cure any
default of Tenant hereunder. Following any such application of the
Security Deposit, Tenant shall pay to Landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount.
If Tenant is not in default at the termination of this Lease, the balance
of the Security Deposit remaining after any such application shall be
returned by Landlord to Tenant WITHIN 30 DAYS AFTER THE TERMINATION OF
THIS LEASE. If Landlord transfers its interest in the Premises during the
term of this Lease, Landlord may assign the Security Deposit to the
transferee and thereafter shall have no further liability for the return
of such Security Deposit. Tenant agrees to look solely to such transferee
or assignee or successor thereof for the return of the Security Deposit.
Landlord and its successors and assigns shall not be bound by any actual
or attempted assignment or encumbrance of the Security Deposit by Tenant.
7. LANDLORD'S MAINTENANCE.
(a) This Lease is intended to be a PARTIAL not lease;
accordingly, Landlord's maintenance obligations are limited to the
replacement of the Building's roof and maintenance of the foundation and
structural members of the exterior walls (collectively, the "BUILDING'S
STRUCTURE"); however, Landlord shall not be responsible (i) for any such
work until Tenant delivers to Landlord written notice of the need therefor
or (ii) for alterations to the Building's Structure required by Law
because of Tenant's use of the Premises (which alterations shall be
performed by Tenant). The Building's Structure does not include PREMISES
skylights, windows, glass or plate glass, doors, special store fronts or
office entries, all of which shall be maintained by Tenant AS PART OF THE
PREMISES. Landlord's liability for any defects, repairs, replacement or
maintenance for which Landlord is responsible hereunder shall be limited
to the cost of performing such work(INCLUDING ANY MATERIALS AND LABOR).
(b) FOLLOWING 10 DAYS' NOTICE AND OPPORTUNITY TO CURE, Landlord
may perform Tenant's maintenance, repair and replacement obligations and
any other items that are otherwise Tenant's obligations under Paragraph 8,
in which event Tenant shall pay to Landlord any cost incurred by Landlord
in performing such obligations, together with FIVE percent (5%) thereof to
cover Landlord's overhead, within FIFTEEN (15) days after Landlord's
request therefor.
(c) IN ADDITION TO THE OBLIGATIONS SET FORTH HEREINABOVE,
LANDLORD SHALL AGREE TO PERFORM ALL WORK CALLED FOR UNDER EXHIBIT C,
PARAGRAPH 3, SUBSECTIONS (a) THROUGH (j)TENANT'S MAINTENANCE AND REPAIR
OBLIGATIONS.
8. TENANT'S MAINTENANCE AND REPAIR OBLIGATIONS.
(a) Tenant shall maintain all parts of the Premises (except for
maintenance work which Landlord is expressly responsible for under
Paragraph 7 in good condition and promptly make all necessary repairs and
replacements to the Premises.
(b) Tenant shall KEEP the parking areas, driveways, alleys and
grounds surrounding the Premises in a clean and sanitary condition,
consistent with the operation of a first-class office/warehouse building,
including, without limitations prompt maintenance, repairs and
replacements of ANY DAMAGE CAUSED BY TENANT. Tenant shall repair and pay
for any damage caused by a Tenant Party (defined below) or caused by
Tenant's default hereunder.
(c) Tenant shall maintain the hot water equipment and the
heating, air condition, and ventilation equipment and system APPURTENANT
TO THE PREMISES (the "HVAC SYSTEM") in good repair and condition and in
accordance with applicable law and with such equipment manufacturers'
suggested operation/maintenance service program. Within thirty (30) days
after the Commencement Date, Tenant shall enter into regularly scheduled
preventive maintenance/service contracts for such equipment, each in form
and substance and with a contractor reasonably acceptable to Landlord, and
deliver copies thereof to Landlord. At least 14 days before the end of
the Term, Tenant shall deliver to Landlord a certificate from an engineer
reasonably acceptable to Landlord certifying that the hot water equipment
and the HVAC System are then in good repair and working order, NORMAL WEAR
AND TEAR ACCEPTED. SINCE ALL ROOFTOP HVAC UNITS SHALL BE INSTALLED NEW,
LANDLORD SHALL PERMIT TENANT TO BENEFIT FROM ANY MANUFACTURER'S WARRANTIES
PROVIDED FOR SUCH ITEMS.
9. ALTERATIONS.
(a) Except as otherwise provided in the Work Letter Agreement
attached hereto as EXHIBIT "D", all installations and improvements
now or hereafter placed on or in the Premises shall be subject to the
provisions of this Paragraph 9 hereof and shall be for Tenant's
account and at Tenant's cost land Tenant shall pay au valorem taxes
and increased insurance thereon or attributable thereto), which cost
shall be payable by Tenant to Landlord upon demand as additional
rent. Such additional rent shall not be construed as including taxes
assessed against improvements in the Premises which are subject to
personal property taxes. Such personal property taxes shall remain
the sole responsibility of the Tenant.
(b) Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of
Landlord. Landlord shall not be required to notify Tenant of whether
it consents to any alteration, addition or improvements until it (1)
has received plans and specifications therefor which are sufficiently
detailed to allow construction of the work depicted thereon to be
performed in a good and workmanlike manner, and (2) has had a
reasonable opportunity to review them. If the alteration, addition
or improvement will affect the Building's Structure, HVAC System, or
mechanical, electrical, or plumbing systems, then the plans and
specifications therefor must be prepared by a licensed engineer
reasonably acceptable to Landlord. Landlord's approval of any plans
and specifications shall not be a representation that the plans or
the work depicted thereon will comply with law or be adequate for any
purpose, but shall merely be Landlord's consent to performance of the
work. Upon completion of any alteration, addition, or improvement,
Tenant shall deliver to Landlord accurate, reproducible as-built
plans therefor. Tenant may erect shelves, bins, machinery and trade
fixtures provided that such items (i) do not alter the basic
character of the Premises or the Building; (ii) do not overload or
damage the same; and (ii) may be removed without damage to the
Premises. Unless Landlord specifies in writing otherwise, all
alterations, additions, and improvements shall be Landlord's property
when installed in the Premises. All work performed by a Tenant Party
in the Premises (including that relating to the installations,
repair, replacement, or removal of any item) shall be performed in
accordance with applicable law and with Landlord's specifications and
requirements, in a good and workmanlike manner, and so as not to
damage or alter the Building's Structure or the Premises.
(c) At least five (5) days prior to the commencement of any
work permitted to be done by persons requested Tenant on the
Premises, the Tenant shall notify Landlord of the proposed work and
the names and addresses of the persons supplying labor and materials
for the proposed work so that Landlord may avail itself of the
provisions of statutes such as Section 38-22-105(2) of the Colorado
Revised Statues (1973). During any such work on the Premises,
Landlord, or its representatives, shall have the right to go upon and
inspect the Premises at all reasonable times, and shall have the
right to post and keep posted thereon notices such as those provided
for by section 38-22-105(2) C.R.S. (1973) or to take further action
which Landlord may deem to be proper for the protection of Landlord's
interest in the Premises.
10. SIGNS. OTHER THAN BUILDING STANDARD SIGNAGE, Tenant shall not
place, install or attach any signage, decorations, advertising media,
blinds, draperies, window treatments, bars, or security installations to
the Premises or the Building without Landlord's prior written approval.
Tenant shall repair, paint, and/or replace any portion of the Premises or
the Building damaged or altered as a result of its signage when it is
removed (including, without limitation, any discoloration of the
Building). Tenant shall not (a) make any changes to the exterior of the
Premises or the Building, (b) install any exterior lights, decorations,
balloons, flags, pennants, banners or paintings, or (c) erect or install
any signs, windows or door lettering, decals, window or storefront
stickers, placards, decorations or advertising media of any type that is
visible from the exterior of the Premises without Landlord's prior written
consent. Landlord shall not be required to notify Tenant of whether it
consents to any sign until it (i) has received detailed, to-scale drawings
thereof specifying design, material composition, color scheme, and method
of installation, and (ii) has had a reasonable opportunity to review them.
11. UTILITIES. Tenant shall obtain and pay for all water, gas,
electricity, heat, telephone, sewer, sprinkler charges and other utilities
and services used at the Premises, together with any taxes, penalties,
surcharges, maintenance charges, and the like pertaining to the Tenant's
use of the Premises. Landlord may, at Tenant's expense, separately meter
and bill Tenant directly for its use of any such utility service, in which
case, the amount separately billed to Tenant for Building-standard utility
service shall not be duplicated in Tenant's obligation to pay Operating
Expense Rental. Landlord shall not be liable for any interruption or
failure of utility service to the Premises. All amounts due from Tenant
under this Paragraph 11 shall be payable within ten (10) days after
Landlord's request therefor.
