<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-27886
SALON.COM
(Exact name of Registrant as specified in its charter)
Delaware 94-3228750
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
706 Mission Street, 2nd Floor
San Francisco, CA 94103
(Address of principal executive offices)
________________
(415) 882-8720
(Registrant's telephone number, including area code)
________________
Securities registered pursuant to Section 12(b) of the Act:
None
________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [ X]
The number of outstanding shares of the Registrant's Common Stock, par value
$0.001 per share, on July 31, 1999 was 11,351,390 shares.
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1
<PAGE>
FORM 10-Q
SALON.COM
INDEX
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION Number
<S> <C> <C>
ITEM 1: Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and March 31, 1999.............................. 3
Consolidated Statements of Operations for the three months ended June 30, 1999 and 1998 (unaudited)......... 4
Consolidated Statements of Cash Flows for the three month periods ended June 30, 1999 and 1998 (unaudited).. 5
Notes to Consolidated Financial Statements.................................................................. 6
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 11
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk.................................................. 27
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings........................................................................................... 28
ITEM 2. Changes in Securities and Use of Proceeds................................................................... 28
ITEM 4. Submission of Matters to a Vote of Security Holders......................................................... 28
ITEM 5. Other Information........................................................................................... 28
ITEM 6: Exhibits and Reports on Form 8-K............................................................................ 28
Signature................................................................................................... 29
Exhibits.................................................................................................... 30
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SALON.COM
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 754,000 $ 33,665,000
Accounts receivable, net 497,000 561,000
Inventories 26,000 21,000
Prepaid expenses and other current assets 578,000 194,000
----------------- ----------------
Total current assets 1,855,000 34,441,000
Property and equipment, net 707,000 713,000
Other assets 136,000 219,000
Intangible assets, net 5,110,000 4,855,000
----------------- ----------------
Total assets $ 7,808,000 $ 40,228,000
================= ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,036,000 $1,461,000
Accrued liabilities 439,000 1,572,000
Deferred revenue 541,000 373,000
Bank borrowings 364,000 168,000
----------------- ----------------
Total current liabilities 2,380,000 3,574,000
Bank borrowings, net of current portion 75,000 1,000
----------------- ----------------
Total liabilities 2,455,000 3,575,000
----------------- ----------------
Stockholders' Equity:
Convertible preferred stock, no par value;
8,108,750 and 5,000,000 shares authorized at March 31, 1999 and
June 30, 1999 (unaudited), respectively; 4,815,345 and 0 shares were
issued and outstanding at March 31, 1999 and June 30, 1999 (unaudited),
respectively; 15,789,000 -
Common stock, $.001 par value;
12,500,000 and 50,000,000 shares authorized at March 31, 1999
and June 30, 1999 (unaudited), respectively; 447,496 and
11,178,196 shares were issued and outstanding at
March 31, 1999 and June 30, 1999 (unaudited),
respectively 1,000 11,000
Additional paid-in capital 3,147,000 69,486,000
Unearned compensation (834,000) (4,014,000)
Accumulated deficit (12,750,000) (28,830,000)
----------------- ----------------
Total stockholders' equity 5,353,000 36,653,000
----------------- ----------------
Total liabilities and stockholders' equity $ 7,808,000 $ 40,228,000
================= ================
</TABLE>
3
<PAGE>
SALON.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1999
(unaudited)
<S> <C> <C>
Net revenues $ 408,000 $ 1,005,000
------------------- ------------------
Operating expenses:
Production, content and product 843,000 2,103,000
Sales and marketing 690,000 1,830,000
Research and development 81,000 230,000
General and administrative 91,000 576,000
Amortization of intangible assets - 255,000
Stock-based compensation 141,000 630,000
------------------- ------------------
Total operating expenses 1,846,000 5,624,000
------------------- ------------------
Loss from operations (1,438,000) (4,619,000)
Other income 13,000 54,000
------------------- ------------------
Net loss $ (1,425,000) $ (4,565,000)
=================== ==================
Preferred deemed dividend - 11,515,000
------------------- ------------------
Net loss attributable to common stockholders $ (1,425,000) $ (16,080,000)
=================== ==================
Basic and diluted net loss per share attributable
to common stockholders $ (3.75) $ (10.10)
=================== ==================
Weighted average shares used in
computing basic and diluted net
loss per share attributable to
common stockholders 380,000 1,592,000
------------------- ------------------
Pro forma net loss per share, basic and diluted (see note 3) ($3.38) ($0.45)
------------------- ------------------
Shares used in computing pro forma net loss, basic and diluted 380,000 8,200,000
------------------- ------------------
</TABLE>
4
<PAGE>
SALON.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1999
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,425,000) $ (4,565,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Stock-based compensation 141,000 630,000
Depreciation and amortization 48,000 344,000
Amortization of discount on bank borrowings 1,000 7,000
Changes in operating assets and liabilities:
Accounts receivable 86,000 (64,000)
Inventories (29,000) 5,000
Prepaid expenses and other assets 34,000 545,000
Accounts payable 100,000 425,000
Accrued liabilities 165,000 1,132,000
Deferred revenue (46,000) (168,000)
--------------- ----------------
Net cash used in operating activities (925,000) (1,709,000)
--------------- ----------------
Cash flows from investing activities:
Purchase of property and equipment (171,000) (95,000)
--------------- ----------------
Net cash used in investing activities (171,000) (95,000)
--------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock and common
stock warrants, net - 10,936,000
Proceeds from issuance of common stock, net - 23,971,000
Proceeds from exercise of options 3,000 84,000
Repayments of bank borrowings (21,000) (276,000)
--------------- ----------------
Net cash (used in) provided by financing activities (18,000) 34,715,000
--------------- ----------------
Net increase (decrease) in cash and cash equivalents (1,114,000) 32,911,000
Cash and cash equivalents - beginning of period 1,926,000 754,000
--------------- ----------------
Cash and cash equivalents - end of period $ 812,000 $ 33,665,000
=============== ================
Non-cash investing and financing transactions:
Unearned compensation in connection with the issuance
of stock options $ 283,000 $ 3,811,000
=============== ================
Issuance of warrants in connection with bank borrowings $ 36,000 $ -
=============== ================
Issuance of warrants in connection with distribution agreement $ - $ 244,000
=============== ================
Conversion of preferred stock to common stock $ - $ 25,301,000
=============== ================
Preferred deemed dividend $ - $ 11,515,000
=============== ================
</TABLE>
5
<PAGE>
Salon.com
Notes to Consolidated Financial Statements
1. The Company
Salon.com is an Internet media company that produces a network of ten
subject-specific, demographically targeted Web sites and a variety of online
communities designed to attract Internet advertisers and electronic commerce
partners. Salon was originally incorporated in July 1995 in the State of
California and reincorporated in Delaware in June 1999.
2. Basis of Presentation
The accompanying consolidated financial statements as of June 30, 1999 and
for the three months ended June 30, 1999 and 1998 are unaudited. The
unaudited interim consolidated financial statements have been prepared on the
same basis as the annual financial statements and, in the opinion of
management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly Salon's financial position, results
of operations and cash flows as of and for the three months ended June 30,
1999 and 1998. These consolidated financial statements and notes thereto are
unaudited and should be read in conjunction with Salon's audited financial
statements included in Salon's Form S-1 registration statement, as amended,
filed with the Securities and Exchange Commission. The balance sheet as of
March 31, 1999 was derived from audited financial statements, but does not
include all required disclosures required by generally accepted accounting
principles. The results for the three months ended June 30, 1999 are not
necessarily indicative of the expected results for any other interim period
or the year ending March 31, 2000. Certain prior period balances have been
reclassified to conform to the current period presentation.
3. Summary of Significant Accounting Policies
Net loss per share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 replaced primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Basic earnings per share is computed
using the weighted-average number of common shares outstanding during the
period. Diluted earnings per share is computed using the weighted-average
number of common and common stock equivalents outstanding during the period.
Common stock equivalent shares in the amount of 1,780,615 and 2,692,058 have
been excluded from the computation of the June 30, 1998 and 1999 earnings per
share calculation as their effect is anti-dilutive.
Pro forma net loss per share has been computed as described above except that
it assumes the conversion of preferred stock outstanding into common stock
during the relevant period. It also eliminates non-cash charges for
amortization of intangible assets, stock-based compensation, and the
preferred deemed dividend from the net loss.
6
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30
--------------------------
1998 1999
----------- ------------
<S> <C> <C>
Net loss attributable to common stockholders $(1,425,000) $(16,080,000)
Less: Amortization of intangible assets -- 255,000
Stock-based compensation 141,000 630,000
Preferred deemed dividend -- 11,515,000
----------- ------------
Adjusted net loss attributable to common stockholders $(1,284,000) $ (3,680,000)
=========== ============
Shares used in computing net loss attributable to 380,000 1,592,000
common stockholders, basic and diluted
Adjustment to reflect the assumed conversion of -- 6,608,000
preferred stock
Shares used in computing pro forma net loss, basic and 380,000 8,200,000
diluted
Pro forma net loss per share, basic and diluted $(3.38) $(.45)
</TABLE>
Inventories
Inventories consist solely of finished goods.
Concentrations
One customer accounted for 11% of net revenues for the three months ended
June 30, 1999. For the three months ended June 30, 1998, two customers
accounted for 33% and 11% of net revenues, respectively.
Included in sponsorship and advertising revenues are barter transactions that
accounted for approximately 11% and 22% of net revenues for the three
months ended June 30, 1999 and 1998, respectively.
7
<PAGE>
4. Stockholders' Equity
On April 8, 1999, Salon's Articles of Incorporation were amended to (i)
increase the amount of authorized shares of preferred stock to 8,108,750 and
common stock to 12,500,000, (ii) increase the number shares of preferred
stock designated as Series C to 4,500,000, (iii) effect a 1.35567 for 1 stock
split of each then outstanding share of Series C preferred stock and (iv)
modify the rights, preferences, privileges and restrictions granted to or
imposed on the Series A, Series B and Series C preferred stock. In
conjunction with the increase in Series C, an aggregate of 4,500,000 shares
of Salon's common stock were reserved for issuance upon conversion of the
Series C preferred stock.
On April 14, 1999, Salon completed an additional offering of Series C
preferred stock. Pursuant to this offering, a total of 2,967,782 additional
shares of Series C preferred stock were sold at a price of $3.88 per share,
for total net proceeds of approximately $10.9 million. The difference
between the offering price and the deemed fair value of the common stock on
the date of the transaction resulted in a beneficial conversion feature in
the amount of $11,515,000. The beneficial conversion feature has been
reflected as a preferred deemed dividend in the statement of operations. In
connection with investment broker services provided during this offering
Salon issued warrants to entities affiliated with Daiwa Securities America,
Inc. to purchase an aggregate of 148,389 shares of Series C preferred stock
at an exercise price of $3.88 per share. Upon completion of the Company's
IPO, the warrants converted into the right to purchase an equivalent number
of shares of Salon's common stock at the same exercise price. The warrants
may be exercised at any time within five years after issuance. Salon valued
the warrants using the Black-Scholes option pricing model, applying an
expected life of 5 years, a weighted average risk-free rate of 5.14%, an
expected dividend yield of zero percent, a volatility of 107% and a deemed
fair value of common stock of $10.80. The fair market value of the warrants
of $1.4 million has been netted against the proceeds from the offerings.
In April 1999, Salon reincorporated in Delaware, changing its name to
Salon.com, and effected a one for two split of its common and preferred
stock. In connection with the reincorporation, Salon authorized (i) an
increase in the amount of authorized shares of common stock to 50,000,000 and
(ii) 5,000,000 shares of a new class of preferred stock. All share data and
stock option plan information has been restated to reflect the stock splits
and the reincorporation.
On April 14, 1999, in connection with marketing consulting services to be
provided to Salon, a warrant was issued to ACT III Communications to purchase
25,773 shares of Series C preferred stock at an exercise price of $3.88 per
share. Upon completion of the Company's IPO, the warrant converted into the
right to purchase an equivalent number of shares of Salon's common stock at
the same exercise price. The warrant may be exercised at any time within
five years after issuance. Salon valued the warrant using the Black-Scholes
option pricing model, applying an expected life of 5 years, a weighted
average risk-free rate of 5.14%, an expected dividend yield of zero percent,
a volatility of 107% and a deemed fair value of common stock of $10.80. The
fair market value of the warrant of $244,000 was recorded in other assets,
and is being amortized over the term of the agreement.
8
<PAGE>
Stockholders' equity activity for the three months ended June 30, 1999 was as
follows:
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Unearned Accumulated
Stock Stock Capital Compensation Deficit
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 $ 15,789,658 $ 448 $3,146,811 $ (833,799) $(12,750,412)
Issuance of Series C
Preferred Stock and
warrants, net 9,511,179 - 1,424,492 - -
Unearned compensation - - 3,810,954 (3,810,954) -
Exercise of stock options - 449 83,859 - -
Issuance of Preferred
Stock warrants - - 243,979 - -
Initial public offering - 2,500 23,968,189 - -
Conversion of Preferred
Stock to common (25,300,837) 7,781 25,293,054 - -
Amortization of
unearned compensation - - - 630,402 -
Net loss - - - - (4,564,896)
Preferred deemed dividend - - 11,515,000 - (11,515,000)
---------------- ---------------- ---------------- --------------- -----------------
Balance, June 30, 1999 $ - $ 11,178 $ 69,486,338 $ (4,014,351) $(28,830,308)
================ ================ ================ =============== =================
</TABLE>
6. Employee Stock Option Plan
On April 8, 1999, Salon's board of directors and stockholders approved a
1,000,000 share increase in the number of shares issuable under the 1995
Stock Option Plan.
In April 1999, Salon granted 359,500 options to employees to acquire common
stock at an exercise price of $2.92. Salon recorded an aggregate of $2.81
million of unearned compensation representing the difference between the
deemed fair market value of common stock and the option exercise price at the
date of grant. Such unearned compensation will be amortized over the vesting
period relating to these options. Salon amortized approximately $29,000 and
$458,000 in the three months ended June 30, 1998 and 1999, respectively,
related to options granted.
In connection with the grant of options for the purchase of common stock to
non-employees, Salon recorded compensation in accordance with Emerging Issues
Task Force 96-18 and SFAS 123. During the quarter ended June 30, 1999, the
Company recorded deferred compensation of approximately $996,000 related to
these options. Such deferred compensation will be amortized over the vesting
period relating to these options. Salon amortized approximately $112,000 and
$172,000 in the three months ended June 30, 1998 and 1999, respectively.
9
<PAGE>
If the stock-based compensation for the three months ended June 30, 1999 and
1998 had been allocated across the relevant functional expense categories
within operating expenses, it would be allocated as follows:
<TABLE>
<CAPTION>
Three Months
Ended June 30,
1998 1999
<S> <C> <C>
Production, content and product $ 63,000 $ 232,000
Sales and marketing 62,000 182,000
Research and development 12,000 30,000
General and administrative 4,000 186,000
---------------- ----------------
$ 141,000 $ 630,000
================ ================
</TABLE>
7. Employee Stock Purchase Plan
In April 1999, Salon adopted an Employee Stock Purchase Plan (the "ESPP") to
provide substantially all employees whose customary employment is more than
20 hours per week for more than five months in any calendar year eligibility
to purchase shares of its common stock through payroll deductions up to 10%
of eligible compensation. Participant account balances are used to purchase
shares of Salon common stock at the lesser of 85 percent of the fair market
value of shares on either the first day or the last day of the designated
payroll deduction period (the "Offering Period"), as established by the Board
of Directors at its discretion, whichever is lower. The aggregate number of
shares purchased by an employee may not exceed 1,000 shares in any one
Offering Period, generally 12 months or less (subject to limitations imposed
by the Internal Revenue Code). A total of 500,000 shares are available for
purchase under the ESPP.
8. Subsequent Events
On July 9, 1999, Salon entered into a non-cancelable lease agreement
requiring a deposit of $700,000 within fifteen days of the lease date and
monthly rent of $69,610 for the first 5 years and $78,311 for the next five
year term.
On July 26, 1999, Salon issued an additional 100,000 shares of common stock
at a price of $9.975 per share for total proceeds of $997,500. The shares
were issued upon exercise of a 30-day option granted to Salon's underwriters
to cover over-allotments.
10
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Salon has included in this filing certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
concerning Salon's business, operations and financial condition. The words or
phrases "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions are generally intended to identify forward-
looking statements. Such forward-looking statements are subject to various known
and unknown risks and uncertainties and Salon cautions you that any forward-
looking information provided by or on behalf of Salon is not a guarantee of
future performance. Actual results could differ materially from those
anticipated in such forward-looking statements due to a number of factors, some
of which are beyond Salon's control, including but not limited to Salon's
limited operating history, anticipated losses, the unpredictability of its
future revenues, competition, risks associated with system development and
operation risks, management of potential growth, and risks of new business
areas, business combinations, and strategic alliances. All forward-looking
statements are based on information available to the company on the date hereof
and the company assumes no obligation to update such statements.
Overview
Salon.com is a leading Internet media company that produces a network of
ten subject-specific, demographically-targeted Web sites and a variety of online
communities. Salon believes that its network of Web sites combines the
thoughtfulness of print, the timeliness of television and the interactivity of
talk radio. Salon's ten content sites provide news, features, interviews and
regular columnists on specific topics, from arts and entertainment to parenting
and health. The main entry and navigation point to Salon's various content
sites is Salon's home page at www.salon.com.
-------------
Our network of subject-specific Web sites includes:
. Salon News . Salon Books
. Salon Technology . Salon Media
. Salon Arts & Entertainment . Salon Travel
. Salon Mothers Who Think . Salon People
. Salon Health & Body . Salon Comics
Salon's online communities allow users to interact and discuss Salon
content and other topics via electronic messaging. Salon's online communities
include Table Talk, a free interactive forum, and The Well, a paid subscription
community. Because of Salon's reputation for community building, Salon also has
agreed with third parties to host communities within its network. Salon's users
can access Table Talk or The Well through www.salon.com or through Salon's ten
content Web sites.
Salon believes that its original, award-winning content and highly regarded
interactive communities allow Salon to attract and retain users who are younger,
more affluent, better educated and more likely to make online purchases than
typical Internet users. Salon believes its user profile makes its network of
Web sites and online communities a valuable media property for advertisers and
retailers who are increasingly allocating marketing resources to target
consumers online.
In June 1999, approximately 1.3 million unique users visited Salon's
network of Web sites, compared to approximately 567,000 unique users in June
1998. Salon generated approximately 47 million page views for the three months
ended June 30, 1999, compared to approximately 21 million page views for the
three months ended June 30, 1998. Salon generated 159,000,000 ad impressions
for the three months ended June 30, 1999 compared to 28,000,000 for the three
months ended June 30, 1998.
11
<PAGE>
Salon has entered into a number of distribution agreements to generate
traffic and to promote the Salon brand name. Many of these agreements are
"content-for-carriage," in which Salon provides its proprietary content to a
distribution partner and receives prominent placement of its logo and content on
the distribution partner's site, as well as links back to Salon's network.
Salon has entered into distribution and content relationships with many of
the major portal and content aggregation sites on the Web, including:
<TABLE>
<CAPTION>
<S> <C> <C>
. America Online . TheStreet.com . EchoStar
. AltaVista . CNN.com . PointCast
. Lycos . @Home . WebTV
. Go.com . C/Net . Snap!
. Netscape . Rocket eBook . Reuters
</TABLE>
Salon has derived a significant amount of its revenues to date from
Internet advertising, advertising sponsorships and e-commerce sponsorships.
Advertising and sponsorship revenue represented 80.0% of net revenues for the
three months ended June 30, 1999.
Internet advertising revenues are derived generally from short term
advertising contracts in which Salon typically guarantees a minimum number of
impressions to be delivered to users over a specified period of time for a fixed
fee. Advertising revenues are recognized ratably over the period in which the
advertising is displayed. If the percentage of time elapsed exceeds the
percentage of guaranteed impressions delivered, revenue is recognized at the
lower percentage.
Advertising sponsorship revenues are derived generally from contracts
ranging from six to thirty-six months in which Salon commits to provide sponsors
with enhanced promotional opportunities beyond traditional banner advertising.
Sponsorship agreements typically include the delivery of impressions, exclusive
relationships, and design and development of customized co-branded pages
designed to achieve broad marketing objectives including brand awareness and
product introduction. Salon also offers exclusive category opportunities to
sponsors, including Lexus' sponsorship of Salon's Brilliant Careers editorial
series.
Salon's advertising rates vary depending primarily on the particular
content site on which advertisements are placed, the total number of impressions
purchased and the length of the advertiser's commitment. Advertising revenue is
recognized in the period in which the advertisement is displayed, provided that
no significant obligations remain and collection of the resulting receivable is
probable. Revenues related to upfront fees in connection with advertising
sponsorships and electronic commerce sponsorships are recognized ratably over
the sponsorship term. Electronic commerce sponsorships may provide that Salon
receive commissions from electronic commerce transactions. These commissions
are recognized by Salon upon notification from the sponsor. The notification
from advertisers and distribution partners is generally received quarterly.
Under some of Salon's distribution agreements, Salon is entitled to receive a
portion of the advertising revenue generated on co-branded pages. These
advertising revenues are recognized upon notification from the distribution
partner.
Salon's strategy for capturing electronic commerce advertising revenues is
to enter into sponsorships with premium online retailers. Sponsorship fees are
paid to Salon by a particular retailer for a measure of exclusivity in the
retailer's industry segment. Salon's e-commerce sponsors include:
. Barnesandnoble.com
. DrKoop.com
. 911 Gifts
. Expedia
12
<PAGE>
Sponsorship and advertising revenues also include barter revenues, which
are the exchange of advertising space on Salon's Web sites for reciprocal
advertising space on other Web sites. Revenues from these barter transactions
are recorded as advertising revenues at the estimated fair value of the
advertisements received or delivered, whichever is more reliably measurable, and
are recognized when the advertisements are run on Salon's Web sites. Barter
expenses are recorded in sales and marketing in the consolidated statements of
operations when Salon's advertisements are run on Salon's Web sites.
E-commerce revenues are derived principally from sales through Salon's own
online store, Salon Shopping. Salon Shopping offers a range of upscale Salon-
branded and third party products, as well as goods offered by Salon's retailing
partners. Salon recognizes revenue on items from Salon Shopping when the goods
are shipped.
Salon obtains content licensing revenue by syndicating and licensing its
content to media companies worldwide for publication on Web sites, and in
newspapers and magazines. In addition to revenues, syndication and licensing
provide Salon with valuable exposure for the Salon brand and additional traffic
to Salon's network. These arrangements also require prominent placement of
Salon's logo and primary Internet address in reproductions of its content.
Revenues related to the syndication and licensing of Salon content to other
media outlets are recognized on notification that the content has been
published.
Salon derives revenue from two paid subscription services: The Well and
Salon Members. The Well, a paid subscription online community, was acquired by
Salon in March 1999. Salon Members is an annual membership program designed to
provide specific products and services to Salon's user base. Subscription
revenues are recognized ratably over the period that services are to be
provided.
Results of Operations
Net Revenues
Net revenues increased 146% to $1.0 million for the three months ended
June 30, 1999, from $408,000 for the three months ended June 30, 1998. The
increase in revenues was primarily due to Salon's ability to generate
significantly higher sponsorship and advertising revenues and development of its
subscription strategy through the acquisition of The Well and launch of Salon
Members. The net increase in internet advertising, advertising sponsorship and
e-commerce sponsorship revenues was primarily due to an increase in the number
of impressions sold and an increase in the number of sponsors advertising on
Salon's Web sites. Sponsorship and advertising revenues accounted for
approximately 80% of net revenues for the three months ended June 30, 1999.
One customer accounted for 11% of revenues for the three months
ended June 30, 1999. For the three months ended June 30, 1998, two customers
accounted for 33% and 11% of net revenues, respectively.
Included in sponsorship and advertising revenues are barter transactions
that accounted for $115,000 or approximately 11% of revenues for the three
months ended June 30, 1999, and $91,000 or 22% of net revenues for the three
months ended June 30, 1998.
Operating Expenses
Production, Content and Product
Production, content and product expenses consist primarily of payroll and
related expenses for Salon's editorial, artistic, production and The Well staff,
payments to freelance writers and artists, and telecommunications and computer
related expenses for the support and delivery of Salon's Web sites and online
communities. Also included in production, content and product expenses are
costs associated with electronic commerce transactions, including the costs of
product inventory and distribution. Production, content and product expenses
were
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approximately $2.1 million, or 209% of revenues, and $843,000 or 207% of
revenues, for the three months ended June 30, 1999 and 1998, respectively. The
increase in production, content and product expenses for the three months ended
June 30, 1999 is primarily attributable to increased costs relating to growth in
Salon's editorial, art, and production staff, costs associated with Salon's new
online community, The Well, and payments to freelance writers and artists.
Production, content and product expenses as a percentage of revenues increased
as result of the increased growth in production, content and product expenses in
relation to revenue growth.
Sales and Marketing
Sales and marketing expenses consist of payroll and related expenses,
including commissions, travel expenses and other costs associated with Salon's
advertising and sponsorship sales force, as well as advertising, promotional and
distribution costs. Sales and marketing expenses were $1.8 million, or 182% of
net revenues, and $690,000, or 169% of net revenues, for the three months
ended June 30, 1999 and 1998, respectively. The increase in sales and marketing
expenses was primarily attributable to Salon's advertising campaign in print and
on the radio, as well as the hiring of additional sales personnel including a
senior vice president of Sales. Included in sales and marketing expenses are
barter transactions, which accounted for approximately $115,000 and $91,000 for
the three months ended June 30, 1999 and 1998, respectively.
Research and Development
Research and development expenses consist of costs associated with the
development and maintenance of technology, including Salon's publishing platform
software and archival database, as well as in technical support staff for
Salon's Web sites and online communities. Research and development expenses
increased 184% to $230,000 in the three months ended June 30, 1999 from $81,000
in the three months ended June 30, 1998, and increased as a percentage of net
revenues to 23% from 20% for these respective periods. The increase in research
and development expenses is primarily attributable to salary and payroll related
expenses for the technical support of Salon's new websites, online communities,
and increased staff, as well as the maintenance and development of new
technology, including the design and development of a new publishing platform
and advertising delivery system.
