<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMPGEEKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5734 33-0852937
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2370 OAK RIDGE WAY
VISTA, CALIFORNIA 92083
(760) 734-3681
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MR. FRANK SEGLER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COMPGEEKS, INC.
2370 OAK RIDGE WAY
VISTA, CALIFORNIA 92083
(760) 734-3681
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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MARTIN C. NICHOLS, ESQ. MICHAEL J. CONNELL, ESQ.
ROSS L. BURNINGHAM, ESQ. VICTOR H. SIM, ESQ.
BROBECK, PHLEGER & HARRISON LLP MORRISON & FOERSTER, LLP
550 WEST C STREET, SUITE 1300 555 WEST FIFTH STREET, SUITE 3500
SAN DIEGO, CALIFORNIA 92101 LOS ANGELES, CALIFORNIA 90013
(619) 234-1966 (213) 892-5200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(1)
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Common Stock, par value $0.001 per share.................... $61,000,000 $16,958
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</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
amount of the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 28, 1999
Shares
[LOGO]
Common Stock
-------------------------
This is our initial public offering and no public market currently exists
for our shares. The estimated initial public offering price is between
$ and $ per share.
We have applied to have our common stock listed on the Nasdaq National
Market under the symbol "CGKS."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 4.
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<CAPTION>
PER SHARE TOTAL
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Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to CompGeeks, Inc.................................. $ $
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The underwriters have an option to purchase additional
shares from us to cover over-allotments of shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EVEREN SECURITIES, INC.
, 1999
<PAGE> 3
DESCRIPTION OF PROSPECTUS ARTWORK:
FRONT COVER:
Page-sized light background image of a computer monitor. Corporate logo at top
of page.
OVERLEAF:
Page-sized light background image of facility. Two black circles at top of
page: left contains the compgeeks.com(sm) logo, and web site address (URL);
right contains Evertek(sm) logo and URL.
Two columns of text on page:
Left column headed by bold text reading "Business to Consumer" over "(Retail)".
Right column headed by bold text reading "Business to Business" over
"(Wholesale)".
Body of text reads:
Our business-to-consumer retail division sells directly to end-users from our
web site at www.compgeeks.com.
Our business-to-business wholesale division sells to computer resellers
worldwide, primarily via our web site at www.evertek.com.
Experience, integrity, and a creative approach to problem solving make us a
leading Internet supplier of computers and peripherals. Our expertise allows us
to provide competitive pricing while maintaining profitability.
Interspersed throughout this text are the following words in lavender text:
Integrity
Online Shopping
Retail
Amazing Values
Experience
Automated Support
Wholesale
Creative Solutions
Also on this page is a green oval containing black text reading:
"We own, stock, and ship all products we offer for sale from our fulfillment
facilities in Southern California. Our web sites allow users to view detailed
product information, select shipping methods, shop, and track orders online 24
hours a day, 7 days a week."
INSIDE SPREAD:
Light background of warehouse interior.
White text across top reads "Over 1.5 million cubic feet of warehouse"
Two black circles at top of spread: left corner contains the compgeeks.com(sm)
logo, and web site address (URL); right corner contains Evertek(sm) logo and
URL.
Left of spread depicts compgeeks.com web site pages.
Right of spread depicts Evertek web site pages.
Center of spread depicts images of various computer hardware products and
product category names in dark text. Inset at bottom center of spread are
photographs of facilities.
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Combined Financial Data............................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Quantitative and Qualitative Disclosures About Market
Risk...................................................... 27
Business.................................................... 28
Management.................................................. 39
Relationships and Related Transactions...................... 46
Principal Stockholders...................................... 47
Description of Securities................................... 49
Shares Eligible for Future Sale............................. 52
Underwriting................................................ 53
Legal Matters............................................... 55
Experts..................................................... 55
Where You Can Find More Information......................... 55
Index to Financial Statements............................... F-1
</TABLE>
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NOTES TO READERS OF THIS PROSPECTUS
- Our organizers incorporated CompGeeks, Inc. in Delaware in April 1999.
Upon the filing of this prospectus, the founders of compgeeks.com, a
California corporation operating since 1996, Evertek Computer
Corporation, a California corporation operating since 1990, and Evertek
Trading Limited, a Hong Kong corporation operating since 1996, will
exchange their shares for our shares so that compgeeks.com, Evertek
Computer Corporation and Evertek Trading Limited will become the wholly
owned subsidiaries of CompGeeks, Inc.
- Electronic SelfServe as well as the Electronic SelfServe logo are our
registered trademarks or service marks. Compgeeks.com, Geekbert, GeekKit,
Genica, Don't be a dork . . . shop at the Geeks!, Cyber SelfServe and
Internet SelfServe are our trademarks or service marks. We also do
business under the trade names of Evertek and Computer Geeks Discount
Outlet. Each other trademark, trade name or service mark appearing in
this prospectus belongs to its holder.
-------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
-------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers selling shares of our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This delivery requirement is
in addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
i
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It may
not contain all of the information that is important to you. To understand this
offering fully, you should read the entire prospectus carefully, including the
risk factors and financial statements.
We are a leading Internet wholesale supplier and discount retailer of
computers and peripherals to businesses, resellers and consumers. Our expertise
in purchasing manufacturers' excess inventories, close-outs and out-of-date
products allows us to provide competitive pricing while maintaining
profitability. We believe we have combined this expertise with superior customer
service to develop loyal, repeat customers. Our customer base has grown
substantially since 1994 largely through word-of-mouth. We own, stock and ship
all products we offer for sale, as opposed to many online retailers which
neither own nor control their inventory and are required to ship from third
party suppliers.
One of the central challenges to computer and peripheral manufacturers is
the high speed with which their current inventory becomes excess inventory:
today's leading-edge model is tomorrow's end-of-life product. We efficiently
acquire and resell excess, close-out and refurbished computers and peripherals,
and provide our suppliers with a much-needed alternative distribution channel.
We operate two channels of distribution: www.evertek.com, our
business-to-business channel that sells to computer dealers worldwide, and
www.compgeeks.com, our business-to-consumer channel. Our compgeeks.com division
sells to end-users both through our own Web site and through Internet auction
sites such as ONSALE, Inc. We believe our multiple sales channels allow us to
buy types and quantities of merchandise that exceed the sales capacity of our
direct competitors, allowing us to generally receive larger price discounts. Our
Web sites allow users to view detailed product information, select shipping
methods and track orders electronically.
Our business has grown rapidly, with sales increasing from $3.5 million in
1994 to $49.5 million for the year ended December 31, 1998. We have been
profitable throughout this period. During the first quarter of 1999 we averaged
over 750 retail orders per business day with an average value of over $90 per
order and over 150 wholesale orders per business day with an average value of
$1,300 per order.
Our objective is to be the leading Internet wholesale supplier and discount
retailer of computers and peripherals. Key elements of our business strategy
include:
- Expand and strengthen our relationships with our suppliers;
- Capitalize on our experience and varied sales channels;
- Broaden our product line; and
- Increase our customer base.
Our principal executive offices are located at 2370 Oak Ridge Way, Vista,
California 92083. Our telephone number at that location is (760) 734-3681. Our
Web Site addresses are www.compgeeks.com, www.evertek.com and
www.wholesaleauction.com. INFORMATION CONTAINED ON OUR WEB SITES IS NOT PART OF
THIS PROSPECTUS.
1
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THE OFFERING
Common stock offered by us...... shares
Common stock outstanding after
this offering................... shares
Use of proceeds................. To pay outstanding debt obligations to banks
and our founders, to distribute additional
retained earnings through the closing of
this offering in excess of $500,000 to our
founders, to increase our merchandise
inventory, to increase our sales and
marketing efforts and for other general
corporate uses. Please see "Use of
Proceeds."
Proposed Nasdaq National Market
Symbol........................ CGKS
The information in the table above is as of March 31, 1999. In addition to
the shares of common stock to be outstanding after this offering,
we may issue:
- 543,000 shares of common stock issuable upon the exercise of options we
plan to grant as of the closing of this offering at the per share price
of shares sold in this offering;
- an additional 1,457,000 shares issuable upon exercise of options
available for issuance under our stock plans. For a description of our
stock option plans, please see "Management -- Benefit Plans."
- shares reserved for issuance upon the exercise of warrants. Please
see "Underwriting."
2
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SUMMARY COMBINED FINANCIAL DATA
The following table summarizes the financial data for our business. We have
presented the following information to give pro forma effect to the
distributions made to shareholders and our conversion from S corporation status
to C corporation status. You should also read our Combined Financial Statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in conjunction with the following.
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
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1996 1997 1998 1998 1999
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COMBINED STATEMENT OF INCOME
DATA:
Net sales...................... $15,772,172 $26,917,789 $49,514,651 $10,307,245 $17,640,113
Gross profit................... 3,042,581 5,480,844 9,658,454 2,286,198 2,848,192
Income from operations......... 1,625,893 2,621,886 4,918,856 1,315,491 1,605,986
Income before income taxes..... 1,611,966 2,650,599 4,990,215 1,314,214 1,587,231
Provision for income taxes..... 24,954 66,799 68,097 14,062 23,601
Net income..................... 1,587,012 2,583,800 4,922,118 1,300,152 1,563,630
Pro forma information(1):
Historical income before
provision for income
taxes...................... 1,611,966 2,650,599 4,990,215 1,314,214 1,587,231
Pro forma provision for
income taxes............... 644,786 1,060,240 1,996,086 525,686 634,892
----------- ----------- ----------- ----------- -----------
Pro forma net income......... $ 967,180 $ 1,590,359 $ 2,994,129 $ 788,528 $ 952,339
=========== =========== =========== =========== ===========
Pro forma net income per
basic and diluted share.... $ $
=========== ===========
Pro forma weighted average
common shares
outstanding(2).............
=========== ===========
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AT MARCH 31, 1999
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ACTUAL AS ADJUSTED
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COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 876,260 $
Inventory................................................... 6,051,070
Working capital............................................. 5,409,865
Total assets................................................ 9,755,902
Total stockholders' equity.................................. 5,747,307
</TABLE>
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(1) Pro forma net income reflects a provision for income taxes on a pro forma
basis as if we had been taxed as a C corporation.
(2) The number of shares of common stock outstanding used to determine pro forma
net income per share is the sum of the 17,707,000 shares outstanding
immediately after the share exchange and prior to this offering and
shares deemed to be sold by us in this offering in order to fund
the payment of the S corporation distribution which is $5,240,304 as of
March 31, 1999. The calculation of the number of shares deemed to be sold by
us in order to fund the payment of the S corporation dividend is based upon
the assumed initial public offering price per share of $ , less the
estimated underwriting discount and estimated offering expenses.
The as adjusted balance sheet data listed above reflects the sale of
shares of common stock offered in this offering at an assumed initial
public offering price of $ per share after deducting the estimated
underwriting discount and estimated offering expenses payable by us. Please see
"Use of Proceeds" and "Capitalization."
3
<PAGE> 8
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide to
buy our common stock. If any of the following risks actually occur, our business
would likely suffer. If this happens, the trading price of our common stock
could decline, and you may lose all or part of the money you paid to buy our
common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED ONLINE OPERATING HISTORY THAT MAKES EVALUATING OUR ELECTRONIC
COMMERCE BUSINESS DIFFICULT.
We have been doing business on the Internet since 1995 for our wholesale
division and since 1996 for our discount retail division. We therefore have only
a limited operating history as an electronic commerce company. As a result, we
can provide only limited information which you can use to evaluate our business
and prospects as an electronic commerce company. Also, you should consider the
risks and difficulties that early stage companies frequently encounter in the
new and rapidly evolving market of electronic commerce. These risks include the
following:
- our evolving and unpredictable business environment;
- our competitors that have more established electronic commerce
operations;
- our need and ability to manage growth; and
- the rapid evolution of technology in electronic commerce.
WE RELY HEAVILY ON RELATIONSHIPS WITH MANUFACTURERS, DISTRIBUTORS AND SUPPLIERS
TO PROVIDE US WITH MERCHANDISE TO SELL.
We rely heavily on certain manufacturers, distributors and suppliers to
provide us with merchandise for sale at our Web sites. We may not continue to
develop and maintain satisfactory relationships with these parties on acceptable
commercial terms. We also may not be able to obtain sufficient quality and
quantities of merchandise at competitive prices. We acquire the products we sell
both directly from manufacturers and indirectly through distributors and
suppliers. We have no long-term contracts or arrangements with manufacturers,
distributors or suppliers that guarantee availability of merchandise for our Web
sites. We cannot assure you that current manufacturers, distributors and
suppliers will continue to sell merchandise to us or that we will establish new
manufacturer, distributor or supplier relationships that ensure merchandise will
be available for sale. Most of the merchandise we sell carries a warranty from
the manufacturer or the supplier, and we are not obligated to accept returns of
these products. Nevertheless, we often accept returns from customers for which
we do not receive reimbursements from our manufacturers or suppliers, and the
levels of returned merchandise in the future may increase. We may also find that
we have to accept more returns in the future to maintain customer satisfaction.
WE DEPEND ON THIRD PARTIES FOR A LARGE PORTION OF OUR RETAIL SALES.
In 1998, the retail division had net sales of $17.8 million which accounted
for approximately 36% of overall sales. Of these orders from the retail
division, approximately $12.6 million or 71% resulted from our strategic
relationship with the ONSALE online auction. If we cannot maintain our
relationship with ONSALE, our business would be
4
<PAGE> 9
adversely affected. Revenue from ONSALE represented approximately 14%, 24% and
25% of total net sales for the years ended December 31, 1996, 1997 and 1998,
respectively, and approximately 17% of total net sales for the three months
ended March 31, 1999. While we expect revenues from ONSALE to decrease as an
overall percentage of revenues in future periods, we believe that revenues
derived from ONSALE may continue to represent a significant portion of our
retail division revenue for the foreseeable future.
WE NEED TO CONTINUE TO SUPPLY MERCHANDISE AT AN ATTRACTIVE PRICE TO SUCCESSFULLY
ATTRACT OUR TARGET CUSTOMERS.
Our future success depends on our ability to continue to supply merchandise
at an attractive price. An unexpected increase in price competition could
decrease our customer base or the demographic characteristics of our customers.
Either of these results could adversely affect our business. Our ability to
attract our target customers depends on several factors, including the
following:
- maintaining and developing good business relationships with
manufacturers, distributors and suppliers;
- consistently maintaining appropriate levels of inventory;
- monitoring and adapting to changing consumer preferences;
- effectively integrating leading-edge technology; and
- the technical expertise of our staff.
WE MAY NOT SUCCESSFULLY COMBINE COMPGEEKS.COM, EVERTEK AND EVERTEK TRADING.
Upon the filing of this prospectus we combined compgeeks.com, Evertek and
Evertek Trading. We are significantly more complex and diverse than any of the
companies were before we completed the share exchange that made them our wholly
owned subsidiaries. We may not successfully integrate these businesses. Our
inability to combine these companies could adversely affect our business and
result in the following:
- management diverting their time from regular duties to integrating the
businesses;
- the assimilation of new operations, sites and personnel could divert
staff and financial resources from regular operations;
- loss of customers and employees of these companies; and
- maintaining uniform standards, controls, procedures and policies.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY NEGATIVELY AFFECT OUR STOCK PRICE.
We expect to experience fluctuations in our future operating results due to
a variety of factors, many of which are outside our control. It is possible that
in some future periods our results of operations may be below the expectations
of public market analysts and investors. In this event, the price of our common
stock is likely to fall. Factors that may affect our operating results include
the following:
- our ability to retain existing customers, attract new customers at a
steady rate and maintain customer satisfaction;
- our ability to procure computers and peripherals directly from
manufacturers, distributors and suppliers at discounted prices;
5
<PAGE> 10
- our ability to manage our fulfillment activities and make timely
deliveries;
- the announcement or introduction of new Web sites, services and products
by us, our strategic partners and our competitors;
- the success of our strategic relationships;
- price competition or pricing changes in the computer and peripheral
industry;
- the level of use of the Internet and online services and consumer
acceptance of the Internet and other online services for the purchase of
consumer products that we offer;
- our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;
- the level of traffic on our Web sites;
- our ability to integrate operations and technologies from acquisitions;
- technical difficulties, system downtime or Internet brownouts;
- the amount of merchandise returned to us;
- government regulation of electronic commerce; and
- general economic conditions and economic conditions specific to the
Internet, electronic commerce and our industry.
We have also experienced, and expect to continue to experience, seasonality
in our business. We expect seasonal fluctuations in Internet usage including
reduced user traffic on our Web sites during the summer and year-end vacation
and holiday periods, when use of the Internet is typically lower. We also
anticipate traditional retail seasonality patterns.
In view of the rapidly evolving nature of our business and its limited
operating history, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful, and you should not rely on them as an
indication of future performance. As a result of our limited operating history
and the emerging nature of the markets where we compete, we may not accurately
predict our revenues. If we do not accurately predict our revenues, we may not
budget our expenses accordingly, and this could adversely affect our business.
WE MAY NOT SUCCESSFULLY DEVELOP OUR "COMPGEEKS.COM" AND "EVERTEK" BRAND NAMES.
To be successful, we must strengthen awareness of our brand names. In order
to build our brand names, we must succeed in our marketing efforts, provide
high-quality services and products and increase the number of customers on our
Web sites. If our marketing efforts are not successful or if we cannot increase
awareness of our brand names, it could harm our business.
IF WE ARE UNABLE TO RETAIN KEY PERSONNEL OR ATTRACT NEW PERSONNEL, IT COULD
ADVERSELY AFFECT OUR BUSINESS.
The loss of the services of any of our key personnel or our inability to
successfully attract and retain qualified personnel in the future would
adversely affect our business. Our future success depends on the continued
service of our key personnel, including Frank Segler, our Chairman and Chief
Executive Officer, Scott Kusel, our President and Chief Operating Officer,
William C. Bousema, our Vice President, Chief Financial Officer and
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<PAGE> 11
Secretary, and Doug Allen, our Vice President of Marketing. We maintain no key
person life insurance. Our future success also depends on our ability to
attract, retain, integrate and motivate highly skilled employees. Competition
for employees in our industry is intense, particularly in the San Diego area,
where our headquarters are located. Please see "Management" for detailed
information on our key personnel.
IF WE DO NOT SUCCESSFULLY MANAGE OUR INVENTORY IT COULD HURT OUR BUSINESS.
We directly purchase most of the merchandise that we sell. We assume
inventory risks, including the risk that inventory will become obsolete or drop
in value. In the recent past we have sold merchandise at a discount or loss. It
is impossible to determine with certainty whether an item we purchase will sell
for more than the price we pay for it. Because we rely heavily on purchased
inventory, our success will depend on our ability to turn our inventory rapidly,
the ability of our buying staff to purchase inventory at attractive prices
relative to its resale value, and our ability to manage customer returns. If we
are unsuccessful in any of these areas, we may be forced to sell our inventory
at a discount or loss which could adversely affect our business.
WE MAY NOT BE ABLE TO EXPAND OUR DIRECT SALES FORCE.
We intend to expand our internal sales force to sell more merchandise. This
involves a number of risks, including the following:
- the short period of time during which our sales force will have worked
for us;
- our ability to hire, retain, integrate and motivate additional sales and
sales support personnel;
- the length of time it takes new sales personnel to become productive; and
- the competition we face from other companies in hiring and retaining
sales personnel.
Our business could be adversely affected if we do not expand and maintain
an effective sales force.
OUR GROWTH MAY STRAIN OUR RESOURCES.
Our business has grown rapidly in the last three years. The number of our
employees in our combined entities has grown from 16 at March 31, 1996 to 56 at
March 31, 1999, and the scope of our operating and financial systems has
expanded significantly. Our rate of growth places a significant strain on our
resources for a number of reasons, including:
- the need for the continued development of our financial and information
management systems;
- the need to manage relationships with numerous strategic partners,
manufacturers, distributors and suppliers;
- difficulties in hiring and retaining skilled personnel necessary to
support our business; and
- the need to train and manage our growing employee base.
We cannot assure you that we will adequately address these risks. If we do
not, it could adversely affect our business.
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WE FACE INTENSE COMPETITION IN THE ELECTRONIC COMMERCE MARKET.
The electronic commerce industry is rapidly evolving and intensely
competitive. We may not succeed in competing against our current and future
competitors. It is not difficult to enter the electronic commerce market, and
current and new competitors can launch new electronic commerce Web sites at
relatively low cost. We expect competition in electronic commerce to increase as
retailers, suppliers, manufacturers and direct marketers who have not
traditionally sold computer products and consumer goods directly to consumers
through the Internet enter this market segment. Furthermore, competition may
increase to the extent that mergers and acquisitions result in electronic
commerce companies with greater market share and revenues. Increased competition
or failure by us to compete successfully is likely to result in price
reductions, fewer customer orders, reduced gross margins, increased marketing
costs, loss of market share, or any combination of these problems.
We currently compete with a variety of companies that sell personal
computer products and other consumer goods through a variety of sales channels
to customers. These competitors include:
- companies with electronic commerce sites including Buy.com Inc., Cyberian
Outpost, Inc., and Egghead.com;
- companies offering Internet auctions, such as ONSALE, Inc., uBid, Inc.,
and Internet Shopping Network, Inc., the FirstAuction site;
- catalog-based merchants with a significant electronic commerce offering,
including CDW Computers Centers, Inc., Multiple Zones International, Inc.
and Creative Computers, Inc.;
- traditional retailers of personal computer products such as Fry's
Electronics and CompUSA, Inc.;
- manufacturers including Dell Computer Corporation and Gateway, Inc. that
sell directly to consumers, including over the Internet; and
- mass merchandisers such as Wal-Mart Stores, Inc., Costco Wholesale
Corporation and Best Buy Co., Inc. that primarily sell through
traditional retail channels but also sell over the Internet and office
products retailers such as Office Depot Inc. and Staples, Inc. that
primarily sell through traditional retail channels but also sell over the
Internet.
We believe that the principal competitive factors affecting our market are
competitive pricing, quality of customer service, brand name recognition,
quality of product information, breadth of merchandise offerings, cost of
customer acquisition and ease of use of electronic commerce sites. We may not be
able to maintain our competitive position against current and potential
competitors, especially those with greater resources in financial, marketing,
customer support, technical and other areas. As a result, they may secure
merchandise from suppliers on more favorable terms than we can. They may also
respond more quickly to changes in customer preference or devote greater
resources to the development, promotion and sale of their merchandise than we
can.
Current and potential competitors have established or may establish
cooperative relationships among themselves or directly with suppliers to obtain
exclusive or co-exclusive sources of merchandise. New competitors or
relationships among competitors, or among competitors and suppliers, may emerge
and rapidly acquire market share. For example, Dell Computer Corporation and
Amazon.com, Inc. recently announced that they have agreed to provide links from
their Web sites to new Web pages that advertise their
8
<PAGE> 13
respective products. Also, manufacturers might elect to sell or liquidate their
products directly over the Internet.
WE MAY NEED MORE CAPITAL.
We currently expect the net proceeds of this offering, together with our
available funds, to be sufficient to meet our needs for working capital,
including marketing and advertising expenses, capital expenditures and business
expansion for at least the next 18 months. After that time, we may need to raise
additional funds. However, we may need to raise additional funds sooner in order
to fund more rapid expansion, to develop new or enhanced services or products,
to respond to competitive pressures or to acquire complementary businesses,
products, services or technologies. If we issue additional common stock or
securities convertible into or exercisable for common stock, the percentage
ownership of our existing stockholders will decrease. In addition, we may issue
senior securities that have rights, preferences and privileges more favorable
than those of the common stock. We cannot assure you that we will have access to
additional financing on favorable terms or at all. If we cannot secure
additional financing, we may not be able to fund our expansion, take advantage
of unanticipated acquisition opportunities, develop or enhance services,
products or technologies, or respond successfully to competitive pressures.
WE MAY MAKE INVESTMENTS OR ACQUISITIONS THAT ARE NOT SUCCESSFUL.
We intend to make investments in or acquire complementary businesses,
products, services or technologies on an opportunistic basis when they will
assist us in carrying out our business strategy. If we buy a company, we could
have difficulty integrating the company's personnel and operations. In addition,
the key personnel of the acquired company may decide not to work for us. If we
acquire products, services or technologies, we could have difficulty in
assimilating them into our operations. These difficulties could disrupt our
ongoing business, distract our management and employees and increase our
expenses. Furthermore, we may have to incur debt or issue equity securities to
pay for any future acquisitions. Issuing equity securities could dilute the
interests of our stockholders.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY.
We regard the software used to operate our Web sites, as well as our
various trademarks and copyrights, as proprietary. We will continue to attempt
to protect them under a combination of copyright, trade secret and trademark
laws, as well as by contractual restrictions on employees and third parties.
Despite these precautions, it may be possible for unauthorized parties to copy
our software or otherwise obtain and use information that we regard as
proprietary. Existing trade secrets and copyright laws provide only limited
protection. Certain provisions of other license and distribution agreements that
we intend to use, including provisions protecting against unauthorized use,
copying, transfer and disclosure, may be unenforceable under the laws of certain
jurisdictions. Furthermore, we may be required to negotiate limits on these
provisions from time to time. In addition, the laws of some foreign countries do
not protect our proprietary rights to the same extent as do the laws of the U.S.
The steps we take may not be adequate to deter misappropriation of proprietary
information. We also may not detect unauthorized use and take appropriate steps
to enforce our intellectual property rights. Significant and protracted
litigation may be necessary to protect our intellectual property rights, to
determine the scope of the proprietary rights of others or to defend against
claims for infringement. Third parties may assert claims against us alleging
infringement, misappropriation or other
9
<PAGE> 14
violation of proprietary rights, whether or not such claims have merit. These
claims can be time consuming and expensive to defend and could require us to
cease the use and sale of allegedly infringing services and products, to incur
significant litigation costs and expenses, to develop or acquire non-infringing
technology and to obtain licenses for the alleged infringing technology. We may
be unable to develop or acquire alternative technologies or obtain such licenses
on commercially acceptable terms.
WE FACE RISKS ASSOCIATED WITH MAINTAINING THE VALUE OF OUR DOMAIN NAMES.
We may be unable to prevent third parties from acquiring domain names that
are similar to, infringe on or otherwise decrease the value of our brands and
our trademarks and other proprietary rights. We currently hold various Web
domain names relating to our brand, including compgeeks.com, evertek.com,
wholesaleauction.com, among others. We may not be able to acquire or maintain
relevant domain names in all jurisdictions in which we conduct business.
Acquiring and maintaining domain names generally is regulated by governmental
agencies and their designees. This regulation in the United States and in
foreign countries may be subject to change. Governing bodies may establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. The relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear.
WE ARE VULNERABLE TO ADDITIONAL TAX OBLIGATIONS.
We currently collect sales tax only on retail sales of products delivered
to residents in the state of California. However, other states or foreign
countries may seek to impose sales tax, value added taxes, duties or other
collection obligations on us and other electronic commerce companies. A number
of proposals have been made at the state and local levels that would impose
additional taxes on the sale of goods and services through the Internet. These
proposals, if adopted, could substantially impair the growth of electronic
commerce and cause purchasing at our Web site to be less attractive to customers
than traditional retail purchasing. In 1998, the U.S. Congress passed
legislation limiting for three years the ability of the states to impose new
taxes on Internet-based transactions. Failure to renew this legislation could
result in the imposition by various states of taxes on electronic commerce. In
addition, this legislation does not prevent the application of existing state
tax laws to electronic commerce.
WE MAY FACE DIFFICULTIES IN SELLING OUR PRODUCTS INTERNATIONALLY AND MAY BE
SUBJECT TO ADDITIONAL RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
International sales accounted for approximately 3% of our revenues in the
quarter ended March 31, 1999. We believe that our ability to increase net sales
will require expansion in foreign markets. In seeking to expand, we will face
new competitors. We cannot assure you that we will succeed in creating localized
versions of our Web content. Even if we succeed, our international revenues may
not offset the expense of establishing and maintaining international operations.
Weak international demand for our products could adversely affect our business.
Additional difficulties and risks inherent in doing business on an international
level include but are not limited to:
- compliance with regulatory requirements and changes in those
requirements;
- export controls relating to technology, tariffs and other trade barriers;
- higher operational expenses;
10
<PAGE> 15
- difficulties in staffing and managing foreign operations;
- difficulties in collection of accounts receivables;
- protection of intellectual property rights;
- political or economic instability;
- fluctuations in currency exchange rates; and
- potentially adverse tax consequences.
WE RELY HEAVILY ON THIRD PARTIES, INCLUDING INTERNET SERVICE PROVIDERS AND
TELECOMMUNICATIONS COMPANIES.
Our operations depend on a variety of third parties for Internet access,
telecommunications, operating software, merchandise delivery and credit card
transaction processing. We have limited control over these third parties, and we
cannot assure you that we will maintain satisfactory relationships with any of
them on acceptable commercial terms. Nor can we assure you that the quality of
products and services that they provide will remain at the levels needed to
enable us to conduct our business effectively.
We rely on Internet service providers to connect our Web sites to the
Internet. From time to time, we have experienced temporary interruptions in our
Web site connections and our telecommunications access. Frequent or prolonged
interruptions of these Web site connection services could decrease the number of
users and could result in significant losses of revenues. Our Web site software
and internally developed auction software depend on operating systems, databases
and server software that third parties produce and license to us. From time to
time, we have discovered errors and defects in this third party software and, in
part, we rely on these third parties to correct these errors and defects
promptly.
OUR NETWORK INFRASTRUCTURE COULD FAIL.
The performance, reliability and availability of our content and
syndication infrastructure are critical to our reputation and ability to attract
users and customers. Our computer and communications hardware are located at our
Vista facility and our Oceanside facility as well as third party locations. Our
ability to provide uninterrupted, secure online services depends on our ability
to protect our facilities and equipment against damage from unexpected adverse
events, including fire, earthquakes, power loss, water damage,
telecommunications failures, vandalism, computer viruses, hacker attacks, and
other malicious acts.
Since our insurance policies have low coverage limits, our insurance may
not adequately compensate us for any losses that may occur due to any system
failures or interruptions. We do not have insurance to cover any losses related
to business interruptions. Services based on sophisticated software and computer
systems often encounter development delays and the underlying software may
contain undetected errors that could cause system failures when introduced. Any
system error or failure that causes a significant interruption in the
availability of our Web site or an increase in response time could result in a
loss of potential or existing suppliers, users and customers. Expanding our
network infrastructure could require substantial financial, operational and
management resources, all of which could adversely affect our business.
11
<PAGE> 16
WE MAY NOT BE ABLE TO BECOME YEAR 2000 COMPLIANT.
We have completed our internal tests to assure that our information
technology systems will function properly in the year 2000. Our computer systems
and software programs currently comply with year 2000 requirements. However, we
have not completed our year 2000 analysis with respect to all of our suppliers
and providers.
Until we contact all of our suppliers and providers and they respond, we
will not have completely evaluated whether our information technology systems or
non-information technology systems will need to be revised or replaced. If our
efforts to address year 2000 risks are not successful, or if our suppliers,
providers or other third parties with whom we conduct business do not
successfully address these risks, it could adversely affect our business. We may
sell products that are not year 2000 compliant, which could adversely affect our
sales and our relationships with customers. Please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000
Issues" for detailed information on our state of readiness, potential risks and
contingency plans regarding the year 2000 issue.
RISKS RELATED TO OUR INDUSTRY
EVENTS IN THE COMPUTER AND PERIPHERAL INDUSTRY COULD ADVERSELY AFFECT OUR
BUSINESS.
We derive virtually all our revenue directly or indirectly from the
computer and peripheral industry. Accordingly, our future growth depends on this
industry. The computer and peripheral industry is highly susceptible to adverse
events, including the following:
- technological developments reducing demand for computers and peripherals;
- a surplus of products in the computer and peripheral market; and
- changes in consumer trends.
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE.
We depend almost entirely on the use of the Internet for our revenue. The
increased use of the Internet for commerce is essential for our business to
grow. Accordingly, our success depends in large part on the continued
development of the infrastructure for providing Internet access and services.
The Internet could lose its viability or its usage could decline due to many
factors, including:
- delays in the development of the Internet infrastructure;
- power outages;
- the adoption of new standards or protocols for the Internet; or
- changes or increases in governmental regulation.
We cannot be certain that the infrastructure or complementary services
necessary to maintain the Internet as a useful and easy means of buying goods
will continue to develop or that, if they do develop, the Internet will remain a
viable marketing and sales channel for the types of products and services that
we offer.
WE ARE VULNERABLE TO THE RAPID EVOLUTION OF ELECTRONIC COMMERCE AND RELATED
TECHNOLOGY.
The Internet and the electronic commerce industry are characterized by
rapid technological change, changes in user and customer requirements, frequent
new service or
12
<PAGE> 17
product introductions embodying new technologies, and the emergence of new
industry standards and practices. Changes in the Internet, electronic commerce
and related technology could render our Web sites and technology obsolete. To
remain competitive, we must continue to enhance and improve the customer service
features, responsiveness and functionality of our Web sites. Our success in
achieving these goals depends on our ability to develop or license new
technologies and respond promptly and cost-effectively to technological advances
and emerging industry standards and practices. The development and licensing of
technologies relating to the Internet and electronic commerce involve
significant technical, financial and business risks. We may not be successful in
developing, licensing or integrating new technologies or promptly adapting our
Web sites, proprietary technology and transaction-processing systems to customer
needs or emerging industry standards.
The use of the Internet for retail transactions is a recent development,
and the continued demand and growth of a market for computer-related products
via the Internet is uncertain. The Internet may ultimately prove not to be a
viable commercial marketplace for a number of reasons, including the following:
- unwillingness of consumers to shift their purchasing from traditional
retailers to online purchases;
- lack of acceptable transaction and data security;
- concern for privacy of personal information;
- limitations on access and ease of use;
- congestion leading to delayed or extended response times;
- inadequate development of Internet infrastructure to keep pace with
increased levels of use; and
- increased government regulation and taxation.
WE MAY NOT BE ABLE TO OVERCOME SECURITY CONCERNS RELATING TO ELECTRONIC COMMERCE
AND CREDIT CARD FRAUD.
Our system is vulnerable to disruptions from computer viruses and attempts
by hackers to penetrate our network security. We may be required to expend
significant capital and other resources to protect against security breaches on
our Web sites or to alleviate problems caused by such breaches. If any
compromise of our security were to occur, it could damage our reputation and
expose us to a risk of loss, litigation and possible liability. A significant
barrier to online commerce and communications is the need for secure
transmission of confidential information over public networks. Concerns over the
security of transactions conducted on the Internet and other online services, as
well as a user's desire for privacy, may also inhibit the growth of the Internet
and other online services especially as a means of conducting commercial
transactions.
Our business involves the storage and transmission of proprietary data,
such as credit card numbers and other confidential information. We cannot assure
you that our security measures will prevent security breaches or that our
failure to prevent such security breaches will not adversely affect our
business. Although credit card companies and others are in the process of
enhancing anti-theft and anti-fraud protections and we are continually
monitoring this issue, the risk from these activities could adversely affect us.
We cannot assure you that advances in computer capabilities, new discoveries in
the field of cryptography or other events or developments will not result in a
compromise or breach of
13
<PAGE> 18
the means used by us to protect customer transaction data. A party who
circumvents our security measures could misappropriate confidential information
or interrupt our operations.
WE MAY BE SUBJECT TO LIABILITY FOR MISUSE OF USERS' PRIVATE INFORMATION.
Under our privacy policy we will not willfully disclose any individually
identifiable information about any user to a third party without the user's
consent unless required by law. This policy is easily accessible on our Web
site. Despite this policy, however, if third persons were able to penetrate our
network security or otherwise misappropriate our users' personal information or
credit card information, we could be subject to liability. This liability could
include claims for unauthorized purchases with credit card information,
impersonation or other similar fraud. It could also include claims for other
misuses of personal information, such as for unauthorized marketing purposes.
These claims could result in litigation and adversely affect our business.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY DECLINE BECAUSE OF THE SALE OF SHARES AFTER THIS OFFERING.
Sales of substantial amounts of our common stock in the market following
this offering, or the appearance that a large number of shares is available for
sale, could adversely affect the market price of our stock. These sales also
might make it more difficult for us to sell equity securities in the future at a
price that we deem appropriate. After this offering, we will have
outstanding shares of common stock. Of these shares, those offered in this
offering will be freely tradable.
THE LIQUIDITY OF OUR STOCK IS UNCERTAIN, SINCE IT HAS NEVER BEEN PUBLICLY
TRADED.
Prior to this offering, there has been no public market for our common
stock. We cannot predict if an active trading market in our common stock will
develop or how liquid that market might become.
THE PRICE OF OUR STOCK MAY DECLINE BELOW OUR INITIAL PUBLIC OFFERING PRICE.
The market price of the common stock may decline below the initial public
offering price. We have negotiated with the representatives of the underwriters
to determine the initial public offering price. This price may not be indicative
of prices that will prevail in the trading market. Please see "Underwriting" for
more information regarding how we determined the initial public offering price.
MARKET VOLATILITY MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR STOCK.
The stock market has experienced extreme price and volume fluctuations. The
market prices of the securities of Internet-related companies have been
especially volatile. The trading price of our common stock could fluctuate
widely in response to a number of factors, including the following:
- our quarterly results of operations;
- changes in earnings estimates by analysts and whether our earnings meet
or exceed such estimates;
- announcements of technological innovations by us or our competitors;
- additions or departures of key personnel;
14
<PAGE> 19
- other matters discussed elsewhere in this prospectus; and
- other events or factors, that may be beyond our control.
In the past, companies that have experienced fluctuations in the market
price of their stock have been the object of securities class action litigation.
If we were the object of securities class action litigation, it could result in
substantial costs and a diversion of our management's attention and resources.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDERS MAY CONFLICT WITH YOUR INTERESTS.
We anticipate that the executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
% of our outstanding common stock following the completion of this
offering. These stockholders may be able to exercise control over all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of us.
Please see "Principal Stockholders" for detailed information on the beneficial
ownership of our executive officers, directors and affiliates.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT.
We have incorporated provisions of our restated certificate of
incorporation, our restated bylaws and Delaware law which could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to you. Please see "Description of Securities" for detailed information on these
provisions.
YOU WILL SUFFER DILUTION IN THE VALUE OF YOUR SHARES.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options to purchase common stock are exercised, there will be
further dilution. Please see "Dilution" for detailed information on dilution
resulting from this offering.
SOME OF YOUR INVESTMENT WILL BE USED TO REPAY OUR OUTSTANDING DEBT AND TO
DISTRIBUTE RETAINED EARNINGS.
We will use some of the proceeds from this offering to distribute to our
founders retained earnings in excess of $500,000 through the closing of this
offering and to repay outstanding debt to banks and our founders. We previously
distributed a portion of our retained earnings to our founders in the form of
promissory notes. These notes represent those amounts on which the founders had
previously paid tax, but had allowed us to use to grow our business. You should
realize that not all of your investment will be used to expand our business.
Please see "Use of Proceeds" and "Business -- Share Exchange and S Corporation
Status" for further description of this debt.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus may contain forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward-looking statements involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of factors more fully described in this "Risk Factors"
section and elsewhere in this prospectus. We do not plan to update or revise
these forward-looking statements to reflect new events or circumstances.
15
<PAGE> 20
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the
shares of common stock in this offering will be $ million at an assumed
public offering price of $ per share and after deducting the estimated
underwriting discount and estimated offering expenses, or $ million if the
underwriters' over-allotment option is exercised in full. We intend to use: a
portion of the net proceeds to distribute retained earnings through the closing
of this offering in excess of $500,000 to our founders, such amount would be
approximately $5.2 million if the closing of this offering would have occurred
on March 31, 1999 and includes the repayment of approximately $2.6 million of
outstanding debt obligations to our founders arising from a prior distribution,
in the form of promissory notes, of a portion of the total undistributed S
corporation retained earnings; approximately $3.4 million of the net proceeds to
pay outstanding debt obligations to banks; to increase our merchandise
inventory; to increase our sales and marketing efforts; and for other general
corporate purposes. A portion of the proceeds also may be used to acquire or
invest in complementary businesses or products. From time to time, in the
ordinary course of business, we evaluate potential acquisitions of such
businesses and products. However, we have no present understandings, commitments
or agreements with respect to any material acquisition of businesses or
products. Until we apply the net proceeds to the above purposes, we intend to
invest these funds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock
except for distributions paid to our stockholders prior to the closing of this
offering. See "Business -- Share Exchange and S Corporation Status." We do not
expect to pay any cash dividends for the foreseeable future. We currently intend
to retain future earnings, if any, to finance the expansion of our business. Our
board of directors will decide whether to pay cash dividends in the future.
Their decision will depend on our financial condition, operating results,
capital requirements and other factors that they deem relevant.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on
an actual basis, a pro forma basis to give effect to the share exchange whereby
compgeeks.com, Evertek and Evertek Trading became our wholly owned subsidiaries,
our conversion to a C corporation and the related distributions of S corporation
retained earnings in excess of $500,000 to our founders and on an as adjusted
basis to give effect to our receipt of the estimated net proceeds from the sale
of shares offered at an assumed initial public offering price of
$ per share. This information should be read in conjunction with
our financial statements included in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity(1):
Common stock, 25,000,000 shares of common
stock authorized on a pro forma basis and
75,000,000 shares of common stock
authorized on an adjusted basis;
17,707,000 shares of common stock issued
on a pro forma basis; and shares
issued and outstanding on an as adjusted
basis.................................... $ 7 $ 7
Additional paid-in capital.................. -- 500
Retained earnings........................... 5,740
------ ---- --------
Total stockholders' equity.................... 5,747 507
------ ---- --------
Total capitalization................ $5,747 $507
====== ==== ========
</TABLE>
- ---------------
(1) Actual share information as of March 31, 1999 has been excluded as the
shares then outstanding will be exchanged in the share exchange with
CompGeeks, Inc.
17
<PAGE> 22
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $507,003, or
$ per share of common stock. Pro forma net tangible book value per
share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding as of
March 31, 1999 after considering the share exchange. After giving effect to the
sale of the shares of common stock in this offering, assuming a public
offering price of per share, the mid-point of the range set forth on the
front cover, less estimated underwriting discounts and estimated other expenses
of this offering, this represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $ per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per
share.......................................... $
Pro forma net tangible book value per share as
of March 31, 1999........................... $
Increase attributable to new investors.........
--------
Pro forma net tangible book value per share after
this offering..................................
--------
Pro forma dilution per share to new investors.... $
========
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1999,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... % % $
New investors...................
-------- ----- -------- -----
Total................. 100.0% 100.0%
======== ===== ======== =====
</TABLE>
18
<PAGE> 23
SELECTED COMBINED FINANCIAL DATA
The selected data presented below under the captions "Combined Statement of
Income Data" for each of the years in the three-year period ended December 31,
1998 and "Combined Balance Sheet Data" as of December 31, 1997 and 1998, are
derived from the combined financial statements of the CompGeeks Companies, which
financial statements have been audited by KPMG LLP, independent certified public
accountants. The combined financial statements as of December 31, 1997 and 1998,
and for each of the years in the three year period ended December 31, 1998, are
included elsewhere in this prospectus. The selected data presented below for the
years ended December 31, 1994 and 1995 and the three months ended March 31, 1998
and 1999, and as of December 31, 1994, 1995 and 1996 are derived from the
unaudited combined financial statements of the CompGeeks Companies.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- -------------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA:
Net sales...................... $3,460,371 $7,337,890 $15,772,172 $26,917,799 $49,514,651 $10,307,245 $17,640,113
Cost of goods sold............. 2,801,171 5,580,145 12,729,591 21,436,955 39,856,197 8,021,047 14,791,921
---------- ---------- ----------- ----------- ----------- ----------- -----------
Gross profit................... 659,200 1,757,745 3,042,581 5,480,844 9,658,454 2,286,198 2,848,192
Operating expenses:
Sales and marketing.......... 123,620 177,936 476,527 941,425 2,346,717 492,018 580,067
General and administrative... 273,844 497,284 940,161 1,917,533 2,392,881 478,689 662,139
---------- ---------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 397,464 675,220 1,416,688 2,858,958 4,739,598 970,707 1,242,206
---------- ---------- ----------- ----------- ----------- ----------- -----------
Income from operations......... 261,736 1,082,525 1,625,893 2,621,886 4,918,856 1,315,491 1,605,986
Other income (expense), net.... 8,498 65,432 (13,927) 28,713 71,359 (1,277) (18,755)
---------- ---------- ----------- ----------- ----------- ----------- -----------
Income before income taxes..... 270,234 1,147,957 1,611,966 2,650,599 4,990,215 1,314,214 1,587,231
Provision for income taxes..... 4,113 17,200 24,954 66,799 68,097 14,062 23,601
---------- ---------- ----------- ----------- ----------- ----------- -----------
Net income............ $ 266,121 $1,130,757 $ 1,587,012 $ 2,583,800 $ 4,922,118 $ 1,300,152 $ 1,563,630
========== ========== =========== =========== =========== =========== ===========
Pro forma information(1):
Historical income before
provision for income
taxes...................... $ 270,234 $1,147,957 $ 1,611,966 $ 2,650,599 $ 4,990,215 $ 1,314,214 $ 1,587,231
Pro forma provision for
income taxes............... 108,094 459,183 644,786 1,060,240 1,996,086 525,686 634,892
---------- ---------- ----------- ----------- ----------- ----------- -----------
Pro forma net income......... $ 162,140 $ 688,774 $ 967,180 $ 1,590,359 $ 2,994,129 $ 788,528 $ 952,339
========== ========== =========== =========== =========== =========== ===========
Pro forma net income per basic
and diluted share............ $ $
=========== ===========
Pro forma weighted average
common shares
outstanding(2)...............
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------ MARCH 31,
1994 1995 1996 1997 1998 1999
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and cash equivalents....................... $208,039 $ 287,154 $ 980,528 $ 996,815 $ 956,665 $ 876,200
Inventory....................................... 96,862 263,439 415,766 1,331,794 3,139,224 6,051,070
Working capital................................. 276,531 986,838 1,553,337 2,746,152 5,571,306 5,409,865
Total assets.................................... 451,047 1,110,427 1,866,676 3,211,752 6,702,627 9,755,902
Total stockholders equity....................... $283,974 $1,027,726 $1,598,846 $2,906,446 $5,851,139 $5,747,307
</TABLE>
- -------------------------
(1) Pro forma net income reflects a provision for income taxes on a pro
forma basis as if we had been taxed as a C corporation.
(2) The number of shares of common stock outstanding used to determine pro
forma net income per share is the sum of the 17,707,000 shares
outstanding immediately after the share exchange prior to this offering
and shares deemed to be sold by us in this offering in order
to fund the payment of the S corporation distribution which is
$5,240,304 as of March 31, 1999. The calculation of the number of
shares deemed to be sold by us in order to fund the payment of the S
corporation dividend is based upon the initial public offering price
per share of $ , less the underwriting discount and estimated offering
expenses.
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<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes to those statements included elsewhere in this prospectus. This discussion
may contain forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, such as those set
forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We are a leading Internet wholesale supplier and discount retailer of
computers and peripherals to businesses, resellers and consumers. Our expertise
in purchasing manufacturers' excess inventories, close-outs and out-of-date
products allows us to provide competitive pricing while maintaining
profitability. We believe we have combined this expertise with superior customer
service to develop a loyal, repeat customer base. Our customer base has grown
substantially since 1994 largely through word-of-mouth, fueled by superior
customer satisfaction. We own, stock and ship all products we offer for sale, as
opposed to many online retailers which neither own nor control their inventory
and are required to ship from third party suppliers.
We have been profitable on an annual basis since inception. Evertek
Computer Corporation, our business-to-business wholesale supplier, commenced
operations in 1990, and compgeeks.com, our business-to-consumer discount outlet
commenced operations in early 1996.
We operate two channels of distribution: www.evertek.com, our
business-to-business channel that sells to computer retail stores worldwide, and
www.compgeeks.com, our business-to-consumer channel. Our compgeeks.com division
sells to end-users both through our own Web site and through Internet auction
sites such as ONSALE, Inc. Our Web sites allow users to view detailed product
information, select shipping methods and track orders electronically. During the
first quarter of 1999 we averaged over 750 retail orders per business day with
an average value of over $90 per invoice and over 150 wholesale orders per
business day with an average value of $1,300 per order.
Although our gross margins have been relatively stable on an annual basis
in the past, they have fluctuated on a quarterly basis. We expect these
quarterly fluctuations to continue in the future. These fluctuations result from
factors including product mix, inventory management, inbound and outbound
shipping costs, the level of product returns and the level of discount pricing.
Since 1998, we have increased the depth of our management team to help
implement our growth strategy. We recently expanded our senior management team
to include a Chief Financial Officer and Vice Presidents of Marketing and
Electronic Commerce Development.
Since inception, we have not spent significant amounts for marketing
activities. We plan to increase the amounts spent on these activities. To be
successful we must strengthen awareness of our brand name. In order to build our
brand name, we must succeed in our marketing efforts, provide high-quality
services and products and increase the number of customers on our Web sites.
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<PAGE> 25
We previously elected to be treated for federal and state income tax
purposes as an S corporation. As a result, our stockholders have declared our
earnings on their federal and California State income tax returns. We previously
distributed cash payments to our stockholders in amounts that approximated the
combined income tax liabilities, calculated on our taxable income, based on
appropriate statutory income tax rates. These distributions for the years ended
December 31, 1997 and 1998 were $1,276,200 and $1,977,425, respectively and for
the three-months ended March 31, 1999 were $529,521. In February 1999, Evertek
distributed $1,137,941 to its sole shareholder for funds used in purchasing our
Oceanside building. Please see "Relationships and Related Transactions." In
addition, in May 1999, compgeeks.com and Evertek issued promissory notes in the
aggregate amount of approximately $2.6 million to our founders for the retained
earnings of these companies which we had not distributed, but on which the
founders had already paid personal income tax. We will use a portion of the
proceeds from this offering to repay these outstanding debt obligations of
compgeeks.com and Evertek. Also, we will distribute retained earnings through
the closing of this offering in excess of $500,000 to our founders. Please see
"Use of Proceeds." Our S corporation status will terminate on the closing of
this offering.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA:
Net sales.................................. 100% 100% 100% 100% 100%
Cost of goods sold......................... 81% 80% 80% 78% 84%
--- --- --- --- ---
Gross profit............................... 19% 20% 20% 22% 16%
Operating expenses:
Sales and marketing...................... 3% 4% 5% 5% 3%
General and administrative............... 6% 7% 5% 4% 4%
--- --- --- --- ---
Total operating expenses......... 9% 11% 10% 9% 7%
--- --- --- --- ---
Income from operations..................... 10% 9% 10% 13% 9%
Other income (expense), net................ -- -- -- -- --
--- --- --- --- ---
Income before income taxes................. 10% 9% 10% 13% 9%
Provision for income taxes................. -- -- -- -- --
--- --- --- --- ---
Net income....................... 10% 9% 10% 13% 9%
=== === === === ===
Pro forma information(1):
Historical income before provision for
income taxes.......................... 10% 9% 10% 13% 9%
Pro forma provision for income taxes..... 4% 4% 4% 5% 4%
--- --- --- --- ---
Pro forma net income..................... 6% 5% 6% 8% 5%
=== === === === ===
</TABLE>
- -------------------------
(1) Pro forma net income reflects a provision for income taxes on a pro forma
basis as if we had been taxed as a C corporation.
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<PAGE> 26
COMPARISON OF QUARTERS ENDED MARCH 31, 1999 AND 1998
NET SALES.
Net sales consists of product sales to customers and charges to customers
for outbound shipping and handling, net of product returns. Net sales for the
quarter ended March 31, 1999 were $17.6 million, an increase of $7.3 million
from $10.3 million for the same quarter in 1998. This growth was primarily due
to increased cash generated from operations that allowed us to increase our
inventory and the expansion of our customer base. For the quarter ended March
31, 1999, our wholesale segment generated sales of $14.8 million, an increase of
$6.6 million from $8.2 million for the same quarter in 1998. For the quarter
ended March 31, 1999, our retail segment generated sales of $4.6 million, an
increase of $0.3 million for the same quarter in 1998. (Segment sales amounts
are net of inter-segment sales.)
COST OF GOODS SOLD.
Cost of goods sold consists primarily of the costs of products sold to
customers and outbound and inbound shipping and handling costs. Cost of goods
sold for the quarter ended March 31, 1999 were $14.8 million, an increase of
$6.8 million from $8.0 million for the same quarter in 1998. Gross profit margin
for the quarters ended March 31, 1999 and 1998 were 16.1% and 22.2%,
respectively. The increase in the cost of goods sold as a percentage of net
sales resulted primarily from changes in product mix and an increase in the
number of opportunities to acquire and sell large quantities of lower margin
merchandise.
SALES AND MARKETING EXPENSES.
Sales and marketing expenses consist of distribution facility expenses and
payroll and related expenses for personnel engaged in sales, customer service
and distribution activities. Sales and marketing expenses for the quarter ended
March 31, 1999 were $0.6 million, an increase of $0.1 million from $0.5 million
for the same quarter in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses consist of payroll and related expenses
for executive and administrative personnel, facilities and other general
corporate expenses. General and administrative expenses for the quarter ended
March 31, 1999 was $0.7 million, an increase of $0.2 million from $0.5 million
for the same quarter in 1998. This increase resulted primarily from expenses
associated with the hiring of additional personnel.
OTHER INCOME (EXPENSE).
Other income (expense) consists of interest on our cash and cash
equivalents, net of interest expense attributable to borrowings under our bank
credit facility.
INCOME TAXES.
The provision for income taxes consists of California state S corporation
franchise tax and Hong Kong Internal Revenue Department taxes and for the
quarters ended March 31, 1999 and 1998 was $24,000 and $14,000, respectively.
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<PAGE> 27
NET INCOME.
The Company had net income of $1.6 million for the quarter ended March 31,
1999, an increase of $0.3 million from $1.3 million for the quarter ended March
31, 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NET SALES.
Net sales for 1998 were $49.5 million, an increase of $22.6 million or 84%
from $26.9 million in 1997. Our net sales for 1997 increased $11.1 million or
70% from $15.8 million in 1996. In 1998 and 1997, this growth was primarily due
to increased cash generated from operations that allowed us to increase our
inventory and expand our customer base. In 1998, our wholesale segment generated
sales of $31.7 million, an increase of $13.4 million or 73% from $18.3 million
in 1997. In 1998, our retail segment generated sales of $17.8 million, an
increase of $9.2 million or 107% from $8.6 million in 1997. Our wholesale
segment sales for 1997 increased $5.2 million or 40% from $13.1 million in 1996.
Our retail segment sales for 1997 increased $5.9 million or 219% from $2.7
million in 1996. (Segment sales amounts are net of inter-segment sales.)
COST OF GOODS SOLD.
Our cost of goods sold for 1998 was $39.9 million, an increase of $18.5
million or 86% from $21.4 million in 1997. Cost of goods sold for 1997 increased
$8.7 million or 69% from $12.7 million in 1996. For 1998, 1997 and 1996 our
gross profit margin was 19.5%, 20.4% and 19.3%, respectively. As net sales have
increased, we have been able to maintain relatively consistent gross profit
margins on an annual basis. However, we may not be able to maintain these gross
profit margins.
SALES AND MARKETING EXPENSES.
Our sales and marketing expenses for 1998 were $2.3 million, an increase of
$1.4 million or 156% from $0.9 million in 1997. Sales and marketing expenses for
1997 increased $0.4 million or 80% from $0.5 million in 1996. In 1998 and 1997,
the dollar increase was primarily due to increased payroll related expenses. We
expect sales and marketing expenses to increase in the future.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses for 1998 were $2.4 million, an increase
of $0.5 million or 26% from $1.9 million in 1997. General and administrative
expenses for 1997 increased $1.0 million or 111% from $0.9 million in 1996. For
1998 and 1997, the dollar increase was primarily attributable to expenses
associated with the hiring of additional personnel. These expenses decreased as
a percentage of net sales for 1998 compared to 1997. We expect general and
administrative expenses to increase in absolute dollars as we expand our staff
and incur additional costs related to the growth of our business and being a
public company.