12. ENTRY BY LANDLORD. Landlord and Landlord's agents and
representatives may enter the Premises during business hours to inspect
the Premises; to make such repairs as may be required or permitted under
this Lease SO LONG AS SUCH REPAIR DOES NOT UNREASONABLY INTERFERE WITH
TENANT'S OPERATION; to perform any unperformed obligations of Tenant
hereunder FOLLOWING 10 DAYS' NOTICE AND OPPORTUNITY TO CURE; and to show
the Premises to prospective purchasers, mortgagees, ground lessors, and
(during the last twelve (12) months of the Term) tenants, PROVIDED THAT
TENANT HAS NOT EXERCISED IT RENEWAL OPTION SET FORTH HEREUNDER. During
the last twelve (12) months of the Term (OR RENEWAL TERM, IF APPLICABLE),
Landlord may erect a sign on the Premises indicating that the Premises are
available. Tenant shall notify Landlord in writing of its intention to
vacate the Promises at least sixty (60) days before Tenant will vacate the
Premises; such notice shall specify the date on which Tenant intends to
vacate the Premises (the "VACATION DATE"). At least thirty (30) days
before the Vacation Date, Tenant shall arrange to meet with Landlord for a
joint inspection of the Premises. After such inspection, Landlord shall
prepare a list of items that LANDLORD AND Tenant AGREE THAT TENANT must
perform before the Vacation Date. If Tenant fails to arrange for such
inspection, then Landlord may conduct such inspection and Landlord's
determination of the work Tenant is required to perform before the
Vacation Date shall be conclusive. If Tenant fails to perform such work
before the Vacation Date, then Landlord may perform) such work at Tenant's
cost. Tenant shall pay all costs incurred by Landlord in performing such
work within ten (10) days after Landlord's request therefor.
13. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, sublease, transfer or encumber
this Lease or any interest therein or grant any license, concession,
or other right of occupancy of the Premises or any portion thereof or
otherwise permit the use of the Premises or any portion thereof by
any party other than Tenant (any of which events is hereinafter
called an "assignment") without the prior written consent of,
Landlord, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD OR
DELAYED. Any such attempted assignment in violation of the terms and
covenants of this Paragraph shall, exercisable in Landlord's sale and
absolute discretion, be voidable. NOTWITHSTANDING THE FOREGOING,
TENANT MAY ASSIGN OR SUBLET TO A PARENT, SUBSIDIARY, OR AFFILIATE, OR
A SUCCESSOR IN THE EVENT OF A MERGER OR SALE OF ALL OR SUBSTANTIALLY
ALL OF THE TENANT'S ASSETS, UPON WHICH EVENT LANDLORD'S CONSENT
(PROVIDED THAT SUCH PARTY IS, IN LANDLORD'S SOLE OPINION),
FINANCIALLY ACCEPTABLE), SHALL NOT BE UNREASONABLY WITHHELD OR
DELAYED. Consent by Landlord to one or more assignments shall not
operate as a waiver of Landlord's rights as to any subsequent
assignments. In addition, Tenant shall not, without Landlord's
consent, publicly offer to assign the Lease nor advertise the Lease
for assignment in any media, including but not limited to newspapers,
periodicals, radio, television, circulars or brochures. In the event
Tenant or any agent, representative or broker acting on behalf of
Tenant or with Tenant's knowledge violates the provisions of the
foregoing sentence, in addition to all of the remedies which Landlord
may have at law, in equity, or pursuant to the terms of this Lease,
Landlord shall be entitled to seek injunctive relief preventing such
action and Tenant shall be responsible for all costs incurred by
Landlord in connection with seeking such injunctive relief.
(b) If Tenant requests Landlord's consent to an assignment or
sublease, Tenant shall submit to Landlord, in writing, the name of
the proposed assignee or subtenant and the nature and character of
the business of the proposed assignee or subtenant, the term, use,
rental rate and all other material terms and conditions of the
proposed assignment or sublease including, without limitation,
evidence satisfactory to Landlord that the proposed assignee or
subtenant is financially responsible. Landlord shall within TEN (10)
days after Landlord's receipt of such written request and information
either (i) consent to or refuse to consent to such assignment or
sublease in writing but no such consent to an assignment or sublease
shall relieve Tenant or any guarantor of Tenant's obligations under
this Lease of any liability hereunder) (ii) in the event of a
proposed assignment of this Lease or a proposed sublease of the
entire Premises for the entire remaining term of this Lease,
terminate this Lease effective the first to occur of ninety (90) days
following written notice of such termination or the date that the
proposed assignment or proposed sublease would have come into effect.
IF LANDLORD ELECTS TO TERMINATE THIS LEASE, THEN TENANT SHALL HAVE
THE RIGHT TO WITHDRAW ITS REQUEST AND THE LEASE SHALL REMAIN IN FULL
FORCE AND EFFECT. If Landlord should fail to notify Tenant in
writing of its decision within such thirty (30) day period after the
later of the date Landlord is notified in writing of the proposed
assignment or sublease or the date Landlord has received all required
information concerning the proposed assignee or subtenant and the
proposed assignment or sublease, Landlord shall be deemed to have
refused to consent to such assignment or sublease, and to have
elected to keep this Lease in full force and effect. In the event
Landlord consents to any such assignment, the assignment or sublease
shall be on a form approved by Landlord, and Tenant shall bear all
costs and expenses incurred by Landlord in connection with the review
and approval of such documentation WHICH SHALL NOT EXCEED $2,000 FOR
EACH REVIEW. In no event shall the proposed assignee or subtenant be
an existing occupant of any space in the Building or an affiliate of
such occupant.
(c) All cash or other proceeds of any assignment of Tenant's
interest in this Lease and/or the Premises, whether consented to by
Landlord or not, shall be paid to Landlord notwithstanding the fact
that such proceeds exceed the rentals called for hereunder, unless
Landlord agrees to the contrary in writing, and Tenant hereby assigns
all rights it might have or ever acquire in any such proceeds to
Landlord. IF THERE IS AN APPROVED ASSIGNMENT ARISING OUT OF A SALE
OF THE TENANT BUSINESS ENTITY, THE PURCHASE PRICE OF THE BUSINESS
ENTITY SHALL NOT BE PAYABLE TO LANDLORD. IN THE CASE OF AN APPROVED
SUBLEASE, In addition to the rent hereunder, Tenant hereby covenants
and agrees to pay to Landlord all rent and other consideration which
it receives which is in excess of the rent payable hereunder within
ten (10) days following receipt thereof by Tenant. This covenant and
assignment shall benefit Landlord and its successors in ownership of
the Building and shall bind Tenant and Tenant's heirs, executors,
administrators, personal representatives, successors and assigns. in
addition to any other rights and remedies which Landlord may have
hereunder, at law or in equity, in the event Tenant has failed to pay
any rent due hereunder on or before five (5) days following the date
on which it is due, Landlord shall have the right to contact any
assignee and require that from that time forward all payments made
pursuant to the assignment shall be made directly to the Landlord.
Any assignee of Tenant's interest in this Lease (all such assignees
being hereinafter referred to as "Successors"), by occupying the
Premises and/or assuming Tenant's obligations hereunder, shall be
deemed to have assumed liability to Landlord for all amounts paid to
persons other than Landlord by such Successors in consideration of
any such assignment in violation of the provisions hereof.
(d) SUBJECT TO SECTION 13(a), If Tenant is a corporation and if
at any time during the Lease Term the person or persons who own the
voting shares at the time of the execution of this Lease cease for
any reason, including but not limited to merger, consolidation or
other reorganization involving another corporation, to own a majority
of such shares or if Tenant is a partnership and if at any time
during the Lease Term the general partner or partners who own the
general partnership interests in the partnership at the time of the
execution of this Lease, cease for any reason to own a majority of
such interests (except as the result of transfers by gift, bequest or
inheritance to or for the benefit of members of the immediate family
of such original shareholders) or partner(s)), such an event shall be
deemed to be an assignment. The preceding sentence shall not apply
whenever Tenant is a corporation the outstanding stock of which is
listed on a recognized security exchange, or if at least eighty per
cent (80) of its voting stock is owned by another corporation, the
voting stock of which is so listed.
(e) Tenant shall, despite any permitted assignment or sublease,
remain directly and primarily liable for the performance of all of
the covenants, duties, and obligations of Tenant hereunder and
Landlord shall be permitted to enforce the provisions of this Lease
against Tenant or any assignee or sublessee without demand upon or
proceeding in any way against any other person. Moreover, in the
event that the rental due and payable by a sublessee (or a
combination of the rental payable under such sublease, plus any bonus
or other consideration) thereof incident thereto) exceeds the rent
payable under this Lease, or if with respect to a permitted
assignment, permitted license, or other transfer by Tenant permitted
by Landlord, the total consideration payable to Tenant by the
assignee, licensee or other transferee exceeds the rent payable under
this Lease, then Tenant shall be bound and obligated to pay Landlord
all such excess rental and other excess consideration within ten (10)
days following receipt thereof by Tenant from such sublessee,
assignee, licensee or other transferee, as the case may be.
14. MECHANIC'S LIENS. Tenant will not permit any mechanic's liens
or other liens to be placed upon the Premises, the Building, or the
Property and nothing in this Lease shall be deemed or construed in any way
as constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any person for the performance of any labor or
the finishing of any materials to the Premises, the Building, or the
Property or any part thereof, nor as giving Tenant any right, power, or
authority to contract for or permit the rendering of any services or the
furnishing of any materials that would give rise to any mechanic's or
other liens against the Premises, the Building, or the Property. In the
event any such lien is attached to the Premises, the Building, or the
Property, then, in addition to any other right or remedy of Landlord,
Landlord may, but shall not be obligated to, discharge the same. Any
amount paid by Landlord for any of the aforesaid purposes including, but
not limited to, attorneys fees, shall be paid by Tenant to Landlord
promptly on demand as additional rent. In the event Landlord does consent
to the performance of any labor or the furnishing of any materials to the
Promises, the Building, or the Property by any party, which consent must
be in writing, Tenant shall be responsible for insuring that all such
persons procure and maintain insurance coverage against such risks, in
such amounts and with such companies as Landlord may require, including,
but not limited to, Builder's Risk and Worker's Compensation insurance.