General and Administrative
General and administrative expenses consist primarily of salaries, payroll
taxes and benefits and related costs for general corporate functions including
executive management, finance, and legal and other professional fees. General
and administrative expenses were $576,000, or 57% of net revenues, and
$91,000, or 22% of net revenues, for the three months ended June 30, 1999 and
1998, respectively. The increase in general and administrative expenses is
primarily attributable to salary and related expenses for additional personnel
hired to support the growth of Salon's business and activities as a public
company and higher professional fees. General and administrative expenses
increased as a percentage of net revenues as a result of the increased growth
of general and administrative expenses in relation to revenue growth.
Amortization of Intangibles
Amortization of intangibles consists of the costs associated with the
amortization of the intangibles and goodwill associated with the acquisition of
The Well. The acquisition of The Well is accounted for using the purchase method
of accounting and is amortized on a straight line basis over 60 months.
Amortization expenses are $255,000 or 25% of net revenue, for the three months
ended June 30, 1999.
Stock-based Compensation
Stock-based compensation are expenses associated with the issuance of
stock options and warrants. Stock-based compensation charges are $630,000 or 63%
of net revenue, for the three months ended June 30, 1999, compared to $141,000
or 34% of net revenue for the three months ended June 30, 1998. The increase in
stock based compensation expenses is primarily attributable to an increased
number of employee options issued to new and existing employees.
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Other Income, Net
Other income consists primarily of interest earned on Salon's cash, cash
equivalents and short term investments, offset by interest expense on
borrowings. Other income increased to $54,000 in the three months ended June
30, 1999 from $13,000 for the three months ended June 30, 1998. The increase in
other income is primarily attributable to an increase in the amount of interest
earned by Salon due to an increase in Salon's cash balance as a result of its
financing activities during the quarter ended June 30, 1999.
Preferred Deemed Dividend
The preferred deemed dividend of $11.5 million for the three months ended
June 30, 1999 is the difference between the offering price of Salon's Series C
preferred stock sold in April 1999, and the deemed fair value of Salon's common
stock on the date of the transaction.
Net Loss
The Company recorded a net loss of $4.6 million, or $2.87 net loss per
share, for the three months ended June 30, 1999. The Company's net loss and net
loss per share excludes the preferred deemed dividend recorded in April 1999.
The Company recorded a net loss of $1.4 million for the three months ended June
30, 1998, or $3.75 net loss per share. As described in Note 3 ("Net loss per
share") to the financial statements, the company recorded a pro forma net loss
of $3.7 million, or $.45 net loss per share, for the three months ended June 30,
1999, as compared to a net loss of $1.3 million, or $3.38 net loss per share,
for the three months ended June 30, 1998.
Liquidity and Capital Resources
Since its inception, Salon has primarily financed its operations through
the private placement of its convertible preferred stock and its initial public
offering of common stock. As of June 30, 1999, Salon had approximately $33.7
million in cash and cash equivalents, of which $24.0 million was obtained
through Salon's initial public offering in June 1999.
Net cash used for operations was $1.7 million in the three months ended
June 30, 1999, as compared to $171,000 in the three months ended June 30, 1998.
The principal use of cash from operations was the net loss generated from
operations.
Net cash used for investing activities totaled $95,000 in the three months
ended June 30, 1999, as compared to $171,000 in the three months ended June 30,
1998. Net cash used for investing activities in each of these respective
periods consisted primarily of purchases of certain property and equipment,
including computer equipment.
Net cash provided by financing activities increased to $34.7 million from
net cash used in financing activities of $18,000 for the three months ended June
30, 1999 and 1998, respectively. The increase was primarily due to the receipt
of $24.0 million of net proceeds from Salon's initial public offering in June
1999, and $10.9 million of net proceeds from the private placement of preferred
stock in April 1999.
Salon's capital requirements depend on numerous factors, including the
success of Salon's strategies for generating revenues and the amount of
resources it devotes to investments in its network, sales, marketing and brand
promotion. Salon's expenditures have substantially increased since inception as
its operations and staff have grown and Salon anticipates that its expenditures
will continue to increase substantially for the foreseeable future. In
addition, Salon will continue to evaluate possible investments in businesses,
products and technologies complementary to its existing business.
Salon currently anticipates that its available cash resources will be sufficient
to meet its anticipated needs for working capital and capital expenditures for
at least the next 12 months. Salon may need to raise additional funds, however,
in order to fund more rapid expansion, to develop new or enhance existing
services, to respond to
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competitive pressures or to acquire complementary businesses, products or
technologies. If Salon raises additional funds by selling equity securities, the
percentage ownership of Salon's stockholders will be reduced and its
stockholders may experience additional dilution. Salon cannot be sure that
additional financing will be available on terms favorable to Salon, or at all.
If adequate funds are not available on acceptable terms, Salon's ability to fund
expansion, react to competitive pressures, or take advantage of unanticipated
opportunities would be substantially limited. If this occurred, Salon's business
would be significantly harmed.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software used by many companies and governmental agencies may need
to be upgraded to comply with these year 2000 requirements or risk system
failure or miscalculations that could cause disruptions of normal business
activities.
State of Readiness
Salon has made a preliminary assessment of the year 2000 readiness of its
operating financial and administrative systems, including the hardware and
software that support Salon's systems. Salon's assessment plan consists of:
. quality assurance testing of its internally developed proprietary
software;
. contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to the
delivery of Salon's services to its users;
. contacting vendors of third-party systems;
. assessing repair or replacement requirements;
. implementing repair or replacement; and
. creating contingency plans in the event of year 2000 failures.
Salon's year 2000 task force is currently conducting an inventory of and
developing testing procedures for all software and other systems that it
believes might be affected by year 2000 issues. Since third parties developed
and currently support many of the systems that Salon uses, a significant part of
this effort will be to ensure that these third-party systems are year 2000
ready. Salon plans to confirm this compliance through a combination of the
representation by these third parties of their products' year 2000 readiness, as
well as specific testing of these systems. Salon plans to complete this process
prior to the end of the third calendar quarter of 1999. Until such testing is
completed and such vendors and providers are contacted, Salon will not be able
to completely evaluate whether its systems will need to be revised or replaced.
Costs
To date, Salon has spent an immaterial amount on year 2000 readiness
issues, but expects to incur an additional $350,000 to $500,000 in the future in
connection with identifying, evaluating and addressing year 2000 readiness
issues. Most of Salon's expenses have related to, and are expected to continue
to relate to, the operating costs associated with time spent by employees and
consultants in the evaluation process and year 2000 readiness matters generally.
Such expenses, if higher than anticipated, could have a material adverse effect
on Salon's business, results of operations and financial condition.
Risks
Salon is not currently aware of any year 2000 readiness problems relating
to its internally-developed proprietary systems that would have a material
adverse effect on Salon's business. Salon may discover year 2000 readiness
problems in these systems that will require substantial revision. In addition,
third-party software,
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hardware or services incorporated into Salon's material systems may need to be
revised or replaced, all of which could be time-consuming and expensive. The
failure of Salon to fix or replace its internally developed proprietary software
or third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of users, advertisers or
sponsors and other business interruptions, any of which could have a material
adverse effect on Salon's business, results of operations and financial
condition. Moreover, the failure to adequately address year 2000 readiness
issues in its internally developed proprietary software could result in claims
of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
Salon is heavily dependent on a significant number of third-party vendors
to provide both network services and equipment. A significant year 2000-related
disruption of the services or equipment that third-party vendors provide to
Salon could cause Salon's users, advertisers or sponsors to consider seeking
alternate content providers or cause an unmanageable burden on its technical
support, which in turn could materially and adversely affect Salon's business.
In addition, governmental agencies, utility companies, Internet access
companies, third-party service providers and others outside of Salon's control
may not be year 2000 ready. The failure by such entities to be year 2000 ready
could result in a systemic failure beyond the control of Salon, such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent Salon from delivering its services to its customers, decrease the use of
the Internet or prevent users from accessing its Web sites which could have a
material adverse effect on Salon's business.
Contingency Plan
As discussed above, Salon is engaged in an ongoing year 2000 assessment and
has not yet developed any contingency plans. The results of Salon's year 2000
simulation testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans Salon adopts.
Risk Factors That May Affect Our Results of Operations and Financial Condition
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Because we have a limited operating history, it is difficult to evaluate our
business and prospects.
We originally incorporated in July 1995 and launched our initial Web sites
in November 1995. Because we have a limited operating history, you must
consider the risks and difficulties frequently encountered by early-stage
companies like us in new and rapidly evolving markets, including the market for
advertising and commerce on the Internet. Any future growth and success in our
business will depend substantially upon our ability to attract a larger number
of users to our Web sites and online communities, to increase advertising and
sponsorship sales based on that audience and to meet the challenges described in
the risk factors set forth below.
We lack significant revenues, we have a history of losses and we anticipate
continued losses.
We have not achieved profitability and expect to incur operating losses for
the foreseeable future. We incurred net losses of $16.1 million in the three
months ended June 30, 1999 (including the one time preferred deemed dividend of
$11.5 million) and $6.2 million in the fiscal year ended March 31, 1999. As of
June 30, 1999, our accumulated deficit was $28.8 million. We expect these
operating losses to continue for at least the foreseeable future. We will need
to generate significant revenues to achieve and maintain profitability, and we
may not be able to do so. Even if we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis in the
future. If our revenues grow more slowly than we anticipate or if our operating
expenses exceed our expectations, our financial results would be severely
harmed.
Our quarterly operating results are volatile and may adversely affect our stock
price
Our future revenues and operating results are likely to vary significantly from
quarter to quarter due to a number of factors, many of which are outside our
control, and any of which could severely harm our business. These factors
include:
. our ability to attract and retain banner advertisers, advertising sponsors
and electronic commerce sponsors;
. our ability to attract and retain a large number of users;
. the introduction of new Web sites, services or products by us or by our
competitors;
. the timing and uncertainty of our advertising and sponsorship sales
cycles;
. the mix of banner advertisements and sponsorships sold by us or our
competitors;
. seasonal declines in advertising sales, which typically occur in the first
and third calendar quarters;
. the level of Internet usage;
. our ability to attract, integrate and retain qualified personnel;
. our ability to successfully integrate operations and technologies from
acquisitions or other business combinations;
. technical difficulties or system downtime affecting the Internet generally
or the operation of our Web sites; and
. the amount and timing of operating costs and capital expenditures relating
to the expansion of our business operations and infrastructure.
In order to attract and retain a larger user base, we plan to significantly
increase our expenditures on sales and marketing, content development,
technology and infrastructure. Many of these expenditures are planned or
committed in advance and in anticipation of future revenues. If our revenues in
a particular quarter are lower than we anticipate, we may be unable to reduce
spending in that quarter. As a result, any shortfall in revenues would likely
adversely affect our quarterly operating results.
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Due to the factors noted above and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our results of operations may be below the expectations of public
market analysts and investors. If this occurs, the price of our common stock
may decline.
We depend on banner advertising and sponsorship sales for substantially all of
our revenues, and our inability to increase banner advertising and sponsorship
revenues would harm our business
Our revenues for the foreseeable future will depend substantially on sales
of advertising and sponsorships. In the three months ended June 30, 1999,
advertising and sponsorship sales accounted for 80% of our net revenues, and in
the fiscal year ended March 31, 1999 they accounted for 94% of our net revenues.
In order to increase our revenues, we will need to attract additional
significant banner advertisers, advertising sponsors and electronic commerce
sponsors on an ongoing basis. We may not be able to attract or retain a
sufficient number of banner advertisers or advertising sponsors in the future,
and if we cannot, our business would likely be severely harmed. Increasing our
advertising and sponsorship revenues depends upon many factors, including
whether we will be able to:
. successfully sell and market our network to advertisers and sponsors;
. increase our user base;
. increase the amount of revenues we receive per sponsorship;
. increase awareness of the Salon brand;
. target advertisements and electronic commerce opportunities to users with
appropriate interests;
. accurately measure the number and demographic characteristics of our
users; and
. attract and retain sales personnel.
If we do not sell a sufficient number of advertisements or sponsorships or do
not engage a sufficient number of advertisers or sponsors during a particular
period, our business could be severely harmed.
Our revenues depend on a limited number of advertisers and sponsors who are not
subject to long-term agreements, and the loss of a number of these advertisers
and sponsors could adversely affect our operating results
Historically, we have relied on a small number of banner advertisers and
advertising sponsors for a significant percentage of our revenues. In the three
months ended June 30, 1999, Barnesandnoble.com accounted for approximately 11%
of our revenues. In the fiscal year ended March 31, 1999, Borders accounted for
approximately 13% of our revenues. The loss of any of our significant banner
advertisers or advertising sponsors could adversely affect our business. We
anticipate that our financial results in any given period will continue to
significantly depend on revenues from a small number of banner advertisers and
advertising sponsors. In addition, particularly because few banner advertisers
and advertising sponsors are contractually obligated to purchase any advertising
in the future, we are unable to anticipate our mix of banner advertisers and
advertising sponsors in future fiscal periods.
The length of our sales cycles is uncertain and variable and may lead to
shortfalls in or revenue and fluctuations in our operating results
Our dependence on banner advertising and sponsorships subjects us to the
risk of revenue shortfalls because the sales cycles for advertising and
sponsorships vary significantly, and during these cycles we may expend
substantial funds and management resources while not obtaining advertising or
sponsorship revenues. If sales are delayed or do not occur, our financial
results for a particular period may be harmed. The time between the date of
initial contact with a potential banner advertiser or sponsor and receipt of a
purchase order from the advertiser may
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range from as little as one week to up to nine months. Sales of banner
advertising and sponsorships are subject to factors over which we have little or
no control, including:
. advertisers' and sponsors' budgets;
. internal acceptance reviews by advertisers and their agencies;
. the timing of completion of advertisements and sponsorships; and
. the possibility of cancellation or delay of projects by advertisers or
sponsors.
We must increase our user base to attract advertisers and sponsors and to
generate additional revenue
Increasing the size of our user base is critical to selling advertising and
sponsorships and to increasing our revenues. If we cannot increase the size of
our user base we may not be able to generate additional revenues, which could
leave us unable to maintain or grow our business. To increase our user base, we
must:
. expand our content and communities;
. expand our network of distribution partners;
. grow Salon brand recognition through advertising and syndication;
. enhance our technology to improve the functionality of our network of Web
sites; and
. offer attractive electronic commerce opportunities to electronic commerce
sponsors and users.
If we do not achieve these objectives to increase our user base, our
business could be severely harmed. Additionally, a significant element of our
business strategy is to build loyal online communities because we believe
communities help retain actively engaged users. However, the concept of
developing these communities on the Web is unproven, and if it is not
successful, then it may be more difficult to increase the size of our user base.
We must establish and maintain distribution relationships to attract more users
to our network
We depend on establishing and maintaining distribution relationships with
high-traffic Web sites to increase our user base. There is intense competition
for relationships with these sites, and we may not be able to enter into such
relationships on favorable terms or at all. Even if we enter into distribution
relationships with these Web sites, their sites may not attract significant
numbers of users, and our Web sites may not attract additional users from these
relationships. Moreover, we have paid and may in the future pay significant
fees to establish these relationships.
We must continually develop compelling content to attract Internet users
Our success depends upon our ability to attract and retain a large number
of users by delivering original and compelling Internet content and services.
If we are unable to develop content and services that allow us to attract,
retain and expand a loyal user base possessing high-value demographic
characteristics, we will be unable to generate advertising revenues or enter
into sponsorships, and our revenues and operating results will be severely
harmed. The content and services we provide on our Web sites may not appeal to
a sufficient number of Internet users to generate banner advertising revenues or
attract sponsorships. Our ability to develop compelling content depends on
several factors, including:
. the quality and number of writers and artists who create content for
Salon;
. the quality of our editorial staff; and
. the technical expertise of our production staff.
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Consumer tastes and preferences change rapidly and we may not be able to
anticipate, monitor, and successfully respond to these changes to attract and
retain a sufficient number of users for our network of Web sites. Internet
users can freely navigate and instantly switch among a large number of Web
sites, many of which offer content and services that compete with Salon. In
addition, many Web sites offer very specific, highly targeted content that could
have greater appeal than our network to particular subsets of our target user
base.
The new design of our network of Web sites may not appeal to users which could
result in reduced traffic on our network
In April 1999 we made significant changes to the design of our network of
Web sites. If the new design of our network does not appeal to our existing
users or new users, the amount of traffic on our network could be reduced, which
would make it more difficult for us to enter into agreements with banner
advertisers, advertising sponsors and electronic commerce sponsors, because
these agreements are based on the quantity and quality of users that visit our
network. A loss of advertisers or sponsors could harm our business.
The controversial content of our Web sites may limit our revenues from banner
advertising, advertising sponsorships or electronic commerce sponsorships
Many of our Web sites contain, and will continue to contain, content that
is politically and culturally controversial. As a result of this content,
current and potential advertisers and sponsors may refuse to do business with
us. Our outspoken stance on political issues, including the investigation and
impeachment of President Clinton, as well as much of our other published
content, has and may continue to result in negative reactions from some users,
commentators and other media outlets.
Our promotion of the Salon brand must be successful in order to attract and
retain users as well as advertisers, sponsors and strategic partners
The success of the Salon brand depends largely on our ability to provide
high quality content and services. If Internet users do not perceive our
existing content and services to be of high quality, or if we introduce new
content and services or enter into new business ventures that are not favorably
perceived by users, we may not be successful in promoting and maintaining our
brand. Any expansion of the focus of our operations creates a risk of diluting
our brand, confusing consumers and decreasing the value of our user base to
advertisers. In order to attract and retain users, and to promote the Salon
brand, we may need to increase our budgets for content and services or otherwise
substantially increase our financial commitment to establishing and maintaining
loyalty for the Salon brand name. If we are unable to establish the Salon brand
or are forced to substantially increase our expenditures to promote the Salon
brand, our business could be severely harmed.
We need to hire, integrate and/or retain qualified personnel because these
individuals are important to our growth
Our success significantly depends on the continued services of our key
editorial and design personnel. In addition, because the content of our Web
sites must be perceived by our users as having been created by credible and
notable sources, our success also depends on the name recognition and reputation
of our editorial staff, in particular David Talbot, Salon's editor-in-chief.
The loss of these individuals or other key editorial or design personnel would
likely harm our business.
In April 1999 we hired a chief financial officer and a senior vice
president of sales. If we cannot integrate each of these persons into our
management team, we may not be able to retain their services, and may have to
search for other persons to fill these positions.
We expect that we will need to hire additional personnel in all areas in
1999. Competition for personnel in the Internet industry is intense. We may be
unable to retain our current key employees or attract, integrate or retain other
qualified employees in the future. If we do not succeed in attracting new
personnel or integrating, retaining and motivating our current personnel, our
business could be harmed.
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We may expend significant resources to protect our intellectual property rights
or to defend claims of infringement by third parties, and if we are not
successful we may lose rights to use significant material or be required to pay
significant fees
Our success and ability to compete are significantly dependent on our
proprietary content. We rely exclusively on copyright law to protect our
content. While we actively take steps to protect our proprietary rights, these
steps may not be adequate to prevent the infringement or misappropriation of our
content. Infringement or misappropriation of our content or intellectual
property could materially harm our business. We also license content from
various freelance providers and other third-party content providers. While we
attempt to insure that this content may be freely licensed to us, other parties
may assert claims of infringement against us relating to this content.
We may need to obtain licenses from others to refine, develop, market and
deliver new services. We cannot assure you that we will be able to obtain any
such licenses on commercially reasonable terms or at all or that rights granted
pursuant to any licenses will be valid and enforceable.
In April 1999 we acquired the Internet address www.salon.com. Because
www.salon.com is the address of the main home page to our network of Web sites
and incorporates our company name, it is a vital part of our intellectual
property assets. We do not have a registered trademark on the address, and
therefore it may be difficult for us to prevent a third party from infringing
our intellectual property rights in the address. If we fail to adequately
protect our rights in the address, or if a third party infringes our rights in
the address or otherwise dilutes the value of www.salon.com, our business could
be harmed.
Our technology development efforts may not be successful in improving the
functionality of our network which could result in reduced traffic on our
network
We have recently developed a proprietary online publishing system. If this
system does not work as intended, or if we are unable to continue to develop
this system to keep up with the rapid evolution of technology for content
delivery on the Internet, our network of Web sites may not operate properly
which could harm our business. Additionally, software product development
schedules are difficult to predict because they involve creativity and the use
of new development tools and learning processes. Delays in our software
development process could harm our business. Moreover, complex software products
like our online publishing system frequently contain undetected errors or
shortcomings, and may fail to perform or scale as expected. Although we have
tested and will continue to test our publishing system, errors or deficiencies
may be found in the system.
We rely on third parties for several critical functions relating to delivery of
advertising and our Web site performance, and the failure of these third parties
to supply these services in an efficient manner could limit our growth and
impair our business
We rely on a number of third party suppliers for various services,
including Web hosting, banner advertising delivery software, Internet traffic
measurement software and electronic commerce fulfillment services. While we
believe that we could obtain these services from other qualified suppliers on
similar terms and conditions, a disruption in the supply of these services by
our current suppliers could materially harm our business.
We have recently begun to use new third-party software to manage the
delivery of banner advertising on our network of Web sites. If this software
malfunctions or does not deliver the correct banner advertisements to our
network, our advertising revenues could be reduced, and our business could be
harmed.
We have also recently begun to use new third-party software to measure
traffic on our network of Web sites. If this software malfunctions or does not
accurately measure our user traffic, we may not be able to justify our
advertising rates, and our advertising revenues could be reduced.
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Growth in our operations is placing a strain on our resources, and failure to
manage growth effectively could harm our business
We have experienced and are currently experiencing a period of significant
growth. In the 12 months ended June 30, 1999 the number of employees we have
increased 84%. In the three months ended June 30, 1999 our net revenues
increased approximately 146% and our total expenses increased approximately 205%
over the three months ended June 30, 1998. If we cannot manage our growth
effectively, we may not be able to coordinate the activities of our technical,
accounting, finance, marketing, sales and production staffs, and our business
could be harmed. We intend to add new subject-specific Web sites to our
network, hire additional staff in all departments, expand existing offices and
open new offices. As part of this growth, we will have to implement new
operational procedures and controls to train and manage our employees and to
expand and coordinate the operations of our various departments. If we acquire
new businesses, we will also need to integrate new operations, technologies and
personnel. If we cannot manage the growth of our network of Web sites, staff,
offices and business generally our business could be harmed.
We may not be able to successfully integrate our acquisitions, and any failure
to integrate could diminish the value of an acquired business or cause
disruptions in our ongoing operations
Acquisitions and business combinations entail numerous operational risks,
including:
. difficulty in the assimilation of acquired operations, technologies or
products;
. diversion of management's attention from other business operations;
. risks of entering markets in which we have limited or no experience; and
. potential loss of key employees of acquired businesses.
We acquired The Well LLC, an online community provider, in March 1999. We
may not be able to successfully integrate The Well LLC or any businesses,
products, technologies or personnel that we might acquire in the future, and if
we cannot, our business could be harmed.
We will need more working capital to expand our network and achieve our business
objectives, and securing financing may be difficult because of the condition of
our business or the uncertain nature of the financial markets
We believe that our current cash resources, combined with the net proceeds
from this offering, will meet our anticipated working capital and capital
expenditure requirements for at least the 12 months following the date of this
prospectus. We may need to raise additional capital to do the following:
. expand our network of Web sites and interactive communities;
. increase our electronic commerce opportunities;
. aggressively promote awareness of the Salon brand;
. make payments under distribution relationships;
. respond to competitive pressures; or
. acquire complementary businesses or technologies.
If we raise additional capital by issuing equity or convertible debt
securities, the percentage ownership of our then-current stockholders will be
reduced, and such securities may have rights, preferences or privileges senior
to those of our current stockholders. Additionally, we may not be able to
obtain additional financing on favorable terms, or at all. If adequate capital
is not available on acceptable terms, our ability to expand, take advantage of
unanticipated opportunities, develop or enhance services or otherwise respond to
competitive pressures would be significantly limited. This limitation could
harm our business.
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Acceptance and effectiveness of Internet advertising and electronic commerce is
unproven and, to the extent it does not continue to grow, our market may not
develop adequately and our business could be harmed
Our success is highly dependent on an increase in the use of the Internet for
advertising and electronic commerce. If the markets for Internet advertising or
electronic commerce do not develop, our business may be severely harmed.
Currently, demand and market acceptance for Internet advertising is
uncertain and may not increase as necessary for our business to grow or succeed.
Many advertisers have little or no experience using the Internet for advertising
purposes. The adoption of Internet advertising, particularly by companies that
have historically relied on traditional media, requires the acceptance of a new
way of conducting business, exchanging information and advertising products and
services. Potential advertisers may believe Internet advertising to be
undesirable or less effective for promoting their products and services relative
to traditional advertising media. If the Internet advertising market fails to
develop or develops more slowly than we expect, our business could be harmed.
Different pricing models are used to sell Internet advertising. It is
difficult to predict which pricing models, if any, will emerge as the industry
standard. This uncertainty makes it difficult to project our future advertising
rates and revenues. Any failure to adapt to pricing models that develop or
respond to competitive pressures could reduce our advertising revenues.
Moreover, "filter" software programs that limit or prevent advertising from
being delivered to an Internet user's computer are commonly available.
Widespread use of this software could adversely affect the commercial viability
of Internet advertising and our business.
Many retailers have little or no experience using the Internet for
electronic commerce. The adoption of electronic commerce, particularly by
companies that have historically relied on traditional channels to sell their
products and services, requires the acceptance of a new way of conducting
business, exchanging information and completing commercial transactions.
Potential electronic commerce partners may believe electronic commerce to be
undesirable or less effective for selling their products and services relative
to traditional channels. If the electronic commerce market fails to develop or
develops more slowly than we expect, our business could be harmed.