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<PAGE> 28
INCOME TAXES.
Compgeeks.com and Evertek have previously elected to be treated as S
corporations for federal and state income tax purposes under which we were not
subject to federal and state income tax with the liability being passed through
to our shareholders. As S corporations, the California tax code required us to
pay a franchise tax equal to approximately 1.5% of our taxable income, which
approximates book income. Income taxes related to Evertek Trading Limited are
not significant.
NET INCOME.
Net income was $4.9 million for 1998, an increase of $2.3 million or 88%
from $2.6 million in 1997 as a result of the factors discussed above. Net income
for 1997 increased $1.0 million or 63% from $1.6 million in 1996 as a result of
the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through
reinvestment of our earnings as well as from traditional asset-backed bank
borrowings.
Cash and cash equivalents decreased to $0.9 million at March 31, 1999 from
$1.0 million at December 31, 1998 and $1.0 million at December 31, 1997.
Net cash used by operating activities of $1.0 million in the quarter ended
March 31, 1999 primarily resulted from net income and increases in accounts
payable offset by increases in inventory. Net cash provided by operating
activities of $2.3 million for the year ended December 31, 1998 primarily
resulted from net income and increases in accounts payable offset by increases
in accounts receivable and inventory.
Net cash used in investing activities primarily consisted of purchases of
equipment and systems, including computer equipment, fixtures and furniture.
Net cash provided by financing activities of $1.0 million in the quarter
ended March 31, 1999 primarily resulted from borrowing on our line of credit and
proceeds from a note payable, partially offset by distributions to shareholders
to pay their individual tax liability on S corporation earnings and in
connection with a shareholder's purchase of our Oceanside facility. Please see
"Relationships and Related Transactions." Net cash used by financing activities
of $2.1 million for the year ended December 31, 1998 primarily resulted from
distributions to shareholders to pay their individual tax liability on S
corporation earnings.
At March 31, 1999 our principal source of liquidity was cash and cash
equivalents and unused availability of our lines of credit. In 1997 we obtained
a credit line of $2.0 million, which we increased to $3.0 million in February
1999, and in April 1999 we added an additional line which increased available
borrowings to $5.0 million. As of March 31, 1999 we had borrowed $1.8 million
under the lines of credit. At March 31, 1999 we were not in compliance with a
covenant on one of our lines of credit. We have obtained a waiver of this
covenant through June 30, 1999.
As of March 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments for
capital expenditures, we anticipate some increase in our capital expenditures
and lease commitments consistent with anticipated growth in operations,
infrastructure and personnel. We opened an additional distribution facility that
also became our new
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<PAGE> 29
corporate headquarters in April 1999, as part of our expansion plan. This
required us to commit to an additional lease obligation and to purchase
additional capital equipment.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next 18 months. We
may need to raise additional funds prior to the expiration of this period. If we
raise additional funds through the issuance of equity, equity-related or debt
securities, such securities may have rights, preferences or privileges senior to
those of the rights of our common stock and our stockholders may experience
additional dilution. We cannot be certain that additional financing will be
available to us when required on favorable terms, or at all.
PRODUCT MARKETING AGREEMENT
We entered an agreement with ONSALE, Inc., a leading Internet online
auction Web site, in 1996 which we amended in October 1997. This agreement
established us as a provider of computers and peripherals for sale on the ONSALE
auction Web site. We agreed to provide products for ONSALE's auction and to
fulfill orders entered through ONSALE, while ONSALE manages the auction process.
ONSALE pays us the actual merchandise selling price and shipping charges, less a
commission and any deductions for merchandise returns. The actual returns have
not been significant. Either party may cancel the agreement on 90 days written
notice. Our discount retail division derives a significant percentage of its
annual sales from ONSALE. For the years ended December 31, 1996, 1997 and 1998,
sales to ONSALE were 14% and 24% and 25%, respectively, of our net sales. If we
discontinue our business relationship with ONSALE, it would adversely affect us.
YEAR 2000 ISSUES
The computer systems and software programs of many companies and
governmental agencies are currently coded to accept or recognize only two digit
entries in the date code field. These systems may recognize a date using "00" as
the year 1900 rather than the year 2000. As a result, these computer systems
and/or software programs may need to be upgraded to comply with Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
We have completed our internal tests to assure that our information
technology systems will function properly in the Year 2000. Our computer systems
and software programs currently comply with Year 2000 requirements. However, we
have not completed our Year 2000 analysis with respect to all of our suppliers,
providers and partners.
State of Readiness. We have made an assessment of the Year 2000 readiness
of our information technology systems, including the hardware and software that
enable us to provide and deliver our Web site and our non-information technology
systems. We believe our applications, databases and infrastructure are Year 2000
compliant. We will request suppliers who supply significant hardware and
software components to our information technology systems to provide assurances
of their Year 2000 compliance. We plan to complete this process during the first
half of 1999. We are currently assessing the materiality of our non-information
technology systems and will seek assurances of Year 2000 compliance from
providers of these systems. Until this testing is complete and these suppliers
and providers are contacted, we will not be able to completely evaluate whether
our information technology systems or non-information technology systems will
need to be revised or replaced. If our efforts to address Year 2000 risks are
not successful, or if
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<PAGE> 30
suppliers or other third parties with whom we conduct business do not
successfully address these risks, it could adversely affect our business.
Costs. We have identified approximately $1,000 worth of capital equipment
and software that required upgrading or replacement for year 2000 compliance,
which we will spend after the first quarter of 1999.
Risks. We are not currently aware of any Year 2000 compliance problems
relating to our proprietary software or our information technology or
non-information technology systems that would adversely affect our business,
without taking into account our efforts to avoid or fix such problems. We cannot
assure you that we will not discover Year 2000 compliance problems in our
proprietary software that will require substantial revisions. In addition, we
cannot assure you that third-party software, hardware or services incorporated
into our material information technology and non-information technology systems
will not need to be revised or replaced, all of which could be time consuming
and expensive. Our failure to fix our proprietary software or to fix or replace
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could adversely affect our business. Also,
the failure to adequately address Year 2000 compliance issues in our proprietary
software and our information technology and non-information technology systems
could result in claims of mismanagement, misrepresentation or breach of contract
and related litigation, which could be costly and time-consuming to defend.
In addition, we cannot assure you that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. The failure by these entities
to be Year 2000 compliant could cause a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could also prevent us from delivering our Web site, decrease the use of the
Internet or prevent users from accessing our Web site. This could adversely
affect our business.
Contingency Plan. If Year 2000-related problems occur, we can revert to a
set of manual methods. We also maintain several supplier relationships for the
supply of services and products to minimize risks associated with non-compliant
suppliers.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 requires the recognition of all derivative instruments as either assets or
liabilities in the statement of financial position and measurement of those
derivative instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Currently, we do not
hold derivative instruments or engage in hedging activities. The adoption of
this standard is not expected to have a material effect on our combined
financial statements taken as a whole.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Public Accountants issued Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." In
April 1998, the same committee issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." These standards are effective for the first
quarter of the year ending December 31, 1999. The adoption of these standards
are not expected to have a material effect on our combined financial statements
taken as a whole.
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<PAGE> 31
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including changes in interest rates
affecting the cost of our debt. Our available borrowings are comprised of bank
lines of credit secured by our assets. No amounts were outstanding under the
lines of credit at December 31, 1998. The lines of credit bear interest at the
London Interbank Offered Rate plus 2.75%, or at our option 0.5% in excess of the
bank's refinance rate. Due to the relative immateriality of the debt, an
immediate 10% change in interest rates would not have a material effect on our
financial condition or results of operations.
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<PAGE> 32
BUSINESS
OVERVIEW
We are a leading Internet wholesale supplier and discount retailer of
computers and peripherals to businesses, resellers and consumers. We operate two
channels of distribution: www.evertek.com, our business-to-business channel that
sells to computer resellers worldwide, and www.compgeeks.com, our
business-to-consumer channel. Our compgeeks.com division sells to end-users both
through our own Web site and through Internet auction sites such as ONSALE, Inc.
Our Web sites allow users to view detailed product information, select shipping
methods and track orders electronically. Our customer base has grown
substantially since 1994 largely through word-of-mouth. During the first quarter
of 1999 we averaged over 750 retail orders per business day with an average
value of over $90 per invoice and over 150 wholesale orders per business day
with an average value of $1,300 per invoice.
INDUSTRY OVERVIEW
GROWTH OF THE INTERNET.
The Internet is an increasingly significant global medium for
communication, information and commerce. International Data Corporation ("IDC"),
a market research firm, has estimated that in 1999 the number of Internet users
will rise by 38% to 196 million users worldwide from 142 million users in 1998,
and it anticipates that the number will grow to approximately 503 million by end
of 2003. We believe that a number of factors have fueled the growth in Internet
usage and Web commerce:
- a large and growing installed base of PCs in the workplace and home;
- advances in the performance and speed of PCs and modems;
- improvements in network infrastructure;
- easier and cheaper access to the Internet; and
- increased awareness of, and comfort with, the Internet.
GROWTH OF ELECTRONIC COMMERCE.
IDC estimates that the total value of goods and services purchased over the
Internet will more than double to $111 billion in 1999 and grow to approximately
$730 billion by the end of 2002. We believe that our target market of consumers,
small and home offices and small retailers represents an attractive and rapidly
growing segment of the electronic commerce industry. Jupiter Communications
expects that domestic online consumer purchases of goods, excluding cars and
real estate, and travel services will grow from an estimated $3.0 billion in
1997 to approximately $41.6 billion by 2002. According to Jupiter, the single
largest domestic Web retail opportunity for the consumer and small office/home
office market is online sales of computer products, including hardware, software
and consumer electronics. Jupiter also estimates that by 2002 the online
consumer market for computer products will reach approximately $9.6 billion in
the United States alone, compared to estimated domestic online markets for
books, music and toys of $3.6 billion, $1.5 billion and $0.5 billion,
respectively.
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<PAGE> 33
COMPUTER AND PERIPHERALS INDUSTRY.
Computers and peripherals are products that are ideally suited for sale
over the Internet. Consumers purchasing these types of products are typically
computer owners. According to IDC, worldwide PC shipments were over 103 million
units in 1998 and are expected to grow to over 118 million by 2000. The U.S. end
market for computer hardware and peripherals is estimated by IDC to grow from
approximately $86.3 billion in 1997 to $112.7 billion in 2001.
The computer peripherals market encompasses a wide variety of items
including CD-ROM drives, modems, video cards, scanners and hard drives. Dealers
sell peripherals to both computer buyers who create their own computer systems
and to buyers who wish to add functionality to their computers. As computer
technology has developed, the number of types of computer peripherals has
expanded dramatically and we expect this trend to continue. Broad new
technologies, including multimedia, have yielded new types of peripherals such
as scanners, sound cards, video cards and speakers. In addition, the maturation
of the computer industry has increased the number and range of peripherals
designed for specialized uses such as video editing and Internet telephony.
The computer peripherals industry includes several well-known brands,
including Creative Labs, Diamond Multimedia, Hewlett-Packard, IBM and Logitech,
as well as many small manufacturers. These manufacturers sell directly to the
end-user and through many channels, including to distributors, large retail
chains and original equipment manufacturers.
THE COMPGEEKS OPPORTUNITY
One of the central challenges to computer and peripheral manufacturers is
the high speed with which their current inventory becomes excess inventory:
today's leading-edge model is tomorrow's end-of-life product. As the
concept-to-market cycle time of a product is compressed, managing inventory
becomes increasingly difficult. Nearly every manufacturer in the computer and
peripheral industry periodically has excess inventory.
While computer and peripheral manufacturers typically have well established
distribution models for their current products, there is no common industry
approach for disposing of excess inventory. Manufacturers currently use the
following methods, among others:
- Sell through the Internet or a physical outlet store. Many companies,
including Dell, Compaq and Gateway, have Internet or physical outlet
stores. These stores typically are limited in the types of product they
can sell. Items must be made retail ready, which is not a common
attribute of excess inventory.
- Make a one-time sale to a large superstore or mass merchandiser. This
can be challenging for a manufacturer because of conflicts with their
existing distribution channels, which can be limited to selling current
models.
- Sell to Internet auction companies. Auction companies generally do not
purchase in large quantities and products sold through this channel must
be retail ready.
- Sell to brokers. A broker will typically not take possession of the
product and will often sell into manufacturers' existing channels.
These methods have usually proven unsatisfactory. Few companies have the
relationships or methodology to buy and sell large lots of excess inventory or
specialized items. We believe manufacturers have a strong interest in using a
single channel that can
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<PAGE> 34
quickly and effectively dispose of large and varied lots of merchandise without
affecting their traditional sales channels.
THE COMPGEEKS SOLUTION
We efficiently acquire and resell excess, close-out and refurbished
computers and peripherals, and provide our suppliers with a much-needed
alternative distribution channel. Our strong and long-standing relationships
with suppliers and our diverse distribution channels allow us to have a
comprehensive understanding of the supply and demand characteristics of our
industry. By selectively purchasing large lots and efficiently allocating our
merchandise to our distribution channels, we provide our customers with both low
prices and in-demand products. To date we have accomplished the following:
- Developed expertise in procuring excess inventory. Over the last nine
years, we have developed relationships worldwide with many of the top
computer and peripheral manufacturers including Compaq, Creative Labs,
Dell, Gateway, IBM, Intel and Logitech. We generally buy large lots of
excess or niche items and effectively sell them into the most appropriate
market. We believe we are recognized within the industry as a trusted and
reliable buyer and reseller of these products. Because we purchase our
merchandise in large quantities, we believe we acquire our products at
lower prices than our competitors.
- Created an efficient wholesale distribution outlet. As of March 31,
1999, our wholesale division served approximately 3,700 accounts,
including computer dealers and other Internet resellers. The average
order size of these customers is approximately $1,300. All products
listed on our site are in stock in our warehouse and available for
immediate shipment. Orders placed by 2:00 p.m. are shipped on the same
day. Electronic SelfServe(sm), our proprietary Web-based software system,
allows customers to interact with us exclusively on the Internet. In the
first quarter of 1999, we received over 150 wholesale orders per business
day.
- Introduced a discount retail outlet. Our discount retail division, which
is entering its fourth year of operation, has at least doubled its sales
each year. In 1998, this division processed approximately 163,000 orders.
The number of our customers grew from 53,000 at December 31, 1997 to
137,000 at December 31, 1998. Through our discount retail division, we
sell products directly to end-users, either through our Web site or
through auction Web sites such as ONSALE. All products listed on our site
are in stock in our warehouse and available for immediate shipment.
Orders placed by noon are shipped on the same day and over 90% of our
orders are shipped within 24 hours. Our real-time, automated database
reduces the risk of overselling products.
THE COMPGEEKS STRATEGY
Our objective is to be the leading Internet wholesale supplier and discount
retailer of computers and peripherals. Our business strategy includes the
following key elements:
- Capitalize on our experience and varied sales channels. We intend to
capitalize on our knowledge of the market and our experience to continue
to build strong product sourcing opportunities and relationships. We
believe our multiple sales channels allow us to buy types and quantities
of merchandise that exceed the sales capacity of our direct competitors,
allowing us to generally receive larger price discounts. Additionally, we
use information gathered from our sourcing relationships to help us
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<PAGE> 35
predict future supply and demand which in turn helps us manage our
pricing and sales-channel allocation strategies.
- Increase wholesale business penetration. We estimate that there are over
100,000 potential wholesale customers in the United States alone. As of
March 31, 1998, we had approximately 3,700 wholesale customers. We plan
to expand our customer base through an aggressive marketing campaign.
While in 1998 substantially all of our wholesale business sales were
domestic, we believe we will expand our international sales dramatically.
- Increase market awareness of our retail site. We believe that market
awareness is critical to attracting suppliers and customers. We intend to
implement a national print, radio, television and Internet advertising
campaign after this offering to promote our www.compgeeks.com site and
build brand identity. We plan to expand strategic relationships using
sites popular with our target market, and we will continue to market to
our existing customers via our subscriber-only e-mail list, among other
methods.
- Broaden our existing product line. We plan to increase the number of
different products we sell in both our wholesale and discount retail
divisions. Our suppliers consistently have inventory available that
exceeds our purchasing power. As of March 31, 1999, we had approximately
500 unique items in our inventory, and in 1998 we sold over 2,300 unique
items. We believe that increasing the number of unique products we sell
will expand both our wholesale and retail customer bases.
- Expand and strengthen strategic relationships with suppliers. Our
ability to attract, secure and obtain large quantities of merchandise is
key to our success and we plan to continue developing relationships with
suppliers. We have long-standing relationships with many of the major
computer and peripheral manufacturers, such as Compaq, Creative Labs,
Dell, Gateway, IBM, Intel and Logitech. We seek to be our suppliers'
preferred channel for liquidating excess merchandise. We believe our
unobtrusive sales process makes us a single convenient channel for
suppliers to liquidate large volumes of merchandise.
- Use technology to expand and enhance our business. We intend to use our
scalable electronic commerce platform to enhance our service offerings
and take advantage of the unique characteristics of online retailing. To
date, we have developed proprietary technologies and implemented systems
to support secure and reliable online commerce in an intuitive,
easy-to-use format. We have also developed a real-time, automated
database that makes inventory adjustments and reduces the likelihood of
overselling. We intend to enhance our Web sites and improve our
customers' online shopping experience. We also intend to use technology
to lower transaction costs by automating some customer service functions
and enhancing the efficiency of relationships with our suppliers.
- Further develop our private label products. GeekKits(TM), our private
label, build-your-own computer systems, consist of unassembled compatible
components from which a user can construct a fully operational computer.
We intend to offer multiple GeekKit product lines geared to specific
segments including students, small businesses and gamers. We believe
GeekKits allow us to increase our average ticket price and distribute
multiple items in a single sale.
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<PAGE> 36
PRODUCTS
Computers and peripherals are products that are ideally suited for sale
over the Internet since consumers purchasing these types of products are
typically computer owners. We offer a broad array of computers and peripherals.
The following is a list of the product types that we typically carry:
- Adapters
- Add-On Cards
- CD-ROM Drives
- Central Processing Units
- Computer Cables
- Computer Cases
- Computer Speakers
- Computer Systems
- CPU Cooling Fans
- Digital Still and Motion Cameras
- Hard Drives
- Keyboards
- Memory Modules and Chips
- Modems
- Monitors
- Motherboards
- Multimedia Kits
- Networking Products
- Notebook Computer Accessories
- Pointing Devices
- Power Supplies
- Printers
- Removable Storage
- Scanners
- Sound Cards
- Video Cards
We also sell GeekKits, our private label, build-your-own computer systems
that include from five to over 14 individual components. These kits include a
motherboard, case and power supply, and may include a floppy drive, hard-drive,
CD-ROM and a modem or other components depending on the complexity of the
system. The components in each system are compatible and work together as a
system. Our GeekKit line is aimed at the "computer savvy" customer who wants to
build his or her own system.
PRODUCT SOURCING
Most computer and peripheral companies generate excess inventory. These
manufacturers seek alternative distribution channels to dispose of their excess
inventory that do not conflict with their existing channels. We can efficiently
and unobtrusively distribute products through both our wholesale and discount
retail channels. Additionally, our multiple distribution channels enable us to
purchase products in larger quantities and at lower prices.
Over the past several years we have developed contacts worldwide at many of
the top computer and peripheral manufacturers. We obtain our merchandise
directly from computer and peripheral manufacturers and indirectly through other
vendors such as retailers and distributors. We source our products from over 200
suppliers. In 1998 no single supplier accounted for more than 10% of our
purchases. Since merchandise availability can be unpredictable, a strong base of
supplier relationships is important to our success. We believe we have
substantial access to additional sources of excess merchandise and are in a
position to build on our existing relationships and add new suppliers to
increase the breadth and depth of our product line. As a result, we maintain
regular
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<PAGE> 37
contact with our suppliers to learn when new merchandise will become available,
often well in advance of others in the industry.
We strive to be flexible and capitalize on opportunities as they are
presented to us. We purchase our products through either direct price
negotiations or through a formal bidding process amongst a select group of
pre-qualified buyers. We have successfully purchased products through both of
these methods because:
- we have direct relationships with many of the top computer and peripheral
manufacturers;
- our experience and historical sales data help us understand the market;
- we can conclude a purchase and wire funds in a manner of hours;
- we can purchase large quantities of merchandise; and
- we can purchase large lots consisting of multiple product lines.
Part of our appeal to vendors seeking to dispose of excess inventory is our
ability to successfully complete production of, package, and re-sell
semi-finished goods. We use various methods to do this including re-painting,
metal stamping, producing custom cables and wire harnesses, and fabricating
entire subassemblies. Our history shows that this "throw-away" inventory
generates significant margins once completed. Similarly, we add value to
"un-sellable" merchandise by creatively combining disparate parts to produce
packages which are more valuable as a bundle than as individual components.
DISTRIBUTION
We stock and ship all of the products that we sell. We list our inventory
online using a real-time, automated database. All products we display are in
stock and ready to ship. We do all order processing and fulfillment in-house,
giving us the ability to regularly meet our goal of shipping 90% of orders
within 24 hours of receipt or by the end of the next business day.
WHOLESALE CHANNEL.
Our wholesale division has supplied computers and peripherals to qualified
computer resellers since 1990. As of March 31, 1999, we had approximately 3,700
active accounts. During the first three months of 1999, we averaged over 150
wholesale orders per day with an average order value of $1,300. International
sales for 1998 accounted for approximately 5% of our wholesale revenues, and we
plan to increase this percentage by devoting more efforts to international
distribution.
This division began Internet-based sales in 1995 through our Web site
www.evertek.com, and in the first three months of 1999 approximately 63% of our
wholesale orders were placed on the Internet. We have a direct sales force that
caters to our large strategic accounts. In early 1997, we launched Electronic
SelfServeSM, our proprietary Web-based software system that allows customers to
interact with us exclusively on the Internet. Some of its innovative features
are:
- Product display. This feature displays pictures, quantities per master
box, technical specifications, weights and dimensions for everything we
sell. Customers can see exact in-stock quantities that are presented in
real-time, 24 hours a day.
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- Online order entry. Customers can select from several methods of
shipment and payment and receive automatic volume discounts. We use
secure socket layer technology for securing credit card information.
- Online Order Tracking. We automatically link to the UPS and FedEx
Internet sites, so our customers can easily track their orders.
- Automated Returns. We supply warranty service online. Customers can
obtain return authorization numbers and receive instructions on return
procedures online.
- Order History. Every order placed by our customers since January 1997 is
online and available for display online. Customers can also see technical
specifications, pictures and other general information about their
purchases.
- Back End Management. Electronic SelfServe allows for the real-time
addition of inventory, editing and viewing of customer product and
shipping information and general management tools.
We also sell our merchandise through our Internet wholesale auction site,
www.wholesaleauction.com. This site specifically deals in excess and obsolete
inventory that we would otherwise have difficulty organizing and selling. This
site typically distributes product in lots purchased by the pallet, odds and
ends and non-working inventory.
DISCOUNT RETAIL CHANNEL.
Our discount retail division has been selling computers and peripherals to
retail customers on the Internet since 1996. Nearly 98% of our sales in this
division are over the Internet. We currently service our retail customers
through our Web site www.compgeeks.com and also supply product through third
party auction sites including ONSALE, FirstAuction, Amazon and eBay.
Our discount retail site carries a wider product selection than our
wholesale site and caters to the price-conscious computer user. During the
quarter ended March 31, 1999, we averaged over 750 retail orders per day with an
average order value of over $90 per invoice. Substantially all of our retail
sales to date have been domestic. This site offers an easy, secure and desirable
place to shop online. We provide a convenient, easy-to-use "shopping cart"
interface which features the following:
- posted inventory linked to a real-time database;
- online order tracking;
- secure socket layer data encryption for security;
- downloadable software device drivers; and
- the ability to contact us for customer service or technical support
directly from our Web site.
As part of our discount retail Web site expansion and enhancement, we
intend to develop a series of "micro-stores," Web sites targeted to specific
niche markets. We believe this will increase traffic on and revenue from our
primary retail Web sites as people become interested in learning what other
products we carry. Additionally, we feel that it will increase unit-sales of
inventory as we become known for providing merchandise desired by specific
communities of interest. These community sites could include product categories
we already have, as well as additional specialty categories.
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<PAGE> 39
We have an agreement with a leading Internet auction site, ONSALE. We have
agreed to provide products for ONSALE's auction and to fulfill orders entered
through ONSALE, while ONSALE manages the auction process. ONSALE pays us the
actual merchandise selling price and shipping charges, less a commission and any
deductions for merchandise returns. Our discount retail division derives a
significant percentage of its annual sales from ONSALE. For the years ended
December 31, 1996, 1997 and 1998, sales to ONSALE were 14% and 24% and 25%,
respectively of our overall net sales.
SALES AND MARKETING
We sell to consumers as well as to computer retailers and resellers. To
achieve our objective of becoming the leading Internet wholesale supplier and
discount retailer of computers and peripherals, we are developing a marketing
strategy in order to strengthen our brand name and increase customer traffic to
our Web sites.
Advertising. We have taken a disciplined and selective approach in our
advertising strategy that primarily considers the costs of customer acquisition.
We attempt to maximize the return from promotional expenditures by choosing
advertising media based on the cost relative to the likely audience and ability
to generate increased traffic for our Web sites. To date, our marketing efforts
have been limited to word-of-mouth, radio, postcards and magazines. We intend to
significantly upgrade our marketing efforts with national print, radio,
television and Internet advertisements, product giveaways and the implementation
of an affiliate program.
Customer Electronic Mail Broadcasts. We actively market to our base of
customers using e-mail broadcasts. We had over 16,000 registrants at March 31,
1999. We currently send more than 90,000 e-mail messages each month announcing
new items at our Web sites, special products, site changes and new features. We
have a strict policy of sending only solicited e-mail, and a customer can remove
his or her name from our mailing list at any time.
Account Managers. While we expect Internet sales to account for an
increasing percentage of our overall sales, we recognize the importance of
having account managers for key accounts of our wholesale division. Our key
accounts purchase inventory in very large quantities, generally 1,000 units and
above, and require discounts from our normal prices. Account managers are
necessary to help us understand what our customers require and how to continue
to earn their business. Our retail division also employs account managers for
repeat customers. We intend to add to our sales force as we grow.
ORDER FULFILLMENT
We obtain products from our supplier network shortly before the products
are listed for sale on our Web sites. All products are held in inventory at our
distribution facilities and shipped directly to our customers. The product
fulfillment process, from receipt of products through shipment, is largely
automated, enabling us to capture real-time data on inventory receiving,
shipping and stock levels. Orders placed by 2:00 p.m. on our wholesale site, and
noon on our compgeeks.com site are shipped the same day. Approximately 90% of
the products shipped from our warehouses are shipped within 24 hours or by the
end of the next business day after the order is received, and our tight controls
have historically kept shipping errors at negligible levels. We believe that the
speed and accuracy of our order fulfillment process reinforces and enhances our
customers' overall purchase experience.
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CUSTOMER SERVICE AND QUALITY CONTROL
We offer a one year warranty on most items we sell. While we do not always
receive a full warranty from our suppliers, we generally will, at our own
expense, extend a warranty to our customers to provide for the replacement or
upgrade of a product or a refund of the purchase price, at our option.
Wholesale customers may return items that are not to their satisfaction in
the first 48 hours after receipt. After this period, we only accept defective
items for warranty exchange.
Our discount retail division may be contacted by phone, fax, or e-mail.
Tracking information is also available from our Web site, 24 hours a day, 7 days
a week. While we try to provide as much automated, self-service customer support
as possible in the form of downloadable documentation, FAQ lists, and drivers,
live technical support and return authorization assistance is available via
telephone.
We also perform the following services for suppliers and customers:
- drop-shipping services;
- order fulfillment services;
- "kit assembly" services;
- re-labeling supplier's products under our own brand name; and
- technical support.
TECHNOLOGY
We believe that automation is one of the keys to our success. We
selectively use outside consultants and contractors for custom software design
to quickly and efficiently automate tedious, time-consuming processes. As we
grow, we will continue to automate our procedures to increase our efficiency and
order-processing capacity. We have adequate technological infrastructure to
handle our current business and expect to scale this infrastructure as our
business grows.
We have implemented an array of site management, customer interaction,
transaction-processing and fulfillment services and systems using a combination
of our own proprietary technologies and third-party technology. Our current
strategy is to focus our resources on expansion and enhancement of our existing
systems and to license commercially developed technology where available and
appropriate. We use a set of software applications for the following:
- accepting and validating customer orders,
- organizing, placing and managing orders with suppliers,
- managing and assigning inventory to customer orders,
- generating distribution processing instructions,
- managing shipment of products to customers and
- managing and tracking customer orders and account information.
We employ a set of software solutions for sending broadcast e-mail messages
to customers on a frequent basis. This software extracts e-mail addresses from
our subscriber-
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only mailing list and sends messages to the designated recipients as well as
automatically servicing requests from customers to be added to or removed from
our mailing list.
Systems administrators and network managers monitor and control our Web
sites, transaction processing systems and network operations. The continued,
uninterrupted operation of our Web sites and transaction-processing systems is
essential to our business and it is the duty of our site operations staff to
ensure, to the greatest extent possible, its reliability, availability, and
security. We contract the services of an Internet service provider to supply our
connectivity to the Internet over dedicated digital links.
We believe our information technology infrastructure is scalable. With the
relatively simple installation of additional servers and software, we can
increase the amount of traffic our Web sites are able to handle without upgrades
to network infrastructure. Client/server hardware and software deployed for
in-house use is currently more than adequate and we can upgrade it as required
with minimal expense.
COMPETITION
Selling computers and peripherals over the Internet is a rapidly evolving
and intensely competitive industry. Current and new competitors can launch new
electronic commerce Web sites at relatively low cost. We expect competition in
electronic commerce to increase as traditional retailers, suppliers,
manufacturers and direct marketers of computer products enter this market
segment. Increased competition or our failure to compete successfully is likely
to result in price reductions, fewer customer orders, reduced gross margins,
increased marketing costs, loss of market share, or any combination of these
problems.
We currently compete with a variety of companies that sell personal
computer products and other consumer goods through a variety of sales channels
to customers. In general, we have less competition in the used, refurbished and
obsolete product segments. In order to sell such goods, a company needs to tap
into markets that are not readily apparent. We do not anticipate a great deal of
competition for these segments.
INTELLECTUAL PROPERTY
Electronic SelfServe and the Electronic SelfServe logo are registered in
the United States Patent and Trademark Office as our service marks or
trademarks. Compgeeks.com, Geekbert, GeekKit, Genica, Don't be a dork . . . shop
at the Geeks!, Cyber SelfServe and Internet SelfServe are our trademarks or
service marks. We also do business under the trade names of Evertek and Computer
Geeks Discount Outlet. We believe the strength of our trademarks and service
marks benefit our business and we intend to continue to protect and promote our
registered and common law trademarks and service marks.
SHARE EXCHANGE AND S CORPORATION STATUS
On May 28, 1999, we issued 17,707,000 shares of our common stock in
exchange for all of the outstanding shares of compgeeks.com, Evertek and Evertek
Trading. Evertek and compgeeks.com had previously been treated for federal and
state income tax purposes as S corporations under subchapter S of the Internal
Revenue Code of 1986, as amended. As a result of this tax status, their
shareholders, rather than compgeeks.com or Evertek, have been taxed directly on
the earnings of these entities for federal and state income tax purposes. We
will continue to be taxed as an S corporation until the closing of this
offering, at which time we will be subject to federal and state income tax at
applicable C corporation rates.
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Prior to the share exchange, compgeeks.com and Evertek issued promissory
notes in an aggregate amount of approximately $2.6 million to their founders for
the retained earnings of these companies which had not been distributed, but on
which the founders had already paid personal income tax. We will use a portion
of the proceeds from this offering to repay these outstanding debt obligations
of compgeeks.com and Evertek. We will distribute all of our retained earnings
through the closing of this offering in excess of $500,000 to our founders.
Please see "Use of Proceeds."
EMPLOYEES
As of March 31, 1999, we had approximately 56 full-time employees. We have
never had a work stoppage and, as of the date of this prospectus, no personnel
are represented under collective bargaining agreements. We consider our employee
relations to be good.
FACILITIES
Our principal office and fulfillment center for our discount retail
division is located in a 43,700 square foot facility located at 2370 Oak Ridge
Way, Vista, California. The principal office and fulfillment center for our
wholesale division is located in a 25,000 square foot facility located at 2604
Temple Heights Drive, Oceanside, California. We believe our current facilities
will be adequate to meet our needs for the foreseeable future.
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not a party to any material legal
proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is the name, age, position and a brief account of the
business experience of each of our executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Frank Segler............. 32 Chairman of the Board and Chief
Executive Officer
Scott Kusel.............. 34 President, Chief Operating Officer and
Director
William C. Bousema....... 48 Vice President, Chief Financial
Officer and Secretary
Doug Allen............... 36 Vice President of Marketing
Christopher Herzog....... 31 Vice President of Electronic Commerce
Development
Randy Segler............. 29 Vice President of International
Operations
Patrick Thompson......... 32 Vice President and Controller
Robert K. Green(1)(2).... 37 Director
Stephen G.
Holmes(1)(2)........... 53 Director
</TABLE>
- -------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Frank Segler has served as our Chief Executive Officer and Chairman of the
Board since May 1999. Mr. Segler has been President of Evertek since July 1992.
Mr. Segler has been with compgeeks.com since January 1996 and served as its
President from May 1996 to December 1996 and as its Chairman of the Board since
December 1996. Mr. Segler has operated Evertek since 1990.
Scott Kusel has served as our President, Chief Operating Officer and one of
our directors since May 1999. Since January 1996, Mr. Kusel has been with
compgeeks.com and has served as its Secretary since May 1996 and as its
President since December 1996. From June 1989 until January 1996, Mr. Kusel was
an owner of and served as the sales and purchasing manager at Optional
Enterprises, a private storage device company.
William C. Bousema has served as our Vice President, Chief Financial
Officer and Secretary since May 1999. From December 1996 until April 1999, Mr.
Bousema was a Director at Management Resource Center, Inc., a private investment
banking advisory services firm. From February 1995 to December 1996, Mr. Bousema
was Chief Financial Officer of Aquatec Water Systems, Inc., a private
manufacturer and exporter of pumps and electronic control devices. Previously,
Mr. Bousema was a Vice President of Finance for The Irvine Company and was
employed by Arthur Andersen LLC. Mr. Bousema has served on several boards and
currently serves as a director of Second Harvest Food Bank of Orange County. Mr.
Bousema is a certified public accountant.
Doug Allen has served as our Vice President of Marketing since May 1999.
Mr. Allen has been sales manager of Evertek since December 1993.
Christopher Herzog has served as our Vice President of Electronic Commerce
Development since May 1999. Mr. Herzog has acted in various capacities since
joining compgeeks.com at its inception in May 1996, most recently as the
Information Technology and Electronic Marketing Director. From February 1995 to
February 1996, he was a retail
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sales and technical support agent for Mac Rentals, Inc., a computer retailer and
leasing company. Mr. Herzog has over 13 years of professional experience in the
computer industry.
Randy Segler has served as our Vice President of International Operations
since May 1999. Mr. Segler has been managing director of Evertek Trading Limited
since August 1996 and was sales manager from September 1995 to August 1996. From
January 1993 to September 1995 Mr. Segler was a self employed entrepreneur
involved in CD-ROM software development and real estate investments.
Patrick Thompson has served as our Vice President and Controller since May
1999. Mr. Thompson has been an employee of Evertek since October 1995, and has
served as General Manager of Evertek since November 1997. From 1993 to October
1995 Mr. Thompson was a controller at Vision Technologies, a computer systems
integrator.
Robert K. Green has served as one of our directors since May 1999. Mr.
Green is the President and Chief Operating Officer of UtiliCorp United Inc., an
international energy and services company, since February 1996 and earlier
served as UtiliCorp's Managing Executive Vice President from January 1993 to
February 1996. He has held several executive positions at UtiliCorp's Missouri
Public Service division since 1988, including two years as President. Mr. Green
is Co-Chairman of the Kansas City Area Development Counsel, President of the
Heart of America Council and the Boy Scouts of America. Mr. Green also serves as
a director of UMB Bank, n.a. and Utilicorp United Inc.
Stephen G. Holmes has served as one of our directors since May 1999. Mr.
Holmes has been a principal of Global Capital Markets, Incorporated, a financial
intermediary that provides merger and acquisition services and access to
corporate debt and equity capital, since October 1995. From February 1992 to
October 1995, Mr. Holmes was the Chief Financial Officer and a director of
AmeriQuest Technologies, Inc., a consumer products distribution company. Mr.
Holmes also served as a partner of Arthur Andersen LLP prior to joining
AmeriQuest.
CLASSES OF THE BOARD
Our board currently has four members. Under our certificate of
incorporation and bylaws, beginning at our next annual meeting of stockholders,
we will divide our board into three classes of directors serving staggered
three-year terms, with one class of directors elected at each annual meeting of
stockholders.
BOARD COMMITTEES
The board established its audit committee in May 1999. It reviews, acts on
and reports to the board of directors on various auditing and accounting
matters, including selecting our auditors, the scope of the annual audit, fees
to be paid to the auditors, the performance of our independent auditors and our
accounting practices. The members of the audit committee are Messrs. Green and
Holmes.
The board established a compensation committee in May 1999. The
compensation committee recommends, reviews and oversees the salaries, benefits
and stock option plans for our employees, consultants, directors and other
individuals compensated by us. The compensation committee also administers our
compensation plans. The members of the compensation committee are Messrs. Green
and Holmes.
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DIRECTOR COMPENSATION
We do not pay directors cash compensation, however, we reimburse them for
the reasonable expenses of attending meetings of the board of directors or
committees. Under our 1999 Stock Incentive Plan, non-employee members of the
board of directors who join the board after the completion of this offering will
receive an option to purchase 15,000 shares of common stock on the date the
individual joins the board, so long as the individual has not previously been
employed by us or any parent or subsidiary corporation. Please see "-- Benefit
Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Messrs. Green and Holmes.
Neither member of the compensation committee has been an officer or employee of
us at any time. None of our executive officers serves as a member of the board
of directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee. Prior to the formation of the compensation committee in May 1999, the
board of directors as a whole made decisions relating to compensation of our
executive officers.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
All of our current employees have entered into agreements with us which
contain restrictions and covenants relating to the protection of our
confidential information, the assignment of inventions, and restrictions on
competition and soliciting our clients, employees, or independent contractors.
We have no employment agreements with any of our employees.
EXECUTIVE COMPENSATION
The following table shows all compensation received during the year ended
December 31, 1998 by our Chief Executive Officer and by our other executive
officers whose salary and bonus exceeded $100,000 in 1998 for services rendered
in all capacities to us during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------ OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION
--------------------------- ------------ ------------
<S> <C> <C>
Frank Segler....................................... $104,000 $ 0
Chairman of the Board and Chief Executive Officer
Scott Kusel........................................ $120,000 $ 6,000(1)
President, Chief Operating Officer and Director
Doug Allen......................................... 0 $210,000(2)
Vice President of Marketing
</TABLE>
- -------------------------
(1) Mr. Kusel received an automobile lease allowance of $6,000 for 1998.
(2) Based on sales commissions for 1998 sales.
William C. Bousema became Vice President, Chief Financial Officer and
Secretary in May 1999 and will be compensated at an annual base salary of
$120,000.
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OPTION GRANTS
There were no options granted in 1998 to our executive officers.
BENEFIT PLANS
1999 STOCK INCENTIVE PLAN.
Introduction. The CompGeeks 1999 Stock Incentive Plan became effective
when adopted by the board in May 1999. The stockholders approved the plan in May
1999.
Share Reserve. 2,000,000 shares of common stock have been authorized for
issuance under the 1999 Stock Incentive Plan. The share reserve will
automatically increase on the first trading day in January each calendar year,
beginning January 1, 2000, by an amount equal to 1.5% of the total number of
shares of common stock outstanding on the last trading day in December in the
preceding calendar year, but in no event will this annual increase exceed
300,000 shares. In addition, no participant in the 1999 Stock Incentive Plan can
receive stock options, separately exercisable stock appreciation rights and
direct stock issuances for more than 500,000 shares of common stock in total per
calendar year.
Programs. The 1999 Stock Incentive Plan is divided into five separate
programs:
- the discretionary option grant program under which our eligible employees
may receive options to purchase shares of common stock at an exercise
price not less than 100% of the fair market value of those shares on the
grant date;
- the stock issuance program under which eligible employees may purchase
shares of common stock directly, at a price of at least 100% of their
fair market value at the time of issuance, or receive shares as a bonus
tied to the performance of services;
- the salary investment option grant program which may, at the plan
administrator's discretion, be activated for one or more calendar years
and, if so activated, will allow executive officers and other highly
compensated employees to use a portion of their base salary to acquire
special below-market stock options;
- the automatic option grant program, under which we will automatically
grant options at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
- the director fee option grant program which may, in the plan
administrator's discretion, be activated for one or more calendar years
and, if so activated, will allow non-employee board members to use a
portion of the annual retainer fee otherwise payable to them in cash each
year to acquire special below-market options.
Administration. Our compensation committee will administer the
discretionary option grant program and the stock issuance program. This
committee will determine which eligible individuals receive options or stock
issuances under those programs, the time or times when these option grants or
stock issuances are to be made, the number of shares subject to each grant or
issuance, the status of any granted option as either an incentive stock option
or a non-statutory stock option under the Federal tax laws, the vesting schedule
to be in effect for the option grant or stock issuance and the maximum term for
which any granted option is to remain outstanding. The compensation committee
will also have the authority to select the executive officers and other highly
compensated employees
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<PAGE> 47
who may participate in the salary investment option grant program in the event
that program is activated for one or more calendar years.
Plan Features. Our 1999 Stock Incentive Plan will include the following
features:
- The holder of any options granted under the plan may pay the exercise
price in cash or in shares of common stock valued at fair market value on
the exercise date. The holder may also exercise the option through a
same-day sale program without any cash outlay by the holder.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program in return for the
grant of new options for the same or different number of option shares
with an exercise price per share based on the fair market value of common
stock on the new grant date.
- The board of directors may issue stock appreciation rights under the
discretionary option grant program. These rights will provide the holders
with the election to surrender their outstanding options for an
appreciation distribution from us equal to the difference between the
fair market value of the common stock underlying the option and the
exercise price for those shares. We may make the payment in cash or in
shares of common stock.
Change in Control. Our 1999 Stock Incentive Plan will include the
following change in control provisions, which may cause accelerated vesting of
outstanding option grants and stock issuances:
- In the event that we are acquired by merger or asset sale or a
board-approved sale of more than fifty percent of our stock by our
stockholders, each outstanding option under the discretionary option
grant program which is not assumed or continued by the successor
corporation will immediately become exercisable for all the option
shares, and all unvested shares will immediately vest, except to the
extent the our repurchase rights with respect to those shares are to be
assigned to the successor corporation.
- The plan administrator will have complete discretion to grant one or more
options which will become exercisable for all the option shares in the
event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of outstanding shares under our 1999 Stock Incentive Plan may be
accelerated upon similar terms and conditions.
- The plan administrator may also grant options which will immediately vest
upon our acquisition, whether or not the successor corporation assumes
those options.
- The plan administrator may grant options and structure repurchase rights
so that the shares subject to those options or repurchase rights
immediately vest in connection with a successful tender offer for more
than 50% of our outstanding voting stock or a change in the majority of
our board of directors through one or more contested elections. This
accelerated vesting may occur either at the time of such transaction or
on the subsequent termination of the individual's service.
Salary Investment Option Grant Program. If the compensation committee
decides to put this program into effect for one or more calendar years, each of
our executive officers and other highly compensated employees selected for
participation may elect to reduce his or her base salary for that calendar year
by a specified dollar amount between $10,000 and $50,000. Each selected
individual who makes this election will automatically receive, on the first
trading day in January of the calendar year for which that salary reduction is
to be
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<PAGE> 48
in effect, an option to purchase a number of shares of common stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of common stock on the grant date. The option will be exercisable at a
price per share equal to one-third of the fair market value of the option shares
on the grant date. As a result, the total spread on the option shares at the
time of grant, the fair market value of the option shares on the grant date less
the aggregate exercise price payable for those shares, will equal the amount of
salary invested in that option. The option will vest and become exercisable in a
series of 12 equal monthly installments over the calendar year for which the
salary reduction is in effect and will fully and immediately vest on certain
changes in the ownership or control of us.
Automatic Option Grant Program. Each member of the board of directors who
first joins the board of directors after the completion of this offering and who
has not previously been employed by us will automatically receive an option
grant for 15,000 shares on the date that person joins the board of directors.
Also, on the date of each annual stockholders meeting after the completion of
this offering, each non-employee director who is to continue to serve in that
capacity will automatically receive an option to purchase 5,000 shares of common
stock, provided that person has served on the board of directors for at least
six months.
Each automatic grant will have a term of ten years, subject to earlier
termination if the optionee ceases to serve on the board of directors. The
option will be immediately exercisable for all of the option shares; however, we
may repurchase any unvested shares purchased under the option, at the exercise
price paid per share, if the optionee ceases to serve on the board of directors
prior to vesting in those shares. The shares subject to each 15,000 share
automatic option grant will vest over a three-year period in successive equal
annual installments on the individual's completion of each year of board service
over the three-year period measured from the option grant date. Each 5,000 share
automatic option grant will be fully vested at the time of grant. The shares
subject to each automatic grant will immediately vest in full on changes in
control or ownership of us or on the optionee's death or disability while a
director.
Director Fee Option Grant Program. If the board of directors puts this
program into effect in the future, then each non-employee director may elect to
use all or a portion of any annual retainer fee otherwise payable in cash to
acquire a below-market option grant. The option grant will automatically be made
on the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The exercise price of the option will equal
one-third of the fair market value of the underlying shares on the grant date,
and the number of shares subject to the option will equal the amount of the
retainer fee applied to the program divided by two-thirds of the fair market
value per share of common stock on the grant date. As a result, the option will
be structured so that the fair market value of the option shares on the grant
date less the aggregate exercise price payable for those shares will be equal to
the portion of the retainer fee invested in that option. The option will become
exercisable in a series of 12 equal monthly installments over the calendar year
to which the election applies. However, the option will become immediately
exercisable for all the option shares on certain changes in the ownership or
control of us or on the death or disability of the optionee while serving as a
director.
Limited Stock Appreciation Rights. Limited stock appreciation rights will
automatically be included as part of each grant made under the automatic option
grant, salary investment option grant and director fee option grant programs.
The board of directors may grant limited stock appreciation rights to one or
more of our officers as part of their option
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<PAGE> 49
grants under the discretionary option grant program. Holders may surrender
options with a limited stock appreciation right to us on the successful
completion of a hostile tender offer for more than 50% of our outstanding voting
stock. In return for the surrendered option, the optionee will be entitled to
receive a cash distribution from us in an amount per surrendered option share
based on the highest price per share of common stock paid in connection with the
tender offer.
Amendment. The board of directors may amend or modify the 1999 Stock
Incentive Plan at any time, subject to any required stockholder approval. The
1999 Stock Incentive Plan will terminate no later than May 26, 2009.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL
ARRANGEMENTS.
We do not currently have any employment agreements or severance programs in
effect with any of our executive officers named in the Summary Compensation
Table. We provide incentives such as salary, cash bonuses and option grants,
which typically vest over a four-year period, to attract and retain qualified
executives and other members of senior management.
If we are acquired by merger or by selling substantially all of our assets,
each outstanding option held by some of our executive officers will
automatically vest in full on an accelerated basis, except to the extent the
successor entity assumes the options. In addition, the compensation committee as
plan administrator of the 1999 Stock Incentive Plan will have the authority to
grant options and to structure repurchase rights under that plan so that shares
subject to those options or repurchase rights will immediately vest in
connection with a change in control of us or a transfer of our assets. Vesting
will occur either at the time of a change in control or the later involuntary
termination of the optionholder's service.
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<PAGE> 50
RELATIONSHIPS AND RELATED TRANSACTIONS
CompGeeks pays $12,600 monthly rent to Unified Holdings Trust for the
facility at 2604 Temple Heights Drive, Oceanside, California. Frank Segler is
the trustee of Unified Holdings Trust, a trust for the benefit of Mr. Segler and
other members of his family.
On May 10, 1999, we issued 10% demand promissory notes from compgeeks.com
to Frank Segler and Scott Kusel for $501,305 and $501,305, respectively, and
from Evertek to Frank Segler for $1,537,988. These notes represent payment of a
portion of the retained earnings in Evertek Computer Corporation and
compgeeks.com on which Messrs. Segler and Kusel had already paid personal income
tax. A portion of the net proceeds from this offering will be used to pay these
promissory notes.
During 1998, Evertek Trading Limited loaned $158,110 to Randy Segler. At
December 31, 1998, the balance due was $158,110. The loan had no terms and was
repaid in May 1999.
During 1998, compgeeks.com loaned $100,000 to Scott Kusel. At December 31,
1998, the balance due on the note was $88,000. The terms of the note provide for
interest commencing April 1999 at the rate of 6%. The note is due and payable in
full in October 1999 and is secured by Mr. Kusel's residence.
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<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table contains information with respect to the beneficial
ownership of our common stock as of May 28, 1999, and as adjusted to reflect the
sale of the shares of common stock in this offering, by:
- each person (or group of affiliated persons) who we know owns
beneficially 5% or more of our common stock,
- each of our directors,
- our executive officers listed in the Summary Compensation Table and
- all of our directors and executive officers as a group.
Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power over all shares of common stock
shown as beneficially owned by them. The address for those individuals for which
an address is not otherwise indicated is: 2370 Oak Ridge Way, Vista, California
92083.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
NUMBER OF --------------------
BENEFICIALLY OWNED BEFORE AFTER
BENEFICIAL OWNER SHARES OFFERING OFFERING
- ------------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Frank Segler(1)........................... 13,641,473 77.0% %
Scott Kusel............................... 3,040,292 17.2% %
Doug Allen(2)............................. -- * *
Randy Segler(3)........................... 1,025,235 5.8% %
Robert K. Green(4)........................ -- * *
Stephen G. Holmes(5)...................... -- * *
All directors and executive officers as a
group (9 persons)(6).................... 17,707,000 100.0% %
</TABLE>
- -------------------------
* Less than 1% of total.
(1) Includes 10,601,181 shares beneficially owned by The Segler Family Trust, of
which Mr. Segler is a trustee.
(2) Excludes 28,000 options anticipated to be granted to Mr. Allen prior to the
closing of this offering, 25% of which shall vest and become exercisable 12
months after the closing of this offering, with the remainder thereafter
vesting and becoming exercisable in 36 equal monthly installments.
(3) Mr. Segler's address is 19th Floor, Malaysia Building, Wanchai, Hong Kong.
(4) Excludes 15,000 options anticipated to be granted to Mr. Green prior to the
closing of this offering, 33.3% of which shall vest and become exercisable
12 months after the closing of this offering, 33.3% of which shall vest and
become exercisable 24 months after the closing of this offering, with the
remainder thereafter vesting and becoming exercisable 36 months after the
closing of this offering. Mr. Green's address is 20 West Ninth Street,
Kansas City, Missouri 64105.
(5) Excludes 15,000 options anticipated to be granted to Mr. Holmes prior to the
closing of this offering, 33.3% of which shall vest and become exercisable
12 months after the closing of this offering, 33.3% of which shall vest and
become exercisable 24 months after the closing of this offering, with the
remainder thereafter vesting and becoming exercisable 36 months after the
closing of this offering. Mr. Holmes' address is 19200 Von Karman Avenue,
Suite 525, Irvine, CA 92612.
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<PAGE> 52
(6) Excludes 206,000 options anticipated to be granted to all directors and
executive officers as a group prior to or upon the closing of this offering,
a percentage of which shall vest and become exercisable 12 months after the
closing of this offering, with the remainder thereafter vesting and becoming
exercisable either in 36 equal monthly installments or equal installments
upon the 24th and 36th month after the closing of this offering.
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<PAGE> 53
DESCRIPTION OF SECURITIES
The following information describes our common stock and certain provisions
of our certificate of incorporation and bylaws as they will be in effect on the
closing of this offering. This description is only a summary. You should also
refer to our certificate of incorporation and bylaws, which we have filed with
the SEC as exhibits to the registration statement of which this prospectus is a
part. This description of the common stock reflects changes to our capital
structure that will take place on the closing of this offering.
Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $0.001 per share and 10,000,000 shares of preferred stock, par value
$0.001 per share.
COMMON STOCK
As of June 1, 1999, there will be 17,707,000 shares of common stock
outstanding and held of record by three stockholders. Based upon the number of
shares outstanding and giving effect to the issuance of the
shares of common stock in this offering, there will be shares of
common stock outstanding.
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of common stock entitled to
vote in any election of directors can elect all of the directors standing for
election. Holders of common stock are entitled to receive pro rata shares of
dividends, if any, declared by the board of directors out of legally available
funds. Holders of common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock, and the shares
included in this offering, are fully paid and nonassessable.
PREFERRED STOCK
Our board of directors has the right to issue preferred stock without
further approval by our stockholders. If we issue preferred stock, its holders
may have voting rights and rights to receive distributions that are superior to
your rights as a holder of common stock. There are no shares of preferred stock
outstanding.
OPTIONS
We anticipate that as of the closing of this offering, we will grant
options to purchase a total of 543,000 shares of common stock at the per share
price of shares sold in this offering. We may also grant options to purchase up
to an additional 1,457,000 shares of common stock under our 1999 Stock Incentive
Plan. Please see "Management -- Benefit Plans" and "Shares Eligible for Future
Sale."
REGISTRATION RIGHTS
EVEREN Securities, Inc. will receive warrants to purchase common stock in
connection with this offering. EVEREN and any transferees holding the warrants
will have a limited piggyback right to require us to register the common stock
received on exercising the warrants. Please see "Underwriting" for a description
of these rights.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR CERTIFICATE OF INCORPORATION AND
BYLAWS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. With some exceptions, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of
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<PAGE> 54
three years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained such status
with the approval of the board of directors or unless the business combination
is approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. With some exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. This statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control attempts with respect to us and, accordingly, may discourage attempts to
acquire us.
In addition, provisions contained in our certificate and bylaws may have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt. This could discourage a potential acquiror who might otherwise be
willing to pay a premium over the market price for your shares. The provisions
will be in effect on the closing of this offering and are summarized in the
following paragraphs.
BOARD OF DIRECTORS VACANCIES. Our bylaws authorize the board of directors
to fill vacant directorships or increase the size of the board of directors.
This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies with the stockholder's own nominees.
STAGGERED BOARD. Our bylaws divide our board into three classes. Beginning
at the next annual meeting of stockholders, some of the directors will be
elected at each annual meeting. The staggered board will discourage potential
acquirors by limiting their ability to change our board of directors.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Our certificate
provides that stockholders cannot take action by written consent, but only at
duly called annual or special meetings of stockholders. Our bylaws further
provide that special meetings of our stockholders may be called only by the
President, Chief Executive Officer or Chairman of the board of directors or a
majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Our bylaws provide that stockholders seeking to bring business
before our annual meeting of stockholders, or to nominate candidates for
directors at our annual meeting of stockholders, must notify us in advance. We
must receive the notice at least 120 days before the first anniversary of the
date of our notice of the previous annual meeting of stockholders. The bylaws
also specify certain requirements for the form and content of a stockholder's
notice. These provisions may prevent stockholders from bringing matters before
our annual meeting of stockholders or from nominating candidates for directors
at our annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. We can issue our authorized but unissued
shares of common stock and preferred stock without stockholder approval, subject
to certain limitations imposed by the Nasdaq National Market. We can use these
additional shares for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The board's power to issue new common stock and preferred stock
could discourage an attempt to obtain control of us by means of a proxy contest,
tender offer, merger or other means.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance for liability
resulting from their capacity or status as directors and officers. This
provision does not limit the liability of a director for the following:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock purchases or
redemptions;
- for any transaction from which the director derived an improper personal
benefit; and
- the directors' responsibilities under some other laws, including the
Federal securities laws or state or Federal environmental laws.
