<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 000-28473
TRUETIME, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER 94-3343279
JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
2835 DUKE COURT
SANTA ROSA, CALIFORNIA 95407
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(707) 528-1230
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
There were 5,950,000 shares of the Registrant's Common Stock
outstanding as of the close of business on May 10, 2000.
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TRUETIME, INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Notes 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS AND NOTES
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Stockholders:
We have reviewed the accompanying balance sheets of TrueTime, Inc. (the
"Company") as of March 31, 2000 and 1999, and the related statements of
operations for each of the three and six-month periods ended March 31, 2000 and
1999, of changes in stockholders' equity for the six-month period ended March
31, 2000, and of cash flows for the six-month periods ended March 31, 2000 and
1999. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States.
We previously audited in accordance with auditing standards generally accepted
in the United States the balance sheet as of September 30, 1999 and the related
statements of operations, of changes in stockholders' equity, and of cash flows
for the year then ended (not presented herein), and in our report dated November
2, 1999, except for footnote 8, as to which the date is December 1, 1999, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying balance sheet as of September 30,
1999, is fairly stated in all material respects in relation to the balance sheet
from which it has been derived.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
May 10, 2000
3
<PAGE> 4
TrueTime, Inc.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, March 31,
1999 2000
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................... $ 3,539 $ 10,669
Receivable from OYO Corporation U.S.A .............. 433 0
Accounts receivable
Trade ........................................... 4,281 2,964
Less allowance .................................. (10) (25)
Other accounts receivable ....................... 43 1
Deferred income tax ................................ 173 190
Inventories ........................................ 5,064 7,212
Prepaid expenses and other assets .................. 24 1,182
------------ ------------
Total current assets ............................ 13,547 22,193
Property and equipment, net ................................................ 1,128 1,628
Goodwill, net of accumulated amortization of $215 and $228 ................. 816 804
------------ ------------
Total assets .................................... $ 15,491 $ 24,625
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Trade accounts payable ............................. $ 767 $ 1,125
Accrued expenses ................................... 1,971 1,391
Total current liabilities ....................... 2,738 2,516
------------ ------------
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding ....... -- --
Common stock, $.01 par value, 20,000,000
authorized; 4,000,000 and 5,950,000 shares issued
and outstanding, respectively ...................... 40 60
Additional paid-in capital ......................... 4,690 13,313
Additional paid-in capital - Warrants and options .. 0 43
Retained earnings .................................. 8,023 8,693
------------ ------------
Total stockholder's equity ...................... 12,753 22,109
------------ ------------
Total liabilities and stockholder's equity ...... $ 15,491 $ 24,625
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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TrueTime, Inc.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, 1999 March 31, 2000 March 31, 1999 March 31, 2000
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales ...................................................... $ 3,929 $ 4,659 $ 7,233 $ 10,215
Cost of Sales .............................................. 1,881 1,947 3,614 4,529
------------ ------------ ------------ ------------
Gross Profit ............................................... 2,048 2,712 3,619 5,686
Operating Expenses
Sales, General and Administrative ...... 1,386 1,418 2,229 2,957
Research & Development ................. 534 1,048 1,093 1,825
------------ ------------ ------------ ------------
Total operating expenses ............ 1,920 2,466 3,322 4,782
------------ ------------ ------------ ------------
Income from Operations ..................................... 128 246 297 904
Interest Income ............................................ 71 143 142 251
Other Income (Expense) ..................................... 12 0 0
------------ ------------ ------------
Income before taxes ........................................ 211 389 439 1,155
Income taxes ............................................... 85 171 177 485
------------ ------------ ------------ ------------
Net Income ................................................. $ 126 $ 218 $ 262 $ 670
============ ============ ============ ============
Weighted average shares outstanding - Basic ................ 4,000,000 5,925,000 4,000,000 5,078,000
Weighted average shares outstanding - Diluted .............. 4,000,000 6,231,000 4,000,000 5,246,000
Basic Earnings Per Share ................................... $ 0.03 $ 0.04 $ 0.07 $ 0.13
Diluted Earnings Per Share ................................. $ 0.03 $ 0.03 $ 0.07 $ 0.13
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
TrueTime, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------ Paid-In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Stockholders' equity as of October 1, 1999 4,000,000 $ 40 $ 4,690 $ 8,023 $ 12,753
Issuance of common stock 1,500,000 15 15
Additional paid in capital 6,549 6,549
Additional paid-in capital - Warrants and options 43 43
Issuance of options and warrants to underwriters -- -- -- -- --
Net income 452 452
---------- ----------
Stockholders' equity as of December 31, 1999 5,500,000 $ 55 $ 11,282 $ 8,475 $ 19,812
========== ========== ========== ========== ==========
Issuance of common stock 450,000 5 5
Additional paid in capital 2,074 2,074
Net Income 218 218
---------- ----------
Stockholders' equity as of March 31, 2000 5,950,000 $ 60 $ 13,356 $ 8,693 $ 22,109
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
TrueTime, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended Six months ended
March 31, 1999 March 31, 2000
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 262 $ 670
Adjustments to reconcile net income to net cash
provided by operating activities
Deferred income taxes .......................... 16 (17)
Depreciation and amortization .................. 64 232
Compensation expense related to options
granted ........................................ 0 43
Effects of changes in operating assets and
liabilities
Receivables ...................... 911 1,374
Inventories ...................... (327) (2,148)
Prepaid expenses and other
current assets ................... (37) (1,158)
Trade accounts payable ........... 2 231
Accrued expenses ................. (386) (451)
------------ ------------
Net cash provided by operating activities ................ 505 (1,224)
Cash flows from investing activities:
Decrease (increase) in receivable from OYO Corporation
U.S.A ....................................................... (254) 433
Capital expenditures ........................................ (133) (722)
------------ ------------
Net cash used in investing activities .................... (387) (289)
Cash flows from financing activities
Proceeds of Initial Public Offering
Common stock, $.01 par value, 1,950,000 shares .............. 0 20
Additional paid in capital, net of commissions .............. 0 9,047
Costs of Offering ........................................... 0 (424)
------------ ------------
Net cash provided by financing activities ................ 0 8,643
------------ ------------
Increase in cash and cash equivalents ............................................... 118 7,130
Cash and cash equivalents, beginning of period ...................................... 38 3,539
------------ ------------
Cash and cash equivalents, end of period ............................................ $ 156 $ 10,669
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
TRUETIME, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The balance sheet of TrueTime, Inc. at September 30, 1999 has been derived from
the Company's audited financial statements at that date. The balance sheet at
March 31, 2000, the statement of operations, the statements of changes in
stockholders' equity and the statements of cash flows for the three months and
six months ended March 31, 2000 and 1999 have been prepared by the Company,
without audit. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial
position, results of operations and cash flows have been made. The results of
operations for the three months and six months ended March 31, 2000 and 1999 are
not necessarily indicative of the operating results for a full year or of future
operations.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with accounting principles generally accepted
in the United States have been omitted. The accompanying financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's Prospectus dated December 16, 1999.
PricewaterhouseCoopers LLP is not subject to the liability provisions of
Section 11 of the Securities Act of 1933 for their report on the unaudited
financial information because that report is not a "report" or a "part" of the
registration statement prepared or certified by PricewaterhouseCoopers LLP
within the meaning of Sections 7 and 11 of the Act.
2. EARNINGS PER COMMON SHARE
The following table summarizes the calculation of net earnings and weighted
average common shares and common equivalent shares outstanding for purposes of
the computation of earnings per share:
TrueTime, Inc.
EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three months Six months
March 31, 1999 March 31, 2000 March 31, 1999 March 31, 2000
<S> <C> <C> <C> <C>
Net earnings available to common stockholders
(in thousands)......................................... $ 126 $ 218 $ 262 $ 670
======= ======= ======= ======
Weighted average common shares outstanding............. 4,000,000 5,925,000 4,000,000 5,078,000
Weighted average common share equivalents
Outstanding............................................ 0 306,000 0 168,000
------- ------- ------- -------
Weighted average common shares and common
share equivalents outstanding.......................... 4,000,000 6,231,000 4,000,000 5,246,000
========= ========= ========= =========
Basic earnings per common share........................ $ 0.03 $ 0.04 $ 0.07 $ 0.13
======= ======= ======= =======
Diluted earnings per common share...................... $ 0.03 $ 0.03 $ 0.07 $ 0.13
======= ======= ======= =======
</TABLE>
3. INVENTORIES
Inventories consisted of the following (in thousands), net of reserves of $30 at
September 30, 1999 and $50 at March 31, 2000:
<TABLE>
<CAPTION>
March 31, 2000 September 30, 1999
<S> <C> <C>
Finished goods $ 1,509 $ 948
Work in process 2,185 1,376
Raw material 3,518 2,740
------- -------
$ 7,212 $ 5,064
======= =======
</TABLE>
4. INITIAL PUBLIC OFFERING
On November 1, 1999, the Company was reincorporated in Delaware with 4,000,000
shares of common stock outstanding. On December 16, 1999, the Company completed
its Initial Public Offering (the "IPO") in which the Company sold 1,500,000
shares of common stock at $5.00 per share and the Company's owner, OYO
Corporation U.S.A. sold 1,500,000 shares of common stock at $5.00 per share. The
Company received $6,564,118 after commissions of $525,000 and expenses of
$410,882.