Tracking and measurement standards for advertising may not evolve to the extent
necessary to support Internet advertising, thereby creating uncertainty about
the viability of our business model
There are currently no standards for the measurement of the effectiveness
of advertising on the Internet, and the industry may need to develop standard
measurements in order to sustain advertising volume or attract new advertisers.
Standardized measurements may not develop and if they do not, our business could
be harmed. In addition, currently available software programs that track
Internet usage and other tracking methodologies are rapidly evolving. The
development of such software or other methodologies may not keep pace with our
information needs, particularly to support our internal business requirements
and those of our advertisers and sponsors. The absence or insufficiency of this
information could limit our ability to attract and retain advertisers and
sponsors.
It is important to our advertisers and sponsors that we accurately measure
the demographics of our user base and the delivery of advertisements on our Web
sites. We depend on third parties to provide certain of these measurement
services. If they are unable to provide these services in the future, we would
need to perform them ourselves or obtain them from another provider, if
available. This could cause us to incur additional costs or cause interruptions
in our business while we are replacing these services. Companies may choose to
not advertise on Salon or may pay less for advertising or sponsorships if they
do not perceive our measurements or measurements made by third parties to be
reliable.
If use of the Internet does not grow, our business could be harmed
Our success is highly dependent upon continued growth in the use of the
Internet generally and in particular as a medium for content, advertising and
electronic commerce. If Internet usage does not grow, we may not be able to
increase revenues from advertising and sponsorships and this may harm our
business. Internet use by consumers
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is in an early stage of development, and market acceptance of the Internet as a
medium for content, advertising and electronic commerce is highly uncertain. A
number of factors may inhibit the growth of Internet usage, including:
. inadequate network infrastructure;
. security concerns;
. inconsistent quality of service; and
. limited availability of cost-effective, high-speed access.
If these or any other factors cause use of the Internet to slow or decline, our
results of operations could be adversely affected.
Increasing competition among Internet content providers could reduce our
advertising sales or market share, thereby harming our business
The market for Internet content is relatively new, rapidly changing and
intensely competitive. We expect competition for Internet content to continue to
increase and if we cannot compete effectively our business could be harmed.
Additionally, we expect the number of Web sites competing for the attention and
spending of users, advertisers and sponsors to continue to increase, because
there are so few barriers to entry on the Internet.
Increased competition could result in advertising or sponsorship price
reductions, reduced margins or loss of market share, any of which could harm our
business. Competition is likely to increase significantly as new companies
enter the market and current competitors expand their services. Many of our
present and potential competitors are likely to enjoy substantial competitive
advantages over us. If we do not compete effectively or if we experience any
pricing pressures, reduced margins or loss of market share resulting from
increased competition, our business could be adversely affected.
If the Internet infrastructure continues to be unreliable, access to our network
may be impaired and our business may be harmed
Our success depends in part on the development and maintenance of the
Internet infrastructure. If this infrastructure fails to develop or be
adequately maintained, our business would be harmed because users may not be
able to access our network of Web sites. Among other things, development and
maintenance of a reliable infrastructure will require a reliable network
backbone with the necessary speed, data capacity, security and timely
development of complementary products for providing reliable Internet access and
services.
The Internet has experienced, and is expected to continue to experience,
significant growth in number of users and amount of traffic. If the Internet
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements, the Internet infrastructure may not be able to
support these increased demands or perform reliably. The Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face additional outages and delays in
the future. These outages and delays could reduce the level of Internet usage
and traffic on our network of Web sites. In addition, the Internet could lose
its viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of activity. If the Internet
infrastructure is not adequately developed or maintained, use of our network of
Web sites may be reduced.
Even if the Internet infrastructure is adequately developed and maintained,
we may incur substantial expenditures in order to adapt our services and
products to changing Internet technologies. Such additional expenses could
severely harm our financial results.
We may be held liable for content on our Web sites
As a publisher and distributor of content over the Internet, including
user-generated content on our online communities, we face potential liability
for defamation, negligence, copyright, patent or trademark infringement and
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other claims based on the nature and content of the material that is published
or distributed on our network of Web sites. These types of claims have been
brought, sometimes successfully, against online services, Web sites and print
publications in the past. Although we carry general liability insurance, our
insurance may not be adequate to indemnify us for all liability that may be
imposed. Any liability that is not covered by our insurance or is in excess of
our insurance coverage could severely harm our business.
Concerns about transactional security may hinder our electronic commerce
strategy by subjecting us to liability or by discouraging commercial
transactions over the internet
A significant barrier to electronic commerce is the secure transmission of
confidential information over public networks. Any breach in our security could
expose us to a risk of loss or litigation and possible liability. We rely on
encryption and authentication technology licensed from third parties to provide
secure transmission of confidential information. As a result of advances in
computer capabilities, new discoveries in the field of cryptography or other
developments, a compromise or breach of the algorithms we use to protect
customer transaction data may occur. A compromise of our security could
severely harm our business. A party who is able to circumvent our security
measures could misappropriate proprietary information, including customer credit
card information, or cause interruptions in the operation of our network of Web
sites.
We may be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches. However, protection may not be available at a reasonable
price or at all. Concerns over the security of electronic commerce and the
privacy of users may also inhibit the growth of the Internet as a means of
conducting commercial transactions.
Our efforts to engage in electronic commerce may expose us to product liability
claims
We have and continue to foster relationships with manufacturers or other
companies to offer certain products to users through our network of Web sites.
We have very limited experience in the sale of products online and the
development of relationships with manufacturers or suppliers of these products.
Users who purchase products may sue us if any of the products sold on our
network are defective, fail to perform properly or injure the user. Liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. As a result, any such claims, whether or not
successful, could severely harm our business.
Our systems may fail due to natural disasters, telecommunications failures and
other events, any of which would limit user traffic
Substantially all of our communications hardware and computer hardware
operations for our Web sites are located at Frontier GlobalCenter's facilities
in Sunnyvale, California. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems and cause interruptions in our services. Computer viruses, electronic
break-ins or other similar disruptive problems could cause users to stop
visiting our network of Web sites and could cause advertisers and sponsors to
terminate any agreements with us. If any of these circumstances occurred, our
business could be harmed. Our insurance policies may not adequately compensate
us for any losses that may occur due to any failures of or interruptions in our
systems. We do not presently have a formal disaster recovery plan.
Our Web sites must accommodate a high volume of traffic and deliver
frequently updated information. In the past year, our Web sites have
experienced slower response times or decreased traffic on approximately four
different occasions due to a variety of reasons including hardware and software
failures and intermittent Internet traffic routing problems beyond our control.
For example, in March 1999, users were unable to access Table Talk for
approximately two weeks as we upgraded our technology to compensate for
unexpected growth in user activity. It is possible that we will experience
similar systems failures in the future and that such failures could adversely
affect our business. In addition, our users depend on Internet service
providers, online service providers and other Web site operators for access to
our Web sites. Many of these providers and operators have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. Any of these
system failures could harm our business.
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Governmental regulation of the Internet may restrict our business
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future, however, that address issues including user privacy, pricing, and
the characteristics and quality of products and services. An increase in
regulation or the application of existing laws to the Internet could
significantly increase our costs of operations and harm our business. For
example, the Communications Decency Act of 1996 sought to prohibit the
transmission of certain types of information and content over the Web.
Additionally, several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these companies. Imposition of access fees could increase
the cost of transmitting data over the Internet.
Possible state sales and other taxes could adversely affect our results of
operations
We generally do not collect sales or other taxes in respect of goods sold
to users on our network of Web sites. However, one or more states may seek to
impose sales tax collection obligations on out-of-state companies, including
Salon, which engage in or facilitate electronic commerce. A number of proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services through the Internet. Such proposals, if
adopted, could substantially impair the growth of electronic commerce and could
reduce our ability to derive revenue from electronic commerce. Moreover, if any
state or foreign country were to successfully assert that we should collect
sales or other taxes on the exchange of merchandise on our network, our
financial results could be harmed.
If we, or third parties on which we rely, fail to achieve year 2000 compliance,
our business could be impaired
We may discover year 2000 readiness problems in our internally developed
systems that will require substantial revision. In addition, third-party
software, hardware or services incorporated into our systems may need to be
revised or replaced, all of which could be time-consuming and expensive. If we
cannot fix or replace our internally developed proprietary software or third-
party software, hardware or services before January 1, 2000 our operating costs
could be increased and we could experience business interruptions which could
harm our business. Additionally, if we cannot adequately address year 2000
readiness issues in our internally developed proprietary software, we could be
subject to claims of mismanagement, misrepresentation or breach of contract and
related litigation, which could be costly and time consuming to defend.
In addition, the software and systems of governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside of our control may not be year 2000 ready. If these entities are not
year 2000 ready, a systemic failure beyond our control could result, including a
prolonged Internet, telecommunications or general electrical failure. This type
of failure would make it difficult or impossible to use the Internet or access
our network of Web sites and would prevent us from publishing our content. If a
prolonged failure of this type occurred, our business would be severely harmed.
If our advertisers and sponsors are not year 2000 ready, they may defer or
cancel advertising scheduled to appear on our network of Web sites, which could
adversely affect our financial results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high credit issuers in short-term securities with maturities of
three to twenty four months. The average maturity of the portfolio will not
exceed twelve months. The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity. The Company
has no investments denominated in foreign country currencies and therefore is
not subject to foreign exchange risk.
27
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PART II: OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings.
None at this time.
Item 2. Changes in Securities and Use of Proceeds.
The effective date of the Company's first registration statement, filed on
Form S-1 under the Securities Act of 1933 (File No. 333-68749) relating to
Company's initial public offering of its Common Stock, was June 21, 1999. A
total of 2,500,000 shares of the Company's Common Stock were sold to an
underwriting syndicate. The managing underwriters were W.R. Hambrecht & Co. and
Daiwa Securities America, Inc. The offering commenced and completed on June 22,
1999, at an initial public offering price of $10.50 per share. The initial
public offering resulted in gross proceeds of $26.3 million, $1.3 million of
which was applied to the underwriting discount and approximately $1.0 million of
which was applied to related expenses. As a result, net proceeds of the offering
to the Company were approximately $24.0 million. Net proceeds of the Company's
initial public offering were used to promote the Company's brand, expand the
Company's sales and marketing, for working capital or invested in short-term,
interest-bearing, investment-grade securities. None of the net proceeds of the
offering were paid by the Company, directly or indirectly, to any director,
officer or general partner of the Company or any of their associates, or to any
persons owning ten percent or more of any class of the Company's equity
securities, or any affiliates of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
--------
10.0 Standard office lease agreement between Pacific Resources PCX
Development Inc. and Salon.com dated July 9, 1999.
27.1 Financial Data Schedule
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed of its behalf by the
undersigned thereunto duly authorized.
SALON.COM
(Registrant)
Dated: August 16, 1999 By: /s/ Michael O'Donnell
--------------------------------------------
Michael O'Donnell, Chief Executive Officer
Dated: August 16, 1999 By: /s/ Todd Hagen
--------------------------------------------
Todd Hagen, Chief Financial Officer
EXHIBIT INDEX
Exhibits
--------
10.0 San Francisco Lease
27.1 Financial Data Schedule
29
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Exhibit 10.0
This is the current Standard Form of lease for Pacific Resources Development
Inc.
STANDARD OFFICE LEASE
22 FOURTH STREET
SAN FRANCISCO, CALIFORNIA
This Lease is made as of the 9th day of July, 1999, by and between PACIFIC
RESOURCES PCX DEVELOPMENT INC., a California corporation ("Landlord"),
SALON.COM, a Delaware corporation ("Tenant"), who agree as follows:
BASIC LEASE INFORMATION
The following is the Basic Lease Information of this Lease. Other
sections of this Lease explain and define the Basic Lease Information in more
detail and are to be read in conjunction herewith. In the event of any conflict
between the Basic Lease Information and the other sections of this Lease, the
Lease shall control.
LANDLORD:
NOTICE ADDRESS:
Pacific Resources PCX Development Inc.
22 Fourth Street
San Francisco, California 94103
TENANT:
Salon.Com
NOTICE ADDRESS:
22 Fourth Street, Suite 1500
San Francisco, California 94103
PREMISES:
Floors: 15th and 16th Suite No. 1500 and 1600
NET RENTABLE AREA OF PREMISES:
Twenty Thousand Eight Hundred Eighty Three (20,883) Square feet
BUILDING:
22 Fourth Street
San Francisco, CA 94104
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BASE RENT (PER SQUARE FOOT PER ANNUM):
Years 1-5: $40.00
Years 6-10: $45.00
BASE RENT (PER MONTH):
Years 1-5: $69,610.00
Years 6-10: $78,311.25
ANTICIPATED EXECUTION DATE:
July 9, 1999
ANTICIPATED TARGET COMMENCEMENT DATE:
November 15, 1999
ANTICIPATED TERMINATION DATE:
November 14, 2009
TERMINATION DATE:
To be confirmed by Memorandum
LENGTH OF TERM:
Ten (10) Years after the Commencement Date
TENANT'S PERCENTAGE SHARE:
OF OPERATING EXPENSES:
OF PROPERTY TAXES:
10.853%; such share is a fraction, the numerator of which is the net rentable
area of the Premises (20,883 sq. ft.) and the denominator of which is the net
rentable office area of the Building (192,422 sq. ft.).
10.853%; such share is a fraction, the numerator of which is the net rentable
area of the Premises (20,883 sq. ft.) and the denominator of which is the net
rentable office area of the Building (192,422 sq. ft.).
BASE YEAR:
January 1, 2000 to December 31, 2000
SECURITY DEPOSIT:
$700,000; See Addendum
BROKERS:
Landlord's: Grubb & Ellis
Tenant's: Collier's International
TENANT'S MINIMUM INSURANCE REQUIREMENT:
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$2,000,000 per occurrence
PERMITTED USES:
General office purposes
OTHER SPECIAL PROVISIONS:
See Addendum
32
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OFFICE LEASE INDEX
Recitals
Section 1. Definitions
Section 2. Premises
Section 3. Term; Condition of Premises
Section 4. Rental
Section 5. Escalation Rent
Section 6. Use
Section 7. Services
Section 8. Impositions
Section 9. Alterations
Section 10. Liens
Section 11. Repairs
Section 12. Damage or Destruction
Section 13. Subrogation
Section 14. Indemnification
Section 15. Compliance with Legal Requirements
Section 16. Assignment and Subletting
Section 17. Rules
Section 18. Entry by Landlord
Section 19. Events of Default
Section 20. Termination upon Default
Section 21. Continuation after Default
Section 22. Other Relief
Section 23. Right of Landlord to Cure Defaults
Section 24. Attorney Fees
Section 25. Eminent Domain
Section 26. Insurance
Section 27. Subordination
Section 28. No Merger
Section 29. Sale
Section 30. Estoppel Certificate
Section 31. Light, Air, or View Rights
Section 32. Relocation [Intentionally Omitted]
Section 33. Brokers
Section 34. Holding Over
Section 35. Security Deposit
Section 36. Waiver
Section 37. Notices and Consents
Section 38. Entire Agreement
Section 39. Authority
Section 40. Plural and Singular
Section 41. Joint and Several Obligations
Section 42. Time of the Essence
Section 43. Examination of Lease
Section 44. Heirs, Successors, and Assigns
Section 45. Name of Building
Section 46. Illegality or Unenforceability of Portion of Lease
Section 47. Governing Law
Section 48. Obligations Independent
Section 49. Exhibits
Section 50. Landlord's Liability
Section 51. Financing Condition
Section 52. Hazardous Substance Disclosure
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Exhibit A. Description of Premises
Exhibit B. Rules
Exhibit C. Work Letter Agreement
Exhibit D. Memorandum of Commencement Date
Exhibit E. Form of Subordination, Nondisturbance and Attornment Agreement
Addendum to Standard Office Lease
34
<PAGE>
Recitals
A. Landlord is the owner of certain real property (the "Real Property")
located at 821 Market Street and 22 Fourth Street, in the City and County of San
Francisco, California, as more particularly described in Exhibit A-1 attached
hereto, and the Complex (as later defined) located on it. The Real Property and
the Complex are collectively referred to herein as the "Property." The Complex
consists of two buildings, one of which contains the Premises (as later
defined). The building in the Complex which contains the Premises is referred
to herein as the "Building."
B. Landlord desires to lease to Tenant, and Tenant desires to lease from
Landlord the Premises (as later defined) for the term and subject to the terms,
covenants, agreements, and conditions in this Lease.
For good and valuable consideration the receipt and adequacy of which are
acknowledged, the parties agree as follows:
Section 1. Definitions. As used in this Lease, the following terms are
defined in Section 1.
Alterations is defined in Section 9(a).
Anticipated Target Commencement Date means the date specified in the Basic
Lease Information.
Anticipated Termination Date means the date specified in the Basic Lease
Information.
Base Operating Expenses means the Operating Expenses paid or incurred by
Landlord in the Base Year.
Base Property Taxes means the amount of Property Taxes for the calendar
year ending December 31, 2000.
Base Rent means the Base Rent as set forth in the Basic Lease Information.
Base Year means the twelve (12) calendar month period specified in the
Basic Lease Information as the Base Year.
Building means the building constructed on the Real Property located at 22
Fourth Street, San Francisco, California, which contains the Premises,
containing 221,720 rentable square feet, any property interest in the area of
the Building, and all other improvements on, or appurtenances to, the Real
Property or the streets abutting the Real Property, and the common areas of the
Complex that serve the Building or its tenants. The Building includes, but is
not limited to, an office and retail building with sixteen (16) stories, and two
basement levels within which a parking garage is located, the upper fourteen
(14) stories of which are used for office purposes. Notwithstanding, the
Building does not include the multi-story building also constructed on the Real
Property and owned by Landlord located at 821 Market Street, San Francisco,
California, containing 205,517 rentable square feet, which is used for retail
and hotel purposes, nor does it include the improvements or appurtenances
exclusively used in connection with or exclusively benefiting such building. As
referred to herein, the office
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<PAGE>
portion of the Building shall mean all those areas of the Building other than
those used for retail purposes, which office portions currently contain 192,422
rentable square feet.
Commencement Date means the later to occur of: a) the date on which
(1) "Substantial Completion" of the "Work" to be constructed in the Premises by
Landlord has been achieved, as such terms are defined and as provided in the
Work Letter Agreement attached as Exhibit C to this Lease, and (2) Landlord has
delivered possession of the Premises to Tenant; or b) November 15, 1999.
Complex means the Building and the other multi-story building owned by
Landlord located at 821 Market Street, San Francisco, California, both located
on the Real Property, in the aggregate containing 427,237 rentable square feet,
any property interest in the area of the Complex, and all other improvements on,
or appurtenances to, the Real Property or the streets abutting the Real
Property.
Deposit is defined in Section 35.
Escalation Rent is defined in Section 4(a).
Event of Default is defined in Section 19.
Impositions is defined in Section 8.
Landlord is defined in the preamble.
Lease is defined in the preamble.
Legal Requirements is defined in Section 15.
Operating Expenses means (a) all costs of management, operation, and
maintenance of the Building, including without limitation: wages, salaries, and
payroll burden of employees (including without limitation, hospitalization,
medical, surgical, retirement or pension plans, union dues, life insurance,
welfare and other fringe benefits, and vacation, holidays and other paid absence
benefits, payroll taxes, social security, worker's compensation, unemployment
and similar taxes, and costs of uniforms provided); property management fees and
other related compensation (including without limitation, accounting, legal and
other professional fees and expenses not directly attributable to any one tenant
of the Building); janitorial, maintenance, security, and other services;
Building office rent or rental value; power, water, waste disposal, and other
utilities (including without limitation, sewer rents and charges, and telephone
and postage costs); materials and supplies (including without limitation, tools
and equipment used but not incorporated in the repair or maintenance of the
Building, furniture, draperies, carpeting, landscaping and other items of
personal property for use in the common or public areas of the Building which
are not depreciated as permitted herein, and all sales, use and excise taxes
applicable thereto); maintenance and repairs (including without limitation,
painting of the exterior of the Building or other common or public areas of the
Building); license, permit and inspection costs; insurance premiums and the
deductible portion of any insured loss under Landlord's insurance (provided,
however, that deductibles under any policy of earthquake insurance
36
<PAGE>
shall be amortized over a period of ten (10) years); and depreciation on
personal property; and (b) the cost of any capital improvements (and to the
extent considered under generally accepted accounting principles to be capital
in nature, repairs and replacements) made to the Building by Landlord after the
Base Year that (i) are made in the reasonable expectation of reducing other
Operating Expenses during the term of this Lease, (ii) are required for the
health and safety of tenants, or (iii) are required under any governmental law
or regulation that was not applicable to the Building at the execution of this
Lease, all such capital costs to be amortized over a reasonable period based
upon an approximation of useful life determined by Landlord, together with
interest on the unamortized balance at the rate of ten percent (10%) per annum,
or a higher rate equal to that paid by Landlord on funds borrowed for the
purpose of constructing or installing those capital improvements. Operating
Expenses shall not include: Property Taxes; depreciation on the Building other
than depreciation on exterior window draperies, if any, provided by Landlord,
and carpeting in multi-tenant floor public corridors and common areas; costs of
tenants' improvements; real estate brokers' commissions; attorneys' fees and
expenses incurred in connection with lease negotiations with prospective
Building tenants; interest; costs incurred in connection with the repair of
damage to the Building, to the extent Landlord is reimbursed by insurance
proceeds; costs incurred in connection with remedial action to repair structural
defects in the Building; and capital items other than those referred to in
clause (b); and costs and expenses that would otherwise be Operating Expenses
but which directly and exclusively relate to the management, operation and
maintenance of those portions of the Building used for retail purposes, as
equitably determined by Landlord. Actual Operating Expenses for both the Base
Year and each subsequent year will be adjusted to equal Landlord's reasonable
estimate of Operating Expenses had all of the total rentable area of the office
portions of the Building been occupied. The parties agree that statements in
this Lease to the effect that Landlord is to perform certain of its obligations
hereunder at its own or sole cost and expense shall not be interpreted as
excluding any cost from Operating Expenses, Property Taxes or Impositions if
such cost is an Operating Expense, Property Tax or Imposition pursuant to the
terms of this Lease.
Premises means the portion of the Building located on the floor or floors
specified in the Basic Lease Information which is outlined in red on the floor
plan or plans attached to this Lease as Exhibit A.
Property is defined in Recital A of this Lease.
Property Taxes means all real property taxes (and any tax levied wholly or
partly in lieu of real property taxes), assessments (whether general or
special), excises, transit charges, housing fund assessments, charges, levies or
fees, ordinary or extraordinary, foreseen or unforeseen, levied, charged,
confirmed or imposed against the Property, and all real estate tax consultant
expenses and attorneys' fees incurred for the purpose of maintaining an
equitable assessed valuation of the Property. See Addendum.
Real Property is defined in Recital A of this Lease.
Tenant is defined in the preamble.
Tenant's Percentage Share means the percentage figures specified as
Tenant's Percentage Share in the Basic Lease Information relating to the
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payment of Escalation Rent attributable either to Operating Expenses or Property
Taxes. Tenant's Percentage Share for Operating Expenses has been obtained by
dividing the net rentable area of the Premises by the total net rentable area of
the Building used for office purposes, and multiplying that quotient by one
hundred (100). Tenant's Percentage Share for Property Taxes has been obtained by
dividing the net rentable area of the Premises by the total net rentable area of
the Building used for office purposes, and multiplying that quotient by one
hundred (100). In the event the rentable area of the Premises is increased or
decreased by the addition to or deletion from the Premises of any office space,
Tenant's Percentage Share shall be appropriately adjusted. For the purposes of
Section 4, Tenant's Percentage Share shall be based on the number of days during
the calendar year in which this change occurs.
Term is defined in Section 3 of this Lease.
Termination Date means the Termination Date in the Basic Lease
Information.
Section 2. Premises. Landlord leases to Tenant, and Tenant leases from
Landlord the Premises for the term and subject to the terms, covenants,
agreements, and conditions later set forth, to each of which Landlord and Tenant
mutually agree. All of the windows and outside walls of the Premises and any
space in the Premises used for shafts, stacks, pipes, conduits, ducts,
electrical equipment or other utilities or Building facilities are reserved
solely to Landlord and Landlord shall have rights of access through the Premises
for the purpose of operating, maintaining and repairing the same.
Section 3. Term; Condition of Premises. The Term of this Lease shall
commence on the Commencement Date and, unless sooner terminated as later
provided, shall end on the Termination Date. Landlord shall deliver the
Premises to Tenant on the Commencement Date in the condition set forth in the
Work Letter Agreement attached hereto as Exhibit C. Landlord and Tenant shall
execute the Commencement Date Memorandum attached hereto as Exhibit D, once the
Commencement Date under the terms of this Lease has been established. If
Landlord, for any reason, cannot deliver the Premises to Tenant on the
Anticipated Target Commencement Date, this Lease shall not be void or voidable,
nor shall Landlord be liable to Tenant for any loss or damage resulting from
nondelivery, but in that event rental shall be waived for the period between the
Commencement Date and the time when Landlord delivers the Premises to Tenant in
the condition required hereunder. If the Commencement Date for the Premises has
not occurred or been deemed to have occurred by November 15, 2000, then at any
time thereafter, but before such Commencement Date shall have occurred or been
deemed to have occurred, Tenant may terminate this Lease by written notice to
Landlord and both parties shall be released from all obligations under this
Lease, provided Landlord shall promptly return all rent and other sums paid by
Tenant. No delay in delivery of the Premises shall extend the Term of this
Lease. If Tenant takes occupancy of the Premises prior to the Anticipated
Target Commencement Date, then the Commencement Date of the Lease shall be the
date of such early occupancy by Tenant; provided, however, that the Termination
Date shall not be affected by such early occupancy.
Section 4. Rental.