Our certificate eliminates the personal liability of directors to the
fullest extent permitted by Delaware law. In addition, the certificate provides
that we may fully indemnify any officer or director from claims resulting from
the fact that he or she is or was one of our directors or officers or is or was
serving at our request as a director or officer of another enterprise. This
indemnification can cover expenses (including attorney's fees), judgments, fines
and amounts paid in settlement.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. We
believe we must provide these benefits to attract and retain qualified directors
and executive officers. Our bylaws also permit us to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or her actions, regardless of whether Delaware law would permit
indemnification. We have applied for liability insurance for our officers and
directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent which would trigger indemnification rights.
We are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
We have filed copies of our certificate and bylaws, and our agreement to
indemnify our officers and directors, as exhibits to the registration statement
filed with the SEC in connection with this offering. We encourage you to read
them.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation.
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<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could decline as a result of sales of
a large number of shares of our common stock in the market after this offering,
or the perception that those sales could occur. Those sales also might make it
more difficult for us to sell equity securities in the future at a time and
price that we deem appropriate. After this offering, we will have shares
of common stock outstanding. Of these shares, the shares sold in this
offering are freely tradable. All remaining outstanding shares are subject to
lock-up agreements which prohibit sales into the public market without the prior
written consent of EVEREN Securities, Inc. until 180 days from the date of this
prospectus.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (1) 1% of the then
outstanding shares of common stock (approximately shares immediately
after this offering) or (2) the average weekly trading volume in the common
stock during the four calendar weeks preceding the date on which notice of such
sale is filed, subject to certain restrictions. In addition, a person who has
not been our affiliate at any time during the 90 days preceding a sale and who
has beneficially owned the shares proposed to be sold for at least two years
would be entitled to sell those shares under Rule 144(k) without the volume
restrictions described above. If a holder acquired shares from one of our
affiliates, the holding period for the purpose of a sale under Rule 144
commences on the date of transfer from the affiliate.
On the closing of this offering, we intend to file a registration statement
to register for resale the 2,000,000 shares of common stock reserved for
issuance under our stock option plans. We expect that registration statement to
become effective immediately when filed. Shares issued on the exercise of stock
options granted under our stock option plans will be eligible for resale in the
public market from time to time subject to vesting and, in the case of some of
our options, the expiration of the lock-up agreements referred to below. We
anticipate that as of the closing of this offering we will grant options to
purchase a total of 543,000 shares of common stock at the per share price of
shares sold in this offering. At various times after 180 days from the date of
this prospectus these options will become exercisable and available for sale in
the public market.
Holders of warrants to purchase approximately shares of common
stock, have a limited right to include their shares in future registration
statements relating to our securities. By exercising their registration rights
and causing a large number of shares to be registered and sold in the public
market, these holders may cause the price of the common stock to fall. In
addition, any demand to include the shares of these stockholders in our
registration statements could adversely affect our ability to raise needed
capital. Please see "Description of Securities -- Registration Rights" and
"Underwriting."
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<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, the
underwriters, whose representatives are EVEREN Securities, Inc., will each
purchase from us the number of shares of common stock shown below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
EVEREN Securities, Inc......................................
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by their counsel and to various other conditions. Under
the terms and conditions of the underwriting agreement, if the underwriters buy
any of the shares they must buy all of the shares, other than those covered by
the over-allotment option.
The underwriters initially will offer the shares of common stock directly
to the public at the public offering price shown on the cover page of this
prospectus and to certain dealers at that price, minus a concession not more
than $ per share. The underwriters may allow, and the dealers may reallow
to other dealers, concessions not more than $ per share. After the initial
public offering of the common stock, the offering price of the common stock and
other selling terms may be changed by the representatives. The representatives
have informed us that they do not intend to confirm sales to any account over
which they exercise discretionary authority. The underwriters expect to deliver
the shares against payment in New York, New York on , 1999.
We have granted the underwriters an option to purchase up to
additional shares of common stock on the same terms and conditions as shown on
the cover page of this prospectus. The underwriters may buy some or all of these
additional shares during the 30 days after the date of this prospectus solely to
cover over-allotments. If the option is exercised, each underwriter will
generally have a commitment to purchase a number of additional shares of common
stock proportionate to the underwriter's initial commitment shown in the
preceding table.
The common stock is offered for delivery when, as and if accepted by the
underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject any order for the purchase of common stock.
We and all of our stockholders, officers and directors have agreed not to
(1) offer, sell, contract to sell, make any short sale, pledge or otherwise
dispose of, any shares of common stock or any options to acquire shares of
common stock securities convertible into or exercisable or exchangeable for any
other rights to purchase or acquire common stock or (2) enter into any swap or
other agreements that transfers all or a part of the economic consequences or
ownership of common stock for a period of 180 days from the date of this
prospectus, without the prior consent of EVEREN Securities, Inc.
We have agreed to issue to EVEREN Securities warrants to purchase up to
shares of common stock, at an exercise price per share equal to 120%
of the initial public offering price per share of common stock. We have agreed
to grant the warrants for investment banking services rendered to us by EVEREN
Securities prior to this offering, among other things. The warrants are
exercisable for a period of four years,
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<PAGE> 58
commencing one year from the effective date of the registration statement of
which this prospectus is a part and expire five years from the effective date.
The warrants will not be sold, offered for sale, transferred, assigned or
hypothecated for a period of one year from the effective date other than to
certain affiliated parties of the underwriters. The holders of the warrants will
have no voting, dividend or other shareholders' rights until the warrants are
exercised. We have granted EVEREN Securities piggy-back registration rights
related to the warrants, which apply during the period that the warrants are
exercisable and expire years from the effective date.
The underwriters have reserved for sale, at the initial public offering
price, shares of common stock for certain of our directors, officers, employees,
friends and family who have expressed an interest in purchasing shares of common
stock in this offering. We expect these persons to purchase, in total, no more
than 5% of the common stock. in this offering. The number of shares available
for sale to the general public in this offering will be reduced to the extent
these persons purchase reserved shares. Any reserved shares not purchased will
be offered by the underwriters on the same basis as other shares in this
offering.
We have agreed to indemnify the underwriters against certain liabilities,
losses and expenses, including liabilities under the Securities Act of 1933, or
to contribute to payments that the underwriters may be required to make in
respect of those liabilities.
Before this offering, there has been no public market for our common stock.
The initial public offering price for the shares of common stock in this
offering was determined by agreement between us and the underwriters. Among the
factors considered in determining that price were the history of and the
prospects for the industry in which we compete, an assessment of our management,
our present operations, our historical results of operations and the trend of
our revenues and earnings, our prospects for future earnings, the general
condition of the securities markets at the time of this offering and the price
of similar securities of generally comparable companies. We cannot assure you
that an active trading market will develop for our common stock or that our
common stock will trade in the public markets at or above the initial public
offering price.
In order to facilitate this offering, persons participating in it may
engage in transactions that stabilize, maintain or otherwise affect the price of
the common stock. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares of common stock than we have sold them. The underwriters may elect
to cover any short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
The underwriters may also engage in passive market making transactions in the
common stock on the Nasdaq National Market. In addition, the underwriters may
stabilize or maintain the price of the common stock by bidding for or purchasing
shares of common stock in the open market and may impose penalty bids, under
which selling concessions allowed to syndicate members or other broker-dealers
participating in this offering are reclaimed if shares of common stock
previously distributed in this offering are repurchased in connection with
stabilization transactions or otherwise. These activities may stabilize or
maintain the market price above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the common
stock if it discourages resales. We make no representation as to the magnitude
or effect of any stabilization or other transactions. These transactions may
take place on the Nasdaq National Market or otherwise. The underwriters are not
required to engage in these activities and may end them at any time.
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LEGAL MATTERS
We are being advised on the legality of the issuance of the shares of
common stock offered by this prospectus by Brobeck, Phleger & Harrison LLP, San
Diego, California. The underwriters are being advised on legal matters by
Morrison & Foerster, LLP, Los Angeles, California.
EXPERTS
The combined financial statements of the CompGeeks Companies as of December
31, 1997 and 1998, and for each of the years in the three-year period ended
December 31, 1998, have been included in this prospectus and in the registration
statement in reliance on the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Form S-1 registration statement with the SEC concerning the
shares of common stock to be sold in this offering. This prospectus does not
contain all the information about CompGeeks and this offering contained in the
registration statement. For example, in this prospectus we have summarized or
referred to our charter documents and agreements that have been filed as
exhibits to the registration statement. Statements in this prospectus about the
contents of any contract, agreement or other document are not complete, and we
qualify them by referring you to the full text of the document filed as an
exhibit to the registration statement.
You may read and copy all or any portion of the registration statement or
any other information at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You can request copies of these documents, on
payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the Commission's Web site at www.sec.gov.
After this offering, we will be subject to the information and reporting
requirements of the Securities Exchange Act of 1934, and, accordingly will file
periodic reports, proxy statements and other information with the SEC. On
approval of the common stock for the quotation on the Nasdaq National Market,
such reports, proxy and information statements and other information may also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006. We intend to furnish our stockholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each year containing unaudited interim consolidated financial
information.
55
<PAGE> 60
THE COMPGEEKS COMPANIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Combined Balance Sheets................................... F-3
Combined Statements of Income............................. F-4
Combined Statements of Stockholders' Equity............... F-5
Combined Statements of Cash Flows......................... F-6
Notes to Combined Financial Statements.................... F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
The Boards of Directors of the CompGeeks Companies:
We have audited the accompanying combined balance sheets of the CompGeeks
Companies as of December 31, 1997 and 1998, and the related combined statements
of income, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
CompGeeks Companies as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
San Diego, California
May 12, 1999
F-2
<PAGE> 62
THE COMPGEEKS COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 9)
<S> <C> <C> <C> <C>
ASSETS (PLEDGED)
Current assets:
Cash and cash equivalents........ $ 996,815 $ 956,665 $ 876,260
Accounts receivable, less
allowance for doubtful
accounts of $7,965 in 1997 and
$13,256 in 1998............... 598,110 1,909,339 1,839,760
Inventory........................ 1,331,794 3,139,224 6,051,070
Advance payments for inventory... 122,131 158,000 385,647
Prepaid expenses and other
current assets................ 2,608 13,456 19,613
Loans receivable from
stockholders.................. -- 246,110 246,110
---------- ---------- ----------
Total current assets........ 3,051,458 6,422,794 9,418,460
Property and equipment, net of
accumulated depreciation of
$48,372 in 1997 and $80,117 in
1998............................. 137,989 265,873 315,592
Other assets....................... 22,305 13,960 21,850
---------- ---------- ----------
$3,211,752 $6,702,627 $9,755,902 $
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft................... $ -- $ 74,381 $ --
Lines of credit.................. -- -- 1,751,937
Note payable..................... -- -- 1,000,000
Accounts payable................. 95,748 565,704 1,112,959
Accrued expenses................. 94,621 107,761 118,699
Customer deposits................ 114,937 103,642 25,000
---------- ---------- ----------
Total current liabilities... 305,306 851,488 4,008,595
---------- ---------- ----------
Stockholders' equity:
Common stock..................... 7,003 7,003 7,003 7,003
Additional paid-in capital....... -- -- -- 500,000
Retained earnings................ 2,899,443 5,844,136 5,740,304 --
---------- ---------- ---------- --------
Total stockholders' equity......... 2,906,446 5,851,139 5,747,307 507,003
---------- ---------- ----------
Commitments and contingencies
$3,211,752 $6,702,627 $9,755,902
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-3
<PAGE> 63
THE COMPGEEKS COMPANIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales....................... $15,772,172 $26,917,799 $49,514,651 $10,307,245 $17,640,113
Costs of goods sold............. 12,729,591 21,436,955 39,856,197 8,021,047 14,791,921
----------- ----------- ----------- ----------- -----------
Gross profit............. 3,042,581 5,480,844 9,658,454 2,286,198 2,848,192
Operating expenses:
Sales and marketing........... 476,527 941,425 2,346,717 492,018 580,067
General and administrative
expenses................... 940,161 1,917,533 2,392,881 478,689 662,139
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 1,416,688 2,858,958 4,739,598 970,707 1,242,206
----------- ----------- ----------- ----------- -----------
Income from operations... 1,625,893 2,621,886 4,918,856 1,315,491 1,605,986
Other income (expense):
Interest expense.............. (20,671) (25,006) (20,135) (2,320) (20,027)
Interest income............... 2,744 9,337 21,396 945 1,074
Other......................... 4,000 44,382 70,098 98 198
----------- ----------- ----------- ----------- -----------
(13,927) 28,713 71,359 (1,277) (18,755)
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 1,611,966 2,650,599 4,990,215 1,314,214 1,587,231
Provision for income taxes...... 24,954 66,799 68,097 14,062 23,601
----------- ----------- ----------- ----------- -----------
Net income............... $ 1,587,012 $ 2,583,800 $ 4,922,118 $ 1,300,152 $ 1,563,630
=========== =========== =========== =========== ===========
Pro forma information:
Historical income before
provision for income
taxes...................... $ 1,611,966 $ 2,650,599 $ 4,990,215 $ 1,314,214 $ 1,587,231
Pro forma provision for income
taxes...................... 644,786 1,060,240 1,996,086 525,686 634,892
----------- ----------- ----------- ----------- -----------
Pro forma net income.......... $ 967,180 $ 1,590,359 $ 2,994,129 $ 788,528 $ 952,339
=========== =========== =========== =========== ===========
Pro forma net income per basic
and diluted share.......... $ 0.17 $ 0.05
=========== ===========
Pro forma weighted average
common shares
outstanding................ 18,085,000 18,085,000
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-4
<PAGE> 64
THE COMPGEEKS COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995...... 50,000 $5,000 $ -- $ 986,638 $ 991,638
Issuance of common stock........ 2,002 2,003 -- -- 2,003
Net income...................... -- -- -- 1,587,012 1,587,012
Distributions to stockholders... -- -- -- (981,807) (981,807)
------ ------ --------- ----------- -----------
Balance, December 31, 1996...... 52,002 7,003 -- 1,591,843 1,598,846
Net income...................... -- -- -- 2,583,800 2,583,800
Distributions to stockholders... -- -- -- (1,276,200) (1,276,200)
------ ------ --------- ----------- -----------
Balance, December 31, 1997...... 52,002 7,003 -- 2,899,443 2,906,446
Net income...................... -- -- -- 4,922,118 4,922,118
Distributions to stockholders... -- -- -- (1,977,425) (1,977,425)
------ ------ --------- ----------- -----------
Balance, December 31, 1998...... 52,002 7,003 5,844,136 5,851,139
Net income (unaudited).......... -- -- -- 1,563,630 1,563,630
Distributions to stockholders
(unaudited)................... -- -- -- (1,667,462) (1,667,462)
------ ------ --------- ----------- -----------
Balance, March 31, 1999
(unaudited)................... 52,002 $7,003 $ -- $ 5,740,304 $ 5,747,307
====== ====== ========= =========== ===========
Pro forma presentation of
recapitalization in connection
with proposed initial public
offering ("IPO") (unaudited):
S Corporation distributions
to shareholders
(unaudited).............. -- -- -- $(5,240,304) $(5,240,304)
Reclassification of
retained earnings to
paid-in capital
(unaudited).............. -- -- 500,000 (500,000) --
------ ------ --------- ----------- -----------
Pro forma balance March 31, 1999
(unaudited)................... 52,002 $7,003 $ 500,000 $ -- $ 507,003
====== ====== ========= =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-5
<PAGE> 65
THE COMPGEEKS COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $1,587,012 $ 2,583,800 $ 4,922,118 $ 1,300,152 $ 1,563,630
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Provision for doubtful
accounts.................... 35,772 18,013 28,336 16,473 7,067
Depreciation and
amortization................ 12,399 28,622 34,354 4,354 6,789
(Increase) decrease in assets:
Accounts receivable......... 79,178 (250,162) (1,339,565) (683,671) 62,512
Advance payments for
inventory................ -- (122,131) (35,869) -- (227,647)
Inventory................... (152,327) (916,028) (1,807,430) (1,359,771) (2,911,846)
Prepaid expenses and other
current assets........... (20,877) 56,304 (10,848) 158,199 (6,157)
Other assets................ 16,188 (20,211) 8,345 (18,500) (7,890)
Increase (decrease) in
liabilities:
Accounts payable............ 139,062 (83,630) 469,956 9,805 547,255
Accrued expenses............ (66,808) 82,956 13,140 (57,996) 10,938
Customer deposits........... 76,787 38,150 (11,295) (114,937) (78,642)
---------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 1,706,386 1,415,683 2,271,242 (745,892) (1,033,991)
---------- ----------- ----------- ----------- -----------
Cash flows from investing
activities -- Purchases of
property and equipment........... (33,208) (123,196) (162,238) (53,100) (56,508)
---------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Increase (decrease) in bank
overdraft..................... -- -- 74,381 -- (74,381)
Net borrowings on line of
credit........................ -- -- -- 381,470 1,751,937
Borrowing on note payable........ -- -- -- -- 1,000,000
Notes receivable from
stockholders, net............. -- -- (246,110) -- --
Issuance of common stock......... 2,003 -- -- -- --
Distributions to stockholders.... (981,807) (1,276,200) (1,977,425) (70,000) (1,667,462)
---------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............. (979,804) (1,276,200) (2,149,154) 311,470 1,010,094
---------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................. 693,374 16,287 (40,150) (487,522) (80,405)
Cash and cash equivalents at
beginning of period.............. 287,154 980,528 996,815 996,815 956,665
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period........................... $ 980,528 $ 996,815 $ 956,665 $ 509,293 $ 876,260
========== =========== =========== =========== ===========
Supplemental disclosures of cash
flow information:
Income taxes paid............. $ 26,800 $ 34,297 $ 45,784 $ -- $ --
========== =========== =========== =========== ===========
Interest paid................. $ 19,472 $ 25,006 $ 20,136 $ 2,320 $ 21,802
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE> 66
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The financial statements of compgeeks.com, Evertek
Computer Corporation ("Evertek"), and Evertek Trading Limited, (collectively
"CompGeeks", "the CompGeeks Companies" or the "Company") are presented on a
combined basis since all of the companies are under common management. All
significant intercompany accounts and transactions are eliminated in the
combined financial statements.
The combined financial statements were prepared solely for the purpose of
filing an S-1 registration statement with the Securities and Exchange Commission
to raise capital through an initial public offering of common stock (the "IPO").
Upon the initial filing of the S-1 registration statement, pursuant to a share
exchange agreement, compgeeks.com, Evertek Computer Corporation, and Evertek
Trading Limited will become wholly-owned subsidiaries of CompGeeks, Inc., which
was incorporated in Delaware in April 1999. In connection with the share
exchange agreement, all of the outstanding shares of compgeeks.com, Evertek
Computer Corporation, and Evertek Trading Limited will be exchanged for
17,707,000 newly issued shares of CompGeeks, Inc. (the "Exchange").
Description of Business. The Company is a leading, global, on-line
wholesaler and retailer of computer hardware that specializes in sales of excess
inventory, obsolete and distressed equipment, primarily bought from
manufacturers. compgeeks.com sells computers and computer peripherals to retail
customers primarily through its web site as well as through third party on-line
auction sites. Evertek Computer Corporation sells computer peripheral products
on a business-to-business wholesale basis worldwide primarily through its web
site. Evertek Trading Limited purchases computer peripheral products from Asian
manufacturers and sells substantially all products to Evertek.
ComputerGeeks Discount Outlet was incorporated in the state of California
in 1996. It changed its name to compgeeks.com in April 1999 and continues to do
business on the Internet under the name Computer Geeks Discount Outlet. Evertek
Computer Corporation was incorporated in the state of California in 1990.
Evertek Trading Limited was incorporated in Hong Kong in August 1996.
Unaudited Interim Financial Information. The interim financial statements
of the Company for the three months ended March 31, 1998 and 1999, included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations relating to interim financial
statements. In the opinion of management, the accompanying unaudited statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company at March 31,
1999, and the results of its operations and its cash flows for the three months
ended March 31, 1998 and 1999.
F-7
<PAGE> 67
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition. Revenue from sales of products is recognized upon
transfer of ownership. Provision for sales returns is recorded at the time of
sale and is periodically adjusted to reflect actual experience.
Cash Equivalents. The Company considers all investment instruments with
original maturities of three months or less to be cash equivalents. Cash
equivalents at December 31, 1998 and December 31, 1997 include investments in
money market funds.
Inventory. Inventory is stated at the lower of cost or market. Cost is
determined using the weighted average cost method. The Company maintains an
allowance for the obsolescence of inventory.
Property and Equipment. Property and equipment is stated at cost, net of
depreciation and amortization. Depreciation of equipment, furniture and fixtures
is provided using the straight-line method over their estimated useful lives as
follows:
<TABLE>
<CAPTION>
USEFUL LIFE
-----------
<S> <C>
Equipment................................... 5
Furniture and Fixtures...................... 7
</TABLE>
Amortization of leasehold improvements is provided using the straight-line
method over the lesser of the lease term or the estimated useful life of the
asset.
Product Warranty Costs. The Company in certain instances provides a
warranty for merchandise sold for a period which is longer than that provided by
the manufacturer. The Company records a provision for estimated warranty costs
at the time of sale for those products which is periodically adjusted to reflect
actual experience.
Income Taxes and Retained Earnings. compgeeks.com and Evertek Computer
Corporation (the "S Corporations") have elected to be treated as S Corporations
for federal and state income tax purposes. The S Corporations do not pay federal
income taxes on their taxable income since their stockholders are responsible
for individual federal income taxes on their respective share of the S
Corporations taxable income. California franchise taxes are provided at the
greater of a 1.5% rate or a minimum tax of $800. Income taxes for Evertek
Trading Limited are included in the combined financial statements based on
statutory rates applicable in Hong Kong. Deferred taxes are not material to the
combined financial statements.
The statements of income for the periods presented do not include a
provision for income taxes using C corporation tax rates. The unaudited pro
forma income tax adjustments recorded in the statements of income represent
estimated federal income taxes and California franchise taxes that would have
been required had the Company not elected to be treated as an S Corporation.
The S Corporations intend to terminate their S Corporation elections
immediately upon the closing of the proposed initial public offering. In
addition, the Company intends to distribute to the stockholders of the S
Corporation all but $500,000 of the undistributed S Corporation retained
earnings.
F-8
<PAGE> 68
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of. Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows (undiscounted and without interest) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured as the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Earnings Per Share. Basic earnings per share amounts are computed by
dividing the pro forma net income by the weighted average number of shares of
common stock outstanding during the period. The Company had no stock options or
other potential common stock outstanding, therefore there is no difference
between basic and diluted earnings per share.
The pro forma net income per share presented is based on 18,085,000 shares
of common stock outstanding which includes 17,707,000 actual shares outstanding
pursuant to the Exchange and an additional 378,000 shares deemed to be
outstanding. The 378,000 shares deemed to be outstanding represent the number of
shares (at an assumed initial public offering price of $15 per share less
estimated underwriting discount and offering expenses) sufficient to fund the
distribution to shareholders in the amount of $5,240,304 of a portion of
undistributed S Corporation retained earnings.
Fair Value of Financial Instruments. The carrying value of cash and cash
equivalents, accounts receivable, bank overdraft, accounts payable and accrued
expenses approximate their fair value due to the short-term maturity of these
instruments. The carrying value of lines of credit and note payable approximate
their fair value because the instruments have interest rates and terms that are
comparable to those currently offered to the Company for similar debt
instruments.
Advertising Costs. Advertising costs are expensed as incurred, and
amounted to $12,623, $30,028, and $71,083 for the years ended December 31, 1996,
1997, and 1998, respectively.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2 -- CONCENTRATION OF CREDIT RISK
Financial instruments that subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains cash and cash equivalents with various
domestic financial institutions. The Company performs periodic evaluations of
the relative credit standing of these institutions.
F-9
<PAGE> 69
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
From time to time, the Company's cash balances with any one financial
institution may exceed Federal Deposit Insurance Corporation insurance limits.
The Company sells to end users, computer distributors and dealers
throughout the world and performs ongoing credit evaluations of its customers.
Most of the Company's sales terms are cash prepayment, COD or credit card
payment. However, the Company's ability to collect amounts due from customers is
affected by economic fluctuations that may impact its customers. The Company
performs ongoing credit evaluations, generally does not require collateral and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends and other information; to date,
such losses have not been material.
For the year ended December 31, 1996, one customer accounted for
approximately 13% of all net sales generated by the Company.
For the year ended December 31, 1997, one customer accounted for
approximately 24% of all net sales generated by the Company and 1% of accounts
receivable at December 31, 1997.
For the year ended December 31, 1998, one customer accounted for
approximately 25% of all net sales generated by the Company and 19% of accounts
receivable at December 31, 1998.
NOTE 3 -- LINES OF CREDIT
At December 31, 1998, the Company had available a line of credit with its
primary bank in the amount of $2,000,000 for general operating cash needs which
provides for interest at the option of the Company at either a base rate equal
to 2.75% in excess of the bank's LIBOR-Rate or 0.5% in excess of the bank's
reference rate. The line of credit is secured by substantially all assets of the
Company. There was no balance outstanding on the line of credit at December 31,
1998. In April 1999 the Company amended its agreement with the bank to provide
for an additional line of credit which provided for combined borrowings up to
$5,000,000. The lines of credit expire on September 15, 1999. The Company
intends to renew the lines of credit in the normal course of business. At March
31, 1999 the Company was not in compliance with a covenant on one of its lines
of credit. The Company has obtained a waiver of this covenant through June 30,
1999. The Company also has available an unsecured line of credit with another
bank of $65,000 for general operating cash needs which provides for interest of
11.75%. There was no balance outstanding at December 31, 1998. There is no
expiration date on this line of credit. On March 5, 1999 the Company executed a
promissory note with its primary bank for $1,000,000. The interest rate and
security for the note are identical to those under the Company's lines of
credit. The note is due December 31, 1999.
NOTE 4 -- COMMON STOCK
At December 31, 1997 and 1998 compgeeks.com, Evertek, and Evertek Trading
Limited have authorized shares of no par value common stock of 100,000,
1,000,000, and
F-10
<PAGE> 70
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1,000 shares, respectively, and 2,000, 50,000 and 2 shares issued and
outstanding, respectively.
NOTE 5 -- RETIREMENT PLANS
Evertek maintained a SAR/SEP plan covering substantially all of its
employees. The plan was funded only by employee contributions. Evertek made no
contribution for any of the three years ended December 31, 1998. As of January
1, 1999, Evertek discontinued the SAR/SEP plan and formed a 401k retirement
plan. Under this new plan, the Company will match 25% of the employees'
contributions, up to four percent of their gross wages.
As of January 1, 1998, compgeeks.com formed a profit sharing plan for the
benefit of certain employees and contributed $25,000 to the plan for the year
ended December 31, 1998.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Leases. The Company has noncancelable operating leases for offices and
distribution facilities and certain equipment that expire at various dates
through 2005. During February 1999, one of the stockholders of the Company
purchased a Company occupied facility which the Company now leases directly from
the stockholder. Future minimum lease payments subsequent to February 1999
related to this facility are reflected as related party in the table below.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
RELATED
YEAR ENDING DECEMBER 31, OTHER PARTY TOTAL
------------------------ ------ ------- -------
<S> <C> <C> <C>
1999...................................... 34,367 128,333 162,700
2000...................................... 8,700 158,450 167,150
2001...................................... 3,700 163,000 166,700
2002...................................... 2,700 110,000 112,700
2003...................................... 1,800 -- 1,800
------ ------- -------
51,267 559,783 611,050
====== ======= =======
</TABLE>
Rent expense incurred for all operating leases amounted to $54,411,
$129,586, and $149,450, for the years ended December 31, 1996, 1997, and 1998
respectively.
F-11
<PAGE> 71
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The Company began leasing an additional office and distribution facility
effective April 1, 1999 as part of its expansion. Future minimum payments under
this lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999..................................... $ 126,000
2000..................................... 189,510
2001..................................... 222,249
2002..................................... 258,303
2003..................................... 295,020
Thereafter............................... 380,250
----------
$1,471,332
==========
</TABLE>
Contingencies. The Company has been involved in various claims and legal
proceedings in the ordinary course of business. The ultimate disposition of
these matters is not expected to have a material adverse effect on the Company's
combined financial statements taken as a whole.
NOTE 7 -- RELATED PARTY TRANSACTIONS
During 1998, compgeeks.com loaned $100,000 to a shareholder. At December
31, 1998, the balance due on the note was $88,000. The terms of the note provide
for interest commencing April 1999 at the rate of 6%. The note is due and
payable in full in October 1999 and is secured by the shareholder's residence.
During 1998 Evertek Trading Limited loaned $158,110 to its shareholder. At
December 31, 1998, the balance due was $158,110. The loan had no terms and was
repaid in May 1999.
In February 1999, a shareholder purchased the Company's Oceanside,
California headquarters and distribution facility. (See Note 6)
NOTE 8 -- SEGMENT INFORMATION
The Company believes that all of its material operations are part of the
computer industry, and it currently reports as a single industry segment. The
Company's two reportable segments are defined by sales distribution channel and
include wholesale (business-to-business) and retail (business-to-consumer)
segments. These segments are both geographically aligned business units and
include four world regions. The Company
F-12
<PAGE> 72
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
analyzes segment performance based on revenues. Revenues derived from the
wholesale and retail segments are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Wholesale............ $14,545,773 $22,448,246 $38,950,065 $ 8,200,636 $14,836,346
Retail............... 2,677,678 8,960,473 18,206,949 4,273,077 4,617,686
Inter-Segment........ (1,451,279) (4,490,920) (7,642,363) (2,166,468) (1,813,919)
----------- ----------- ----------- ----------- -----------
$15,772,172 $26,917,799 $49,514,651 $10,307,245 $17,640,113
=========== =========== =========== =========== ===========
</TABLE>
The Company derived 9%, 3% and 1% of revenue in the years ending December
31, 1996, 1997 and 1998, respectively, from customers outside the United States.
All sales are settled in U.S. dollars. Revenue by geographic area is summarized
as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
North America........ $14,402,670 $26,040,297 $48,987,217 $10,259,444 $17,420,177
Asia................. 775,308 470,987 84,647 6,770 --
Europe............... 192,138 85,041 282,580 18,373 149,102
Other................ 402,056 321,474 160,207 22,658 70,834
----------- ----------- ----------- ----------- -----------
$15,772,172 $26,917,799 $49,514,651 $10,307,245 $17,640,113
=========== =========== =========== =========== ===========
</TABLE>
Total assets by segment as of December 31, 1997 and 1998 and March 31, 1999
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Wholesale................................ $2,214,066 $4,507,857 $7,232,848
Retail................................... 997,686 2,194,750 2,523,054
---------- ---------- ----------
$3,211,752 $6,702,607 $9,755,902
========== ========== ==========
</TABLE>
F-13
<PAGE> 73
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Capital expenditures for property and equipment by segment for the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1999 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Wholesale..................................... $101,560 $127,321 $14,959
Retail........................................ 21,636 34,917 41,549
-------- -------- -------
$123,196 $162,238 $56,508
======== ======== =======
</TABLE>
NOTE 9 -- PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENTS (UNAUDITED)
The unaudited pro forma combined balance sheet as of March 31, 1999, the
combined statements of income for the years ended December 31, 1996, 1997 and
1998 and the combined statement of changes in stockholders' equity for the three
months ended March 31, 1999 have been presented to give pro forma effect to the
distributions to be made to shareholders and the conversion of the Company from
S Corporation status to C Corporation status.
The following is a description of the unaudited pro forma adjustments:
(a) Prior to completion of the IPO, the S Corporations intend to
distribute to the shareholders amounts in excess of $500,00 of retained
earnings ($5,240,304 at March 31, 1999). Distributions totaling $4,500,000
have been declared through May 1999, $1,900,000 which were paid in April
1999 and $2,600,000 for which notes payable to the shareholders have been
executed.
(b) In conjunction with the termination of the S Corporation election
income taxes are computed assuming an effective rate of 40% in accordance
with C Corporation tax rates.
The pro forma provision for income taxes consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Current expense:
Federal................................. $ 615,427 $ 853,808 $1,699,530
State................................... 166,771 226,497 436,750
--------- ---------- ----------
782,198 1,080,305 2,136,280
Deferred expense (benefit):
Federal................................. (119,501) (20,119) (124,946)
State................................... (17,911) 54 (15,248)
--------- ---------- ----------
(137,412) (20,065) (140,194)
--------- ---------- ----------
$ 644,786 $1,060,240 $1,996,086
========= ========== ==========
</TABLE>
F-14
<PAGE> 74
THE COMPGEEKS COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Total pro forma provision for income taxes differs from the "expected" pro
forma tax expense (computed by applying the federal corporate income tax rate to
the pro forma income before taxes) as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Computed "expected" pro forma income tax expense........ 34% 34% 34%
State income taxes, net of federal benefit.............. 6% 6% 6%
-- -- --
40% 40% 40%
== == ==
</TABLE>
In accordance with SFAS No. 109, the Company, upon termination of its S
Corporation election, will be required to recognize a deferred tax asset for the
effect of cumulative temporary differences as of the date of termination. The
amount of deferred tax asset that would have been recognized at March 31, 1999
had the S corporation election been terminated as of that date is approximately
$258,000.
F-15
<PAGE> 75
[LOGO]
<PAGE> 76
INSIDE BACK COVER:
White text at top of page over warehouse image reads "SOURCED GLOBALLY".
Three-dimensional blue and green globes depict eastern and western hemispheres.
White text reading "WE SEARCH THE WORLD OVER FOR THE BEST PRICES" arcs over
western hemisphere (foreground.) White text on black ovals point to various
equipment source locations.
OUTSIDE BACK COVER:
Page-sized light background image of computer monitor.
Centered at bottom third of page is CompGeeks, Inc. logo.
Below that, centered text: "Don't be a dork... shop at The Geeks."(sm)
Below that, centered text:
2370 Oak Ridge Way
Vista, CA 92083
Voice: 760.734.3681
Fax: 760.734.3682
Below that, centered text: "www.compgeeks.com", "www.evertek.com",
"www.wholesaleauction.com".
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant are as follows. All amounts other
than the SEC registration fee, the NASD filing fees and the Nasdaq National
Market listing fee are estimates.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee........................................ $16,958
NASD filing fee............................................. *
Nasdaq National Market listing fee.......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing and engraving...................................... *
Blue sky fees and expenses (including legal fees)........... *
Transfer agent fees......................................... *
Miscellaneous............................................... *
-------
Total....................................................... $ *
=======
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (2) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (3) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (4) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Restated Bylaws
of the Registrant provide that (1) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (2) the Registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (3) the Registrant is required to advance expenses, as
incurred, to its directors and executive officers in connection with a legal
proceeding to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions and (4) the rights conferred in
the bylaws are not exclusive.
II-1
<PAGE> 78
The Registrant has entered into indemnification agreements with each of its
directors and executive officers to give such directors and officers additional
contractual assurances regarding the scope of the indemnification set forth in
the Registrant's Amended and Restated Certificate of Incorporation and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
Reference is also made to Section of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Certificate of Incorporation, bylaws and the indemnification
agreements entered into between the Registrant and each of its directors and
executive officers may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act of 1933.
The Registrant has applied for liability insurance for its officers and
directors.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere in this prospectus:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement (draft dated ,
1999)................................................. 1.1
Form of Amended and Restated Certificate of
Incorporation of Registrant........................... 3.2
Form of Restated Bylaws of Registrant................... 3.4
Form of Director Indemnification Agreement.............. 10.4
Form of Officer Indemnification Agreement............... 10.5
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since January
1, 1996:
On May 28, 1999 the founders of compgeeks.com, Evertek Computer Corporation
and Evertek Trading Limited, exchanged their shares for our shares so that
compgeeks.com, Evertek Computer Corporation and Evertek Trading Limited became
our wholly owned subsidiaries.
The above securities were offered and sold by the Registrant in reliance
upon Section 4(2) of the Securities Act of 1933 as a transaction not involving
any public offering. No underwriters were involved in connection with the sales
of securities referred to in this Item 15.
II-2
<PAGE> 79
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
3.2 Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering.
3.3 Bylaws.
3.4 Form of Restated Bylaws to be in effect upon the closing of
this offering.
4.1* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Form of Warrant Agreement between us and EVEREN Securities,
Inc., dated , 1999.
10.2* Form of Common Stock Warrant between us and EVEREN
Securities, Inc., dated , 1999.
10.3 Form of Employee Proprietary Information and Inventions
Agreement.
10.4 Form of Indemnification Agreement between us and each of our
directors.
10.5 Form of Indemnification Agreement between us and each of our
officers.
10.6 Share Exchange Agreement by and among compgeeks.com, Evertek
Computer Corporation, Evertek Trading, CompGeeks, Inc. and
the stockholders thereof dated May 28, 1999.
10.7 1999 Stock Incentive Plan.
10.8 Demand Promissory Note between Computer Geeks Discount
Outlet, Inc. and Frank Segler dated May 10, 1999.
10.9 Demand Promissory Note between Computer Geeks Discount
Outlet, Inc. and Scott Kusel dated May 10, 1999.
10.10 Demand Promissory Note between Evertek Computer Corporation
and Frank Segler dated May 10, 1999.
10.11 Lease between Oak Ridge 13, LLC and Computer Geeks Discount
Outlet, Inc. dated March 26, 1999.
10.12 Lease between United Holdings Trust and Evertek Computer
Corporation dated February 1, 1999.
10.13 Business Loan Agreement between Union Bank of California and
Evertek Computer Corporation dated September 15, 1998.
10.14 Promissory Note issued to Union Bank of California dated
September 15, 1998.
10.15 Second Amendment to Union Bank of California Business Loan
Agreement.
10.16 Second Amendment to Promissory Note issued to Union Bank of
California.
10.17+ Contract with ONSALE, Inc. dated October 2, 1997.
10.18 IBM Surplus PC Reseller Agreement with Evertek Computer
Products dated April 1, 1999.
10.19 Secured Promissory Note between Computer Geeks Discount
Outlet, Inc. and Scott Kusel dated October 8, 1998.
10.20 Promissory Note between Evertek Computer Corporation and
Union Bank of California dated December 31, 1999.
21.1 Subsidiaries of the Registrant.
23.1 Report on Schedule and Consent of KPMG LLP
</TABLE>
II-3
<PAGE> 80
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1)
24.1 Powers of Attorney (See Signature Page on Page II-6).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ We have sought confidential treatment pursuant to Rule 406 of portions of the
referenced exhibit.
(b) Financial Statement Schedule.
ITEM 17. UNDERTAKINGS
The undersigned Registrant undertakes to provide to the Underwriter at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933 the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933 each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in San Diego, California, on this 28th
day of May, 1999.
COMPGEEKS, INC.
By: /s/ FRANK SEGLER
----------------------------------------
Name: Frank Segler
Title: Chairman and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of CompGeeks, Inc. (the
"Company"), hereby severally constitute and appoint Frank Segler, Chief
Executive Officer, and William Bousema, Chief Financial Officer, and each of
them individually, with full powers of substitution and resubstitution, our true
and lawful attorneys, with full powers to them and each of them to sign for us,
in our names and in the capacities indicated below, the Registration Statement
on Form S-1 filed with the SEC, and any and all amendments to said Registration
Statement (including post-effective amendments), and any registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933 in connection
with the registration under the Securities Act of 1933 of our equity securities,
and to file or cause to be filed the same, with all exhibits thereto and other
documents in connection therewith, with the SEC, granting unto said attorneys,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as each of them might or could do in person, and
hereby ratifying and confirming all that said attorneys, and each of them, or
their substitute or substitutes, shall do or cause to be done by virtue of this
Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933 this
Registration Statement has been signed by the following persons in the
capacities indicated on May 28, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ FRANK SEGLER Chairman and Chief Executive May 28, 1999
- ------------------------------------ Officer (Principal Executive
Frank Segler Officer)
/s/ SCOTT KUSEL President, Chief Operating Officer May 28, 1999
- ------------------------------------ and Director
Scott Kusel
/s/ WILLIAM C. BOUSEMA Vice President, Chief Financial May 28, 1999
- ------------------------------------ Officer and Secretary (Principal
William C. Bousema Financial and
Accounting Officer)
/s/ ROBERT K. GREEN Director May 28, 1999
- ------------------------------------
Robert K. Green
/s/ STEPHEN G. HOLMES Director May 28, 1999
- ------------------------------------
Stephen G. Holmes
</TABLE>
II-5
<PAGE> 82
THE COMPGEEKS COMPANIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------- -------------- ----------
BALANCE AT BALANCE AT
BEGINNING END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS (A) OF PERIOD
----------- ---------- --------- -------------- ----------
<S> <C> <C> <C> <C>
Allowance for inventory
obsolescence:
1998.............................. $45,000 $65,893 $(40,893) $70,000
======= ======= ======== =======
1997.............................. $25,000 $73,631 $(53,631) $45,000
======= ======= ======== =======
1996.............................. $ -- $35,996 $(10,996) $25,000
======= ======= ======== =======
Allowance for doubtful accounts:
1998.............................. $ 7,965 $28,336 $(23,045) $13,256
======= ======= ======== =======
1997.............................. $ 4,000 $18,013 $(14,048) $ 7,965
======= ======= ======== =======
1996.............................. $ -- $35,772 $(31,772) $ 4,000
======= ======= ======== =======
</TABLE>
- ---------------
(a) Amount written off as either obsolete or uncollectible
II-6
<PAGE> 83
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
3.2 Form of Amended and Restated Certificate of Incorporation to
be in effect upon the closing of this offering.
3.3 Bylaws.
3.4 Form of Restated Bylaws to be in effect upon the closing of
this offering.
4.1* Specimen common stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Form of Warrant Agreement between us and EVEREN Securities,
Inc., dated , 1999.
10.2* Form of Common Stock Warrant between us and EVEREN
Securities, Inc., dated , 1999.
10.3 Form of Employee Proprietary Information and Inventions
Agreement.
10.4 Form of Indemnification Agreement between us and each of our
directors.
10.5 Form of Indemnification Agreement between us and each of our
officers.
10.6 Share Exchange Agreement by and among compgeeks.com, Evertek
Computer Corporation, Evertek Trading, CompGeeks, Inc. and
the stockholders thereof dated May 28, 1999.
10.7 1999 Stock Incentive Plan.
10.8 Demand Promissory Note between Computer Geeks Discount
Outlet, Inc. and Frank Segler dated May 10, 1999.
10.9 Demand Promissory Note between Computer Geeks Discount
Outlet, Inc. and Scott Kusel dated May 10, 1999.
10.10 Demand Promissory Note between Evertek Computer Corporation
and Frank Segler dated May 10, 1999.
10.11 Lease between Oak Ridge 13, LLC and Computer Geeks Discount
Outlet, Inc. dated March 26, 1999.
10.12 Lease between Unified Holdings Trust and Evertek Computer
Corporation dated February 1, 1999.
10.13 Business Loan Agreement between Union Bank of California and
Evertek Computer Corporation dated September 15, 1998.
10.14 Promissory Note issued to Union Bank of California dated
September 15, 1998.
10.15 Second Amendment to Union Bank of California Business Loan
Agreement.
10.16 Second Amendment to Promissory Note issued to Union Bank of
California.
10.17+ Contract with ONSALE, Inc. dated October 2, 1997.
10.18 IBM Surplus PC Reseller Agreement with Evertek Computer
Products dated April 1, 1999.
10.19 Secured Promissory Note between Computer Geeks Discount
Outlet, Inc. and Scott Kusel dated October 8, 1998.
10.20 Promissory Note between Evertek Computer Corporation and
Union Bank of California dated December 31, 1999.
11.1* Statement re: Computation of Basic and Diluted Net Loss Per
Share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1)
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
24.1 Powers of Attorney (See Signature Page on Page II-6).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ We have sought confidential treatment pursuant to Rule 406 of portions of the
referenced exhibit.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
COMPGEEKS HOLDINGS, INC.
FIRST: The name of the corporation is Compgeeks Holdings, Inc.
SECOND: The address of the corporation's registered office in the State
of Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent 19901. The
name of its registered agent at such address is CorpAmerica, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares which the corporation shall have
authority to issue is One Thousand (1,000) shares of capital stock, and the par
value of each such share is $.01 per share.
FIFTH: The name and mailing address of the incorporator is Susan M.
Reynholds, 550 West C Street, Suite 1200, San Diego, California 92101.
SIXTH: The corporation shall have perpetual existence.
SEVENTH: The Board of Directors of the corporation is expressly
authorized to make, alter or repeal bylaws of the corporation, but the
stockholders may make additional bylaws and may alter or repeal any bylaw
whether adopted by them or otherwise.
EIGHTH: Elections of directors need not be by written ballot except and
to the extent provided in the bylaws of the corporation.
NINTH: To the fullest extent permitted by the General Corporation Law of
Delaware, a director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director.
TENTH: Each person who is or was a director or officer of the
corporation (including the heirs, executors, administrators or estate of such
person) shall be indemnified by the corporation as of right to the fullest
extent permitted or authorized by the General Corporation Law of Delaware
against any liability, cost or expense asserted against such director or officer
and incurred by such director or officer in any such person's capacity as a
director or officer, or arising out of any such person's status as a director or
officer. The corporation may, but shall not be obligated to, maintain insurance,
at its expense, to protect itself and any such person against any such
liability, cost or expense.
ELEVENTH: The corporation shall not be subject to the provisions of
Section 203 of the Delaware General Corporation Law.
<PAGE> 2
The undersigned incorporator hereby acknowledges that the foregoing
certificate of incorporation is her act and deed and that the facts stated
therein are true.
Dated: April 1, 1999 /s/ Susan M. Reynholds
------------------------------------
Susan M. Reynholds, Incorporator
2
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMPGEEKS HOLDINGS, INC.,
A DELAWARE CORPORATION
The Undersigned, as sole incorporator of Compgeeks Holdings,
Inc., a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify:
First: That the Certificate of Incorporation of the Corporation
be amended by changing Article FIRST thereof so that, as amended, said paragraph
shall read in its entirety as follows:
"FIRST: The name of the corporation is CompGeeks, Inc."
Second: That said amendment was duly adopted in accordance with
the provisions of Section 241 of the Delaware General Corporation Law.
Third: That the Corporation has not received any payment for any
of its capital stock.
The undersigned incorporator hereby acknowledges that the
foregoing Certificate of Amendment is her act and deed and that the facts stated
therein are true.
Dated: April 19, 1999 /s/ Susan M. Reynholds
------------------------------------
Susan M. Reynholds, Incorporator
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMPGEEKS, INC.,
A DELAWARE CORPORATION
The Undersigned, as sole incorporator of CompGeeks, Inc., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify:
FIRST: That the Certificate of Incorporation of the Corporation
be amended by changing Article FOURTH thereof so that, as amended, said
paragraph shall read in its entirety as follows:
"FOURTH: The total number of shares which the corporation shall
have authority to issue is Twenty Five Million (25,000,000) shares of capital
stock, and the par value of each such share is $0.001 per share."
SECOND: That said amendment was duly adopted in accordance with
the provisions of Section 241 of the Delaware General Corporation Law.
THIRD: That the Corporation has not received any payment for any
of its capital stock.
The undersigned incorporator hereby acknowledges that the
foregoing Certificate of Amendment is her act and deed and that the facts stated
therein are true.
Dated: May 13, 1999 /s/ Susan M. Reynholds
----------------------------------
Susan M. Reynholds, Incorporator
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF COMPGEEKS, INC.,
a Delaware corporation
CompGeeks, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is CompGeeks, Inc. The original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on April 1, 1999 and was amended pursuant to a
Certificate of Amendment of Certificate of Incorporation of the Corporation
filed with the Secretary of State of the State of Delaware on April 19, 1999,
and pursuant to a Certificate of Amendment of Certificate of Incorporation of
the Corporation filed with the Secretary of State of the State of Delaware on
May 13, 1999 .
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, the Amended and Restated Certificate of Incorporation was
adopted by the corporation's Board of Directors and stockholders, the
stockholders of the corporation having approved the Amended and Restated
Certificate of Incorporation by the written consent of the holders of at least a
majority of the outstanding shares in accordance with Section 228 thereof, and
written notice having been given in accordance with the requirements of such
Section. The Amended and Restated Certificate of Incorporation restates,
integrates and amends the provisions of the Certificate of Incorporation of this
corporation.
3. The text of the Certificate of Incorporation as heretofore amended or
supplemented is hereby restated and further amended to read in its entirety as
follows:
ARTICLE I
The name of this corporation is CompGeeks, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent 19901. The name
of its registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
Delaware General Corporation Law.
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two
classes of stock, denominated Common Stock and Preferred Stock. The Common Stock
shall have a par value of $0.001 per share and the Preferred Stock shall have a
par value of $0.001 per share. The total number of shares of Common Stock which
the Corporation is authorized to issue is Seventy Five Million (75,000,000), and
the total number of shares of Preferred Stock which the Corporation is
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authorized to issue is Ten Million (10,000,000), which shares of Preferred
Stock shall be undesignated as to series.
(B) Issuance of Preferred Stock. The Preferred Stock may be issued from
time to time in one or more series. The Board of Directors is hereby authorized,
by filing one or more certificates pursuant to the Delaware General Corporation
Law (each, a "Preferred Stock Designation"), to fix or alter from time to time
the designations, powers, preferences and rights of each such series of
Preferred Stock and the qualifications, limitations or restrictions thereof,
including without limitation the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and the liquidation preferences of any
wholly-unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series and the designation thereof,
or any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
(C) Rights, Preferences, Privileges and Restrictions of Common Stock.
1. Dividend Rights. Subject to the prior or equal rights of
holders of all classes of stock at the time outstanding having prior or equal
rights as to dividends, the holders of the Common Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of any assets of
the corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
2. Redemption. The Common Stock is not redeemable upon demand of
any holder thereof or upon demand of this corporation.
3. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
(A) Exculpation. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further reduce or to authorize, with the approval of the
corporation's stockholders, further reductions in the liability of the
corporation's directors for breach of fiduciary duty, then a director of the
corporation shall not be liable for any such breach to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
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(B) Indemnification. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
corporation, its stockholders, and others.
(C) Effect of Repeal or Modification. Any repeal or modification of any
of the foregoing provisions of this Article V shall be prospective and shall not
adversely affect any right or protection of a director, officer, agent or other
person existing at the time of, or increase the liability of any director of the
corporation with respect to any acts or omissions of such director occurring
prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation. At the 2000 Annual Meeting of
Stockholders, the Directors shall be classified into three classes, as nearly
equal in number as possible as determined by the Board of Directors, with the
term of office of the first class to expire at the 2001 Annual Meeting of
Stockholders, the term of office of the second class to expire at the 2002
Annual Meeting of Stockholders and the term of office of the third class to
expire at the 2003 Annual Meeting of Stockholders. At each Annual Meeting of
Stockholders following such initial classification and election, Directors
elected to succeed those Directors whose terms expire shall be elected for a
term of office to expire at the third succeeding Annual Meeting of Stockholders
after their election. Additional directorships resulting from an increase in the
number of Directors shall be apportioned among the classes as equally as
possible as determined by the Board of Directors.
ARTICLE VII
No holder of shares of stock of the corporation shall have any
preemptive or other right, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class, or
series thereof, of stock of the corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any share
of any class, or series thereof, of stock; but such additional shares of stock
and such warrants, options, bonds, debentures or other securities convertible
into, exchangeable for or carrying any right to purchase any shares of any
class, or series thereof, of stock may be issued or disposed of by the Board of
Directors to such persons, and on such terms and for such lawful consideration
as in its discretion it shall deem advisable or as the corporation shall have by
contract agreed.
ARTICLE VIII
The corporation is to have a perpetual existence.
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ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Amended and Restated Certificate of
Incorporation and/or any provision contained in any amendment to or restatement
of this Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.
ARTICLE X
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws by the requisite affirmative vote of Directors as set forth in
the Bylaws; provided, however, that the stockholders may change or repeal any
bylaw adopted by the Board of Directors by the requisite affirmative vote of
stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XII
Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed under the seal of the corporation as of this ____
day of _____ 1999.
COMPGEEKS, INC.,
a Delaware corporation
By: ____________________________________
Frank Segler
Chairman and Chief Executive Officer
ATTEST:
__________________________________
William C. Bousema, Secretary
[SIGNATURE PAGE TO AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF COMPGEEKS, INC.]
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EXHIBIT 3.3
BYLAWS
OF
COMPGEEKS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover, County
of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Oceanside, State of California, at such
place as may be fixed from time to time by the Board of Directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year
2000, shall be held on such date and at such time as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting,
at which they shall elect by a plurality vote a
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board of directors, and transact such other business as may properly be brought
before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than
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ten (10) nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by
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proxy for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall not be less than two (2) nor more than six (6). The first board
shall consist of two (2) directors. Thereafter, within the limits above
specified, the number of directors shall be determined by resolution of the
Board of Directors or by the stockholders at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office
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until the next annual election and until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute. If,
at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice
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given as hereinafter provided for special meetings of the Board of Directors, or
as shall be specified in a written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the President
on four (4) days' notice to each director by mail or 48 hours' notice to each
director either personally or by telegram; special meetings shall be called by
the President or Secretary in like manner and on like notice on the written
request of two directors unless the board consists of only one director, in
which case special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
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Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the
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stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it
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shall not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given by
telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be elected by the Board
of Directors and shall include a President and a Secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also elect a Chief Financial
Officer and/or one or more Vice Presidents, Assistant Secretaries and Assistant
Treasurers. Any number of offices may be held by the same person, unless the
certificate of incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall elect a President and a Secretary and may also
elect Vice Presidents and a Chief Financial Officer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
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Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualified. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT, CHIEF EXECUTIVE OFFICER AND VICE PRESIDENT
Section 8. The President and the Chief Executive Officer shall be the
general managers of the corporation; and in the absence of the Chairman of the
Board shall preside at all meetings of the stockholders and the Board of
Directors. The Chief Executive Officer and President shall have general and
active management of the business of the corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
Section 9. They shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise
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signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 10. In the absence of the Chief Executive Officer and the
President or in the event of their inability or refusal to act, the Vice
President, if any, (or in the event there be more than one Vice President, the
Vice Presidents in the order designated by the directors, or in the absence of
any designation, then in the order of their election) shall perform the duties
of the Chief Executive Officer and President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Chief Executive
Officer and President. The Vice Presidents shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
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Section 12. The Assistant Secretary, or, if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURERS
Section 13. The Chief Financial Officer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the corporation.
Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
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Section 16. The Assistant Treasurer, or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the Chief Financial Officer or in the event of his inability
or refusal to act, perform the duties and exercise the powers of the Chief
Financial Officer and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the President or a Vice
President and the Chief Financial Officer an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the corporation, certifying the number of
shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of
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the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
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TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
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share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
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SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall indemnify its officers, directors,
employees and agents to the full extent permitted by the General Corporation Law
of Delaware.
ARTICLE VIII
AMENDMENT
Section 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate of incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of CompGeeks, Inc., a Delaware
corporation, does hereby certify the foregoing to be the Bylaws of said
Corporation, as adopted by the directors of the Corporation and which remain in
full force and effect as of the date hereof.