On January 6, 2000, the Company's underwriters exercised their overallotment
option and purchased an additional 450,000 shares of the Company's common stock
at $5.00 per share. The Company received $2,078,549 after commissions of
$157,500 and expenses of $13,951.
8
<PAGE> 9
See PART II: OTHER INFORMATION, ITEM 2. Changes in Securities and Use of
Proceeds.
5. STOCK OPTIONS
The Company's employees participate in the TrueTime, Inc. Key Employee Stock
Option Plan (the "Employee Plan") and the non-employee directors and consultants
participate in the TrueTime, Inc. 1999 Non-Employee Director Plan (the "Director
Plan"). The Employee Plan covers substantially all eligible employees in the
United States.
The Employee Plan is administered by a committee of no fewer than two persons
appointed by the board. Under the Employee Plan, options to purchase common
stock and restricted stock awards up to an aggregate of 1,500,000 shares of
common stock may be granted by the committee. Under the Director Plan, options
to purchase common stock and restricted stock awards up to an aggregate of
150,000 shares of common stock may be granted.
In connection with its IPO, the Company granted the underwriters a 30-day option
to purchase up to 450,000 additional shares at $5.00 per share to cover
over-allotments. Such option was exercised and the 450,000 additional shares
were issued on Janaury 6, 2000. As additional underwriting compensation, the
Company issued to C.E. Unterberg, Towbin warrants to purchase up to 200,000
shares of common stock at an initial exercise price for each share of $5.50.
A summary of activity with respect to stock options and warrants is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------ --------
<S> <C> <C>
Outstanding at October 1, 1999 -- --
Granted 1,460,000 $ 5.07
Exercised -- --
Forfeited -- --
Outstanding at December 31, 1999 1,460,000 $ 5.07
Granted 75,000 $11.81
Exercised (450,000) $ 5.00
Forfeited (3,200) $ 5.00
Outstanding at March 30, 2000 1,081,800 $ 5.40
</TABLE>
The following table summarizes information about stock options and warrants
outstanding and exercisable at March 31, 2000:
<TABLE>
<CAPTION>
Options/Warrants Outstanding Options/
---------------------------- Warrants Exercisable
--------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Term Exercise Exercise
Exercise Price Shares (in years) Price Shares Price
-------------- ------ ---------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$5.00 - $5.50 1,006,800 6.08 $5.10 60,000 $5.00
$11.81 75,000 6.08 $11.81 0 --
</TABLE>
The Company accounts for these options and warrants in accordance with Statement
of Financial Accounting Standards (FAS) Number 123, Accounting for Stock Based
Compensation. As permitted by FAS 123, the Company has chosen has to apply APB
Opinion Number 25, Accounting for Stock Issued to Employees and Related
Interpretations in accounting for stock option plans.
9
<PAGE> 10
7. INCOME TAXES
Prior to the IPO, the Company joined in the consolidated U.S. income tax
return of its parent, OYO Corporation U.S.A. which included all U.S.
subsidiaries of OYO Corporation (Japan) and in the consolidated California state
income tax return, which included all subsidiaries that are included in the
consolidated U.S. income tax return. Federal and state income taxes were
provided by the Company as if it filed separate income tax returns.
After the IPO, the Company is filing independent U.S. income tax and
California and Delaware income tax returns.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the financial condition and results of operations of
TrueTime, Inc. should be read in conjunction with the Financial Statements and
Notes related thereto included elsewhere in this Form 10-Q.
GENERAL
TrueTime designs, develops, manufactures and markets precision time and
precision frequency products that are essential components used in
telecommunications, computer networking, e-commerce, aerospace and various other
commercial markets. Our products use a variety of external timing references,
including most importantly the Global Positioning System, or GPS, together with
advanced electronic circuitry and software to provide high quality signals and
precise time. We offer a wide variety of products, which can be divided into the
following broad categories:
o precise time and frequency products
o computer plug-in cards with precise timing capabilities
o computer network time servers
o time code products
o time displays
Our products, incorporated as components in complex systems, allow customers to
o improve clarity and quality of voice, video and data in wireline,
wireless and satellite communications,
o authenticate the time of stock market and other e-commerce
transactions,
o monitor and control the frequency of electric utility power grids to
prevent power black-outs and quickly locate power line faults,
o transmit television signals at designated frequencies to meet
regulatory requirements,
o meet requirements for secure communications, particularly in
national defense and security contexts, and
o time high resolution data collected in military ranges and in space
launches with a high degree of accuracy.
During the past decade, we have strived to produce state-of-the-art
precise time and frequency technology. We have developed and implemented five
generations of precision time products based on GPS technology through the use
of our significant technology resources in the areas of GPS, frequency control,
real-time operating systems and computer networking. Our increased investments
in research and development have allowed us to develop a new platform -- a
combination of new hardware and software -- for many products, decrease time to
market for new products and improve product quality and robustness. Our new
platform also provides a means through which TrueTime can enter new markets.
Advanced technologies also offer opportunities to reduce manufacturing costs and
support expenses by increasing volumes of common products.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following table sets forth for three months and six months ended
March 31, 2000 and 1999, the percentage of income statement items to total
sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Sales.............................................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................................... 41.8 47.9 44.3 50.0
Gross profit....................................................... 58.2 52.1 55.7 50.0
Operating expenses:
Selling, general and administrative............................ 30.4 35.3 28.9 30.8
Research and development....................................... 22.5 13.6 17.9 15.1
Total operating expenses................................... 52.9 48.9 46.8 45.9
Income from operations............................................. 5.3 3.2 8.9 4.1
Interest and other income, net..................................... 3.1 2.1 2.4 2.0
Income before income taxes......................................... 8.4 5.4 11.3 6.1
Provision for income taxes......................................... 3.7 2.2 4.7 2.5
Net income......................................................... 4.7 3.2 6.6 3.6
</TABLE>
Three Months and Six Month Ended March 31, 2000 compared to Three Months and Six
Months Ended March 31, 1999
Sales. Sales for the quarter ended March 31, 2000 were $4.7 million, an
increase of $0.7 million, or 18.6%, from $3.9 million for the quarter ended
March 31, 1999. This increase in sales is attributed to the low level of orders
in the last part of the fiscal year 1998 and delays in shipping orders in the
first six months of fiscal year 1999. For the six months ended March 31, 2000,
sales were $10.2 million, an increase of $3.0 million, or 41.2%, from $7.2
million for the six months ended March 31, 1999. This increase in sales is also
attributed to the high level of orders in the last two quarters of fiscal 1999
and the resulting large amount of backlog at the beginning of fiscal 2000.
Shipments to major and smaller customers increased over the prior year.
International shipments also increased to 23% of sales for the six months ended
March 31, 2000. These fluctuations reflect the fact that shipments and,
therefore, revenue recognized are not linear on a quarterly basis for our
business. The long procurement cycles for government and institutional orders
and the ordering and approval processes for government orders continue to
produce irregular order patterns including the high level of orders in late
fiscal 1999 and lower levels of orders in the first two quarters of fiscal 2000.
Cost of Sales. Cost of sales for the quarter ended March 31, 2000 was
$1.9 million, an increase of less than $0.1 million, or 3.5%, from $1.9 million
for the quarter ended March 31, 1999. Cost of sales decreased as a percentage of
total sales to 41.8% in the quarter ended March 31, 2000 from 47.9% in the
quarter ended March 31, 1999. Cost of sales for the six months ended March 31,
2000 was $4.5 million, an increase of $0.9 million, or 25.3% from $3.6 million
in the six months ended March 31, 1999. Cost of Sales as a percentage of total
sales decreased to 44.3% of sales in the six months ended March 31, 2000 from
50.0% of sales in the six months ended March 31, 1999. Such percentage decreases
are the result of the efficiencies of the increased sales volumes that enabled
the company to obtain costs of sales closer to its long-term averages.
Operating Expenses. Operating expenses for the quarter ended March 31,
2000 were $2.5 million, an increase of $0.5 million, or 28.5%, from $1.9 million
for the quarter ended March 31, 1999. Operating costs increased as a percentage
of total sales to 52.9% in the quarter ended March 31, 2000 from 48.9% in the
quarter ended March 31, 1999. Operating expenses for the six months ended March
31, 2000 were $4.8 million, an increase of $1.5 million, or 44.0% from $3.3
million in the six months ended March 31, 1999. Operating expenses increased to
46.8% of sales in the six months ended March 31, 2000 from 45.9% in the six
months ended March 31, 1999. Such percentage increases are the result of
increased numbers of employees, commissions expense, insurance expense,
manufacturing engineering expenses and increased research and development
expenses.
Interest and Other Income. Interest and Other Income for the quarter
ended March 31, 2000 were $143,000, an increase of $60,000, or 72.3% from
$83,000 for the quarter ended March 31, 1999. Interest and Other Income
increased as a percentage of total sales to 3.1% in the quarter ended March 31,
2000 from 2.2% in the quarter ended March 31, 1999. Interest and Other Income
for the six months ended March 31, 2000 was $251,000, an increase of $109,000,
or 76.8% from $142,000 for the six months ended March 31, 1999. Such percentage
increases are the result of increased interest income from increased cash
deposits from the proceeds of the sale of our common stock in our initial public
offering.