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(a) Tenant shall pay to Landlord throughout the Term as rental for the
Premises the Base Rent, provided that the rental payable during each year
subsequent to the Base Year shall be the Base Rent, increased by Tenant's
Percentage Share of the total dollar increase, if any, in Operating Expenses
paid or incurred by Landlord in that year over the Base Operating Expenses, and
also increased by Tenant's Percentage Share of the total dollar increase, if
any, in Property Taxes paid by Landlord in that year over the Base Property
Taxes. The increased rental due pursuant to this Section 4(a) is the Escalation
Rent. Upon the execution of this Lease, Tenant shall deposit with Landlord a
sum equal to Tenant's first month's Base Rent, which amount shall be applied to
the payment of the Base Rent due for the first month of the Term of this Lease.
(b) Rental shall be paid to Landlord, in advance, on or before the first
day of the Term of this Lease and on or before the first day of each successive
calendar month during the Term of this Lease. In the event the Term of this
Lease commences on a day other than the first day of a calendar month or ends on
a day other than the last day of a calendar month, the monthly rental for the
first and last fractional months of the Term of this Lease shall be
appropriately prorated.
(c) All sums of money due to Landlord under this Lease, not specifically
characterized as rental, shall constitute additional rent and shall be due
within thirty (30) days after receipt by Tenant of a billing. If any sum is not
paid when due, it shall be collectible as additional rent with the next
installment of rental falling due. Nothing contained in this Lease shall be
deemed to suspend or delay the payment of any sum of money at the time it
becomes due and payable under this Lease, or to limit any other remedy of
Landlord.
(d) Tenant acknowledges that late payment of rent and other sums due
under this Lease will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be difficult to ascertain. These costs
include, but are not limited to, processing and accounting charges and late
charges which may be imposed on Landlord by the terms of any trust deed covering
the Premises. Accordingly, if any installment of rent or any other sums due
from Tenant are not received when due, Tenant shall pay to Landlord a late
charge equal to five percent (5%) of the overdue amount. The parties agree that
the late charge represents a fair and reasonable estimate of the costs Landlord
will incur because of late payment. Acceptance of the late charge by Landlord
shall not constitute a waiver of Tenant's default for the overdue amount, nor
prevent Landlord from exercising the other rights and remedies granted under
this Lease. For the first time in each twelve (12) consecutive month period
that Tenant shall fail to make any payment of rental or any additional rent
hereunder, no interest or late charge shall be due and payable until Landlord
shall have notified the Tenant thereof in writing and two (2) business days
after such notice shall have passed without such payment being made, in which
case interest shall be deemed to have accrued from the day when such payment was
originally due and such late charge shall be due and payable. No further notice
need be given in order that interest and late charges shall accrue on any
further non-payment during such twelve (12) consecutive month period.
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[Initials of Landlord] [Initials of Tenant]
-------- ----------
(e) In addition to the imposition of any late charge, any amount due to
Landlord, if not paid within five (5) days following the due date, will bear
interest from the due date until paid at the rate of ten percent (10%) per year
or, if a higher rate is legally permissible, at the highest rate legally
permitted. However, interest shall not be payable on late charges incurred by
Tenant nor on any amounts on which late charges are paid by Tenant to the extent
this interest would cause the total interest to be in excess of that legally
permitted. Payment of interest shall not excuse or cure any default by Tenant.
(f) All payments due shall be paid to Landlord, without deduction or
offset, in lawful money of the United States of America at Landlord's address
for notices under this Lease or to another person or at another place as
Landlord may designate by notice to Tenant.
(g) No security or guaranty which may now or hereafter be furnished to
Landlord for the payment of rent due hereunder or for the performance by Tenant
of the other terms of this Lease shall in any way be a bar or defense to any of
Landlord's remedies set forth in Sections 20, 21 or 22 hereof.
Section 5. Escalation Rent. Escalation Rent shall be paid monthly on an
estimated basis, with subsequent annual reconciliation, in accordance with the
following procedures:
(a) No later than ninety (90) days prior to the end of the Base Year and
no later than ninety (90) days prior to the end of each subsequent year, or as
soon after that time as practicable, Landlord shall give Tenant notice of
Landlord's estimate of any Escalation Rent due under Section 4(a) for the
ensuing year. On or before the first day of each month during the ensuing year,
Tenant shall pay to Landlord one-twelfth (1/12th) of the estimated Escalation
Rent. If Landlord fails to give notice as required in this Section, Tenant
shall continue to pay on the basis of the prior year's estimate until the month
after that notice is given. If at any time it appears to Landlord that the
Escalation Rent for the current year will vary from the estimate by more than
five percent (5%), Landlord shall, by notice to Tenant, revise the estimate for
that year, and subsequent payments by Tenant for that year shall be based on the
revised estimate.
(b) Within ninety (90) days after the close of each year following the
Base Year, or as soon after the ninety (90) day period as practicable, Landlord
shall deliver to Tenant a statement of the actual Escalation Rent for that year
showing Operating Expenses and Property Taxes on the basis of which the actual
Escalation Rent was determined. At Tenant's request, Landlord shall provide
Tenant reasonable supporting detail underlying the calculations of Operating
Expenses and Property Taxes. If Landlord's statement discloses that Tenant owes
an amount that is less than the estimated payments for that year previously made
by Tenant, Landlord shall credit the excess first against any sums then owed by
Tenant, and then against the next payments of rental due. If Landlord's
statement discloses that Tenant owes an amount that is more than the estimated
payments for that year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery of the statement.
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(c) The amount of Escalation Rent for any fractional year in the Term
shall be appropriately prorated. The proration of Escalation Rent for the
applicable year in which termination occurs shall be calculated on the basis of
a fraction of the Operating Expenses for that entire year and the proration of
Property Taxes for the year in which termination occurs shall be calculated on
the basis of a fraction of the Property Taxes for that entire year, but shall
exclude any Property Taxes attributable to any increase in the assessed
valuation of the Building occurring after termination. The termination of this
Lease shall not affect the obligations of the parties pursuant to Section 5(b)
to be performed after the termination.
(d) Tenant, at its cost, shall have the right, once per calendar year,
through an auditor who is an employee of the Salon.Com, or a reputable public
accounting firm, to audit the most recent past annual statement of Escalation
Rent. No auditor conducting such audit shall be compensated by payment of a
percentage of any sums found to be overstated and payable to Tenant hereunder.
Landlord will give the accounting firm access to Landlord's records supporting
the statement during Normal Business Hours. In the event that the audit
correctly reveals that Landlord has overstated the Operating Expenses or the
Property Taxes by more than five percent (5%), Landlord shall reimburse Tenant
for the reasonable cost of the audit, but in no event in excess of Five Thousand
Dollars ($5,000), in addition to making appropriate adjustments in the
Escalation Rent, with interest at the legal rate from the end of the calendar
year so audited until paid. Any overpayments by Tenant shall be paid to Tenant
by Landlord within fifteen (15) business days of determination and notice to
Landlord of same.
Section 6. Use. The Premises shall be used for general office purposes
and incidental uses thereto and no other. Tenant shall not do or permit to be
done on the Premises, nor bring or keep or permit to be brought or kept in the
Premises, anything (a) which is prohibited by or in conflict with any law,
ordinance, or governmental rule or, (b) which is prohibited by the standard form
of fire insurance policy or, (c) which will increase the existing rate of or
affect fire or other insurance on the Building or the Complex or its contents or
cause a cancellation of any insurance policy covering the Building or the
Complex or any part of it or its contents. Tenant shall not use or store in the
Premises any hazardous or toxic substances, with the sole exception of
reasonably necessary substances that are kept in reasonably necessary quantities
for normal office operations, provided that their use and storage are in
accordance with applicable laws. Tenant shall not do or permit anything to be
done on the Premises that will obstruct or interfere with the rights of other
tenants of the Building or the Complex, or injure or annoy them, or use or allow
the Premises to be used for any unlawful purposes, nor shall Tenant cause,
maintain, or permit any nuisance or waste on or about the Premises. The maximum
floor load permitted on any floor of the Building is fifty (50) pounds per
square foot. No furnishings, equipment or fixtures may be installed or placed
in any part of the Premises which will create a load per square foot on the
floor of the Premises in excess of such maximum load. Tenant agrees not to
employ any person, entity or contractor for any work in the Premises (including
moving Tenant's equipment and furnishings in, out or around the Premises) whose
presence may give rise to a labor or other disturbance in the Building or the
Complex and, if necessary to prevent such a disturbance in a particular
situation, Landlord may require Tenant to employ union labor for the work.
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Section 7. Services.
(a) Landlord shall maintain the public and common areas of the Building
and of the Complex that serve the Building, including lobbies, stairs,
elevators, corridors, rest rooms, all exterior landscaping, windows, the
mechanical, plumbing, and electrical equipment serving the Building, and the
structure itself, in reasonably good order and condition so as to meet the
reasonable needs of Tenant, except for damage, excluding normal wear and tear,
caused by the Tenant. Damage by Tenant shall be repaired by Landlord at
Tenant's expense. The standard of maintenance shall be equal to that of other
office buildings of a similar class in the downtown San Francisco area.
(b) Landlord shall furnish (i) electricity for lighting and the operation
of normal office machines, (ii) heating and ventilation, to the extent
reasonably required for the comfortable occupancy by Tenant in Tenant's use of
the Premises during the period from 7:00 a.m. to 6:00 p.m. on weekdays ("Normal
Business Hours"), except holidays, or a shorter period as may be prescribed by
applicable policies or regulations adopted by any utility or governmental
agency, (iii) elevator service; provided that, Landlord may reasonably limit the
number of elevators to be operated before or after Normal Business Hours,
(iv) lighting replacement, for building standard lights, (v) rest room supplies,
(vi) window washing at least two (2) times a year, (vii) potable water for the
rest rooms and kitchen areas, and (viii) daily janitor services during the times
and in the manner that these services are customarily furnished in comparable
office buildings in the downtown San Francisco area; provided, however, that
Landlord shall not be required to provide janitorial services for portions of
the Premises used for preparing or consuming food or beverages or for similar
purposes.
(c) During times other than Normal Business Hours, Landlord shall furnish
the Premises with water, electricity and, upon twenty-four (24) hours' notice
from Tenant, reasonable heat, ventilation and air conditioning. Any such
additional or different utilities or services, including without limitation
maintenance, repair, janitorial and cleaning services that Landlord may agree to
provide at Tenant's request shall be at Tenant's sole expense. Tenant shall pay
for heat, ventilation and air conditioning furnished at Tenant's request during
times other than Normal Business Hours on an hourly basis at the then prevailing
rate established for the Building by Landlord. If the service requested by
Tenant is not a continuation of service furnished during Normal Business Hours,
Tenant shall pay for such service at such rate for a period of two (2) hours
preceding the commencement of services.
(d) If the temperature otherwise maintained in any portion of the
Premises by the heating, ventilating and air conditioning, if any, systems
("HVAC"), of the Building is affected as a result of (a) any lights, machines or
equipment used by Tenant in the Premises, or (b) the occupancy of the Premises
by more than one person per 115 square feet of rentable area, Landlord shall
have the right, upon prior written notice to Tenant, to install any machinery or
equipment that Landlord reasonably deems necessary to restore temperature
balance. Tenant shall pay the cost of purchasing, installing, maintaining and
operating any such equipment and modifications. Landlord may establish
reasonable measures to conserve energy and water, including but not limited to,
automatic light shut off after hours and
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efficient lighting forms, so long as these measures do not unreasonably
interfere with Tenant's use of the Premises.
(e) Tenant shall advise Landlord prior to execution of this Lease and
within five (5) days after written request therefor of the nature and quantity
of all of Tenant's lights, equipment and machines using electricity in the
Premises and shall permit Landlord or its authorized agents to make periodic
inspections of all facilities using electricity located within the Premises.
(f) If Landlord reasonably determines that Tenant's use of electricity,
water or any other utility exceeds the building standard use of such utility,
Landlord has the right to measure the amount of such excess use by any
reasonable means (including the installation at Tenant's expense of a separate
meter or other measuring device) and charge Tenant for the cost thereof.
Building Standard electrical allowance has been determined by Landlord to be:
one and six-tenths (1.6) watts per square foot for lighting based on the "area
category method" for office areas, in accordance with Title 24, part 6, Energy,
of the California Administrative Code currently in effect. Available power
distribution to each floor, at a minimum, shall be in accordance with the
National Electric Code, which requires for minimum design, three and one-half
(3.5) watts per square foot for power and one (1) watt per square foot for
lighting. The total unit load shall not be less than four and one-half (4.5)
watts per square foot based on the National Electric Code NEC Article, Table
220-3(b). Power allowance is based on the use during Normal Business Hours of
typewriters, desk-top personal computers and other generally used office
equipment generating comparable amounts of heat and using comparable amounts of
electricity. If Landlord in its sole discretion permits Tenant to install or
use in the Premises lighting in excess of one and six-tenths (1.6) watts per
square foot or otherwise uses power (including lighting) in excess of four and
one-half (4.5) watts per square foot, if allowed by applicable Legal
Requirements, Tenant shall pay all the costs associated with such excess
installation and usage. In addition, Landlord may impose a reasonable charge
for the use of any additional or unusual janitorial services required by Tenant
because of the quality or type of Tenant's Improvements in the Premises, the
carelessness of Tenant or the nature of Tenant's business (including hours of
operation). All sums payable hereunder by Tenant for additional services or for
excess utility usage shall be payable upon demand by Landlord, provided that
Landlord may require Tenant to pay monthly for the estimated cost of Tenant's
additional services or excess utility usage if such usage occurs on a regular
basis, and such estimated amounts shall be payable in advance on the first day
of each month.
(g) Landlord shall not be in default under this Lease, nor be liable for
any damages resulting from, nor shall the required rental be abated because of
(i) the installation, use, or interruption of use of any equipment in connection
with furnishing the previously listed services, (ii) failure to furnish or delay
in furnishing these services, when failure or delay is caused by accident or
conditions beyond the reasonable control of Landlord or by necessary repairs or
improvements to the Premises, to the Building, or to the Complex, or (iii) the
limitation, curtailment, rationing, or restrictions on use of water,
electricity, gas, or any other form of energy serving the Premises or the
Building, or the Complex. Landlord shall use reasonable efforts to diligently
remedy interruptions in the furnishing of these services. In the event any
governmental authority having jurisdiction over
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the Building promulgates or revises any law, ordinance or regulation or
building, fire or other code or imposes mandatory or voluntary controls or
guidelines on Landlord or the Building or the Complex relating to the use or
conservation of energy or utilities or the reduction of automobile or other
emissions (collectively, "Controls") or in the event Landlord is required or
elects to make alterations to the Building in order to comply with such
mandatory or voluntary Controls, Landlord may, in its sole discretion, comply
with such Controls or make such alterations to the Building related thereto.
Such compliance and the making of such alterations shall not constitute an
eviction of Tenant, constructive or otherwise, or impose upon Landlord any
liability whatsoever, including, but not limited to, liability for consequential
damages or loss of business by Tenant.
(h) Landlord shall not be obligated to provide or maintain any security
patrol or security system. However, if Landlord elects to provide such patrol
or system, Tenant shall comply with any such system implemented by Landlord, and
the cost thereof shall be included in Operating Expenses. Tenant's employees
shall be permitted to access the Premises twenty-four (24) hours per day, three
hundred sixty-five (365) days per year, subject to control by Landlord for
health and safety reasons; provided, however, that if a security system is
installed, such access shall be subject to verification, by proper
identification (as designated by Tenant) or with security access codes or
equipment. If Landlord installs a security system controlling access by
magnetic key cards, Landlord shall make access cards available to Tenant, for
Tenant's employees, at Landlord's cost for such cards. Replacement cards shall
be made available to Tenant at Tenant's request and at its sole cost and
expense.
Section 8. Impositions. In addition to the monthly rental and other
charges to be paid by Tenant under this Lease, Tenant shall pay Landlord for all
of the following items (collectively, "Impositions"): (i) taxes, other than
local, state, and federal personal or corporate income taxes measured by the net
income of Landlord; (ii) assessments, including without limitation, all
assessments for public improvements, services, or benefits, irrespective of when
commenced or completed; (iii) excises; (iv) levies; (v) business taxes;
(vi) license, permit, inspection, and other authorization fees; (vii) transit
development fees; (viii) assessments or charges for housing funds; (ix) service
payments in lieu of taxes and; (x) any other fees or charges that are levied,
assessed, confirmed, or imposed by a public authority; provided, however, that
Impositions shall not include amounts otherwise included in Operating Expenses
or Property Taxes. Tenant is obligated to pay only to the extent that the
Impositions are (a) on, measured by, or reasonably attributable to, the cost or
value of Tenant's equipment, furniture, fixtures, and other personal property
located in the Premises, or the cost or value of any leasehold improvements made
to the Premises by or for Tenant, regardless of whether title to the
improvements shall be in Tenant or Landlord; (b) based on or measured by the
monthly rental or other charges payable under this Lease, including without
limitation, any gross receipts tax levied by a municipality, the State of
California, the Federal Government, or any other governmental body with respect
to the receipt of the rental; (c) based on the development, possession, leasing,
operation, management, maintenance, alteration, repair, use, or occupancy by
Tenant of the Premises or any portion of the Premises; or (d) on this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. If it is unlawful for Tenant to
reimburse
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Landlord for the Impositions, but lawful to increase the monthly rental to take
into account Landlord's payment of the Impositions, the monthly rental payable
to Landlord shall be revised to net Landlord the same net return without
reimbursement of the Impositions as would have been received by Landlord with
reimbursement of the Impositions.
Section 9. Alterations.
(a) Tenant shall not make or allow any alterations, additions, or
improvements to the Premises or any part of the Premises (collectively,
"Alterations"), without Landlord's prior written consent, which shall not be
unreasonably withheld. The installation of furnishings, fixtures, equipment, or
decorative improvements, none of which shall affect Building systems or the
structure of the Building, and the repainting or recarpeting of the Premises,
shall not constitute Alterations. All Alterations shall be made by Landlord for
Tenant's account, including increased costs, if any, in accordance with the
procedures set forth in this Section. All Alterations shall immediately become
Landlord's property and, at the end of the Term, shall remain on the Premises
without compensation to Tenant, unless Landlord elects by notice to Tenant to
have Tenant remove any Alterations that are peculiar to Tenant's use of the
Premises and are not normally required or used by other tenants, provided
further that Tenant receives written notice from Landlord to remove such
Alterations at the end of the term at the time Landlord consents to the
installation of such Alterations (which time of consent shall be deemed to occur
upon Landlord's approval of the final plans for such Alterations, including
without limitation, the final Plans for the Work. In this event, Tenant shall
bear the cost of restoring the Premises to their condition prior to the
installment of the Alterations. When plans and specifications for any
Alterations are approved by Landlord pursuant to Section 9(b), Landlord shall
advise Tenant on request whether proposed Alterations would entitle Landlord to
require their removal and restoration of the Premises at the end of the Term.
Landlord may post and record an appropriate notice of nonresponsibility with
respect to any Alteration and Tenant shall maintain any such notices posted by
Landlord in or on the Premises.
(b) Plans and specifications for Alterations shall be prepared at
Tenant's expense by Landlord's architect, or by Tenant's architect if Tenant so
requests and Landlord consents, which consent shall be at Landlord's sole
discretion, and by engineers approved by Landlord, where the nature of the
Alterations requires mechanical or electrical engineering services. Any
architect retained by Tenant shall be instructed to follow standard construction
administration procedures and use standard specifications and details reasonably
promulgated by Landlord for the Building. The plans and specifications shall be
subject to approval by Landlord and Tenant, and shall not be unreasonably
withheld or delayed by either party. Plans and specifications that have neither
been approved nor disapproved by Landlord within thirty (30) days after
submittal by Tenant shall be deemed to have been approved. Landlord does not
warrant the cost of the Alterations, the timeliness of performance, nor the
quality of the contractor's work, but Landlord shall use reasonable best efforts
to secure performance of the construction contract for Tenant's benefit.
(c) In the event Tenant instructs Landlord or the contractor to proceed
with any changes to the Alterations without a prior determination of increased
costs resulting from those changes and without approval of the
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increases by Tenant, or in the event Tenant is responsible for increased costs
attributable to a delay or acceleration in the time for construction, the amount
of any increased costs shall be reasonably determined by Landlord on completion
of the Alterations, subject only to Landlord's reasonable efforts in causing the
contractor to furnish Tenant appropriate back-up information concerning
increased costs, if any.
(d) The cost of the Alterations to be paid by Tenant shall include a
reasonable market-rate charge for the administration, by Landlord or an agent,
of the construction or installation of the Alterations, the amount of which
shall bear a reasonable relationship to the scope of the Alterations and the
costs of performing the administration.
(e) Tenant shall pay to Landlord all amounts payable by Tenant pursuant
to this Section after billing by Landlord. Billing may be in advance of or
during the progress of the Alterations to enable Landlord to pay the contractor,
architect, or engineer without advancing Landlord's own funds. At Tenant's
request, Landlord shall, to the extent practicable, furnish a copy of each bill
to Tenant for Tenant's approval at least ten (10) days prior to the due date of
the bill. Tenant may contest any payment to a contractor for Alterations and
Landlord shall withhold this payment, provided that the provisions of Section 10
are satisfied and Tenant indemnifies and defends Landlord against all claims and
liability arising out of the contested payment. At Landlord's option and prior
to commencement of Alterations, Tenant shall deposit with Landlord the estimated
cost of Alterations, or a lesser portion as specified by Landlord for the cost
as incurred. Any surplus funds shall be returned to Tenant when the Alterations
have been paid for in full.
(f) Landlord may delegate some or all authority and responsibilities
under this Section to a manager.
(g) Notwithstanding anything in this Sectiony9 to the contrary, provided
that Salon.Com is Tenant occupying the Premises hereunder, Tenant may elect to
directly contract and pay for the construction of the Alterations to be made to
the Premises, otherwise subject to compliance with all provisions of this Lease,
including without limitation, the approval of the plans therefor by Landlord and
payment of an administrative charge for approval and oversight, upon at least
twenty (20) days' prior written notice to Landlord, and subject to all other
reasonable requirements Landlord may impose upon the making of such Alterations,
including without limitation the prior approval of any contractor and all
subcontractors proposed by Tenant to make the Alterations. Tenant or its
contractors and subcontractors shall employ union labor for all such Alterations
in order to ensure no disruption to other work in the Building or to the quiet
enjoyment of the Building by other tenants of Landlord. Any such Alterations
shall be constructed to completion in accordance with the plans for such
Alterations approved by Landlord within a reasonable period of time after
commencement of construction of such Alterations.
Section 10. Liens. Tenant shall keep the Premises, the Building and the
Complex free from any liens arising out of any work performed, materials
furnished, or obligations incurred by or at the request of Tenant. Landlord may
have posted on the Premises any notices that may be provided by law or that
Landlord may deem proper for the protection of Landlord, the Premises, the
Building, and the Complex from those liens. If any such liens are filed
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unless Tenant is contesting such liens and shall have bonded against such liens
as provided below, Landlord may, upon thirty (30) days' written notice to
Tenant, without waiving its rights based on such breach by Tenant and without
releasing Tenant from any obligations hereunder, pay and satisfy the same and in
such event the sums so paid by Landlord shall be due and payable by Tenant
immediately without notice or demand, with interest from the date paid by
Landlord through the date Tenant pays Landlord, at the interest rate otherwise
payable hereunder pursuant to Section 4(e). Notwithstanding, Tenant may contest
any lien for which Tenant is responsible under this Section, provided that
Tenant shall have caused the lien to be bonded against to the satisfaction of
Landlord.
Section 11. Repairs. Tenant accepts the Premises as being in the
condition in which Landlord is obligated to deliver the Premises, subject to the
tenant improvements, if any, that Landlord has agreed to make. At all times
during the term of this Lease and at Tenant's sole cost, Tenant shall keep the
Premises (excluding structural elements and Building systems, which Landlord
shall maintain) in good condition and repair; ordinary wear and tear and damage
to the Premises by fire, earthquake, or act of God or the elements are excepted.
Tenant waives all rights to make repairs at the expense of Landlord or instead
to vacate the Premises, and Tenant further waives the provisions of Civil Code
1941 and 1942 with respect to Landlord's obligations under this Lease. At the
end of the term of this Lease, Tenant shall surrender to Landlord the Premises
and all Alterations that are to remain in the Premises in the same condition as
when received; ordinary wear and tear and damage by fire, earthquake, or act of
God or the elements are excepted. Landlord has no obligation and has made no
promise to alter, remodel, improve, repair, decorate, or paint the Premises or
any part of them, except as specifically set forth in this Lease. Landlord has
made no representations respecting the condition of the Premises, the Building
or the Complex, except as specifically set forth in this Lease. Upon Tenant's
occupancy of the Premises (other than the Early Access Premises), the Building's
common areas and all path of travel portions of the Building to and from the
Premises shall comply with all then current legal requirements, enforced by the
City and County of San Francisco, California, relating to the rights of
individuals with disabilities.
Section 12. Damage or Destruction.
(a) In the event the Premises or any portion of the Building necessary
for Tenant's occupancy are damaged by fire, earthquake, act of God, the
elements, or other casualty, within sixty (60) days after that event, Landlord
shall notify Tenant of the estimated time, in Landlord's reasonable judgment,
required for repair or restoration. If the estimated time is one hundred and
eighty (180) days or less after the commencement of the physical work and one
(1) year or less after the casualty event, Landlord shall proceed promptly and
diligently to adjust the loss with applicable insurers, to secure all required
governmental permits and approvals, and to commence and to complete the repair
or restoration of the Premises or the portion of the Building necessary for
Tenant's occupancy. This Lease shall remain in full force, except that for the
time unusable, Tenant shall receive a rental abatement for that part of the
Premises rendered unusable in the conduct of Tenant's business.