Executed at Oceanside, California effective as of April 20, 1999.
/s/ William Bousema
-----------------------------------
William Bousema, Secretary
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<PAGE> 1
EXHIBIT 3.4
RESTATED BYLAWS
OF
COMPGEEKS, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be in the
City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders for
the election of Directors shall be held in the City of Vista, State of
California, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
California as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
California, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meeting.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of Directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (B) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (C) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation no later than the date
specified in the corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders, which date
shall be not less than one hundred twenty (120) calendar days in advance of the
date of such proxy statement; provided, however, that in the event that no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
<PAGE> 2
timely must be so received a reasonable time before the solicitation is made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. In addition to the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act to
the extent such regulations require notice that is different from the notice
required above. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b) of this Section 2. The chairman of
the annual meeting shall, if the facts warrant, determine and declare at the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this paragraph (b), and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 2. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a Director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
that are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a Director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
subitems (ii), (iii) and (iv) of paragraph (b) of this Section 2. At the request
of the Board of Directors, any person nominated by a stockholder for election as
a Director shall furnish to the Secretary of the corporation that information
required to be set forth in the stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a Director
of the corporation unless nominated in accordance with the procedures set forth
in this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and declare at the meeting that a nomination was
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not made in accordance with the procedures prescribed by these Bylaws, and if he
should so determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, or have prepared and made, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, as amended from time to time, may only be called
as provided in this Section 5 by the President, Chief Executive Officer or
Chairman of the Board and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors. Such request shall
state the purpose or purposes of the proposed meeting. The place, date and time
of any special meeting shall be determined by the Board of Directors. Such
determination shall include the record date for determining the stockholders
having the right of and to vote at such meeting.
Section 6. Notice of Special Meeting. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Action at Special Meeting. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum and Adjournments.
(a) The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation, as amended from time to time. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
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transacted at the meeting as originally notified. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
(b) When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of statutes or of the
Certificate of Incorporation, as amended from time to time, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 9. Voting Rights. Unless otherwise provided in the
Certificate of Incorporation, as amended from time to time, each stockholder
shall at every meeting of the stockholders be entitled to one (1) vote in person
or by proxy for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three (3) years from its date,
unless the proxy provides for a longer period.
Section 10. Action Without Meeting. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
ARTICLE III
Directors
Section 1. Classes, Number, Term of Office and Qualification. At the
2000 Annual Meeting of Stockholders, the Directors shall be classified into
three classes, as nearly equal in number as possible as determined by the Board
of Directors, with the term of office of the first class to expire at the 2001
Annual Meeting of Stockholders, the term of office of the second class to expire
at the 2002 Annual Meeting of Stockholders and the term of office of the third
class to expire at the 2003 Annual Meeting of Stockholders. At each Annual
Meeting of Stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire shall be elected
for a term of office to expire at the third succeeding Annual Meeting of
Stockholders after their election. Additional directorships resulting from an
increase in the number of Directors shall be apportioned among the classes as
equally as possible as determined by the Board of Directors. The number of
Directors which shall constitute the whole Board shall be between four (4) and
seven (7) Directors, and the exact number shall be fixed by resolution of the
majority of the Board of Directors (notwithstanding the provisions of Article X,
Section 1, paragraph (c)), with the number initially fixed at five (5). The
number of Directors shall be determined by resolution of sixty-six and
two-thirds percent (66-2/3%) of the Directors then in office or by sixty-six and
two-thirds percent (66-2/3%) of the stockholders at the annual meeting of the
stockholders, and each Director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
Section 2. Vacancies. Vacancies may be filled only by a majority of
the Directors then in office, though less than a quorum, or by a sole remaining
Director. Each Director so chosen shall hold office until a successor is duly
elected and shall qualify or until his earlier
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death, resignation or removal. If there are no Directors in office, then an
election of Directors may be held in the manner provided by statute. If, at the
time of filling any vacancy, the Directors then in office shall constitute less
than a majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such Directors, summarily
order an election to be held to fill any such vacancies, or to replace the
Directors chosen by the Directors then in office.
Section 3. Powers. The business of the corporation shall be managed
by or under the direction of its Board of Directors which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation, as amended from time to time, or
by these Bylaws directed or required to be exercised or done by the
stockholders.
Section 4. Regular and Special Meetings. The Board of Directors of
the corporation may hold meetings, both regular and special, either within or
without the State of California.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held without notice other than this Bylaw
immediately after, and at the same place as, the annual meeting of stockholders.
In the event the annual meeting of any newly elected Board of Directors shall
not be held immediately after, and at the same place as, the annual meeting of
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 6. Notice of Regular Meetings. Regular meetings of the Board
of Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 7. Notice of Special Meetings. Special meetings of the Board
may be called by the Chief Executive Officer or President on no less than
forty-eight (48) hours notice to each Director either personally, or by
telephone, mail, telegram or facsimile; special meetings shall be called by the
Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of two Directors unless the Board consists of only
one Director, in which case special meetings shall be called by the Chief
Executive Officer, President or Secretary in like manner and on like notice on
the written request of the sole Director. A written waiver of notice, signed by
the person entitled thereto, whether before or after the time of the meeting
stated therein, shall be deemed equivalent to notice.
Section 8. Quorum. At all meetings of the Board a majority of the
Directors shall constitute a quorum for the transaction of business and the act
of a majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation, as
amended from time to time. If a quorum shall not be present at any meeting of
the Board of Directors, the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
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Section 9. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation, as amended from time to time, or these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
Section 10. Meetings by Telephone Conference Calls. Unless otherwise
restricted by the Certificate of Incorporation, as amended from time to time, or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee.
In the absence of disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation, as
amended from time to time, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the Bylaws of the corporation; and, unless the resolution or the
Certificate of Incorporation, as amended from time to time, expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
Section 12. Fees and Compensation. Unless otherwise restricted by the
Certificate of Incorporation, as amended from time to time, or these Bylaws, the
Board of Directors shall have the authority to fix the compensation of
Directors. The Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
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attendance at each meeting of the Board of Directors or a stated salary as
Director. No such payment shall preclude any Director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 13. Removal. Subject to any limitations imposed by law or the
Certificate of Incorporation, as amended from time to time, the Board of
Directors, or any individual Director, may be removed from office at any time
only with cause by the affirmative vote of the holders of at least a majority of
shares entitled to vote at an election of Directors.
ARTICLE IV
NOTICES
Section 1. Notice. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation, as amended from time to time, or of these
Bylaws, notice is required to be given to any Director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such Director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to Directors may also be given by
telephone, telegram and facsimile.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation, as amended from time to time, or of these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
ARTICLE V
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be
chosen by the Board of Directors and shall be a Chief Executive Officer, a Chief
Financial Officer and a Secretary. The Board of Directors may elect from among
its members a Chairman of the Board and a Vice Chairman of the Board. The Board
of Directors may also choose a President, one or more Vice Presidents and one or
more Assistant Secretaries. Any number of offices may be held by the same
person, unless the Certificate of Incorporation, as amended from time to time,
or these Bylaws otherwise provide.
The compensation of all officers and agents of the
corporation shall be fixed by the Board of Directors, and no officer shall be
prevented from receiving such compensation by virtue of his also being a
Director of the corporation.
Section 2. Election or Appointment. The Board of Directors at its
first meeting after each annual meeting of stockholders shall choose a Chief
Executive Officer, Chief Financial Officer and a Secretary and may choose a
President, one or more Vice Presidents and one or more Assistant Secretaries.
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The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 3. Tenure, Removal and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualified.
Any officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the corporation shall be filled by the Board
of Directors.
Section 4. Chairman of the Board. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. The Chairman of the Board shall have and may
exercise such powers as are, from time to time, assigned by the Board and as may
be provided by law.
Section 5. Vice Chairman of the Board. In the absence of the Chairman
of the Board, the Vice Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. The Vice Chairman of the Board shall have and may exercise such powers
as are, from time to time, assigned by the Board and as may be provided by law.
Section 6. Chief Executive Officer. The Chief Executive Officer of
the corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. The Chief Executive Officer shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a Chairman or Vice
Chairman of the Board at all meetings of the Board of Directors. The Chief
Executive Officer shall have the general powers and duties of management usually
vested in the Chief Executive Officer of a corporation, including general
supervision, direction and control of the business and supervision of other
officers of the corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have
the authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
Section 7. President. Subject to such supervisory powers as may be
given by these Bylaws or the Board of Directors to the Chairman of the Board or
the Chief Executive Officer, if there be such officers, the President shall have
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws. In the event a
Chief Executive Officer shall not be appointed, the President shall have the
duties of such office.
Section 8. Vice Presidents. The Vice President, or if there shall be
more than one, the Vice Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the President, act with all of
the powers and be subject to all the restrictions of the
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President. The Vice Presidents shall also perform such other duties and have
such other powers as the Board of Directors, the President or these Bylaws may,
from time to time, prescribe.
Section 9. Secretary. The Secretary shall attend all meetings of the
Board of Directors, all meetings of the committees thereof and all meetings of
the stockholders and record all the proceedings of the meetings in a book or
books to be kept for that purpose. Under the Chief Executive Officer's or
President's supervision, the Secretary shall give, or cause to be given, all
notices required to be given by these Bylaws or by law; shall have such powers
and perform such duties as the Board of Directors, the Chief Executive Officer,
the President or these Bylaws may, from time to time, prescribe; and shall have
custody of the seal of the corporation. The Secretary, or an Assistant
Secretary, shall have authority to affix the seal of the corporation to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature.
Section 10. Assistant Secretary. The Assistant Secretary, if any, or
if there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors, shall, in the absence, disability or refusal to act of
the Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer, the President, the Secretary or these
Bylaws may, from time to time, prescribe.
Section 11. Chief Financial Officer. The Chief Financial Officer
shall act as Treasurer and shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
The Chief Financial Officer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as Treasurer and of the financial
condition of the corporation.
If required by the Board of Directors, the Chief Financial
Officer shall give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by the Board of Directors, the Chief
Executive Officer or the President.
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<PAGE> 10
Section 13. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may delegate the powers and duties of such
officer to any officer or to any Director, or to any other person who it may
select.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President and the Chief Financial Officer or an
Assistant Chief Financial Officer, or the Secretary or an Assistant Secretary of
the corporation, certifying the number of shares owned by him in the
corporation.
Certificates may be issued for partly paid shares and in
such case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the General Corporation Law
of Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Execution of Certificates. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct
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<PAGE> 11
as indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfer of Stock. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholder or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
Section 6. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification of Directors and Executive Officers. The
corporation shall indemnify its Directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation may limit the extent of such indemnification by
individual contracts with its Directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any Director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person or any proceeding by such person against the corporation or its
Directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, and (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.
Section 2. Indemnification of Other Officers, Employees and Other
Agents. The corporation shall have power to indemnify its other officers,
employees and other agents as set forth in the Delaware General Corporation Law.
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<PAGE> 12
Section 3. Good Faith.
(a) For purposes of any determination under this Bylaw, a
Director or officer shall be deemed to have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe that any conduct was unlawful, if such Director's
or officer's action is based on information, opinions, reports and statements,
including financial statements and other financial data, in each case prepared
or presented by:
(1) one or more officers or employees of the
corporation whom the Director or executive officer believed
to be reliable and competent in the matters presented;
(2) counsel, independent accountants or other
persons as to matters which the Director or executive
officer believed to be within such person's professional
competence; and
(3) with respect to a Director, a committee of
the Board upon which such Director does not serve, as to
matters within such Committee's designated authority, which
committee the Director believes to merit confidence; so
long as, in each case, the Director or executive officer
acts without knowledge that would cause such reliance to be
unwarranted.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which was reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal proceeding,
that the person had reasonable cause to believe that his or her consent was
unlawful.
(c) The provisions of this Section 3 shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
Section 4. Expenses. The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant
to Section 4 of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (i) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith
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<PAGE> 13
or in a manner that such person did not believe to be in or not opposed to the
best interests of the corporation.
Section 5. Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the Director or officer. Any right to indemnification or
advances granted by this Bylaw to a Director or officer shall be enforceable by
or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his or her claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the corporation (including its Board of Directors, independent legal counsel
or its stock-holders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6. Non-Exclusivity of Rights. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, as amended from time to time, Bylaws, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its Directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
Section 7. Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8. Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
Section 9. Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
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<PAGE> 14
Section 10. Saving Clause. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
Section 11. Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of the testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its Directors, officers, and employees or agents, so that any person
who is or was a Director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(d) References to a "Director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a Director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(e) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
Director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such Director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
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ARTICLE VIII
LOANS TO OFFICERS
Section 1. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the Corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this Bylaw shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Declaration of Dividends. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, as amended from time to time, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the Certificate of Incorporation, as amended from time to
time.
Section 2. Dividend Reserve. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purposes as the Directors shall think conducive
to the interest of the corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
Section 3. Execution of Corporate Instruments. All checks or demands
for money and notes of the corporation shall be signed by such officer or
officers or such other person or persons as the Board of Directors may from time
to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Corporate Seal. The Board of Directors may adopt a
corporate seal having inscribed thereon the name of the corporation, the year of
its organization and the words "Corporate Seal, Delaware." The seal may be used
by causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
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<PAGE> 16
ARTICLE X
AMENDMENTS
Section 1. Amendments.
(a) Except as otherwise set forth in Section 9 of Article
VII of these Bylaws, the Bylaws may be altered or amended or new Bylaws adopted
by the affirmative vote of a majority of the voting power of all of the
then-outstanding shares of capital stock of the corporation entitled to vote
generally in the election of Directors (the "Voting Stock"). The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, as amended from time to time,
to adopt, amend or repeal Bylaws by a vote of the majority of the Board of
Directors unless a greater or different vote is required pursuant to the
provisions of the Bylaws, the Certificate of Incorporation or any applicable
provision of law.
(b) Notwithstanding any other provisions of these Bylaws or
any provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, the Certificate of Incorporation, as
amended from time to time, or any Preferred Stock Designation (as the term is
defined in the Certificate of Incorporation, as amended), the affirmative vote
of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock, voting
together as a single class, shall be required to alter, amend or repeal this
paragraph (b) or Section 2, Section 5 or Section 10 of Article II or Section 1,
Section 2 or Section 13 of Article III of these Bylaws.
(c) Notwithstanding any other provisions of these Bylaws or
any provision of law which might otherwise permit a lesser vote or no vote, but
in addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock required by law, the Certificate of Incorporation, as
amended from time to time, or any Preferred Stock Designation (as the term is
defined in the Certificate of Incorporation, as amended from time to time), the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
Directors, shall be required to alter, amend or repeal this paragraph (c) or
Section 2, Section 5 or Section 10 of Article II or Section 1, Section 2 or
Section 13 of Article III of these Bylaws.
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CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of CompGeeks, Inc., a
Delaware corporation, does hereby certify the foregoing to be the Bylaws of said
Corporation, as adopted by the requisite vote or votes of the stockholders and
Directors of the Corporation and which remain in full force and effect as of the
date hereof.
Executed at San Diego, California effective as of
____________, 1999.
----------------------------------------
William C. Bousema, Secretary
<PAGE> 1
EXHIBIT 10.3
EMPLOYEE
PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
CompGeeks, Inc.
2370 Oak Ridge Way
Vista, CA 92083
The following confirms an agreement between me and CompGeeks, Inc., a
Delaware corporation (the "Company"), which is a material part of the
consideration for my employment with the Company:
1. Proprietary Information. I understand that the Company possesses and
will possess Proprietary Information which is important to its business. For
purposes of this Agreement, "Proprietary Information" is information that was or
will be developed, created, or discovered by or on behalf of the Company, or
which became or will become known by, or was or is conveyed to the Company,
which has commercial value in the Company's business. "Proprietary Information"
includes, without limitation, information (whether conveyed orally or in
writing) about algorithms, application programming interfaces, protocols, trade
secrets, computer software, designs, technology, ideas, know-how, products,
services, processes, data, techniques, improvements, inventions (whether
patentable or not), works of authorship, business and product development plans,
the salaries and terms of compensation of other employees, customer lists and
other information concerning the Company's actual or anticipated business,
research or development, or which is received in confidence by or for the
Company from any other person. I understand that my employment creates a
relationship of confidence and trust between me and the Company with respect to
Proprietary Information.
2. Company Materials. I understand that the Company possesses or will
possess "Company Materials" which are important to its business. For purposes of
this Agreement, "Company Materials" are documents or other media or tangible
items that contain or embody Proprietary Information or any other information
concerning the business, operations or plans of the Company, whether such
documents have been prepared by me or by others. "Company Materials" include,
without limitation, blueprints, drawings, photographs, charts, graphs,
notebooks, customer lists, computer software, media or printouts, sound
recordings and other printed, typewritten or handwritten documents, as well as
samples, prototypes, models, products and the like.
3. Intellectual Property. In consideration of my employment with the
Company and the compensation received by me from the Company from time to time,
I hereby agree as follows:
3.1. All Proprietary Information and all right title and interest in
and to patents, patent rights, copyright rights, mask work rights, trade secret
rights, and other intellectual property and proprietary rights anywhere in the
world (collectively "Rights") in
<PAGE> 2
connection therewith shall be the sole property of the Company. I hereby assign
to the Company any Rights I may have or acquire in such Proprietary Information.
At all times, both during my employment with the Company and after its
termination, I will keep in confidence and trust and will not use or disclose
any Proprietary Information or anything relating to it without the prior written
consent of an officer of the Company except as may be necessary and appropriate
in the ordinary course of performing my duties to the Company.
3.2. All Company Materials shall be the sole property of the
Company. I agree that during my employment with the Company, I will not remove
any Company Materials from the business premises of the Company or deliver any
Company Materials to any person or entity outside the Company, except as I am
required to do in connection with performing the duties of my employment. I
further agree that, immediately upon the termination of my employment by me or
by the Company for any reason, or for no reason, or during my employment if so
requested by the Company, I will return all Company Materials, apparatus,
equipment and other physical property, or any reproduction of such property,
excepting only (i) my personal copies of records relating to my compensation;
(ii) my personal copies of any materials previously distributed generally to
stockholders of the Company; and (iii) my copy of this Agreement.
3.3. I will promptly disclose in writing to my immediate supervisor
or to any persons designated by the Company, all "Inventions", (which term
includes improvements, inventions (whether or not patentable), works of
authorship, trade secrets, technology, algorithms, computer software, protocols,
formulas, compositions, ideas, designs, processes, techniques, know-how and
data) made or conceived or reduced to practice or developed by me (in whole or
in part, either alone or jointly with others) during the term of my employment.
I will also disclose to the Company Inventions conceived, reduced to practice,
or developed by me within six months of the termination of my employment with
the Company; such disclosures shall be received by the Company in confidence, to
the extent they are not assigned in Section 3.4 below, and do not extend such
assignment. I will not disclose Inventions covered by Section 3.4 to any person
outside the Company unless I am requested to do so by management personnel of
the Company.
3.4. I agree that all Inventions which I make, conceive, reduce to
practice or develop (in whole or in part, either alone or jointly with others)
during my employment shall be the sole property of the Company to the maximum
extent permitted by Section 2870 of the California Labor Code, a copy of which
is attached and I hereby assign such Inventions and all Rights therein to the
Company. No assignment in this Agreement shall extend to inventions, the
assignment of which is prohibited by Labor Code Section 2870. The Company shall
be the sole owner of all Rights in connection therewith.
3.5. I agree to perform, during and after my employment, all acts
deemed necessary or desirable by the Company to permit and assist it, at the
Company's expense, in evidencing, perfecting, obtaining, maintaining, defending
and enforcing Rights and/or my assignment with respect to such Inventions in any
and all countries. Such acts may include, without limitation, execution of
documents and assistance or cooperation in legal proceedings. I hereby
irrevocably designate and appoint the Company and its duly authorized officers
and agents, as my agents and attorneys-in-fact, with full power of substitution,
to act for
2.
<PAGE> 3
and in my behalf and instead of me, to execute and file any documents and to do
all other lawfully permitted acts to further the above purposes with the same
legal force and effect as if executed by me.
3.6. Any assignment of copyright hereunder includes all rights of
paternity, integrity, disclosure and withdrawal and any other rights that may be
known as or referred to as "moral rights" (collectively "Moral Rights"). To the
extent such Moral Rights cannot be assigned under applicable law and to the
extent the following is allowed by the laws in the various countries where Moral
Rights exist, I hereby waive such Moral Rights and consent to any action of the
Company that would violate such Moral Rights in the absence of such consent. I
will confirm any such waivers and consents from time to time as requested by the
Company.
3.7. I have attached hereto a complete list of all existing
Inventions to which I claim ownership as of the date of this Agreement and that
I desire to specifically clarify are not subject to this Agreement, and I
acknowledge and agree that such list is complete. If no such list is attached to
this Agreement, I represent that I have no such Inventions at the time of
signing this Agreement.
4. Non-Solicitation. During the term of my employment and for one year
thereafter, I will not encourage or solicit any employee or consultant of the
Company to leave the Company for any reason. However, this obligation shall not
affect any responsibility I may have as an employee of the Company with respect
to the bona fide hiring and firing of Company personnel.
5. Non-Competition. I agree that during my employment with the Company
I will not engage in any employment, business, or activity that is in any way
competitive with the business or proposed business of the Company, and I will
not assist any other person or organization in competing with the Company or in
preparing to engage in competition with the business or proposed business of the
Company. The provisions of this paragraph shall apply both during normal working
hours and at all other times including, without limitation, nights, weekends and
vacation time, while I am employed with the Company.
6. No Conflict with Obligation to Third Parties. I represent that my
performance of all the terms of this Agreement will not breach any agreement to
keep in confidence proprietary information acquired by me in confidence or in
trust prior to my employment with the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith or in conflict with my employment with the Company.
7. At-Will Employment. I agree that this Agreement is not an employment
contract and that I have the right to resign and the Company has the right to
terminate my employment at any time, for any reason, with or without cause.
8. Other Employee Obligations. I agree that this Agreement does not
purport to set forth all of the terms and conditions of my employment, and that
as an employee of the Company I have obligations to the Company which are not
set forth in this Agreement.
3.
<PAGE> 4
9. Survival. I agree that my obligations under Sections 3.1 through 3.6
and Section 4 of this Agreement shall continue in effect after termination of my
employment, regardless of the reason or reasons for termination, and whether
such termination is voluntary or involuntary on my part, and that the Company is
entitled to communicate my obligations under this Agreement to any future
employer or potential employer of mine.
10. Controlling Law; Severability. I agree that any dispute in the
meaning, effect or validity of this Agreement shall be resolved in accordance
with the laws of the State of California without regard to the conflict of laws
provisions thereof. I further agree that if one or more provisions of this
Agreement are held to be illegal or unenforceable under applicable California
law, such illegal or unenforceable portion(s) shall be limited or excluded from
this Agreement to the minimum extent required so that this Agreement shall
otherwise remain in full force and effect and enforceable in accordance with its
terms.
11. Successors and Assigns. This Agreement shall be effective as of the
date I execute this Agreement and shall be binding upon me, my heirs, executors,
assigns, and administrators and shall inure to the benefit of the Company, its
subsidiaries, successors and assigns.
12. Modification. This Agreement can only be modified by a subsequent
written agreement executed by an officer of the Company.
I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE
OBLIGATIONS WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR
REPRESENTATIONS HAVE BEEN MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I SIGN
THIS AGREEMENT VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING THAT
ONE COUNTERPART WILL BE RETAINED BY THE COMPANY AND THE OTHER COUNTERPART WILL
BE RETAINED BY ME.
4.
<PAGE> 5
Date:
------------------------------- -------------------------------
Employee Signature
-------------------------------
Name (type or print)
Accepted and Agreed to:
COMPGEEKS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
5.
<PAGE> 6
ATTACHMENT A
CompGeeks, Inc.
2370 Oak Ridge Way
Vista, CA 92083
Gentlemen:
1. The following is a complete list of Inventions relevant to the subject matter
of my employment with CompGeeks, Inc. (the "Company") that have been made,
conceived, developed or first reduced to practice by me (in whole or in part,
either alone or jointly with others) prior to my employment by the Company that
I desire to clarify are not subject to the Company's Employee Proprietary
Information and Inventions Agreement.
No Inventions
- --------
See below:
- --------
Additional sheets attached
- --------
2. I propose to bring to my employment the following materials and documents of
a former employer:
No Inventions
- --------
See below:
- --------
6.
<PAGE> 7
-----------------------------
Employee Signature
-----------------------------
Name (type or print)
7.
<PAGE> 8
ATTACHMENT B
Section 2870. Application of provision providing that employee shall
assign or offer to assign rights in invention to employer.
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE> 1
EXHIBIT 10.4
FORM OF INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this __th day of _______, 1999
between CompGeeks, Inc., a Delaware corporation ("Corporation"), whose address
is 2370 Oak Ridge Way, Vista CA 92083 and __________________ ("Director"), whose
address is __________________________________.
RECITALS:
A. WHEREAS, Director, a member of the Board of Directors of
Corporation (the "Board"), performs a valuable service in such capacity for
Corporation; and
B. WHEREAS, the stockholders of Corporation have adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers, directors,
agents and employees of Corporation to the maximum extent authorized by Section
145 of the Delaware General Corporation Law, as amended (the "Law"); and
C. WHEREAS, the Bylaws and the Law, as amended and in effect from
time to time or any successor or other statutes of Delaware having similar
import and effect, currently purport to be the controlling law governing
Corporation with respect to certain aspects of corporate law, including
indemnification of directors and officers; and
D. WHEREAS, in accordance with the authorization provided by the
Law, Corporation may from time to time purchase and maintain a policy or
policies of Directors and Officers Liability Insurance ("D & O Insurance"),
covering certain liabilities which may be incurred by its directors and officers
in the performance of services as directors and officers of Corporation; and
E. WHEREAS, as a result of developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded members of the Board of
Directors by such D & O Insurance, if any, and by statutory and bylaw
indemnification provisions; and
F. WHEREAS, in order to induce Director to continue to serve as a
member of the Board, Corporation has determined and agreed to enter into this
contract with Director.
NOW, THEREFORE, in consideration of Director's continued service as a
director after the date hereof, the parties hereto agree as follows:
1. Certain Definitions. The following terms used in this Agreement
shall have the meanings set forth below. Other terms are defined where
appropriate in this Agreement.
(a) "Disinterested Director" shall mean a director of
Corporation who is not or was not a party to the Proceeding in respect of which
indemnification is being sought by Director.
(b) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel
<PAGE> 2
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, all other disbursements or out-of-pocket
expenses and reasonable compensation for time spent by Director for which he or
she is otherwise not compensated by Corporation) actually and reasonably
incurred in connection with a Proceeding or establishing or enforcing a right to
indemnification under this Agreement, applicable law or otherwise; provided,
however, that "Expenses" shall not include any Liabilities.
(c) "Final Adverse Determination" shall mean that a
determination that Director is not entitled to indemnification shall have been
made pursuant to Section 5 hereof and either (i) a final adjudication in a
Delaware court or decision of an arbitrator pursuant to Section 13(a) hereof
shall have denied Director's right to indemnification hereunder, or (ii)
Director shall have failed to file a complaint in a Delaware court or seek an
arbitrator's award pursuant to Section 13(a) for a period of one hundred twenty
(120) days after the determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or
member of a law firm selected by Corporation and approved by Director (which
approval shall not be unreasonably withheld) and that neither is presently nor
in the past five years has been retained to represent: (i) Corporation, in any
material matter, or (ii) any other party to the Proceeding giving rise to a
claim for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Legal Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either Corporation or Director in a
Proceeding to determine Director's right to indemnification under this
Agreement.
(e) "Liabilities" shall mean liabilities of any type
whatsoever including, but not limited to, any judgments, fines, ERISA excise
taxes and penalties, and penalties and amounts paid in settlement (including all
interest assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties or amounts paid in settlement) of
any proceeding.
(f) "Proceeding" shall mean any threatened, pending or
completed action, claim, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or any other proceeding whether
civil, criminal, administrative or investigative, including any appeal
therefrom.
(g) "Change of Control" shall mean the occurrence of any of
the following events after the date of this Agreement:
(i) A change in the composition of the Board, as a
result of which fewer than two-thirds (2/3) of the incumbent directors are
directors who either (1) had been directors of Corporation twenty-four (24)
months prior to such change or (2) were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the directors who
had been directors of Corporation 24 months prior to such change and who were
still in office at the time of the election or nomination; or
2
<PAGE> 3
(ii) Any "person" (as such term is used in section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of securities is or becomes the beneficial owner,
directly or indirectly, of securities of Corporation representing twenty percent
(20%) or more of the combined voting power of Corporation's then outstanding
securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors (the "Capital
Stock"), except that any change in ownership of Corporation's securities by any
person resulting solely from a reduction in the aggregate number of outstanding
shares of Capital Stock, and any decrease thereafter in such person's ownership
of securities, shall be disregarded until such person increases in any manner,
directly or indirectly, such person's beneficial ownership of any securities of
Corporation.
2. Indemnity of Director. Corporation hereby agrees to hold
harmless and indemnify Director to the fullest extent authorized or permitted by
the provisions of the Law, as may be amended from time to time.
3. Additional Indemnity. Subject only to the exclusions set forth
in Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Director:
(a) against any and all Expenses in connection with any
Proceeding (including an action by or in the right of Corporation) to which
Director is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Director is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Director by Corporation under the non-exclusivity provisions of the Bylaws of
Corporation and the Law.
4. Limitations on Additional Indemnity. No indemnity pursuant to
Section 3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which the Director is
indemnified pursuant to Section 2 hereof or reimbursed pursuant to any D & O
Insurance purchased and maintained by Corporation;
(b) in respect of remuneration paid to Director if it shall
be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any Proceeding in which judgment is
rendered against Director for an accounting of profits made from the purchase or
sale by Director of securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(d) on account of a Final Adverse Determination that
Director's conduct was knowingly fraudulent or deliberately dishonest or
constituted willful misconduct;
3
<PAGE> 4
(e) provided there has been no Change of Control, on account
of or arising in response to any Proceeding (other than a Proceeding referred to
in Section 10(b) hereof) initiated by Director or any of Director's affiliates
against Corporation or any officer, director or stockholder of Corporation
unless such Proceeding was authorized in the specific case by action of the
Board of Directors of Corporation;
(f) if a final decision by a Court having jurisdiction in
the matter shall determine that such indemnification is not lawful; or
(g) on account of any Proceeding to the extent that Director
is a plaintiff, a counter-complainant or a cross-complainant therein (other than
a Proceeding permitted by Section 4(e) hereof).
5. Procedure for Determination of Entitlement to Indemnification.
(a) Whenever Director believes that he or she is entitled to
indemnification pursuant to this Agreement, Director shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Director to support his or her claim for indemnification. Director shall submit
his or her claim for indemnification within a reasonable time not to exceed five
years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Director requests indemnification. The
President, Secretary or other appropriate officer shall, promptly upon receipt
of Director's request for indemnification, advise the Board in writing that
Director has made such a request. Determination of Director's entitlement to
indemnification shall be made not later than ninety (90) days after
Corporation's receipt of his or her written request for such indemnification.
(b) The Director shall be entitled to select the forum in
which Director's request for indemnification will be heard, which selection
shall be included in the written request for indemnification required in Section
5(a). This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board consisting of
Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the
determination in a written opinion; or
(iv) A panel of three arbitrators, one selected by
Corporation, another by Director and the third by the first two arbitrators
selected. If for any reason three arbitrators are not selected within thirty
(30) days after the appointment of the first arbitrator, then selection of
additional arbitrators shall be made by the American Arbitration Association. If
any arbitrator resigns or is unable to serve in such capacity for any reason,
the American Arbitration Association shall select his or her replacement. The
arbitration shall be conducted pursuant to the commercial arbitration rules of
the American Arbitration Association now in effect.
4
<PAGE> 5
If Director fails to make such designation, his or her claim shall be
determined by the forum selected by Corporation.
6. Presumption and Effect of Certain Proceedings. Upon making a
request for indemnification, Director shall be presumed to be entitled to
indemnification under this Agreement and Corporation shall have the burden of
proof to overcome that presumption in reaching any contrary determination. The
termination of any Proceeding by judgment, order, settlement, arbitration award
or conviction, or upon a plea of nolo contendere or its equivalent shall not
affect this presumption or, except as may be provided in Section 4 hereof,
establish a presumption with regard to any factual matter relevant to
determining Director's rights to indemnification hereunder. If the person or
persons so empowered to make a determination pursuant to Section 5(b) hereof
shall have failed to make the requested determination within thirty (30) days
after any judgment, order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent, or other disposition
or partial disposition of any Proceeding or any other event which could enable
Corporation to determine Director's entitlement to indemnification, the
requisite determination that Director is entitled to indemnification shall be
deemed to have been made.
7. Contribution. If the indemnification provided in Sections 2 and
3 is unavailable and may not be paid to Director for any reason other than those
set forth in Section 4, then in respect of any Proceeding in which Corporation
is or is alleged to be jointly liable with Director (or would be if joined in
such Proceeding), Corporation shall contribute to the amount of Expenses and
Liabilities paid or payable by Director in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Director on the other hand from the transaction from which such Proceeding
arose, and (ii) the relative fault of Corporation on the one hand and of
Director on the other hand in connection with the events which resulted in such
Expenses and Liabilities, as well as any other relevant equitable
considerations. The relative fault of Corporation on the one hand and of
Director on the other shall be determined by reference to, among other things,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such Expenses and
Liabilities. Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
8. Insurance and Funding. Corporation hereby represents and
warrants that it shall purchase and maintain insurance to protect itself and/or
Director against any Expenses and Liabilities in connection with any Proceeding
to the fullest extent permitted by the Law.
9. Continuation of Obligations. All agreements and obligations of
Corporation contained herein shall continue during the period Director is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Director shall be subject
to any possible Proceeding, by reason of the fact that Director was serving
Corporation or such other entity in any capacity referred to herein.
5
<PAGE> 6
10. Notification and Defense of Claim. Promptly after receipt by
Director of notice of the commencement of any Proceeding, Director will, if a
claim in respect thereof is to be made against Corporation under this Agreement,
notify Corporation of the commencement thereof; but the omission so to notify
Corporation will not relieve it from any liability which it may have to Director
otherwise than under this Agreement. With respect to any Proceeding as to which
Director notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at
its own expense;
(b) Except as otherwise provided below, to the extent that
it may wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Director. After notice from Corporation to Director of its
election to assume the defense thereof, Corporation will not be liable to
Director under this Agreement for any Expenses subsequently incurred by Director
in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Director shall have the right to
employ his or her own counsel in such Proceeding but the Expenses associated
with the employment of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Director unless
(i) the employment of counsel by Director has been authorized by Corporation,
(ii) Director shall have reasonably concluded that there may be a conflict of
interest between Corporation and Director in the conduct of the defense of such
Proceeding or (iii) Corporation shall not in fact have employed counsel to
assume the defense of such Proceeding, in each of which cases the Expenses of
Director's separate counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any Proceeding brought by or on
behalf of Corporation or as to which Director shall have made the conclusion
provided for in (ii) above; and
(c) Provided there has been no Change of Control,
Corporation shall not be liable to indemnify Director under this Agreement for
any amounts paid in settlement of any Proceeding effected without its written
consent, which consent shall not be unreasonably withheld. Corporation shall be
permitted to settle any Proceeding except that it shall not settle any
Proceeding in any manner which would impose any penalty, out-of-pocket
liability, or limitation on Director without Director's written consent.
11. Advancement and Repayment of Expenses.
(a) In the event that Director employs his or her own
counsel pursuant to Section 10(b)(i) through (iii) above, Corporation shall
advance to Director, prior to any final disposition of any Proceeding any and
all Expenses incurred in investigating or defending any such Proceeding within
ten (10) days after receiving copies of invoices presented to Director for such
Expenses.
(b) Director agrees that Director will reimburse Corporation
for all Expenses paid by Corporation in defending any Proceeding against
Director in the event and only to the extent that there has been a Final Adverse
Determination that Director is not entitled, under the provisions of the Law,
the Bylaws, this Agreement or otherwise, to be indemnified by Corporation for
such Expenses.
6
<PAGE> 7
12. Remedies of Director.
(a) In the event that (i) a determination pursuant to
Section 5 hereof is made that Director is not entitled to indemnification, (ii)
advances of Expenses are not made pursuant to this Agreement, (iii) payment has
not been timely made following a determination of entitlement to indemnification
pursuant to this Agreement, or (iv) Director otherwise seeks enforcement of this
Agreement, Director shall be entitled to a final adjudication in an appropriate
court of his or her rights. Alternatively, Director at his or her option may
seek an award in arbitration to be conducted by a single arbitrator pursuant to
the commercial arbitration rules of the American Arbitration Association now in
effect, whose decision is to be made within ninety (90) days following the
filing of the demand for arbitration. The Corporation shall not oppose
Director's right to seek any such adjudication or arbitration award.
(b) In the event that a determination that Director is not
entitled to indemnification, in whole or in part, has been made pursuant to
Section 5 hereof, the decision in the judicial proceeding or arbitration
provided in paragraph (a) of this Section 12 shall be made de novo and Director
shall not be prejudiced by reason of a determination that he or she is not
entitled to indemnification.
(c) If a determination that Director is entitled to
indemnification has been made pursuant to Section 5 hereof or otherwise pursuant
to the terms of this Agreement, Corporation shall be bound by such determination
in the absence of (i) a misrepresentation of a material fact by Director or (ii)
a specific finding (which has become final) by an appropriate court that all or
any part of such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 12,
Corporation shall be precluded from asserting that the procedures and
presumptions of this Agreement are not valid, binding and enforceable. The
Corporation shall stipulate in any such court or before any such arbitrator that
Corporation is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary.
(e) Expenses reasonably incurred by Director in connection
with his or her request for indemnification under this Agreement, meeting
enforcement of this Agreement or to recover damages for breach of this Agreement
shall be borne by Corporation.
(f) Corporation and Director agree herein that a monetary
remedy for breach of this Agreement, at some later date, will be inadequate,
impracticable and difficult to prove, and further agree that such breach would
cause Director irreparable harm. Accordingly, Corporation and Director agree
that Director shall be entitled to temporary and permanent injunctive relief to
enforce this Agreement without the necessity of proving actual damages or
irreparable harm. The Corporation and Director further agree that Director shall
be entitled to such injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, without the necessity of
posting bond or other undertaking in connection therewith. Any such requirement
of bond or undertaking is hereby waived by Corporation, and Corporation
acknowledges that in the absence of such a waiver, a bond or undertaking may be
required by the court.
7
<PAGE> 8
13. Enforcement. Corporation expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on
Corporation hereby in order to induce Director to continue as a director of
Corporation, and acknowledges that Director is relying upon this Agreement in
continuing in such capacity.
14. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable to any
extent for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify the Director to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
15. Governing Law. This Agreement shall be governed by and
interpreted and enforced in accordance with the internal laws of the State of
Delaware.
16. Consent to Jurisdiction. The Corporation and Director each
irrevocably consent to jurisdiction of the courts of the State of Delaware for
all purposes in connection with any Proceeding which arises out of or relates to
this Agreement and agree that any Proceeding instituted under this Agreement
shall be brought only in the state courts of the State of Delaware.
17. Binding Effect. This Agreement shall be binding upon Director
and upon Corporation, its successors and assigns, and shall inure to the benefit
of Director, his or her heirs, executors, administrators, personal
representatives and assigns and to the benefit of Corporation, its successors
and assigns.
18. Entire Agreement. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
19. Amendment and Termination. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
20. Subrogation. In the event of payment under this agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
21. Non-Exclusivity of Rights. The rights conferred on Director by
this Agreement shall not be exclusive of any other right which Director may have
or hereafter acquire under any statute, provision of Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
8
<PAGE> 9
22. Survival of Rights. The rights conferred on Director by this
Agreement shall continue after Director has ceased to be a director, officer,
employee or other agent of Corporation or such other entity.
23. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Director or to
Corporation, as the case may be, at the address shown on page 1 of this
Agreement, or to such other address as may have been furnished by either party
to the other, and shall be deemed to have been duly given if (a) delivered by
hand and receipted for by the party to whom said notice or other communication
shall have been directed, or (b) mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
DIRECTOR: CompGeeks, Inc., a Delaware corporation
______________________________ By: _______________________________
Its: ______________________________
10
<PAGE> 1
EXHIBIT 10.5
FORM OF INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this __th day of ________, 1999
between CompGeeks, Inc., a Delaware corporation ("Corporation"), whose address
is 2370 Oak Ridge Way, Vista CA 92083 and ___________________ ("Officer"), whose
address is ________________________________________________________.
RECITALS:
A. WHEREAS, Officer, an officer of Corporation (but not currently a
member of the Board of Directors of Corporation (the "Board")), performs a
valuable service in such capacity for Corporation; and
B. WHEREAS, the stockholders of Corporation have adopted Bylaws
(the "Bylaws") providing for the indemnification of the officers, directors,
agents and employees of Corporation to the maximum extent authorized by Section
145 of the Delaware General Corporation Law, as amended (the "Law"); and
C. WHEREAS, the Bylaws and the Law, as amended and in effect from
time to time or any successor or other statutes of Delaware having similar
import and effect, currently purport to be the controlling law governing
Corporation with respect to certain aspects of corporate law, including
indemnification of directors and officers; and
D. WHEREAS, in accordance with the authorization provided by the
Law, Corporation may from time to time purchase and maintain a policy or
policies of Directors and Officers Liability Insurance ("D & O Insurance"),
covering certain liabilities which may be incurred by its directors and officers
in the performance of services as directors and officers of Corporation; and
E. WHEREAS, as a result of developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded officers by such D & O
Insurance, if any, and by statutory and bylaw indemnification provisions; and
F. WHEREAS, in order to induce Officer to continue to serve as an
officer of Corporation, Corporation has determined and agreed to enter into this
contract with Officer.
NOW, THEREFORE, in consideration of Officer's continued service as an
officer after the date hereof, the parties hereto agree as follows:
1. Certain Definitions. The following terms used in this Agreement
shall have the meanings set forth below. Other terms are defined where
appropriate in this Agreement.
(a) "Disinterested Director" shall mean a director of
Corporation who is not or was not a party to the Proceeding in respect of which
indemnification is being sought by Officer.
(b) "Expenses" shall include all direct and indirect costs
(including, without limitation, attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel
<PAGE> 2
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, all other disbursements or out-of-pocket
expenses and reasonable compensation for time spent by Officer for which he or
she is otherwise not compensated by Corporation) actually and reasonably
incurred in connection with a Proceeding or establishing or enforcing a right to
indemnification under this Agreement, applicable law or otherwise; provided,
however, that "Expenses" shall not include any Liabilities.
(c) "Final Adverse Determination" shall mean that a
determination that Officer is not entitled to indemnification shall have been
made pursuant to Section 5 hereof and either (i) a final adjudication in a
Delaware court or decision of an arbitrator pursuant to Section 13(a) hereof
shall have denied Officer's right to indemnification hereunder, or (ii) Officer
shall have failed to file a complaint in a Delaware court or seek an
arbitrator's award pursuant to Section 13(a) for a period of one hundred twenty
(120) days after the determination made pursuant to Section 5 hereof.
(d) "Independent Legal Counsel" shall mean a law firm or
member of a law firm selected by Corporation and approved by Officer (which
approval shall not be unreasonably withheld) and that neither is presently nor
in the past five years has been retained to represent: (i) Corporation, in any
material matter, or (ii) any other party to the Proceeding giving rise to a
claim for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Legal Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either Corporation or Officer in a
Proceeding to determine Officer's right to indemnification under this Agreement.
(e) "Liabilities" shall mean liabilities of any type
whatsoever including, but not limited to, any judgments, fines, ERISA excise
taxes and penalties, and penalties and amounts paid in settlement (including all
interest assessments and other charges paid or payable in connection with or in
respect of such judgments, fines, penalties or amounts paid in settlement) of
any proceeding.
(f) "Proceeding" shall mean any threatened, pending or
completed action, claim, suit, arbitration, alternative dispute resolution
mechanism, investigation, administrative hearing or any other proceeding whether
civil, criminal, administrative or investigative, including any appeal
therefrom.
(g) "Change of Control" shall mean the occurrence of any of
the following events after the date of this Agreement:
(i) A change in the composition of the Board, as a
result of which fewer than two-thirds (2/3) of the incumbent directors are
directors who either (1) had been directors of Corporation twenty-four (24)
months prior to such change or (2) were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the directors who
had been directors of Corporation 24 months prior to such change and who were
still in office at the time of the election or nomination; or
(ii) Any "person" (as such term is used in section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) through the
acquisition or aggregation of
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securities is or becomes the beneficial owner, directly or indirectly, of
securities of Corporation representing twenty percent (20%) or more of the
combined voting power of Corporation's then outstanding securities ordinarily
(and apart from rights accruing under special circumstances) having the right to
vote at elections of directors (the "Capital Stock"), except that any change in
ownership of Corporation's securities by any person resulting solely from a
reduction in the aggregate number of outstanding shares of Capital Stock, and
any decrease thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly or indirectly,
such person's beneficial ownership of any securities of Corporation.
2. Indemnity of Officer. Corporation hereby agrees to hold harmless
and indemnify Officer to the fullest extent authorized or permitted by the
provisions of the Law, as may be amended from time to time.
3. Additional Indemnity. Subject only to the exclusions set forth
in Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Officer:
(a) against any and all Expenses in connection with any
Proceeding (including an action by or in the right of Corporation) to which
Officer is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Officer is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Officer by Corporation under the non-exclusivity provisions of the Bylaws of
Corporation and the Law.
4. Limitations on Additional Indemnity. No indemnity pursuant to
Section 3 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which the Officer is
indemnified pursuant to Section 2 hereof or reimbursed pursuant to any D & O
Insurance purchased and maintained by Corporation;
(b) in respect of remuneration paid to Officer if it shall
be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any Proceeding in which judgment is
rendered against Officer for an accounting of profits made from the purchase or
sale by Officer of securities of Corporation pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal, state or local statutory law;
(d) on account of a Final Adverse Determination that
Officer's conduct was knowingly fraudulent or deliberately dishonest or
constituted willful misconduct;
(e) provided there has been no Change of Control, on account
of or arising in response to any Proceeding (other than a Proceeding referred to
in Section 10(b) hereof) initiated by Officer or any of Officer's affiliates
against Corporation or any officer, director or stockholder
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of Corporation unless such Proceeding was authorized in the specific case by
action of the Board;
(f) if a final decision by a Court having jurisdiction in
the matter shall determine that such indemnification is not lawful; or
(g) on account of any Proceeding to the extent that Officer
is a plaintiff, a counter-complainant or a cross-complainant therein (other than
a Proceeding permitted by Section 4(e) hereof).
5. Procedure for Determination of Entitlement to Indemnification.
(a) Whenever Officer believes that he or she is entitled to
indemnification pursuant to this Agreement, Officer shall submit a written
request for indemnification to Corporation. Any request for indemnification
shall include sufficient documentation or information reasonably available to
Officer to support his or her claim for indemnification. Officer shall submit
his or her claim for indemnification within a reasonable time not to exceed five
years after any judgment, order, settlement, dismissal, arbitration award,
conviction, acceptance of a plea of nolo contendere or its equivalent, final
termination or other disposition or partial disposition of any Proceeding,
whichever is the later date for which Officer requests indemnification. The
President, Secretary or other appropriate officer shall, promptly upon receipt
of Officer's request for indemnification, advise the Board in writing that
Officer has made such a request. Determination of Officer's entitlement to
indemnification shall be made not later than ninety (90) days after
Corporation's receipt of his or her written request for such indemnification.
(b) The Officer shall be entitled to select the forum in
which Officer's request for indemnification will be heard, which selection shall
be included in the written request for indemnification required in Section 5(a).
This forum shall be any one of the following:
(i) The stockholders of Corporation;
(ii) A quorum of the Board consisting of
Disinterested Directors;
(iii) Independent Legal Counsel, who shall make the
determination in a written opinion; or
(iv) A panel of three arbitrators, one selected by
Corporation, another by Officer and the third by the first two arbitrators
selected. If for any reason three arbitrators are not selected within thirty
(30) days after the appointment of the first arbitrator, then selection of
additional arbitrators shall be made by the American Arbitration Association. If
any arbitrator resigns or is unable to serve in such capacity for any reason,
the American Arbitration Association shall select his or her replacement. The
arbitration shall be conducted pursuant to the commercial arbitration rules of
the American Arbitration Association now in effect.
If Officer fails to make such designation, his or her claim shall be
determined by the forum selected by Corporation.
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6. Presumption and Effect of Certain Proceedings. Upon making a
request for indemnification, Officer shall be presumed to be entitled to
indemnification under this Agreement and Corporation shall have the burden of
proof to overcome that presumption in reaching any contrary determination. The
termination of any Proceeding by judgment, order, settlement, arbitration award
or conviction, or upon a plea of nolo contendere or its equivalent shall not
affect this presumption or, except as may be provided in Section 4 hereof,
establish a presumption with regard to any factual matter relevant to
determining Officer's rights to indemnification hereunder. If the person or
persons so empowered to make a determination pursuant to Section 5(b) hereof
shall have failed to make the requested determination within thirty (30) days
after any judgment, order, settlement, dismissal, arbitration award, conviction,
acceptance of a plea of nolo contendere or its equivalent, or other disposition
or partial disposition of any Proceeding or any other event which could enable
Corporation to determine Officer's entitlement to indemnification, the requisite
determination that Officer is entitled to indemnification shall be deemed to
have been made.
7. Contribution. If the indemnification provided in Sections 2 and
3 is unavailable and may not be paid to Officer for any reason other than those
set forth in Section 4, then in respect of any Proceeding in which Corporation
is or is alleged to be jointly liable with Officer (or would be if joined in
such Proceeding), Corporation shall contribute to the amount of Expenses and
Liabilities paid or payable by Officer in such proportion as is appropriate to
reflect (i) the relative benefits received by Corporation on the one hand and
Officer on the other hand from the transaction from which such Proceeding arose,
and (ii) the relative fault of Corporation on the one hand and of Officer on the
other hand in connection with the events which resulted in such Expenses and
Liabilities, as well as any other relevant equitable considerations. The
relative fault of Corporation on the one hand and of Officer on the other shall
be determined by reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent the
circumstances resulting in such Expenses and Liabilities. Corporation agrees
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
8. Insurance and Funding. Corporation hereby represents and
warrants that it shall purchase and maintain insurance to protect itself and/or
Officer against any Expenses and Liabilities in connection with any Proceeding
to the fullest extent permitted by the Law.
9. Continuation of Obligations. All agreements and obligations of
Corporation contained herein shall continue during the period Officer is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Officer shall be subject to
any possible Proceeding, by reason of the fact that Officer was serving
Corporation or such other entity in any capacity referred to herein.
10. Notification and Defense of Claim. Promptly after receipt by
Officer of notice of the commencement of any Proceeding, Officer will, if a
claim in respect thereof is to be made against Corporation under this Agreement,
notify Corporation of the commencement thereof; but the omission so to notify
Corporation will not relieve it from any liability which it may have to
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Officer otherwise than under this Agreement. With respect to any Proceeding as
to which Officer notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at
its own expense;
(b) Except as otherwise provided below, to the extent that
it may wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Officer. After notice from Corporation to Officer of its
election to assume the defense thereof, Corporation will not be liable to
Officer under this Agreement for any Expenses subsequently incurred by Officer
in connection with the defense thereof other than reasonable costs of
investigation or as otherwise provided below. Officer shall have the right to
employ his or her own counsel in such Proceeding but the Expenses associated
with the employment of such counsel incurred after notice from Corporation of
its assumption of the defense thereof shall be at the expense of Officer unless
(i) the employment of counsel by Officer has been authorized by Corporation,
(ii) Officer shall have reasonably concluded that there may be a conflict of
interest between Corporation and Officer in the conduct of the defense of such
Proceeding or (iii) Corporation shall not in fact have employed counsel to
assume the defense of such Proceeding, in each of which cases the Expenses of
Officer's separate counsel shall be at the expense of Corporation. Corporation
shall not be entitled to assume the defense of any Proceeding brought by or on
behalf of Corporation or as to which Officer shall have made the conclusion
provided for in (ii) above; and
(c) Provided there has been no Change of Control,
Corporation shall not be liable to indemnify Officer under this Agreement for
any amounts paid in settlement of any Proceeding effected without its written
consent, which consent shall not be unreasonably withheld. Corporation shall be
permitted to settle any Proceeding except that it shall not settle any
Proceeding in any manner which would impose any penalty, out-of-pocket
liability, or limitation on Officer without Officer's written consent.
11. Advancement and Repayment of Expenses.
(a) In the event that Officer employs his or her own counsel
pursuant to Section 10(b)(i) through (iii) above, Corporation shall advance to
Officer, prior to any final disposition of any Proceeding any and all Expenses
incurred in investigating or defending any such Proceeding within ten (10) days
after receiving copies of invoices presented to Officer for such Expenses.
(b) Officer agrees that Officer will reimburse Corporation
for all Expenses paid by Corporation in defending any Proceeding against Officer
in the event and only to the extent that there has been a Final Adverse
Determination that Officer is not entitled, under the provisions of the Law, the
Bylaws, this Agreement or otherwise, to be indemnified by Corporation for such
Expenses.
12. Remedies of Officer.
(a) In the event that (i) a determination pursuant to
Section 5 hereof is made that Officer is not entitled to indemnification, (ii)
advances of Expenses are not made pursuant to
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this Agreement, (iii) payment has not been timely made following a determination
of entitlement to indemnification pursuant to this Agreement, or (iv) Officer
otherwise seeks enforcement of this Agreement, Officer shall be entitled to a
final adjudication in an appropriate court of his or her rights. Alternatively,
Officer at his or her option may seek an award in arbitration to be conducted by
a single arbitrator pursuant to the commercial arbitration rules of the American
Arbitration Association now in effect, whose decision is to be made within
ninety (90) days following the filing of the demand for arbitration. The
Corporation shall not oppose Officer's right to seek any such adjudication or
arbitration award.
(b) In the event that a determination that Officer is not
entitled to indemnification, in whole or in part, has been made pursuant to
Section 5 hereof, the decision in the judicial proceeding or arbitration
provided in paragraph (a) of this Section 12 shall be made de novo and Officer
shall not be prejudiced by reason of a determination that he or she is not
entitled to indemnification.
(c) If a determination that Officer is entitled to
indemnification has been made pursuant to Section 5 hereof or otherwise pursuant
to the terms of this Agreement, Corporation shall be bound by such determination
in the absence of (i) a misrepresentation of a material fact by Officer or (ii)
a specific finding (which has become final) by an appropriate court that all or
any part of such indemnification is expressly prohibited by law.
(d) In any court proceeding pursuant to this Section 12,
Corporation shall be precluded from asserting that the procedures and
presumptions of this Agreement are not valid, binding and enforceable. The
Corporation shall stipulate in any such court or before any such arbitrator that
Corporation is bound by all the provisions of this Agreement and is precluded
from making any assertion to the contrary.
(e) Expenses reasonably incurred by Officer in connection
with his or her request for indemnification under this Agreement, meeting
enforcement of this Agreement or to recover damages for breach of this Agreement
shall be borne by Corporation.
(f) Corporation and Officer agree herein that a monetary
remedy for breach of this Agreement, at some later date, will be inadequate,
impracticable and difficult to prove, and further agree that such breach would
cause Officer irreparable harm. Accordingly, Corporation and Officer agree that
Officer shall be entitled to temporary and permanent injunctive relief to
enforce this Agreement without the necessity of proving actual damages or
irreparable harm. The Corporation and Officer further agree that Officer shall
be entitled to such injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, without the necessity of
posting bond or other undertaking in connection therewith. Any such requirement
of bond or undertaking is hereby waived by Corporation, and Corporation
acknowledges that in the absence of such a waiver, a bond or undertaking may be
required by the court.