11
<PAGE> 12
Income Taxes. Income taxes for the quarter ended March 31, 2000 were
44.0% of income before tax compared to 40.5% of income before tax for the
quarter ended March 31, 1999. Income taxes for the six months ended March 31,
2000 were 42.0% of income before tax compared to 40.4% of income before tax for
the six months ended March 31, 1999. Income taxes include federal and state
income taxes and are included on an estimated basis. Our effective income tax
rate differs from the statutory federal rate of 34% primarily as a result of the
effect of California and Delaware state income taxes.
LIQUIDITY AND SOURCES OF CAPITAL
TrueTime completed its initial public offering (the "Offering") of its
common stock on December 22, 1999. Gross proceeds to TrueTime were $6,975,000.
Net proceeds after expenses of the Offering were $6,564,000. On January 6, 2000,
the Company's underwriters exercised their overallotment option and purchased an
additional 450,000 shares of the Company's common stock at $5.00 per share.
Gross proceeds to TrueTime were $2,092,500. Net proceeds after expenses were
$2,078,549.
For the six months ended March 31, 2000, net cash flow excluding
proceeds from the Offering and overallotment option resulted in a decrease in
cash of $1.5 million.
Operating activities used $1.2 million. $2.1 million of this amount was
used for increased inventories, and $1.6 million was used for increased prepaid
and accrued expenses, including insurance prepayments. These expenditures were
offset by $1.4 million in reduced accounts receivables.
Investing activities used $0.3 million. $0.7 million of such amount was
used for capital expenditures, offset by $0.3 million received from OYO
Corporation U.S.A. in settlement of its accounts with TrueTime following the
Offering.
Total net cash flow for the six months ended March 31, 2000, including
the proceeds of the Offering, was $7.1 million.
During the second quarter of fiscal year 2000, TrueTime entered into a
lease for a 70,000 square foot manufacturing and corporate facility in Santa
Rosa, California, which it expects to occupy early in fiscal year 2001. The
lease is for an initial term of fifteen years with three five-year options to
extend the lease. We expect to be able to obtain the cancellation of the lease
on our current facility or to sublease the facility on favorable terms.
Write-offs related to the move are not expected to exceed $150,000.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 137, which
amended the effective date of SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", was issued in June 1999. The Company is
required to adopt SFAS No. 133 by January 1, 2001. This statement establishes
accounting and reporting standards requiring that all derivative instruments
are recorded on the balance sheet as either an asset or a liability, measured
at its fair value. The statement requires that changes in the derivative's fair
value by recognized currently in earnings unless specific hedge accounting
criteria are met and such hedge accounting treatment is elected. While the
company is currently evaluating the effects of this statement, its adoption is
not expected to have a material impact on the Company's financial position,
results of operations, or cash flows.
YEAR 2000 READINESS
At the transition between December 31, 1999 and January 1, 2000, there
were concerns that certain computers and information technology equipment might
not continue to work properly. In particular, there were concerns that programs
and data using six-digit dates such as 12/31/99, which should convert to
01/01/00, would fail to do so or would fail to properly process data thereafter.
Similar problems were suspected at the GPS Week Number Roll-Over (WNRO) which
occurred August 21, 1999 when the GPS week counter rolled over from 1024 to 0000
as it was designed to do; and on September 9, 1999, which was a common program
test date. February 29, 2000, which is an unusual leap day, was also of some
concern. Most century years such as 1800, 1900 and 2100 do not have leap days.
These groups of problems are known collectively as Y2K. All of these dates have
occurred without significant effects to the company. We have spent approximately
$300,000 in fiscal year 1998 and $400,000 in fiscal year 1999 on our Y2K
efforts. We estimate that we will spend less than $300,000 in fiscal year 2000
on our Y2K efforts. Such costs are accounted for in the selling, general and
administrative costs.
The foregoing statements of this subsection are intended to be and are
hereby designated "Year 2000 Readiness Disclosure" statements within the meaning
of the Year 2000 Information and Readiness Disclosure Act. TrueTime does not
plan to report on Year 2000 Readiness in future reports.
FORWARD LOOKING STATEMENTS
This Form 10-Q includes "forward-looking" statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included herein, including
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<PAGE> 13
statements regarding potential future products and markets, the Company's future
financial position, business strategy and other plans and objectives for future
operations, are forward-looking statements. We can give no assurance that such
expectations will prove to have been correct, and actual results may differ
materially from such forward-looking statements. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed below and in the Company's Registration Statement on Form S-1 (Reg.
No. 333-90269), as amended, filed with the Securities and Exchange Commission
under the heading "Risk Factors" and elsewhere. Further, all written and verbal
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by such factors.
Our business will suffer if we are unable to keep up with rapid technological
change and product obsolescence.
If we fail to maintain our technological leadership and good reputation
with our customers in the areas of GPS, real-time operating systems and network
technologies, the value of your investment will decrease. The markets for timing
and frequency products are characterized by continual and rapid technological
developments that have resulted in, and will likely continue to result in,
substantial improvements in product function and performance. Our success will
depend on our ability to anticipate changes in technology and industry
requirements and to respond to technological developments on a timely basis,
either internally or through strategic alliances.
We will likely be constantly threatened by current competitors or new
market entrants who may develop new technologies or products or establish new
standards that could render our products obsolete and unmarketable. Thus, we can
offer no assurances that we will be successful in developing and marketing, on a
timely and cost effective basis, product enhancements or new products that
respond to technological developments, that are accepted in the marketplace or
that comply with industry standards.
We rely on a limited number of suppliers for certain critical components, and we
use a single supplier for virtually all of one of our GPS-based components,
making us subject to supply and quality control problems.
Most of our products incorporate certain components or technology
supplied in part by third parties. From time to time, we experience delays and
disruptions in our supply chain, including some such disruptions in recent
periods. To date, these delays and disruptions have not materially adversely
affected our business. Wherever possible, we try to develop multiple sources of
supply, but we do not always succeed. To the extent that we experience
significant supply or quality control problems with our vendors, these problems
can cause us to have difficulty in controlling our quality and can have a
significant adverse effect on our ability to meet future production and delivery
commitments to our customers.
Currently, Trimble Navigation Limited provides virtually all of a key
component for our GPS-based products. In addition, we believe that Trimble has
begun competing in markets similar to our own. While we have attempted to
address this single-supplier risk by entering into purchase agreements with
Trimble that will secure our supply of the components for the next year or so,
by attempting to establish alternative supply arrangements and by taking steps
to develop our own proprietary products in this area, there can be no assurances
that we will be able to obtain adequate supplies of this component in the
future. If we are unable to obtain adequate supplies of this component for any
reason, we will likely experience delays or reductions in production and
increased expenses while we redesign our GPS-based products or accelerate the
introduction of new GPS-based products that do not use this component. Our
operations will be negatively affected if we experience inadequate supplies of
any key components.
Our trade secrets, trademarks and patents may not be adequate or enforceable and
others may use our proprietary technology.
Historically, we have not filed patents to protect our intellectual
property. While we hope our intellectual property is adequately protected by our
confidential trade-secret protection plans and programs, we cannot be sure that
our competitors will be prevented from gaining access to our proprietary and
confidential technologies. Furthermore, although we have applied for a patent
related to a computer network timing product, we can offer no assurances that a
patent will be issued for this patent application or other future applications
and, if issued, that any patents will be enforceable. If the protection of our
intellectual property proves to be inadequate or unenforceable, others may use
our proprietary developments without compensation to us and in competition
against us, giving cost advantages to our competitors.
We face the risk of litigation alleging our infringement of other people's
intellectual property rights.
We do not know of any instances where our products violate the
intellectual property rights of others or inappropriately use their technology.
However, technology-based companies are often very litigious. Therefore, we face
the risk of adverse claims and litigation alleging infringement of other
people's intellectual property rights. These claims could result in costly
litigation and divert
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management's attention from other matters. Alternatively, these claims could
practically require us to obtain licenses in order to use, manufacture and sell
certain of our products, regardless of the merits of the infringement claims, in
order to maintain business levels or we could otherwise be excluded from
participation in certain markets. We cannot be certain that any necessary
licenses will be available or that, if available, they can be obtained on
reasonable terms acceptable to us.
Our competitors may use their greater resources and broader product offerings to
increase competition and reduce our sales and profitability.
Many of our existing and potential competitors have substantially
greater marketing, financial and technical resources than we have. In addition,
some of our competitors have broader product offerings and manufacture
internally certain critical components of time and frequency products.
Currently, we do not have a complete offering of precise time and frequency
products nor do we manufacture internally certain critical components, placing
us at a disadvantage to some of our competitors. In addition, we believe that
some of our competitors have obtained and maintained business that loses money -
"loss leading" - in order to maintain a competitive advantage with regard to
specific customers or products. If our competitors were to use such tactics in
the future, we would be unable to maintain our market position without incurring
a negative impact on our profitability.
The race for a leading position in new technological advances is always
very competitive. Advances in technology may reduce the cost for potential
competitors to gain market entry, particularly for less expensive time and
frequency products. We cannot assure you that sales of our products will
continue at current volumes or prices in any event, but especially if our
current competitors or new market entrants introduce new products with better
features, better performance or lower prices or having other characteristics
that are more attractive than our own. Competitive pressures or other factors
also may result in significant price competition that could have a material
adverse effect on our results of operations.