(b) If the estimated time for repair or restoration is in excess of one
hundred and eighty (180) days after the commencement of the physical work
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or one (1) year after the casualty event, Tenant may elect to terminate this
Lease as of the date of the casualty event by giving notice to Landlord within
fifteen (15) days following receipt of Landlord's notice of the estimated time
for repair. If the estimated time is more than one hundred and eighty (180) days
after commencement of the physical work or one (1) year after the casualty
event, but Tenant has not elected to terminate this Lease, Landlord may elect,
on notice to Tenant within twenty (20) days after the period for Tenant's
election to terminate has expired, to repair or restore the Premises or the
portion of the Building necessary for Tenant's occupancy. In that event, this
Lease shall continue in full force, but the rent shall be abated. If Landlord
does not elect to repair or restore, this Lease shall terminate as of the date
of the casualty event. However, if Landlord has not commenced the physical
repair or restoration of the Premises or the portion of the Building necessary
for Tenant's occupancy within one (1) year from the casualty event, Tenant may
elect to terminate this Lease by notice to Landlord given at any time following
the expiration of one (1) year from the casualty event, but prior to the
commencement of the physical repair or restoration work.
(c) If the Premises or the Building are to be repaired or restored under
this Section, Landlord shall repair or restore at Landlord's cost the Building
itself and all improvements in the Premises, including but not limited to, any
tenant improvements constructed pursuant to this Lease, but excluding
Alterations made by or for Tenant subsequent to completion of those tenant
improvements. Tenant shall pay the cost of repairing or restoring any
Alterations made by or for Tenant subsequent to completion of the tenant
improvements made pursuant to this Lease and shall be responsible for carrying
casualty insurance as Tenant deems appropriate for those Alterations.
(d) In the event of any damage to or destruction of the Premises or the
Building, Landlord and Tenant acknowledge that their respective rights and
obligations are to be governed exclusively by this Lease.
(e) In the event the Premises are to be repaired or restored and Tenant
requires temporary offices as a result of a casualty event affecting the
Premises, Landlord shall use best efforts to locate offices for Tenant within
the Building. Tenant acknowledges that Landlord makes no commitment as to the
availability of any offices or as to their cost.
Section 13. Subrogation. Landlord and Tenant shall each obtain from
their respective insurers under all policies of fire, theft, public liability,
worker's compensation, and other insurance maintained during the term of this
Lease covering the Building or the Complex, or any portion of it, or operations
in it, a waiver of all rights of subrogation that the insurer of one party might
have against the other party. Landlord and Tenant shall each indemnify the
other against any loss or expense, including reasonable attorney fees, resulting
from the failure to obtain this waiver.
Section 14. Indemnification. Tenant waives all claims against Landlord
for damage to any property or injury or death of any person on the Premises
arising at any time and from any cause other than the gross negligence or
willful misconduct of Landlord or Landlord's employees, agents, or contractors.
Tenant shall hold Landlord harmless from and defend Landlord against all claims,
liability, damage, or loss arising out of any injury or death of any person or
damage to or destruction of property attributable to
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the use of the Premises by Tenant, except that caused by the gross negligence or
willful misconduct of Landlord or Landlord's agents, contractors, or employees;
provided, however, in the event that Landlord's negligence is the principal
cause of such claim, liability, damage or loss, Tenant shall so hold Landlord
harmless, indemnify and defend Landlord only to the extent that Tenant receives,
is entitled to receive, or would have received had Tenant carried the required
insurance policies hereunder, insurance proceeds for such claim, liability,
damage or loss. Tenant shall also indemnify, defend and hold Landlord harmless
from any liability, cost, or expense arising from Tenant's use or storage in the
Premises of any hazardous or toxic substance. Landlord shall indemnify, defend
and hold Tenant harmless from any liability, cost or expense arising out of the
release, deposit or presence of hazardous or toxic substances which are in the
Premises or the Building not attributable to Tenant's or its assignees',
sublessees', licensees', invitees', employees', guests', agents' or contractors'
use or occupation of the Premises and the Building. These indemnity obligations
shall include reasonable attorney fees, investigation costs, and all other
reasonable costs incurred by the indemnified party from the first notice that
any claim or demand is to be made or may be made. The indemnified party shall
promptly give notice to the indemnifying party of any claim or demand. The
provisions of this Section shall survive the termination of this Lease for any
event occurring prior to the termination. The provisions of this Section to
indemnify and hold a party harmless are limited to the amount of loss that is
not paid to such party out of insurance proceeds, if any.
Section 15. Compliance with Legal Requirements. At Tenant's sole cost,
Tenant shall promptly comply with all laws and governmental rules now or later
in force, including but not limited to, the American with Disabilities Act, as
may be amended from time to time; with the requirements of any board of fire
underwriters or other similar body now or in the future constituted; and with
any direction or occupancy certificate issued by public officers (the "Legal
Requirements"), insofar as they relate to the condition, use, or occupancy of
the Premises. Excluded are (a) structural changes or changes to the electrical,
mechanical, or plumbing systems of the Building, all to the extent not
necessitated by Tenant's acts or by improvements made for Tenant, other than the
tenant improvements to be made pursuant to this Lease by Landlord, if any;
(b) alterations or improvements to the Building as a whole or to the Premises of
tenants generally that are not by law the tenants' responsibility with which to
comply; (c) work necessitated by defects in the construction of the Building;
(d) work necessitated by violations of Legal Requirements existing as of the
Commencement Date; and (e) the investigation or remediation of hazardous or
toxic substances, the release, deposit or presence of which are not attributable
to Tenant's or its assignees', sublessees', licensees', invitees', employees',
guests', agents' or contractors' use or occupation of the Premises or the
Building. Tenant shall immediately furnish Landlord with any notices received
from any insurance company or governmental agency or inspection bureau regarding
any unsafe or unlawful conditions within the Premises. Landlord shall comply in
a timely manner with all Legal Requirements that are not Tenant's responsibility
under this Section to the extent noncompliance would adversely affect Tenant's
use or occupancy of the Premises. Tenant agrees that Tenant shall not
discriminate against or segregate any person or group of persons on account of
race, sex, creed, color, marital status, sexual preference, national origin, or
ancestry, in the occupancy, use, sublease, tenure, or enjoyment of the Premises.
The provisions of this Section 15 are for the
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benefit of Landlord or Tenant only and are not nor shall they be construed to be
for the benefit of any other tenant or occupant of the Building.
Section 16. Assignment and Subletting.
(a) Except as otherwise expressly permitted by this Lease, Tenant shall
not, without the prior written consent of Landlord, which shall not be
unreasonably withheld or delayed, voluntarily or involuntarily, assign or
hypothecate this Lease or any interest in this Lease, sublet the Premises or any
part of them, or license the use of the Premises by any party other than Tenant.
Any of the previous acts without consent shall be void and shall, at the option
of Landlord, constitute a noncurable default under this Lease. In connection
with each consent requested by Tenant, Tenant shall submit to Landlord the terms
of the proposed transaction, the identity of the parties to the transaction, the
proposed documentation for the transaction, and all other information reasonably
requested by Landlord concerning the proposed transaction and the parties
involved. Tenant agrees that any instrument by which Tenant assigns or sublets
all or any portion of the Premises shall expressly provide that the subtenant or
assignee may not further assign or sublet the assigned or sublet space without
Landlord's prior written consent as provided herein, and that the assignee or
subtenant will assume and comply with all of the provisions of this Lease and
that Landlord may enforce the Lease provisions directly against such assignee or
subtenant. For purposes of this Section 16, the following events shall be
deemed an assignment or sublease, as appropriate: (i) the issuance of equity
interests (whether stock, partnership interests or otherwise) in Tenant or any
subtenant or assignee, or any entity controlling any of them, to any person or
group of related persons, in a single transaction or a series of related or
unrelated transactions, such that, following such issuance, such person or group
shall have Control (as defined below) of Tenant; or (ii) a transfer of Control
of Tenant or any subtenant or assignee, or any entity controlling any of them,
in a single transaction or a series of related or unrelated transactions
(including without limitation, by consolidation, merger, acquisition or
reorganization), except that the transfer of outstanding capital stock or other
listed equity interests by persons or parties other than "insiders" within the
meaning of the Securities Exchange Act of 1934, as amended, through the "over-
the-counter" market or any recognized national or international securities
exchange, shall not be included in determining whether Control has been
transferred. "Control" shall mean direct or indirect ownership of fifty percent
(50%) or more of all of the voting stock of such corporation or fifty percent
(50%) or more of all the legal and equitable interest in any other business
entity. However, Tenant may, without resulting in a default under this Lease
and without notice to Landlord, license the use of the Premises by (i) any
entity of which Tenant, any of Tenant's subsidiaries, or Tenant's parent is a
limited partner, general partner, joint venturer, or shareholder; (ii) any other
limited partner, general partner, joint venturer or shareholder in that entity;
(iii) any consultant, contractor, accountant, or counsel of Tenant; or (iv) any
of the directors, officers, employees, contractors, accountants, or counsel of
any of the foregoing. The license or other permitted use does not in any way
create in the licensee or any other party rights to possess or remain in the
Premises beyond the termination of the Lease.
(b) Without limiting other instances in which Landlord may reasonably
withhold consent to an assignment or subletting, Landlord and Tenant
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acknowledge that it shall be reasonable for Landlord to withhold consent in the
following instances:
(i) if at the time consent is requested or at any time prior to the
granting of consent, an Event of Default has occurred and has not been cured
under this Lease or if Tenant is in monetary default under this Lease or would
be in monetary default under this Lease but for the pendency of any grace or
cure period under Section 19, if any;
(ii) if the proposed assignee or sublessee is a governmental
agency;
(iii) if, in Landlord's reasonable judgment, use of the Premises
by the proposed assignee or sublessee would not be comparable to the office use
by other tenants in the Building, would entail alterations that would materially
lessen the value of the leasehold improvements in the Premises (unless Tenant
provides adequate security to ensure that the Premises will be restored to their
prior condition pursuant to Section 9(a)), would result in more than a
reasonable number of occupants per floor, or would require substantially
increased services by Landlord;
(iv) if Landlord reasonably determines that circumstances warrant a
consideration of the financial worth of a proposed assignee or sublessee, and
the financial worth, in Landlord's reasonable judgment, does not meet the credit
standards applied by Landlord for other tenants under leases with comparable
terms; and
(v) if, in Landlord's reasonable judgment, the character, reputation,
or business of the proposed assignee or sublessee is not consistent with the
quality of the other tenancies in the Building.
(c) If at any time during the Term, Tenant desires to sublet all or any
part of the Premises or assign the Lease, Tenant shall notify Landlord of the
terms of the proposed subletting and the space proposed to be sublet or the
proposed assignment. Landlord shall have the option, exercisable by notice
given to Tenant within thirty (30) days after Tenant's notice is given, or
within five (5) days after Tenant's notice is given if Tenant submits terms that
have already been negotiated with a specific proposed sublessee or assignee,
either (i) to sublet from Tenant this space at the rental and other terms in
Tenant's notice, or, (ii) in the event the notice proposes a subletting for the
entire Premises for a sublet term ending within the last year of the Term, or an
assignment of the Lease, to terminate this Lease. If Landlord does not exercise
this option, Tenant shall be free to sublet the space or assign the Lease to any
third party or to the specific proposed sublessee or assignee, at the same
rental and on substantially the same terms in the notice given to Landlord,
subject to obtaining Landlord's prior consent as provided previously.
(d) No sublessee shall have a right to further sublet without Landlord's
prior consent, which Tenant acknowledges may be withheld in Landlord's absolute
discretion, and any assignment by a sublessee of the sublease shall be subject
to Landlord's prior consent in the same manner as if Tenant were entering into a
new sublease. No sublease, once consented to by Landlord, shall be modified or
terminated by Tenant without Landlord's prior consent, which shall not be
unreasonably withheld.
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(e) In the case of an assignment, one-half (1/2) of any sums or other
economic consideration received by Tenant as a result of the assignment
(excluding any consideration reasonably attributed to assets other than this
Lease) shall be paid to Landlord after first deducting the unamortized cost of
leasehold improvements paid for by Tenant, and the cost of any real estate
commissions, reasonable attorney fees, or other third party professional
services paid by Tenant in connection with the assignment.
(f) In the case of a subletting, one-half (1/2) of any sums or economic
consideration received by Tenant as a result of the subletting shall be paid to
Landlord after first deducting (i) the rental due under this Lease, prorated to
reflect only rental allocable to the sublet portion of the Premises, (ii) the
cost of leasehold improvements made to the sublet portion of the Premises at
Tenant's cost, amortized over the term of this Lease, except for leasehold
improvements made for the specific benefit of the sublessee, which shall be
amortized over the term of the sublease, and (iii) the cost of any real estate
commissions, reasonable attorney fees, or other third party professional
services paid by Tenant in connection with the subletting.
(g) Regardless of Landlord's consent, no subletting or assignment shall
release or alter Tenant's obligation or primary liability to pay the rental and
perform all other obligations under this Lease. The acceptance of rental by
Landlord from any other person shall not be deemed a waiver by Landlord of any
provision of this Lease. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee or successor of Tenant in the performance of any of the
terms of this Lease, after notice of default to Tenant pursuant to Section 19
and the expiration of any applicable cure period, Landlord may proceed directly
against Tenant without the necessity of exhausting remedies against the assignee
or successor. Landlord may consent to subsequent assignments or subletting of
this Lease or amendments or modifications to this Lease with assignees of
Tenant, without notifying Tenant, or any successor of Tenant, and without
obtaining consent. This action shall not relieve Tenant of liability under this
Lease provided, however, that Tenant shall not be liable for any increase in
Tenant's obligations under this Lease because of any amendment or modification
to this Lease, unless Tenant has consented to it in writing. Further, no
permitted subletting by Tenant shall be effective until there has been delivered
to Landlord a counterpart of the sublease in which the subtenant agrees to be
and remain jointly and severally liable with Tenant for the payment of rent
pertaining to the sublet space and for the performance of all of the terms and
provisions of this Lease to the extent applicable to the sublet premises;
provided, however, that the subtenant shall be liable to Landlord for rent only
in the amount set forth in the sublease. No permitted assignment shall be
effective unless and until there has been delivered to Landlord a counterpart of
the assignment in which the assignee assumes all of Tenant's obligations under
this Lease arising on or after the date of the assignment. The failure or
refusal of a subtenant or assignee to execute any such instrument shall not
release or discharge the subtenant or assignee from its liability as set forth
above.
(h) If Tenant assigns this Lease, sublets the Premises, or requests the
consent of Landlord to any assignment, subletting, hypothecation, or other
action requiring Landlord's consent under this Lease, Tenant shall pay
Landlord's reasonable attorney fees incurred in connection with the action,
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which, absent unusual circumstances or requirements surrounding such action,
shall not, during the first year of the Term, exceed One Thousand Dollars
($1,000), and during each successive year of the Term thereafter, shall not
exceed $1,000, increased on each anniversary of the Commencement Date, in the
same proportion as the increase in the Consumer Price Index, All Items, for the
San Francisco-Oakland-San Jose, California, Area, for such immediately preceding
year.
(i) Notwithstanding anything contained in this Section 16 to the
contrary, Salon.Com, as Tenant, may assign this Lease or sublet the Premises or
any portion thereof without Landlord's consent (but with written notice thereof)
and without extending any option to Landlord, to any corporation or other legal
entity or person which controls, is controlled by or is under common control
with Tenant or to any corporation or other legal entity or person resulting from
the merger or consolidation with Tenant, or to any legal person or entity which
acquires substantially all of the assets of Tenant as a going concern of the
business that is being conducted on the Premises, provided that said assignee or
subtenant assumes in writing in full the obligations of Tenant under this Lease
in the case of an assignee or to the extent of the sublet Premises and for the
sublease term in the case of a subtenant.
Section 17. Rules. Tenant shall comply with the rules attached to and
incorporated in this Lease as Exhibit B, and after notice, with all reasonable
modifications and additions to these rules, from time to time promulgated in
writing by Landlord. Landlord shall not be responsible to Tenant for the
nonperformance of any of these rules by any other tenant or occupant of the
Building or the Complex, but Landlord shall take reasonable steps to enforce any
rules, the nonperformance of which by other tenants materially and adversely
affects Tenant in the use of the Premises. However, if any rule conflicts with
any term, covenant, or condition of this Lease, this Lease shall prevail. In
addition, no rule, or any subsequent amendment to it adopted by Landlord shall
alter, reduce, or adversely affect any of Tenant's rights or enlarge Tenant's
obligations under this Lease.
Section 18. Entry by Landlord. Landlord may enter the Premises at
reasonable hours and, except in the event of an emergency, on reasonable prior
notice, to (a) inspect the Premises; (b) exhibit the Premises to prospective
purchasers, lenders, or tenants; (c) determine whether Tenant is complying with
all obligations under this Lease; (d) supply janitorial service and any other
services to be provided by Landlord under this Lease; (e) post notices of
nonresponsibility; and (f) make repairs or perform maintenance required of
Landlord by this Lease, make repairs to any adjoining space or utility services,
or make repairs, alterations, or improvements to any other portion of the
Building or the Complex. However, all this work shall be done as promptly as
reasonably possible and cause as little interference to Tenant as reasonably
possible. Subject to Landlord's undertakings in the previous sentence, Tenant
waives any damage claims for inconvenience to or interference with Tenant's
business or loss of occupancy or quiet enjoyment of the Premises caused by
Landlord's entry. At all times Landlord shall have a key with which to unlock
the doors on the Premises, excluding Tenant's vaults, safes, and similar areas
designated as secure areas in writing by Tenant in advance. In an emergency,
Landlord shall have the right to use any means that Landlord deems proper to
open Tenant's doors and enter the Premises. Entry to the Premises by Landlord
in an emergency
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shall not be construed as a forcible or unlawful entry, a detainer, or an actual
or constructive eviction of Tenant.
Section 19. Events of Default. The following events shall constitute
events of default under this Lease (each, an "Event of Default"):
(a) a default by Tenant in the payment when due of any rent or other sum
payable under this Lease, provided, however, that Landlord agrees to provide
Tenant no more than once during any consecutive twelve (12) month period of the
Term a written courtesy notice of Tenant's failure to pay rent when due
hereunder, by which Tenant shall have five (5) days after receipt of such notice
to pay such overdue rent before delivery of any statutorily required notice is
given by Landlord seeking forfeiture of the Lease;
(b) a default by Tenant in the performance of any of the terms,
covenants, agreements, or conditions in this Lease, other than a default by
Tenant in the payment when due of any rent or other sum payable under this
Lease, and the continuation of the default beyond thirty (30) days after notice
by Landlord or, if the default is curable and would require more than thirty
(30) days to remedy, beyond the time reasonably necessary for cure;
(c) the bankruptcy or insolvency of Tenant, a transfer by Tenant in fraud
of creditors, an assignment by Tenant for the benefit of creditors, or the
commencement of proceedings of any kind by or against Tenant under the Federal
Bankruptcy Act or under any other insolvency, bankruptcy, or reorganization act,
unless Tenant is discharged from voluntary proceedings within ninety (90) days;
(d) the appointment of a receiver for a substantial part of Tenant's
assets;
(e) the abandonment of the Premises; and
(f) the levy upon this Lease or any estate of Tenant under this Lease by
attachment or execution and the failure to have the attachment or execution
vacated within thirty (30) days.
Section 20. Termination upon Default. On occurrence of any Event of
Default by Tenant, Landlord may, in addition to any other rights and remedies
given here or by law, terminate this Lease and exercise remedies relating to it
without further notice or demand in accordance with the following provisions:
(a) So long as the Event of Default remains uncured, Landlord shall have
the right to give notice of termination to Tenant, and on the date specified in
this notice, this Lease shall terminate.
(b) If this Lease is terminated, Landlord may, by judicial process,
reenter the Premises, remove all persons and property, and repossess and enjoy
the Premises, all without prejudice to other remedies that Landlord may have
because of Tenant's default or the termination.
(c) If this Lease is terminated, Landlord shall have all of the rights
and remedies of a landlord provided by Civil Code 1951.2, in addition to any
other rights and remedies Landlord may have. The damages which Landlord may
recover shall include, without limitation, (i) the worth at the time of
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award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of the award exceeds the
amount of the rental loss that Tenant proves could have been reasonably avoided;
(iii) the worth at the time of award computed by discounting the amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%) of the amount by which the unpaid rent for the balance of
the term after the time of award exceeds the amount of rental loss that Tenant
proves could be reasonably avoided; (iv) all reasonable legal expenses and other
related costs incurred by Landlord following Tenant's default; (v) all
reasonable costs incurred by Landlord in restoring the Premises to good order
and condition to relet the Premises; and (vi) all reasonable costs, including
without limitation, any brokerage commissions incurred by Landlord in reletting
the Premises.
Section 21. Continuation after Default. If Tenant breaches this Lease
and abandons the Premises, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession, and Landlord may
enforce all rights and remedies under this Lease, including the right to recover
the rental as it becomes due under this Lease. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
upon initiative of Landlord to protect Landlord's interest under this Lease
shall not constitute a termination of Tenant's right to possession.
Section 22. Other Relief. The remedies provided in this Lease are in
addition to any other remedies available to Landlord at law, in equity, by
statute, or otherwise.
Section 23. Right of Landlord to Cure Defaults. Agreements and
provisions to be performed by Tenant under this Lease shall be at Tenant's sole
cost and without abatement of rental, except as specifically provided in this
Lease. If Tenant (a) fails to pay any sum of money, other than rental, required
under this Lease, or (b) fails to perform any other act under this Lease, and
this failure continues for thirty (30) days after notice of the failure by
Landlord, or a longer period as may be allowed under this Lease, Landlord may,
without waiving or releasing Tenant from any obligations of Tenant, make payment
or perform other acts required by this Lease on Tenant's behalf. All sums paid
by Landlord and all necessary incidental costs shall be payable to Landlord on
demand and shall constitute additional rental under this Lease.
Section 24. Attorney Fees. If, as a result of a breach or default under
this Lease, Landlord or Tenant uses an attorney to secure compliance with Lease
provisions, to recover damages, to terminate this Lease, or to evict Tenant, as
applicable, the non-prevailing party shall reimburse the prevailing party, on
demand, for all reasonable attorney fees and expenses incurred by the prevailing
party, and if such prevailing party shall recover judgment in connection
therewith, such fees and expenses shall be included in and as a part of such
judgment. As used herein, the term "prevailing party" shall mean that party who
substantially prevails on its claim, regardless of whether such claim is
prosecuted to judgment. If any action or proceeding between Landlord and Tenant
to enforce the provisions of this Lease (including an action or proceeding
between Landlord and the trustee or debtor in possession while Tenant is a
debtor in a proceeding under any bankruptcy
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law) proceeds to trial, Landlord and Tenant hereby waive their respective rights
to a jury in such trial.
Section 25. Eminent Domain.
(a) If all or any part of the Premises shall be either taken or condemned
for any public or quasi-public use or purpose, or transferred by agreement in
connection with any public or quasi-public use or purpose with or without any
condemnation action or proceeding being instituted (either such event herein
called a "Taking"), and if such Taking is permanent, the Term shall
automatically terminate with respect to the part of the Premises so Taken as of
the date when the possession of such part is required. If all or any portion of
the Premises is subject to a temporary Taking, this Lease shall remain in full
force and effect and Tenant shall continue to perform all terms, conditions and
covenants of this Lease. If a portion of the Premises or Building or Complex is
taken so as to require, in Landlord's reasonable judgment, a substantial
alteration or reconstruction of the remaining portions, Landlord, at its sole
election, may terminate this Lease as of the date when possession of the part so
Taken is required. Without obligation to Tenant, Landlord may agree to transfer
to any condemnor all or any portion of the Building sought by such condemnor,
free from this Lease and the rights of Tenant hereunder, without first requiring
that any action or proceeding be instituted or, if instituted, pursued to a
judgment.
(b) Landlord shall be entitled to the entire award made to it for any
Taking, provided, however, that: (a) Landlord shall have no interest in any
award made to Tenant specifically for its relocation expenses, the Taking of
personal property or fixtures belonging to Tenant, or the interruption of or a
damage to Tenant's business, if any such award is made separately to Tenant and
not as a part of an award or damages recoverable by Landlord, and (b) Tenant
shall be entitled to receive the entire award made in connection with any
temporary Taking allocable to the period prior to the expiration of the Term.
(c) Landlord and Tenant hereby waive the provisions of California Code of
Civil Procedure Section 1265.130 to the extent that such provisions are
inconsistent with this Lease.
Section 26. Insurance.
(a) Tenant, at its expense, shall maintain in full force during the term
a policy or policies of commercial general liability insurance insuring against
all liability of Tenant and its representatives and visitors for personal or
bodily injury or property damage arising out of or incurred in connection with
Tenant's use or occupancy of the Premises, the Building or the Complex. Such
policy or policies shall further insure the indemnification obligations of
Tenant under this Lease.
(b) Tenant shall at all times maintain in effect insurance with respect
to its alterations, trade fixtures and other personal property at the Premises
providing coverage against fire, extended coverage perils and vandalism and
malicious mischief, to the extent of one hundred percent (100%) of the full
replacement cost thereof. Tenant may carry such insurance under a blanket
policy, provided that such policy provides equivalent coverage to a separate
policy. During the Term the proceeds from any such policies of insurance shall
be used for the repair or replacement of such property so
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insured. Landlord shall have no interest in such insurance and shall sign all
documents reasonably necessary or proper in connection with the settlement of
any claim or loss by Tenant.
(c) Each policy of insurance required under this Lease shall be in an
amount specified in the Basic Lease Information and in a form, and with an
insurer acceptable to Landlord, and shall require at least thirty (30) days'
written notice to Landlord and any beneficiary of any deed of trust covering the
Building or the Complex prior to any termination or alteration of the policy and
shall provide that no act or omission of Tenant shall affect or limit the
obligations of the insurer with respect to any other insured. Each policy of
liability insurance shall name Landlord and its property manager and any
beneficiary of any deed of trust covering the Building or the Complex as
additional insureds and provide that it is primary to, and not contributing
with, any policy carried by Landlord covering the same loss. Tenant shall
provide to Landlord prior to the Commencement Date and upon request thereafter
evidence that the insurance required to be carried by Tenant pursuant to this
Section is in full force and effect and the premiums therefor have been paid.