TENANT SHALL WITHIN TEN (10) DAYS OF RECEIVING SUCH NOTICE OF LIEN OR
CLAIM (A) HAVE SUCH LIEN OR CLAIM RELEASED OR (B) DELIVER TO LANDLORD A
BOND IN FORM, CONTENT, AMOUNT AND ISSUED BY A SURETY SATISFACTORY TO
LANDLORD, INDEMNIFYING, PROTECTING, DEFENDING AND HOLDING HARMLESS THE
INDEMNITIES AGAINST ALL COSTS AND LIABILITIES RESULTING FROM SUCH LIEN OR
CLAIM AND THE FORECLOSURE OR ATTEMPTED FORECLOSURE THEREOF.
15. PROPERTY INSURANCE.
(a) Landlord shall maintain fire and extended coverage
insurance on the Building FOR ITS REPLACEMENT, WITH NO CO-INSURANCE.
The cost of such insurance shall be included as a part of Operating
Expenses and payments for losses thereunder shall be made solely to
Landlord or the mortgagees of Landlord as their interests shall
appear.
(b) Tenant shall maintain at its expense, in an amount equal to
full replacement cost, fire and extended coverage insurance on all of
its personal property, including removable trade fixtures and
leasehold and tenant improvements, located in the Premises and in
such additional amounts as are required to meet Tenant's obligations
pursuant to Paragraph 19 hereof and with deductibles in an amount
reasonably satisfactory to Landlord. Tenant shall furnish evidence
satisfactory to Landlord of the maintenance and timely renewal of
such insurance, and Tenant shall obtain and deliver to Landlord a
written obligation an the part of each insurer to notify Landlord at
least sixty J60) days prior to the modification, cancellation or
expiration of such insurance policies, In the event Tenant shall not
have delivered to Landlord a policy or certificate evidencing such
insurance at least sixty (60) days prior to the expiration date of
each expiring policy, Landlord may obtain such insurance as Landlord
may reasonably require to protect Landlord's interest (which
obtaining of insurance shall not be deemed to be a waiver of Tenant's
default hereunder). The cost to Landlord of obtaining such policies,
plus an administrative fee in the amount of ten percent (10%) of the
cost of such policies shall be paid by Tenant to Landlord as
additional rent upon demand.
16. LIABILITY INSURANCE.
Tenant and Landlord shall each maintain during The term of this
Lease a policy or policies of commercial general liability insurance
(including endorsement or separate policy for owned or non-owned
automobile liability) with respect to the respective activities of
each in the Building and on the Property, with the premiums thereon
fully paid on or before the due date, issued by and binding upon an
insurance company or companies REASONABLY approved by Landlord. Such
insurance shall afford minimum protection of net less than
$1,000,000.00 per occurrence per person coverage for bodily injury,
property damage, personal injury, or combination thereof. The term
"personal injury" herein used means false arrest, detention or
imprisonment, malicious prosecution, wrongful entry, libel and
slander. If only a combined single limit coverage is available, it
shall be for at least $1,000,000.00 per occurrence with an umbrella
policy of at least $3,000,000.00 combined single limit per
occurrence. Tenant's insurance policy shall name Landlord as an
additional insured and shall include coverage for the contractual
liability of Tenant to indemnify Landlord pursuant to Paragraph 18 of
this Lease and shall have deductibles in an amount reasonably
satisfactory to Landlord. Tenant shall furnish certificates of such
insurance and such other evidence satisfactory to Landlord of the
maintenance of all insurance coverages required hereunder, and Tenant
shall obtain a written obligation on the part of each insurance
company to notify Landlord at least 30 days before cancellation of a
material change of any such insurance. All such insurance policies
shall be in form and issued by companies reasonably satisfactory to
Landlord. The insurance carried by Tenant pursuant to this
subparagraph shall be at Tenant's sole cost and expense; and the
insurance carried by Landlord pursuant to this subparagraph shall be
included in Operating Expenses.
17. FORMS OF POLICIES; INCREASE IN PREMIUMS; WAIVER OF CLAIMS.
(a) The insurance requirements set forth in Paragraphs 15 and
16 are independent of the waiver, indemnification, and other
obligations under this Lease and will not be construed or interpreted
in any way to restrict, limit or modify the waiver, indemnification
and other obligations or to in any way limit any party's liability
under this Lease. In addition to the requirements set forth in
Paragraphs 15 and 16, the insurance required of Tenant under this
Lease must be issued by an insurance company, qualified to do
business in the State of Colorado and with a rating of no less than A-
VIII in the current Best's Insurance Guide, or A- in the current
Standard & Poor Insurance Solvency Review, or that is otherwise
acceptable to Landlord, and admitted to engage in the business of
insurance in the State; be primary insurance for all claims under it
and provide that any insurance carried by Landlord and Landlord's
lenders is strictly excess, secondary and noncontributing with any
insurance carried by Tenant; and provide that insurance may not be
canceled, nonrenewed or the subject of material change in coverage or
available limits of coverage, except upon thirty (30) days' prior
written notice to Landlord and Landlord's lenders. Tenant will
deliver either a duplicate original or a legally enforceable
certificate of insurance on all policies procured by Tenant in
compliance with Tenant's obligations under this Lease, together with
evidence satisfactory to Landlord of the payment of the premiums
therefor, to Landlord on or before the date Tenant first occupies any
portion of the Premises, at least thirty (30) days before the
expiration date of any policy and upon the renewal of any policy.
Landlord must give its prior written approval to all deductibles and
self-insured retentions under Tenant's policies. Tenant may comply
with its insurance coverage requirements through a blanket policy,
provided Tenant, at Tenant's sole expense, procures a "per location"
endorsement, or equivalent reasonably acceptable to Landlord, so that
the general aggregate and other limits apply separately and
specifically to the Premises.
(b) If Tenant's business operations, conduct or use of the
Premises or any other part of the Project causes an increase in the
premium for any insurance policy carried by Landlord, Tenant will,
within ten (10) days after receipt of notice from Landlord, reimburse
Landlord for the entire increase.
(c) Notwithstanding anything herein to the contrary, each of
Landlord and Tenant hereby waives all claims and causes of action
(including claims of subrogation on behalf of its insurer) against
the other and the other's agents, officers and employees to the
extent that the loss or damage to any property, or bodily injury or
personal injury, to which such claim or cause of action relates is
covered by insurance carried or required to be carried by such
waiving party. The parties expressly acknowledge and agree that such
waiver extends to claims of negligence by such other party, its
agents, officers and employees (and with respect to Landlord, the
Project manager).
18. INDEMNITY. TO THE EXTENT NOT CAUSED BY THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF LANDLORD, Neither Landlord nor any of its officers,
directors, employees, or agents shall be liable to Tenant, or to Tenant's
agents, servants, employees, customers, licensees, or invitees for any
injury to person or damage to property caused by any act, omission, or
neglect of Tenant, its agents, servants, employees, customers, invitees,
licensees or any other person entering the Building or upon the Project
under the invitation of Tenant or arising out of the use of the Project,
Building or Promises by Tenant (each, a "TENANT PARTY") and the conduct of
its business or out of a default by Tenant in the performance of its
obligations hereunder. TO THE EXTENT NOT EXPRESSLY PROHIBITED BY LAW,
LANDLORD AND TENANT EACH IN EITHER CASE, THE "INDEMNITOR") AGREE TO HOLD
HARMLESS AND INDEMNIFY THE OTHER AND THE OTHER'S AGENTS, PARTNERS,
SHAREHOLDERS, OFFICERS, DIRECTORS, BENEFICIARIES AND EMPLOYEES
(COLLECTIVELY, THE "INDEMNITEES") FROM ANY LOSSES, DAMAGES, JUDGMENTS,
CLAIMS, EXPENSES, COSTS AND LIABILITIES IMPOSED UPON OR INCURRED BY OR
ASSERTED AGAINST THE INDEMNITEES, INCLUDING REASONABLE ATTORNEYS' FEES AND
EXPENSES. FOR DEATH OR INJURY TO THIRD PARTIES OTHER THAN INDEMNITEES
THAT MAY ARISE FROM WILLFUL MISCONDUCT OF INDEMNITOR OR ANY OF
INDEMNITOR'S AGENTS, PARTNERS OR EMPLOYEES. SUCH THIRD PARTIES SHALL NOT
BE DEEMED THIRD PARTY BENEFICIARIES OF THIS AGREEMENT. IN CASE ANY
ACTION, SUIT OR PROCEEDING IS BROUGHT AGAINST ANY OF THE INDEMNITEES BY
REASON OF ANY SUCH ACT OF INDEMNITOR OR ANY OF INDEMNITOR'S AGENTS OR
EMPLOYEES, THEN INDEMNITOR WILL, AT INDEMNITOR'S EXPENSE AND AT THE OPTION
OF SAID INDEMNITEES, BY COUNSEL REASONABLY APPROVED BY SAID INDEMNITEES,
RESIST AND DEFEND SUCH ACTION, SUIT OR PROCEEDING. SUCH INDEMNITY FOR THE
BENEFIT OF INDEMNITEES SHALL BE ENFORCEABLE EVEN IF INDEMNITEES, OR ANY
ONE OR MORE OF THEM HAVE OR HAS CAUSED OR PARTICIPATED IN CAUSING SUCH
LIABILITY AND CLAIMS BY THEIR JOINT OR CONCURRENT ACTS, NEGLIGENT OR
INTENTIONAL, OR OTHERWISE. Notwithstanding the terms of this Lease to the
contrary, the terms of this paragraph shall survive the expiration or
earlier termination of this Lease.