13. Enforcement. Corporation expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on
Corporation hereby in order to induce Officer to continue as an officer of
Corporation, and acknowledges that Officer is relying upon this Agreement in
continuing in such capacity.
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14. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable to any
extent for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof, or the obligation of
the Corporation to indemnify the Officer to the full extent provided by the
Bylaws or the Law, and the affected provision shall be construed and enforced so
as to effectuate the parties' intent to the maximum extent possible.
15. Governing Law. This Agreement shall be governed by and
interpreted and enforced in accordance with the internal laws of the State of
Delaware.
16. Consent to Jurisdiction. The Corporation and Officer each
irrevocably consent to jurisdiction of the courts of the State of Delaware for
all purposes in connection with any Proceeding which arises out of or relates to
this Agreement and agree that any Proceeding instituted under this Agreement
shall be brought only in the state courts of the State of Delaware.
17. Binding Effect. This Agreement shall be binding upon Officer and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Officer, his or her heirs, executors, administrators, personal representatives
and assigns and to the benefit of Corporation, its successors and assigns.
18. Entire Agreement. This Agreement represents the entire agreement
between the parties hereto and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein. This Agreement
supersedes any and all agreements regarding indemnification heretofore entered
into by the parties.
19. Amendment and Termination. No amendment, modification, waiver,
termination or cancellation of this Agreement shall be effective for any purpose
unless set forth in writing signed by both parties hereto.
20. Subrogation. In the event of payment under this agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Officer, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
21. Non-Exclusivity of Rights. The rights conferred on Officer by
this Agreement shall not be exclusive of any other right which Officer may have
or hereafter acquire under any statute, provision of Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
22. Survival of Rights. The rights conferred on Officer by this
Agreement shall continue after Officer has ceased to be a director, officer,
employee or other agent of Corporation or such other entity.
23. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be addressed to Officer or to
Corporation, as the case may be, at the
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address shown on page 1 of this Agreement, or to such other address as may have
been furnished by either party to the other, and shall be deemed to have been
duly given if (a) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (b) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
OFFICER: CompGeeks, Inc., a Delaware corporation
______________________________ By: _______________________________
Its: ______________________________
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EXHIBIT 10.6
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (this "Agreement") is made and entered
into as of May 28, 1999, by and among CompGeeks, Inc., a Delaware corporation
("Parent"), Evertek Computer Products, Inc., a California corporation
("Evertek"), The Segler Family Trust, the sole shareholder of Evertek (the
"Evertek Shareholder"), compgeeks.com, a California corporation ("Compgeeks"),
the Compgeeks shareholders listed on Schedule A attached hereto (individually, a
"Compgeeks Shareholder" and collectively, the "Compgeeks Shareholders"), Evertek
Trading Limited, a company organized under the laws of Hong Kong ("Evertek HK")
and Randy Segler, the beneficial owner of all of the outstanding capital stock
of Evertek HK (the "Evertek HK Shareholder".
RECITALS
A. In exchange for shares of Parent Common Stock ("Parent Shares"), the
Evertek Shareholder, the Compgeeks Shareholders and the Evertek HK Shareholder
desire to contribute all of the outstanding shares of capital stock (or the
beneficial ownership thereof in the case of the Evertek HK Shareholder) of
Evertek (the "Evertek Shares"), Compgeeks (the "Compgeeks Shares") and Evertek
HK (the "Evertek HK Shares"), respectively, to Parent; and
B. In exchange for the Evertek Shares, the Compgeeks Shares and the
Evertek HK Shares, Parent desires to issue the Parent Shares to the Evertek
Shareholder, the Compgeeks Shareholders and the Evertek HK Shareholder.
NOW, THEREFORE, in consideration of the premises, representations and
mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, agree as follows:
ARTICLE I
EXCHANGE OF THE SHARES
1.1 Exchange of Shares. The Evertek Shareholder, the Compgeeks
Shareholders and the Evertek HK Shareholder hereby agree to exchange, sell,
transfer and deliver to Parent, and Parent hereby agrees to purchase and acquire
from the Evertek Shareholder, the Compgeeks Shareholders and the Evertek HK
Shareholder, on the Closing Date (as hereinafter defined) all of the outstanding
Evertek Shares, Compgeeks Shares and Evertek HK Shares (which includes the
Evertek HK Shareholder's beneficial interest in the Evertek HK Shares) free from
any charge, lien, encumbrance or adverse claim of any kind whatsoever.
1.2 Consideration for Shares. Parent shall deliver at the Closing (as
hereinafter defined) to each of the Evertek Shareholder, the Compgeeks
Shareholders and the Evertek HK Shareholder, in exchange and as consideration
for the Evertek Shares, Compgeeks Shares and the Evertek HK Shares (which
includes the Evertek HK Shareholder's beneficial interest in the Evertek HK
Shares), a stock certificate representing that number of shares of Parent Common
Stock for each of the Evertek Shareholder, the Compgeeks Shareholders and the
Evertek HK Shareholder as set forth on Schedule A attached hereto.
<PAGE> 2
1.3 Delivery of Shares. At the Closing, each of the Evertek Shareholder,
the Compgeeks Shareholders and the Evertek HK Shareholder shall deliver to
Parent, in exchange for their respective portion of the Parent Shares as set
forth in Schedule A attached hereto, stock certificate(s) representing the
Evertek Shares, Compgeeks Shares and Evertek HK Shares (or other documentation
representing the Evertek HK Shareholder's beneficial ownership of the Evertek HK
Shares), duly endorsed in favor of Parent or accompanied by stock powers duly
executed in favor of and in a form reasonably acceptable to Parent, free from
any charge, lien, encumbrance or adverse claim of any kind whatsoever, together
with the minute books and stock ledger of Evertek, Compgeeks and Evertek HK.
1.4 Legends. The certificates evidencing the Parent Shares shall bear
the following legend and any legends required by any state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN
EXEMPTION UNDER THE ACT THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE REASONABLE SATISFACTION OF EVERTEK."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EVERTEK
AND THE EVERTEK SHAREHOLDER
Evertek and the Evertek Shareholder, jointly and severally, agree with,
and represent and warrant to Parent as follows:
2.1 Corporate Existence, Good Standing and Authority. Evertek is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Evertek has full corporate power and
corporate authority to carry on its business as now being conducted and is
entitled to own, lease or operate the property and assets now owned, leased or
operated by it. Evertek is qualified to do business, is in good standing and has
all required and appropriate licenses in each jurisdiction in which its failure
to obtain or maintain such qualification, good standing or licensing would have
a material adverse effect on the business, financial condition or results of
operations (a "Material Adverse Effect") of Evertek. Evertek has all requisite
corporate power and corporate authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Evertek and the Evertek Shareholder, has been
authorized by all necessary corporate action of Evertek and constitutes a legal,
valid and binding obligation of Evertek and the Evertek Shareholder, enforceable
against Evertek and the Evertek Shareholder in accordance with its terms, except
as enforcement may be limited by equitable principles or bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors' rights
generally.
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<PAGE> 3
2.2 Capitalization. The authorized capital stock of Evertek consists of
1,000,000 shares of common stock, of which 50,000 shares are issued and
outstanding. All of the Evertek Shares are owned, beneficially and of record,
only by the Evertek Shareholder and are free from any charge, lien, encumbrance
or adverse claim of any kind whatsoever. The Evertek Shareholder has the
absolute and unrestricted right, power, authority and capacity to transfer the
Evertek Shares to Parent and upon the Closing, without exception, Parent will
acquire from the Evertek Shareholder legal and beneficial ownership of, good and
valid title to, and all rights to vote, the Evertek Shares, free from any
charge, lien, encumbrance or adverse claim of any kind whatsoever. All of the
Evertek Shares have been duly authorized and validly issued and are fully paid
and nonassessable. There are no options, warrants, conversion rights, rights of
exchange, or other rights, plans, agreements or other commitments providing for
the purchase, issuance or sale of any shares of Evertek's capital stock or any
securities convertible into or exchangeable for any shares of Evertek's capital
stock.
2.3 Subsidiaries. Evertek does not presently own, directly or
indirectly, any interest in any other corporation, association, joint venture or
other business entity.
2.4 Litigation. No litigation, arbitration or proceeding is pending or,
to the best of Evertek's knowledge, threatened by or against Evertek, its
properties or assets, the Evertek Shares or its officers or directors before any
court or any government agency, and, to the best of Evertek's knowledge, no
facts exist which might form the basis for any such litigation, arbitration or
proceeding.
2.5 Taxes. No tax liabilities, disallowances or assessments relating to
the business, assets or employees or independent contractors of Evertek have
been assessed or prepossessed as of the date hereof, and to the best of
Evertek's knowledge there is no basis for any such liabilities, disallowances or
assessments. Evertek is not delinquent in the payment of any taxes which would
result in the imposition of a lien, claim or encumbrance on Evertek, its
properties or assets or the Evertek Shares.
2.6 No Breach. The consummation of the transactions contemplated by this
Agreement will not result in or constitute any of the following: (i) a conflict,
violation or default with or an event that, with notice or lapse of time or
both, would be a default, breach, or violation of Evertek's Charter or Bylaws,
any License (as hereinafter defined) or of any contract, lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument or arrangement to which Evertek is
a party or by which Evertek or its assets are bound; (ii) an event that would
permit any party to terminate any agreement or to accelerate the maturity of or
permit the subordination of any indebtedness or other obligation of Evertek;
(iii) the creation or imposition of any lien, charge, or encumbrance on any of
the assets of Evertek; or (iv) conflict with or result in the violation or
breach of any law, rule or regulation of any governmental authority, or any
judgment, order, injunction or decree applicable to Evertek or its assets.
2.7 Compliance with Law; Governmental Consents. The business and
operations of Evertek have been and are being conducted in compliance with all
laws, rules, regulations and licensing requirements applicable thereto, except
where failure to be so in compliance would not have a Material Adverse Effect on
Evertek. Evertek is unaware of any facts which might form the basis for a claim
that any material violation of such laws exists. No consent, approval, order
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<PAGE> 4
or authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
Evertek or the Evertek Shareholder is required in connection with the execution,
delivery and performance by Evertek or the Evertek Shareholder of this
Agreement, the consummation of the transactions contemplated hereby or Parent'
operation of Evertek's business following the Closing Date.
2.8 Representations Complete. None of the representations and warranties
made by the Evertek Shareholder or Evertek herein, nor any statement made in any
Exhibit, Schedule or certificate furnished pursuant to this Agreement, contains
or will contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein, or necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
2.9 Consents of Non-Governmental Third Parties. No consent, waiver or
approval of any non-governmental third party is necessary for the consummation
by the Evertek Shareholder and Evertek of the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE EVERTEK SHAREHOLDER
The Evertek Shareholder represents and warrants to Parent that:
3.1 Good and Marketable Title to Shares. The Evertek Shareholder has and
will have on the Closing Date, full right, power, and authority to sell,
transfer and deliver the Evertek Shares as provided in this Agreement.
3.2 Purchase Entirely for Own Account. The Evertek Shareholder
understands that Parent is entering into this Agreement with the Evertek
Shareholder in reliance upon the Evertek Shareholder's representation to Parent,
which by the Evertek Shareholder's execution of this Agreement the Evertek
Shareholder hereby confirms, that the Parent Shares to be received by the
Evertek Shareholder, (for purposes of Article III, the "Securities") will be
acquired for investment for the Evertek Shareholder's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that the Evertek Shareholder has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, the Evertek Shareholder further represents that the Evertek
Shareholder does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participation to such person or to
any third person, with respect to any of the Securities. The Evertek Shareholder
represents that it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. The Evertek Shareholder believes that it
has received all the information it considers necessary or appropriate for
deciding whether to purchase the Securities. The Evertek Shareholder further
represents that it has had an opportunity to ask questions and receive answers
from Parent regarding Parent and its business and operations and the terms and
conditions of the offering of the Securities.
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3.4 Investment Experience. The Evertek Shareholder is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
3.5 Accredited Shareholder. The Evertek Shareholder is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act of 1993, as amended (the "Act").
3.6 Restricted Securities. The Evertek Shareholder understands that the
Parent Shares it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from
Parent in a transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without registration
under the Act, only in certain limited circumstances. In this connection, the
Evertek Shareholder represents that it is familiar with Rule 144 promulgated
under the Act, as now in effect, and understands the resale limitations imposed
thereby and by the Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPGEEKS
AND THE COMPGEEKS SHAREHOLDERS
Compgeeks and each of the Compgeeks Shareholders, jointly and severally,
agree with, and represent warrant to Parent as follows:
4.1 Corporate Existence, Good Standing and Authority. Compgeeks is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Compgeeks has full corporate power and
corporate authority to carry on its business as now being conducted and is
entitled to own, lease or operate the property and assets now owned, leased or
operated by it. Compgeeks is qualified to do business, is in good standing and
has all required and appropriate licenses in each jurisdiction in which its
failure to obtain or maintain such qualification, good standing or licensing
would have a Material Adverse Effect on Compgeeks. Compgeeks has all requisite
corporate power and corporate authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Compgeeks and each of the Compgeeks Shareholders, has
been authorized by all necessary corporate action of Compgeeks and constitutes a
legal, valid and binding obligation of Compgeeks and the Compgeeks Shareholders,
enforceable against Compgeeks and the Compgeeks Shareholders in accordance with
its terms, except as enforcement may be limited by equitable principles or
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
creditors' rights generally.
4.2 Capitalization. The authorized capital stock of Compgeeks consists
of 100,000 shares of common stock, of which 2,000 shares are issued and
outstanding. All of the Compgeeks Shares are owned, beneficially and of record,
only by the Compgeeks Shareholders and are free from any charge, lien,
encumbrance or adverse claim of any kind whatsoever. Each of the Compgeeks
Shareholders have the absolute and unrestricted right, power, authority and
capacity to transfer the Compgeeks Shares to Parent and upon the Closing,
without exception,
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Parent will acquire from the Compgeeks Shareholders legal and beneficial
ownership of, good and valid title to, and all rights to vote, the Compgeeks
Shares, free from any charge, lien, encumbrance or adverse claim of any kind
whatsoever. All of the Compgeeks Shares have been duly authorized and validly
issued and are fully paid and nonassessable. There are no options, warrants,
conversion rights, rights of exchange, or other rights, plans, agreements or
other commitments providing for the purchase, issuance or sale of any shares of
Compgeeks' capital stock or any securities convertible into or exchangeable for
any shares of Compgeeks' capital stock.
4.3 Subsidiaries. Compgeeks does not presently own, directly or
indirectly, any interest in any other corporation, association, joint venture or
other business entity.
4.4 Litigation. No litigation, arbitration or proceeding is pending or,
to the best of Compgeeks' knowledge, threatened by or against Compgeeks, its
properties or assets, the Compgeeks Shares or its officers or directors before
any court or any government agency, and, to the best of Compgeeks' knowledge, no
facts exist which might form the basis for any such litigation, arbitration or
proceeding.
4.5 Taxes. No tax liabilities, disallowances or assessments relating to
the business, assets or employees or independent contractors of Compgeeks have
been assessed or prepossessed as of the date hereof, and to the best of
Compgeeks' knowledge there is no basis for any such liabilities, disallowances
or assessments. Compgeeks is not delinquent in the payment of any taxes which
would result in the imposition of a lien, claim or encumbrance on Compgeeks, its
properties or assets or the Compgeeks shares.
4.6 No Breach. The consummation of the transactions contemplated by this
Agreement will not result in or constitute any of the following: (i) a conflict,
violation or default with or an event that, with notice or lapse of time or
both, would be a default, breach, or violation of Compgeeks' Charter or Bylaws,
any License (as hereinafter defined) or of any contract, lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument or arrangement to which Compgeeks
is a party or by which Compgeeks or its assets are bound; (ii) an event that
would permit any party to terminate any agreement or to accelerate the maturity
of or permit the subordination of any indebtedness or other obligation of
Compgeeks; (iii) the creation or imposition of any lien, charge, or encumbrance
on any of the assets of Compgeeks; or (iv) conflict with or result in the
violation or breach of any law, rule or regulation of any governmental
authority, or any judgment, order, injunction or decree applicable to Compgeeks
or its assets.
4.7 Compliance with Law; Governmental Consents. The business and
operations of Compgeeks have been and are being conducted in compliance with all
laws, rules, regulations and licensing requirements applicable thereto, except
where failure to be so in compliance would not have a Material Adverse Effect on
Compgeeks. Compgeeks is unaware of any facts which might form the basis for a
claim that any material violation of such laws exists. No consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state or local governmental authority
on the part of Compgeeks or the Compgeeks Shareholders is required in connection
with the execution, delivery and performance by Compgeeks or the Compgeeks
Shareholders of this Agreement, the consummation of the
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<PAGE> 7
transactions contemplated hereby or Parent' operation of Compgeeks' business
following the Closing Date.
4.8 Representations Complete. None of the representations and warranties
made by the Compgeeks Shareholders or Compgeeks herein, nor any statement made
in any Exhibit, Schedule or certificate furnished pursuant to this Agreement,
contains or will contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein, or necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading.
4.9 Consents of Non-Governmental Third Parties. No consent, waiver or
approval of any non-governmental third party is necessary for the consummation
by the Compgeeks Shareholders and Compgeeks of the transactions contemplated
hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE COMPGEEKS SHAREHOLDERS
Each of the Compgeeks Shareholders represents and warrants to Parent
that:
5.1 Good and Marketable Title to Shares. Each Compgeeks Shareholder has
and will have on the Closing Date, full right, power, and authority to sell,
transfer and deliver the Compgeeks Shares as provided in this Agreement.
5.2 Purchase Entirely for Own Account. Each Compgeeks Shareholder
understands that Parent is entering into this Agreement with the Compgeeks
Shareholders in reliance upon the Compgeeks Shareholders' representation to
Parent, which by each Compgeeks Shareholder's execution of this Agreement such
Compgeeks Shareholder hereby confirms, that the Parent Shares to be received by
such Compgeeks Shareholders, (for purposes of Article V, the "Securities") will
be acquired for investment for such Compgeeks Shareholder's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that such Compgeeks Shareholders has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, each Compgeeks Shareholder further represents that
such Compgeeks Shareholder does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person, with respect to any of the Securities. Each
Compgeeks Shareholder represents that it has full power and authority to enter
into this Agreement.
5.3 Disclosure of Information. Each Compgeeks Shareholder believes that
it has received all the information it considers necessary or appropriate for
deciding whether to purchase the Securities. Each Compgeeks Shareholder further
represents that it has had an opportunity to ask questions and receive answers
from Parent regarding Parent and its business and operations and the terms and
conditions of the offering of the Securities.
5.4 Investment Experience. Each Compgeeks Shareholder is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can
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<PAGE> 8
bear the economic risk of its investment and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Securities.
5.5 Accredited Shareholder. Each Compgeeks Shareholder is an "accredited
investor" within the meaning of Regulation D promulgated under the Act.
5.6 Restricted Securities. Each Compgeeks Shareholder understands that
the Parent Shares it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from
Parent in a transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without registration
under the Act, only in certain limited circumstances. In this connection, each
Compgeeks Shareholder represents that it is familiar with Rule 144 promulgated
under the Act, as now in effect, and understands the resale limitations imposed
thereby and by the Act.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF EVERTEK HK
AND THE EVERTEK HK SHAREHOLDER
Evertek HK and the Evertek HK Shareholder, jointly and severally, agree
with, and represent and warrant to Parent as follows:
6.1 Corporate Existence, Good Standing and Authority. Evertek HK is a
company duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation. Evertek HK has full corporate power and
corporate authority to carry on its business as now being conducted and is
entitled to own, lease or operate the property and assets now owned, leased or
operated by it. Evertek HK is qualified to do business, is in good standing and
has all required and appropriate licenses in each jurisdiction in which its
failure to obtain or maintain such qualification, good standing or licensing
would have a material adverse effect on the business, financial condition or
results of operations (a "Material Adverse Effect") of Evertek HK. Evertek HK
has all requisite corporate power and corporate authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Evertek HK and the Evertek HK
Shareholder, has been authorized by all necessary corporate action of Evertek HK
and constitutes a legal, valid and binding obligation of Evertek HK and the
Evertek HK Shareholder, enforceable against Evertek HK and the Evertek HK
Shareholder in accordance with its terms, except as enforcement may be limited
by equitable principles or bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to creditors' rights generally.
6.2 Capitalization. The authorized capital stock of Evertek HK consists
of 1,000 ordinary shares, of which two (2) shares are issued and outstanding.
All of the Evertek HK Shares are beneficially owned only by the Evertek HK
Shareholder and are free from any charge, lien, encumbrance or adverse claim of
any kind whatsoever. The Evertek HK Shareholder has the absolute and
unrestricted right, power, authority and capacity to transfer its beneficial
ownership in the Evertek HK Shares to Parent and upon the Closing, without
exception, Parent will acquire from the Evertek HK Shareholder beneficial
ownership of the Evertek HK Shares, free from any charge, lien, encumbrance or
adverse claim of any kind whatsoever. All of the
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<PAGE> 9
Evertek HK Shares have been duly authorized and validly issued and are fully
paid and nonassessable. There are no options, warrants, conversion rights,
rights of exchange, or other rights, plans, agreements or other commitments
providing for the purchase, issuance or sale of any shares of Evertek HK's
capital stock or any securities convertible into or exchangeable for any shares
of Evertek HK's capital stock.
6.3 Subsidiaries. Evertek HK does not presently own, directly or
indirectly, any interest in any other corporation, association, joint venture or
other business entity.
6.4 Litigation. No litigation, arbitration or proceeding is pending or,
to the best of Evertek HK's knowledge, threatened by or against Evertek HK, its
properties or assets, the Evertek HK Shares or its officers or directors before
any court or any government agency, and, to the best of Evertek HK's knowledge,
no facts exist which might form the basis for any such litigation, arbitration
or proceeding.
6.5 Taxes. No tax liabilities, disallowances or assessments relating to
the business, assets or employees or independent contractors of Evertek HK have
been assessed or prepossessed as of the date hereof, and to the best of Evertek
HK's knowledge there is no basis for any such liabilities, disallowances or
assessments. Evertek HK is not delinquent in the payment of any taxes which
would result in the imposition of a lien, claim or encumbrance on Evertek HK,
its properties or assets or the Evertek HK Shares.
6.6 No Breach. The consummation of the transactions contemplated by this
Agreement will not result in or constitute any of the following: (i) a conflict,
violation or default with or an event that, with notice or lapse of time or
both, would be a default, breach, or violation of Evertek HK's Charter or
Bylaws, any License (as hereinafter defined) or of any contract, lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument or arrangement to which Evertek HK
is a party or by which Evertek HK or its assets are bound; (ii) an event that
would permit any party to terminate any agreement or to accelerate the maturity
of or permit the subordination of any indebtedness or other obligation of
Evertek HK; (iii) the creation or imposition of any lien, charge, or encumbrance
on any of the assets of Evertek HK; or (iv) conflict with or result in the
violation or breach of any law, rule or regulation of any governmental
authority, or any judgment, order, injunction or decree applicable to Evertek HK
or its assets.
6.7 Compliance with Law; Governmental Consents. The business and
operations of Evertek HK have been and are being conducted in compliance with
all laws, rules, regulations and licensing requirements applicable thereto,
except where failure to be so in compliance would not have a Material Adverse
Effect on Evertek HK. Evertek HK is unaware of any facts which might form the
basis for a claim that any material violation of such laws exists. No consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state or local
governmental authority on the part of Evertek HK or the Evertek HK Shareholder
is required in connection with the execution, delivery and performance by
Evertek HK or the Evertek HK Shareholder of this Agreement, the consummation of
the transactions contemplated hereby or Parent' operation of Evertek HK's
business following the Closing Date.
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<PAGE> 10
6.8 Representations Complete. None of the representations and warranties
made by the Evertek HK Shareholder or Evertek HK herein, nor any statement made
in any Exhibit, Schedule or certificate furnished pursuant to this Agreement,
contains or will contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein, or necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading.
6.9 Consents of Non-Governmental Third Parties. No consent, waiver or
approval of any non-governmental third party is necessary for the consummation
by the Evertek HK Shareholder and Evertek HK of the transactions contemplated
hereby.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF
THE EVERTEK HK SHAREHOLDER
The Evertek HK Shareholder represents and warrants to Parent that:
7.1 Good and Marketable Title to Shares. The Evertek HK Shareholder has
and will have on the Closing Date, full right, power, and authority to sell,
transfer and deliver its beneficial ownership of the Evertek HK Shares as
provided in this Agreement.
7.2 Purchase Entirely for Own Account. The Evertek HK Shareholder
understands that Parent is entering into this Agreement with the Evertek HK
Shareholder in reliance upon the Evertek HK Shareholder's representation to
Parent, which by the Evertek HK Shareholder's execution of this Agreement the
Evertek HK Shareholder hereby confirms, that the Parent Shares to be received by
the Evertek HK Shareholder, (for purposes of Article VII, the "Securities") will
be acquired for investment for the Evertek HK Shareholder's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that the Evertek HK Shareholder has no present intention of
selling, granting any participation in, or otherwise distributing the same. By
executing this Agreement, the Evertek HK Shareholder further represents that he
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the Securities. The Evertek HK Shareholder
represents that it has full power and authority to enter into this Agreement.
7.3 Disclosure of Information. The Evertek HK Shareholder believes that
it has received all the information it considers necessary or appropriate for
deciding whether to purchase the Securities. The Evertek HK Shareholder further
represents that it has had an opportunity to ask questions and receive answers
from Parent regarding Parent and its business and operations and the terms and
conditions of the offering of the Securities.
7.4 Investment Experience. The Evertek HK Shareholder is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
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<PAGE> 11
7.5 Accredited Shareholder. The Evertek HK Shareholder is an "accredited
investor" within the meaning of Regulation D promulgated under the Act.
7.6 Restricted Securities. The Evertek HK Shareholder understands that
the Parent Shares it is purchasing are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from
Parent in a transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without registration
under the Act, only in certain limited circumstances. In this connection, the
Evertek HK Shareholder represents that it is familiar with Rule 144 promulgated
under the Act, as now in effect, and understands the resale limitations imposed
thereby and by the Act.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Evertek, Compgeeks, Evertek HK, the
Evertek Shareholder, the Compgeeks Shareholders and the Evertek HK Shareholder
that:
8.1 Corporate Existence, Good Standing and Authority. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Parent has full corporate power and
corporate authority to carry on its business as now being conducted and is
entitled to own, lease or operate the property and assets now owned, leased or
operated by it. Parent is qualified to do business, is in good standing and has
all required and appropriate licenses in each jurisdiction in which its failure
to obtain or maintain such qualification, good standing or licensing would have
a Material Adverse Effect on Parent. Parent has all requisite corporate power
and corporate authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent, has been authorized by all necessary corporate action of
Parent and constitutes a legal, valid and binding obligation of Parent,
enforceable against Parent in accordance with its terms, except as enforcement
may be limited by equitable principles or bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors' rights
generally.
8.2 Capitalization. The authorized capital stock of Parent consists of
25,000,000 shares of common stock, $0.001 par value per share, of which no
shares are issued and outstanding. All of the Parent Shares are free from any
charge, lien, encumbrance or adverse claim of any kind whatsoever. Each of the
Evertek Shareholder, the Compgeeks Shareholders and the Evertek HK Shareholder
will acquire from Parent legal and beneficial ownership of, good and valid title
to, and all rights to vote, the Parent Shares, free from any charge, lien,
encumbrance or adverse claim of any kind whatsoever. All of the Parent Shares
have been duly authorized and validly issued and are fully paid and
nonassessable. There are no options, warrants, conversion rights, rights of
exchange, or other rights, plans, agreements or other commitments providing for
the purchase, issuance or sale of any shares of Parent's capital stock or any
securities convertible into or exchangeable for any shares of Parent's capital
stock.
8.3 Subsidiaries. Parent does not presently own, directly or indirectly,
any interest in any other corporation, association, joint venture or other
business entity.
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<PAGE> 12
8.4 Litigation. No litigation, arbitration or proceeding is pending or,
to the best of Parent's knowledge, threatened by or against Parent, its
properties or assets, the Parent Shares or its officers or directors before any
court or any government agency, and, to the best of Parent's knowledge, no facts
exist which might form the basis for any such litigation, arbitration or
proceeding.
8.5 Taxes. No tax liabilities, disallowances or assessments relating to
the business, assets or employees or independent contractors of Parent have been
assessed or prepossessed as of the date hereof, and to the best of Parent's
knowledge there is no basis for any such liabilities, disallowances or
assessments. Parent is not delinquent in the payment of any taxes which would
result in the imposition of a lien, claim or encumbrance on Parent, its
properties or assets or the Parent Shares.
8.6 No Breach. The consummation of the transactions contemplated by this
Agreement will not result in or constitute any of the following: (i) a conflict,
violation or default with or an event that, with notice or lapse of time or
both, would be a default, breach, or violation of Parent's Charter or Bylaws,
any License (as hereinafter defined) or of any contract, lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument or arrangement to which Parent is
a party or by which Parent or its assets are bound; (ii) an event that would
permit any party to terminate any agreement or to accelerate the maturity of or
permit the subordination of any indebtedness or other obligation of Parent;
(iii) the creation or imposition of any lien, charge, or encumbrance on any of
the assets of Parent; or (iv) conflict with or result in the violation or breach
of any law, rule or regulation of any governmental authority, or any judgment,
order, injunction or decree applicable to Parent or its assets.
8.7 Compliance with Law; Governmental Consents. The business and
operations of Parent have been and are being conducted in compliance with all
laws, rules, regulations and licensing requirements applicable thereto, except
where failure to be so in compliance would not have a Material Adverse Effect on
Parent. Parent is unaware of any facts which might form the basis for a claim
that any material violation of such laws exists. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
Parent is required in connection with the execution, delivery and performance by
Parent of this Agreement, the consummation of the transactions contemplated
hereby or Parent's operation of Parent's business following the Closing Date.
8.8 Representations Complete. None of the representations and warranties
made by Parent herein, nor any statement made in any Exhibit, Schedule or
certificate furnished pursuant to this Agreement, contains or will contain any
untrue statement of a material fact, or omit to state any material fact required
to be stated therein, or necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading.
8.9 Consents of Non-Governmental Third Parties. No consent, waiver or
approval of any non-governmental third party is necessary for the consummation
by Parent of the transactions contemplated hereby.
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<PAGE> 13
ARTICLE IX
COVENANTS OF EVERTEK AND THE EVERTEK SHAREHOLDER
Evertek and the Evertek Shareholder, jointly and severally, covenant to
Parent that:
9.1 Maintenance of Business. From the date hereof until the Closing,
each of Evertek and the Evertek Shareholder shall use its best efforts, to cause
Evertek to carry on and preserve the business, goodwill and the relationships of
Evertek with suppliers, employees, agents and others in substantially the same
manner as they have been prior to the date hereof.
9.2 Necessary Consents. Prior to the Closing, Evertek will obtain such
written consents and take such other actions as may be necessary or appropriate
to allow the consummation of the transactions contemplated hereby and to allow
the continuation of Evertek's businesses by Parent after the Closing as
conducted at the date hereof.
9.3 Best Efforts. Each of Evertek and the Evertek Shareholder will use
its best efforts to perform and fulfill all obligations on their respective
parts to be performed and fulfilled under this Agreement, and to cause all the
conditions precedent to the consummation of the transactions to be timely
satisfied, to the end that the transactions contemplated by this Agreement shall
be effected substantially in accordance with its terms. Each of Evertek and the
Evertek Shareholder shall each cooperate with Parent in such actions and in
securing requisite approvals and shall deliver such further documents as Parent
may reasonably request as necessary to evidence such transactions.
ARTICLE X
COVENANTS OF COMPGEEKS AND THE COMPGEEKS SHAREHOLDERS
Compgeeks and each of the Compgeeks Shareholders, jointly and severally,
covenant to Parent that:
10.1 Maintenance of Business. From the date hereof until the Closing,
each of Compgeeks and the Compgeeks Shareholders shall use its best efforts, to
cause Compgeeks to carry on and preserve the business, goodwill and the
relationships of Compgeeks with suppliers, employees, agents and others in
substantially the same manner as they have been prior to the date hereof.
10.2 Necessary Consents. Prior to the Closing, Compgeeks will obtain
such written consents and take such other actions as may be necessary or
appropriate to allow the consummation of the transactions contemplated hereby
and to allow the continuation of Compgeeks' business by Parent after the Closing
as conducted at the date hereof.
10.3 Best Efforts. Each of Compgeeks and the Compgeeks Shareholders will
use its best efforts to perform and fulfill all obligations on their respective
parts to be performed and fulfilled under this Agreement, and to cause all the
conditions precedent to the consummation of the transactions to be timely
satisfied, to the end that the transactions contemplated by this Agreement shall
be effected substantially in accordance with its terms. Each of Compgeeks and
the Compgeeks Shareholders shall each cooperate with Parent in such actions and
in securing
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<PAGE> 14
requisite approvals and shall deliver such further documents as Parent may
reasonably request as necessary to evidence such transactions.
ARTICLE XI
COVENANTS OF EVERTEK HK AND THE EVERTEK HK SHAREHOLDER
Evertek HK and the Evertek HK Shareholder, jointly and severally,
covenant to Parent that:
11.1 Maintenance of Business. From the date hereof until the Closing,
each of Evertek HK and the Evertek HK Shareholder shall use its best efforts, to
cause Evertek HK to carry on and preserve the business, goodwill and the
relationships of Evertek HK with suppliers, employees, agents and others in
substantially the same manner as they have been prior to the date hereof.
11.2 Necessary Consents. Prior to the Closing, Evertek HK will obtain
such written consents and take such other actions as may be necessary or
appropriate to allow the consummation of the transactions contemplated hereby
and to allow the continuation of Evertek HK's business by Parent after the
Closing as conducted at the date hereof.
11.3 Best Efforts. Each of Evertek HK and the Evertek HK Shareholder
will use its best efforts to perform and fulfill all obligations on their
respective parts to be performed and fulfilled under this Agreement, and to
cause all the conditions precedent to the consummation of the transactions to be
timely satisfied, to the end that the transactions contemplated by this
Agreement shall be effected substantially in accordance with its terms. Each of
Evertek HK and the Evertek HK Shareholder shall cooperate with Parent in such
actions and in securing requisite approvals and shall deliver such further
documents as Parent may reasonably request as necessary to evidence such
transactions.
ARTICLE XII
COVENANTS OF PARENT
Parent covenants to each of Evertek, Compgeeks, Evertek HK, the
Evertek Shareholder, the Compgeeks Shareholders and the Evertek HK Shareholder
that:
12.1 Necessary Consents. Prior to the Closing, Parent will use its best
efforts to obtain such consents and take such other actions as may be necessary
or appropriate to allow the consummation of the transactions contemplated
hereby.
12.2 Best Efforts. Parent will use its best efforts to perform and
fulfill all obligations on its part to be performed and fulfilled under this
Agreement, and to cause all the conditions precedent to the consummation of the
transactions to be timely satisfied, to the end that the transactions
contemplated by this Agreement shall be effected substantially in accordance
with its terms.
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<PAGE> 15
ARTICLE XIII
CONDITIONS PRECEDENT TO
OBLIGATIONS OF PARENT
The obligation of Parent to consummate the transactions contemplated by
this Agreement is subject to the satisfaction, at or before the Closing, of all
the following conditions, unless waived in writing by Parent:
13.1 Certificates for Shares. Parent shall have received certificates
for the Evertek Shares, the Compgeeks Shares and the Evertek HK Shares, which
shall constitute all of the issued and outstanding capital stock of Evertek,
Compgeeks and Evertek HK.
13.2 Representations and Warranties True. All representations and
warranties of each of Evertek, Compgeeks, Evertek HK, the Evertek Shareholder,
the Compgeeks Shareholders and the Evertek HK Shareholder in this Agreement or
the Schedules and Exhibits hereto shall be true and correct on and as of the
Closing Date as if made on the date thereof.
13.3 Covenants Performed. Each of Evertek, Compgeeks, Evertek HK, the
Evertek Shareholder, the Compgeeks Shareholders and the Evertek HK Shareholder
shall have performed, satisfied, and complied with all covenants, agreements,
and conditions required by this Agreement to be performed or complied with by
each of Evertek, Compgeeks, Evertek HK, the Evertek Shareholder, the Compgeeks
Shareholders and the Evertek HK Shareholder on or before the Closing Date.
13.4 Registration Statement. Parent shall have filed a registration
statement on Form S-1 under the Act which covers shares (or other securities) to
be sold on its behalf to the public in an underwritten offering.
13.5 Certificate. Parent shall have received from each of Evertek,
Compgeeks, Evertek HK, the Evertek Shareholder, the Compgeeks Shareholders and
the Evertek HK Shareholder a certificate, dated the Closing Date, certifying
that the conditions specified in this Article XIII have been satisfied.
ARTICLE XIV
CONDITIONS PRECEDENT TO
OBLIGATIONS OF EVERTEK, COMPGEEKS AND EVERTEK HK
The obligation of Evertek, Compgeeks and Evertek HK to consummate the
transactions contemplated by this Agreement is subject to the satisfaction, at
or before the Closing, of all the following conditions, unless waived in writing
by Evertek, Compgeeks and Evertek HK:
14.1 Representations. All representations and warranties by Parent in
this Agreement or the Schedules and Exhibits hereto, or in any written statement
or certificate that shall be delivered to Evertek, Compgeeks and Evertek HK by
Parent under this Agreement shall be true on and as of the Closing as though
such representations and warranties were made on and as of that date, and a duly
authorized Parent officer shall have delivered a certificate, dated the Closing
Date, to Evertek, Compgeeks and Evertek HK so certifying.
-15-
<PAGE> 16
14.2 Covenants Performed. Parent shall have performed, satisfied, and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by Parent on or before the Closing,
and a duly authorized Parent officer shall have delivered a certificate, dated
the Closing Date, to Evertek, Compgeeks and Evertek HK so certifying.
14.3 Registration Statement. Parent shall have filed a registration
statement on Form S-1 under the Act which covers shares (or other securities) to
be sold on its behalf to the public in an underwritten offering.
ARTICLE XV
CLOSING
The share exchange hereunder (the "Closing") shall occur at the offices
of Brobeck Phleger & Harrison LLP located 550 West C Street, Suite 1200, San
Diego, California 92101 at 10:00 a.m. on the first business day following the
filing of a registration statement on Form S-1 by Parent or at such other time
and date to which the parties may agree in writing (the "Closing Date").
ARTICLE XVI
TERMINATION
16.1 Termination by Mutual Consent. At any time prior to the Closing,
this Agreement may be terminated by written consent of Parent, Evertek,
Compgeeks and Evertek HK.
16.2 Termination by Compgeeks. Compgeeks may terminate this Agreement at
any time after June 30, 1999 by delivery of written notice to Parent, Evertek
and Evertek HK, if the Closing has not occurred by such date because the
conditions contained in Article XIV are or have not been satisfied.
16.3 Termination by Evertek. Evertek may terminate this Agreement at any
time after June 30, 1999 by delivery of written notice to Parent, Compgeeks and
Evertek HK, if the Closing has not occurred by such date because the conditions
contained in Article XIV are or have not been satisfied.
16.4 Termination by Evertek HK. Evertek HK may terminate this Agreement
at any time after June 30, 1999 by delivery of written notice to Parent, Evertek
and Compgeeks, if the Closing has not occurred by such date because the
conditions contained in Article XIV are or have not been satisfied.
16.5 Termination by Parent. Parent may terminate this Agreement at any
time after June 30, 1999 by delivery of written notice to Evertek, Compgeeks and
Evertek HK, if the Closing has not occurred by such date because the conditions
contained in Article XIII are or have not been satisfied.
-16-
<PAGE> 17
16.6 Effect of Termination. In the event of termination as provided
above, this Agreement shall forthwith become of no further force or effect and
all parties hereto shall bear their own costs associated with this Agreement and
all transactions mentioned herein; provided, that Article XVII hereof shall
survive such termination and continue in full force and effect, and such
termination shall not relieve any person of liability for breach of or
interference with this Agreement.
ARTICLE XVII
GENERAL PROVISIONS
17.1 Survival. All representations and warranties made shall survive the
Closing.
17.2 Further Assurances. At the request of any of the parties hereto,
and without further consideration, the other parties agree to execute such
documents and instruments and to do such further acts as may be necessary or
desirable to effectuate the transactions contemplated hereby.
17.3 No Broker or Finder. Each of the parties represents and warrants
that it has dealt with no broker or finder in connection with any of the
transactions contemplated by this Agreement, and, insofar as it knows, no broker
or other person is entitled to any conversion or finder's fee, in connection
with these transactions.
17.4 Each Party to Bear Own Costs. Each of the parties shall pay all
costs and expenses incurred or to be incurred by it in negotiating and preparing
this Agreement and in closing and carrying out the transactions contemplated by
this Agreement.
17.5 Entire Agreement; Waivers. This Agreement and the Exhibits and
Schedules hereto constitute the entire agreement between the parties pertaining
to the contemporaneous agreements, representations, and understandings of the
parties. No supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by all parties. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by the
party making the waiver.
17.6 Successors and Assigns. This Agreement shall be binding on, and
shall inure to the benefit of, the parties to it and their respective heirs,
legal representatives, successors, and assigns.
17.7 Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
prepaid, and properly addressed as follows:
-17-
<PAGE> 18
To Evertek at: Evertek Computer Products, Inc.
2604 Temple Height Drive
Oceanside, CA 92056
Attn: Frank Segler
To Compgeeks at: compgeeks.com
2370 Oak Ridge Way
Vista, CA 92083
Attn: Scott Kusel
To Evertek HK: Evertek Trading Limited
19th Floor, Malaysia Building
Wanchai, Hong Kong
Attn: Randy Segler
To Parent at: CompGeeks, Inc.
2604 Temple Height Drive
Oceanside, CA 92056
Attn: Frank Segler
Any party may change its address for purposes of this Section by giving notice
of the new address to each of the other parties in the manner set forth above.
17.8 Attorneys' Fees. If any party to this Agreement shall bring any
action, suit, counterclaim or appeal for any relief against the other,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "Action"), the prevailing party shall be entitled to
recover as part of any such Action its reasonable attorneys' fees and costs,
including any fees and costs incurred in bringing and prosecuting such Action
and/or enforcing any order, judgment, ruling or award granted as part of such
Action.
17.9 Governing Law. The terms of this Agreement shall be governed by the
laws of the State of California applicable to agreements entered into, to be
wholly performed in and among residents exclusively of California.
17.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
17.11 Severability. All provisions contained herein are severable and in
the event that any of them shall be held to be to any extent invalid or
otherwise unenforceable by any court of competent jurisdiction, such provision
shall be construed as if it were written so as to effectuate to the greatest
possible extent the parties' expressed intent; and in every case the remainder
of this Agreement shall not be affected thereby and shall remain valid and
enforceable, as if such affected provision were not contained herein.
17.12 Separate Counsel. Each of Evertek, Compgeeks, Evertek HK, the
Evertek Shareholder, the Compgeeks Shareholders and the Evertek HK Shareholder
acknowledges and agrees that such have been provided the opportunity and
encouraged to consult with counsel of
-18-
<PAGE> 19
such entity's or person's own choosing with respect to this Agreement and that
Brobeck, Phleger & Harrison LLP solely represents the interests of Parent.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-19-
<PAGE> 20
EXHIBIT 10.6
IN WITNESS WHEREOF, the parties hereto have executed this Share Exchange
Agreement as of the date first above written.
COMPGEEKS, INC.
By: /s/ Frank Segler
-------------------------------------
Frank Segler, Chief Executive Officer
COMPGEEKS SHAREHOLDERS
/s/ Frank Segler
-----------------------------------------
Frank Segler
/s/ Scott Kusel
-----------------------------------------
Scott Kusel
EVERTEK SHAREHOLDER
FRANK SEGLER AND SHU-LING WANG AS
TRUSTEES OF THE SEGLER FAMILY TRUST
/s/ Frank Segler
-----------------------------------------
Frank Segler, Trustee
/s/ Shu-Ling Wang
-----------------------------------------
Shu-Ling Wang, Trustee
[COUNTERPART SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT]
<PAGE> 21
EXHIBIT 10.6
EVERTEK COMPUTER PRODUCTS, INC.
By: /s/ Frank Segler
-------------------------------------
Frank Segler, President
COMPGEEKS.COM
By: /s/ Scott Kusel
-------------------------------------
Scott Kusel, President
EVERTEK TRADING LIMITED
By: /s/ Randy Segler
-------------------------------------
Its: Beneficial Owner of all
Capital Stock
------------------------------------
EVERTEK HK SHAREHOLDER
/s/ Randy Segler
-----------------------------------------
Randy Segler
[COUNTERPART SIGNATURE PAGE TO SHARE EXCHANGE AGREEMENT]
<PAGE> 22
EXHIBIT 10.6
SCHEDULE A
PARENT STOCKHOLDERS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
NUMBER OF COMPGEEKS.COM EVERTEK HK NUMBER OF
NAME OF STOCKHOLDER EVERTEK SHARES SHARES SHARES PARENT SHARES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Evertek Shareholder
Frank Segler and Shu-Ling Wang
as Trustees of The Segler
Family Trust ............................ 50,000 10,601,181
Compgeek Shareholders
Frank Segler ........................... 1,000 3,040,292
Scott Kusel ............................ 1,000 3,040,292
Evertek HK Shareholder
Randy Segler ........................... 2 1,025,235
------ ----- -- ----------
TOTAL ............................ 50,000 2,000 2 17,707,000
====== ===== == ==========
</TABLE>
<PAGE> 23
EXHIBIT 10.6
CONSENT OF SPOUSE
The undersigned spouse of a party to that certain Share Exchange
Agreement to which this Consent of Spouse is attached has read and hereby
approves the foregoing Share Exchange Agreement. In consideration of CompGeeks'
granting such party the right to acquire the Parent Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms and provisions of such Agreement, including, any right
the undersigned may otherwise have in such shares pursuant to community property
laws or other marital property rights.
M. Michele Kusel
- -------------------------------------------
(Please Print Name of Party )
Scott Evan Kusel
- -------------------------------------------
(Please Print Name of Spouse)
/s/ M. Michele Kusel
- -------------------------------------------
(Signature of Spouse)
<PAGE> 24
EXHIBIT 10.6
CONSENT OF SPOUSE
The undersigned spouse of a party to that certain Share Exchange
Agreement to which this Consent of Spouse is attached has read and hereby
approves the foregoing Share Exchange Agreement. In consideration of CompGeeks'
granting such party the right to acquire the Parent Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms and provisions of such Agreement, including, any right
the undersigned may otherwise have in such shares pursuant to community property
laws or other marital property rights.
Frank Segler
- -------------------------------------------
(Please Print Name of Party )
Shu-Ling Segler
- -------------------------------------------
(Please Print Name of Spouse)
/s/ Shu-Ling Segler
- -------------------------------------------
(Signature of Spouse)
<PAGE> 1
EXHIBIT 10.7
COMPGEEKS, INC.
1999 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests
of CompGeeks, Inc., a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock, and
- the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE> 2
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances made to members of the Primary
Committee shall require the approval of a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option grant or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
2.
<PAGE> 3
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants who provide services to the Corporation (or
any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants made under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances made under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when those issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
for such shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members after the Plan Effective Date, whether
through appointment by the Board or election by the Corporation's stockholders,
and (ii) those individuals who continue to serve as non-employee Board members
at one or more Annual Stockholders Meetings held after the 1999 Annual
Stockholders Meeting. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.
3.
<PAGE> 4
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
2,000,000 shares.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically be increased on the first trading day in January
each calendar year during the term of the Plan, beginning in calendar year 2000,
by an amount equal to one and one half percent (1.5%) of the total number of
shares of Common Stock outstanding on the last trading day in December of the
immediately preceding calendar year, but in no event shall any such annual
increase exceed 300,000 shares (subject to adjustment in accordance with Section
V.E. of this Article One).
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1999 calendar year.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. Should the
exercise price of an option under the Plan be paid with shares of Common Stock
or should shares of Common Stock otherwise issuable under the Plan be withheld
by the Corporation in satisfaction of the withholding taxes incurred in
connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised pursuant to the provisions of Section IV of Article Two,
Section III of Article Three, Section II of Article Five and Section III of
Article Six shall NOT be available for subsequent issuance under the Plan.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the maximum number and/or class of securities by which the share
reserve is to increase automatically each calendar year pursuant to the
provisions of Section V.B of this Article One, (iii) the number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct
4.
<PAGE> 5
stock issuances under the Plan per calendar year, (iv) the number and/or class
of securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, and (v)
the number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5.
<PAGE> 6
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
6.
<PAGE> 7
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may subsequently be exercised
by the personal representative of the Optionee's estate or by the person
or persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution or by the
Optionee's designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent the option is not otherwise at that
time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at the
time of the Optionee's cessation of Service but also with respect to one
or more additional installments in which the Optionee would have vested
had the Optionee continued in Service.
7.
<PAGE> 8
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
8.
<PAGE> 9
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. However, an outstanding option shall not
become exercisable on such an accelerated basis if and to the extent: (i) such
option is, in connection with the Corporate Transaction, to be assumed by the
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Corporate Transaction on any shares for which
the option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such
9.
<PAGE> 10
Corporate Transaction. Appropriate adjustments to reflect such Corporate
Transaction shall also be made to (i) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan, (iii) the
maximum number and/or class of securities by which the share reserve is to
increase automatically each calendar year and (iv) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of
such Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to those options and may be exercised
for any or all of those shares as fully vested shares of Common Stock, whether
or not those options are to be assumed in the Corporate Transaction. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall not be assignable
in connection with such Corporate Transaction and shall accordingly terminate
upon the consummation of such Corporate Transaction, and the shares subject to
those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become fully exercisable for the total
number of shares of Common Stock at the time subject to those options in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may structure one or more of the Corporation's repurchase
rights so that those rights shall immediately terminate with respect to any
shares held by the Optionee at the time of his or her Involuntary Termination,
and the shares subject to those terminated repurchase rights shall accordingly
vest in full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of a
Change in Control, become fully exercisable for the total number of shares of
Common Stock at the time subject to those options and may be exercised for any
or all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the consummation
of such Change in Control, and the shares subject to those terminated rights
shall thereupon vest in full. Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options
10.
<PAGE> 11
under the Discretionary Option Grant Program and the termination of one or more
of the Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control. Each option so
accelerated shall remain exercisable for fully vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one (1)
year period measured from the effective date of Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price payable
for such shares.
11.
<PAGE> 12
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so approved,
then the distribution to which the Optionee shall be entitled may be made
in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion thereof)
on the option surrender date and may exercise such rights at any time
prior to the later of (a) five (5) business days after the receipt of the
rejection notice or (b) the last day on which the option is otherwise
exercisable in accordance with the terms of the documents evidencing such
option, but in no event may such rights be exercised more than ten (10)
years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Each individual holding one or more options with such a
limited stock appreciation right shall have the unconditional right,
exercisable for a thirty (30)-day period immediately following a Hostile
Take-Over, to surrender each such option to the Corporation for a cash
distribution in an amount equal to the excess of (A) the Take-Over Price
of the shares of Common Stock which are at the time subject to each
surrendered option (whether or not the option is otherwise vested and
exercisable for those shares) over (B) the aggregate exercise price
payable for such shares. Such cash distribution shall be paid within five
(5) days following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall automatically pre-approve any
subsequent exercise of that right in accordance with the terms of this
Paragraph C. Accordingly, no further approval of the Plan Administrator or
the Board shall be required at the time of the actual option surrender and
cash distribution.
(iv) The balance of the option (if any) shall remain
outstanding and exercisable in accordance with the documents evidencing
such option.
12.
<PAGE> 13
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this
program, and
13.
<PAGE> 14
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution
or by the designated beneficiary or beneficiaries of such option. Such right of
exercise shall lapse, and the option shall terminate, upon the earlier of (i)
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service. However,
the option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock.
14.
<PAGE> 15
The option shall remain so exercisable until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Service,
(iii) the termination of the option in connection with a Corporate Transaction
or (iv) the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
VI. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
15.
<PAGE> 16
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
16.
<PAGE> 17
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
17.
<PAGE> 18
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
18.
<PAGE> 19
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 15,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after
the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 5,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 5,000 share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received one or
more stock option grants from the Corporation prior to the Underwriting Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 15,000 share grant shall vest,
and the Corporation's repurchase right shall lapse, in a series of two (2)
successive equal annual installments upon the Optionee's completion of each year
of service as a Board member over the two (2) year period measured from the
option grant date. Each annual 5,000 share automatic option shall be fully
vested at the time of grant.
19.
<PAGE> 20
E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Five may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Five, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
F. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution or by the designated
beneficiary or beneficiaries of such option) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time of
the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Board
service for any reason other than death or Permanent Disability, terminate
and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
20.
<PAGE> 21
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of the Plan shall constitute pre-approval of the grant of each such limited
cash-out right and the subsequent exercise of that right in accordance with the
terms of this Paragraph D. Accordingly, no approval or consent of the Board or
any Plan Administrator shall be required at the time of the actual option
surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
21.
<PAGE> 22
F. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
22.
<PAGE> 23
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board to the acquisition of a special option grant under this Director Fee
Option Grant Program. Such election must be filed with the Corporation's Chief
Financial Officer prior to first day of the calendar year for which the annual
retainer fee which is the subject of that election is otherwise payable. Each
non-employee Board member who files such a timely election shall automatically
be granted an option under this Director Fee Option Grant Program on the first
trading day in January in the calendar year for which the annual retainer fee
which is the subject of that election would otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
23.
<PAGE> 24
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each month of Board service over the twelve (12)-month period
measured from the grant date. Each option shall have a maximum term of ten (10)
years measured from the option grant date.
D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Six may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Six, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while
holding one or more options under this Director Fee Option Grant Program, then
each such option may be exercised, for any or all of the shares for which the
option is exercisable at the time of the Optionee's cessation of Board service
(less any shares subsequently purchased by Optionee prior to death), by the
personal representative of the Optionee's estate or by the person or persons to
24.
<PAGE> 25
whom the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution or by the designated beneficiary or
beneficiaries of such option. Such right of exercise shall lapse, and the option
shall terminate, upon the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the three (3)-year period measured from the date of the
Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable for the total number of shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earliest to occur of (i) the expiration of the
ten (10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv) the
surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. Stockholder approval of the Plan shall constitute
pre-approval of the grant of each such limited cash-out right and the subsequent
exercise of that right in accordance with the terms of this Paragraph C.
Accordingly, no approval or consent of the Board or any Plan Administrator shall
be required at the time of the actual option surrender and cash distribution.
25.
<PAGE> 26
D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26.
<PAGE> 27
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of their options or the vesting of their
shares. Such right may be provided to any such holder in either or both of the
following formats:
Stock Withholding: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
27.
<PAGE> 28
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately at the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant Program at any time on or after the Plan Effective Date. However,
no options granted under the Plan may be exercised, and no shares shall be
issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
C. The Plan shall terminate upon the earliest to occur of (i) April
26, 2009, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on April 26, 2009, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
28.
<PAGE> 29
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29.
<PAGE> 30
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
A-1.
<PAGE> 31
G. CORPORATION shall mean CompGeeks, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of CompGeeks, Inc. which shall by appropriate action adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Articles One and Five.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
A-2.
<PAGE> 32
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of management
to which he or she reports, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and target bonus
under any corporate-performance based bonus or incentive programs) by more
than fifteen percent (15%) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without the
individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
A-3.
<PAGE> 33
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1999 Stock Incentive Plan, as
set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean the date the Plan was adopted by
the Board.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
BB. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the
salary investment option grant program in effect under the Plan.