Not more frequently than once every year, Tenant shall increase the amounts of
insurance as recommended by Landlord's lender or insurance broker if, in the
opinion of either of them, the amount of insurance then required under this
Lease is not adequate. Any limits set forth in the Lease on the amount or type
of coverage required by Tenant's insurance shall not limit the liability of
Tenant under this Lease.
(d) In the event that, as a result of changed circumstances from time to
time, comparable landlords and/or tenants in the area in which the Building is
located are typically carrying kinds or amounts of insurance that exceed the
requirements of this Lease, Tenant shall, within thirty (30) days following
written demand by Landlord, obtain and thereafter maintain in effect such
additional insurance, which shall, to the extent reasonably applicable, conform
to, and be governed by, the existing insurance provisions of this Lease.
Section 27. Subordination. This Lease shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security now or
later placed upon the Building or the Complex and to any advances made on the
security of it or Landlord's interest in it, and to all renewals, modifications,
consolidations, replacements, and extensions of it. However, if any mortgagee,
trustee, or ground lessor elects to have this Lease prior to the lien of its
mortgage or deed of trust or prior to its ground lease, and gives notice of that
to Tenant, this Lease shall be deemed prior to the mortgage, deed of trust, or
ground lease, whether this Lease is dated prior or subsequent to the date of the
mortgage, deed of trust, or ground lease, or the date of recording of it. In
the event any mortgage or deed of trust to which this Lease is subordinate is
foreclosed or a deed in lieu of foreclosure is given to the mortgagee or
beneficiary, Tenant shall attorn to the purchaser at the foreclosure sale or to
the grantee under the deed in lieu of foreclosure. In the event of termination
of any ground lease to which this Lease is subordinate, Tenant shall attorn to
the ground lessor. Tenant agrees to execute any documents, in form and
substance reasonably acceptable to Tenant, required to effectuate the
subordination, to make this Lease prior to the lien of any mortgage or deed of
trust or ground lease, or to evidence the attornment. In the event Tenant
executes a subordination, non-disturbance and attornment agreement with any
existing lienholder of the Property, the terms of such agreement shall supersede
the provisions of this
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Section and govern Tenant's rights with respect to a foreclosure event or
transfer resulting from any action taken by such existing lienholder. Tenant's
agreement to subordinate its interest in this Lease to the rights of a future
ground lessor, mortgage holder or beneficiary under a deed of trust is
conditioned upon such future ground lessor, mortgage holder or beneficiary under
a deed of trust entering into a subordination, non-disturbance and attornment
agreement in a form substantially similar to that attached hereto as ExhibityE,
which form Tenant agrees to execute in such situations. Landlord shall use all
commercially reasonable efforts to obtain such a subordination, nondisturbance
and attornment agreement from the holder of the deed of trust encumbering the
Property as of the date of this Lease.
Section 28. No Merger. The surrender of this Lease by Tenant, or a
mutual cancellation of it, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or operate as
an assignment to Landlord of all subleases or subtenancies.
Section 29. Sale. In the event that Landlord or any successor owner of
the Building or the Complex sells or conveys the Building or the Complex, all
liabilities and obligations of Landlord or the successor owner under this Lease
accruing after the sale or conveyance terminates, shall be binding on the new
owner, and Tenant shall release Landlord from all liability under this Lease.
Tenant agrees to attorn to the new owner.
Section 30. Estoppel Certificate. At any time with at least fifteen (15)
days' prior notice by Landlord, Tenant shall execute, acknowledge, and deliver
to Landlord a certificate certifying: (a) that this Lease is unmodified and in
full force or, if there have been modifications, that this Lease is in full
force, as modified, together with the date and nature of each modification,
(b) the amount of the Base Rent, most recent Escalation Rent, if any, and the
date to which the rent has been paid, (c) that no notice has been received by
Tenant of any default that has not been cured, except defaults specified in the
certificate, (d) that no default of Landlord is claimed by Tenant, except
defaults specified in the certificate, and (e) other matters as may be
reasonably requested by Landlord. Any certificate may be relied on by
prospective purchasers, current or prospective mortgagees, or current or
prospective beneficiaries under any deed of trust on the Building.
Section 31. Light, Air, or View Rights. Any diminution or shutting off
of light, air, or view by any structure that may be erected on lands adjacent to
the Building or the Complex shall not affect this Lease or impose any liability
on Landlord.
Section 32. Relocation. [Intentionally Omitted]
Section 33. Brokers. Tenant and Landlord agree that, except as indicated
in the Basic Lease Information, no broker or finder has been involved in the
transaction described in this Lease and Landlord and Tenant agree that in the
event any broker, salesperson or other person makes any claim for any commission
or finder's fee based upon the lease of the Premises to Tenant or any other
items or interests contemplated by this Lease, the party through whom said
broker, salesperson or other person makes its claim shall indemnify and hold
harmless the other party from said claim and all liabilities, costs and expenses
relating thereto, including reasonable attorneys' fees, which may be incurred by
such other party in connection with
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such claim. Landlord shall pay Grubb & Ellis ("Landlord's Broker") a commission
in connection with this Lease in the manner and upon the satisfaction of the
terms and conditions set forth in that Exclusive Leasing Agreement dated as of
Septembery4, 1997 executed by Landlord and Landlord's Broker, as may be amended
among them. Landlord and Tenant also understand that Landlord's Broker shall,
pursuant to a separate agreement by and between Landlord's Broker and Tenant's
Broker, share with Tenant's Broker a portion of the commission paid by Landlord
to Landlord's Broker. Landlord and Tenant acknowledge that such understanding
shall not in any manner obligate Landlord to directly or indirectly pay any such
portion of the commission to Tenant's Broker under any circumstances and hereby
expressly state that Tenant's Broker is not an intended third party beneficiary
of any promise set forth herein.
Section 34. Holding Over.
(a) If, without objection by Landlord, Tenant holds possession of the
Premises after expiration of the term of this Lease, Tenant shall become a
tenant from month-to-month on the terms specified in this Lease, except those
pertaining to term, and option to extend, if any, but at a monthly rental
equivalent to one hundred and fifty percent (150%) of the then prevailing
monthly rental paid by Tenant at the expiration of the term of this Lease,
payable in advance on or before the first day of each month. Each party shall
give the other notice of intention to terminate the tenancy at least one (1)
month prior to the date of termination of a monthly tenancy.
(b) If, over Landlord's objection, Tenant holds possession of the
Premises after expiration of the term of this Lease or expiration of the
holdover tenancy, Tenant shall be deemed to be a tenant-at-sufferance and,
without limiting the liability of Tenant for unauthorized occupancy of the
Premises, Tenant shall indemnify Landlord and any replacement tenant for the
Premises for any damages or loss suffered by either Landlord or the replacement
tenant resulting from Tenant's failure to vacate the Premises in a timely
manner.
Section 35. Security Deposit. Tenant shall deposit with Landlord the sum
specified in the Basic Lease Information (the "Deposit") within fifteen (15)
days after the date of this Lease. The Deposit shall be held by Landlord as
security for the faithful performance by Tenant of all provisions of this Lease.
If Tenant fails to pay rent or other sums due under this Lease or defaults with
respect to any provision of this Lease, Landlord may use, apply, or retain all
or any portion of the Deposit for the payment of rent or other sums in default,
for the payment of any other sums to which Landlord may become obligated because
of Tenant's default, or to compensate Landlord for any loss or damage that
Landlord may suffer because of the Tenant's actions. If Landlord uses or
applies the Deposit, Tenant shall, within ten (10) days after demand, deposit
cash with Landlord in an amount sufficient to restore the Deposit to the full
amount, and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep the Deposit separate from Landlord's
general accounts. If Tenant performs all of Tenant's obligations under this
Lease, the Deposit or the amount not applied by Landlord shall be returned,
without interest, to Tenant or at Landlord's option, to the last assignee, if
any, of Tenant's interest under this Lease at the expiration of the Term and
after Tenant has vacated the Premises. No trust relationship is created between
Landlord and Tenant with respect to the Deposit. In lieu of the Deposit in
cash, Tenant
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may deliver to Landlord one or more irrevocable standby letters of credit (each
a "Letter of Credit") payable upon presentation, in form and substance and
issued by a financial institution acceptable to Landlord, in its reasonable
discretion in the aggregate amount of the deposit to be held pursuant to this
Lease, and handled pursuant to the terms of Section 35. Each Letter of Credit
shall be outstanding for at least twelve (12) months from issuance, and, in
addition to Landlord's right to draw on a Letter of Credit at any time that
Landlord could otherwise use the Deposit as permitted under this Lease, in the
event that Tenant fails to deliver replacement Letter(s) of Credit or a written
renewal of the then current Letter(s) of Credit prior to the date fifteen (15)
days before the expiration of the then current Letter(s) of Credit, Landlord may
make presentation of the then current Letter(s) of Credit and hold the Deposit
in the form of cash thereafter, and Tenant shall no longer have the right to
make the Deposit in the form of Letter(s) of Credit. In the event that Tenant
has not committed an Event of Default which remained uncured after all
applicable cure periods, whether contained herein or by statute, at any time
prior to an adjustment in the amount of the Deposit as provided below, the
amount of the Deposit shall be in the following amounts during the following
periods of the Term (each year so designated to commence on the anniversary of
the Commencement Date):
<TABLE>
<S> <C>
During Year 2 of the Term: $630,000.00
During Year 3 of the Term: $560,000.00
During Year 4 of the Term: $490,000.00
During Year 5 of the Term: $420,000.00
During Year 6 of the Term: $350,000.00
During Year 7 of the Term: $280,000.00
During Years 8, 9 and 10 of the Term: $160,000.00
During the Extension Period: $160,000.00
</TABLE>
Notwithstanding the foregoing, from and after the third anniversary of the
Commencement Date, the Deposit shall be in the amount of $80,000.00 in the sole
event that Tenant provides evidence reasonably satisfactory to Landlord at least
thirty (30) and no more than sixty (60) days prior to each anniversary of the
Commencement Date that Tenant has a tangible net worth of at least
$75,000,000.00. For any year that Tenant does not provide satisfactory evidence
of such tangible net worth, the Deposit shall be in the amount set forth above
for such year.
Section 36. Waiver. The waiver by either party hereto of any agreement,
condition, or provision contained in this Lease shall not be deemed to be a
waiver of any subsequent breach of the agreement, condition, or provision or any
other agreement, condition, or provision contained in the Lease, nor shall any
custom or practice that may arise between the parties in the administration of
the terms of this Lease be construed to waive or to lessen the right of any
party to the performance by the other party in strict accordance with these
terms. The subsequent acceptance of rental under this Lease by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any agreement,
condition, or provision of this Lease, other than the failure of Tenant to pay
the particular accepted rental, regardless of knowledge of the preceding breach
at the time of the rental acceptance.
Section 37. Notices and Consents. All notices, consents, demands, and
other communications from one party to the other that are given pursuant to the
terms of this Lease shall be in writing and shall be deemed to have been fully
given when delivered, including delivery by commercial delivery
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services or facsimile transmission, or if deposited in the United States mail,
certified or registered, postage prepaid, when received or refused. All notices,
consents, demands, and other communications shall be addressed as follows: to
Tenant at the address specified in the Basic Lease Information, or to another
place or person as Tenant may designate in a notice to Landlord, or delivered to
Tenant at the Premises; to Landlord at the address specified in the Basic Lease
Information, or to another place as Landlord may designate in a notice to
Tenant.
Section 38. Entire Agreement. There are no oral agreements between
Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels
all previous negotiations, arrangements, brochures, agreements, and
understandings between Landlord and Tenant or displayed by Landlord to Tenant
with respect to the subject matter of this Lease. There are no representations
between Landlord and Tenant other than those contained in this Lease. All
implied warranties, including implied warranties of merchantability and fitness,
are excluded.
Section 39. Authority. If either of the parties signs this Lease as a
corporation, such party warrants that the party is a duly formed and validly
existing corporation, that the party is qualified to do business in California,
and any other jurisdiction in which it conducts business, that the party has the
right and authority to enter into this Lease, and that each person signing on
behalf of the corporation is authorized to do so. If either of the parties
signs this Lease as a partnership, each person executing this Lease on behalf of
the party warrants that the party is a partnership, that the partnership has the
right and authority to enter into this Lease, and that each person signing on
behalf of the partnership is authorized to sign.
Section 40. Plural and Singular. The words Landlord and Tenant as used
in this Lease shall include the plural as well as the singular.
Section 41. Joint and Several Obligations. If there is more than one
Tenant, the obligations imposed on Tenant shall be joint and several.
Section 42. Time of the Essence. Time is of the essence in this Lease
and all of its provisions.
Section 43. Examination of Lease. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
Section 44. Heirs, Successors, and Assigns. The agreements, conditions,
and provisions contained in this Lease shall, subject to the provisions for
assignment, apply to and bind the heirs, executors, administrators, successors,
and assigns of the parties to it. Unless expressly provided herein to the
contrary, the terms, conditions and covenants of this Lease are intended solely
for the benefit of Landlord and Tenant.
Section 45. Name of Building. Tenant shall not, without the consent of
Landlord, use the name of the Building or the Complex for any purpose other than
as the address of the business to be conducted by Tenant in the Premises.
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Section 46. Illegality or Unenforceability of Portion of Lease. If any
provision of this Lease is determined to be illegal or unenforceable, this
determination shall not affect any other provision of this Lease, and all other
provisions shall remain in full force and effect.
Section 47. Governing Law. This Lease shall be governed by and construed
pursuant to law of the State of California. The headings and titles to the
paragraphs of this Lease are for convenience only and are not to be used to
interpret or construe this Lease. Wherever the term "including" or "includes"
is used in this Lease it shall be construed as if followed by the phrase
"without limitation."
Section 48. Obligations Independent. The obligations of each party
hereunder are independent and do not constitute conditions to the effectiveness
of the other party's obligations. The nonperformance by either party of any of
its obligations shall not excuse any nonperformance by the other party except to
the extent that it makes such other party's performance impossible or
impracticable.
Section 49. Exhibits. The exhibits and addenda, if any, specified in the
Office Lease Index set forth at the beginning of this Lease are attached to this
Lease and by this reference made a part of it. To the extent that the terms and
conditions of such exhibits and addenda are inconsistent with the terms and
conditions contained in the body of this Lease, the terms and conditions
contained in such exhibits and addendum shall control.
Section 50. Landlord's Liability. The term "Landlord," as used in this
Lease, shall mean only the owner or owners of the Property at the time in
question. Notwithstanding any other term or provision of this Lease, (a) the
liability of Landlord for its obligations under this Lease is limited solely to
Landlord's interest in the Property as the same may from time to time be
encumbered (or the amount of any proceeds from the sale of the Property), and no
personal liability shall at any time be asserted or enforceable against any
other assets of Landlord or against Landlord's stockholders, directors, officers
or partners on account of any of Landlord's obligations or actions under this
Lease, and (b) in no event shall Landlord be liable to Tenant for any punitive
or consequential damages or damages for loss of business by Tenant. In
addition, from and after the date of Landlord's conveyance of title to the
Property, Landlord shall be relieved of all liability with respect to Landlord's
obligations to be performed under this Lease after the date of such conveyance.
If Tenant provides Landlord with any security for Tenant's performance of its
obligations hereunder, and Landlord transfers such security to the grantee or
transferee of Landlord's interest in the Property, Landlord shall be released
from any further responsibility or liability for such security. Upon any
conveyance of title to the Property, the grantee or transferee, by accepting
such conveyance, shall be deemed to have assumed Landlord's obligations to be
performed under this Lease from and after the date of transfer, subject to the
limitations on liabilities set forth in this Section 50.
51. Financing Condition. If at any time or times Landlord desires to
obtain financing for the Property, or any portion hereof containing the
Premises, or if any lender which intends to take, or is holding, a mortgage or
deed of trust encumbering the Property should require, as a condition to such
financing, either execution by Tenant of an agreement requiring Tenant
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to send such lender written notice of any default by Landlord under this Lease,
giving such lender the right to cure such default until such lender has
completed foreclosure, and preventing Tenant from terminating this Lease unless
such default remains uncured after foreclosure has been completed, except with
respect to maintenance and repair or provision of services to the extent the
default substantially interferes with Tenant's intended use of the Premises, or
any modification of the agreements, covenants, conditions or provisions of this
Lease, or both of them, then Tenant agrees to execute and deliver such agreement
and to modify this Lease as required by such lender; provided, however, that no
such modification shall unfairly increase the obligations or adversely affect
the rights of Tenant hereunder nor affect the length of the term hereof or
increase the rent payable by Tenant under Sectionsy4 and 5, it being
acknowledged that the purpose of such modifications would be only to preserve
this Lease as security for payment of Landlord's obligations to such lender.
Tenant acknowledges and agrees that its failure to execute any such agreement or
modification required by such lender may cause Landlord serious financial damage
by causing the failure of a financing transaction and giving Landlord all of its
rights and remedies under Sections 20, 21 and 22 hereof, including its right to
damages caused by the loss of said financing. In addition to such rights and
remedies, if Tenant shall fail or refuse to execute any such agreement or
modification within ten (10) days after receipt thereof, Landlord, at its
option, may, upon written notice to Tenant, terminate this Lease and, upon
giving such termination notice, Landlord shall refund to Tenant any unearned
rent and/or security deposit held by Landlord in excess of amounts which Tenant
then owes to Landlord, and this Lease shall terminate.
52. Hazardous Substance Disclosure. California law requires landlords to
disclose to tenants the existence of certain hazardous substances. Accordingly,
the existence of tobacco smoke, lead paint and asbestos containing materials
("ACM") must be disclosed. Although smoking is prohibited in the public areas
of the Building and the Complex, these areas may, from time to time, be exposed
to tobacco smoke. Additionally, certain areas of the Building and Complex may
contain ACM, but these areas are generally inaccessible to tenants, such as
machinery rooms, the inside of sealed walls and above suspended ceilings.
Further, certain potions of the Complex may contain lead paint. Landlord
covenants to comply during the Lease term with all local, state and federal laws
and regulations requiring disclosure to tenants regarding the existence of
hazardous substances within the Building and the Complex. Tenant agrees not to
expose or disturb any ACM or lead paint unless Landlord has given Tenant prior
written consent thereto and Tenant complies with all applicable legal
requirements and Landlord's written procedures for handling ACM and lead paint.
Tenant's failure to comply with the immediately preceding sentence shall
constitute an Event of Default under Section 19 of the Lease. Tenant may obtain
a copy of Landlord's written procedures for handling asbestos and lead paint
from the Building office. Landlord shall have available at the Building office
for inspection by Tenant, during Normal Business Hours, all reports in
Landlord's possession relating to hazardous substances existing at the Property.
The parties have executed this Lease as of the date first set forth above.
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Landlord: Tenant:
PACIFIC RESOURCES PCX DEVELOPMENT SALON.COM, a Delaware corporation
INC., a California corporation
By: /s/ Kevin Wu By: /s/ Todd Hagen
Name: Kevin Wu Name: Todd Hagen
Its: Its: Chief Financial Officer
Vice President and Asst Secretary
By: By:
Name: Name:
Its: Its:
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6124629.6
Exhibit A. Description of Premises
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6124629.6
Exhibit A-1. Description of Real Property
The Real Property is situated in the County of San Francisco, State of
California, and is described as follows:
Lot 48, as shown on "Parcel Map Merging of Lots 1, 46 and 47, a Portion of
Assessor's Block 3705, also Being a Portion of 100 Vara Block 371", San
Francisco, California filed June 18, 1992, in Book 41 of Parcel Maps, at Pages
44 and 45, in the Office of the Recorder of the City and County of San
Francisco, State of California.
Assessor's Lot 48, Block 3705.
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6124629.6
Exhibit B. Rules
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators, and stairways of the Building and the Complex shall not
be obstructed by any of the tenants or used for any purpose other than for
ingress to and egress from their respective Premises. The halls, passages,
exits, entrances, shopping malls, elevators, escalators, and stairways are not
for the general public, and Landlord shall in all cases retain the right to
control and prevent access to them by all persons whose presence in the judgment
of Landlord would be prejudicial to the safety, character, reputation, and
interests of the Building, the Complex and its tenants. However, nothing here
shall be construed to prevent access to persons with whom any tenant normally
deals in the ordinary course of business, unless these persons are engaged in
illegal activities. No tenant and no employee or invitee of any tenant shall go
on the roof of the Building or the Complex.
2. A sign, placard, picture, name, advertisement, or notice visible from
the exterior of any tenant's Premises shall not be inscribed, painted, affixed,
or otherwise displayed by any tenant on any part of the Building or the Complex
without the prior written consent of Landlord. Landlord will adopt and furnish
to tenants general guidelines relating to signs inside the Building on the
office floors. Each tenant shall conform to these guidelines, but may request
approval of Landlord for modifications, which will not be unreasonably withheld.
All approved signs or lettering on doors shall be printed, painted, affixed, or
inscribed at the expense of the tenant by a person approved by Landlord, which
will not be unreasonably withheld. Material visible from outside the Building
or the Complex will not be permitted.
3. The Premises of each tenant shall not be used for the storage of
merchandise held for sale to the general public or for lodging. No cooking
shall be done or permitted by any tenant on the Premises, except that (a) each
tenant may establish and operate a lunchroom facility for use by tenant's
employees, and (b) each tenant may use and install food and beverage vending
machines and Underwriters' Laboratory approved microwave ovens and equipment for
brewing coffee, tea, hot chocolate, and similar beverages, provided that
adequate provisions are made for venting and control of odors and all facilities
and equipment are in accordance with all applicable federal, state, and city
laws, codes, ordinances, rules, and regulations.
4. No tenant shall employ any person other than Landlord's janitorial
service for cleaning the Premises, unless otherwise approved by Landlord. No
person other than those approved by Landlord shall be permitted to enter the
Building to clean it. No tenant shall cause any unnecessary labor because of
carelessness or indifference in the preservation of good order and cleanliness.
Janitor service will not be furnished on nights when rooms are occupied after
9:30 p.m. unless, by prior arrangement with Landlord, service is extended to a
later hour for specifically designated rooms.
5. Landlord will furnish each tenant, free of charge, one key to each
door lock in the Premises. Landlord may make a reasonable charge for any
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additional keys. No tenant shall have any keys made. No tenant shall alter any
lock or install a new or additional lock or any bolt on any door of the premises
without the prior consent of Landlord. The tenant shall in each case furnish
Landlord with a key for any lock. Each tenant, upon the termination of the
tenancy, shall deliver to Landlord all keys to doors in the Building that have
been furnished to the tenant.
6. The freight elevator shall be available for use by all tenants in the
Building, subject to reasonable scheduling as Landlord deems appropriate. The
persons employed to move equipment in or out of the Building must be acceptable
to Landlord. Landlord shall have the right to prescribe the weight, size, and
position of all equipment, materials, furniture, or other property brought into
the Building and the Complex. Heavy objects shall, if considered necessary by
Landlord, stand on wood strips of a thickness necessary to properly distribute
the weight. Landlord will not be responsible for loss of or damage to any
property from any cause, and all damage done to the Building or the Complex by
moving or maintaining property shall be repaired at the expense of the tenant.
7. No tenant shall use or keep in the Premises, the Building or the
Complex any kerosene, gasoline, or inflammable or combustible fluid or material
other than limited quantities reasonably necessary for the operation or
maintenance of office equipment, and may not, without Landlord's prior approval,
use any method of heating or air conditioning other than that supplied by
Landlord. No tenant shall use or keep any foul, noxious, or hazardous gas or
substance in the Premises, or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the Building and the Complex because of noise, odors, or vibrations, or
interfere in any way with other tenants or those having business in the Building
and the Complex. No pets shall be kept in the Premises.
8. Landlord shall have the right, exercisable without notice and without
liability to any Tenant, to change the name and street address of the Building
or the Complex.
9. Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 7:00 a.m. and at all hours on Saturdays, Sundays, and
legal holidays any person who does not present a proper access card or other
identification as a tenant or an employee of a tenant, or who does not otherwise
present proper authorization by a tenant for access to its premises. Each
tenant shall be responsible for all persons for whom it authorizes access and
shall be liable to Landlord for all acts of these persons. Landlord shall in no
case be liable for damages for any error with regard to the admission to or
exclusion from the Building or the Complex of any person. In the case of
invasion, mob, riot, public excitement, or other circumstances rendering an
action advisable in Landlord's opinion, Landlord reserves the right to prevent
access to the Building and the Complex during the continuance of the
circumstance by any action Landlord deems appropriate.
10. A directory of the Building will be provided to display the name and
location of tenants. Landlord reserves the right to exclude any other names.
Any additional name that a tenant desires to have added to the directory shall
be subject to Landlord's approval and may be subject to a charge.
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11. No curtains, draperies, blinds, shutters, shades, screens, or other
coverings, hangings, or decorations shall be attached to, hung, or placed in, or
used in connection with any exterior window in the Building without the prior
consent of Landlord. If consented to by Landlord, these items shall be
installed on the office side of the standard window covering and shall in no way
be visible from the exterior of the Building or the Complex.
12. Messenger services and suppliers of bottled water, food, beverages,
and other products or services shall be subject to reasonable regulations as may
be adopted by Landlord. Landlord may establish a central receiving station in
the Building for delivery and pick up by all messenger services, and may limit
delivery and pick up at tenant Premises to Building personnel.
13. Each tenant shall see that the doors of the premises are closed and
locked and that all water faucets or apparatus, cooking facilities, and office
equipment, excluding office equipment required to be operative at all times, are
shut off before the tenant or employees leave the Premises at night, so as to
prevent waste or damage. For any default or carelessness in this regard the
tenant shall be responsible for any damage sustained by other tenants or
occupants of the Building or the Complex or Landlord. On multiple-tenancy
floors, tenants shall keep the doors to the Building corridors closed at all
times except for ingress and egress.
14. The toilets, urinals, wash bowls, and other rest room facilities
shall not be used for any purpose other than that for which they were
constructed. No foreign substance of any kind shall be thrown in them, and the
expense of any breakage, stoppage, or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose employees or invitees, have
caused it.