19. CASUALTY DAMAGE.
(a) If the Premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be so damaged that
substantial alteration or reconstruction of the Building shall, in
Landlord's sole opinion, be required (whether or not the Premises
shall have been damaged by such casualty) or in the event there is
less than one (1) year of the Lease Term remaining or in the event
any mortgagee of Landlord's should require that the insurance
proceeds payable as a result of a casualty be applied to the payment
of the mortgage debt or in the event of any material uninsured loss
to the Building, Landlord may, at its option, terminate this Lease
EFFECTIVE THE DATE OF THE DAMAGE BY CASUALTY, by notifying Tenant in
writing of such termination within THIRTY (30) days after the date of
such casualty. If Landlord does not thus elect to terminate this
Lease, and the Lease is not terminated pursuant to subparagraph (c)
below, Landlord shall commence and proceed with reasonable diligence
to restore the Building, and the improvements located within the
Premises to Building Standard condition (except that Landlord shall
not be responsible for delays not within the control of Landlord).
Notwithstanding the foregoing, Landlord's obligation to restore the
Building, and the improvements located within the Premises, if any,
for which Landlord had financial responsibility pursuant to the Work
Letter Agreement, shall not require Landlord to expend for such
repair and restoration work more than the insurance proceeds actually
received by the Landlord as a result of the casualty. When the
repairs described in the preceding two sentences have been completed
by Landlord, Tenant shall complete the restoration of all
improvements, including trade fixtures and equipment, which are
necessary to permit Tenant's re-occupancy of the Premises TO THE
EXTENT OF INSURANCE PROCEEDS ACTUALLY RECEIVED BY TENANT. Except as
set forth above, all cost and expense of reconstructing the Premises
shall be paid by Tenant, and Tenant shall present Landlord with
evidence satisfactory to Landlord of Tenant's ability to pay such
costs prior to Landlord's commencement of repair and restoration of
the Premises.
(b) Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in
any way from such damage or the repair thereof, except that, subject
to the provisions of the next sentence, Landlord shall allow Tenant a
fair diminution of rent during the time and to the extent the
Premises are unfit for occupancy. If the Premises or any other
portion of the Building is damaged by fire or other casualty
resulting from the fault or negligence of Tenant or any Tenant Party,
the rent hereunder shall not be diminished during the repair of such
damage and Tenant shall be liable to Landlord for the cost of the
repair and restoration of the Building caused thereby to the extent
such cost and expense is not covered by insurance proceeds.
(c) Notwithstanding anything in the Paragraph 19 to the
contrary, if all or any portion of the Premises shall be made
untenantable by a fire or other casualty, Landlord shall with
reasonable promptness, cause an architect or general contractor
selected by Landlord to estimate the amount of time required to
substantially complete repair and restoration of the Premises and
make the Premises tenantable again, using standard working methods
(the "Completion Estimate"). If the Completion Estimate indicates
that the Premises cannot be made tenantable within twelve (12) months
from the date the repair and restoration is started, either party
shall have the right to terminate this Lease by giving written notice
to the other of such election within ten (10) days after its receipt
of the Completion Estimate. Tenant, however, shall not have the
right to terminate this Lease in the event that the fire or casualty
in question was caused by the negligence or intentional misconduct of
Tenant or any Tenant Party or if Tenant is then in default of this
Lease. If the Completion Estimate indicates that the Premises can be
made tenantable with twelve (12) months from the date the repair and
restoration is started and Landlord has not otherwise exercised its
right to terminate the Lease pursuant to the terms hereof, or if the
Completion Estimate indicates that the Premises cannot be made
tenantable with twelve (12) months but neither party terminates this
Lease pursuant to this Paragraph 19, Landlord shall proceed with
reasonable promptness to repair and restore the Premises.
(d) If pursuant to subparagraph (c) Tenant was entitled to but
elected not to exercise its right to terminate the Lease and Landlord
does not substantially complete the repair and restoration of the
Premises within two (21) months after the expiration of the estimated
period of time set forth in the Completion Estimate, which period
shall be extended to the extent of any Reconstruction Delays, then
provided Tenant is not then in default hereunder) Tenant may
terminate this Lease by written notice to Landlord within fifteen
(15) days after the expiration of such period, as the same nay be
extended (but in all events prior to substantial completion of such
repair and restoration). For purposes of this Lease, the term
"Reconstruction Delays" shall mean: (i) any delays caused by the
insurance adjustment process; (ii) any delays caused by Tenant, and
(iii) any delays caused by events of Force Majeure.
20. DAMAGES FROM CERTAIN CAUSES. SO LONG AS LANDLORD MAINTAINS THE
INSURANCE COVERAGES REQUIRED UNDER THIS LEASE, Landlord shall not be
liable to Tenant for any injury to person or damage to property sustained
by Tenant or any person claiming through Tenant resulting from any
accident or occurrence in the Premises or any other portion of the Project
caused by the Premises or any other portion of the Building becoming out
of repair or by defect in or failure of equipment, pipes, or wiring, or by
broken glass, or by the backing up of drains, or by gas, water, steam,
electricity, or oil leaking, escaping or flowing into the Premises, nor
shall Landlord be liable to Tenant for any loss or damage that may be
occasioned by or through the acts or omissions of other tenants of the
Building or of any other persons whomsoever, including, but not limited to
riot, strike, insurrection, war, court order, requisition, order of any
governmental body or authority, acts of God, fire or theft.
21. CONDEMNATION. If more than 50 of the Premises is taken for any
public or quasi-public use by right of eminent domain or private purchase
in lieu thereof (a "TAKING"), and the Taking prevents or materially
interferes with the use of the remainder of the Premises for the purpose
for which they were leased to Tenant, either party may terminate this
Lease by delivering to the other written notice thereof within thirty (30)
days after the Taking, in which case rent shall be abated during the
unexpired portion of the Term, effective on the date of such Taking. It
(a) less than 50 of the Premises are subject to a Taking or (b) more than
500a of the Premises are subject to a Taking, but the Taking does not
prevent or materially interfere with the use of the remainder of the
Premises for the purpose for which they were leased to Tenant, then
neither party may terminate this Lease, but the rent payable during the
unexpired portion of the Term shall be reduced to such extent as may be
fair and reasonable under the circumstances. All compensation awarded for
any Taking shall be the property of Landlord and Tenant assigns any
interest it may have in any such award to Landlord; however, Landlord
shall have no interest in any award made to Tenant for loss of business or
goodwill or for the taking of Tenant's trade fixtures, if a separate award
for such items is made to Tenant.
22. HAZARDOUS SUBSTANCES. Tenant hereby represents and warrants to
Landlord the following:
(a) No toxic or hazardous substances or wastes, pollutants or
contaminants (including, without limitation, asbestos, urea
formaldehyde, the group of organic compounds known as polychlorinated
biphenyls, petroleum products including gasoline, fuel oil, crude oil
and various constituents of such products, radon, and any hazardous
substance as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. 9601-9657, as
amended ("CERCLA") (collectively, "Environmental Pollutants") other
than customary office supplies and cleaning supplies stored and
handled within the Premises in accordance with all applicable laws,
will generated, treated, stored, released or disposed of, or
otherwise placed, deposited in or located on the Project, and no
activity shall be taken on the Project, by Tenant or any Tenant Party
that would cause or contribute to (i) the Project or any part thereof
to become a generation, treatment, storage or disposal facility
within the meaning of or otherwise bring the Premised within the
ambit of the Resource Conservation and Recovery Act of 1976 ("RCRA"),
42 U.S.C. 5901 et. seq., or any similar state law or local ordinance,
iii) a release or threatened release of toxic or hazardous wastes or
substances, pollutants or contaminants, from the Project or any part
thereof within the meaning of, or otherwise result in liability in
connection with the Premises within the ambit of CERCLA, or any
similar state law or local ordinance, or (iii) the discharge of
pollutants or effluents into any water source or system, the dredging
or filling of any waters, or the discharge into the air of any
emissions, that would require a permit under the Federal Water
Pollution Control Act, 33 U.S.C. 1251 et. seq., or the Clean Air Act,
42 U.S.C. 7401 et. seq. or any similar state law or local ordinance.
(b) TENANT AGREES TO INDEMNIFY AND HOLD INDEMNITEES (AS DEFINED
IN PARAGRAPH 17 HEREIN) HARMLESS FROM AND AGAINST AND TO REIMBURSE
INDEMNITEES WITH RESPECT TO, ANY AND ALL CLAIMS, DEMANDS, CAUSES OF
ACTION, LOSS, DAMAGE, LIABILITIES, COSTS AND EXPENSES (INCLUDING
ATTORNEYS' FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER,
KNOWN OR UNKNOWN, FIXED OR CONTINGENT, ASSERTED AGAINST OR INCURRED
BY LANDLORD AT ANY TIME AND FROM TIME TO TIME BY REASON OF OR ARISING
OUT OF THE BREACH OF ANY REPRESENTATION OR WARRANTY CONTAINED IN
PARAGRAPH 22.(A) ABOVE.
(c) Tenant shall immediately notify Landlord in writing of any
release or threatened release of toxic or hazardous wastes or
substances, pollutants or contaminants of which Tenant has knowledge
whether or not the release is in quantities that would require under
law the reporting of such release to a governmental or regulatory
agency.