CC. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
DD. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.
EE. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
FF. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
A-4.
<PAGE> 34
GG. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
HH. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
II. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
JJ. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. TAXES shall mean the Federal, state and local income and
employment withholding taxes incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
LL. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
A-5.
<PAGE> 1
EXHIBIT 10.8
NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR ANY OF THE SECURITIES ISSUABLE
HEREUNDER HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES, OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL
COMPLIANCE WITH RULE 144 UNDER THE ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS CONVERTIBLE PROMISSORY
NOTE HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA OR ANY OTHER STATE AND THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE OR SUCH PROVISIONS OF THE CORPORATIONS CODE OF ANY SUCH OTHER
STATE. THE RIGHTS OF THE HOLDER OF THIS CONVERTIBLE PROMISSORY NOTE ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
$501,305.00 San Diego, California
May 10, 1999
COMPUTER GEEKS DISCOUNT OUTLET, INC.
DEMAND PROMISSORY NOTE
COMPUTER GEEKS DISCOUNT OUTLET, INC., a California corporation (the
"Company"), for value received, hereby promises to pay to Frank Segler
("Holder"), the principal amount of Five Hundred One Thousand Three Hundred Five
Dollars ($501,305.00) (the "Issue Price"), together with interest on the unpaid
amount thereof in accordance with the terms hereof, from the date hereof until
paid or converted in accordance with the terms hereof.
1. Promissory Note ("Note").
1.1 Interest Rate. The rate of interest hereunder ("Interest
Rate") shall equal ten percent (10%) per annum, and shall be computed on the
basis of a 365 day year for the actual number of days elapsed. The Interest Rate
shall in no event exceed the maximum rate permitted by law.
1.2 Payment. The Issue Price plus all accrued but previously
unpaid interest thereon shall become due and payable on demand by the Holder. If
any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or a public holiday under the laws of the State of California,
such payment shall be made on the next succeeding business day.
<PAGE> 2
Payment and any prepayment under Section 1.3 below shall be made at the offices
or residence of the Holder, or at such other place as the Holder shall have
designated to the Company in writing, in lawful money of the United States of
America.
1.3 Prepayment. Prepayment may be made by the Company of the
entire amount of the Issue Price and all accrued but unpaid interest without
penalty at any time.
2. Miscellaneous.
2.1 Transfer of Note. This Note shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by the Holder without the express written consent of the Company, and
any such attempted disposition of this Note or any portion hereof shall be of no
force or effect.
2.2 Titles and Subtitles. The titles and subtitles used in
this Note are for convenience only and are not to be considered in construing or
interpreting this Note.
2.3 Notices. Any notice required or permitted under this
Note shall be given in writing at the address last shown on the records of the
Company for the Holder or given by the Holder to the Company for the purpose of
notice (or, if no such address appears or is given, at the place where the
principal executive office or residence of the Holder is located).
2.4 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Note, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and disbursements in
addition to any other relief to which such party may be entitled.
2.5 Amendments and Waivers. Other than the right to the
payment of the Issue Price and all accrued but unpaid interest thereon, which
may only be amended or waived with the written consent of the Holder, any other
term of this Note may be amended and the observance of any other term of this
Note may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Company and the
Holder. Any amendment or waiver effected in accordance with this Section 2.5
shall be binding upon the Holder of this Note (and of any securities into which
this Note is convertible), each future holder of all such securities and the
Company.
2.6 Severability. If one or more provisions of this Note are
held to be unenforceable under applicable law, such provision shall be excluded
from this Note and the balance of the Note shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
2.7 Governing Law. This Note shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to its conflicts of laws principles.
2.8 Counterparts. This Note may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2
<PAGE> 3
Date: May 10, 1999 COMPUTER GEEKS DISCOUNT OUTLET,
INC., a California corporation
By: /s/ Scott Kusel
---------------------------------
Title: President
------------------------------
ACKNOWLEDGED AND AGREED:
By: /s/ Frank Segler
----------------------------
Frank Segler
3
<PAGE> 1
EXHIBIT 10.9
NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR ANY OF THE SECURITIES ISSUABLE
HEREUNDER HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES, OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL
COMPLIANCE WITH RULE 144 UNDER THE ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS CONVERTIBLE PROMISSORY
NOTE HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA OR ANY OTHER STATE AND THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE OR SUCH PROVISIONS OF THE CORPORATIONS CODE OF ANY SUCH OTHER
STATE. THE RIGHTS OF THE HOLDER OF THIS CONVERTIBLE PROMISSORY NOTE ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
$501,305.00 San Diego, California
May 10, 1999
COMPUTER GEEKS DISCOUNT OUTLET, INC.
DEMAND PROMISSORY NOTE
COMPUTER GEEKS DISCOUNT OUTLET, INC., a California corporation (the
"Company"), for value received, hereby promises to pay to Scott Kusel
("Holder"), the principal amount of Five Hundred One Thousand Three Hundred Five
Dollars ($501,305.00) (the "Issue Price"), together with interest on the unpaid
amount thereof in accordance with the terms hereof, from the date hereof until
paid or converted in accordance with the terms hereof.
1. Promissory Note ("Note").
1.1 Interest Rate. The rate of interest hereunder ("Interest
Rate") shall equal ten percent (10%) per annum, and shall be computed on the
basis of a 365 day year for the actual number of days elapsed. The Interest Rate
shall in no event exceed the maximum rate permitted by law.
1.2 Payment. The Issue Price plus all accrued but previously
unpaid interest thereon shall become due and payable on demand by the Holder. If
any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or a public holiday under the laws of the State of California,
such payment shall be made on the next succeeding business day.
<PAGE> 2
Payment and any prepayment under Section 1.3 below shall be made at the offices
or residence of the Holder, or at such other place as the Holder shall have
designated to the Company in writing, in lawful money of the United States of
America.
1.3 Prepayment. Prepayment may be made by the Company of the
entire amount of the Issue Price and all accrued but unpaid interest without
penalty at any time.
2. Miscellaneous.
2.1 Transfer of Note. This Note shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by the Holder without the express written consent of the Company, and
any such attempted disposition of this Note or any portion hereof shall be of no
force or effect.
2.2 Titles and Subtitles. The titles and subtitles used in
this Note are for convenience only and are not to be considered in construing or
interpreting this Note.
2.3 Notices. Any notice required or permitted under this
Note shall be given in writing at the address last shown on the records of the
Company for the Holder or given by the Holder to the Company for the purpose of
notice (or, if no such address appears or is given, at the place where the
principal executive office or residence of the Holder is located).
2.4 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Note, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and disbursements in
addition to any other relief to which such party may be entitled.
2.5 Amendments and Waivers. Other than the right to the
payment of the Issue Price and all accrued but unpaid interest thereon, which
may only be amended or waived with the written consent of the Holder, any other
term of this Note may be amended and the observance of any other term of this
Note may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Company and the
Holder. Any amendment or waiver effected in accordance with this Section 2.5
shall be binding upon the Holder of this Note (and of any securities into which
this Note is convertible), each future holder of all such securities and the
Company.
2.6 Severability. If one or more provisions of this Note are
held to be unenforceable under applicable law, such provision shall be excluded
from this Note and the balance of the Note shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
2.7 Governing Law. This Note shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to its conflicts of laws principles.
2.8 Counterparts. This Note may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2
<PAGE> 3
Date: May 10, 1999 COMPUTER GEEKS DISCOUNT OUTLET,
INC., a California corporation
By: /s/ Frank Segler
-------------------------------
Title: Chairman of the Board
----------------------------
ACKNOWLEDGED AND AGREED:
By: /s/ Scott Kusel
-------------------------------
Scott Kusel
3
<PAGE> 1
EXHIBIT 10.10
NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR ANY OF THE SECURITIES ISSUABLE
HEREUNDER HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES, OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL
COMPLIANCE WITH RULE 144 UNDER THE ACT.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS CONVERTIBLE PROMISSORY
NOTE HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE
OF CALIFORNIA OR ANY OTHER STATE AND THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE OR SUCH PROVISIONS OF THE CORPORATIONS CODE OF ANY SUCH OTHER
STATE. THE RIGHTS OF THE HOLDER OF THIS CONVERTIBLE PROMISSORY NOTE ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
$1,537,988.00 San Diego, California
May 10, 1999
EVER-TEK COMPUTER CORPORATION
DEMAND PROMISSORY NOTE
Ever-Tek Computer Corporation, a California corporation (the "Company"),
for value received, hereby promises to pay to Frank Segler ("Holder"), the
principal amount of One Million Five Hundred Thirty Seven Thousand Nine Hundred
Eighty Eight Dollars ($1,537,988.00) (the "Issue Price"), together with interest
on the unpaid amount thereof in accordance with the terms hereof, from the date
hereof until paid or converted in accordance with the terms hereof.
1. Promissory Note ("Note").
1.1 Interest Rate. The rate of interest hereunder ("Interest
Rate") shall equal ten percent (10%) per annum, and shall be computed on the
basis of a 365 day year for the actual number of days elapsed. The Interest Rate
shall in no event exceed the maximum rate permitted by law.
1.2 Payment. The Issue Price plus all accrued but previously
unpaid interest thereon shall become due and payable on demand by the Holder. If
any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or a public holiday under the laws of the State of California,
such payment shall be made on the next succeeding business day.
<PAGE> 2
Payment and any prepayment under Section 1.3 below shall be made at the offices
or residence of the Holder, or at such other place as the Holder shall have
designated to the Company in writing, in lawful money of the United States of
America.
1.3 Prepayment. Prepayment may be made by the Company of the
entire amount of the Issue Price and all accrued but unpaid interest without
penalty at any time.
2. Miscellaneous.
2.1 Transfer of Note. This Note shall not be transferable or
assignable in any manner and no interest shall be pledged or otherwise
encumbered by the Holder without the express written consent of the Company, and
any such attempted disposition of this Note or any portion hereof shall be of no
force or effect.
2.2 Titles and Subtitles. The titles and subtitles used in
this Note are for convenience only and are not to be considered in construing or
interpreting this Note.
2.3 Notices. Any notice required or permitted under this
Note shall be given in writing at the address last shown on the records of the
Company for the Holder or given by the Holder to the Company for the purpose of
notice (or, if no such address appears or is given, at the place where the
principal executive office or residence of the Holder is located).
2.4 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Note, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and disbursements in
addition to any other relief to which such party may be entitled.
2.5 Amendments and Waivers. Other than the right to the
payment of the Issue Price and all accrued but unpaid interest thereon, which
may only be amended or waived with the written consent of the Holder, any other
term of this Note may be amended and the observance of any other term of this
Note may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Company and the
Holder. Any amendment or waiver effected in accordance with this Section 2.5
shall be binding upon the Holder of this Note (and of any securities into which
this Note is convertible), each future holder of all such securities and the
Company.
2.6 Severability. If one or more provisions of this Note are
held to be unenforceable under applicable law, such provision shall be excluded
from this Note and the balance of the Note shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
2.7 Governing Law. This Note shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to its conflicts of laws principles.
2.8 Counterparts. This Note may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2
<PAGE> 3
Date: May 10, 1999 EVER-TEK COMPUTER CORPORATION,
a California corporation
By: /s/ Frank Segler
--------------------------------
Title: President
-----------------------------
ACKNOWLEDGED AND AGREED:
By: /s/ Frank Segler
--------------------------------
Frank Segler
3
<PAGE> 1
EXHIBIT 10.11
[AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION LOGO]
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
March 26, 1999, is made by and between OAK RIDGE 13, LLC, a California limited
liability company ("Lessor") and COMPUTER GEEKS DISCOUNT OUTLET, INC., a
California corporation ("Lessee"), (collectively the "Parties," or individually
a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 2370 Oak Ridge Way, Vista, located in the County
of San Diego, State of California, and generally described as (describe briefly
the nature of the property) a free-standing building containing approximately
43,707 square feet, situated on a parcel of approximately 3.60 acres in the Oak
Ridge Business Center, legally described in Exhibit "A" hereto ("Premises").
(See Paragraph 2 for further provisions.)
1.3 TERM: six (6) years and no months ("Original Term") commencing April
1, 1999, subject to the extensions as provided in Paragraph 53, ("Commencement
Date") and ending March 31, 2005 ("Expiration Date"). (See Paragraph 3 for
further provisions.)
1.4 EARLY POSSESSION: ______________________________________________
("EARLY POSSESSION Date"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $14,000.00 per month ("BASE RENT"), payable on the first
day of each month commencing April 1, 1999 (See Paragraph 4 for further
provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $14,000.00 as Base Rent for the
period April 1, 1999 through April 30, 1999.
1.7 SECURITY DEPOSIT: $23,350.00 ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: general offices, and warehouse and distribution of
computer products; light assembly of computer subcomponents (See Paragraph 6 for
further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
CB Richard Ellis represents
[X] Lessor exclusively ("LESSOR'S BROKER"); [ ] both Lessor and Lessee, and
David Steffy, Business Real Estate represents
[X] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by Scott Kusel and Frank Segler ("Guarantor"). (See Paragraph 37 for
further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs ________ through _________ and Exhibits A all of which constitute a
part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
roof, plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences if possession is not tendered to Lessee when required by
this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1 ), Lessor may use, apply or
retain all or any portion of said Security Deposit for the payment of any amount
due Lessor or to reimburse or compensate Lessor for any liability, cost,
expense, loss or damage (including attorneys' fees) which Lessor may suffer or
incur by reason thereof. If Lessor uses or applies all or any portion of said
Security Deposit, Lessee shall within ten (10) days after written request
therefor deposit moneys with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Any time the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor sufficient to maintain the same ratio
between the Security Deposit and the Base Rent as those amounts are specified in
the Basic Provisions. Lessor shall not be required to keep all or any part of
the Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor.
NET PAGE 1 Initials: JW
---
SEK
---
<PAGE> 2
Unless otherwise expressly agreed in writing by Lessor, no part of the Security
Deposit shall be considered to be held in trust, to bear interest or other
increment for its use, or to be prepayment for any moneys to be paid by Lessee
under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose.(1) Lessee shall not use or permit the use of the Premises
in a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessee's assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the improvements thereon
does not involve a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor, will not adversely affect the value or
marketability of the Premise or the appearance thereof, is in compliance with
all Applicable Law, and is otherwise permissible pursuant to this Paragraph 6.
If Lessor elects to withhold such consent, Lessor shall within five (5) business
days give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance in
a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but in compliance with all Applicable Law,
use any ordinary and customary materials reasonably required to be used by
Lessee in the normal course of Lessee's business permitted on the Premises, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give Lessor
a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim action or proceeding given to, or received from,
any governmental authority or private party, or persons entering or occupying
the Premises, concerning the presence, spill, release, discharge of, or exposure
to, any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every part thereof in good
order, condition and repair, structural and non-structural (whether or not such
portion of the Premises requiring repairs, or the means of repairing the same,
are reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of such portion of the Premises), including, without limiting the
generality of the foregoing, all equipment or facilities serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), foundations, ceilings, roofs, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of the
Premises, the elements surrounding same, or neighboring properties, that was
caused or materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance and/or storage tank brought onto the Premises by or for
Lessee or under its control. Lessee, in keeping the Premises in good order,
condition and repair, shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof in
good order, condition and state of repair. If Lessee occupies the Premises for
seven (7) years or more, Lessor may require Lessee to repaint the exterior of
the buildings on the Premises as reasonably required, but not more frequently
than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility
Installations" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning
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(1) See Footnote 1 on Page 2A.
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equipment, plumbing, and fencing in, on or about the Premises. The term "Trade
Fixtures" shall mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term "Alterations" shall mean
any modification of the improvements on the Premises from that which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
or become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
their installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $2,000,000.00 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $2,000,000.00 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1 (c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause and the amount of coverage
shall be adjusted annually to reflect the projected rental income, property
taxes, insurance premium costs and other expenses, if any, otherwise payable by
Lessee, for the next twelve (12) month period. Lessee shall be liable for any
deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail
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to procure and maintain the insurance required to be carried by the Insuring
Party under this Paragraph 8, the other Party may, but shall not be required to,
procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers or any other person
in or about the Premises, whether such damage or injury is caused by or results
from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs
in the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event, this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the
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date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes to be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be inter-mingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable portion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose, unless following such transfer,
Scott Kusel and Frank Segler continue to hold fifty percent (50%) or more of the
voting control of Lessee.
(c) INTENTIONALLY OMITTED.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1 (c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the finance and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the current monthly
Base Rent, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent.(1) Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be
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(1) See Footnote 1 on Page 6A.
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observed or performed by Lessee during the term of said assignment or sublease,
other than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Lessor has specifically consented in
writing.
(g) INTENTIONALLY OMITTED.
(h) INTENTIONALLY OMITTED.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease. Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making
by lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from
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this Lease and of no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an Inducement Provision shall be immediately due and payable by Lessee to
Lessor, and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee Shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
Lessor's Broker a fee as set forth in a separate written agreement between
Lessor and Lessor's Broker.
15.3 INTENTIONALLY OMITTED.
15.4 INTENTIONALLY OMITTED.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or assignment
and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof, Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party brings an action or proceeding to enforce
the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorney's fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term, "Prevailing Party" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party of its claim or defense. The attorney's fees
award shall not be computed in accordance with any court fee schedule, but shall
be such as to fully reimburse all attorney's fees reasonably incurred. Lessor
shall be entitled to attorney's fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "'Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
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(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
49. BASE RENT ESCALATIONS. The Base Rent payable by Lessee under this Lease
during the Original Term shall be increased as follows:
(a) On the first (1st) anniversary of the Commencement Date, the Base
Rent shall be increased to Sixteen Thousand Three Hundred Ninety Dollars
($16,390.00) per month;
(b) On the second (2nd) anniversary of the Commencement Date, the Base
Rent shall be increased to Nineteen Thousand Two Hundred Thirty-One Dollars
($19,231.00) per month;
(c) On the third (3rd) anniversary of the Commencement Date, the Base
Rent shall be increased to Twenty-Two Thousand Two Hundred Ninety Dollars
($22,290.00) per month;
(d) On the fourth (4th) anniversary of the Commencement Date, the Base
Rent shall be increased to Twenty-Five Thousand Three Hundred Fifty Dollars
($25,350.00) per month; and
(e) Base Rent for the period from the fifth (5th) anniversary of the
Commencement Date through the expiration of the Original Term shall remain at
Twenty-Five Thousand Three Hundred Fifty Dollars ($25,350.00) per month.
50. OPTION TO EXTEND. Lessor hereby grants to Lessee the option to extend
the Original Term of this Lease for one (1) period of five (5) additional years
(the "Option Period") commencing upon the expiration of the Original Term of
this Lease, upon each and all of the following terms and conditions:
(a) Lessee gives to Lessor, and Lessor actually receives, on a date that
is at least six (6) months but not more than twelve (12) months prior to the
date upon which the Option Period would commence (if such option is exercised),
a written notice of the exercise of the option to extend this Lease for said
additional term, time being of the essence. If said notification of the exercise
of said option is not so given and received, this option shall automatically
expire;
(b) The provisions of Paragraph 39, including the provision relating to
default of Lessee set forth in Paragraph 39.4 of this Lease, are conditions of
this option;
(c) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(d) Concurrently with the exercise of this option, any prior Lessee that
has not been expressly released from liability under this Lease, and any
guarantor of the Lessee's performance hereunder, expressly reaffirms in writing
the extension of their liability with respect to this Lease for the Option
Period;
(e) The monthly Base Rent payable under this Lease shall be increased as
of the commencement of the Option Period to Twenty-Six Thousand Two Hundred
Thirty-Seven Dollars ($26,237.00) per month; and
(f) The monthly Base Rent payable under this Lease shall be increased as
of the first (1st) anniversary of the commencement of the Option Period and
again as of each subsequent anniversary of the commencement of the Option Period
by an amount equal to three and one-half percent (3.5%) of the monthly Base Rent
for the Premises in effect for the month immediately preceding the applicable
anniversary date.
51. ADDITIONAL RENT OBLIGATIONS/OPERATIONAL EXPENSES/REPAIR AND MAINTENANCE
OBLIGATIONS.
(a) In addition to the Base Rent and other charges payable by Lessee
under this Lease, Lessee shall also pay to Lessor as additional rent, on a
monthly basis (or as requested by Lessor), the following amounts (collectively,
"Operating Expenses") within five (5) days after receipt of Lessor's invoice
therefor:
(1) The Real Property Taxes applicable to the Premises in
accordance with Paragraph 10; plus
(2) The cost of the insurance maintained by Lessor and payable by
Lessee pursuant to Paragraph 8; plus
(3) All charges for fire monitoring services (including related
phone service), HVAC system inspection, maintenance and repair, landscape
maintenance (excluding water charges, which shall be paid by Lessee under
Paragraph 11 hereof), periodic inspection and testing of the fire sprinkler
system, periodic inspection and repair of the roof and parking lot, and periodic
inspection and repair of the exit lights and any emergency lighting, that are
separately contracted for by Lessor pursuant to Paragraph 56.3 below; plus
(4) A monthly roof replacement reserve payment in an amount equal
to Three Hundred Thirty-Six Dollars ($336.00) per month (provided, however, that
nothing contained herein shall be deemed or construed to obligate Lessor to
replace the roof of the Premises at any time during the term of this Lease);
plus
(5) A monthly parking lot repair and maintenance reserve in an
amount equal to Sixty-Seven Dollars ($67.00) per month (provided, however, that
nothing contained herein shall be deemed or construed to obligate Lessor to
replace the parking lot at any time during the term of this Lease); plus
(6) A monthly management fee in an amount equal to one percent (1
%) of the Base Rent payable each month.
(b) Notwithstanding the provisions of paragraph 51(a) above, Lessor and
Lessee agree as follows:
(1) Subject to the provisions of paragraph 51(b)(3) below,
Operating Expenses to be paid by Lessee pursuant to Paragraph 51(a) above during
the first (1st) year of the term of this Lease shall not exceed the sum of
Fifty-Six Thousand Dollars ($56,000.00);
(2) Subject to the provisions of paragraph 51(b)(3) below,
Operating Expenses to be paid by Lessee during each subsequent year during the
term of this Lease shall not increase by more than four percent (4%) over the
Operating Expenses for the previous year; and
(3) Notwithstanding anything in this Lease to the contrary,
Operating Expenses do not include, and Lessee shall be solely obligated to pay
the full amount of (irrespective of any limitations set forth in Paragraphs 51
(b)(1) and (2) above) the following expenses:
A. All Real Property Taxes resulting from any assessments
or fees that are newly imposed upon or assessed against the Premises and that
were not formerly imposed upon or assessed against the Premises prior to the
date of this Lease (including without limitation any assessments levied or
assessed against the Premises by the proposed Vista Business Park Association or
similar entity, and any newly imposed charges or assessments against the
Premises under any covenants, conditions or restrictions affecting the
Premises);
B. Any increases in Real Property Taxes resulting from any
Alterations or other improvements to the Premises made by or for Lessee, or
resulting from a change in ownership of the Premises;
C. Any increase in the cost of Insurance maintained by
Lessor pursuant to Paragraph 8 resulting from any Alterations or other
improvements to the Premises made by or for Lessee or resulting from Lessee's
use of the Premises or its acts or omissions; and
D. Costs and expenses for the HVAC system, landscaping,
fire sprinkler system, roof, parking lot, exit lights or emergency lighting, to
the extent such expenses are incurred by Lessor as a result of the misuse or
neglect of Lessee or its agents, employees or contractors, or any act or
omission of Lessee or its agents, employees or contractors, or any breach or
default by Lessee.
(c) In addition to and without in any way limiting the obligations of
Lessee set forth elsewhere in this Lease, Lessee shall, at Lessee's sole cost
and expense, contract for, pay and be responsible for the following items:
(1) All water, sewer, gas, heat, light, power, telephone, trash
disposal and other utilities and services supplied to the Premises as provided
in Paragraph 11;
(2) Trash collection for the Premises;
(3) Semi annual carpet cleaning and annual window washing;
(4) Regular janitorial services for the Premises; and .
(5) Lessee's liability insurance and other insurance required to
be maintained by Lessee pursuant to Paragraph 8.
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Nothing contained in this Paragraph 51 shall be deemed or construed to
limit in any manner the nature or amount of charges that Lessee is required to
pay under any of the other provisions of this Lease or the nature or amount of
any other obligations that Lessee is obligated to perform under any of the other
provisions of this Lease.
52. TENANT IMPROVEMENTS. The Premises currently includes approximately 7,300
square feet of existing open office space comprised of approximately 3,400
square feet of open office space and two (2) restrooms on the mezzanine, and
approximately 3,900 square feet of open office space and two (2) additional
restrooms downstairs below the mezzanine. Lessor shall, at Lessor's expense,
finish off the ceilings in the existing open office space with HVAC vents, fire
sprinklers, ceiling tiles and fluorescent lights (collectively, the "Tenant
Improvements").
53. COMPLETION. It is currently anticipated that the Tenant Improvements
will be completed on or before April 1, 1999. The Tenant Improvements shall be
deemed completed when the Tenant Improvements are substantially completed and a
certificate of occupancy for the Premises or the equivalent shall have been
issued. In the event the Tenant Improvements are not completed (as defined
above) on or before April 1, 1999, then the Commencement Date and Expiration
Date of this Lease specified in Paragraph 1.3 shall be extended by the number of
days after April 1, 1999 until the Tenant Improvements are completed (as defined
above). Notwithstanding the foregoing, no delay in the performance of any of the
Tenant Improvements or issuance of a certificate of occupancy or equivalent for
the Premises which is caused by or results from any work or improvements being
performed by Lessee or any other act or omission of Lessee shall result in any
extension of the Commencement Date or Expiration Date of this Lease as
aforesaid. If the Tenant Improvements are not completed on or before June 30,
1999, unless caused by or resulting from any failure or delay by Lessee to
perform any of its improvements or any other act or omission of Lessee, then
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
In the event of conflict between the provisions of this Paragraph 53 and the
provisions of Paragraph 3.3 above, the provisions of this Paragraph 53 shall
control and prevail. Notwithstanding anything to the contrary contained in this
Paragraph 53 or elsewhere in this Lease, Lessee hereby acknowledges and agrees
that prior to execution of this Lease, the Tenant Improvements have been
completed by Lessor.
54. ADDITIONAL PROVISIONS REGARDING EARLY POSSESSION. Notwithstanding
anything to the contrary contained in this Lease, if Lessee desires to commence
or continue in occupancy of the Premises prior to the Commencement Date in order
to commence its improvements to the Premises, the obligation to pay Base Rent
shall commence prior to the Commencement Date, on the date that Lessee commences
such improvements.
55. ADDITIONAL PROVISIONS REGARDING BROKER'S FEES. Lessee shall indemnify,
protect, defend and hold Lessor harmless from and against and all liability for
compensation or charges which may be claimed by lessee's Broker in any manner
arising from this Lease, including any costs, expenses and attorneys' fees
reasonably incurred with respect thereto, and all claims and demands therefor.
56. CONDITION OF PREMISES UPON TERMINATION.
56.1 Lessee shall maintain the Premises as provided in paragraph 7.1 and
in accordance with the requirements of all covenants, conditions and
restrictions as may from time to time be applicable to the Premises. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices and any damage or deterioration shall not be
deemed "ordinary wear and tear" if the same could have been prevented by good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
56.2 Notwithstanding anything to the contrary in paragraph 7.2 hereof,
upon termination of this Lease, Lessee shall leave all plumbing, heating, air
conditioning, electrical and mechanical systems, and paint and asphalt surfaces,
on the Premises in good condition and operating order (except to the extent that
Lessor has elected to separately contract for the repair and maintenance thereof
pursuant to Paragraph 56.3 below), and Lessee shall upon demand pay to Lessor an
amount equal to the cost to restore such items to good condition and operating
order.
56.3 Without limitation upon the obligation of Lessee to repair and
maintain the Premises in accordance with the requirements of Paragraph 7.1,
Lessee acknowledges that Lessor has separately contracted for, and that Lessor
shall continue to have the right, but not the obligation, to separately contract
with third party contractors and service providers for, the provision of fire
monitoring service, including fire monitoring and other related telephone lines,
HVAC system inspection, maintenance and repair, landscape maintenance, periodic
inspection and testing of the fire sprinkler system, periodic inspection and
repair of the roof and parking lot, and periodic inspection and repair of the
exit lights and any emergency lighting. Lessee shall pay-Lessor for all costs
and expenses incurred by Lessor for such services that are separately contracted
for by Lessor, in accordance with Paragraph 51 above. Nothing contained herein
shall be deemed or construed to relieve or release Lessee from any of its
maintenance and repair obligations under Paragraph 7.1 or any other provision of
this Lease.
57. ADDITIONAL PROVISIONS REGARDING LESSEE'S SIGNS. Lessee's right to
install signage pursuant to Paragraph 34 shall be subject to Lessee obtaining
all necessary permits and approvals required therefor under Applicable Law,
including without limitation all covenants, conditions and restrictions of
record.
58. ADDITIONAL PROVISIONS REGARDING CHOICE OF LAW. The parties agree that
all litigation in any manner arising out of this Lease shall be conducted in the
County of San Diego, and Lessee hereby irrevocably and unconditionally consents
thereto. Nothing contained herein shall be deemed or construed to restrict
Lessor from undertaking or prosecuting such legal action in any other
jurisdiction or venue as shall be appropriate to attach or otherwise seek
recourse against any assets of Lessee or its Guarantors.
59. LESSOR LIABILITY. Lessee agrees that, anything in this Lease to the
contrary notwithstanding, subject to prior rights of any Lender, Lessee shall
look solely to the interest of Lessor in and to the Premises and any insurance
proceeds applicable thereto, for the collection of any judgment (or award from
any other process) requiring the payment of money by Lessor in the event of any
default or breach by Lessor of the terms, covenants or conditions of this Lease
to be observed and/or performed by Lessor, and no other assets of Lessor or any
member or manager of Lessor, or of any shareholder, director or officer of any
of them, shall be subject to levy, execution or any procedures for the
satisfaction of Lessee's remedies with respect to the Premises and/or under this
Lease.
60. LESSEE'S AUTHORITY. Lessee, and each individual executing this Lease on
behalf of Lessee, hereby represents and warrants to Lessor that Lessee is a
corporation, duly formed, validly existing, and in good standing under the laws
of the State of California, that Lessee is qualified to do business in
California under the laws of the State of California, and that this Lease has
been duly and validly executed and delivered by Lessee.
61. EXECUTION. Until this Lease has been executed and delivered by all
parties, this Lease shall constitute an offer by Lessee to lease the Premises on
the terms stated herein, and shall not be binding upon Lessor.
62. FULLY NEGOTIATED. It is hereby acknowledged by Lessee that,
notwithstanding that portions of this Lease are pre-printed, and that this Lease
was prepared by or on behalf of Lessor, Lessee has read this Lease in its
entirety and has had the opportunity, with the advice of legal counsel of
Lessee's choosing, to freely negotiate any or all of the terms hereof before
executing same.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH
TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW
THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THE PRINTED PORTION OF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN
PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS
SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE
PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR
BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THE PRINTED PORTIONS OF THIS
LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
LESSOR:
Lessor's Address OAK RIDGE 13, LLC,
a California limited liability company
Oak Ridge 13, LLC
P.O. Box 1732
Temecula, California 92593 By: /s/ John Weersing
Attention: John F. Weersing ------------------------------------
Telephone: 909/699-5454 John Weersing, Manager
Facsimile: 909/695-1064
LESSEE:
COMPUTER GEEKS DISCOUNT OUTLET, INC.,
Lessee's Address: a California corporation
Computer Geeks Discount Outlet
2604 Temple Heights Drive
Oceanside, California 92056
Attention: Scott E. Kusel By: /s/ Scott E. Kusel
Telephone: 760/758-5552 ------------------------------------
Facsimile: 760/758-5553 Name: Scott E. Kusel
-----------------------------------
Name: President
-----------------------------------
By: /s/ Frank Segler
------------------------------------
Name: Frank Segler
-----------------------------------
Name: CEO
-----------------------------------
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EXHIBIT "A"
LEGAL DESCRIPTION OF THE PREMISES
Parcel A:
Lots 13 and 14 of Vista Tract 90-47, in the City of Vista, County of San Diego,
State of California, according to Map thereof No. 12807, flied in the Office of
the County Recorder of San Diego County, April 23,1991. Reserving therefrom an
easement for drainage purposes over those portions delineated and designated as
"10' wide Private Drainage Easement" on said Map No. 12807.
Parcel B:
An easement for drainage purposes over, under, along and across that portion of
Lot 15, of Vista Tract 90-47, in the City of Vista, County of San Diego, State
of California, according to Map thereof No. 12807, flied in the Office of the
County Recorder of San Diego County, April 23, 1991, delineated and designated
as "10' Wide Private Drainage Easement" on said Map No. 12807. Excepting
therefrom that portion lying within Parcel A hereinabove described. Assessors
Parcel No: 219-541-04 and 05.
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Footnote 1 to Page 2
1. Notwithstanding the foregoing, Lessee may also, without the consent
of Lessor, use the Premises for the warehouse and distribution of
products intended for sale or distribution, other than computer
products, so long as (i) such use is on an incidental basis to
Lessee's primary business of warehousing and distribution of
computer products, (ii) such products are stored only in the
interior of the Premises, (iii) such use does not involve any
Hazardous Substance, and (iv) such use is otherwise in compliance
with this Lease.
2A
<PAGE> 13
Footnote to Page 6
1. Notwithstanding the foregoing, after Lessor has made a determination
with respect to Lessee's request for consent, Lessor shall refund to
Lessee the amount, if any, by which the aforesaid deposit exceeds
the actual out-of-pocket costs and expenses (including without
limitation attorneys' and accountants' fees and expenses) incurred
by Lessor in connection therewith.
6A
<PAGE> 1
EXHIBIT 10.12
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-- GROSS
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
February 1, 1999, is made by and between Unified Holdings Trust ("LESSOR") and
Evertek Computer Corporation, a California Corporation ("LESSEE") (collectively
the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements therein
or to be provided by Lessor under the terms of this Lease, and commonly known by
the street address of 2604 Temple Heights Drive, Oceanside, 92056, located in
the County of San Diego, State of California and generally described as
(describe briefly the nature of the property) approximately 25,508 square foot
industrial building ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: Five (5) years and Three (3) months ("ORIGINAL TERM") commencing
February 1, 1999 ("COMMENCEMENT DATE") and ending August 31, 2002 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: None ("EARLY POSSESSION DATE"). (See Paragraphs 3.2
and 3.3 for further provisions.)
1.5 BASE RENT: $ (See Addendum) per month ("BASE RENT"),
payable on the 1st day of each month commencing _______________________________
________________________________________________________________________________
________________________________________________________________________________
(See Paragraph 4 for further provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ None
as Base Rent for the period __________________________________________________
______________________________________________________________________________
______________________________________________________________________________
1.7 SECURITY DEPOSIT: $_________ ("SECURITY DEPOSIT"). (See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: General offices, warehouse and distribution of computer
and related products. (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $ N/A is the "BASE
PREMIUM." (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): N/A
________________________________________________________________________________
_____________________________________________________________________ represents
[ ] Lessor exclusively ("LESSOR'S BROKER"); [X] both Lessor and Lessee, and
None
________________________________________________________________________________
________________________________________________________________________________
_____________________________________________________________________ represents
[ ] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessor and Lessee.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further
provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 55 and Exhibits A all of which constitute a part of this
Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor
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delivers possession of the Premises to Lessee. If possession of the Premises is
not delivered to Lessee within sixty (60) days after the Commencement Date,
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor, at its address stated herein or to such other persons
or at such other addresses as Lessor may from time to time designate in writing
to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose of which the premises may be used or occupied, so long
as the same will not impair the structural integrity of the improvements on the
Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCES" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "REPORTABLE USE" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents a may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or
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contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.), 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use and
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fixtures, walls (interior and exterior), ceilings, floors, windows, doors, plate
glass, skylights, landscaping, retaining walls, signs, located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all improvement
thereon or a part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communications systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by
Applicable Law and/or good service practice. Lessee's Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee subject to its
obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase ("INSURANCE
COST INCREASE") occurring during the term of this Lease. "INSURANCE COST
INCREASE" is defined as any increase in the actual cost of the insurance
required under Paragraph 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED INSURANCE"), over
and above the Base Premium, as hereinafter defined, calculated on an annual
basis. "INSURANCE COST INCREASE" shall include, but not be limited to, increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, an/or a premium rate increase. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be considered
the "BASE PREMIUM." In lieu thereof, if the Premises have been previously
occupied, the "BASE PREMIUM" shall be the annual premium applicable
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to the most recent occupancy. If the Premises have never been occupied, the
"BASE PREMIUM" shall be the lowest annual premium reasonably obtainable for the
Required Insurance as of the commencement of the Original Term, assuming the
most nominal use possible of the Premises. In no event, however, shall Lessee be
responsible for any portion of the Premium cost attributable to liability
insurance coverage in excess of $1,000,000 procured under Paragraph 8.2(b)
(Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing prior to,
or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement or Expiration of the Lease Term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain
the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an "insured contract" for the
performance of Lessee's indemnity obligations under this Lease. The limits of
said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a), above, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall inure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or
if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGES OR DESTRUCTION.
9.1 DEFINITIONS.
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(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefore. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case the Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act, Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's opinion, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of the expiration of
said sixty (60) day period following the occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within ten (10) days
after the expiration of the Exercise Period, notwithstanding any term or
provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at anytime prior to the
commencement of such repair or restoration, given written notice to Lessor and
to any Lenders of which Lessee has actual notice of Lessee's election to
terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days
following the giving of such notice. If Lessee gives such notice to Lessor and
such Lenders and such repair or restoration is not commenced within thirty (30)
days after receipt of such notice, this Lease shall terminate as of the date
specified in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force and effect "COMMENCE" as used in
this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
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9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("TAX INCREASE"). Subject to Paragraph
10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes to be
paid by Lessee shall cover any period of time prior to or after the expiration
or earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of the Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, by treated as an additional Security Deposit under
Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
Real Property Taxes assessed by reason of Alterations or Utility Installations
placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessors work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under the subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an alignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which lessor may reasonably withhold its consent. "NET WORTH OF
LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
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(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall relay upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or until the Breach has been cured, against Lessor, for any such
rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraph 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guaranty of Lessee's obligations hereunder was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor; (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation of an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
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13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason by such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceed the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1,
any such Inducement Provision shall automatically be deemed deleted from this
Lease and of no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an Inducement Provision shall be immediately due and payable by Lessee to
Lessor, and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due form Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, the Lessor shall not be in breach of this Lease if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as to the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $__________________) for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation
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of an escalation clause herein, then as to any of said transactions, Lessor
shall pay said Brokers a fee in accordance with the schedule of said Brokers in
effect at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commissions arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless form and against liability for compensation of charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery of mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under the
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reasons thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
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30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. They attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or abut the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement and
information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention or thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
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<PAGE> 11
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reasons of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS
SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY
AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR
HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY
THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO
THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF
THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT
PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The Parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Oceanside, CA Executed at Oceanside, CA
------------------------ ---------------------
on February 1, 1999 on February 1, 1999
-------------------------------- -----------------------------
by LESSOR: by LESSEE:
UNIFIED HOLDINGS TRUST Evertek Computer Corporation1 a
- ----------------------------------- California Corporation
By: /s/ FRANK SEGLER By: /s/ FRANK SEGLER
-------------------------------- -----------------------------
Name Printed: Frank Segler Name Printed: Frank Segler
Title: Trustee Title: President
By:________________________________ By:________________________________
Name Printed:______________________ Name Printed:______________________
Title:_____________________________ Title:_____________________________
Address:___________________________ Address:___________________________
Tel. No. (_____) __________________ Tel. No. (_____) __________________
Fax No. (_____) __________________ Fax No. (_____) __________________
GROSS
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 700
South Flower Street, Suite 600, Los Angeles, CA 90017, (213) 687-8777,
Fax No. (213) 687-8616.
(C) Copyright 1990-- By American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced in any
form without permission in writing.
Initials: ________
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<PAGE> 12
ADDENDUM TO LEASE DATED FEBRUARY 1, 1999
BY AND BETWEEN
UNIFIED HOLDINGS TRUST, AS LESSOR
AND EVERTEK COMPUTER CORPORATION, AS LESSEE
FOR 2604 TEMPLE HEIGHTS DRIVE, OCEANSIDE, CALIFORNIA
This addendum modifies the Lease in the following particulars only. Should the
terms and conditions of this addendum conflict with the terms and conditions of
the Lease, the terms and conditions of this addendum shall prevail. LESSOR AND
LESSEE HEREBY ACKNOWLEDGE AND APPROVE OF THE FACT THAT FRANK SEGLER IS RELATED
TO THE LESSOR AND IS REPRESENTING BOTH THE LESSOR AND LESSEE IN THIS
TRANSACTION.
49. EARLY ACCESS:
Lessee shall be allowed to access the building to make "Alterations" and
"Utility Installations" to the Premises, upon Lessor's successful
purchase of the Premises. Said Alterations and Utility Installations
shall be constructed in accordance with Paragraphs 7.3 and 7.4 of the
lease. Lessee's planned Alterations and Utility Installations include:
1) A security fence around the Premises.
2) Additional offices and modification of existing offices.
3) The construction of a covered loading dock platform at the
loading area of the building.
50. BASE RENT SCHEDULE:
The base rent shall be as noted in the following rent schedule:
June 1, 1997 to May 31, 1998 =$12,250.00 per month
June 1, 1998 to May 31, 1999 =$12,600.00 per month
June 1, 1999 to May 31, 2000 =$13,000.00 per month
June 1, 2000 to May 31, 2001 =$13,350.00 per month
June 1, 2001 to August 31, 2002 =$13,750.00 per month
51. LESSOR IMPROVEMENTS:
N/A
52. EARLY TERMINATION:
If Lessee is not in default of any obligations of this Lease, Lessee
shall have the right to terminate this lease by giving the Lessor a 120
day prior written Notice of such cancellation ("NOTICE"). Notice can
only be given anytime after the 19th month.
53. OPTION TO PURCHASE: N/A
54. HAZARDOUS MATERIAL / ADA DISCLAIMER: N/A
55. GUARANTY OF LEASE: N/A
THIS LEASE IS CONTINGENT UPON LESSOR'S PURCHASE OF THE PREMISES.
AGREED & ACCEPTED:
LESSOR LESSEE
By: /s/ UNIFIED HOLDINGS TRUST By: /s/ EVERTEK CORPORATION
------------------------------- --------------------------------
Date: February 1, 1999 Date: February 1, 1999
----------------------------- -----------------------------
<PAGE> 13
EXHIBIT "A"
SITE PLAN
2604 TEMPLE HEIGHTS DRIVE
PICTURE
<PAGE> 1
EXHIBIT 10.13
BUSINESS LOAN AGREEMENT
THIS BUSINESS LOAN AGREEMENT (this "Agreement") is entered into as of the date
set forth below between UNION BANK OF CALIFORNIA, N.A., a national banking
association ("Bank") and EVER-TEK COMPUTER CORPORATION ("Borrower") with respect
to each and every extension of credit (whether one or more, collectively
referred to as the "Loan") from Bank to Borrower. In consideration of the Loan,
Bank and Borrower agree to the following terms and conditions:
1. THE LOAN.
1.1 THE NOTE. The Loan is evidenced by one or more promissory notes or
other evidences of indebtedness, including each amendment, extension,
renewal or replacement thereof, which are incorporated herein by this
reference (whether one or more, collectively referred to as the "Note").
1.2 REVOLVING LOAN CLEAN-UP PERIOD. For any portion of the Loan which is
a revolving loan, at least ten (10) consecutive days during each three
(3) month period the principal amount outstanding under such revolving
loan must be zero (0).
1.3 COLLATERAL. The payment and performance of all obligations of
Borrower under the Loan Documents is and shall be during the term of the
Loan secured by a perfected security interest in such real or personal
property collateral as is required by Bank and each security interest
shall rank in first priority unless otherwise specified in writing by
Bank.
1.4 GUARANTY. The payment and performance of all obligations of Borrower
under the Loan Documents are and shall be during the term of the Loan
guaranteed by: Frank Segler and Segler Family Trust.
2. CONDITIONS TO AVAILABILITY OF THE LOAN. Before Bank is obligated to
disburse all or any portion of the Loan, Bank must have received (a) the Note
and every other document required by Bank in connection with the Loan, each of
which must be in form and substance satisfactory to Bank (together with this
Agreement, referred to as the "Loan Documents"), (b) confirmation of the
perfection of its security interest in any collateral for the Loan, and (c)
payment of any fee required in connection with the Loan.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants (and
each request for a disbursement of the proceeds of the Loan shall be deemed a
representation and warranty made on the date of such request) that:
3.1 Borrower is an individual or Borrower is duly organized and existing
under the laws of the state of its organization and is duly qualified to
conduct business in each jurisdiction in which its business is
conducted;
3.2 The execution, delivery and performance of the Loan Documents
executed by Borrower are within Borrower's power, have been duly
authorized, are legal, valid and binding obligations of Borrower, and
are not in conflict with the terms of any charter, bylaw, or other
organization papers of Borrower or with any law, indenture, agreement or
undertaking to which Borrower is a party or by which Borrower is bound
or affected;
3.3 All financial statements and other financial information submitted
by Borrower to Bank are true and correct in all material respects, and
there has been no material adverse change in Borrower's financial
condition since the date of the latest of such financial statements;
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<PAGE> 2
3.4 Borrower is properly licensed and in good standing in each state in
which Borrower is doing business, and Borrower has complied with all
laws and regulations affecting Borrower, including without limitation,
each applicable fictitious business name statute;
3.5 There is no event which is, or with notice or lapse of time or both
would be, an Event of Default (as defined in Article 5);
3.6 Borrower is not engaged in the business of extending credit for the
purpose of, and no part of the Loan will be used, directly or
indirectly, for purchasing or carrying margin stock within the meaning
of Federal Reserve Board Regulation U; and
3.7 Borrower is not aware of any fact, occurrence or circumstance which
Borrower has not disclosed to Bank in writing which has, or could
reasonably be expected to have, a material adverse effect on Borrower's
ability to repay the Loan or perform its obligations under the Loan
Documents.
4. COVENANTS. Borrower agrees, so long as the Loan or any commitment to
make any advance under the Loan is outstanding and until full and final payment
of all sums outstanding under any Loan Document, that Borrower will:
4.1 Maintain:
(a) A quick ratio of not less than 1.00:1.00 (As used herein
"quick ratio" means cash plus accounts receivable minus
receivable from Computer Geeks Discount Outlet, Inc. divided by
current liabilities);
(b) Tangible Net Worth of not less than Three Million Dollars
($3,000,000). (As used herein "Tangible Net Worth" means net
worth increased by indebtedness of Borrower subordinated to Bank
and decreased by patents, licenses, trademarks, trade names,
goodwill and other similar intangible assets, organizational
expenses, and monies due from affiliates including officers,
shareholders and directors);
(c) A ratio of total liabilities to Tangible Net Worth of not
greater than 1.00:1.00.;
(d) Eighty percent (80%) of net profit after all tax payments, to
be measured as of the end of each fiscal year end of Borrower,
for the twelve (12) month period immediately preceding the date
of measurement;
(e) Accounts Receivable from Computer Geeks Discount Outlet, Inc.
not to exceed Six Hundred Fifty Thousand Dollars ($650,000).
All accounting terms used in this Agreement shall have the definitions given
them by generally accepted accounting principles, unless otherwise defined
herein.
4.2 Give written notice to Bank within fifteen (15) days of the
following:
(a) Any litigation or arbitration proceeding affecting Borrower
where the amount in controversy is One Hundred Thousand
($100,000) or more;
(b) Any material dispute which may exist between Borrower and any
government regulatory body or law enforcement body;
(c) Any Event of Default or any event which, upon notice, or
lapse of time, or both, would become an Event of Default;
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<PAGE> 3
(d) Any other matter which has resulted or is likely to result in
a material adverse change in Borrower's financial condition or
operation; and
(e) Any change in Borrower's name or the location of 'Borrower's
principal place of business, or the location of any collateral
for the Loan, or the establishment of any new place of business
or the discontinuance of any existing place of business.
4.3 Furnish to Bank an income statement, balance sheet, and statement of
retained earnings, with supportive schedules ("Financial Statement"),
and any other financial information requested by Bank, prepared in
accordance with generally accepted accounting principles and in a form
satisfactory to Bank as follows:
(a) Within thirty (30) days after the close of each quarter
except for the final quarter of each fiscal year, Borrower's
internally prepared balance sheet as of the close of such fiscal
quarter, Borrower's internally prepared income and expense
statement with supportive schedules and statement of retained
earnings for that fiscal quarter;
(b) Within one hundred fifty (150) days after the close of each
fiscal year, a copy of Borrower's statement of financial
condition including at least Borrower's balance sheet as of the
close of such fiscal year, Borrower's income and expense
statement and retained earnings statement for such fiscal year,
examined and prepared on an audited basis by independent
certified public accountants selected by Borrower and reasonably
satisfactory to Bank, in accordance with generally accepted
accounting principles applied on a basis consistent with that of
the previous fiscal year;
(c) Within one hundred twenty (120) days after the close of each
fiscal year, a copy of each guarantor's annual financial
statement;
(d) Within thirty (30) days after each calendar quarter end, a
copy of Borrower's quarterly accounts receivable and accounts
payable agings and inventory reports;
(e) Promptly upon request, any other financial information
requested by Bank;
(f) Within thirty (30) days after the close of each quarter
except for the final quarter of each fiscal year, Computer Geeks
Discount Outlet, Inc.'s internally prepared balance sheet as of
the close of such fiscal quarter, Computer Geeks Discount Outlet,
Inc.'s internally prepared income and expense statement with
supportive schedules and statement of retained earnings for that
fiscal quarter; and
(g) Within one hundred fifty (150) days after the close of each
fiscal year, a copy of Computer Geeks Discount Outlet, Inc.'s
statement of financial condition including at least Computer
Geeks Discount Outlet, Inc.'s balance sheet as of the close of
such fiscal year, Computer Geeks Discount Outlet, Inc.'s income
and expense statement and retained earnings statement for such
fiscal year, examined and prepared on an audited basis by
independent certified public accountants selected by Computer
Geeks Discount Outlet, Inc. and reasonably satisfactory to Bank,
in accordance with generally accepted accounting principles
applied on a basis consistent with that of the previous fiscal
year.
4.4 Furnish to Bank, on Bank's request, a copy of each guarantor's most
recently filed federal income tax return with all accompanying
schedules.
4.5 Pay or reimburse Bank for all costs, expenses and fees incurred by
Bank in preparing and documenting this Agreement and the Loan, and all
amendments and modifications thereof, including but not limited to all
filing and recording fees, costs of appraisals, insurance and attorney's
fees, including the reasonable estimate of the allocated costs and
expenses of in-house legal counsel and staff.
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<PAGE> 4
4.6 Maintain and preserve Borrower's existence, present form of business
and all rights, privileges and franchises necessary or desirable in the
normal course of its business, and keep all of Borrower's properties in
good working order and condition.
4.7 Maintain and keep in force insurance with companies acceptable to
Bank and in such amounts and types, including without limitation fire
and public liability insurance, as is usual in the business carried on
by Borrower, or as Bank may reasonably request. Such insurance policies
must be in form and substance satisfactory to Bank.
4.8 Maintain adequate books, accounts and records and prepare all
financial statements required hereunder in accordance with generally
accepted accounting principles, and in compliance with the regulations
of any governmental regulatory body having jurisdiction over Borrower or
Borrower's business and permit employees or agents of Bank at any
reasonable time to inspect Borrower's assets and properties, and to
examine or audit Borrower's books, accounts and records and make copies
and memoranda thereof.
4.9 At all times comply with, or cause to be complied with, all laws,
statutes, rules, regulations, orders and directions of any governmental
authority having jurisdiction over Borrower or Borrower's business, and
all material agreements to which Borrower is a party.
4.10 Except as provided in this Agreement, or in the ordinary course of
its business as currently conducted, not make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any
manner, or extend credit.
4.11 Not purchase the debt or equity of another person or entity except
for savings accounts and certificates of deposit of Bank, direct U.S.
Government obligations and commercial paper issued by corporations with
top ratings of Moody's or Standard & Poor's, provided that all such
permitted investments shall mature within one year of purchase.
4.12 Not create, assume or suffer to exist any mortgage, encumbrance,
security interest, pledge or lien ("Lien"') on Borrower's real or
personal property, whether nor owned or hereafter acquired, or upon the
income or profits thereof except the following: (a) Liens in favor of
Bank, (b) Liens for taxes or other items not delinquent or contested in
good faith, or (c) other Liens which do not exceed in the aggregate Five
Hundred Thousand Dollars ($500,000) at any one time.
4.13 Not sell or discount any account receivable or evidence of
indebtedness, except to Bank or not borrow any money or become
contingently liable for money borrowed, except pursuant to agreements
made with Bank.
4.14 Neither liquidate, dissolve, enter into any consolidation, merger,
partnership, or other combination; nor convey, sell or lease all or the
greater part of its assets or business; nor purchase or lease all or the
greater part of the assets or business of another.
4.15 Not engage in any business activities or operations substantially
different from or unrelated to present business activities and
operations.
4.16 Not, in any single fiscal year of Borrower, expend or incur
obligations of more than Twenty Five Thousand Dollars ($25,000) for the
acquisition of fixed or capital assets.
4.17 Not, in any single fiscal year of Borrower, enter into any lease of
real or personal property which would cause Borrower's aggregate annual
obligations under all such real and personal property leases to exceed
Twenty Five Thousand Dollars ($25,000).
4.18 Borrower will promptly, upon demand by Bank, take such further
action and execute all such additional documents and instruments in
connection with this Agreement as Bank in its reasonable
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<PAGE> 5
discretion deems necessary, and promptly supply Bank with such other
information concerning its affairs as Bank may request from time to
time.
5. EVENTS OF DEFAULT. The occurrence of any of the following events
("Events of Default") shall terminate any obligation on the part of Bank to make
or continue the Loan and automatically, unless otherwise provided under the Loan
Documents, shall make all sums of interest and principal and any other amounts
owing under the Loan immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or any other notices or demands:
5.1 Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the Loan Documents;
5.2 Any default shall occur under the Note;
5.3 Borrower shall default in the due performance or observance of any
covenant or condition of the Loan Documents;
5.4 Any guaranty or subordination agreement required hereunder is
breached or becomes ineffective, or any guarantor or subordinating
creditor dies or disavows or attempts to revoke or terminate such
guaranty or subordination agreement; or
5.5 There is a change in ownership or control of ten percent (10%) or
more of the issued and outstanding stock of Borrower or any guarantor,
or (if the Borrower is a partnership) there is a change in ownership or
control of any general partner's interest.
6. MISCELLANEOUS.
6.1 The rights, powers and remedies given to Bank hereunder shall be
cumulative and not alternative and shall be in addition to all rights,
powers, and remedies given to Bank by law against Borrower or any other
person, including but not limited to Bank's rights of setoff or banker's
lien.
6.2 Any forbearance or failure or delay by Bank in exercising any right,
power or remedy hereunder shall not be deemed a waiver thereof and any
single or partial exercise of any right, power or remedy shall not
preclude the further exercise thereof. No waiver shall be effective
unless it is in writing and signed by an officer of Bank.
6.3 The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assignees of Borrower,
and any assignment by Borrower without Bank's consent shall be null and
void.
6.4 This Agreement and all other agreements and instruments required by
Bank in connection herewith shall be governed by and construed according
to the laws of the State of California.
6.5 Should any one or more provisions of this Agreement be determined to
be illegal or unenforceable, all other provisions nevertheless shall be
effective. In the event of conflict between the provisions of this
Agreement and the provisions of any note or reimbursement agreement
evidencing any indebtedness hereunder, the provisions of such note or
reimbursement agreement shall prevail.