Our industry may not grow as forecasted and our revenues and operating results
may be diminished.
Our future successful performance is inextricably tied to the growth of
our industry. Even if our industry grows as forecast, there can be no assurance
that we will be able to grow consistently with our industry.
Our relationships with our sales representatives could be impaired and cause us
to lose orders.
More than 80% of our orders come through our 26 domestic and worldwide
sales representative organizations. Many of these representatives act as
relationship brokers and the loss of any key representatives could have a
negative effect on our sales.
We may be unable to attract and retain key employees, delaying product
development and manufacturing.
Our success depends upon attracting and retaining highly skilled
professionals. A number of our employees are highly skilled engineers and other
technical professionals, and our failure to continue to attract and retain such
individuals could adversely affect our ability to compete in the industry. In
addition, our success will depend to a significant extent upon the abilities and
efforts of several members of our senior management.
Because many of our key customers are units of the U.S. government and entities
that are dependent upon U.S. government funding for purchases, decreased
government spending could adversely affect our business.
Our defense, military and aerospace based business depends largely on
U.S. government expenditures, whether directly with us or indirectly with our
customers who contract with the U.S. government. In recent years, units of the
U.S. government have collectively accounted for approximately 21% to 28% of our
annual revenues. There can be no assurances as to whether future governmental
spending will adequately support our business in those areas, and substantial
decreases in government spending or loss of U.S. governmental customers could
materially and adversely affect our operations.
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<PAGE> 15
Our market is segmented into a limited number of customer groups, the loss or
change of which could significantly decrease our sales.
While we sell our products to a large number of individual customers,
the number of customer groups is limited. These groups include
telecommunications, computer networking, aerospace, military, satellite, U.S.
government and power utility customers. The loss, or changes in the purchasing
behavior, of one or more of these groups of customers could cause a material
decrease in the sale of our products.
The failure of GPS and other time and frequency references would cause our
products to fail to perform to specification.
The time and frequency products that we manufacture rely upon the
availability of highly accurate timing references, primarily GPS operated by the
U.S. Department of Defense, and to a lesser degree, other timing references
operated by the U.S. National Institute of Science and Technology and other
outside signal sources. The failure of these timing references, particularly
GPS, would create many problems for our products and our customers and seriously
disrupt the sale of our products.
Our products could fail to perform according to specification or prove to be
unreliable, causing damage to our customer relationships and industry reputation
and resulting in loss of sales.
Our customers require demanding specifications for product performance
and reliability. Because our precision time and frequency products are complex
and often use state-of-the-art components, processes and techniques, undetected
errors and design flaws may occur. Product defects result in higher product
service and warranty and replacement costs and may cause serious damage to our
customer relationships and industry reputation, all of which will negatively
impact our sales and business.
If we are unable to expand our production capacity to maintain competitive
delivery times, we will likely lose customers.
Our production capacity and ability to fill orders for our customers on
a timely basis is limited by our equipment, the size of our production
facilities, the ability of our suppliers to meet our needs and our human
resources. These resources in turn are limited by the availability of capital
and the time required to increase capacity, particularly to construct additional
facilities and to hire and train employees. We cannot assure you that we will
have sufficient capital and resources to expand our production capacity and to
maintain delivery times which our customers consider appropriate. Further, an
increase in our delivery times may result in loss of customers.
Our results of operations will be adversely affected if we do not have enough
demand for our products to justify our increased capacity.
To meet our goals for future growth, we plan to move into new, larger
manufacturing and office facilities in fiscal 2000, using a portion of our
working capital to build out and equip the new facilities. The additional
manufacturing capacity provided by the new facilities and equipment will allow
us to more than double our output given sufficient market demand. However, after
increasing our production capacity, we may find that demand for our products
does not remain sufficiently high for us to realize a satisfactory return on the
capital we have spent to increase capacity.
Fluctuations in quarterly performance can result in increases in our inventory
and related carrying costs, can diminish our operating results and cash flow and
can result in a lower TrueTime stock price.
Historically, the rate of incoming orders for our products has varied
substantially from quarter to quarter. In past fiscal years, our highest sales
quarter has been as much as 250% of our lowest sales quarter. This quarter to
quarter variation is not seasonal or predictable. We attempt to accurately
forecast orders for our products and commence purchasing and manufacturing prior
to the receipt of such orders. However, it is highly unlikely that we will
consistently accurately forecast the timing and rate of orders. This aspect of
our business makes our planning inexact and, in turn, affects our shipments,
costs, inventories, operating results and cash flow for any given quarter. In
addition, our quarterly operating results are affected by competitive pricing,
announcements regarding new product developments and cyclical conditions in the
industry. Accordingly, we may experience wide quarterly fluctuations in our
operating performance and profitability, which may adversely affect our stock
price even if our year to year performance is more stable, which it also may not
be. In addition, many of our products require significant manufacturing time,
making it difficult to increase production on short notice. If we are unable to
satisfy unexpected customer orders, our business and customer relationships
could suffer.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We will be exposed to market risks related to changes in interest rates
in the future. Proceeds from our initial public offering are invested in short
term financial instruments, the value of which is subject to interest rate risk
and could fall if interest rates rise. Additionally, while we have no plans for
future borrowings, any future borrowings will likely have a variable rate
component that will fluctuate as interest rates change. If market interest rates
were to increase immediately and uniformly by 10%, there would not be a material
effect on the results of operations or on our balance sheet because we currently
have no debt.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time the Company is a party to legal proceedings arising
in the ordinary course of business. The Company is not currently a party to any
litigation that it believes could have a material adverse effect on the results
of operations or financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(d) The Company commenced an initial public offering (the "Offering")
of its common stock, par value $.01 per share ("Common Stock") on December 16,
1999 pursuant to a Registration Statement on Form S-1 (Registration No.
333-90269) (the "Registration Statement"), which was declared effective by the
Securities and Exchange Commission on December 16, 1999. The Offering was
terminated upon the sale of all of the securities covered by the Registration
Statement. The managing underwriters in the Offering were C.E. Unterberg,
Towbin, Cruttenden Roth Incorporated and Pennsylvania Merchant Group. In the
Offering, an aggregate of 3,450,000 shares of Common Stock were registered,
1,950,000 for the account of the Company and 1,500,000 for the account of OYO
Corporation U.S.A. ("OYO"). All of the securities registered in the Offering
have been sold at an initial public offering price of $5.00 per share for gross
proceeds to the Company of $9,750,000 and gross proceeds of $7,500,000 to OYO.
From the effective date of the Registration Statement through December 31, 1999,
the Company incurred approximately $935,882 in expenses in connection with the
issuance and distribution of the securities registered in the Offering,
including approximately $229,251 paid to Fulbright & Jaworski L.L.P., counsel to
the Company, and approximately $525,000 paid to C.E. Unterberg, Towbin. In
addition, during the three months ended December 31, 1999, the Company paid
Fulbright & Jaworski L.L.P. approximately $3,682 for services not related to the
Offering. Mr. Charles H. Still, a partner of Fulbright & Jaworski L.L.P., and
Mr. A. Robert Towbin, the Co-Chairman of C.E. Unterberg, Towbin, are each a
director of the Company.
$7,500,000 in gross proceeds of the Offering was received by the Company as of
December 31, 1999. The approximate expenses of the Offering to the Company as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
Underwriting discounts and commissions $ 525,000
Finders' fees 0
Expenses paid to or for underwriters 0
Other expenses 410,882
-----------
Total expenses to the Company $ 935,882
-----------
Net Offering proceeds to the Company $ 6,564,118
-----------
<CAPTION>
An additional $2,250,000 in gross proceeds of the Offering was received on
January 6, 2000. The approximate expenses of the Offering between January 1,
2000 and March 31, 2000 are as follows:
Underwriting discounts and commissions $ 157,500
Finders' fees 0
Expenses paid to or for underwriters 0
Other expenses 13,951
-----------
Total expenses to the Company $ 171,451
-----------
Net Offering proceeds to the Company $ 2,078,549
-----------
</TABLE>
From the effective date of the Registration Statement through March 31, 2000,
the Company invested the unused net proceeds of the Offering in short-term money
market investments. As of March 31, 2000, approximately $4.9 million of the
proceeds had been used for increased inventories, prepaid and accrued expenses
and for other working capital purposes.
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<PAGE> 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed with this Quarterly Report.
Exhibit Number Description
-------------- -----------
10.1 Standard Industrial/Commercial Single-Tenant Lease -
Net, dated as of January 24, 2000, by and between
Copperhill Development Corporation and TrueTime, Inc.
11.1 Statement re Computation of Earnings per Share
15.1 Awareness Letter of Independent Public Accountants
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRUETIME, INC.
By: /s/ ELIZABETH A. WITHERS
----------------------------------------------
Elizabeth A. Withers
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ MICHAEL P. VON DER PORTEN
----------------------------------------------
Michael P. Von der Porten
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 12, 2000
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
10.1 Standard Industrial/Commercial Single-Tenant Lease - Net,
dated as of January 24, 2000, by and between Copperhill
Development Corporation and TrueTime, Inc.
11.1 Statement re Computation of Earnings per Share
15.1 Awareness Letter of Independent Public Accountants
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. Basic Provisions ("Basic Provisions").