(d) Tenant shall immediately notify Landlord in writing of any
release or threatened release of toxic or hazardous wastes or
substances, pollutants or contaminants whether or not the release is
in quantities that would require under law the reporting of such
release to a governmental or regulatory agency.
(e) Tenant shall also immediately notify Landlord in writing
of, and shall contemporaneously provide Landlord with a copy of:
Any written notice of release of hazardous wastes or substances,
pollutants or contaminants on the Project that is provided by
Tenant or any subtenant or other occupant of the Premises to a
governmental or regulatory agency:
Any notice of a violation, or a potential or alleged violation,
of any Environmental Law that is received by Tenant or any
subtenant or other occupant of the Premises from any
governmental or regulatory agency;
Any inquiry, investigation, enforcement, cleanup, removal, or
other action that is instituted or threatened by a governmental
or regulatory agency against Tenant or any subtenant or other
occupant of the Premises and that relates to the release or
discharge of hazardous wastes or substances, pollutants or
contaminants on or from the Project;
Any claim that is instituted or threatened by any third party
against Tenant or any subtenant or other occupant of the
premises and that relates to any release or discharge of
hazardous wastes or substances, pollutants or contaminants on or
from the premises; and
Any notice of the loss of any environmental operating permit by
Tenant or any subtenant or other occupant of the Premises.
Failure to comply with this section shall constitute a material
default under the Lease. Notwithstanding the terms of this Lease to the
contrary, the terms of this paragraph shall survive the expiration or
earlier termination of this Lease.
23. AMERICANS WITH DISABILITIES ACT. Tenant agrees to comply with
all requirements of this Americans with Disabilities Act (Public Law (July
26, 1990) applicable to the Premises and such other current acts or other
subsequent acts, (whether federal or state) addressing like issues as are
enacted or amended. Tenant agrees to indemnify and hold Landlord harmless
from any and all expenses, liabilities, costs or damages suffered by
Landlord as a result of additional obligations which may be imposed on the
Building or the Property under of such acts by virtue of Tenant's
operations and/or occupancy, including the alleged negligence of the
Landlord. Tenant acknowledges that it will be wholly responsible for any
provision of the Lease which could arguably be construed as authorizing a
violation of either Act. Any such provision shall be interpreted in a
manner which permits compliance with Such Act and is hereby amended to
permit such compliance. LANDLORD AGREES TO COMPLY WITH ALL REQUIREMENTS
OF THE AMERICANS WITH DISABILITIES ACT (PUBLIC LAW (JULY 26, 1990)
APPLICABLE TO THE PROJECT AND SUCH OTHER CURRENT ACTS OR OTHER SUBSEQUENT
ACTS, (WHETHER FEDERAL OR STATE) ADDRESSING LIKE ISSUES AS ARE ENACTED OR
AMENDED
24. EVENTS OF DEFAULT/REMEDIES.
(a) The following events shall be deemed to be events of
default under this Lease:
(i) Tenant shall fail to pay when due any Base Rental,
Operating Expense Rental or other rent payable by Tenant to
Landlord under this Lease (hereinafter sometimes referred to as
a "Monetary Default"). NOTWITHSTANDING THE FOREGOING, LANDLORD
SHALL PROVIDE TENANT WITH FIVE (5) DAYS' WRITTEN NOTICE OF SUCH
DEFAULT (A "MONETARY DEFAULT NOTICE") BEFORE LANDLORD EXERCISES
ITS REMEDIES FOR DEFAULT HEREUNDER; PROVIDED, HOWEVER, THAT
LANDLORD SHALL NOT BE REQUIRED TO GIVE A MONETARY DEFAULT NOTICE
MORE THAT ONE (1) TIME WITH RESPECT TO ANY PARTICULAR MONETARY
DEFAULT NOR MORE THAT TWO (2) TIMES IN THE AGGREGATE DURING THE
TERM OF THIS LEASE WITH RESPECT TO ANY MONETARY DEFAULT.
(ii) Any failure by Tenant (other than a Monetary Default)
to comply with any term, provision or covenant of this Lease,
which failure is not cured within ten (10) days after delivery
to Tenant of notice of the occurrence of such failure. HOWEVER,
THE CURE PERIOD SHALL BE EXTENDED TO TWENTY (20) DAYS IF SUCH
CURE IS NOT REASONABLY POSSIBLE WITHIN THE PRESCRIBED 10 DAY
PERIOD AND TENANT DILIGENTLY AND CONTINUOUSLY WORKS TO CURE THE
DEFAULT.
(iii) Tenant or any Guarantor shall become insolvent, or
shall make a transfer in fraud of creditors, or shall commit an
act of bankruptcy or shall make an assignment for the benefit of
creditors, or Tenant or any Guarantor she] admit in writing its
inability to pay its debts as they become due.
(iv) Tenant or any Guarantor shall file a petition under
any section or chapter of the United States Bankruptcy Code, as
amended, pertaining to bankruptcy, or under any similar law or
statute of the United States or any State thereof, or Tenant or
any Guarantor shall be adjudged bankrupt or insolvent in
proceedings filed against Tenant or any Guarantor thereunder; or
a petition or answer proposing the adjudication of Tenant or any
Guarantor as a bankrupt or its reorganization under any present
or future federal or state bankruptcy or similar law shall be
filed in any court and such petition or answer shall not be
discharged or denied within sixty (60) days after the filing
thereof.
(v) A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant or any Guarantor or of
the Premises or of any of Tenant's property located thereon in
any proceeding brought by Tenant or any Guarantor, or any such
receiver or trustee shall be appointed in any proceeding brought
against Tenant or any Guarantor and shall not be discharged
within sixty (60) days after such appointment or Tenant or such
Guarantor shall consent to or acquiesce in such appointment.
(vi) The leasehold estate hereunder shall be taken an
execution or other process of law in any action against Tenant.
(vii) IF FOLLOWING OCCUPANCY, Tenant shall abandon or vacate
any substantial portion of the Premises without the prior
written permission of Landlord AND WITHOUT THE TIMELY PAYMENT OF
ALL SUMS DUE UNDER THIS LEASE. If Tenant or any other person
acting on Tenant's behalf has removed, is removing or has made
preparations to remove (other than in the normal course of
business) goods, equipment, fixtures or other property from the
Premises in amounts substantial enough to indicate a probable
intent to abandon or vacate the Premises without the prior
written permission of Landlord, Tenant's abandonment of the
Premises shall be deemed conclusively established for all
purposes.
(viii) Tenant shall fail to take possession of and occupy the
Premises within thirty (30) days following the Commencement Date
or thereafter shall fail to conduct continuously its operations
in the Premises for the Permitted Use as set forth in Paragraph
4 hereof.
(ix) The liquidation, termination, dissolution, forfeiture
of right to do business or death of Tenant or any Guarantor.
(b) Upon the occurrence of any event or events of default under
this Lease, whether enumerated in this Paragraph or not, Landlord
shall have the option to pursue any one or more of the following
remedies without any notice (except as expressly prescribed herein)
or demand for possession whatsoever (and without limiting the
generality of the foregoing, Tenant hereby specifically waives notice
and demand for payment of rent or other obligations due and waives
any and all other notices or demand requirements imposed by
applicable law):
(i) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord. If Tenant fails
to surrender the Premises upon termination of the Lease
hereunder, Landlord may without prejudice to any other remedy
which it may have for possession or arrearages in rent, enter
upon and take possession of the Premises and expel or remove
Tenant and any other person who may be occupying said Premises,
or any part thereof, by force, if necessary, without being
liable for prosecution or any claim of damages therefor, and
Tenant hereby agrees to pay to Landlord on demand the amount of
all loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Premises on
satisfactory terms or otherwise, specifically including but not
limited to all Costs of Reletting (hereinafter defined) and any
deficiency that may arise by reason of any Reletting. If such
termination is caused by the failure to pay rent and/or the
abandonment of any substantial portion of the Premises, Landlord
may elect, by sending written notice thereof to Tenant, to
receive liquidated damages in an amount equal to the sum of the
Base Rental, Operating Expense Rental and other rent payable
hereunder for the month during which the Lease is terminated
times the lesser of (A) twelve (12) or (B) the number of months
remaining in the Lease Term as of the date of such failure to
pay rent and/or abandonment of any substantial portion of the
Premises. Such liquidated damages shall be in lieu of the
payment of loss and damage Landlord may suffer by reason of such
termination as provided in the preceding sentence but shall not
be in lieu of or reduce in any way any amount (including accrued
rent) or damages due to breach of covenant (whether or not
liquidated) payable by Tenant to Landlord which is accrued and
outstanding at the time of the termination of the Lease.