6.6 Except for documents and instruments specifically referenced herein,
this Agreement constitutes the entire agreement between Bank and
Borrower regarding the Loan and all prior communications, verbal or
written, between Borrower and Bank shall be of no further effect or
evidentiary value.
6.7 The section and subsection headings herein are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
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<PAGE> 6
6.8 This Agreement may be amended only in writing signed by all parties
hereto.
6.9 Borrower and Bank may execute one or more counterparts to this
Agreement, each of which shall be deemed an original, but taken together
shall be one and the same instrument.
6.10 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following
methods and addressed to the respective party at its address given with
the signatures at the end of this Agreement and shall be considered to
have been validly given: (a) upon delivery, if delivered personally; (b)
upon receipt, if mailed, first class postage prepaid, with the United
States Postal Service; (c) on the next business day if sent by overnight
courier service of recognized standing; and (d) upon telephoned
confirmation of receipt, if telecopied.
7. ADDITIONAL PROVISIONS. The following additional provision, if any, are
hereby made part of this Agreement:
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
September 15, 1998.
EVER-TEK COMPUTER CORPORATION
By: /s/ Frank Segler
--------------------------------
Frank Segler
Title: President
Address to where notices to Borrower are to be sent:
2604 Temple Heights Drive
Oceanside, CA 92056
Tel # 760-639-4500
Fax # 760-639-4599
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Maureen Sullivan
--------------------------------
Maureen Sullivan
Title: Vice President
Address to where notices to Bank are to be sent:
530 "B" Street, Fourth Floor
San Diego, CA 92101
Tel # 619-230-3763
Fax # 619-230-3766
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<PAGE> 1
[Union Bank Logo] EXHIBIT 10.14
PROMISSORY NOTE
(BASE RATE)
<TABLE>
<S> <C>
==========================================================================================================
Borrower Name EVER-TEK COMPUTER CORPORATION
- ----------------------------------------------------------------------------------------------------------
Borrower Address
2604 TEMPLE HEIGHTS DR. Office 40062 Loan Number 2723048307 0080-00-0-000
OCEANSIDE, CA 92056 ----------------------------------------------------------
Maturity Date SEPTEMBER 15, 1999 Amount $2,000,000.00
==========================================================================================================
</TABLE>
$2,000,000.00 Date SEPTEMBER 15, 1998
FOR VALUE RECEIVED, on SEPTEMBER 15, 1999, the undersigned ("Debtor") promises
to pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated
below, the principal sum of TWO MILLION AND NO/100 Dollars ($2,000,000.00), or
so much thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at the per annum rate or rates and at
the times set forth below.
1. INTEREST PAYMENTS. Debtor shall pay interest on the 15TH day of each MONTH
(commencing OCTOBER 15, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year of
360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in minimum amounts of at least $100,000.00 shall bear interest at a
rate, based on an index selected by Debtor, which is 2.75% per annum in
excess of Bank's LIBOR-Rate for the Interest Period selected by Debtor,
acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified
until the expiration of the Interest Period selected by Debtor. The
exercise of interest rate options by Debtor shall be as recorded in
Bank's records, which records shall be prima facie evidence of the
amount borrowed under either interest option and the interest rate;
provided, however, that failure of Bank to make any such notation in its
records shall not discharge Debtor from its obligations to repay in full
with interest all amounts borrowed. In no event shall any Interest
Period extend beyond the maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and
on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing, select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time,
on any Business Day and advising that officer of the selected index, the
Interest Period and the Origination Date selected (which Origination
Date, for a Base Interest Rate Loan based on the LIBOR-Rate, shall
follow the date of such selection by no more than two (2) Business
Days).
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<PAGE> 2
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the
rate selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds notwithstanding
any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum of 0.50% in excess of the Reference Rate, which rate
shall vary as and when the Reference Rate changes.
At any time prior to the maturity of this note, subject to the
provisions of paragraph 4, below, of this note, Debtor may borrow, repay
and reborrow hereon so long as the total outstanding at any one time
does not exceed the principal amount of this note. Debtor shall pay all
amounts due under this note in lawful money of the United States at
Bank's SAN DIEGO COMMERCIAL BANKING Office, or such other office as may
be designated by Bank, from time to time.
2. LATE PAYMENTS. If any payment required by the terms of this note shall remain
unpaid ten days after same is due, at the option of Bank, Debtor shall pay a fee
of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in paragraph 1.b, above,
calculated from the date of default until all amounts payable under this note
are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value
of the product of: (i) the difference (but not less than zero) between
(a) the Base Interest Rate applicable to the principal amount which is
being prepaid, and (b) the return which Bank could obtain if it used the
amount of such prepayment of principal to purchase at bid price
regularly quoted securities issued by the United States having a
maturity date most closely coinciding with the relevant Base Rate
Maturity Date and such securities were held by Bank until the relevant
Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator
of which is the number of days in the period between the date of
prepayment and the relevant Base Rate Maturity Date and the denominator
of
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<PAGE> 3
which is 360; and (iii) the amount of the principal so prepaid (except
in the event that principal payments are required and have been made as
scheduled under the terms of the Base Interest Rate Loan being prepaid,
then an amount equal to the lesser of (A) the amount prepaid or (B) 50%
of the sum of (1) the amount prepaid and (2) the amount of principal
scheduled under the terms of the Base Interest Rate Loan being prepaid
to be outstanding at the relevant Base Rate Maturity Date). Present
value under this note is determined by discounting the above product to
present value using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim
against Bank, should the return which Bank could obtain under this
prepayment formula exceed the interest that Bank would have received if
no prepayment had occurred. All prepayments shall include payment of
accrued interest on the principal amount so prepaid and shall be applied
to payment of interest before application to principal. A determination
by Bank as to the prepayment fee amount, if any, shall be conclusive.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire Interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property, (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgement, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease
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<PAGE> 4
to advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under d, e, f, or g, all principal and interest shall automatically become
immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are not
paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of time
and the full extent permitted by law, (a) waive diligence, presentment, demand,
notice of nonpayment, protest, notice of protest, and notice of every kind; (b)
waive the right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of time for
the payment of any amounts due under this note. If this note is signed by more
than one party, the term "Debtor" includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability, and interest
under this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any Obligor, including
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of California, as provided in any alternative
dispute resolution agreement executed between Debtor and Bank, and consent to
service of process by any means authorized by said state's law. The term "Bank"
includes, without limitation, any holder of this note. This note shall be
construed in accordance with and governed by the laws of the State of
California. This note hereby incorporates any alternative dispute resolution
agreement previously, concurrently or hereafter executed between Debtor and
Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Base Interest Rate" means a rate of interest
based on the LIBOR Rate. "Base Interest Rate Loan" means amounts outstanding
under this note that bear interest at a Base Interest Rate. "Base Rate Maturity
Date" means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "Business Day" means a day on which
Bank is open for business for the funding of corporate loans, and, with respect
to the rate of interest based on the LIBOR Rate, on which dealings in U.S.
dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts on
one Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there is
no such numerically corresponding day, then as to that month, such day shall be
deemed to be the last calendar day of such month. Any Interest Period which
would otherwise and on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR Rate" means
a per annum rate of interest (rounded upward, if necessary, to the nearest 1/100
of 1%) at which dollar deposits, in immediately available funds and in lawful
money of the United States would be offered to Bank, outside of the United
States, for a term coinciding with the Interest Period selected by Debtor
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<PAGE> 5
and for an amount equal to the amount of principal covered by Debtor's interest
rate selection, plus Bank's costs, including the costs, if any, of reserve
requirements. "Origination Date" means the first day of the Interest Period.
"Reference Rate" means the rate announced by Bank from time to time at its
corporate headquarters as its Reference Rate. The Reference Rate is an index
rate determined by Bank from time to time as a means of pricing certain
extensions of credit and is neither directly tied to any external rate of
interest or index nor necessarily the lowest rate of interest charged by Bank at
any given time.
EVER-TEK COMPUTER CORPORATION
By /s/ Frank Segler
------------------------------
Frank Segler, President
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<PAGE> 6
[Union Bank Logo] AUTHORITY TO DISBURSE
- --------------------------------------------------------------------------------
Borrower Name
EVER-TEK COMPUTER CORPORATION
- --------------------------------------------------------------------------------
Borrower Address Office Loan Number
40062 2723048307 0080-00-0-000
-------------------------------------
2604 Temple Heights Drive
Oceanside, CA 92056
Maturity Date Amount
September 15, 1999 $2,000,000.00
- --------------------------------------------------------------------------------
Union Bank of California, N.A. ("Bank") is hereby authorized and instructed to
disburse the proceeds of that certain promissory note ("Note") evidencing the
obligation referred to above in the following manner:
Deposit the proceeds of my/our revolving note into my/our account #
4000146655 from time to time and in such amounts as may be requested
verbally or in writing. Renewal of obligation #0080-00-0-000 which
matures(s)(d) SEPTEMBER 15, 1998. $ 2,000,000.00
- --------------------------------------------------------------------------------
Fees itemized below are payable as follows (check one):
[ ] Charge account # [ ] Check enclosed
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. Bank is authorized to charge account number 4000146655 in the name(s) of
EVER-TEK COMPUTER CORPORATION for payments of interest (or
principal/interest) when due in connection with the Note and all renewals or
extensions thereof.
2. Bank shall disburse proceeds in the amounts stated above in accordance with
the foregoing authorization or when Bank receives verbal or written
authorization to do so from Borrower(s) or any one of the Borrowers, if
there are joint Borrows, but not later than the final date for availability
provided in the loan documents. Bank, at its discretion, may elect to extend
this date without notice to or acknowledgement by the Borrower(s). This
Authorization and the Note will remain in full force and effect until the
obligations in connection with the Note have been fulfilled.
3. Unless dated by Bank prior to execution, the Note shall be dated by Bank as
of the date on which Bank disburses proceeds.
4. Notwithstanding anything to the contrary herein, Bank reserves the right to
decline to advance the proceeds of the Note if there is a filing as to the
Borrower(s), or any of them of a voluntary or involuntary petition under the
provisions of the Federal Bankruptcy Act or any other insolvency law; the
issuance of any attachment, garnishment, execution or levy of any asset of
the Borrower(s), or any endorser or guarantor which results in Bank deeming
itself, in good faith insecure.
5. The Borrower(s) authorizes Bank to release information ocncerning the
Borrower(s) financial condition to suppliers, other creditors, credit
bureaus and other credit reporters; and also authorizes Bank to obtain such
information from any third party at any time.
The Borrower(s) by their execution of this Authorization accept the foregoing
terms, conditions and instructions.
Executed on 9-10-98.
EVER-TEK COMPUTER CORPORATION
BY: /s/ Frank Segler
------------------------------- -----------------------------------
FRANK SEGLER, PRESIDENT
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
<PAGE> 1
EXHIBIT 10.15
[UNION BANK LOGO]
April 20, 1999
Frank Segler
President
Ever-tek Computer Corporation
2604 Temple Heights Dr.
Oceanside, CA 92056
Dear Frank:
Re: Second Amendment ("Amendment") to the Business Loan Agreement dated
September 15, 1998 (all prior Amendments, this Amendment, and the
Business Loan Agreement together called the "Agreement")
Dear Frank:
In reference to the Agreement between Union Bank of California N.A.
("Bank") and Ever-tek Computer Corporation ("Borrower") the Bank and Borrower
desire to amend the Agreement. Capitalized terms used herein which are not
otherwise defined shall have the meaning given them in the Agreement.
Amendments to the Agreement:
(a) Section 1.4 Guaranty of the Agreement is hereby amended by adding
the following "Computer Geeks Discount Outlet, Inc."
Except as specifically amended hereby, the Agreement shall remain in
full force and effect and is hereby ratified and confirmed. This Amendment shall
not be a waiver of any existing or future default or breach of a condition or
covenant unless specified herein.
This Amendment shall become effective when the Bank shall have received
the acknowledgment copy of this Amendment executed by the Borrower and the
following executed documents, all of which the Bank must be received before
April 30, 1999.
Very truly yours,
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Maureen Sullivan
------------------------------------
Title: Vice President
------------------------------------
Agreed and Accepted to this 21 day of April, 1999.
Ever-tek Computer Corporation
By: /s/ Frank Segler
------------------------------------
Title: President
------------------------------------
<PAGE> 1
[UNION BANK LOGO] EXHIBIT 10.16
PROMISSORY NOTE
BASE RATE
- --------------------------------------------------------------------------------
Borrower Name
EVER-TEK COMPUTER CORPORATION
- --------------------------------------------------------------------------------
Borrower Address Office Loan Number
40061 2723048307 0080-00-0-000
--------------------------------------------
2604 TEMPLE HEIGHTS DRIVE Maturity Date Amount
OCEANSIDE, CA 92056 SEPTEMBER 15, 1999 $3,500,000.00
- --------------------------------------------------------------------------------
Date APRIL 20, 1999 $ 3,500,000.00
-------------- ---------------
FOR VALUE RECEIVED, on SEPTEMBER 15, 1999 the undersigned ("Debtor") promises to
pay the order of UNION BANK of CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 Dollars
($3,500,000.00), or so much thereof as is distributed, together with interest
on the balance of such principal from time to time outstanding, at a per annum
rate or rates and at the time set forth below.
1. INTEREST PAYMENTS. Debtors shall pay interest MONTHLY. Should interest not be
paid when due, it shall become a part of the principal and thereafter bear
interest as herein provided. All computations of interest under this Note shall
be made on the basis of a year of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder in
minimum amounts of at least $ 100,000.00 shall bear interest at a rate,
based on an index selected by Debtor, which is 2.750% per annum in excess
of Bank's LIBOR Rate for the Interest Period selected by Debtor, acceptable
to Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not discharge
Debtor from its obligations to repay in full with interest all amounts
borrowed. In no event shall any Interest Period extend beyond the maturity
date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and on
the expiration of any Interest Period which respect to principal outstanding
on which a Base Interest Rate has been accruing, select an Index offered by
Bank for a Base Interest Rate Loan and an Interest Period by telephoning an
authorized lending officer of Bank located at the banking office identified
below prior to 10:00 a.m., Pacific time, on any Business Day and advising
that officer of the selected index, the Interest Period and the Origination
Date selected (which Origination Date, for a Base Interest Rate Loan based
on the LIBOR Rate, shall follow the date of such selection by no more than
two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the rate
selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves the
right to fund the principal from any source of funds notwithstanding any
Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is not
bearing interest at a Base Interest Rate shall bear Interest at a rate per
annum of 0.500 % in excess of the Reference Rate, which rate shall vary as
and when the Reference Rate changes.
At any time prior to the maturity of this note, subject to the provisions of
paragraph 4. below, of this note, Debtor may borrow, repay and reborrow
hereon so long as the total outstanding at any one time does not exceed the
principal amount of this note. Debtor shall pay all amounts due under this
note in lawful money of the United States at Bank's SAN DIEGO COMMERCIAL
BANKING Office, or such other office as may be designated by Bank from time
to time.
2. LATE PAYMENTS. If any payment required by the terms of this note shall remain
unpaid ten days after same is due, at the option of Bank, Debtor shall pay a fee
of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this Note at a per annum rate equal to FIVE AND
NO/100 percent (5.00%) in excess of the interest rate specified in paragraph
1.b. above, calculated from the date of default until all amounts payable under
this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based on the
Reference Rate may be prepaid in whole or in part at any time, without penalty
or premium. Debtor may prepay amounts outstanding under this note bearing
interest at a Base Interest Rate in whole or in part provided Debtor has given
Bank not less than five (5) Business Days prior written notice of Debtor's
intention to make such prepayment and pays to Bank the liquidated Damages due as
a result. Liquidated Damages shall also be paid, if Bank, for any other reason,
including acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment date.
Liquidated Damages shall be an amount equal to the present value of the product
of: (i) the difference (but not less than zero) between (a) the Base Interest
Rate applicable to the principal amount which is being prepaid, and (b) the
return which Bank could obtain if it used the amount of such prepayment of
principal to purchase at bid price regularly quoted securities issued by the
United States having a maturity date mostly closely coinciding with the relevant
Base Rate Maturity Date and such securities were held by Bank until the relevant
Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator of which
is the number of days in the period between the date of prepayment and the
relevant Base Rate Maturity Date and the denominator of which is 360; and (iii)
the amount of the principal so prepaid (except in the event that principal
payments are required and have been made as scheduled under the terms of the
Base Interest Rate Loan being prepaid, then an amount equal to the lesser of (A)
the amount prepaid or (B) 50% of the sum of (1) the amount prepaid and (2) the
amount of principal scheduled under the terms of the Base Interest Rate Loan
being prepaid to its outstanding at the relevant Base Rate Maturity Date ).
Present value under this note is determined by discounting the above product to
present value using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to Debtor,
nor shall Debtor be entitled to any setoff or other claim against Bank, should
the return which Bank could obtain under this prepayment formula exceed the
interest rate that Bank would have received if no prepayment had occurred. All
prepayments shall include payment of accrued interest on the principal amount so
prepaid and shall be applied to payment of Interest before application to
principal. A determination by Bank as to the prepayment fee amount, if any,
shall be conclusive.
c. Bank shall provide Debtor a statement of the amount payable on account of
prepayment. Debtor acknowledges that (i) Bank establishes a Base Interest Rate
upon the understanding that it apply to the Base Interest Rate Loan for the
entire Interest Period, and (ii) any prepayment may result in Bank incurring
additional costs, expenses or liabilities; and Debtor agrees to pay these
liquidated damages as a reasonable estimate of the costs, expenses and
liabilities of Bank association with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any other person
or entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of guaranty
or subordination agreement given in connection with this note; (j) the failure
of any Obligor to comply with any order, judgment, injunction, decree, writ or
demand of any court or other public authority; (k) the filing or recording
against any Obligor, or the property of any Obligor, of any notice of levy,
notice to withhold, or other legal process for taxes other than property taxes;
(l) the default by any Obligor personally liable for amounts owed hereunder on
any obligation concerning the borrowing of money; (m) the issuance against any
Obligor, or the property of any Obligor, of any writ of attachment,
<PAGE> 2
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under d, e, f, or g, all principal and interest shall automatically become
immediately due and payable.
6. ADDITIONAL AGREEMENT OF DEBTOR. If any amounts owing under this note are not
paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of time
and the full extent permitted by law, (a) waive diligence, presentment, demand,
notice of nonpayment, protest, notice of protest, and notice of every kind; (b)
waive the right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of time for
the payment of any amounts due under this note. If this note is signed by more
than one party, the term "Debtor" includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability, and interest
under this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any Obligor, including
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of California, as provided in any alternative
dispute resolution agreement executed between Debtor and Bank, and consent to
service of process by any means authorized by said state's law. The term "Bank"
includes, without limitation, any holder of this note. This note shall be
construed in accordance with and governed by the laws of the State of
California. This note hereby incorporates any alternative dispute resolution
agreement previously, concurrently or hereafter executed between Debtor and
Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "BASE INTEREST RATE" means a rate of interest
based on the LIBOR Rate. "BASE INTEREST RATE LOAN" means amounts outstanding
under this note shall bear interest at a Base Interest Rate. "BASE RATE MATURITY
DATE" means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "BUSINESS DAY" means a day on which
Bank is open for business for the funding of corporate loans, and, with respect
to the rate of interest based on the LIBOR Rate, on which dealings in U.S.
dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts on
one Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there is
no such numerically corresponding day, then as to that month, such day shall be
deemed to be the last calendar day of such month. Any Interest Period which
would otherwise end on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR RATE" means
a per annum rate of interest (rounded upward, if necessary, to the nearest 1/100
of 1%) at which dollar deposits, in immediately available funds and in lawful
money of the United States would be offered to Bank, outside of the United
States, for a term coinciding with the Interest Period selected by Debtor and
for an amount equal to the amount of principal covered by Debtor's Interest rate
selection, plus Bank's costs, including the cost, if any, of reserve
requirements. "ORIGINATION DATE" means the first day of the Interest Period.
"REFERENCE RATE" means the rate announced by Bank from time to time at its
corporate headquarters as its Reference Rate. The Reference Rate is an index
rate determined by Bank from time to time as a means of pricing certain
extensions of credit and is neither directly tied to any external rate of
interest or index nor necessarily the lowest rate of interest charged by Bank at
any given time.
EVER-TEK COMPUTER CORPORATION
By: /s/ Frank Segler
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FRANK SEGLER, PRESIDENT
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<PAGE> 3
[Union Bank logo]
CONTINUING GUARANTY
1. OBLIGATIONS GUARANTEED. For consideration, the adequacy and sufficiency of
which is acknowledged, the undersigned ("Guarantor") unconditionally guaranties
and promises (a) to pay UNION BANK OF CALIFORNIA, N.A. ("Bank") on demand, in
lawful United States money, all Obligations to Bank of EVER-TEK COMPUTER
CORPORATION ("Borrower") and (b) to perform all undertakings of Borrower in
connection with the Obligations, "Obligations" is used in its most comprehensive
sense and includes any and all debts, liabilities, rental obligations, and other
obligations and liabilities of every kind of Borrower to Bank, whether made,
incurred or created previously, concurrently or in the future, whether voluntary
or involuntary and however arising, whether incurred directly or acquired by
Bank by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, legal or equitable, whether Borrower is
liable individually or jointly or with others, whether incurred before, during
or after any bankruptcy, reorganization, insolvency, receivership or similar
proceeding ("insolvency Proceeding"), and whether recovery thereof is or becomes
barred by a statute of limitations or is or becomes otherwise unenforceable,
together with all expenses of, for and incidental to collection, including
reasonable attorney's fees.
2. LIMITATION ON GUARANTOR'S LIABILITY. Although this Guaranty covers all
Obligations, Guarantor's liability under this Guaranty for Borrower's
Obligations shall not exceed at any one time the sum of the following (the
"Guarantied Liability Amount"): (a) FOUR MILLION FIVE HUNDRED THOUSAND AND
NO/100 ($4,500,000.00) for Obligations representing principal and/or rent
("Principal Amount"), (b) all interest, fees and costs, attorneys' fees, and
expenses of Bank relating to or arising out of the enforcement of the
Obligations and all indemnity liabilities of Guarantor under this Guaranty. The
foregoing limitation applies only to Guarantor's liability under this particular
Guaranty. Unless Bank otherwise agrees in writing, every other guaranty of any
Obligations previously, concurrently, or hereafter given to Bank by Guarantor is
independent of this Guaranty and of every other such guaranty. Without notice to
Guarantor, Bank may permit the Obligations to exceed the Principal Amount and
may apply or reapply any amounts received in respect of the Obligations from any
source other than from Guarantor to that portion of the Obligations not included
within the Guarantied Liability Amount.
3. CONTINUING NATURE/REVOCATION/REINSTATEMENT. This Guaranty is in addition to
any other guaranties of the Obligations, is continuing and covers all
Obligations, including those arising under successive transactions which
continue or increase the Obligations from time to time, renew all or part of the
Obligations after they have been satisfied, or create new Obligations.
Revocation by one or more signers of this Guaranty or any other guarantors of
the Obligations shall not (a) affect the obligations under this Guaranty of a
non-revoking Guarantor, (b) apply to Obligations outstanding when Bank receives
written notice of revocation, or to any extensions, renewals, readvances,
modifications, amendments or replacements of such Obligations, or (c) apply to
Obligations, arising after Bank receives such notice of revocation, which are
created pursuant to a commitment existing at the time of the revocation, whether
or not there exists an unsatisfied condition to such commitment or Bank has
another defense to its performance. All of Bank's rights pursuant to this
Guaranty continue with respect to amounts previously paid to Bank on account of
any Obligations which are thereafter restored or returned by Bank, whether in an
Insolvency Proceeding of Borrower or for any other reason, all as though such
amounts had not been paid to Bank; and Guarantor's liability under this Guaranty
(and all its terms and provisions) shall be reinstated and revised,
notwithstanding any surrender or cancellation of this Guaranty. Bank, at its
sole discretion, may determine whether any amount paid to it must be restored or
returned; provided, however, that if Bank elects to contest any claim for return
or restoration, Guarantor agrees to indemnify and hold Bank harmless from and
against all costs and expenses, including reasonable attorneys' fees, expended
or incurred by Bank in connection with such contest. No payment by Guarantor
shall reduce the Guarantied Liability Amount hereunder unless, at or prior to
the time of such payment, Bank receives Guarantor's written notice to that
effect. If any Insolvency Proceeding is commenced by or against Borrower or
Guarantor, at Bank's election, Guarantor's obligations under this Guaranty shall
immediately and without notice or demand become due and payable, whether or not
then otherwise due and payable.
4. AUTHORIZATION. Guarantor authorizes Bank, without notice and without
affecting Guarantor's liability under this Guaranty, from time to time, whether
before or after any revocation of this Guaranty, to (a) renew, compromise,
extend, accelerate, release, subordinate, waive, amend and restate, or otherwise
amend or change, the interest rate, time or place for payment or any other terms
of all or any part of the Obligations; (b) accept delinquent or partial payments
on the Obligations; (c) take or not take security or other credit support for
this Guaranty or for all or any part of the Obligations, and exchange, enforce,
waive, release, subordinate, fail to enforce or perfect, sell, or otherwise
dispose of any such security or credit support; (d) apply proceeds of any such
security or credit support and direct the order or manner of its sale or
enforcement as Bank, at its sole discretion, may determine; and (e) release or
substitute Borrower or any guarantor or other person or entity liable on the
Obligations.
5. WAIVERS. To the maximum extent permitted by law, Guarantor waives (a) all
rights to require Bank to proceed against Borrower, or any other guarantor, or
proceed against, enforce or exhaust any security for the Obligations or to
marshall assets or to pursue any other remedy in Bank's power whatsoever; (b)
all defenses arising by reason of any disability or other defense of Borrower,
the cessation for any reason of the liability of Borrower, any defense that any
other indemnity, guaranty or security was to be obtained, any claim that Bank
has made Guarantor's obligations more burdensome or more burdensome than
Borrower's obligations, and the use of any proceeds of the Obligations other
than as intended or understood by Bank or Guarantor; (c) all presentments,
demands for performance, notices of nonperformance, protests notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the existence
or creation of new or additional Obligations, and all other notices or demands
to which Guarantor might otherwise be entitled; (d) all conditions precedent to
the effectiveness of this Guaranty; (e) all rights to file a claim in connection
with the Obligations in an Insolvency Proceeding filed by or against Borrower;
(f) all rights to require Bank to enforce any of its remedies; and (g) until the
Obligations are satisfied or fully paid with such payment not subject to return:
(i) all rights of subrogation, contribution, indemnification or reimbursement,
(ii) all rights of recourse to any assets or property of Borrower, or to any
collateral or credit support for the Obligations, (iii) all rights to
participate in or benefit from any security or credit support Bank may have or
acquire and (iv) all rights, remedies and defenses Guarantor may have or acquire
against Borrower. Guarantor understands that if Bank forecloses by trustee's
sale on a deed of trust securing any of the Obligations, Guarantor would than
have a defense preventing Bank from thereafter enforcing Guarantor's liability
for the unpaid balance of the secured Obligations. This defense arises because
the trustee's sale would eliminate Guarantor's right of subrogation, and
therefore Guarantor would be unable to obtain reimbursement from Borrower.
Guarantor specifically waives this defense and all rights and defenses that
Guarantor may have because the Obligations are secured by real property. This
means, among other things: (1) Bank may collect from Guarantor without first
foreclosing on any real or personal property collateral pledged by Borrower; and
(2) if Bank forecloses on any real property collateral pledged by Borrower: (A)
the amount of the Obligations may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price; and (B) Bank may collect from Guarantor even if Bank, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional and irrevocable
waiver of any rights and defenses Guarantor may have because the Obligations are
secured by real property. These rights and defenses include, but are not limited
to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the
California Code of Civil Procedure or similar laws in other states.
6. GUARANTOR TO KEEP INFORMED. Guarantor warrants having established with
Borrower adequate means of obtaining, on an ongoing basis, such information as
Guarantor may require concerning all matters bearing on the risk of nonpayment
or nonperformance of the Obligations. Guarantor assumes sole, continuing
responsibility for obtaining such information from sources other than from Bank.
Bank has no duty to provide any information to Guarantor until Bank receives
Guarantor's written request for specific information in Bank's possession and
Borrower has authorized Bank to disclose such information to Guarantor.
7. SUBORDINATION. All obligations of Borrower to Guarantor which presently or in
the future may exist ("Guarantor's Claims") are hereby subordinated to the
Obligations. At Bank's request, Guarantor's Claims will be enforced and
performance thereon received by Guarantor only as a trustee for Bank, and
Guarantor will promptly pay over to Bank all proceeds recovered for application
to the Obligations without reducing or affecting Guarantor's liability under
other provisions of this Guaranty.
8. SECURITY. To secure Guarantor's obligations under this Guaranty, other than
for payment of Obligations which are subject to the disclosure requirements of
the United States Truth in Lending Act, Guarantor grants Bank a security
interest in all moneys, general and special deposits, instruments and other
property of Guarantor at any time maintained with or held by Bank, and all
proceeds of the foregoing.
9. AUTHORIZATION. Where Borrower is a corporation, partnership or other entity,
Bank need not inquire into or verify the powers of Borrower or authority of
those acting or purporting to act on behalf of Borrower, and this Guaranty shall
be enforceable with respect to any Obligations Bank grants or creates in
reliance on the purported exercise of such powers or authority.
10. ASSIGNMENTS. Without notice to Guarantor, Bank may assign the Obligations
and this Guaranty, in whole or in part, an may disclose to any prospective or
actual purchaser of all or part of the Obligations any and all information Bank
has or acquires concerning Guarantor, this Guaranty and any security for this
Guaranty.
11. COUNSEL FEES AND COSTS. The prevailing party shall be entitled to attorney's
fees (including a reasonable allocation for Bank's internal counsel) and all
other costs and expenses which it may incur in connection with the enforcement
or preservation of its rights under, or defense of, this Guaranty or in
connection with any other dispute or proceeding relating to this Guaranty,
whether or not incurred in any Insolvency Proceeding, arbitration, litigation or
other proceeding.
12. MARRIED GUARANTORS. By executing this Guaranty, a Guarantor who is married
agrees that recourse may be had against his or her separate and community
property for all his or her obligations under this Guaranty.
13. MULTIPLE GUARANTORS/BORROWERS. When there is more than on Borrower named
herein or when this Guaranty is executed by more than one Guarantor, then the
words "Borrower" and "Guarantor", respectively, shall mean all and any one or
more of them, and their respective successors and assigns, including
<PAGE> 4
debtors-in-possession, and bankruptcy trustees; words used herein in the
singular shall be considered to have been used in the plural where the context
and construction so requires in order to refer to more than one Borrower or
Guarantor, as the case may be.
14. INTEGRATION/SEVERABILITY/AMENDMENTS. This Guaranty is intended by Guarantor
and Bank as the complete, final expression of their agreement concerning its
subject matter. It supersedes all prior understandings or agreements with
respect thereto and may be changed only by a writing signed by Guarantor and
Bank. No course of dealing, or parole or extrinsic evidence shall be used to
modify or supplement the express terms of this Guaranty. If any provision of
this Guaranty is found to be illegal, invalid or unenforceable, such provision
shall be enforced to the maximum extent permitted, but if fully unenforceable,
such provision shall be severable, and this Guaranty shall be construed as if
such provision had never been a part of this Guaranty, and the remaining
provisions shall continue in full force and effect.
15. JOINT AND SEVERAL. If more than one Guarantor signs this Guaranty, the
obligations of each under this Guaranty are joint and several, and independent
of the Obligations and of the obligations of any other person or entity. A
separate action or actions maybe brought and prosecuted against any one of more
guarantors, whether action is brought against Borrower or other guarantors of
the Obligations, and whether Borrower or others are joined in any such action.
16. NOTICE. Any notice, including notice of revocation, given by any party under
this Guaranty shall be effective only upon its receipt by the other party and
only if (a) given in writing and (b) personally delivered or sent by Unites
States mail, postage prepaid, and addressed to Bank or Guarantor at their
respective addresses for notices indicated below. Guarantor and Bank may change
the place to which notices, requests, and other communications are to be sent to
them by giving written notice of such change to the other.
17. GOVERNING LAW. This Guaranty shall be governed by and construed according to
the laws of California, and, except as provided in any alternative dispute
resolution agreement executed between Guarantor and Bank, Guarantor submits to
the non-exclusive jurisdiction of the state or federal courts in said state.
18. DISPUTE RESOLUTION. This Guaranty hereby incorporates any alternative
dispute resolution agreement previously, concurrently or hereafter executed
between Guarantor and Bank.
Executed as of APRIL 20, 1999 . Guarantor acknowledges having received a copy of
this Guaranty and having made each waiver contained in this Guaranty with full
knowledge of its consequences.
By: /s/ Frank Segler
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FRANK SEGLER
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UNION BANK OF CALIFORNIA, N.A.
BY: /s/ Maureen Sullivan
-------------------------------
MAUREEN SULLIVAN
TITLE: VICE PRESIDENT
Address for notices to Bank: Address for notices to Guarantor:
ATTN: 2604 TEMPLE HEIGHTS DRIVE
SAN DIEGO COMMERCIAL BANKING OFFICE OCEANSIDE, CA 92056
530 B ST., 4TH FLOOR SOC. SEC. NO.:
SAN DIEGO, CA 92101
<PAGE> 5
[Union Bank logo]
CONTINUING GUARANTY
1. OBLIGATIONS GUARANTEED. For consideration, the adequacy and sufficiency of
which is acknowledged, the undersigned ("Guarantor") unconditionally guaranties
and promises (a) to pay UNION BANK OF CALIFORNIA, N.A. ("Bank") on demand, in
lawful United States money, all Obligations to Bank of EVER-TEK COMPUTER
CORPORATION ("Borrower") and (b) to perform all undertakings of Borrower in
connection with the Obligations, "Obligations" is used in its most comprehensive
sense and includes any and all debts, liabilities, rental obligations, and other
obligations and liabilities of every kind of Borrower to Bank, whether made,
incurred or created previously, concurrently or in the future, whether voluntary
or involuntary and however arising, whether incurred directly or acquired by
Bank by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, legal or equitable, whether Borrower is
liable individually or jointly or with others, whether incurred before, during
or after any bankruptcy, reorganization, insolvency, receivership or similar
proceeding ("insolvency Proceeding"), and whether recovery thereof is or becomes
barred by a statute of limitations or is or becomes otherwise unenforceable,
together with all expenses of, for and incidental to collection, including
reasonable attorney's fees.
2. LIMITATION ON GUARANTOR'S LIABILITY. Although this Guaranty covers all
Obligations, Guarantor's liability under this Guaranty for Borrower's
Obligations shall not exceed at any one time the sum of the following (the
"Guarantied Liability Amount"): (a) FOUR MILLION FIVE HUNDRED THOUSAND AND
NO/100 ($4,500,000.00) for Obligations representing principal and/or rent
("Principal Amount"), (b) all interest, fees and costs, attorneys' fees, and
expenses of Bank relating to or arising out of the enforcement of the
Obligations and all indemnity liabilities of Guarantor under this Guaranty. The
foregoing limitation applies only to Guarantor's liability under this particular
Guaranty. Unless Bank otherwise agrees in writing, every other guaranty of any
Obligations previously, concurrently, or hereafter given to Bank by Guarantor is
independent of this Guaranty and of every other such guaranty. Without notice to
Guarantor, Bank may permit the Obligations to exceed the Principal Amount and
may apply or reapply any amounts received in respect of the Obligations from any
source other than from Guarantor to that portion of the Obligations not included
within the Guarantied Liability Amount.
3. CONTINUING NATURE/REVOCATION/REINSTATEMENT. This Guaranty is in addition to
any other guaranties of the Obligations, is continuing and covers all
Obligations, including those arising under successive transactions which
continue or increase the Obligations from time to time, renew all or part of the
Obligations after they have been satisfied, or create new Obligations.
Revocation by one or more signers of this Guaranty or any other guarantors of
the Obligations shall not (a) affect the obligations under this Guaranty of a
non-revoking Guarantor, (b) apply to Obligations outstanding when Bank receives
written notice of revocation, or to any extensions, renewals, readvances,
modifications, amendments or replacements of such Obligations, or (c) apply to
Obligations, arising after Bank receives such notice of revocation, which are
created pursuant to a commitment existing at the time of the revocation, whether
or not there exists an unsatisfied condition to such commitment or Bank has
another defense to its performance. All of Bank's rights pursuant to this
Guaranty continue with respect to amounts previously paid to Bank on account of
any Obligations which are thereafter restored or returned by Bank, whether in an
Insolvency Proceeding of Borrower or for any other reason, all as though such
amounts had not been paid to Bank; and Guarantor's liability under this Guaranty
(and all its terms and provisions) shall be reinstated and revised,
notwithstanding any surrender or cancellation of this Guaranty. Bank, at its
sole discretion, may determine whether any amount paid to it must be restored or
returned; provided, however, that if Bank elects to contest any claim for return
or restoration, Guarantor agrees to indemnify and hold Bank harmless from and
against all costs and expenses, including reasonable attorneys' fees, expended
or incurred by Bank in connection with such contest. No payment by Guarantor
shall reduce the Guarantied Liability Amount hereunder unless, at or prior to
the time of such payment, Bank receives Guarantor's written notice to that
effect. If any Insolvency Proceeding is commenced by or against Borrower or
Guarantor, at Bank's election, Guarantor's obligations under this Guaranty shall
immediately and without notice or demand become due and payable, whether or not
then otherwise due and payable.
4. AUTHORIZATION. Guarantor authorizes Bank, without notice and without
affecting Guarantor's liability under this Guaranty, from time to time, whether
before or after any revocation of this Guaranty, to (a) renew, compromise,
extend, accelerate, release, subordinate, waive, amend and restate, or otherwise
amend or change, the interest rate, time or place for payment or any other terms
of all or any part of the Obligations; (b) accept delinquent or partial payments
on the Obligations; (c) take or not take security or other credit support for
this Guaranty or for all or any part of the Obligations, and exchange, enforce,
waive, release, subordinate, fail to enforce or perfect, sell, or otherwise
dispose of any such security or credit support; (d) apply proceeds of any such
security or credit support and direct the order or manner of its sale or
enforcement as Bank, at its sole discretion, may determine; and (e) release or
substitute Borrower or any guarantor or other person or entity liable on the
Obligations.
5. WAIVERS. To the maximum extent permitted by law, Guarantor waives (a) all
rights to require Bank to proceed against Borrower, or any other guarantor, or
proceed against, enforce or exhaust any security for the Obligations or to
marshall assets or to pursue any other remedy in Bank's power whatsoever; (b)
all defenses arising by reason of any disability or other defense of Borrower,
the cessation for any reason of the liability of Borrower, any defense that any
other indemnity, guaranty or security was to be obtained, any claim that Bank
has made Guarantor's obligations more burdensome or more burdensome than
Borrower's obligations, and the use of any proceeds of the Obligations other
than as intended or understood by Bank or Guarantor; (c) all presentments,
demands for performance, notices of nonperformance, protests notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the existence
or creation of new or additional Obligations, and all other notices or demands
to which Guarantor might otherwise be entitled; (d) all conditions precedent to
the effectiveness of this Guaranty; (e) all rights to file a claim in connection
with the Obligations in an Insolvency Proceeding filed by or against Borrower;
(f) all rights to require Bank to enforce any of its remedies; and (g) until the
Obligations are satisfied or fully paid with such payment not subject to return:
(i) all rights of subrogation, contribution, indemnification or reimbursement,
(ii) all rights of recourse to any assets or property of Borrower, or to any
collateral or credit support for the Obligations, (iii) all rights to
participate in or benefit from any security or credit support Bank may have or
acquire and (iv) all rights, remedies and defenses Guarantor may have or acquire
against Borrower. Guarantor understands that if Bank forecloses by trustee's
sale on a deed of trust securing any of the Obligations, Guarantor would than
have a defense preventing Bank from thereafter enforcing Guarantor's liability
for the unpaid balance of the secured Obligations. This defense arises because
the trustee's sale would eliminate Guarantor's right of subrogation, and
therefore Guarantor would be unable to obtain reimbursement from Borrower.
Guarantor specifically waives this defense and all rights and defenses that
Guarantor may have because the Obligations are secured by real property. This
means, among other things: (1) Bank may collect from Guarantor without first
foreclosing on any real or personal property collateral pledged by Borrower; and
(2) if Bank forecloses on any real property collateral pledged by Borrower: (A)
the amount of the Obligations may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price; and (B) Bank may collect from Guarantor even if Bank, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional and irrevocable
waiver of any rights and defenses Guarantor may have because the Obligations are
secured by real property. These rights and defenses include, but are not limited
to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the
California Code of Civil Procedure or similar laws in other states.
6. GUARANTOR TO KEEP INFORMED. Guarantor warrants having established with
Borrower adequate means of obtaining, on an ongoing basis, such information as
Guarantor may require concerning all matters bearing on the risk of nonpayment
or nonperformance of the Obligations. Guarantor assumes sole, continuing
responsibility for obtaining such information from sources other than from Bank.
Bank has no duty to provide any information to Guarantor until Bank receives
Guarantor's written request for specific information in Bank's possession and
Borrower has authorized Bank to disclose such information to Guarantor.
7. SUBORDINATION. All obligations of Borrower to Guarantor which presently or in
the future may exist ("Guarantor's Claims") are hereby subordinated to the
Obligations. At Bank's request, Guarantor's Claims will be enforced and
performance thereon received by Guarantor only as a trustee for Bank, and
Guarantor will promptly pay over to Bank all proceeds recovered for application
to the Obligations without reducing or affecting Guarantor's liability under
other provisions of this Guaranty.
8. SECURITY. To secure Guarantor's obligations under this Guaranty, other than
for payment of Obligations which are subject to the disclosure requirements of
the United States Truth in Lending Act, Guarantor grants Bank a security
interest in all moneys, general and special deposits, instruments and other
property of Guarantor at any time maintained with or held by Bank, and all
proceeds of the foregoing.
9. AUTHORIZATION. Where Borrower is a corporation, partnership or other entity,
Bank need not inquire into or verify the powers of Borrower or authority of
those acting or purporting to act on behalf of Borrower, and this Guaranty shall
be enforceable with respect to any Obligations Bank grants or creates in
reliance on the purported exercise of such powers or authority.
10. ASSIGNMENTS. Without notice to Guarantor, Bank may assign the Obligations
and this Guaranty, in whole or in part, an may disclose to any prospective or
actual purchaser of all or part of the Obligations any and all information Bank
has or acquires concerning Guarantor, this Guaranty and any security for this
Guaranty.
11. COUNSEL FEES AND COSTS. The prevailing party shall be entitled to attorney's
fees (including a reasonable allocation for Bank's internal counsel) and all
other costs and expenses which it may incur in connection with the enforcement
or preservation of its rights under, or defense of, this Guaranty or in
connection with any other dispute or proceeding relating to this Guaranty,
whether or not incurred in any Insolvency Proceeding, arbitration, litigation or
other proceeding.
12. MARRIED GUARANTORS. By executing this Guaranty, a Guarantor who is married
agrees that recourse may be had against his or her separate and community
property for all his or her obligations under this Guaranty.
13. MULTIPLE GUARANTORS/BORROWERS. When there is more than on Borrower named
herein or when this Guaranty is executed by more than one Guarantor, then the
words "Borrower" and "Guarantor", respectively, shall mean all and any one or
more of them, and their respective successors and assigns, including
<PAGE> 6
debtors-in-possession, and bankruptcy trustees; words used herein in the
singular shall be considered to have been used in the plural where the context
and construction so requires in order to refer to more than one Borrower or
Guarantor, as the case may be.
14. INTEGRATION/SEVERABILITY/AMENDMENTS. This Guaranty is intended by Guarantor
and Bank as the complete, final expression of their agreement concerning its
subject matter. It supersedes all prior understandings or agreements with
respect thereto and may be changed only by a writing signed by Guarantor and
Bank. No course of dealing, or parole or extrinsic evidence shall be used to
modify or supplement the express terms of this Guaranty. If any provision of
this Guaranty is found to be illegal, invalid or unenforceable, such provision
shall be enforced to the maximum extent permitted, but if fully unenforceable,
such provision shall be severable, and this Guaranty shall be construed as if
such provision had never been a part of this Guaranty, and the remaining
provisions shall continue in full force and effect.
15. JOINT AND SEVERAL. If more than one Guarantor signs this Guaranty, the
obligations of each under this Guaranty are joint and several, and independent
of the Obligations and of the obligations of any other person or entity. A
separate action or actions maybe brought and prosecuted against any one of more
guarantors, whether action is brought against Borrower or other guarantors of
the Obligations, and whether Borrower or others are joined in any such action.
16. NOTICE. Any notice, including notice of revocation, given by any party under
this Guaranty shall be effective only upon its receipt by the other party and
only if (a) given in writing and (b) personally delivered or sent by Unites
States mail, postage prepaid, and addressed to Bank or Guarantor at their
respective addresses for notices indicated below. Guarantor and Bank may change
the place to which notices, requests, and other communications are to be sent to
them by giving written notice of such change to the other.
17. GOVERNING LAW. This Guaranty shall be governed by and construed according to
the laws of California, and, except as provided in any alternative dispute
resolution agreement executed between Guarantor and Bank, Guarantor submits to
the non-exclusive jurisdiction of the state or federal courts in said state.
18. DISPUTE RESOLUTION. This Guaranty hereby incorporates any alternative
dispute resolution agreement previously, concurrently or hereafter executed
between Guarantor and Bank.
Executed as of APRIL 20, 1999 . Guarantor acknowledges having received a copy of
this Guaranty and having made each waiver contained in this Guaranty with full
knowledge of its consequences.
FRANK SEGLER, TRUSTEE OF THE SEGLER
FAMILY TRUST
By: /s/ Frank Segler
------------------------------- -----------------------------------
FRANK SEGLER, TRUSTEE
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
UNION BANK OF CALIFORNIA, N.A.
BY: /s/ Maureen Sullivan
-------------------------------
MAUREEN SULLIVAN
TITLE: VICE PRESIDENT
----------------------------
Address for notices to Bank: Address for notices to Guarantor:
ATTN: 2459 OCEAN STREET #A
SAN DIEGO COMMERCIAL BANKING OFFICE CARLSBAD, CA 92008
530 B ST., 4TH FLOOR TAX ID: ###-##-####
SAN DIEGO, CA 92101
<PAGE> 7
[Union Bank logo]
CONTINUING GUARANTY
1. OBLIGATIONS GUARANTEED. For consideration, the adequacy and sufficiency of
which is acknowledged, the undersigned ("Guarantor") unconditionally guaranties
and promises (a) to pay UNION BANK OF CALIFORNIA, N.A. ("Bank") on demand, in
lawful United States money, all Obligations to Bank of EVER-TEK COMPUTER
CORPORATION ("Borrower") and (b) to perform all undertakings of Borrower in
connection with the Obligations, "Obligations" is used in its most comprehensive
sense and includes any and all debts, liabilities, rental obligations, and other
obligations and liabilities of every kind of Borrower to Bank, whether made,
incurred or created previously, concurrently or in the future, whether voluntary
or involuntary and however arising, whether incurred directly or acquired by
Bank by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, legal or equitable, whether Borrower is
liable individually or jointly or with others, whether incurred before, during
or after any bankruptcy, reorganization, insolvency, receivership or similar
proceeding ("insolvency Proceeding"), and whether recovery thereof is or becomes
barred by a statute of limitations or is or becomes otherwise unenforceable,
together with all expenses of, for and incidental to collection, including
reasonable attorney's fees.
2. LIMITATION ON GUARANTOR'S LIABILITY. Although this Guaranty covers all
Obligations, Guarantor's liability under this Guaranty for Borrower's
Obligations shall not exceed at any one time the sum of the following (the
"Guarantied Liability Amount"): (a) FOUR MILLION FIVE HUNDRED THOUSAND AND
NO/100 ($4,500,000.00) for Obligations representing principal and/or rent
("Principal Amount"), (b) all interest, fees and costs, attorneys' fees, and
expenses of Bank relating to or arising out of the enforcement of the
Obligations and all indemnity liabilities of Guarantor under this Guaranty. The
foregoing limitation applies only to Guarantor's liability under this particular
Guaranty. Unless Bank otherwise agrees in writing, every other guaranty of any
Obligations previously, concurrently, or hereafter given to Bank by Guarantor is
independent of this Guaranty and of every other such guaranty. Without notice to
Guarantor, Bank may permit the Obligations to exceed the Principal Amount and
may apply or reapply any amounts received in respect of the Obligations from any
source other than from Guarantor to that portion of the Obligations not included
within the Guarantied Liability Amount.
3. CONTINUING NATURE/REVOCATION/REINSTATEMENT. This Guaranty is in addition to
any other guaranties of the Obligations, is continuing and covers all
Obligations, including those arising under successive transactions which
continue or increase the Obligations from time to time, renew all or part of the
Obligations after they have been satisfied, or create new Obligations.
Revocation by one or more signers of this Guaranty or any other guarantors of
the Obligations shall not (a) affect the obligations under this Guaranty of a
non-revoking Guarantor, (b) apply to Obligations outstanding when Bank receives
written notice of revocation, or to any extensions, renewals, readvances,
modifications, amendments or replacements of such Obligations, or (c) apply to
Obligations, arising after Bank receives such notice of revocation, which are
created pursuant to a commitment existing at the time of the revocation, whether
or not there exists an unsatisfied condition to such commitment or Bank has
another defense to its performance. All of Bank's rights pursuant to this
Guaranty continue with respect to amounts previously paid to Bank on account of
any Obligations which are thereafter restored or returned by Bank, whether in an
Insolvency Proceeding of Borrower or for any other reason, all as though such
amounts had not been paid to Bank; and Guarantor's liability under this Guaranty
(and all its terms and provisions) shall be reinstated and revised,
notwithstanding any surrender or cancellation of this Guaranty. Bank, at its
sole discretion, may determine whether any amount paid to it must be restored or
returned; provided, however, that if Bank elects to contest any claim for return
or restoration, Guarantor agrees to indemnify and hold Bank harmless from and
against all costs and expenses, including reasonable attorneys' fees, expended
or incurred by Bank in connection with such contest. No payment by Guarantor
shall reduce the Guarantied Liability Amount hereunder unless, at or prior to
the time of such payment, Bank receives Guarantor's written notice to that
effect. If any Insolvency Proceeding is commenced by or against Borrower or
Guarantor, at Bank's election, Guarantor's obligations under this Guaranty shall
immediately and without notice or demand become due and payable, whether or not
then otherwise due and payable.
4. AUTHORIZATION. Guarantor authorizes Bank, without notice and without
affecting Guarantor's liability under this Guaranty, from time to time, whether
before or after any revocation of this Guaranty, to (a) renew, compromise,
extend, accelerate, release, subordinate, waive, amend and restate, or otherwise
amend or change, the interest rate, time or place for payment or any other terms
of all or any part of the Obligations; (b) accept delinquent or partial payments
on the Obligations; (c) take or not take security or other credit support for
this Guaranty or for all or any part of the Obligations, and exchange, enforce,
waive, release, subordinate, fail to enforce or perfect, sell, or otherwise
dispose of any such security or credit support; (d) apply proceeds of any such
security or credit support and direct the order or manner of its sale or
enforcement as Bank, at its sole discretion, may determine; and (e) release or
substitute Borrower or any guarantor or other person or entity liable on the
Obligations.
5. WAIVERS. To the maximum extent permitted by law, Guarantor waives (a) all
rights to require Bank to proceed against Borrower, or any other guarantor, or
proceed against, enforce or exhaust any security for the Obligations or to
marshall assets or to pursue any other remedy in Bank's power whatsoever; (b)
all defenses arising by reason of any disability or other defense of Borrower,
the cessation for any reason of the liability of Borrower, any defense that any
other indemnity, guaranty or security was to be obtained, any claim that Bank
has made Guarantor's obligations more burdensome or more burdensome than
Borrower's obligations, and the use of any proceeds of the Obligations other
than as intended or understood by Bank or Guarantor; (c) all presentments,
demands for performance, notices of nonperformance, protests notices of protest,
notices of dishonor, notices of acceptance of this Guaranty and of the existence
or creation of new or additional Obligations, and all other notices or demands
to which Guarantor might otherwise be entitled; (d) all conditions precedent to
the effectiveness of this Guaranty; (e) all rights to file a claim in connection
with the Obligations in an Insolvency Proceeding filed by or against Borrower;
(f) all rights to require Bank to enforce any of its remedies; and (g) until the
Obligations are satisfied or fully paid with such payment not subject to return:
(i) all rights of subrogation, contribution, indemnification or reimbursement,
(ii) all rights of recourse to any assets or property of Borrower, or to any
collateral or credit support for the Obligations, (iii) all rights to
participate in or benefit from any security or credit support Bank may have or
acquire and (iv) all rights, remedies and defenses Guarantor may have or acquire
against Borrower. Guarantor understands that if Bank forecloses by trustee's
sale on a deed of trust securing any of the Obligations, Guarantor would than
have a defense preventing Bank from thereafter enforcing Guarantor's liability
for the unpaid balance of the secured Obligations. This defense arises because
the trustee's sale would eliminate Guarantor's right of subrogation, and
therefore Guarantor would be unable to obtain reimbursement from Borrower.
Guarantor specifically waives this defense and all rights and defenses that
Guarantor may have because the Obligations are secured by real property. This
means, among other things: (1) Bank may collect from Guarantor without first
foreclosing on any real or personal property collateral pledged by Borrower; and
(2) if Bank forecloses on any real property collateral pledged by Borrower: (A)
the amount of the Obligations may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price; and (B) Bank may collect from Guarantor even if Bank, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional and irrevocable
waiver of any rights and defenses Guarantor may have because the Obligations are
secured by real property. These rights and defenses include, but are not limited
to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the
California Code of Civil Procedure or similar laws in other states.
6. GUARANTOR TO KEEP INFORMED. Guarantor warrants having established with
Borrower adequate means of obtaining, on an ongoing basis, such information as
Guarantor may require concerning all matters bearing on the risk of nonpayment
or nonperformance of the Obligations. Guarantor assumes sole, continuing
responsibility for obtaining such information from sources other than from Bank.
Bank has no duty to provide any information to Guarantor until Bank receives
Guarantor's written request for specific information in Bank's possession and
Borrower has authorized Bank to disclose such information to Guarantor.
7. SUBORDINATION. All obligations of Borrower to Guarantor which presently or in
the future may exist ("Guarantor's Claims") are hereby subordinated to the
Obligations. At Bank's request, Guarantor's Claims will be enforced and
performance thereon received by Guarantor only as a trustee for Bank, and
Guarantor will promptly pay over to Bank all proceeds recovered for application
to the Obligations without reducing or affecting Guarantor's liability under
other provisions of this Guaranty.
8. SECURITY. To secure Guarantor's obligations under this Guaranty, other than
for payment of Obligations which are subject to the disclosure requirements of
the United States Truth in Lending Act, Guarantor grants Bank a security
interest in all moneys, general and special deposits, instruments and other
property of Guarantor at any time maintained with or held by Bank, and all
proceeds of the foregoing.
9. AUTHORIZATION. Where Borrower is a corporation, partnership or other entity,
Bank need not inquire into or verify the powers of Borrower or authority of
those acting or purporting to act on behalf of Borrower, and this Guaranty shall
be enforceable with respect to any Obligations Bank grants or creates in
reliance on the purported exercise of such powers or authority.
10. ASSIGNMENTS. Without notice to Guarantor, Bank may assign the Obligations
and this Guaranty, in whole or in part, an may disclose to any prospective or
actual purchaser of all or part of the Obligations any and all information Bank
has or acquires concerning Guarantor, this Guaranty and any security for this
Guaranty.