15. Except with the prior consent of Landlord, no tenant of the office
portions of the Building shall sell, or permit the sale at retail, of
newspapers, magazines, periodicals, theater tickets, or any other goods or
merchandise to the general public in the Premises, nor shall any tenant carry
on, permit, or allow any employee or other person to carry on the business of
stenography, typewriting, or any similar business in or from the Premises for
the service or accommodation of occupants of any other portion of the Building,
nor shall the Premises of any tenant of the office portions of the Building be
used for manufacturing of any kind, as a labor union office, barber or manicure
shop, employment bureau, doctor's or dentist's office, dance or music studio or
for any business or activity other than that specifically provided for in the
tenant's lease.
16. No tenant shall install any antenna, loudspeaker, or other device on
the roof or exterior walls of the Building or the Complex.
17. No motorcycles, motor scooters or bicycles shall be parked or stored
anywhere in the Building or the Complex without the consent of Landlord.
18. Hand trucks or other material handling equipment, except those
equipped with rubber tires and side guards, may not be used in any portion of
the Building or the Complex unless approved by Landlord.
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19. Each tenant shall store refuse within that tenant's premises. No
material of a nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of refuse in the City and County of
San Francisco, California, without being in violation of any law or ordinance
governing this disposal shall be placed in the refuse boxes or receptacles. All
refuse disposal shall be made only through entryways and elevators provided for
these purposes and at the times Landlord shall designate.
20. Canvassing, peddling, soliciting, and distributing handbills or any
other written materials in the Building and the Complex is prohibited, and each
tenant shall cooperate to prevent this type of occurrence.
21. The requirements of the tenants will be attended to only on
application by telephone or in person at the office of the Building. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
22. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant of the office portions of the Building, so
long as Tenant's use of the Premises is not adversely affected by the waiver,
and no waiver by Landlord shall be construed as a waiver of the Rules in favor
of any other tenant, nor prevent Landlord from later enforcing any of the Rules
against any of the tenants of the office portions of the Building.
23. These Rules are in addition to, and shall not be construed to modify
or amend, in whole or in part, the terms, covenants, agreements, and conditions
of any lease of Premises in the office portions of the Building.
24. Landlord reserves the right to make other reasonable rules as
Landlord judges may be needed for the safety, care, and cleanliness of the
Building and the Complex, and for the preservation of good order, provided that
Tenant's use and occupancy of the Premises shall not be adversely affected by
other rules.
25. Landlord shall have the right to require that any person entering the
Building shall be subject to identification by the employees and agents of
Landlord. Subject to the provisions of this Lease, Landlord will provide all
security services for the Building, provided that, if Tenant desires any
additional security service for the Premises, Tenant shall have the right (with
advance written consent of Landlord, which consent will not be unreasonably
withheld) to obtain such additional service at Tenant's sole cost and expense.
26. Only workmen employed, designated or approved by Landlord (such
approval not to be unreasonably withheld) may be employed for repairs,
installations, alterations, painting, material moving and other similar work
that may be done on the Premises.
27. No boring or cutting through floors of the Building or the Complex
shall be permitted without prior written consent of Landlord (which consent
shall not be unreasonably withheld) and as Landlord may reasonably direct.
28. Tenant shall give immediate notice to Landlord in case of accidents
in the Premises, the Building or in the Complex or of defects
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therein or in any fixtures or equipment or of any known emergency in the
Building or the Complex.
29. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Business machines and mechanical equipment belonging
to Tenant which cause noise, vibration or any other nuisance that may be
transmitted to the structure or other portions of the Building and the Complex
outside the Premises to such a degree as to be objectionable to Landlord or
which interfere with the use or enjoyment by other tenants of their premises or
the public portions of the Building and the Complex shall be placed and
maintained by Tenant, at Tenant's expense, in settings of cork, rubber or
spring-type vibration eliminators sufficient to eliminate noise or vibration.
30. No portion of the Premises or any part of the Building shall at any
time be occupied as sleeping or lodging quarters.
31. Tenant shall not bring or keep or permit to be brought or kept in or
on the Premises cut natural trees, including but not limited to, Christmas
trees.
32. Tenant shall inform all persons making deliveries to the Building at
Tenant's request that delivery vehicles which require more than seven point
turns should not be used because of the possibility for traffic congestion on
Jessie Street.
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6124629.6
EXHIBIT C
Work Letter Agreement
THIS WORK LETTER AGREEMENT, dated July 9, 1999, is entered into by and
between PACIFIC RESOURCES PCX DEVELOPMENT INC., a California corporation
("Landlord"), and SALON.COM, a Delaware corporation ("Tenant").
Recitals
. Landlord and Tenant have entered into a lease dated as of July
9, 1999 (the "Lease"), for certain premises on the 15th and 16th Floors (the
"Premises") located in the building known as 22 Fourth Street, San Francisco,
California (the "Building").
. The parties have agreed pursuant to the Lease that the Premises
will be improved for Tenant's occupancy in the manner and on the terms and
conditions specified herein.
Agreement
Now, therefore, in consideration of the mutual terms and conditions
contained in the Lease and herein, and in consideration of other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
. Definitions. The terms defined in the Lease shall have the same
meaning when used in this Agreement. The following terms shall bear the
definitions assigned them below for all purposes under this Agreement:
( ) Construction Documents. Construction Documents herein means
fully dimensioned architectural construction drawings and specifications, and
any required engineering drawings (including mechanical, electrical, plumbing,
air-conditioning (if any), ventilation, and heating), and shall include any
applicable items described above for the Space Plan, and if applicable:
( ) electrical outlet locations, circuits, and anticipated usage therefor;
( ) reflected ceiling plan, including lighting, switching, and any special
ceiling specifications; ( ) duct locations for heating, ventilating, and air-
conditioning equipment, if any; ( ) details of all millwork; ( ) dimensions of
all equipment and cabinets to be built in; ( ) furniture plan showing details of
space occupancy; ( ) keying schedule; ( ) lighting arrangement; ( ) location of
print machines, equipment in lunch rooms, concentrated file and library
loadings, and any other equipment or systems (with brand names wherever
possible) which require special consideration relative to any air-conditioning,
ventilation, electrical, plumbing, structural, fire protection, life-fire-safety
system, or mechanical systems; ( ) special heating, ventilating, and
airAconditioning (if any) equipment and requirements; ( ) weight and location of
heavy equipment, and anticipated loads for special usage rooms; ( ) demolition
plan; ( ) partition construction plan; and ( ) any other details or features
reasonably required in order to obtain a more firm cost estimate or otherwise
reasonably requested by Landlord or the Space Planner.
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( ) Landlord Provided Improvements. Landlord Provided Improvements
herein means all those improvements to the Premises to be constructed by
Landlord in accordance with the Plans approved by Landlord in accordance with
the terms of the Lease subsequent to the execution hereof.
( ) Planning Completion Date. Planning Completion Date herein means
August 30, 1999
( ) Plans. Plans herein means, collectively, any Space Plan,
Construction Documents, or other plans, drawings, or specifications. The Plans
shall be signed or initialed by Tenant, if requested by Landlord, and any
Construction Documents shall include at least three (3) mylar sepias (or such
other quantity as Landlord may reasonably require). In the event of any
inconsistency between any of the same, or revisions thereto, the latest dated
item approved by Landlord shall control.
( ) Space Plan. Space Plan herein means a preliminary floor plan,
generally showing demising walls, corridor doors, interior partition walls, and
interior doors. The term Space Plan for purposes of this Agreement shall also
refer to any so-called "pricing plan"; i.e., a more detailed Space Plan, drawn
to scale, showing: (1) any special walls, glass partitions, or corridor doors;
(2) any rest rooms, kitchens, computer rooms, file rooms, and other special
purpose rooms, and any sinks or other plumbing facilities, or other special
facilities or equipment; (3) communications system, indicating telephone and
computer outlet locations; and (4) any other details or features reasonably
required in order to obtain a preliminary cost estimate or otherwise reasonably
requested by Landlord or the Space Planner.
(F) Space Plan Completion Date. Space Plan Completion Date herein means
July 19, 1999.
(G) Space Planner. Space Planner herein means Mostert Architecture with
whom Tenant has a written contractual arrangement for space planning and
architectural services for the Premises.
(H) Tenant's Cost. Tenant's Cost herein means any amounts that Tenant is
required to pay for under this Agreement.
(I) Tenant's Extra Improvements. Tenant's Extra Improvements herein means
any and all improvements made to the Premises other than Landlord Provided
Improvements.
(J) Work. Work herein means the construction of the improvements shown on
the final approved Plans, and any demolition, preparation, or other work
required in connection therewith, including, without limitation, any work
required to be performed outside the Premises in order to obtain building
permits for the work to be performed within the Premises (if Landlord elects to
perform such work outside the Premises).
. Basic Agreement. The following terms constitute the parties' basic
agreement with respect to the parties' responsibility for (a) the construction
of the Work and (b) payment of the cost of the Work:
. Completion of Plans. Tenant has provided the Space Planner with
all information concerning Tenant's requirements necessary for the Space
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Planner to prepare the Space Plan. On or before the Space Plan Completion Date,
(a) Tenant shall arrange for the Space Planner to prepare the Space Plan, (b)
Tenant shall approve in writing the Space Plan, and (c) Tenant shall provide to
Landlord the Space Plan for approval by Landlord within ten (10) days after
receipt by Landlord and shall thereafter receive Landlord's approval of the
Space Plan not to be unreasonably withheld. Then, on or before the Planning
Completion Date, (a) Tenant shall arrange for the Space Planner to prepare the
Plans, (b) Tenant shall approve in writing the final Plans, (c) Tenant shall
provide to Landlord the final Plans for approval by Landlord within ten (10)
days after receipt by Landlord and shall thereafter receive Landlord's approval
of the final Plans which shall be approved if a logical evolution from the
approved Space Plan, and (d) Tenant shall cause the Space Planner to submit the
Landlord-approved Plans to the City and County of San Francisco, California in
order to obtain a building permit for the Work. Landlord shall engage the firm
of Plant Construction as general contractor for construction of the Work
pursuant, at Tenant's option, to a form of construction contract providing for a
lump sum payment or a cost plus a fee with a guaranteed maximum price. Landlord
shall require that the general contractor solicit bids for all Work to be
subcontracted that is not design-build and shall insure that the costs of all of
the Work are competitive with those that would be incurred if Landlord were to
competitively bid all of the Work.
. Completion of Work. Landlord shall use its best efforts to
substantially complete the Work shown on the final approved Plans on or before
the Anticipated Target Commencement Date under the Lease, as applicable to each
of the 15th and 16th floors. All Work, including any work performed by Tenant,
as may be permitted by Landlord, shall be completed in a good and workmanlike
manner pursuant to valid and current permits as required by and in compliance
with applicable laws, including without limitation, the Americans with
Disabilities Act of 1990, as amended and all Work done by Landlord shall be
warranted to be in compliance with Plans, all applicable laws and free of
defects in workmanship and installation for a period of one (1) year after
substantial completion. However, Landlord shall not be responsible for delays
caused by Tenant or Tenant's contractors, agents, or employees, as further
described in /y4 below./
. Cost of Landlord Provided Improvements. Landlord shall bear the
cost of constructing the Landlord Provided Improvements, up to a maximum of
Seven Hundred Thirty Thousand Nine Hundred Five and No/100 dollars ($730,905.00)
("Landlord's Costs"). Landlord shall charge a construction administration fee
equal to three percent (3%) of Landlord's Costs and Tenant's Costs incurred in
connection with the Work. Costs for architectural and engineering fees and
services and the foregoing construction administration fee shall be Tenant's
Costs, but may be paid for by Landlord and credited against Landlord's Costs if
so paid.
. Cost of All Work Other Than Landlord Provided Improvements. Tenant
shall reimburse Landlord for all costs and expenses incurred by Landlord in
connection with the Work done hereunder (which costs shall include the costs of
construction, construction management, costs of permits and permit expediting,
and all architectural and engineering services obtained by Landlord in
connection with the Work) other than Landlord's Costs within ten (10) days after
written request therefor accompanied by the appropriate invoices. All items of
the Landlord Provided Improvements and the Tenant Extra Improvements, whether or
not the cost thereof is part of
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Landlord's Costs, shall immediately become the property of Landlord and shall
remain on the Premises at all times during the term of the Lease.
. Tenant Extra Improvements. If Tenant shall desire any changes,
alterations, or additions to the Landlord Provided Improvements or Tenant's
Extra Improvements shown on the Plans, Tenant shall submit a detailed written
request or revised drawings showing the requested changes (the "Change Order")
to the Landlord for approval. All costs in connection with any changes,
alterations, or additions to the Landlord Provided Improvements or Tenant's
Extra Improvements shown on the Plans, including construction costs, permit
fees, and any additional plans, drawings, engineering reports, or other studies
or tests, or revisions of such existing items, shall be paid for by Tenant.
Landlord shall provide Tenant with cost estimates of Tenant's Cost for the
Change Orders pursuant to /y6 or notify Tenant of Landlord's disapproval of the
Change Order pursuant to /y5. In the event that Landlord does not expend all of
Landlord's Costs in completion of the Landlord Provided Improvements, any excess
may be applied against Tenant's Costs for Tenant Extra Improvements only and for
no other purpose./
. Delays in Construction. If Substantial Completion of the Work is delayed
due to one or more of the following delays (collectively called "Tenant
Delays"), the Commencement Date under the Lease shall be the earlier of the date
of Substantial Completion or the date when Substantial Completion would have
occurred had the applicable Tenant Delay(s) not occurred.
. Tenant Delays in Planning. Delays in planning, including delays
from failure by Tenant to approve the Plans and to cause their submittal for a
building permit prior to the Planning Completion Date, in any delays resulting
from differences in the Landlord Provided Improvements depicted in the Space
Plan and those depicted in the Plans which require Landlord's approval, any
delays by Tenant in submitting to Landlord revisions to the Plans to reduce
Tenant's Cost pursuant to 6 and Tenant's revisions reasonably required by
Landlord pursuant to 5;
. Tenant Change Orders. All changes to the Work or Change Orders
under 3 or otherwise;
. Specialty Items. Any upgrades, special work, or items not
customarily provided by Landlord to office tenants, to the extent that the same
involve longer lead times, installation times, delays, or difficulties in
obtaining building permits, requirements for any governmental approval, permit,
or action beyond the issuance of normal building permits, or other delays not
typically encountered in connection with Landlord's standard office
improvements;
. Tenant's Performance of Work. The performance by Tenant or
Tenant's contractors, agents, or employees of any work at or about the Premises
or Building; or
. Tenant's Fault or Negligence. Any act or omission of Tenant or
Tenant's contractors, agents, or employees, or any breach by the Tenant of any
provisions contained in the Agreement, including without limitation, Tenant's
obligation to timely pay Tenant's Costs as provided herein, or in the Lease, or
any failure of Tenant to cooperate with Landlord or otherwise act in good faith
in order to cause the Work to be designed and performed in a timely manner.
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. Landlord's Approval of Change Orders. Landlord shall not unreasonably
withhold approval, if the Change Orders are consistent with a customary office
layout, with finishes and materials generally conforming to materials currently
being used by Landlord at the Building, are compatible with the Building's shell
and core construction, and if no modifications will be required for the Building
electrical, heating, airAconditioning (if any), ventilation, plumbing, fire
protection, life safety, or other systems or equipment, and will not require any
structural modifications to the Building, whether required by heavy loads or
otherwise. Landlord may request that Tenant approve Landlord's suggested
changes in writing (such approval shall not be unreasonably withheld), or
Landlord may arrange directly with the Space Planner for revised Plans to be
prepared incorporating such suggestions; and in any such case, Tenant shall sign
or initial the revised Plans and/or Landlord's notice concerning the suggested
changes, if requested by Landlord. Landlord's approval of the Plans or any
Change Orders shall not be deemed a warranty as to the adequacy or legality of
the design, and Landlord hereby disclaims any responsibility or liability for
the same.
. Change Order Cost Estimate. As soon as practicable after receipt of a
Change Order, Landlord shall notify Tenant of the estimated cost of completing
such Change Order as well as the estimated increase in construction time caused
by the construction changes pursuant to the Change Order, if any. Tenant shall
approve or disapprove such estimates within two (2) business days after receipt
of Landlord's notice. If Tenant reasonably disapproves any such estimate,
Tenant shall meet with Landlord or the Space Planner and eliminate or substitute
items in order to reduce Tenant's Cost. Upon approval by Tenant of Tenant's
Cost for the Change Order, Landlord shall be authorized to proceed with the
implementation of the Change Order. If Tenant disapproves or fails to approve
Tenant's Cost estimates, and any additional time estimates, Landlord shall not
be required to proceed with the Change Order, and all costs incurred by Landlord
in preparing such estimates shall be borne and promptly paid by Tenant as
Tenant's Cost. In the event Landlord is instructed by Tenant to proceed with a
Change Order without a prior determination of the increased cost or the
increased construction time resulting from such Change Order and without
approval of such increases by Tenant, the amounts thereof shall be as determined
by Landlord upon completion of the improvements pursuant to the Change Order,
subject only to Landlord's furnishing to Tenant appropriate back-up information
concerning the increased costs and increased construction time.
. Substantial Completion. The term substantial completion and its various
inflections as used herein shall mean that Landlord has caused all of the Work
to be completed substantially, except for soAcalled "punchlist items"; e.g.,
minor details of construction or decoration or mechanical adjustments which do
not substantially interfere with Tenant's occupancy or beneficial enjoyment of
the Premises for their intended purposes or Tenant's ability to complete any
improvements to the Premises to be made by Tenant. If there is any dispute as
to whether Landlord has substantially completed the Work, the issuance of a
temporary certificate of occupancy for the Premises by the City and County of
San Francisco, California, relating thereto, shall be conclusive that the Work
has been substantially completed.
. Notice of Substantial Completion. If Landlord notifies Tenant in
writing that the Work is substantially completed (which notice shall constitute
Landlord's good faith certification that the Work is substantially
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complete), and Tenant fails to object thereto in writing within three (3)
businessydays thereafter specifying in reasonable detail the items of work
needed to be performed in order to achieve substantial completion, Tenant shall
be deemed conclusively to have agreed that the Work is substantially completed,
for purposes of commencing the Commencement Date and Rent under the Lease.
. Final Completion. Substantial Completion shall not prejudice
Tenant's rights to require full completion of any remaining items of Work.
However, if Landlord notifies Tenant in writing that the Work is fully
completed, and Tenant fails to object thereto in writing within fifteen (15)
days thereafter specifying in reasonable detail the items of work needed to be
completed and the nature of work needed to complete said items, Tenant shall be
deemed conclusively to have accepted the Work as fully completed (or such
portions thereof as to which Tenant has not so objected).
. Substitution of Materials. Landlord reserves the right to
substitute comparable or better materials and items for those shown in the
Plans, so long as they do not materially and adversely affect the appearance and
functionality of the Premises.
. Work Performed by Tenant. Landlord, at Landlord's discretion, may permit
Tenant and Tenant's agents and contractors to enter the Premises prior to
completion of the Work in order to make the Premises ready for Tenant's use and
occupancy. If Landlord permits such entry prior to completion of the Work, then
such permission is conditioned upon Tenant and Tenant's agents, contractors,
workmen, mechanics, suppliers, and invitees working in harmony and not
interfering with Landlord and Landlord's contractors in doing the Work or with
other tenants and occupants of the Building. If at any time such entry shall
cause or threaten to cause such disharmony or interference, Landlord shall have
the right to withdraw such permission upon twenty-four (24) hours' oral or
written notice to Tenant. Tenant agrees that any such entry into the Premises
shall be deemed to be under all of the terms, covenants, conditions, and
provisions of the Lease (including, without limitation, all insurance
requirements), except as to the covenant to pay Rent thereunder, and further
agrees that Landlord shall not be liable in any way for any injury, loss, or
damage which may occur to any items of work constructed by Tenant or to other
property of Tenant that may be placed in the Premises prior to completion of the
Work, the same being at Tenant's sole risk.
. Liability. The parties acknowledge that Landlord is not an architect or
engineer and that the Work will be designed and performed by independent
architects, engineers, and contractors. Accordingly, except as expressly stated
in Section 2.2 of this Agreement, Landlord does not guarantee or warrant that
the Plans will be free from errors or omissions, nor that the Work will be free
from defects; and Landlord shall have no liability therefor, provided that such
architects, engineers, and contractors are licensed and reputable.
. Union Contractors. Tenant or its contractors shall employ union labor for
any work to the Premises to be performed by Tenant in order to ensure, to the
extent possible, the progress of the Work and other work by Landlord in the
Building without interruption on account of strikes or work stoppages.
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. Incorporation Into Lease; Default. The parties agree that the provisions
of this Work Letter Agreement are hereby incorporated by this reference into the
Lease fully as though set forth therein. In the event of any express
inconsistencies between the Lease and this Work Letter Agreement, the latter
shall govern and control. Any default by a party hereunder shall constitute a
default by that party under the Lease, and said party shall be subject to the
remedies and other provisions applicable thereto under the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter as
of the date first set forth above.
TENANT LANDLORD
SALON.COM, a Delaware corporation PACIFIC RESOURCES PCX DEVELOPMENT
INC., a California corporation
By: By:
Name: Name: Kevin Wu
Its: Its: Vice President and
Assistant Secretary
By:
Name:
Its:
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6124629.6
Exhibit D
Commencement Date Memorandum
LANDLORD: PACIFIC RESOURCES PCX DEVELOPMENT INC., a California corporation
TENANT: SALON.COM, a Delaware corporation
LEASE DATE: July 9, 1999
PREMISES: Suites 1500 and 1600, 22 Fourth Street, San Francisco, California
The Commencement Date of the Lease between Landlord and Tenant for the Premises
is hereby established as , 19 .
The Termination Date of the Lease between Landlord and Tenant is hereby
established as , 20__.
DATED: TENANT:
SALON.COM, a Delaware corporation
By:
Name:
Its:
DATED: LANDLORD:
PACIFIC RESOURCES PCX DEVELOPMENT INC., a California corporation
By:
Name:
Its:
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6124629.6
Exhibit E
[Form of Subordination, Nondisturbance and Attornment Agreement]
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SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
TO
Section:
Block:
Lot:
Country:
City:
State:
Premises:
Dated: as of
Record and return by mail to:
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SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
AGREEMENT made as of this ___ day of . , between
___________________________, a ______________, having an office at
________________________________(hereinafter called
"Beneficiary"),_______________________and a _________________________, having an
office at ___________________________________ (hereinafter called "Tenant").
WITNESSETH:
WHEREAS, by a lease (the "Original Lease") dated _____________ between
________________________ (hereinafter called "Landlord"), as landlord, and
Tenant, as tenant, as amended by lease amendment[s] dated _____________,
, [_________ , ____] and [_________ , ____] (the Original Lease, as so
amended, is hereinafter the "Lease"), a memoranda of which Lease was dated and
was recorded in ________ Reel ________ Page __, [add recording data for
memoranda of amendments, if applicable], Landlord leased to Tenant certain
premises known as _________________ (the "Premises") on the property described
in Schedule "A" annexed hereto and made a part hereof (the "Property"); and
WHEREAS, Landlord has heretofore made, executed and delivered to Beneficiary its
note in the original principal amount of ____________________ Dollars
($______________), which note is secured by, among other things, a mortgage or
deed of trust (which mortgage or deed of trust, and all amendments, renewals,
increases, modifications, replacements, substitutions, extensions, spreaders and
consolidations thereof and all re-advances thereunder and additions thereto, is
referred to as the "Deed of Trust") encumbering the Property; and
WHEREAS, Beneficiary and Tenant desire to confirm their understanding and
agreement with respect to the Lease and the Deed of Trust.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained, Beneficiary and Tenant hereby agree and covenant as follows:
1. The Lease, and all of the terms, covenants, provisions and conditions
thereof (including, without limitation, any right of first refusal, right of
first offer, option or any similar right with respect to the sale or purchase of
the Property, or any portion thereof), is, shall be and shall at all times
remain and continue to be subject and subordinate in all respects to the lien,
terms, covenants, provisions and conditions of the Deed of Trust and to all
advances and re-advances made thereunder and all sums secured thereby. This
provision shall be self-operative but Tenant shall execute and deliver any
additional instruments which Beneficiary may reasonably require to effect such
subordination.
2. So long as (i) Tenant is not in default (beyond any period given Tenant to
cure such default) in the payment of rent or additional rent or in the
performance or observance of any of the other terms, covenants, provisions or
conditions of the Lease on Tenant's part to be performed or observed, (ii)
Tenant is not in default under this Agreement and (iii) the Lease is in full
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force and effect: (a) Tenant's possession of the Premises and Tenant's rights
and privileges under the Lease, or any extensions or renewals thereof which may
be effected in accordance with any option therefor which is contained in the
Lease, shall not be diminished or interfered with by Beneficiary, and Tenant's
occupancy of the Premises shall not be disturbed by Beneficiary for any reason
whatsoever during the term of the Lease or any such extensions or renewals
thereof and (b) Beneficiary will not join Tenant as a party defendant in any
action or proceeding to foreclose the Deed of Trust or to enforce any rights or
remedies of Beneficiary under the Deed of Trust which would cut-off, destroy,
terminate or extinguish the Lease or Tenant's interest and estate under the
Lease (except to the extent that Tenant's right to receive or set-off any monies
or obligations owed or to be performed by any of Beneficiary's predecessors-in-
interest shall not be enforceable thereafter against Beneficiary or any of
Beneficiary's successors-in-interest). Notwithstanding the foregoing provisions
of this paragraph, if it would be procedurally disadvantageous for Beneficiary
not to name or join Tenant as a party in a foreclosure proceeding with respect
to the Deed of Trust, Beneficiary may so name or join Tenant without in any way
diminishing or otherwise affecting the rights and privileges granted to, or
inuring to the benefit of, Tenant under this Agreement.
3. (A) After notice is given by Beneficiary that the Deed of Trust is in
default and that the rentals under the Lease should be paid to Beneficiary,
Tenant will attorn to Beneficiary and pay to Beneficiary, or pay in accordance
with the directions of Beneficiary, all rentals and other monies due and to
become due to Landlord under the Lease or otherwise in respect of the Premises;
and such payments shall be made regardless of any right of set-off, counterclaim
or other defense which Tenant may have against Landlord, whether as the tenant
under the Lease or otherwise.