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
January 24, 2000, is made by and between Copperhill Development Corporation, a
California corporation, ("LESSOR") and TrueTime, Inc., a Delaware 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 as Building T of the Westwind Business Park - 3750 Westwind Boulevard,
located in the County of Sonoma, State of California, and generally described as
(describe briefly the nature of the property and, if applicable, the "PROJECT",
if the property is located within a Project) a two story office building on
195,570+/- sf parcel totaling 70,281+/- sf - See Exhibit Al-A4 ("PREMISES").
(See also Paragraph 2)
1.3 TERM: Fifteen (15) years and Zero (0) months ("ORIGINAL TERM")
commencing August 1, 2000 ("COMMENCEMENT DATE") and ending July 31, 2015
("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: See Addendum No. 1 ("EARLY POSSESSION DATE").
(See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $87,850.00 per month ("BASE RENT"), payable on the first
day of each month commencing August 2000. (See also Paragraph 4) [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: $50,000.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5) other lawful uses permitted by the Premises zoning. (See also
Paragraph 5)
1.8 AGREED USE: Administrative office, research and development,
warehousing and all other lawful uses permitted by the Premises zoning. (See
also Paragraph 6)
1.9 INSURING PARTY: LESSOR IS THE "INSURING PARTY" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationship exist in this
transaction (check applicable boxes):
[X] Keegan & Coopin Company, Inc. represents Lessor exclusively ("LESSOR'S
BROKER");
[X] Orion Partners, Ltd. represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] ________________________represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease
by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement, the sum of
________% of the total Base Rent for the brokerage services rendered by said
Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by ____________________________ ("GUARANTOR"). (See also Paragraph
37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs A through P and Exhibits A-J, 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 size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean
and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"Building") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specifically the nature and extent of such non-compliance, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within: (i) one year as to the
surface of the roof and the structural portions of the roof, foundations and
bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30)
days as to the remaining systems and other elements of the Building, correction
of such non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the
Start 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. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty. Lessor shall, except as otherwise
provided, 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 Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the
cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises
Page 1 of 12 INITIALS /S/ EAW 3-3-00
------- ------
/S/ RDM
-------
REVISED FORM STN-6-2/97E
(C)1997-AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
<PAGE> 2
by Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however, that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditures and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and lessee shall allocate the obligation to
pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided,
however, that if such Capital Expenditure is required during the last two years
of this Lease or if Lessor reasonably determines that it is not economically
feasible to pay its hare thereof, Lessor shall have the option to terminate this
Lease upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate, and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and debut same, with Interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable to finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised
by Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use; (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises; and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises; and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 [STRIKE-OUT TEXT OMITTED]
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 [STRIKE-OUT TEXT OMITTED]
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession (The term:" possession" as used in this
paragraph shall mean the date on which Lessor delivers to Lessee a temporary
Certificate of Occupancy.) of the Premises to Lessee by the Commencement Date.
If, despite said efforts, Lessor is unable to deliver possession as agreed,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease. Lessee shall not, however, be obligated to
pay Rent or perform its other obligations until it receives possession of the
Premises. If possession is not delivered within [STRIKE-OUT TEXT OMITTED] ninety
(90) days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such [STRIKE-OUT TEXT OMITTED]
ninety (90) day period, cancel this Lease, in which event the Party shall be
discharged from all obligations hereunder. If such written notice is not
received by Lessor within said ten (10) day period, Lessee's right to cancel
shall terminate. Except as otherwise provided, if possession is not tendered to
Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid,
any period of rent abatement 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 or omissions of Lessee. If possession of the
Premises is not delivered within four (4) months after the Commencement Date,
this Lease shall terminate unless other agreements are reached between Lessor
and Lessee, in writing. See Addendum No. 1, Paragraph J.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction (except
as specifically permitted in this Lease), on or before the day on which it is
due. Rent 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
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check to stating.
5. SECURITY DEPOSIT. Lessee shall deposit with lessor upon execution
hereof the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If lessee fails to pay Rent, or otherwise Defaults
under this Lease, 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, expense, loss or damage 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 monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. [STRIKE-OUT TEXT OMITTED]
Should the Agreed Use be amended to accommodate a material change in the
business of Lessee or to accommodate a sublessee or assignee, Lessor shall have
the right to increase the Security Deposit to the extent necessary, in Lessor's
reasonable judgment, to account for any increased wear and tear that the
Premises may suffer as a result thereof. [STRIKE-OUT TEXT OMITTED] Lessor shall
not be required to keep the Security Deposit separate from its general accounts.
Within fourteen (14) days after the expiration or termination of this Lease, if
Lessor elects to apply the Security Deposit separate from its general accounts.
Within fourteen (14) days after the expiration or termination of this Lease, if
Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise
within thirty (30) days after the Premises have been vacated pursuant to
Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit
not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that is unlawful, creates damages, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
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6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice or such fact to lessor, and provide
lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Stance 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 reasonable
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 or neighboring properties, that was caused or materially contributed to
by Lessee, or pertaining to or involving any Hazardous Substance brought onto
the Premises during the term of this Lease, by or for Lessee, or any third
party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold, Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any thirty party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration or any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligations 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, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY
LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE
WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIALLY SO AGREED BY LESSOR IN
WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents of employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the costs of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substance or the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in Paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times in
order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000 whichever is
greater, given written notice to Lessee, within thirty (30) days after receipt
by Lessor of knowledge of the occurrence of such Hazardous Substance Condition,
of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the date of such notice. In the event Lessor elects to give a
termination notice, Lessee may, within ten (10) days thereafter, give written
notice to Lessor of Lessee's commitment to pay the amount to which the cost of
the remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times, the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into 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. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such a plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveway, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises, Lessee, in
keeping the Premises, in keeping the Premises in good order, condition and
repair, shall exercise and perform good maintenance practices, specifically
including the procurement and maintenance of the service contracts required by
Paragraph 7.1(b) below. 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. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition consistent with the
exterior appearance of other similar facilities of comparable agent and size in
the vicinity, including, when necessary, the exterior repainting of the
Building.*
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form
*All construction warranties afforded to Lessor to be passed upon to Lessee.
Lessor shall be responsible for structural portions of the roof, foundation,
sidewalls, subject to the negligence or misuse by Lessee.
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and substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including firm alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic utility
feed to the perimeter of the Building, and (ix) any other equipment, if
reasonably required by Lessor. SEE ADDENDUM NO. 1, PARAGRAPH O.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement as such useful life is specified
pursuant to Federal income tax regulations or guidelines for depreciation
thereof (including interest on the unauthorized balance as is then commercially
reasonable in the judgment of Lessor's accountants), with Lessee reserving the
right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation),
it is intended by the Parties hereto that Lessor have no obligation, in any
manner whatsoever, to repair and maintain the Premises, or the equipment
thereof, all of which obligations are intended to be that of the Lessee. 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, and
they expressly waive the benefit of any statute now or hereafter in effect to
the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS: TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on 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, 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 pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations made by Lessee that are not yet owned by Lessor pursuant
to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible from the outside, do not involve puncturing,
relocation or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease as extended does not exceed $250,000 in the aggregate
or $100,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing 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.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for use on
the Premises, which claim are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility. If Lessee shall 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. If Lessor shall require, Lessee shall furnish a surety bond 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. If Lessor elects
to participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than ninety (90) and not later than thirty (30) prior to the end of
the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. 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.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom 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. Lessee shall repair
any damage occasioned by the installation, maintenance or removal of Trade
Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings,
and equipment 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
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to this Paragraph 7.4(c) without the express written
consent of Lessor shall constitute a holdover under the provisions of Paragraph
26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required
under Paragraph 8 [STRIKE-OUT TEXT OMITTED]
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
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 since limit coverage in an amount not less than $2,000,000 per
occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carrier by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance
as described in Paragraph 8.2(a) in addition to, and to, and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured herein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable to
lessor, any groundlessor, and to any 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 an Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party, however
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and lessee's
personal property shall be insured by Lessee under Paragraph 8.4 rather than the
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 debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or replacement
of any portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver
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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.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for one (1) year. 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 Rent 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
Rent 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) [STRIKE-OUT TEXT OMITTED]
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. 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, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted 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, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. 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. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, 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,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice 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 defended or 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, HVAC 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. 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, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures, which cannot reasonably be repaired in six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, 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 any
applicable 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, such shortage 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 such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) 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, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of 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, 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),
Lessor may 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) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such 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 after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
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9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months 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 terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of Premises Partial Damage or Premises Total
Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration 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 and such repair or restoration is not commenced within thirty (30)
days thereafter, this Lease shall terminate as of the date specified in said
notice. If the repair or restoration is commenced within said thirty (30) days,
this Lease shall continue in full force and effect. "COMMENCE" 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 [STRIKE-OUT TEXT OMITTED]
9.8 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 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. 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 during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the current real
Property Taxes, and require that such taxes 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 an amount equal to the amount
of the estimated installment of taxes divided by the number of months remaining
before the month in which said installment becomes delinquent. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payments shall be adjusted as required to provide the funds needed to
pay the applicable taxes. If the amount collected by Lessor is insufficient to
pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All monies paid
to Lessor under this Paragraph may be intermingled with other monies of Lessor
and shall not bear interest. In the event of a Breach by Lessee in the
performance of its obligations under this Lease, then any balance of funds paid
to Lessor under the provisions of this Paragraph may, at the option of Lessor,
be treated as an additional Security Deposit.