(ii) Enter upon and take possession of the Premises and
expel or remove Tenant or any other person who may be occupying
said Premises, or any part thereof, by force, if necessary,
without having any civil or criminal liability therefor and
without terminating this Lease. Landlord may (but shall be
under no obligation to) relet the Premises or any part thereof
for the account of Tenant, in the name of Tenant or Landlord or
otherwise, without notice to Tenant for such term or terms which
may be greater or less than the period which would otherwise
have constituted the balance of the Lease Term and on such
conditions (which may include concessions or free rent) and for
such uses as Landlord in its absolute discretion may determine,
and Landlord may collect and receive any rents payable by reason
of such reletting. Tenant agrees to pay Landlord on demand all
Costs of Reletting and any deficiency that may arise by reason
of such reletting. Landlord shall not be responsible or liable
for any failure to relet the Premises or any part thereof or for
any failure to collect any rent due upon any such reletting. No
such re-entry or taking of possession of the Premises by
Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such termination
is given to Tenant. If Landlord elects to terminate Tenant's
right to possession of the Premises without terminating this
Lease, Tenant shall continue to be liable for all rent and
Landlord shall use reasonable efforts to relet the Premises or
any part thereof to a substitute tenant or tenants for a period
of time equal to or lesser or greater than the remainder of the
Term on whatever terms and conditions Landlord, in Landlord's
good faith discretion, deems advisable. For purposes hereof,
Landlord shall be deemed to have used "reasonable efforts" to
relet if Landlord places its customary "For Lease" sign upon the
Premises and places the Premises for lease with a reputable
broker. In no event shall Landlord be obligated to lease the
Premises in priority to other space within the Project.
(iii) Enter upon the Premises by force if necessary without
having any civil or criminal liability therefor, and do whatever
Tenant is obligated to do under the terms of this Lease and
Tenant agrees to reimburse Landlord on demand for any expense
which Landlord may incur in thus affecting compliance with
Tenant's obligations under this Lease together with interest at
the Default Rate and Tenant further agrees that Landlord shall
not be liable for any damages resulting to Tenant from such
action, whether caused by the negligence of Landlord or
otherwise.
(iv) Terminate this Lease by giving Tenant written notice
thereof, in which event, Tenant shall pay to Landlord the sum of
(i) all rent accrued hereunder through the date of termination,
(ii) all Costs of Reletting, and (iii) an amount equal to (A)
the total rent that Tenant would have been required to pay for
the remainder of the Lease Term discounted to present value
minus (B) the then present fair rental value of the Premises for
such period, similarly discounted. In order to regain
possession of the Premises and to deny Tenant access thereto,
Landlord or its agent may, at the expense and liability of the
Tenant, alter or change any or all locks or other security
devices controlling access to the Premises without posting or
giving notice of any kind to Tenant. Landlord shall have no
obligation to provide Tenant a key or grant Tenant access to the
Premises so long as Tenant is in default under this Lease.
Tenant shall not be entitled to recover possession of the
Premises, terminate this Lease or recover any actual,
incidental, consequential, punitive, statutory or other damages
or award of attorneys' fees, by reason of Landlord's alteration
or change of any luck or other security device and the resulting
exclusion from the Premises of the Tenant or Tenant's agents,
servants, employees, customers, licensees, invitees or any other
persons from the Premises. Landlord may, without notice, remove
and either dispose of or store, at Tenant's expense, any
property belonging to Tenant that remains in the Premises after
Landlord has regained possession thereof.
(c) For purposes of this Lease, the term "Costs of Reletting"
shall mean all costs and expenses incurred by Landlord in connection
with the reletting of the Premises, including without limitation the
cost of cleaning, renovation, repairs, decoration and alteration of
the Premises for a new tenant or tenants, advertisement, marketing,
brokerage and legal fees, the cost of protecting or caring for the
Premises while vacant, the cost of removing and storing any property
located on the Premises, any increase in insurance premiums caused by
the vacancy of the Premises and any other out-of-pocket expenses
incurred by Landlord including tenant inducements such as the cost of
moving the new tenant or tenants and the cost of assuming any portion
of the existing lease(s) of the new tenant(s).
(d) Except as otherwise herein provided, no repossession or re-
entering on the Premises or any part thereof pursuant to subparagraph
(b) hereof or otherwise shall relieve Tenant or any Guarantor of its
liabilities and obligations hereunder, all of which shall survive
such repossession or re-entering. Notwithstanding any such
repossession or re-entering on the Premises or any part thereof by
reason of the occurrence of an event of default, Tenant will pay to
Landlord the Base Rental, Operating Expense Rental and other rent or
other sum required to be paid by Tenant pursuant to this Lease.
(e) No right or remedy herein conferred upon or reserved to
Landlord is intended to be exclusive of any other right or remedy,
and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or
hereafter existing by agreement, applicable law or in equity. In
addition to other remedies provided in this Lease, Landlord shall be
entitled, to the extent permitted by applicable law, to injunctive
relief in case of the violation, or attempted or threatened
violation, of any of the covenants, agreements, conditions or
provisions of this Lease, or to a decree compelling performance of
any of the other covenants, agreements, conditions or provisions of
this Lease, or to any other remedy allowed to Landlord at law or in
equity. Forbearance by Landlord to enforce one or more of the
remedies herein provided upon an event of default shall not be deemed
or construed to constitute a waiver of such default.
(f) This Paragraph 24 shall be enforceable to the maximum
extent such enforcement is not prohibited by applicable law, and the
unenforceability of any portion thereof shall not thereby render
unenforceable any other portion. To the extent permitted by
applicable law, Tenant waives any statutory rights which conflict
with this Paragraph 24. To the extent any provision of applicable
law requires some action by Landlord to evidence or effect the
termination of this Lease or to evidence the termination of Tenant's
right of occupancy, Tenant and Landlord hereby agree that written
notice by Landlord to any of Tenant's agents, servants or employees,
which specifically sets forth Landlord's intention to terminate,
shall be sufficient to evidence and effect the termination herein
provided for.
25. TENANT REMEDIES. Except to the extent specifically provided
herein, Tenant shall not have the right to an abatement of rent or to
terminate this Lease as a result of Landlord's default as to any covenant
or agreement contained in this Lease or as a result of the breach of any
promise or inducement in connection herewith, whether in this Lease or
elsewhere and Tenant hereby waives such remedies of abatement of rent and
termination. Tenant hereby agrees that Tenant's remedies for default
hereunder or in any way arising in connection with this Lease including
any breach of any promise or inducement or warranty, express or implied,
shall be limited to suit for direct and proximate damages AND INJUNCTIVE
RELIEF provided that Tenant has given the notices as hereinafter required.
Notwithstanding anything to the contrary contained in this Lease, the
liability of Landlord to Tenant for any default by Landlord under the
terms of this Lease shall be limited to the interest of Landlord in the
Building and the Property and Tenant agrees to look solely to Landlord's
interest in the Building and the Property for the recovery of any judgment
against the Landlord, it being intended that Landlord shall not be
personally liable for any judgment or deficiency. Tenant hereby covenants
that, prior to the filing of any suit for direct and proximate damages, it
shall give Landlord and all mortgagees whom Tenant has been notified hold
mortgages or deed of trust liens on the Property, Building or Premises
("Landlord's mortgagees") notice and reasonable time to cure any alleged
default by Landlord.
Notwithstanding the foregoing, Tenant shall bring such suit within
six months of the Landlord's default hereunder, unless agreed by the
parties hereto to extend such time in writing. Tenant's failure to assert
such rights within six months shall be construed as a waiver of Tenant's
remedies herein.
26. NO WAIVER. Failure of Landlord to declare any default
immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not constitute a waiver of such
default, nor shall. It constitute an estoppel against Landlord, but
Landlord shall have the right to declare the default at any time and take
such action as is lawful or authorized under this Lease. Failure by
Landlord to enforce its rights with respect to any one default shall not
constitute a waiver of its rights with respect to any subsequent default.
Receipt by Landlord of Tenant's keys to the Premises shall not constitute
an acceptance of surrender of the Premises.
27. EVENT OF BANKRUPTCY. In addition to, and in no way limiting the
other remedies set forth herein Landlord and Tenant agree that if Tenant
ever becomes the subject of a voluntary or involuntary bankruptcy,
reorganization, composition, or other similar type proceeding under the
federal bankruptcy laws, as now enacted or hereinafter amended, then:
(a) "Adequate protection" of Landlord's interest in the
Premises pursuant to the provisions of Section 361 and 363 (or their
successor sections) of the Bankruptcy Code, 11 U.S.C. Paragraph 101,
et seq. (such Bankruptcy Code as amended from time to time being
herein referred to as the "Bankruptcy Code"), prior to assumption
and/or assignment of the Lease by Tenant shall include, but not be
limited to all (or any part) of the following:
(i) the continued payment by Tenant of the Base Rental,
Operating Expense Rental and all other rent due and owing
hereunder and the performance of all other covenants and
obligations hereunder by Tenant;
(ii) the hiring of security guards to protect the Premises
if Tenant abandons and/or ceases operations; such obligation of
Tenant only to be effective so long as Tenant remains in
possession and control of the Premises to the exclusion of
Landlord;
(iii) the furnishing of an additional/new Security Deposit
by Tenant in the amount of three (3) times the then-current
monthly Base Rental, Operating Expense Rental and other rent
payable hereunder.
(b) "Adequate assurance of future performance" by Tenant and/or
any assignee of Tenant pursuant to Bankruptcy Code Section 365 will
include (but not be limited to) payment of an additional/new Security
Deposit in the amount of three (3) times the then-current Base Rental
and Operating Expense Rental payable hereunder.
(c) Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed
without further act or deed to have assumed all of the obligations of
Tenant arising under this Lease on and after the effective date of
such assignment. Any such assignee shall, upon demand by Landlord,
execute and deliver to Landlord an instrument confirming such
assumption of liability.
(d) Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of the Landlord under this
Lease, whether or not expressly denominated as "rent", shall
constitute "rent" for the purposes of Section 502(b)(6) of the
Bankruptcy Code.