(B) In addition, if Beneficiary (or its nominee or designee) shall succeed to
the rights of Landlord under the Lease through possession or foreclosure action,
delivery of a deed or otherwise, or another person purchases the Property or the
portion thereof containing the Premises upon or following foreclosure of the
Deed of Trust or in connection with any bankruptcy case commenced by or against
Landlord, then at the request of Beneficiary (or its nominee or designee) or
such purchaser (Beneficiary, its nominees and designees, and such purchaser, and
their respective successors and assigns, each being a "Successor-Landlord"),
Tenant shall attorn to and recognize Successor-Landlord as Tenant's landlord
under the Lease. Such attornment shall be effective and self-operative without
the execution of any further instrument; however, at the request of Successor-
Landlord, Tenant shall promptly execute and deliver any instrument that
Successor-Landlord may reasonably request to further evidence such attornment.
Upon such attornment, the Lease shall continue in full force and effect as, or
as if it were, a direct lease between Successor-Landlord and Tenant upon all
terms, conditions and covenants as are set forth in the Lease. If the Lease
shall have terminated by operation of law or otherwise as a result of or in
connection with a bankruptcy case commenced by or against Landlord or a
foreclosure action or proceeding or delivery of a deed in lieu, upon request of
Successor-Landlord, Tenant shall promptly execute and deliver a direct lease
with Successor-Landlord which direct lease shall be on substantially the same
terms and conditions as the Lease (subject, however, to the provisions of
clauses (i)-(v) of this paragraph 3(B)) and shall be effective as of the day the
Lease shall have terminated as aforesaid. Notwithstanding the continuation of
the Lease, the attornment of Tenant thereunder or the
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execution of a direct lease between Successor-Landlord and Tenant as aforesaid,
Successor-Landlord shall not:
(i) be liable for any previous act or omission of Landlord under the Lease;
(ii) be subject to any off-set, defense or counterclaim which shall have
theretofore accrued to Tenant against Landlord;
(iii) be bound by any modification of the Lease or by any previous prepayment of
rent or additional rent for more than one (l) month which Tenant might have paid
to Landlord, unless such modification or prepayment shall have been expressly
approved in writing by Beneficiary;
(iv) be liable for any security deposited under the Lease unless such security
has been physically delivered to Beneficiary; and
(v) be liable or obligated to comply with or fulfill any of the obligations of
the Landlord under the Lease or any agreement relating thereto with respect to
the construction of, or payment for, improvements on or about the Premises (or
any portion thereof), leasehold improvements, tenant work letters and/or similar
items.
4. Tenant agrees that without the prior written consent of Beneficiary, it
shall not (i) amend, modify, terminate or cancel the Lease or any extensions or
renewals thereof, (ii) tender a surrender of the Lease or make a prepayment of
any rent or additional rent in excess of one (l) month or (iii) subordinate or
permit the subordination of the Lease to any lien subordinate to the Deed of
Trust. Any such purported action without such consent shall be void as against
the holder of the Deed of Trust.
5. Tenant shall promptly notify Beneficiary of any default by Landlord under
the Lease and of any act or omission of Landlord which would give Tenant the
right to cancel or terminate the Lease or to claim a partial or total eviction.
In the event of a default by Landlord under the Lease which would give Tenant
the right, immediately or after the lapse of a period of time, to cancel or
terminate the Lease or to claim a partial or total eviction, or in the event of
any other act or omission of Landlord which would give Tenant the right to
cancel or terminate the Lease, Tenant shall not exercise such right (i) until
Tenant has given written notice of such default, act or omission to Beneficiary
and (ii) unless Beneficiary has failed, within sixty (60) days after Beneficiary
receives such notice, to cure or remedy the default, act or omission or, if such
default, act or omission shall be one which is not reasonably capable of being
remedied by Beneficiary within such sixty (60) day period, until a reasonable
period for remedying such default, act or omission shall have elapsed following
the giving of such notice and following the time when Beneficiary shall have
become entitled under the Deed of Trust to remedy the same (which reasonable
period shall in no event be less than the period to which Landlord would be
entitled under the Lease or otherwise, after similar notice, to effect such
remedy), provided that Beneficiary shall with due diligence give Tenant written
notice of its intention to and shall commence and continue to, remedy such
default, act or omission. If Beneficiary cannot reasonably remedy a default, act
or omission of Landlord until after Beneficiary obtains possession of the
Premises, Tenant may not terminate or cancel the Lease or claim a partial or
total eviction by reason of such default, act or omission until the expiration
of a reasonable period necessary for the remedy after Beneficiary secures
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possession of the Premises. To the extent Beneficiary incurs any expenses or
other costs in curing or remedying such default, act or omission, including,
without limitation, attorneys' fees and disbursements, Beneficiary shall be
subrogated to Tenant's rights against Landlord. Notwithstanding the foregoing,
Beneficiary shall have no obligation hereunder to remedy such default, act or
omission.
6. To the extent that the Lease shall entitle Tenant to notice of the existence
of any deed of trust and the identity of any beneficiary or any ground lessor,
this Agreement shall constitute such notice to Tenant with respect to the Deed
of Trust and Beneficiary.
7. Upon and after the occurrence of a default under the Deed of Trust,
Beneficiary shall be entitled, but not obligated, to exercise the claims,
rights, powers, privileges and remedies of Landlord under the Lease and shall be
further entitled to the benefits of, and to receive and enforce performance of,
all of the covenants to be performed by Tenant under the Lease as though
Beneficiary were named therein as Landlord.
8. Anything herein or in the Lease to the contrary notwithstanding, in the
event that a Successor-Landlord shall acquire title to the Property or the
portion thereof containing the Premises, Successor-Landlord shall have no
obligation, nor incur any liability, beyond Successor-Landlord's then interest,
if any, in the Property and Tenant shall look exclusively to such interest, if
any, of Successor-Landlord in the Property for the payment and discharge of any
obligations imposed upon Successor-Landlord hereunder or under the Lease, and
Successor-Landlord is hereby released or relieved of any other liability
hereunder and under the Lease. Tenant agrees that, with respect to any money
judgment which may be obtained or secured by Tenant against Successor-Landlord,
Tenant shall look solely to the estate or interest owned by Successor-Landlord
in the Property, and Tenant will not collect or attempt to collect any such
judgment out of any other assets of Successor-Landlord.
9. Except as specifically provided in this Agreement, Beneficiary shall not, by
virtue of this Agreement, the Deed of Trust or any other instrument to which
Beneficiary may be a party, be or become subject to any liability or obligation
to Tenant under the Lease or otherwise.
10. (a) Tenant acknowledges and agrees that this Agreement satisfies and
complies in all respects with the provisions of Section 27 of the Lease and that
this Agreement supersedes (but only to the extent inconsistent with) the
provisions of such Article and any other provision of the Lease relating to the
priority or subordination of the Lease and the interests or estates created
thereby to the Deed of Trust.
(b) Tenant agrees to enter into a subordination, non-disturbance and attornment
agreement with any lender which shall succeed Beneficiary as lender with respect
to the Property, or any portion thereof, provided such agreement is
substantially similar to this Agreement. Tenant does herewith irrevocably
appoint and constitute Beneficiary as its true and lawful attorney-in-fact in
its name, place and stead to execute such subordination, non-disturbance and
attornment agreement, without any obligation on the part of Beneficiary to do
so. This power, being coupled with an interest, shall be irrevocable as long as
the indebtedness secured by the Deed of Trust remains unpaid. Beneficiary agrees
not to exercise its rights under the
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preceding two (2) sentences if Tenant promptly enters into the subordination,
non-disturbance and attornment agreement as required pursuant to the first
sentence of this subparagraph (b).
11. (a) Any notice required or permitted to be given by Tenant to Landlord
shall be simultaneously given also to Beneficiary, and any right of Tenant
dependent upon notice shall take effect only after notice is so given.
Performance by Beneficiary shall satisfy any conditions of the Lease requiring
performance by Landlord, and Beneficiary shall have a reasonable time to
complete such performance as provided in Paragraph 5 hereof.
(b) All notices or other communications required or permitted to be given to
Tenant or to Beneficiary pursuant to the provisions of this Agreement shall be
in writing and shall be deemed given only if mailed by United States registered
mail, postage prepaid, or if sent by facsimile transmission (with machine
answerback) addressed as follows: to Tenant, at the address first set forth
above, Attention: __________, facsimile number: ______________; to Beneficiary,
at the address first set forth above, Attention: , facsimile number: with a copy
to______________________, __________________, ________, ________________
Attention:________________, facsimile number: (____) _____________; or to such
other address or number as such party may hereafter designate by notice
delivered in accordance herewith. Except as otherwise provided in this
Agreement, all such notices shall be deemed given three (3) business days after
delivery to the United States Post office registry clerk if given by registered
mail, or on the next business day after facsimile transmission
12. Tenant will not pay an installment of rent or additional rent or any part
thereof more than one (1) month prior to the due date of such installment.
13. This Agreement may be modified only by an agreement in writing signed by
the parties hereto, or their respective successors-in-interest. This Agreement
shall inure to the benefit of and be binding upon the parties hereto, and their
respective successors and assigns. The term "Beneficiary" shall mean the then
holder of the Deed of Trust. The term "Landlord" shall mean the then holder of
the landlord's interest in the Lease. The term "person" shall mean an
individual, joint venture, corporation, partnership, trust, limited liability
company, unincorporated association or other entity. All references herein to
the Lease shall mean the Lease as modified by this Agreement and to any
amendments or modifications to the Lease which are consented to in writing by
Beneficiary. Any inconsistency between the Lease and the provisions of this
Agreement shall be resolved, to the extent of such inconsistency, in favor of
this Agreement.
14. BOTH TENANT AND BENEFICIARY HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
15. This Agreement shall be governed by and construed in accordance with the
laws of the State of California
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
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<PAGE>
[LENDER]
By:
Name:
Title:
[TENANT]
By:
Name:
Title:
AGREED AND CONSENTED TO:
[BORROWER]
By:
Name:
Title:
87
<PAGE>
[Add Acknowledgments]
88
<PAGE>
[Add Schedule A]
89
<PAGE>
6124629.6
Addendum to
Standard Office Lease
This Addendum to the Standard Office Lease between Pacific Resources PCX
Development Inc., a California corporation ("Landlord"), and Salon.Com,
a Delaware corporation ("Tenant"), is entered into as of July 9, 1999.
A1. Extension Option.
(a) Landlord grants to Tenant one (1) option to renew the Lease for a
period of five (5) years after the Termination Date (the "Extension Period").
Tenant's privilege to exercise this option is expressly conditioned upon Tenant
not having previously defaulted on the terms of the Lease, not being in default
at the time the option is exercised and not being in default between the time
the option is exercised and the start of the new lease term.
(b) Provided Tenant is not in default, Tenant shall have the right to
extend the Term upon tendering written notice (the "Extension Notice") to
Landlord no later than nine (9) months and no earlier than twelve (12) months
prior to the expiration of the Term. All terms and conditions of this Lease
shall continue during the Extension Period, provided that during the Extension
Period, the Base Rent shall be the greater of the Fair Market Rent as of the
date six (6) months preceding the Termination Date (the "Rent Determination
Date") or the Base Rent payable by Tenant under the Lease for the month
immediately prior to the Rent Determination Date.
(c) As used in this Lease, Fair Market Rent shall be deemed to mean
the base amount of rental that would typically be paid by a tenant under a
baseAyear lease for premises of a similar type, design, and quality in the same
or similar quality geographic area in which the Premises are situated under
market leasing conditions existing at that time and taking into account the
presence, if any, of other escalation provisions provided in this Lease.
(d) If Landlord and Tenant cannot agree on the Fair Market Rent within
fifteen (15) days after the Rent Determination Date, the Base Rent payable
during the Extension Period shall be conclusively determined as follows:
(i) Within ten (10) days after the expiration of the fifteen (15) day
period, each party, at its cost and by giving notice to the other party, shall
appoint an unaffiliated real estate appraiser with at least five (5) years'
full-time commercial appraisal experience in the downtown San Francisco area, to
appraise and determine the then Fair Market Rent as described in this Section.
(ii) If one party does not appoint an appraiser within the time period
in Section A1(d)(i) above, the appraiser appointed by the other party shall be
the sole appraiser and shall determine the Fair Market Rent.
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(iii) If neither party appoints an appraiser within the
time period set forth in Section A1(d)(i), the Base Rent during the Extension
Period shall be the Base Rent payable in the last full month immediately
preceding the Termination Date.
(iv) If the two (2) appraisers are so appointed by the parties, they
shall meet promptly and attempt to appraise and determine the Fair Market Rent.
If they are unable to agree within ten (10) days after the second appraiser has
been appointed, they shall attempt to select a third appraiser who meets the
qualifications stated in Section A1(d)(i) within ten (10) days after the last
day the two appraisers are given to determine the Fair Market Rent. If they are
unable to agree on a third appraiser, either of the parties to this Lease, by
giving ten (10) days' notice to the other party, can apply to the presiding
judge of the Superior Court for the county in which the Premises are located for
the selection of a third appraiser who meets the qualifications stated in
SectionyA1(d)(i). Each of the parties shall bear one-half (1/2) of the cost of
appointing the third appraiser and of the third appraiser's fees. The third
appraiser, however selected, shall be a person who has not previously acted in
any capacity for either party.
(v) Within ten (10) days after the selection of the third appraiser, a
majority of the appraisers shall appraise and determine the Fair Market Rent.
If a majority of the appraisers are unable to so set the Fair Market Rent within
the required period of time, the appraisals of the three appraisers shall be
added together and their total divided by three. The resulting quotient shall
be the Fair Market Rent.
(vi) If, however, the low appraisal or the high appraisal are more than ten
percent (10%) lower or higher than the middle appraisal, the low appraisal or
the high appraisal shall be disregarded. If only one appraisal is disregarded,
the remaining two appraisals shall be added together and their total divided by
two. The resulting quotient shall be the Fair Market Rent. If two appraisals are
disregarded, the remaining appraisal shall be the Fair Market Rent.
A2. Property Taxes. Landlord and Tenant acknowledge that, as of the
date hereof, neither the Building nor the office portions of the Building are
separately assessed for purposes of determining Property Taxes. Landlord
intends, however, to seek separate assessments. Prior to the time that the
office portions of the Building constitute a separate tax parcel, Landlord shall
equitably determine that portion of the Property Taxes allocable to the office
portions of the Building from the Property Taxes on the Building, the Complex or
the Property as applicable. Upon request, Landlord shall provide Tenant with
copies of all tax bills and records, including assessor's records, if applicable
and in Landlord's possession, that Landlord used in apportioning Property Taxes.
In the event that the office portions of the Building are separately assessed
for Property Tax purposes, Property Taxes shall be adjusted, as of the date that
the separate Property Tax parcel becomes effective, to reflect the Property
Taxes payable in the separate Property Tax parcel containing the Premises.
A3. Shell Improvements. Except as expressly provided in the Work
Letter Agreement or below, Landlord shall not be responsible for making any
improvements to the Premises and Tenant agrees to accept the Premises in their
existing condition, "as is," on the Commencement Date. In addition to its
obligations under the Work Letter Agreement, Landlord shall, at its sole
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<PAGE>
cost and expense, using contractors and subcontractors of its choice, make the
following improvements to the Premises and no others (the "Shell Improvements")
and use its best efforts to Substantially Complete the same prior to or on each
Anticipated Target Commencement Date for each floor of the Building within the
Premises: provision of a structural shell for the Premises, with the existing
HVAC system stubbed to the Premises, the existing fire sprinkler grid systems,
and the existing main electrical/telephone closet, the existing telephone punch
board, and removing existing floor outlets, saving the existing drain and water
lines to existing sinks or plumbing on the floor, and by removing and abating
all asbestos. No structural work shall be required. All Shell Improvements shall
be constructed to the standards and condition required by all applicable Legal
Requirements, including without limitation, handicapped accessibility codes for
elevator accessories, restrooms, drinking fountains, stairways, etc. and other
codes as they pertain to the common areas and shell of the Building, including
fire safety rules and regulations. Landlord shall warrant that the Shell
Improvements shall be free of defects in workmanship and installation for a
period of one (1) year after the date of Substantial Completion of the Shell
Improvements.
The base building systems and services to be provided by Landlord when
Tenant takes possession of the Premises are as follows:
Electrical Distributions System. The existing system is 277/480 volt, 3 phase,
4 wire, 3000 amp with a bus duct from the main switchboard "MSB" rising through
the core of the Building. From this bus one switch per floor is provided to
feed one multi-pole 277/480 volt panel (panel HA). A second switch is provided
approximately every third floor, Floors 2, 5, 8, 11 and 15, to feed a 480V-
120/280V step-down transformer. This will provide approximately 37.5 kva for
each of the fifteenth and the sixteenth floors. This equates to approximately
3.0 watts per square foot, at 120/208 volt, three phase, multi-pole panelboard.
A second bus direct, 277/480 volt 2000 amp from distribution switchboard "DSA"
also rises through the Building. From this bus, one switch per floor is
provided to feed one multi-pole 277/480 volt panel (HB). This panel was
intended to feed perimeter HV AC units which are now removed. An existing
277/480 volt emergency generator is available to feed emergency lighting at 0.1
watts per square foot per floor.
Fire Alarm System. The existing fire alarm system has been upgraded to an
addressable Simplex 4100 system. This handles the core area and restrooms. Any
expansion shall be at Tenant's sole cost.
Amplifier System (Life Safety). The existing system is adequate and will not
require changes or additions. Any expansion shall be at Tenant's sole cost.
Fire Sprinkler. A complete fire sprinkler system has been installed for the
"shell" spaces.
Air Conditioning. A central air handling system has been installed to provide a
variable air volume system for the interior areas. Ducts are partially extended
on each floor for future connections.
A four pipe (hot and chilled water) system has been installed on each floor.
Tenant will connect to the system stub-outs and extend piping to tenant provided
fan coils serving the perimeter.
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A 2" stub-out on each floor from a central condenser water system has been
provided to serve high cooling load areas and areas with 24 hour capacity
requirements. Water source heat pumps (provided by tenant) can be used for
these areas. The 2" stub-out will accommodate approximately 10 tons of cooling.
Controls. The addition of tenant ductwork may require that existing life safety
equipment be modified and that controls and related interfaces be modified. All
fire/smoke controls and controls for the central systems are in place. Tenant
is responsible for variable air volume, fan coil and water source heat pump
controls, all at Tenant's sole cost.
Exhaust. No provisions have been made for tenant usage. Any related
improvements shall be at Tenant's sole cost.
Domestic Hot and Cold Water. No provisions have been made for tenant usage.
Any improvements shall be at Tenant's sole cost.
Waste and Vent Piping. Landlord will allow Tenant to access the Building's
waste and vent piping in accordance with applicable legal requirements, at
Tenant's sole cost.
Elevators. Elevators, both passenger and freight are provided. The cabs and
controls for the passenger elevators will meet current codes and have been
refurbished in the cab interior.
Toilet Rooms. New Men's and Women's toilet rooms are installed on each floor
and meet current code requirements. In addition, drinking fountains are
installed adjacent to the toilet room complex on each floor and these conform to
current code.
Off Hour Usage. At this time provisions are not in place for electronic KW or
Demand metering, neither local nor remote, nor are there any provisions for
monitoring lighting or power circuits for after hour usage.
A4. Signage. Landlord hereby agrees to install and maintain during the
Term, Tenant's name and suite number in the Building Directory in the lobby of
the Building. Any other signage in the Building desired by Tenant shall be
subject to Landlord's prior approval, which shall not be unreasonably withheld,
and shall be made and installed at Tenant's sole cost; provided, however, that
Landlord hereby consents to Tenant's installation to any elevator lobby signage
within the Premises (which is not visible from the exterior of the Building).
A5. Operating Expense Exclusions.
Notwithstanding anything in the Lease to the contrary, the term "Operating
Expenses" shall exclude the following:
(i) costs of repairs, replacements or other work occasioned by fire, windstorm
or other casualty to the extent of reimbursement by insurance proceeds
therefor, or the exercise by governmental authorities of the right of
eminent domain to the extent of reimbursement by condemnation proceeds
therefor;
(ii) leasing commissions, attorneys' fees, costs, disbursements and other
expenses incurred by Landlord or its agents in connection with negotiations
for leases with tenants, other occupants or prospective tenants or other
93
<PAGE>
occupants of the Building, and similar costs incurred in connection with
disputes with and/or enforcement of any leases with tenants, other
occupants, or prospective tenants or other occupants of the Building;
(iii) "tenant allowances," "tenant concessions," work letters, and other costs
or expenses (including permit, license and inspection fees) incurred in
completing, fixturing, furnishing, renovating or otherwise improving,
decorating or redecorating space for tenants or other occupants of the
Building, or vacant, leasable space in the Building, including space
planning/interior design/architectural fees for same;
(iv) costs of correcting defects in the construction of the Building
(including latent defects) or equipment used therein (or the replacement
of defective equipment), any associated parking garages or area, or other
improvements, or in the equipment used therein;
(v) services, items and benefits for which Tenant or any other tenant or
occupant of the Building specifically reimburses Landlord (not including
reimbursement pursuant to Operating Expense pass-through provisions
similar to those included in the Lease) or for which Tenant or any other
tenant or occupant of the Building pays third persons;
(vi) costs or other expenses (including fines, penalties and legal fees)
incurred due to the non-compliance by Landlord, its employees, agents
and/or contractors, of any terms and conditions of the Lease or of the
leases with other tenants in the Building, and/or of any valid,
applicable laws, rules, regulations and codes of any federal, state,
county, municipal or other governmental authority having jurisdiction
over the Building that would not have been incurred but for such non-
compliance by Landlord, its employees, agents and/or contractors;
(vii) penalties for late payment, including, without limitation, taxes,
equipment leases, etc.;
(viii) costs directly resulting from the gross negligence or willful
misconduct of Landlord, its employees, agents and/or contractors;
(ix) payments in respect of overhead and/or profit to any affiliate of
Landlord, as a result of a non-competitive selection process for services
(other than the management fee) on or to the Building, or for goods,
(x) supplies or other materials, to the extent that the costs of such
services, goods, supplies and/or materials exceed the costs that would
have been paid had the services, goods, supplies or materials been
provided by parties unaffiliated with Landlord, or by third parties, of
similar skill, competence and experience, on a competitive basis;
(xi) payments of principal, finance charges or interest on debt or
amortization on any mortgage, deed of trust of other debt, and rental
payments (or increases in same) under any ground or underlying lease or
leases (except to the extent the same may be made to pay or reimburse, or
may be measured by, property taxes);
(xii) taxes payable by Landlord unrelated to the operation, maintenance and
management of the Property or based or measured on the net income of
Landlord;
(xiii) Property Taxes attributable to any leasehold improvements of other
tenants in the Building chargeable to such other tenants or to Landlord
pursuant to leases with such tenants;
(xiv) except for the management fee, costs of Landlord's general overhead and
general administrative expenses (individual, partnership or corporate, as
the case may be), which costs would not be chargeable to Operating
Expenses of the Building in accordance with generally accepted accounting
principles, consistently applied;
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<PAGE>
(xv) compensation paid to clerks, attendants or other persons in commercial
concessions (such as a snack bar, restaurant or newsstand), if any,
operated by Landlord or any affiliate of Landlord;
(xvi) rentals and other related expenses, if any, incurred in leasing air
conditioning systems, elevators or other equipment considered to be of a
capital nature according to generally accepted accounting principles,
except equipment which is used in providing janitorial services or which
is not affixed to the Building or as otherwise permitted in the
definition of Operating Expenses set forth in Section 1 of the Lease;
(xvii) advertising and promotional expenses incurred in connection with the
leasing, sale or other marketing of Landlord's interest in the Property;
(xviii) expenses of extraordinary services provided to any tenant of the
Building, including Tenant, which are made available to tenants at a
cost for which such tenants are separately billed;
(xix) costs arising from the remediation and removal of any hazardous or toxic
materials or substances in or about the Building, including without
limitation, the removal of asbestos within the Building; or
(xx) costs of property management fees which exceed such fees then generally
prevailing in the marketplace.
Landlord further acknowledges that Landlord shall not be entitled to collect
Escalation Rent from Tenant in excess of 100% of Tenant's Percentage Share of
the actual increases in Operating Expenses and Property Taxes over the Base
Operating Expenses and Base Property Taxes. Any excess so collected by Landlord
shall be returned to Tenant immediately upon discovery of such excess
collection.
Landlord's Initials Tenant's Initials
- ---------------------
End of Addendum
95
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 33,665 812
<SECURITIES> 0 0
<RECEIVABLES> 594 191
<ALLOWANCES> 32 3
<INVENTORY> 21 0
<CURRENT-ASSETS> 34,441 1,100
<PP&E> 1,393 696
<DEPRECIATION> 680 205
<TOTAL-ASSETS> 40,228 1,621
<CURRENT-LIABILITIES> 3,574 641
<BONDS> 0 0
0 0
0 7,955
<COMMON> 11 3
<OTHER-SE> 36,642 (6,337)
<TOTAL-LIABILITY-AND-EQUITY> 40,228 1,621
<SALES> 1,005 408
<TOTAL-REVENUES> 1,005 408
<CGS> 2,103 843
<TOTAL-COSTS> 5,624 1,846
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 56 13
<INCOME-PRETAX> (4,563) (1,425)
<INCOME-TAX> 2 0
<INCOME-CONTINUING> (4,565) (1,425)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,080)<F1> (1,425)
<EPS-BASIC> (10.10) (3.75)
<EPS-DILUTED> (10.10) (3.75)
<FN>
<F1> REFER TO NOTE 4. OF THE FINANCIAL STATEMENTS FOR A DISCUSSION OF THE
PREFERRED DEEMED DIVIDEND IN THE AMOUNT OF $11.5 MILLION.
</FN>
</TABLE>