(c) RE-APPRAISAL ON TRANSFER. Real Property Taxes include any
increase in Real Property Taxes attributable to a reappraisal of the Real
Property on account of a sale, foreclosure, or other financing (including
without limitation ground lease) or change of ownership of the Real Property
(including, without limitation, transfers of ownership interests by Lessor) by
Lessor within the meaning of Article XIIIA of the California Constitution and
applicable law ("Transfer Re-Appraisal Increase"). The foregoing
notwithstanding, Lessor shall be obligated to pay, at Lessor's expense, a
portion of any such Transfer Re-Appraisal Increase for any transfer which occurs
after the fifth (5th) Lease Year. The portion of the Transfer Re-Appraisal
increase to be paid by Lessor shall be equal to eighty percent (80%) of the
Transfer Re-Appraisal Increase due and paid for the 24-month period after such
increase, sixty percent (60%) of the Transfer Re-Appraisal Increase due and paid
for the second 24-month period after such increase, forty percent (40%) of the
Transfer Re-Appraisal Increase due and paid for the third 24-month period after
such increase and twenty percent (20%) of the Transfer Re-Appraisal Increase due
and paid for the fourth 24-month period after such Increase. Following the
fourth 24-month period after such increase, all of the Transfer Re-Appraisal
increase shall be included in annual Real Property Taxes paid by Lessee under
this Lease.
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 conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
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. When possible, Lessee shall cause such 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,
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Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement.
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.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all of any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) [STRIKE-OUT TEXT OMITTED]
(c) [STRIKE-OUT TEXT OMITTED]
(d) An assignment or subletting without 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 unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon thirty (30) days written
notice, increase the monthly Base Rent to one hundred ten percent (110%) of the
Base Rent then in effect. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder; or (iii) after the primary
liability of Lessee for the payment of Rent or of or the performance of any
other obligations to be performed by Lessee.
(b) Lessor may accept 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 Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a fee of
$1,000 [STRIKE-OUT TEXT OMITTED], as consideration for Lessor's considering and
processing said request. Lessee agrees to provide Lessor with such other or
additional information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed 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 to in writing.
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) [STRIKE-OUT TEXT OMITTED] Lessor shall not, by reason of the
foregoing or any assignment of such sublease, nor by reason of the collection of
Rent, be deemed liable to the sublessee for any failure of Lessee to perform and
comply with any of Lessee's obligations to such sublessee. Lessee hereby
irrevocably authorizes and directs any such sublease, 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 all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligations or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require 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 prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(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.
12.4.1 Transfer Premium Payment. As a reasonable condition to Lessor's
consent to any transfer, Lessee shall pay to Lessor fifty percent (50%) of any
transfer Premium, as defined in subsection 12.4.2, during the original term of
the Lease. The Transfer Premium Payment after the original term shall be
seventy-five percent (75%).
12.4.2 Definition of "Transfer Premium". "Transfer Premium" means all
Rent and other consideration actually received by Lessee from Transferee
(including key money and bonus money and any payment in excess of fair market
value for services rendered by Lessee to Transferee or assets, fixtures,
inventory, equipment, or furniture transferred by Lessee to Transferee in
connection with the Transfer (Transferee Rent)), after deducting:
(a) The Rent payable by Lessee under this Lease (excluding the Transfer
Premium) for the Subject Space (Lessee Rent);
(b) Reasonable leasing commissions paid by Lessee;
(c) Other reasonable out-of-pocket costs paid by Lessee (including
attorney fees, advertising costs, and expenses of readying the Subject Space for
occupancy by Transferee);
The costs referred to in subparagraphs (b)-(c) are referred to as the
"Transfer Costs".
12.4.3 Monthly Payment of Transfer Premium; Calculation. Lessee shall
pay the Transfer Premium on a monthly basis, together with its payment of [LEFT
OUT] Rent [LEFT OUT]. In calculating the Transfer Premium, Lessee shall first
deduct all the Transfer Costs from any Transferee Rent received, amortized over
the first 24 months of the new term.
12.4.4 Audit of Transfer Premium. On Lessor's request, Lessee shall
furnish a complete statement, certified by an independent certified public
accountant or Lessee's chief financial officer, describing in detail the
computation of any Transfer Premium that Lessee has derived or will derive from
the Transfer.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "Default" is defined as a failure by the Lessee
to comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "Breach" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
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(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to third party, when due, to provide reasonable evidence of insurance or surety
bond, or to fulfill any obligation under this Lease which endangers or threatens
life or property, where such failure continues for a period of three (3)
business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) 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 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,
other than those described in subparagraphs 13.1(a), (b) or (c) above, where
such Default continues for a period of thirty (30) days after written notice;
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 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
of any general arrangement or assignment for the benefit of creditors; (ii)
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, 13.1 (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 that any financial statement of Lessee or of
any Guarantor given to Lessor 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 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 basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide 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 of its affirmative duties
or obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, 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 upon receipt of 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 by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, 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:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) 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 provides could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, 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 and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. 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. Any agreement for free or abated rent or
other charges, 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. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, 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 of Rent 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 any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each 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 such late
payment. 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, not
prevent the exercise of 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 any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such as
Base Rent) or within thirty (30) days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to the
prime rate reported in the Wall Street Journal as published closest prior to the
date when due plus four percent (4%), but shall not exceed the
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maximum rate allowed by law. Interest is payable in addition to the potential
late charge provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. 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, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender 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 are reasonably
required for its performance, the Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
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 (collectively "CONDEMNATION"), this Lease shall terminate at to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building portion
of the Premises, or more than twenty-five percent (25%) of the land area portion
of the Premises 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
take 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
proportion to the reduction in utility of the Premises caused by such
Condemnation. Condemnation awards and/or payments shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold, the value of the part taken, or for severance damages;
provided, however, that Lessee shall be entitled to any compensation for
Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures,
without regard to whether or not this Lease is terminated pursuant to the
provisions of this Paragraph. All Alterations and Utility Installations made to
the Premises by Lessee, for purposes of Condemnation only, shall be considered
the property of the Lessee and Lessee shall be entitled to any and all
compensation which is payable therefor. In the event that this Lease is not
terminated by reason of the Condemnation, Lessor shall repair any damage to the
Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 [STRIKE-OUT TEXT OMITTED]
15.2 [STRIKE-OUT TEXT OMITTED]
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. 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) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability of compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) 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 "ESTOPPEL CERTIFICATE" 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.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's Rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements 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. As long as
Lessee is a publicly traded company, Lessee may satisfy the requirement of
delivery of the most recent financial statements filed with the Securities and
Exchange Commission.
17. DEFINITION OF LESSOR. 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 this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. 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 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.
Notwithstanding the above, and subject to the provisions of Paragraph 20 below,
the original Lessor under this Lease, and all subsequent holders of the Lessor's
interest in this Lease shall remain liable and responsible with regard to the
potential duties and liabilities of Lessor pertaining to Hazardous Substances
and outlined in Paragraph 6 above.
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. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. 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.
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. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
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23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by courier)
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 notices. Either Party may be written
notice to the other specify a different address or notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, 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. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies 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 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 termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
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 upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon 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 a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
[including Lessee's Obligations] 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. Further, within sixty (60) days
after the execution of this Lease, Lessor shall use its commercially reasonable
efforts to obtain a Non-Disturbance Agreement from the holder of any
pre-existing Security Device which is secured by the Premises. In the event that
Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60)
days, then Lessee may, at Lessee's option, directly contact Lessor's lender and
attempt to negotiate for the execution of a Non-Disturbance Agreement.
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
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys' 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 agent
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 as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary [STRIKE-OUT TEXT
OMITTED] signs and Lessor may during the last six (6) months of the term hereof
place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time
place on or about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
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, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect 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. Except 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' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including, but not limited to, consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the
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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. In the event that either Party disagrees with any determination
made by the other hereunder and reasonably requests the reasons for such
determination, the determining party shall furnish its reasons in writing and in
reasonable detail within ten (10) business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty
in the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent 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 and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term
of or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the fight of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LEASE. Each Option granted to Lessee
in this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
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 have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, 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).
(c) 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 prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default 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 a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the case and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, 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 the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, right sand 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 of 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.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, 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. Each Party
shall, within thirty (30) days after request, deliver to the other Party
satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of said to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. 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 a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTS. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease |_| is |_| is not attached to his Lease.
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.
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(C)1997-AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
<PAGE> 12
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES OF LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- --------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the date
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: San Francisco, CA Executed at: Santa Rosa, CA
------------------------------------------ -------------------------------------
on: 3/7/00 on: 3 March 2000
--------------------------------------------------- ----------------------------------------------
By LESSOR: By LESSEE:
Copperhill Development Corporation TrueTime, Inc.