(e) If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise to be delivered to Landlord
(including Base Rental, Operating Expense Rental and other rent
hereunder, shall be and remain the exclusive property of Landlord and
shall not constitute property of Tenant or of the bankruptcy estate
of Tenant. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or
delivered to Landlord shall be held in trust by Tenant or Tenant's
bankruptcy estate for the benefit of Landlord and shall be promptly
paid to or turned over to Landlord.
(f) It Tenant assumes this Lease and proposes to assign the
same pursuant to the provisions of the Bankruptcy Code to any person
or entity who shall have made a bona fide offer to accept an
assignment of this Lease on terms acceptable to the Tenant, then
notice of such proposed offer/assignment, setting forth (i) the name
and address of such person or entity; (ii) all of the terms and
conditions of such offer, and (iii) the adequate assurance to be
provided Landlord to assure such person's or entity's future
performance under the Lease, shall be given to Landlord by Tenant no
later than twenty (20) days after receipt by Tenant, but in any event
no later than ten (10) days prior to the date that Tenant shall make
application to a court of competent jurisdiction for authority and
approval to enter into such assumption and assignment, and Landlord
shall thereupon have the prior right and option, to be exercised by
notice to Tenant given at any time prior to the effective date of
such proposed assignment, to accept an assignment of this Lease upon
the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such persons or entity, less any
brokerage commission which may be payable out of the consideration to
be paid by such person for the assignment of this Lease.
(g) To the extent permitted by law, Landlord and Tenant agree
that this Lease is a contract under which applicable law excuses
Landlord from accepting performance from (or rendering performance
to) any person or entity other than Tenant within the meaning of
Sections 365(c) and 365(e)(2) of the Bankruptcy Code.
28. PEACEFUL ENJOYMENT. Tenant shall, and r-nay peacefully have,
hold, and enjoy the Premises, subject to the other terms hereof, provided
that Tenant pays the rent and other sums herein recited to be paid by
Tenant and performs all of Tenant's covenants and agreements herein
contained. This covenant and any and all other covenants of Landlord
shall be binding upon Landlord and its successors only with respect to
breaches occurring during its or their respective periods of ownership of
the Landlord's interest hereunder.
29. PARKING. Tenant and its employees and invitees shall have the
non-exclusive right to use, in common with others, any parking areas
associated with the Premises which Landlord has designated for such use,
subject to (a) such reasonable rules and regulations as Landlord may
promulgate from time to time and (b) rights of ingress and egress of other
tenants and their employees, agents and invitees. Landlord shall not be
responsible for enforcing Tenant's parking rights against third parties.
If Exhibit "G" "Parking Agreement" is attached hereto, the rights of
Tenant and its employees and invitees to use the parking areas within the
Project are subject to the provisions of such exhibit. LANDLORD SHALL NOT
REDUCE THE TOTAL NUMBER OF PARKING SPACES AVAILABLE TO TENANT DURING THE
LEASE TERM.
30. REMOVAL OF PROPERTY AT EXPIRATION OF LEASE; HOLDING OVER.
(a) Any and all alterations, additions, improvements, attached
furniture, equipment, fixtures, and any unattached or movable
equipment, furniture, trade fixtures or other personality which was
acquired with funds provided by or on behalf of Landlord installed an
or located in or around the Premises shall become the property of
Landlord upon termination of this Lease. In addition, all other
personal property which shall remain in the Premises for more than
five (5) days following either the termination of this Lease or the
entry of the Premises by Landlord following Tenant's default
hereunder shall, at Landlord's option, become the property of
Landlord. Landlord may, nonetheless, require Tenant to remove such
fixtures, furniture, trade fixtures, equipment, improvements,
alterations, additions and personal property, including but not
limited to telephone, data, and/or network cabling, installed on or
located in the Premises as are designated by Landlord (the "Required
Removables") at Tenant's sole cost, IF LANDLORD NOTIFIES TENANT NO
LATER THAN NINETY (90) DAYS PRIOR TO THE END OF THE TERM OR EXTENDED
TERM IF THE RENEWAL OPTION IS EXERCISED. In the event that Landlord
so elects, and Tenant fails to remove the Required Removables,
Landlord may remove the Required Removables at Tenant's cost, and
Tenant shall pay Landlord on demand, or Landlord may deduct from
Tenant's Security Deposit, all costs incurred in removing, storing
and/or disposing of the Required Removables. Landlord, at is sole
option, shall inspect any and all alterations and repairs made by or
on behalf of the Tenant. All costs associated with the inspection
and testing of such alterations or repairs shall be reimbursed to
Landlord by Tenant within ten (10) days of such demand.
Notwithstanding the terms of this lease to the contrary, the terms of
this paragraph shall survive the expiration or earlier termination of
this Lease.
(b) In the event of holding over by Tenant after expiration or
other termination of this Lease or in the event Tenant continues to
occupy the Premises after the termination of Tenant's right of
possession pursuant to Paragraph 24(b) hereof, Tenant shall become a
Tenant at sufferance and, throughout the entire holdover period,
Tenant shall pay rent equal to ONE HUNDRED FIFTY PERCENT the sum (or
150%) of the greater of (i) then current market rate or (ii) the sum
of the Base Rental and Operating Expense Rental which would otherwise
have been applicable had the term of this Lease continued through the
period of such holding over by Tenant. No holding over by Tenant or
payments of money by Tenant to Landlord after the expiration of the
term of this Lease shall be construed to extend the term of this
Lease or prevent Landlord from recovery of immediate possession of
the Premises by summary proceedings or otherwise unless Landlord has
sent written notice to Tenant that Landlord has elected to extend the
term of the Lease. Tenant shall be liable to Landlord for all
damage, including any consequential damage, which Landlord may suffer
by reason of any holding over by Tenant and Tenant shall indemnify
Landlord against any and all claims made by any other tenant or
prospective tenant against Landlord for delay by Landlord in
delivering possession of the Premises to such other tenant or
prospective tenant.
31. SUBORDINATION TO MORTGAGE. Tenant accepts this Lease subject
and subordinate to any mortgage deed of trust or other lien presently
existing or hereafter arising upon the Premises, or upon the Building
and/or the Property and to any renewals, modifications, refinancings and
extensions thereof, but Tenant agrees that any such mortgagee shall have
the right at any time to subordinate such mortgage, deed of trust or other
lien to this Lease on such terms and subject to such conditions as such
mortgagee may deem appropriate in its discretion. This clause shall be
self-operative and no further instrument of subordination shall be
required. However, Landlord is hereby irrevocably vested with full power
and authority to subordinate this Lease to any mortgage, deed of trust or
other lion now existing or hereafter placed upon the Premises, or the
Building and/or the Property and Tenant agrees upon demand to execute such
further instruments subordinating this Lease or attorning to the holder of
any such liens as Landlord may request. The terms of this Lease are
subject to approval by the Landlord's existing lender(s) and any lender(s)
who, at the time of the execution of this Lease, have committed or are
considering committing to Landlord to make a loan secured by all or any
portion of the Property, and such approval is a condition precedent to
Landlord's obligations hereunder. In the event that Tenant should fail to
execute any subordination or other agreement required by this Paragraph
promptly as requested, Tenant hereby irrevocably constitutes Landlord as
its attorney-in-fact to execute such instrument in Tenant's name, place
and stead, it being agreed that such power is one coupled with an interest
in Landlord and is accordingly irrevocable. TENANT'S SUBORDINATION TO THE
INTERESTS OF ANY FUTURE LENDER IS CONTINGENT UPON THE LENDER ENTERING INTO
A NONDISTURBANCE AGREEMENT WITH TENANT, IN A FORM SATISFACTORY TO SUCH
LENDER, STATING THAT TENANT'S RIGHT TO THE CONTINUED USE AND POSSESSION OF
THE PREMISES SHALL BE UNDER THAT SAME TERMS AND CONDITIONS AS SET FORTH IN
THIS LEASE PROVIDED THAT AT SUCH TIME TENANT IS NOT IN DEFAULT OF ITS
OBLIGATIONS HEREIN.
32. ESTOPPEL CERTIFICATE. Tenant agrees periodically to furnish
within ten (10) days after so requested by Landlord, ground lessor or the
holder of any deed of trust, mortgage or security agreement covering the
Building, the Land, or any interest of Landlord therein, a certificate
signed by a Tenant certifying (a) that this Lease is in full force and
effect and unmodified (or if there have been modifications, that the same
is in full force and effect as modified and stating the modifications),
(b) as to the Commencement Date and the date through which Base Rental and
estimated Operating Expense Rental have been paid, (c) that Tenant has
accepted possession of the Premises and that any improvements required by
the terms of this Lease to be made by Landlord have been completed to the
satisfaction of Tenant, (d) that except as stated in the certificate no
rent has been paid more than thirty (30) days in advance of its due date,
(e) that the address for notices to be sent to Tenant is as set forth in
this Lease (or has been changed by notice duly given and is as set forth
in the certificate), (f) that except as stated in the certificate, Tenant,
as of the date of such certificate, has no charge, lien, or claim of
offset against rent due or to become due, (g) that except as stated in the
certificate, Landlord is not then in default under this Lease, (h) as to
the amount of Rentable Area then occupied by Tenant, (i) that there are no
renewal or extension options, purchase options, rights of first refusal or
the like in favor of Tenant except as set forth in this Lease, (j) the
amount and nature of accounts payable to Landlord under terms of this
Lease and (k) as to such other matters as may be requested by Landlord or
ground lessor or the holder of any such deed of trust, mortgage or
security agreement. Any such certificate may be relied upon by any ground
lessor, prospective purchaser, secured party, mortgagee or any beneficiary
under any mortgage, deed of trust on the Building or the Land or any part
thereof or interest of Landlord therein.