11. COUNSEL FEES AND COSTS. The prevailing party shall be entitled to attorney's
fees (including a reasonable allocation for Bank's internal counsel) and all
other costs and expenses which it may incur in connection with the enforcement
or preservation of its rights under, or defense of, this Guaranty or in
connection with any other dispute or proceeding relating to this Guaranty,
whether or not incurred in any Insolvency Proceeding, arbitration, litigation or
other proceeding.
12. MARRIED GUARANTORS. By executing this Guaranty, a Guarantor who is married
agrees that recourse may be had against his or her separate and community
property for all his or her obligations under this Guaranty.
<PAGE> 8
13. MULTIPLE GUARANTORS/BORROWERS. When there is more than on Borrower named
herein or when this Guaranty is executed by more than one Guarantor, then the
words "Borrower" and "Guarantor", respectively, shall mean all and any one or
more of them, and their respective successors and assigns, including
debtors-in-possession, and bankruptcy trustees; words used herein in the
singular shall be considered to have been used in the plural where the context
and construction so requires in order to refer to more than one Borrower or
Guarantor, as the case may be.
14. INTEGRATION/SEVERABILITY/AMENDMENTS. This Guaranty is intended by Guarantor
and Bank as the complete, final expression of their agreement concerning its
subject matter. It supersedes all prior understandings or agreements with
respect thereto and may be changed only by a writing signed by Guarantor and
Bank. No course of dealing, or parole or extrinsic evidence shall be used to
modify or supplement the express terms of this Guaranty. If any provision of
this Guaranty is found to be illegal, invalid or unenforceable, such provision
shall be enforced to the maximum extent permitted, but if fully unenforceable,
such provision shall be severable, and this Guaranty shall be construed as if
such provision had never been a part of this Guaranty, and the remaining
provisions shall continue in full force and effect.
15. JOINT AND SEVERAL. If more than one Guarantor signs this Guaranty, the
obligations of each under this Guaranty are joint and several, and independent
of the Obligations and of the obligations of any other person or entity. A
separate action or actions maybe brought and prosecuted against any one of more
guarantors, whether action is brought against Borrower or other guarantors of
the Obligations, and whether Borrower or others are joined in any such action.
16. NOTICE. Any notice, including notice of revocation, given by any party under
this Guaranty shall be effective only upon its receipt by the other party and
only if (a) given in writing and (b) personally delivered or sent by Unites
States mail, postage prepaid, and addressed to Bank or Guarantor at their
respective addresses for notices indicated below. Guarantor and Bank may change
the place to which notices, requests, and other communications are to be sent to
them by giving written notice of such change to the other.
17. GOVERNING LAW. This Guaranty shall be governed by and construed according to
the laws of California, and, except as provided in any alternative dispute
resolution agreement executed between Guarantor and Bank, Guarantor submits to
the non-exclusive jurisdiction of the state or federal courts in said state.
18. DISPUTE RESOLUTION. This Guaranty hereby incorporates any alternative
dispute resolution agreement previously, concurrently or hereafter executed
between Guarantor and Bank.
Executed as of APRIL 20, 1999 . Guarantor acknowledges having received a copy of
this Guaranty and having made each waiver contained in this Guaranty with full
knowledge of its consequences.
COMPUTER GEEKS DISCOUNT OUTLET, INC.
By: /s/ Scott Kusel
-------------------------------
SCOTT E. KUSEL, PRESIDENT
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
UNION BANK OF CALIFORNIA, N.A.
BY: /s/ Maureen Sullivan
-------------------------------
MAUREEN SULLIVAN
TITLE: VICE PRESIDENT
-----------------------------
Address for notices to Bank: Address for notices to Guarantor:
ATTN: 2370 OAK RIDGE WAY
SAN DIEGO COMMERCIAL BANKING OFFICE VISTA, CA 92083
530 B ST., 4TH FLOOR TAX ID:
SAN DIEGO, CA 92101
<PAGE> 9
AUTHORIZATION TO DISBURSE
- --------------------------------------------------------------------------------
Borrower Name
EVER-TEK COMPUTER CORPORATION
- --------------------------------------------------------------------------------
Borrower Address Office Loan Number
40061 2723048307 0080-00-0-000
-----------------------------------------
2604 TEMPLE HEIGHTS DRIVE Maturity Date Amount
OCEANSIDE, CA 92056 SEPTEMBER 15, 1999 $3,500,000.00
- --------------------------------------------------------------------------------
Union Bank of California, N.A. ("Bank") is hereby authorized and instructed to
disburse the proceeds of that certain promissory note ("Note") evidencing the
obligation referred to above in the following manner:
DEPOSIT THE PROCEEDS OF MY/OUR REVOLVING NOTE INTO MY/OUR ACCOUNT #40000146655
FROM TIME TO TIME AND IN SUCH AMOUNTS AS MAY BE REQUESTED VERBALLY OR IN
WRITING. CHANGE IN TERMS OF OBLG #0080-00-0-000 MATURING 9-15-99 $ 3,500,000.00
- --------------------------------------------------------------------------------
Fees itemized below are payable as follows (check one):
[ ] Charge account # _________________ [ ] Check enclosed
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. Bank is authorized to charge account number 4000146655 in the name(s) of
EVER-TEK COMPUTER CORPORATION for payments of interest (or
principal/interest) when due in connection with the Note and all renewals or
extensions thereof.
2. Bank shall disburse proceeds in the amounts stated above in accordance with
the foregoing authorization or when Bank receives verbal or written
authorization to do so from Borrower(s) or any one of the Borrowers, if
there are joint Borrows, but not later than the final date for availability
provided in the loan documents. Bank, at its discretion, may elect to extend
this date without notice to or acknowledgment by the Borrower(s). This
Authorization and the Note will remain in full force and effect until the
obligations in connection with the Note have been fulfilled.
3. Unless dated by Bank prior to execution, the Note shall be dated by Bank as
of the date on which Bank disburses proceeds.
4. Notwithstanding anything to the contrary herein, Bank reserves the right to
decline to advance the proceeds of the Note if there is a filing as to the
Borrower(s), or any of them of a voluntary or involuntary petition under the
provisions of the Federal Bankruptcy Act or any other insolvency law; the
issuance of any attachment, garnishment, execution or levy of any asset of
the Borrower(s), or any endorser or guarantor which resulted in Bank deeming
itself, in good faith insecure.
5. The Borrower(s) authorize Bank to release information concerning the
Borrower(s) financial condition to suppliers, other creditors, credit
bureaus and other credit reporters; and also authorize Bank to obtain such
information from any third party at any time.
The Borrower(s) by their execution of this Authorization accept the foregoing
terms, conditions and instructions.
Executed on 4-21-99
EVER-TEK COMPUTER CORPORATION
By: /s/ Frank Segler
-------------------------------
FRANK SEGLER, PRESIDENT
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.17
October 2, 1997
Scott Kusel
Computer Geeks Discount Outlet
VIA FACSIMILE
(760) 758-5553
Dear Scott:
The purpose of this letter is to establish the terms and conditions of the
business relationship between ONSALE, Inc. ("ONSALE") of 1861 Landing Drive in
Mountain View, California and Computer Geeks Discount Outlet ("Computer Geeks")
with offices located at 2604 Temple Heights Drive in Oceanside, California.
Process: From time to time Computer Geeks wishes to distribute Products via
ONSALE's auctions on its online service. Computer Geeks shall select Product for
auction and provide Product information. Products selected for auction must be
verifiably in stock and ready for immediate shipment prior to the beginning of
each auction. ONSALE shall prepare the Product for and manage the auction
process. Computer Geeks shall proofread all item descriptions. ONSALE awards
products to the highest bidders, collects payment via credit card for the
closing price, shipping and handling charges and applicable taxes. Within one
business day of the close of each auction, ONSALE will transmit the order
information via EDI or ONSALE's proprietary Vendor-Link software. Computer Geeks
shall ship all orders within two business days of receipt of ONSALE's orders.
Tracking numbers will be supplied to ONSALE for all orders within 24 hours of
shipment. Computer Geeks will provide individual order status and updated
inventory information to ONSALE on request.
Payment: ONSALE will provide payment for the actual merchandise closing price
and shipping charges less ONSALE's commission of ***% of the actual merchandise
closing price, less any deduction for product returns on a weekly basis. ONSALE
shall only pay for auctions for which ONSALE has received shipment-tracking
numbers from Computer Geeks. ONSALE shall provide appropriate backup
documentation with payment. Computer Geeks will pay all taxes and duties
assessed in conjunction with this agreement and its performance by any authority
within or outside of the U.S., except for taxes payable on ONSALE's net income.
In the event that ONSALE has accrued a credit balance with Computer Geeks and
there has been no sales of Products for a period of 30 days, Computer Geeks
shall issue payment for the total credit owed ONSALE in form of a check within
15 days of the end of the 30 day period.
Customer Service: ONSALE will provide first-line customer service for all
customer service inquires. ONSALE shall refer customers to Computer Geeks for
all issues beyond basic support and shipping issues (I.E. defective products,
missing parts, systems incompatibility, product exchanges, and technical
questions). ONSALE and Computer Geeks are committed to resolving all customer
questions within two business days. ONSALE and Computer Geeks will designate
responsible individuals within their respective organizations to coordinate all
product delivery issues. Contact names and phone numbers will be kept current
throughout the relationship.
Product Returns: All products returned by ONSALE's within thirty (30) days of
the customer's purchase which are defective shall be returned to Computer Geeks
from the customers, at Computer Geeks cost. In the event
*** Certain confidential portions of this Exhibit were omitted by means of
blackout of the text (the "Mark"). This Exhibit has been filed separately with
the Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 406 under the Act.
<PAGE> 2
that products are returned to ONSALE by the customer, the value of all Products
returned, outbound and inbound customer freight, and bulk shipping charges to
Computer Geeks shall be deducted from payments owed Computer Geeks.
Indemnities: Computer Geeks agrees to defend, indemnify and hold harmless
ONSALE, its corporate parent and affiliated companies, and the employees,
officers, directors and agents of each of them, against any and all claims,
liabilities, damages and costs, including reasonable attorney's fees and
settlement amounts, arising from i) any actual or alleged defect in a Product
supplied by Computer Geeks pursuant to this Agreement; ii) any actual or alleged
infringement of any patent, copyright, trademark or other intellectual property
right by a Product supplied by Computer Geeks pursuant to this Agreement; or
iii) a breach by Computer Geeks of any provision of this Agreement. Computer
Geek's responsibilities under this Section shall survive termination of this
Agreement.
General Terms: Computer Geeks warrants that all products shall be legally
resellable within the United States, Canada, and Mexico (unless otherwise stated
in writing) and in the exact conditions represented by Computer Geeks. All
Products shall be individually and adequately packaged in such a matter to be
delivered without damage to ONSALE's customers via overnight courier or UPS
shipment. ONSALE reserves the right to refuse to post any merchandise under this
agreement. ONSALE shall provide Computer Geeks with two weeks written notice in
the event that the Computer Geeks will be materially excluded from distributing
products from a certain product categories. Employees and/or agents of Computer
Geeks are forbidden to place bids or cause bids to be placed on Products
supplied by Computer Geeks for any purpose. It is expressly understood that by
the terms of this agreement that Computer Geeks will be exposed to ONSALE
confidential information, including, but not limited to, ONSALE auction
techniques and logic, pricing and merchandising strategies, order handling
processes and procedures, contractual structures and general business
techniques. This information will be held in confidence by Computer Geeks and
will not be disclosed to nor viewed by a third party, and used only pursuant to
the business relationship with ONSALE. Computer Geeks or any third party without
the express written permission of ONSALE may not solicit ONSALE customers.
This Agreement may not be modified except in writing signed by both Parties.
This Agreement will remain in effect for a period of one (1) year. Either Party
may terminate this Agreement at any time, with or without cause, upon 90 days
written notice. Neither Party shall be responsible to the other for any costs or
damages resulting from termination.
If the foregoing is in accordance with our agreement, please initial the first
page, sign the second, and return to me a copy of this letter.
Best Regards,
/s/ Michael Weller
Michael Weller
VP, Channel Development
Agreed and accepted,
/s/ Scott Kusel
-----------------------------------
Scott Kusel
Computer Geeks Discount Outlet
<PAGE> 3
Dear Vendor,
ONSALE, Inc. is a member of the TRUSTe program and is in compliance with TRUSTe
privacy principles. For your review, Onsale's privacy statement and a more
detailed description of TRUSTe is attached below. In order to remain a member in
good standing, Onsale needs to ensure compliance from its vendor partners.
In support of this program please review and sign the attached confidentiality
statement. Your agreement to this statement will allow Onsale to remain a member
in good standing. Please fax the signed statement to 650-473-0611 prior to the
close of business 8-10-98.
Our combined adherence to these privacy principles will be greatly appreciated
by our mutual customers and should promote increased customer loyalty resulting
in increased sales for Onsale and its vendor partners.
Thank you in advance for your cooperation.
Victor Hanna, Vice President
ONSALE
<PAGE> 4
ONSALE PRIVACY STATEMENT
ONSALE understands and respects your need for privacy. To that end, ONSALE, Inc.
is a member of the TRUSTe program and is in compliance with TRUSTe privacy
principles. As an AOL Certified Merchant, we also support AOL's privacy policy.
This statement discloses the privacy practices for ONSALE's entire Web site.
TRUSTe is an independent, non-profit organization whose mission is to build
users' trust and confidence in the Internet by promoting the principles of
disclosure and informed consent. Because ONSALE wants to demonstrate its
commitment to your privacy, we have agreed to disclose our information practices
reviewed and audited for compliance by TRUSTe. When you visit a Web site
displaying the TRUSTe mark, you can expect to be notified of:
- - What information is gathered/tracked
- - How the information is used
- - Who information is shared with
- - This site's opt-out policy
- - This site's policy on correcting and updating personally identifiable
information
- - This site's policy on deleting or deactivating your name from our
database
Questions regarding this statement should be directed to ONSALE Customer Service
or TRUSTe for clarification. To return to the site, please use the "Back" button
on your browser.
OUR COMMITMENT TO PRIVACY
To demonstrate this commitment, TRUSTe routinely reviews and audits our privacy
practices. Described below is our privacy policy
1. Steals & Deals(R) Broadcast Email
2. Registration and Bidding
3. Sharing of Information
4. Cookies
5. IP addresses
6. Updating Customer Information
STEALS & DEALS(TM) BROADCAST EMAIL
The ONSALE Steals & Deals broadcast email is available to all users, whether or
not they have registered on our site. To receive Steals & Deals simply enter
your email address in the form provided on our homepage or any Supersite page.
Note that you are subscribed to this list when you register to bid. You can
remove your name from this list at any time by replying to any Steals & Deals
email or via our online Customer Service Center.
REGISTRATION AND BIDDING
During the ONSALE registration process, we ask you to provide us with contact
information, such as name, billing address, shipping address, email address,
telephone number and a valid credit card number. We use this information to
verify your account when you bid and to complete transactions when you win.
<PAGE> 5
We have designed the ONSALE web site so that no personal identifying information
is displayed online or is accessible to the general public. ONSALE identifies
your bids only by your initials, city, state and country.
For bidders and sellers at the ONSALE Exchange, your credit card is used only to
secure your auction participation. It is not charged or released to any seller
or third party. This requirement helps to ensure that all bids placed are
legitimate, protecting the interests of both bidders and sellers.
SHARING OF INFORMATION
We do not sell, rent or share any customer information, except for auctions
involving third parties. In such cases, we provide only the information required
to complete the transaction. By contract, the third party is not permitted to
sell, rent or share this information.
For winners of ONSALE Exchange auctions, we share only contact information of
the three highest bidders to the seller so that the transaction may be
completed. The seller's contact information is also provided to these bidders.
For the purpose of advertising, visitor and user information is aggregated for
reporting to advertisers. However, in these situations, we do not disclose to
these entities any information that could be used to personally identify you,
such as your name, customer number, password, credit card number, or transaction
history.
COOKIES
ONSALE uses software tags called "cookies" to identify customers when they visit
our site. They help us understand your buying preferences and customize our
service to your needs. By understanding which areas of the site you visit,
cookies allow us to present information, products and specials that are of
personal interest. Our goal is to save you time and make your shopping
experience unique to you. The information we collect with cookies is not sold,
rented or shared with any outside parties. ONSALE does not allow our advertisers
to deliver their cookies on the ONSALE site.
IP ADDRESSES
ONSALE uses IP addresses solely for web site administration and identification
of server and user access issues. We do not link IP addresses to personal
identifying information.
UPDATING CUSTOMER INFORMATION
At any time you may update your ONSALE customer account information by going to
our Customer Service Center and clicking on "Customer Account". Here you may
update your name, password, billing address, shipping address, email address,
telephone number and a credit card information.
We welcome your questions regarding this privacy statement. Please address them
to ONSALE Customer Service or TRUSTe.
<PAGE> 6
AGENCY VENDOR COMPLIANCE:
Vendor acknowledges that any information transmitted from ONSALE to below
vendor, including the transactions contemplated herein, and any information
conveyed to or obtained by Vendor from ONSALE (including without limitation
business plans and data; financials; client records and lists; technical data
and protocols; specifications) is confidential and proprietary to Onsale and/or
its respective affiliates (the "Onsale Confidential Information"). Vendor agrees
that in no event shall Vendor disclose, transfer, copy, duplicate or publish any
Onsale Confidential Information to any third party without the prior written
consent of Onsale, which consent may be withheld in Onsale's sole discretion.
Vendor further agrees that it shall not utilize any Onsale information for any
purpose whatsoever other than for the purpose of performing its obligations to
ONSALE. Vendor shall make available the Onsale Confidential Information to its
employees on a need-to-know basis and shall advise such employees of the
restriction set forth with respect to the use of such Onsale Confidential
Information. Vendor shall be responsible for the unauthorized disclosure of any
Onsale Confidential Information by its employees. Upon termination or expiration
of the vendor relationship with Onsale, Vendor shall immediately return to
Onsale any and all Onsale Confidential Information, including copies thereof,
maintained by Vendor.
I accept the above confidentiality terms which shall keep our company in
compliance with ONSALE's commitment to the TRUSTe Principles.
/s/ Scott Kusel 8/11/98
- ----------------------------------- -----------------------------------
Signature Date
Geeks
- -----------------------------------
Vendor
<PAGE> 1
EXHIBIT 10.18
[IBM LOGO]
SURPLUS PC RESELLER PROFILE
- -------------------------
We welcome you as an IBM Surplus PC Reseller.
This Profile covers the details of your approval to market our Products to
Customers. Like you, we are committed to providing the highest quality Products
to the Customer. As our reseller please let us know if you have any questions or
problems with our Products.
By signing below, each of us agrees to the terms of the following (collectively
called the "Agreement"):
(a) this Profile; and
(b) Surplus PC Reseller General Terms (Z125-5143-04 04/95)
This Agreement and its applicable Transaction Documents are the complete
agreement regarding this relationship, and replace any prior oral or written
communications between us. Once this Profile is assigned, 1) any reproduction of
this Agreement or a Transaction Document made by reliable means (for example,
photocopy or facsimile) is considered an original and 2) all Products you order
and Services you perform under this Agreement are subject to it.
<TABLE>
<S> <C>
Revised Profile (yes/no): no Date received by IBM: Apr 08 1999
---------- ---------------
Agreed to: (IBM Reseller name) Agreed to:
Evertek Computer Products International Business Machines Corporation
By: /s/ Frank Segler By /s/ James K. Rooney
----------------------------------- -----------------------------------
Authorized signature Authorized signature
Name (type or print): Frank Segler Name (type or print) James K. Rooney
Date: 4-1-99 Date: Apr 08 1999
IBM Reseller address: IBM Office address:
Evertek Computer Products 3039 Cornwallis Road
Oceanside, CA 92056 Research Triangle Park, NC 27709
</TABLE>
- --------------------------------------------------------------------------------
After signing, please return a copy of this Profile to the local
"IBM Office Address" shown above.
- --------------------------------------------------------------------------------
Page 1 of 2
<PAGE> 2
DETAILS OF OUR RELATIONSHIP
<TABLE>
<S> <C>
1. CONTRACT-PERIOD START DATE (MONTH/YEAR): 05/99 DURATION (MONTHS): 12
------- ---
The start date is always the first day of a month. The start date does not change
with a revised Profile.
2. RELATIONSHIP APPROVAL:
APPROVED
APPROVED RELATIONSHIP (YES/NO) ATTACHMENT
1) Surplus PC Reseller yes
----------
THE FOLLOWING OFFERING HAS ADDITIONAL
TERMS IN THE ATTACHMENT:
1) Electronic Data Interchange no Z-125-5207-00 03/94
----------
3. PRODUCT APPROVAL:
SYSTEM UNITS, INCLUDING THEIR APPROVED TO MARKET
ASSOCIATED PROGRAMS AND PERIPHERALS (YES/NO)
1) IBM PC yes
-------
2) IBM PC Server yes
-------
3) Thinkpad yes
-------
4) Aptiva yes
-------
OTHER
1) Visual Products yes
-------
2) Features and Options yes
-------
3) Parts yes
-------
EXCLUSIONS, IF APPLICABLE:
Although included by reference above, you are not approved for these
individual Products.
NONE
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
-------------------------- -------------------------- --------------------------
4. SHIP TO LOCATIONS:
TOTAL NUMBER OF LOCATIONS LISTED IN THIS PROFILE: 1
-----
Loc. ID. Ship to Location (street address, city, state, zip code)
98968 2604 TEMPLE HEIGHTS DR.
OCEANSIDE, CA 92056
</TABLE>
<PAGE> 3
IBM logo SURPLUS PC RESELLER AGREEMENT
GENERAL TERMS
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
<S> <C> <C>
1. Definitions..............................................2
2. Agreement Structure .....................................2
3. Our Relationship.........................................3
4. Status Change............................................5
5. Export of Products.......................................5
6. Federal Reporting Requirements...........................5
7. Ordering and Delivery....................................5
8. Production Status........................................6
9. Product Returns..........................................6
10. Prices and Price Changes.................................6
11. Invoicing, Payment, and Taxes............................6
12. Title....................................................7
13. Risk of Loss.............................................7
14. Engineering Changes......................................8
15. Programs.................................................8
16. Installation and Warranty................................8
17. Warranty Service.........................................9
18. Patents and Copyrights...................................9
19. Liability...............................................10
20. Trademarks..............................................10
21. No Property Rights......................................11
22. Changes to the Agreement Terms..........................11
23. Ending the Agreement....................................11
24. Waiver of Noncompliance.................................11
25. Electronic Communications...............................12
26. Geographic Scope........................................12
27. Governing Law...........................................12
</TABLE>
Page 1 of 11
<PAGE> 4
IBM logo SURPLUS PC RESELLER AGREEMENT
GENERAL TERMS
1. DEFINITIONS
CUSTOMER is either an End User or a reseller. A reseller may market to
other resellers or to End Users.
CUSTOMER-SET-UP MACHINE is an IBM Machine that you (or your Customer)
set up according to our instructions.
END USER is anyone, unaffiliated with you, who acquires Products for its
own use and not for resale.
MACHINE is a surplus IBM or non-IBM machine, its features, conversions,
upgrades, elements, accessories, cables, or any combination of them,
that we may from time to time provide to you, and that we approve you to
provide to your Customers.
PART is a surplus IBM or non-IBM repair or replacement part, field
replacement unit, manufacturing part, sub-assembly, sub-field
replacement unit, or component, that we may from time to time provide to
you, and that we approve you to provide to your Customers.
PRODUCT is a Machine, Part, or Program.
PROGRAM is an IBM or non-IBM licensed program, provided by us, that we
approve you to provide to your Customers. The term "Program" does not
include Licensed Internal Code.
2. AGREEMENT STRUCTURE
PROFILES
We specify the details of our relationship (for example, the Products we
approve you to remarket) in a document called a "Profile." Each of us
agrees to the terms of the Profile, and the Surplus PC Reseller General
Terms, (collectively called the "Agreement"), by signing the Profile.
TRANSACTION DOCUMENTS
We will provide to you the appropriate "Transaction Documents" that
confirm the details of your order or provide additional information
about our relationship. The following are examples of Transaction
Documents, with examples of the information they may contain:
1. invoices (item, quantity, price, and amount due);
2. exhibits (eligible Products, warranty information, and other
Product-specific information). We may change the terms of an
exhibit on written notice; and
3. offer and/or acknowledgement forms (offer made by you to us,
including Product and prices, and acknowledgement by us of
acceptance of the offer).
Page 2 of 11
<PAGE> 5
CONFLICTING TERMS
If there is a conflict among the terms in the various documents, those
of a Profile prevail over those of the Surplus PC Reseller General
Terms. The terms of a Transaction Document prevail over both of the
documents.
OUR ACCEPTANCE OF YOUR ORDER
A Product becomes subject to this Agreement when we accept your order
by:
1. sending you a Transaction Document; or
2. providing the Product to you.
ACCEPTANCE OF THE TERMS IN A TRANSACTION DOCUMENT
You accept the terms in a Transaction Document by doing any of the
following:
1. signing it;
2. accepting the Product described in the Transaction Document;
3. providing the Product to your Customer; or
4. making any payment for the Product.
3. OUR RELATIONSHIP
MUTUAL RESPONSIBILITIES
Each of us agrees that under this Agreement:
1. you are an independent contractor. Neither of us is a legal
representative or agent of the other. Neither of us is legally a
partner of the other (for example, neither of us is responsible
for debts incurred by the other), and you are not our employee or
franchisee;
2. each of us is free to enter into similar agreements with others,
to market competitive Products, and to conduct its business in
whatever way it chooses, provided there is no conflict with this
Agreement. We may increase or decrease the number of our
remarketers, the types of distribution channels, and the number
of participants in such channels;
3. each of us is free to establish its own prices and terms, and
neither of us will discuss its customer prices and terms in the
presence of the other;
4. all information exchanged is nonconfidential. If either of us
requires the exchange of confidential information, it will be
made under a signed confidentiality agreement;
5. if we provide you with access to our information systems, it will
be only in support of your approved marketing activities.
Programs associated with these systems are subject to the terms
of their applicable license agreements, except that you may not
transfer them; and
6. neither of us will bring a legal action against the other more
than two years after the cause of action arose.
YOUR OTHER RESPONSIBILITIES
You agree not to do any of the following:
1. assign, or otherwise transfer, this Agreement or your rights
under it, delegate your obligations, or appoint another reseller
(including a related company) or agent to represent you or to
market our Products, without our prior written consent. Any
attempt to do so is void;
2. assume or create any obligations on our behalf, or make any
representations or warranties about us or our Products, other
than those we authorize;
Page 3 of 11
<PAGE> 6
3. conduct your business in a way (for example, failure to maintain
the highest quality professionalism in all your dealings with
Customers) that adversely affects our reputation or goodwill; or
4. disassemble personal computers and displays for the purpose of
resale.
You agree to:
1. be responsible for Customer satisfaction with our Products and
all your related activities;
2. provide us with relevant financial information about your
business enterprise on request;
3. furnish sales receipts to your Customers before or upon delivery
of Products. You agree to specify on the sales receipt your
Customer's name and address, the Machine type/model and serial
number, the shipped-to or installed location, and date of sale;
4. provide us with any Customer documents we require, within 10 days
of the applicable transaction (for example, End User signing our
license agreement);
5. provide us with sales and inventory information for our Products
on request;
6. retain records by location of each Product transaction (for
example, a sale or credit) for five years. Records must include
(as applicable) Machine type/model and serial number, and
Customer name and address;
7. assist us in tracing and locating Products;
8. provide us with sufficient, free, and safe access to your
facilities, at a mutually-convenient time, for us to fulfill our
obligations. If you become aware of any unsafe conditions or
hazardous materials to which our personnel would be exposed at
any of your facilities, you agree to notify us promptly;
9. comply with our guidelines regarding the distribution of
information we provide to you; and
10. comply with all laws and regulations (such as those governing
consumer transactions and environmental protection).
You may use or sell Parts for the purpose of assembling them into a
higher level of assembly (for example a machine, feature, or accessory).
However, you agree that you may not represent 1) that the result of such
assembly is an IBM genuine or original Machine or that it has been
assembled or manufactured by IBM or 2) any Part as a genuine or original
IBM Part if it has been remanufactured, reworked, or in any manner
changed. When marketing Parts to resellers, you agree to make them aware
of these responsibilities.
MARKETING OF PRODUCTS TO RESELLERS
When you market to resellers, you agree to:
1. distribute Products fairly;
2. use your best efforts to ensure that for each Product a reseller
markets, it retains the required records, and provides the
applicable license agreement and sales receipt; and
3. identify your resellers to us in writing, on our request.
OUR REVIEW OF YOUR COMPLIANCE WITH THIS AGREEMENT
We may periodically review your performance under this Agreement. You
agree to provide us with relevant records on request. We have the right
to reproduce them, retain the copies, and audit your compliance with
this Agreement on your premises during your normal business hours. We
may use an independent auditor for this.
Page 4 of 11
<PAGE> 7
4. STATUS CHANGE
You agree to give us prompt written notice (unless precluded by law or
regulation) of any change, or anticipated change, in your financial
condition, business structure, or operating environment (for example, a
material change in equity ownership or management, or any change to
information supplied in your application). Such change or failure to
give notice may result in termination of this Agreement.
5. EXPORT OF PRODUCTS
If a Machine or Part is exported, our responsibilities under this
Agreement no longer apply to that Machine or Part. You agree to comply
with, and use your best efforts to ensure that your Customer complies
with United States export laws and regulations, and any import
requirements of the destination country.
Our Programs may not be exported.
6. FEDERAL REPORTING REQUIREMENTS
To comply with Federal law, you agree not to employ or compensate any
individuals to perform activities under this Agreement (without our
prior written approval) who were, within the last two years:
1. members of the armed forces in a pay grade of 0-4 or higher; or
2. civilians employed by the Department of Defense with a pay rate
equal to, or greater than, the minimum rate for a grade GS-13.
You agree to provide us with any information that we need to comply with
this law.
7. ORDERING AND DELIVERY
We accept orders for Products subject to their availability.
We will mutually agree to a location to which we ship Products. We will
use reasonable efforts to meet your requested delivery dates for
Products you order from us.
We select the method of transportation. You agree to pay all associated
charges for the Products we ship. You agree to notify us within 20 days
of receipt, of any discrepancies between our shipping manifest and the
Products received from us. We will work with you to reconcile any
differences.
Once you place an order for a Product, unless we postpone its shipment
for more than 15 days after our receipt of your order, you may not
cancel it.
DELAYED SHIPMENT OF A PRODUCT
Circumstances may arise where we delay the shipment of a Product due to
our inability to meet the original estimated shipment date. If this
delay causes the estimated shipment date to be after the end of your
contract period, the terms of this Agreement apply to that Product. It
will be treated as if you had acquired it during the contract period.
Page 5 of 11
<PAGE> 8
8. PRODUCTION STATUS
We will specify a Machine's production status, which means that a
Machine may be new, or may be a refurbished Machine that had been
previously installed. You agree to accurately represent a Machine's
production status to Customers.
A Machine may be currently marketed, withdrawn from marketing, or
unannounced.
You also agree to inform your Customer that a Part you provide may be
either new or used. However, when we specify the Part we provide to you
is a used Part, you agree to inform your Customer that it is a used
Part.
9. PRODUCT RETURNS
You may only return a Machine to us if it is not in working order
(commonly called "DOA").
If more than 5% of the Parts we ship in an order are defective or not in
working condition, you may either return all the Parts in the order to
us or only the affected portion of the order. We will inspect the
returned Parts and reserve the right to reject them if they do not
qualify. In such event, we will return them to you at your expense. You
may request either a credit or replacement of the Parts (subject to
availability) for the returned Parts.
Prior to returning Products to us (under this Section) you must request
a return authorization from us within 30 days of the date of our invoice
to you.
10. PRICES AND PRICE CHANGES
We will specify the price for each Product. Once you have placed your
order for a Product, we will not reduce the price to you, even if we
subsequently decrease the price for such Product.
ADDITIONAL CHARGES
Depending on the circumstances, additional charges may apply. For
example, if we perform a mutually agreed-upon service for you, we may
charge an additional amount.
We will notify you in advance if these charges apply.
11. INVOICING, PAYMENT, AND TAXES
You agree to pay as we specify. We may offset any amounts due you
against amounts due us or any of our subsidiaries.
You agree to pay amounts equal to any applicable taxes resulting from
any transaction under this Agreement. This does not include taxes based
on our net income. You are responsible for personal property taxes for
each Product from the date we ship it to you.
You agree to provide us with valid reseller-exemption documentation for
each applicable taxing jurisdiction to which we ship Products.
Otherwise, we will charge you all applicable state and local taxes or
duties. You agree to notify us promptly if this documentation is revoked
or modified. You are liable for any claims or assessments that result
from any taxing jurisdiction refusing to recognize your exemption.
Page 6 of 11
<PAGE> 9
FAILURE TO PAY ANY AMOUNTS DUE
If your account becomes delinquent, you agree that we may do one or more
of the following:
1. impose a finance charge, up to the maximum permitted by law, on
the delinquent portion of the balance due;
2. repossess any Products. If we do so, you agree to pay all
expenses associated with repossession and collection, including
reasonable attorney's fees. You agree to make the Products
available to us at a site that is mutually convenient;
3. terminate this Agreement; or
4. pursue any other remedy available at law.
In addition, if your account with any of our subsidiaries becomes
delinquent, we may invoke any of these options allowable by law.
12. TITLE
We transfer title to you when the Machine or Part is shipped by us, or
when either is picked up by you at our distribution point.
Any prior transfer of title to a Machine or Part to you is void from its
inception when 1) it is accepted as a returned Machine or Part or 2) the
End User finances a Machine through the IBM Credit Corporation.
We do not transfer title to Programs.
PURCHASE MONEY SECURITY INTEREST
We reserve a purchase money security interest in a Machine or Part and
you grant us a purchase money security interest in your proceeds from
the sale of, and your accounts receivable for, a Product, until we
receive the amounts due, Upon our request, you agree to sign an
appropriate document (for example, a "UCC-1") to permit us to perfect
our purchase money security interest.
END USER LEASE FINANCING
If an End User obtains a lease for a Machine for legitimate financing
purposes, you may transfer title to the Machine to the lessor. You may
finance End Users' Product acquisitions.
13. RISK OF LOSS
We bear the risk of loss for a Product until its shipment from us or
until it is picked up by you at our distribution point.
14. ENGINEERING CHANGES
You agree to allow us to install, at a mutually-convenient location,
mandatory engineering changes (such as those required for safety) on all
Machines in your inventory, and to use your best efforts to enable us to
install such engineering changes on your Customers' Machines. Mandatory
engineering changes are installed at our expense and any removed parts
become our property.
During the warranty period, we manage and install engineering changes at
your location.
Page 7 of 11
<PAGE> 10
15. PROGRAMS
Programs (called "Program Packages") are licensed under the terms of the
agreements provided with them.
You agree to refund the amount paid for:
1. an IBM Program Package returned to you because the End User does
not accept the terms of the license (for example, by not opening
the media envelope); and
2. any defective IBM Program returned to you under the terms of its
warranty. In either case, you may return the IBM Product to us,
at our expense, for credit.
16. INSTALLATION AND WARRANTY
For a Machine to function properly, it must be installed in a suitable
physical environment. We provide instructions to enable the setup of
Customer-set-up Machines. We are not responsible for the installation of
Programs or non-IBM Machines.
With each IBM Machine we ship, we include a copy of our statement of
limited warranty. We will provide a copy to you. You agree to make a
copy available to the End User for review before the sale. You further
agree to provide a copy to your resellers and require the resellers to
make it available to their customers for review before a sale.
OTHER THAN AS SET FORTH IN THE SECTION ABOVE ENTITLED "PRODUCT RETURNS",
PARTS ARE SOLD TO YOU "AS-IS," WITHOUT ANY WARRANTY, EXPRESSED OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
We also provide non-IBM Products on an "AS IS" basis. However, non-IBM
manufacturers, suppliers, or publishers may provide their own warranties
to you.
We calculate the expiration of an IBM Machine's warranty period from the
date of the invoice to the End User.
17. WARRANTY SERVICE
You are not approved to provide Warranty Service. The End User may
acquire Warranty Service directly from IBM for those Products for which
we provide Warranty Service. When we provide Warranty Service, we do so
during the warranty period at no charge to keep the IBM Machine in, or
restore it to, good working order.
WARRANTY SERVICE FOR PARTS AND NON-IBM PRODUCTS
For Parts, non-IBM Products that we do not warrant, and other non-IBM
equipment that a Customer may reasonably believe is warranted by us, you
agree to inform your Customer that we do not warrant them.
Page 8 of 11
<PAGE> 11
18. PATENTS AND COPYRIGHTS
For purposes of this section only, the term "Product" includes Licensed
Internal Code but does not include Parts.
If a third party claims that a Product we provide under this Agreement
infringes that party's patent or copyright, we will defend you against
that claim at our expense and pay all costs, damages, and attorney's
fees that a court finally awards, provided that you:
1. promptly notify us in writing of the claim; and
2. allow us to control, and cooperate with us in, the defense and
any related settlement negotiations.
If such a claim is made or appears likely to be made, about a Product in
your inventory, you agree to permit us to either enable you to continue
to market and use the Product, or to modify or replace it. If we
determine that none of these alternatives is reasonably available, you
agree to return the Product to us on our written request. We will then
give you an appropriate credit, as we determine, which will be either 1)
the price you paid us for the Product or 2) the depreciated price.
This is our entire obligation to you regarding any claim of
infringement.
CLAIMS FOR WHICH WE ARE NOT RESPONSIBLE
We have no obligation regarding any claim based on any of the following:
1. your modification of a Product, or a Program's use in other than
its specified operating environment;
2. the combination, operation, or use of a Product with any product,
data, or apparatus that we did not provide; or
3. infringement by a non-IBM Product alone, as opposed to its
combination as part of a system of Products that we provide.
19. LIABILITY
Circumstances may arise where, because of a default or other liability,
one of us is entitled to recover damages from the other. In each such
instance, regardless of the basis on which damages can be claimed, the
following terms apply.
OUR LIABILITY
We are responsible for:
1. payments referred to in our patent and copyright terms described
above;
2. bodily injury (including death), and damage to real property and
tangible personal property caused by our Products; and
3. the amount of any other actual loss or damage, up to the greater
of $25,000 or the charges for the Product that is the subject of
the claim.
ITEMS FOR WHICH WE ARE NOT LIABLE
Under no circumstances are we liable for any of the following:
1. third-party claims against you for losses or damages (other than
those under the first two items above);
2. loss of, or damage to, your records or data; or
3. economic consequential damages (including lost profits or
savings) or incidental damages, even if we are informed of their
possibility.
Page 9 of 11
<PAGE> 12
At the end of this Agreement, you agree to:
1. pay for or return to us, at our discretion, any Products for
which you have not paid; and
2. allow us, at our discretion, to repurchase any other Products in
your possession or control at the price you paid us.
Products to be returned must be in the condition in which we shipped
them to you (for example a Product shipped to you in new condition can
not be returned to us in used condition). Products to be returned must
be in your inventory (or in transit from us) on the day this Agreement
ends. We will inspect the Products and reserve the right to reject them.
You agree to pay all shipping charges.
At the end of this Agreement, you must immediately pay us all amounts
due. We may offset any amounts due you against amounts due us or any of
our subsidiaries. Any terms of this Agreement, which by their nature
extend beyond the day this Agreement ends, remain in effect until
fulfilled, and apply to respective successors and assignees.
We may permit you to continue to provide Products after this Agreement
ends. If we do so, you agree to provide those Products under the terms
of this Agreement.
24. WAIVER OF NONCOMPLIANCE
Failure by either of us to insist on strict performance or to exercise a
right when entitled, does not prevent us from doing so at a later time,
either in relation to that default or any subsequent one.
25. ELECTRONIC COMMUNICATIONS
Each of us may communicate with the other by electronic means. Each of
us agrees to the following for all electronic communications:
1. an identification code (called a "USERID") contained in an
electronic document is legally sufficient to verify the sender's
identity and the document's authenticity;
2. an electronic document that contains a USERID is a signed
writing; and
3. an electronic document, or any computer printout of it, is an
original when maintained in the normal course of business.
ELECTRONIC DATA INTERCHANGE
We may provide Electronic Data Interchange (called "EDI") Options to
you. Electronic invoicing and electronic payment are examples of these
Options. When using EDI Options, each of us agrees:
1. when a bank is involved, to pay our respective bank charges and
to promptly notify the other of any changes to the bank payment
process; and
2. to promptly notify the other of any changes to the technology,
process, or information upon which the EDI transactions are
based.
We will review with you the respective responsibilities for the EDI
Option you choose.
26. GEOGRAPHIC SCOPE
All your rights and all our obligations are valid only in the United
States and Puerto Rico.
27. GOVERNING LAW
The laws of the State of New York govern this Agreement.
Page 10 of 11
<PAGE> 13
YOUR LIABILITY
In addition to damages for which you are liable under law and the terms
of this Agreement, you will indemnify us for claims by others made
against us (particularly regarding statements, representations, or
warranties not authorized by us) arising out of your conduct under this
Agreement or as a result of your relations with anyone else.
20. TRADEMARKS
We will provide you with advertising guidelines for our logos, trade and
service marks, trade names, emblems, and titles (collectively called
"Trademarks"). We will notify you in writing of the title you are
approved to use. You may use the Trademarks only as described in the
guidelines and only in association with the Products we approve you to
market. However, you may not use Trademarks in conjunction with the sale
of Parts. This restriction also applies to the use of the IBM name in
your advertising and promotional material.
On our request, you agree to change or stop using any advertising or
promotional material that does not comply (as we determine) with our
guidelines or this Agreement. When this Agreement ends, you agree to
promptly stop using our Trademarks. If you do not, you agree to pay any
expenses and fees that we incur in getting you to stop.
You agree that any goodwill attaching to our Trademarks as a result of
your use of them belongs to us. You agree not to register or use any
mark that is confusingly similar to any of our Trademarks.
21. NO PROPERTY RIGHTS
Your rights under this Agreement are not property rights and, therefore,
you cannot transfer them to anyone else or encumber them in any way. For
example, you may not sell your authorization to market our Products or
your right to use our Trademarks.
22. CHANGES TO THE AGREEMENT TERMS
In order to maintain flexibility in our relationships, we may change the
terms of this Agreement by giving you one month's written notice.
However, these changes are not retroactive. They apply as of the
effective date we specify in the notice. Otherwise, for a change to be
valid, both of us must sign it. Additional or different terms in any
order or written communication from you are void.
23. ENDING THE AGREEMENT
This Agreement ends when terminated or when the contract period ends.
You may terminate this Agreement, with or without cause, on one month's
written notice.
We may terminate this Agreement, with or without cause, on one month's
written notice. If the termination is for cause, we may (at our
discretion) allow you a reasonable opportunity to cure. If you fail to
do so, the date of termination is that specified in the notice. However,
certain acts or omissions are so serious as to warrant immediate
termination. If you repudiate this Agreement, materially breach any of
its terms, or make any material misrepresentation to us, we may
terminate this Agreement at any time, on written notice. Examples of a
material breach are violation of our status-change terms, violation of
our trademark terms, altering any markings on a Machine which describe
its production status, and failure to maintain Customer satisfaction.
You agree that our only obligation is to provide the notice called for
in this section and we are not liable for any claims or losses if we do
so.
Page 11 of 11
<PAGE> 1
EXHIBIT 10.19
SECURED PROMISSORY NOTE
$100,000.00 San Marcos, California
October 8, 1998
FOR VALUE RECEIVED, SCOTT EVAN KUSEL ("Maker") hereby promises to pay to
COMPUTER GEEKS DISCOUNT OUTLET, INC., a California corporation ("Holder"), or
order, at San Marco, California, the principal sum of One Hundred Thousand
Dollars ($100,000.00), together with interest thereon at the rate of six percent
(6%) per annum, such interest to accrue commencing April 8, 1999. The entire
unpaid principal balance of this Note and any accrued interest will fully due
and payable October 8, 1999 (the "Maturity Date").
1. All payments hereunder shall be paid in lawful money of the United
States of America to Holder at 2604 Temple Heights Drive, Oceanside, California
92056 or such other place as Holder may designate from time to time.
2. All payments on account of the indebtedness evidenced by this Note
shall be first applied to the interest on the unpaid principal balance, and the
remainder to principal.
3. This Note is secured by a Deed of Trust to Chicago Title Company, a
California corporation, as trustee.
4. Should default be made in any payment when due under this Note or in
the performance or observance of any of the covenants and agreements of this
Note, then and in any such event, the Holder hereof may, at Holder's option,
declare this Note and the entire indebtedness hereby evidenced to be immediately
due and payable, regardless of the Maturity Date.
5. Maker agrees to indemnify Holder and to hold Holder and Holder's
successors and assigns harmless from and against any and all claims, demands,
costs, liabilities and obligations of any kind or nature arising out of any
default hereunder, including without limitation all costs of collection,
including reasonable attorneys' fees and all costs of suit, in the event the
unpaid principal sum of this Note and/or any interest thereon is not paid when
due.
6. The indebtedness evidenced by this Note may be prepaid in whole or in
part at any time prior to the Maturity Date.
7. Following the maturity of the indebtedness evidenced hereby, whether
by acceleration or otherwise, any amount remaining unpaid to Holder, together
with unpaid interest on such unpaid amounts shall thereafter bear interest at
the rate of ten percent (10%) per annum.
8. Should all or any portion of the real property encumbered by the Deed
of Trust which secures this Note, or any interest therein, be sold, alienated or
conveyed, the Holder of this Note may declare the entire unpaid principal
balance plus any accrued interest fully due
<PAGE> 2
and payable. This acceleration provision shall apply to the conveyance or
alienation of any interest in the property whatsoever, whether equitable or
legal, recorded or unrecorded, and shall include, without limitation, "outright
sale," a land sale contract, a lease with a term of more than three (3) years, a
lease with option to purchase, and conveyances in trust.
9. Maker acknowledges and agrees that Maker shall not have any rights
whatsoever to set-off against amounts due hereunder or otherwise due Holder any
amount or obligation due Maker or claimed to be due Maker from Holder.
10. The unenforceability or invalidity of any provision or provisions of
this Note as to any persons or circumstances shall not render that provision or
those provisions unenforceable or invalid as to any other persons or
circumstances, and all provisions hereof, in all other respects, shall remain
valid and enforceable.
11. This Note shall bind Maker and its successors and assigns and the
benefits hereof shall inure to Holder and Holder's successors and assigns.
12. Principal and interest are payable in lawful money of the United
States. The validity, interpretations and performance of this Note shall be
governed by and construed in accordance with the laws of the State of
California.
13. Time is of the essence of this Note.
MAKER
/s/ Scott Kusel
----------------------------------------
SCOTT EVAN KUSEL
2
<PAGE> 1
EXHIBIT 10.20
UNION
BANK OF PROMISSORY NOTE
CALIFORNIA BASE RATE
<TABLE>
<S> <C> <C>
D.LEWIS/N/24695
- ---------------------------------------------------------------------------------------------------
Borrower Name EVER-TEK COMPUTER CORPORATION
- ---------------------------------------------------------------------------------------------------
Borrower's Address Office Loan Number
40061 2723048307 0081-00-0-000
2604 TEMPLE HEIGHTS DRIVE ------------------------------------------------------
OCEANSIDE, CA 92056 Maturity Date Amount
DECEMBER 31, 1999 $1,000,000.00
- ---------------------------------------------------------------------------------------------------
</TABLE>
Date MARCH 5, 1999 $ 1,000,000.00
FOR VALUE RECEIVED, on DECEMBER 31, 1999, the undersigned ("Debtor") promises
to pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated
below, the principal sum of ONE MILLION AND NO/100 Dollars ($1,000,000.00), or
as much thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at a per annum rate or rates and at
the dates set forth below.
1. INTEREST PAYMENTS. Debtor shall pay interest MONTHLY. Should interest not
be paid when due, it shall become a part of the principal and thereafter bear
interest as herein provided. All computations of interest under this note shall
be made on the basis of a year of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder in
minimum amounts of at least $100,000.00 shall bear interest at a rate,
based on an index selected by Debtor, which is 2.750% per annum in excess
of Bank's LIBOR Rate for the Interest Period selected by Debtor, acceptable
to Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from the obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and on
the expiration of any Interest Period with respect to principal outstanding
on which a Base Interest Rate has been accruing, select an index offered by
Bank for a Base Interest Rate Loan and an Interest Period by telephoning an
authorized lending officer of Bank located at the banking office identified
below prior to 10:00 a.m., Pacific time, on any Business Day and advising
that officer of the selected Index, the Interest Period and the Origination
Date selected (which Origination Date, for a Base Interest Rate Loan based
on the LIBOR Rate, shall follow the date of such selection by no more than
two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the rate
selected. If, on the date of the selection, the Index selected is
unavailable for any reason, the selection shall be void. Bank reserves the
right to fund the principal from any source of funds notwithstanding any
Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is not
bearing interest at a Base Interest Rate shall bear interest at a rate per
annum of 0.500% in arrears of the Reference Rate, which rate shall vary as
and when the Reference Rate changes.
Debtor shall pay all amounts due under this note in lawful money of the
United States at Bank's SAN DIEGO COMMERCIAL BANKING Office, or such other
office as may be designated by Bank, from time to time.
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to FIVE AND
NO/100 percent (5.00%) in excess of the interest rate specified in paragraph
1.b. above, calculated from the date of default until all amounts payable under
this note are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based on the
Reference Rate may be prepaid in whole or in part at any time, without penalty
or premium. Debtor may prepay amounts outstanding under this note bearing
interest at a Base Interest Rate in whole or in part provided Debtor has given
Bank not less than five (5) Business Days prior written notice of Debtor's
intention to make such prepayment and pays to Bank the liquidated damages due
as a result. Liquidated Damages shall also be paid. If Bank, for any other
reason, including acceleration or foreclosure, receives all or any portion of
principal bearing interest at a Base Interest Rate prior to its scheduled
payment date. Liquidated Damages shall be an amount equal to the present value
of the product of: (i) the difference (but not less than zero) between (a) the
Base Interest Rate applicable to the principal amount which is being prepaid,
and (b) the return which Bank could obtain if it used the amount of such
prepayment of principal to purchase at bid price regularly quoted securities
issued by the United States having a maturity date most closely coinciding with
the relevant Base Rate Maturity Date and such securities were held by Bank
until the relevant Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the
numerator of which is the number of days in the period between the date of
prepayment and the relevant Base Rate Maturity Date and the denominator of
which is 360; and (iii) the amount of the principal as prepaid (except in the
event that principal payments are required and have been made as scheduled
under the terms of the Base Interest Rate Loan being prepaid, then an amount
equal to the lesser of (A) the amount prepaid or (B) 60% of the sum of (1) the
amount prepaid and (2) the amount of principal scheduled under the terms of the
Base Interest Rate Loan being prepaid to be outstanding at the relevant Base
Rate Maturity Date). Present value under this note is determined by discounting
the above product to present value using the Yield Rate as the annual discount
factor.
b. In no event shall Bank be obligated to make any payment or refund to Debtor,
nor shall Debtor be entitled to any setoff or other claim against Bank, should
the return which Bank could obtain under this prepayment formula exceed the
interest that Bank would have received if no prepayment had occurred. All
prepayments shall include payment of accrued interest on the principal amount
so prepaid and shall be applied to payment of interest before application to
principal. A determination by Bank as to the prepayment fee amount, if any,
shall be conclusive.
c. Bank shall provide Debtor a statement of the amount payable on account of
prepayment. Debtor acknowledges that (i) Bank establishes a Base Interest Rate
upon the understanding that it apply to the Base Interest Rate Loan for the
entire Interest period, and (ii) any prepayment may result in Bank incurring
additional costs, expenses or liabilities; and Debtor agrees to pay these
liquidated damages as a reasonable estimate of the costs, expenses and
liabilities of Bank associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but
not be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any
Obligor of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
<PAGE> 2
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgement, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notes of
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ or attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under d, e, f, or g, all principal and interest shall automatically become
immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are not
paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of time
and the full extent permitted by law, (a) waive diligence, presentment, demand,
notice of nonpayment, protest, notice of protest, and notice of every kind; (b)
waive the right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of time for
the payment of any amounts due under this note. If this note is signed by more
than one party, the term "DEBTOR" (includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability, and interest
under this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any Obligor, including
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of California, as provided in any alternative
dispute resolution agreement executed between Debtor and Bank, and consent to
service of process by any means authorized by said state's law. The term "BANK"
includes, without limitation, any holder of this note. This note shall be
construed in accordance with and governed by the laws of the State of
California. This note hereby incorporates any alternative dispute resolution
agreement previously, concurrently or hereafter executed between Debtor and
Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "BASE INTEREST RATE" means a rate of interest
based on the LIBOR Rate. "BASE INTEREST RATE LOAN" means amounts outstanding
under this note that bear interest at a Base Interest Rate. "BASE RATE MATURITY
DATE" means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "BUSINESS DAY" mans a day on which
Bank is open for business for the funding of corporate loans, and, with respect
to the rate of interest based on the LIBOR Rate, on which dealings in U.S.
dollar deposits outside of the United States may be carried on by Bank.
"INTEREST PERIOD" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts on
one Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there is
no such numerically corresponding day, then as to that month, such day shall be
deemed to be the last calendar day of such month. Any Interest Period which
would otherwise end on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR RATE" means
a per annum rate of interest rounded upward, if necessary, to the nearest 1/100
of 1%) at which dollar deposits, in immediately available funds and in lawful
money of the United States would be offered to Bank, outside of the United
States, for a term coinciding with the Interest Period selected by Debtor and
for an amount equal to the amount of principal covered by Debtor's Interest rate
selection, plus Bank's costs, including the cost, if any, of reserve
requirements. "ORIGINATION DATE" means the first day of the Interest Period.
"REFERENCE RATE" means the rate announced by Bank from time to time at the
corporate headquarters as its Reference Rate. The Reference Rate is an index
rate determined by Bank from time to time as a means of pricing certain
extensions of credit and is neither directly tied to any external rate of
interest or Index nor necessarily the lowest rate of interest charged by Bank at
any given time.
EVER-TEK COMPUTER CORPORATION
BY: /s/ Frank Segler
---------------------------------- ---------------------------------
FRED SEGLER, PRESIDENT
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. EVERTEK COMPUTER CORPORATION, a California corporation.
2. COMPUTER GEEKS DISCOUNT OUTLET, INC., a California corporation. This
subsidiary does business as compgeeks.com.
3. EVERTEK TRADING LIMITED, a Hong Kong corporation.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Boards of Directors of
The CompGeeks Companies:
The audits referred to in our report dated May 12, 1999, included the related
financial statement schedule as of December 31, 1998, and for each of the years
in the three-year period ended December 31, 1998, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic combined
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
San Diego, California
May 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 956,665
<SECURITIES> 0
<RECEIVABLES> 1,922,595
<ALLOWANCES> 13,256
<INVENTORY> 3,139,224
<CURRENT-ASSETS> 6,422,794
<PP&E> 337,152
<DEPRECIATION> 71,279
<TOTAL-ASSETS> 6,702,627
<CURRENT-LIABILITIES> 851,488
<BONDS> 0
0
0
<COMMON> 7,003
<OTHER-SE> 5,844,136
<TOTAL-LIABILITY-AND-EQUITY> 6,702,627
<SALES> 49,514,651
<TOTAL-REVENUES> 49,514,651
<CGS> 39,856,197
<TOTAL-COSTS> 39,856,197
<OTHER-EXPENSES> 4,739,598
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,135
<INCOME-PRETAX> 4,990,215
<INCOME-TAX> 68,097
<INCOME-CONTINUING> 4,922,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,922,118
<EPS-BASIC> .17<F1>
<EPS-DILUTED> .17
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