- ------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------
By: /s/ Roger D. MacKenzie By: /s/ Elizabeth A. Withers
--------------------------------------------------- ----------------------------------------------
Name Printed: Roger D. MacKenzie Name Printed: Elizabeth A. Withers
----------------------------------------- ------------------------------------
Title: Secretary Title: President/CEO
------------------------------------------------ -------------------------------------------
By: By: /s/ Michael P. Von der Porten
--------------------------------------------------- ----------------------------------------------
Name Printed: Name Printed: Michael P. Von der Porten
----------------------------------------- ------------------------------------
Title: Title: Vice President/Chief Financial Officer
------------------------------------------------ -------------------------------------------
Address: Address: 2835 Duke Court
---------------------------------------------- -----------------------------------------
Santa Rosa, CA 95407-7844
- ------------------------------------------------------ -------------------------------------------------
Telephone: (___) Telephone: (707) 528-1230
-------------------------------------- ---------------------------------------
Facsimile: (___) Facsimile: (707) 527-6640
-------------------------------------- ---------------------------------------
Federal ID No.: Federal ID No.: 94-3343279
--------------------------------------- ----------------------------------
</TABLE>
NOTE: These forms are often modified to meet the 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 So. Flower Street, Suite 600, Los Angeles, California
90017, (213)687-8777, Fax No. (213)687-8616.
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(C)1997-AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
<PAGE> 13
STANDARD LEASE CONDITIONS ADDENDUM #1
To Lease dated January 24, 2000 by and between
Lessor Copperhill Development Corporation and Lessee TrueTime, Inc.
A. Rent Schedule:
The Monthly Base Rent shall be increased to the following amounts on
the dates set forth below:
<TABLE>
<S> <C>
On the below adjustment dates The New Base Rent Schedule shall be:
----------------------------- -----------------------------------
August 1, 2000 $87,850.00
August 1, 2003 $94,438.75
August 1, 2006 $101,521.66
August 1, 2009 $109,135.78
August 1, 2012 $117,320.96
</TABLE>
B. Shell Building/Warm Shell:
Lessee has reviewed and approved the shell building plans prepared by
DES and dated November 10, 1999. Said construction drawings are
attached as Exhibit B1 (previously delivered to Lessee). Lessee has
reviewed and approved said plans.
DES shall be retained and paid by lessor to prepare "warm" shell
construction drawings. "Warm" shell improvement floor plans are
attached as Exhibit B2. Said construction drawings shall be completed
and delivered to Lessee within thirty (30) days of acceptance of this
lease.
All costs incurred to construct the shell building and the "warm" shell
improvements (which are defined in Exhibit C) shall be paid by Lessor.
Lessor and Lessee approve Midstate Construction as the general
contractor for construction of the shell and "warm" shell improvements.
Any modifications to the shell building must be approved by both
parties. if Lessee requests modifications for its use, it shall pay for
the costs incurred to modify the shell building.
C. Lessee Improvement Scope:
Lessor and Lessee shall retain DES as the project architect to design
the Lessee improvements and draft the construction drawings. All
interior improvement work shall be approved by both parties. See Work
Letter attached as Exhibit D.
Lessor shall retain Midstate Construction as the general contractor to
construct the Lessee Improvements in a quality good workmanlike manner
in accordance with approved plans and specification with a target
completion date of August 18, 2000. Lessor shall provide an allowance
of $2,020,230 ($30.00 per square foot -usable) toward the cost of
constructing the Lessee Improvements including all necessary
architectural fees and all required building permits. Lessee shall pay
all costs in excess of this amount at the time such expenses are due
and prior to landlord paying their portion. Lessor and Lessee to
cooperate with all parties involved to expedite the Lessee Improvement
process as quickly as possible.
Lessee shall inspect said premises within ten (10) business days of
delivery of the temporary Certificate of Occupancy to ascertain that
Lessee Improvements have been installed in accordance with plans and
specifications. Said inspection period does not affect Lessee's
obligation to commence paying rent upon delivery of the temporary
Certificate of Occupancy. Lessee shall provide a "punch list" of items
not in accordance with plans and specifications or not installed in a
good workmanlike manner. Lessor shall have thirty (30) days to correct
said punch list items.
If Lessee installs any portion of the Lessee improvements, he shall
have the same responsibility as indicated above for Lessor and
additionally Lessee shall remove all mechanic's liens, to satisfy all
claims and meet all contract requirements with suppliers, contractors
and employees arising out of said installation of improvements. Lessee
to have workman compensation and liability insurance with a minimum
$1,000,000 per occurrence for said installation and to name Lessor
additional insured. Lessee shall indemnify and hold harmless Lessor for
al claims of employees, invitees, materialmen, supplier arising out of
said installation.
D. Financial Information.
Lessor has reviewed and approved financial statements and credit
reports regarding Lessee.
Lessor may deliver such financial information in lessor's possession to
lending institutions, mortgage brokers, investors in the Industrial
Center or prospective purchasers.
Keegan & Coppin Company, Inc. is authorized to release deposits on
account to Lessor upon receipt of fully executed lease.
E. Permits.
Lessee will obtain a use permit and a wastewater discharge permit if
required from the appropriate municipality within thirty (30) business
days of acceptance hereof. Lessee shall use due diligence in pursuing
such permits and pay all costs associated with them. Lessee shall have
the responsibility to maintain any use permits and to comply
<PAGE> 14
with all terms and conditions of said use permits during the term of
this Lease. If Lessee's application for a use permit is denied, Lessor
or Lessee may declare this lease void, in which event all deposits
shall be retained by Lessor.
F. Hazardous Waste:
"If Lessee uses, stores, or becomes aware of any hazardous waste or
substances as listed by Proposition 65, it will advise Lessor within
three (3) days of such existence and either obtain approval from Lessor
and the appropriate governing agencies within thirty (30) days from
notice to remove and/or initiate clean up of said hazardous waste to
standards required by the Lessor and the appropriate governing agencies
within sixty (60) days from notice."
"If Lessee, his invitees, employees, agents or associates cause or
allow a spill, or contamination of the premises, common area, soil or
surrounding area, then it will be the responsibility of Lessee to clean
up said hazard to the degree required and within the time frame set by
any public entity which has jurisdiction."
G. Area Measurement:
Lessee has reviewed and approved the system of measurement, the usable
and rentable square footage of the subject premises. Lessor's architect
shall provide Lessee with a complete set of construction drawings
(including all change orders), which were used for the actual
construction of the building.
H. Associations and Expenses:
Lessee has reviewed and approved any business park association dues and
budget, rules, expenses, and use conditions pertaining to the property,
the Rules and Regulations for the Premises are attached as Exhibit I.
I. Early Possession:
In the event Lessee occupies the Premises prior to the Commence Date,
Lessee shall pay rent for the period occupied on a pro rata basis and
all other terms of this Lease shall be in effect during such period.
Any such early possession shall not affect the Expiration Date.
J. Lease Commencement Date:
a) If there are no delays and the Lessee approves the Tenant
Improvement Construction Plans by 3/17/00, then Lessor will
deliver the premises by 8/18/2000.
b) If there are Lessee Caused Delays and no Lessor Caused Delays,
then the Lease Commencement Date shall be delayed day to day
up to 9/1/2000. If on 9/1/2000 lessor has not been able to
deliver the Premises because of Lessee Caused Delays, then
rent shall commence on 9/1/2000.
c) If there are Lessor Caused Delays that stretch the delivery
date of the Premises beyond 9/1/2000, then the Lessee shall
not have to pay rent until the Premises are delivered.
However, if these delays extend beyond 12/1/2000, then Lessee
shall have the options set forth in Paragraph 3.3 above.
The Lease Commencement Date shall occur as provided in Paragraph 1.3 of
this Lease, provided that the Lease Commencement Date may be delayed as
of Paragraph 3.3 of the Lease Agreement or Paragraph J.a., J.b., and
J.c. above. As used herein, the term "Commencement Date Delay" shall
mean only a "Force Majeure Delay", a "Lessee Caused Delay", or a
"Lessor Caused Delay" as those terms is defined below. The term "Force
Majeure Delay" shall mean only an actual delay resulting from fire,
earthquake, explosion, flood, hurricane, the elements, acts of God or
the public enemy, war, invasion, insurrection, rebellion, riots,
industry-wide labor strikes or lockouts (which objectively preclude
General Contractor from obtaining from any reasonable source of labor
or substitute materials at a reasonable cost necessary for completing
the Lessee Improvements), or governmental acts, including law changes,
changes in interpretation of laws or the construction rules and
regulations, delays in obtaining the issuance of permits and the
obtaining of any necessary inspections, which objectively preclude
construction of Lessee Improvements in the Building by any person. The
term, "Lessee Caused Delay" shall mean actual delays to the extent
resulting from the acts, omissions, or change orders of lessee, its
agents, contractors, employees or representatives which have the effect
of delaying the completion of construction of the shell building or
lessee improvements. The term "Lessor Caused Delays" shall mean actual
delay to the extent resulting from the acts, omissions or change orders
of Lessor, its agents, contractors, employees or representatives which
have the effect of delaying the completion of construction of the shell
building or Lessor Improvements. In no event shall Lessee's liability
for rent hereunder commence later than September 1, 2000 except for
unforeseen Force Majeure Delays or Lessor Caused Delays.