33. ATTORNEY'S FEES. In the event either party defaults in the
performance of any of the terms of this Lease and the other party employs
an attorney in connection therewith, the defaulting party agrees to pay
the prevailing party's reasonable attorneys' fees.
34. NOTICE. Any notice in this Lease provided for must, unless
otherwise expressly provided herein, be in writing, and may, unless
otherwise in this Lease expressly provided, be given or be served by
depositing the same in the United States mail, postage paid and certified
with return receipt requested, or by prepaid telegram, when appropriate,
addressed to the party to be notified at the address stated in this Lease
or such other address notice of which has been given to the other party or
by delivering the same in person to such party or an officer or partner of
such party. Notice deposited in the mail in the manner hereinabove
described shall be effective as of the date it is so deposited. Neither
party hereto shall be required to send any notice, request, demand,
consent, approval, or other communication required or permitted under this
lease to more than two (2) other addresses in addition to the premises.
35. SEVERABILITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application
of such term or provision to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and
enforced to the fullest extent permitted by law.
36. RECORDATION. Tenant agrees not to record this Lease or any
memorandum hereof.
37. GOVERNING LAW. This Lease and the rights and obligations of the
parties hereto shall be interpreted, construed, and enforced in accordance
with the laws of the State.
38. FORCE MAJEURE. Whenever a period of time is herein prescribed
for the taking of any action by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the computation of such
period of time, any delays due to strikes, riots, acts of God, shortages
of labor or materials, war, governmental laws, regulations or
restrictions, or any other cause whatsoever beyond the control of
Landlord.
39. TIME OF PERFORMANCE. Except as expressly otherwise herein
provided, with respect to all required acts of Tenant, time is of the
essence of this Lease.
40. TRANSFERS BY LANDLORD. Landlord shall have the right to
transfer and assign, in whole or in part, all of its rights and
obligations hereunder and in the Building and Property referred to herein,
and in such event and upon such transfer AND PAYMENT OF THE SECURITY
DEPOSIT TO SUCH TRANSFEREE, Landlord shall be released from any further
obligations hereunder, and Tenant agrees to look solely to such successor
in interest of Landlord for the performance of such obligations.
41. COMMISSIONS. Landlord and Tenant hereby indemnify and hold each
other harmless against any loss, claim, expense or liability with respect
to any commissions or brokerage fees claimed on account of the execution
and/or renewal of this Lease due to any action of the indemnifying party
COMMISSIONS PAYABLE UNDER THIS TRANSACTION SHALL BE PAID BY LANDLORD.
42. JOINT AND SEVERAL LIABILITY. If there is more than one Tenant,
or if the Tenant as such is comprised of more than one person or entity,
the obligations hereunder imposed upon Tenant shall be joint and several
obligations of all such parties.
43. AUTHORITY. In the event Tenant is a corporation (including any
form of professional association), partnership (general or limited), or
other form of organization other than an individual, then each individual
executing or attesting this Lease on behalf of Tenant hereby covenants,
warrants and represents: (i) that such individual is duly authorized to
execute or attest and deliver this Lease on behalf of Tenant in accordance
with the organizational documents of Tenant; (ii) that this Lease is
binding upon Tenant; (iii) that Tenant is duly organized and legally
existing in the state of its organization, and is qualified to do business
in the State; (iv) that upon request, Tenant will provide Landlord with
true and correct copies of all organizational documents of Tenant, and any
amendments thereto; and (v) that the execution and delivery of this Lease
by Tenant will not result in any breach of, or constitute a default under
any mortgage, deed of trust, lease, loan, credit agreement, partnership
agreement or other contract or instrument to which Tenant is a party or by
which Tenant may be bound. If Tenant is a corporation, Tenant will, prior
to the Commencement Date, deliver to Landlord a copy of a resolution of
Tenant's board of directors authorizing or ratifying the execution and
delivery of this Lease, which resolution will be duly certified to
Landlord's satisfaction by the secretary or assistant secretary of Tenant.
44. FINANCIAL CONDITION OF TENANT. Tenant acknowledges that the
financial capability of Tenant to perform its obligations hereunder is
material to Landlord and that Landlord would not enter into this Lease but
for Its belief, based on its review of Tenant's financial statements, that
Tenant is capable of performing such financial obligations. Tenant hereby
represents, warrants and certifies to Landlord that its financial
statements are true and correct in all material respects.
45. EFFECT OF DELIVERY OF THIS LEASE. Landlord has delivered a copy
of this Lease to Tenant for Tenant's review only, and the delivery hereof
does not constitute an offer to Tenant or option. This Lease shall not be
effective until an original of this Lease executed by both Landlord and
Tenant and an original Guaranty, if applicable, in the form attached
hereto as EXHIBIT "F" executed by each Guarantor is delivered to and
accepted by Landlord, and this Lease has been approved by Landlord's
mortgagee.
46. ENTIRE AGREEMENT. This Lease Agreement, including the following
Exhibits:
EXHIBIT "A" - Property Description
EXHIBIT "B" - Outline and Location of Premises
EXHIBIT "C" - Operating Expense Rental
EXHIBIT "D" - Work Letter
EXHIBIT "D-1" - Base Building Shell and Core Condition
EXHIBIT "D-2" - Tenant Improvement Allowance
EXHIBIT "D-3" - Landlord's Building Standard Material
EXHIBIT "E" - Rules and Regulations
EXHIBIT "G" - Option to Renew
EXHIBIT "H" - Letter of Credit
EXHIBIT "H-1" - Form of Demand Letter of Credit
EXHIBIT "I" - Parking Agreement
constitute the entire agreement between the parties hereto with respect to
the subject matter of this Lease. Tenant expressly acknowledges and
agrees that Landlord has not made and is not making, and Tenant, in
executing and delivering this Lease, is not relying upon, any warranties,
representations, promises or statements, except to the extent that the
same are expressly set forth in this Lease. All understandings and
agreements heretofore had between the parties are merged in this Lease
which alone fully and completely expresses the agreement of the parties,
neither party relying upon any statement or representation not embodied in
this Lease.
47. NO PRESUMPTION AGAINST DRAFTER. Landlord and Tenant understand,
agree and acknowledge that this Lease has been freely negotiated by both
parties; and (ii) in any controversy, dispute or contest over the meaning,
interpretation, validity, or enforceability of this Lease or any of its
terms or conditions, there shall be not inference, presumption, or
conclusion drawn whatsoever against either party by virtue of that party
having drafted this Lease or any portion thereof.
48. WARRANTY WAIVER: EXCEPT AS SPECIFICALLY PROVIDED UNDER THIS
LEASE, LANDLORD, ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS AND
CONTRACTORS, MAKE NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PROJECT, PROPERTY, BUILDING OR THE PREMISES OR ITS CONDITION. NO WARRANTY
OF MATERIALS, WORKMANSHIP OR APPLIANCES HAS BEEN MADE OR IS EXPRESSED OR
IMPLIED BY THIS LEASE. LANDLORD, ITS OFFICERS, DIRECTORS, AGENTS,
EMPLOYEES, ATTORNEYS AND CONTRACTORS EXPRESSLY DISCLAIM AND TENANT
EXPRESSLY WAIVES ANY WARRANTY OF HABITABILITY, GOOD AND WORKMANLIKE
CONSTRUCTION, SUITABILITY, OF DESIGN OR FITNESS FOR A PARTICULAR PURPOSE
AND EXPRESSLY DISCLAIM AND TENANT EXPRESSLY WAIVES ANY WARRANTY AS TO THE
ENVIRONMENTAL CONDITION OF THE PROJECT, PROPERTY, BUILDING OR PREMISES AND
THE PRESENCE OR CONTAMINATION BY HAZARDOUS MATERIALS. TENANT IS NOT
RELYING ON ANY REPRESENTATIONS BY LANDLORD OR LANDLORD'S OFFICERS,
DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS AND CONTRACTORS. TENANT EXPRESSLY
WAIVES, TO THE EXTENT ALLOWED BY LAW, ANY CLAIMS UNDER FEDERAL, STATE OR
OTHER LAW THAT TENANT MIGHT OTHERWISE HAVE AGAINST LANDLORD, ITS OFFICERS,
DIRECTORS, AGENTS, EMPLOYEES, ATTORNEYS AND CONTRACTORS RELATING TO THE
CONDITION OF THE PROJECT, PROPERTY, BUILDING OR PREMISES OR THE
IMPROVEMENTS OR PERSONAL PROPERTY LOCATED THEREON OR THE PRESENCE IN OR
CONTAMINATION OF THE PROJECT OR THE PREMISES BY HAZARDOUS MATERIALS.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
multiple original counterparts as of the day and year first above written.
LANDLORD:
--------
MONY/BDP Flex I, L.L.C., a Delaware
limited liability corporation
By: Transwestern Investment Company,
as agent
/s/ Scott A. Tausu
---------------------------------------
Name (print): Scott A. Tausu
Title: SVP
ADDRESS:
- -------
Transwestern Commercial Services
600 Grant Street
Suite 630
Denver, CO 80203
Attn: Arapahoe Service Center 2
TENANT:
------
CAVION TECHNOLOGIES, INC., a Colorado
corporation
/s/ David J. Selina
---------------------------------------
Name (print): David J. Selina
Title: President/CEO
ADDRESS:
- -------------------------