K. Determination of Commencement Date Delay:
If Lessor contends that a Commencement Date Delay has occurred, Lessor
shall notify Lessee in writing (the "Delay Notice") of the event, which
constitutes such Commencement Date Delay, the Commencement Date Delay
shall be deemed to have occurred commencing as of the date of Lessee's
receipt of the Delay Notice. If Lessee contends that a Lessor Caused
Commencement Date Delay has occurred, Lessee shall notify Lessor in
writing ("the Delay Notice") of the event, which constitutes such
Lessor Caused Commencement Date Delay. The Lessor Caused Commencement
Date Delay shall be deemed to have occurred commencing as of the date
of Lessor's receipt of the Delay Notice. There shall be no rent
obligation by Lessee for any Lessor Caused Delays. In the event that
Lessor/Lessee disputes Lessor's/Lessee's contention that there is a
Lessor/Lessee Caused Delay such dispute shall be settled in the manner
provided in the standard AIA Construction Contract for the settlement
of such disputes.
<PAGE> 15
L. Definition of Substantial Completion of the Lessee Improvements:
For purposes of this Lease Agreement substantial completion of the
"Lessee Improvements" shall mean completion of construction of the
Lessee Improvements in the Premises pursuant to the "Approved Working
Drawings," with the exception of any punch list items.
M. Operating Expenses:
Lessee's pro rata share of expenses set forth shall be calculated on
the basis of the ratio that the rentable square feet in the Premises
bears to the total rentable square fee in Phase 5 of the Park. This pro
rata share has been determined to be 37.64% of Phase 5. With respect to
each partial or full calendar year during the lease term, Lessee shall
pay to Landlord, monthly in advance, one-twelfth (1/12) of Lessee's pro
rata share of said estimated costs for such year. Lessor's estimate of
operating costs pursuant to the foregoing during the current calendar
year is $16,143.55 to be paid monthly in advance. See Exhibit J
attached for line item breakdown.
Subject to the above, within one hundred twenty (120) days after the
end of every calendar year during the lease term, the Lessor shall
provide the Lessee with a written statement of the actual costs of
maintenance for that year. If actual costs should exceed the estimated
amount previously paid by Lessee with respect to such year, then the
Lessee shall pay to the Lessor the additional amount due to the Lessor
within thirty (30) days, and if actual costs should be less than the
estimated amount paid by Lessee with respect to such year, then the
Lessor shall credit against the next maturing rent due under this
Article the amount of overpayment by Lessee.
N. Utilities & Service Contracts:
Lessor shall provide all necessary utilities to the building. Lessee
shall contract directly for electric and gas service and for interior
janitorial services. Lessor shall coordinate other services to the
Premises with the exception of utility services and janitorial service.
Lessor shall contract for landscaping, HVAC maintenance, trash removal,
building maintenance, window cleaning, fire protection, pest control,
sweeping, payment of taxes and insurance, etc., and Lessor will invoice
Lessee monthly for these expenses, along with other monthly "cam"
charges. Lessor's goal is to maintain the Premises in a top quality
manner consistent with the balance of the Westwind Business Park at a
lower cost to the Lessee then if Lessee independently contracted for
these services. As indicated on the triple net expense breakdown,
Lessee shall pay a management fee of three point five percent (3.5%) of
the minimum NNN rent. For Paragraph M and N of this addendum, Lessee
shall have the right one (1) time per year to inspect all of Lessor's
records pertaining to the NNN charges and business park expenses for
the operation of Building T, Lessee will audit the records at the
office of Lessor during normal business hours, with seven (7) day's
prior written notice from Less to Lessor. If it is determined that the
results in the audit were misstated by more than five percent (5%),
then the total costs of the audit for both parties to be borne by the
Lessor. If the results were within five percent (5%), then the total
cost of the audit for both parties will be borne by the Lessee.
O. Lessee's Right of First Refusal on Building G:
Lessee shall have an ongoing right of first refusal for the first five
years of the Original Term of the Lease over Building G (Building G is
an un-built building which is planned for the southwest corner of
Airport Boulevard and Westwind Boulevard as shown on Exhibit E attached
hereto), which space is not presently available as of the date of
execution hereof but may become available during the term hereof. In
the event Lessor enters into serious negotiations with a prospective
Lessee, Lessor shall first give written notice to Lessee indicating the
location and approximately square footage of the subject space and
giving Lessee the right to lease such space in the new building and add
such new space to the existing total premises of Lessee subject to
Lessee agreeing to all general terms that the "third party" has
previously agreed. Lessee shall have five (5) business days from the
date of Lessor's notice to exercise its right to take the subject space
and to so notify Lessor's of its desire to take the subject space as
part of the Premises. In the event Lessee so notifies Lessor of its
desire to add the subject space to the Premises, then effective upon
the date of such notice, the subject space shall be deemed to be part
of the Premises, with terms and conditions based upon said notice
containing agreed upon terms by "third party". In the event Lessee
notifies Lessor that it is not interested in leasing the subject space,
then Lessor may enter into a lease for such space with the then
interested prospective Lessee upon whatever terms and conditions Lessor
deems desirable. In the event Lessee fails to respond to Lessor's
notice within said five (5) day period, Lessee shall be deemed to have
not exercised its right of first refusal, as herein contained for the
subject space in proposed Building G.
P. Time of Essence:
Time is of the essence of each and every provision contained in this
addendum, regardless of any implied waivers, which may have developed
pursuant to the course of conduct between Landlord and Lessee.
<TABLE>
<S> <C> <C>
Agreed by: Lessee: /s/ Elizabeth A. Withers Date: 3-3-00
-------------------------------- -----------
Agreed by: Lessor: /s/ Roger D. MacKenzie Date: 3-7-00
-------------------------------- -----------
</TABLE>
<PAGE> 16
[DIAGRAMS OMITTED]
(Exhibits A1 - A4
and B1 - B2)
<PAGE> 17
EXHIBIT C
COPPERHILL DEVELOPMENT - BUILDING T
"WARM SHELL" BUDGET PROPOSAL
SCOPE OF WORK
Proposal includes the additional work necessary to provide a warm shell as
outlined by DES Architects as follows:
1. Restrooms:
a. Drywall ceiling at 9'-0" height.
b. Tile floor with 8" tile base.
c. Full height tile at wet walls only.
d. Plastic laminate toilet partitions.
e. Floor drain in each.
f. Plastic laminate countertops.
g. Entry Doors: prefinished clear maple.
h. Mirrors as shown.
i. Paint walls and ceiling in restrooms, janitor's closet and
storage closets only.
k. Exhaust fans and ventilation as required by Uniform Building Code.
l. Electrical rough-in and fixtures as required.
2. Janitor's Closet:
a. Mop sink and rough-in as required for mop sink fixture.
b. FRP wainscot at sink.
c. Electric rough-in as required for electric water heater.
3. HVAC:
a. Furnish and install roof top HVAC package equipment for VAV
system (design build).
b. Supply shafts to each floor in mechanical shaft, no distribution
at the floor level.
4. Elevator:
a. Furnish and install elevator with 3000 pound capacity.
b. Cab to have side opening door, plastic laminate interior panels
and upgraded ceiling with downlights.
5. Lobby Stair:
a. Metal pan stair with concrete fill.
b. Custom steel railing (no glass components or panels in railing).
6. Exit Stairs:
a. Metal pan stair with concrete fill.
b. Wall mounted metal handrails.
7. Electrical:
a. Electrical subpanels to be located in an electrical closet or the
janitor's closet on each floor.
b. Power distribution for core improvements only.
c. Supply power to rooftop HVAC units only.
8. Mechanical Roof Screen:
a. Metal stud screen with EIFS finish over cement backer board.
9. Insulation:
a. R-19 insulation at roof.
b. R-11 insulation at walls and soffits.
10. Structural Steel:
a. Steel platform for rooftop HVAC equipment (not shown).
11. Roofing:
a. Additional roofing work at rooftop HVAC equipment platform and
curbs.
12. Doors, Frames and Hardware:
a. Furnish and install doors, frames and hardware for restrooms and
janitor's closet only.
<PAGE> 18
EXHIBIT C
SCOPE OF WORK
PAGE 2 OF 2
13. Drywall:
a. Frame, hang and finish gypsum wallboard for walls at stairwells
(three (3) sides of stairwells only) elevator shaft. Restrooms and
janitor's closets only.
b. Frame, hang and finish gypsum ceilings for restrooms and
janitor's closet only.
14. Painting:
a. Paint walls and ceiling for restrooms, janitor's closet and
storage closets only.
b. No painting in tenant spaces.
c. No wall covering.
15. Fire Sprinklers:
a. Modify existing sprinkler system to provide coverage at
corridors, stairwells and restrooms.
b. No work in tenant spaces.
16. Roof hatch/access ladder.
17. Roof walk pads.
Alternates:
1. Cost to provide corridor walls as shown on core drawings provided (no
date). $56,780.00.
2. Cost to provide doors, frames and hardware at tenant spaces,
stairwells and miscellaneous closets shown on core plan provided (no
date). $20,350.00
PROPOSAL EXCLUDES THE FOLLOWING ITEMS:
1. Walls and ceiling at corridors and tenant spaces.
2. Special ceiling finish allowance.
3. Doors, frames and hardware at corridors, lobbies, stairwells and
tenant spaces.
4. All floor coverings and stair tread treatment, with the exceptions of
tile at the restroom floors, is excluded.
5. Common areas or Tenant space Life Safety System of Fire Alarms.
6. Distribution of HVAC system beyond main supply duct to each floor.
7. No stone or tile finishes, no wood finishes, no glass components, no
high-end finishes, other that custom stainless steel handrail at lobby
or exit stairs.
8. No power or lighting distribution to tenant spaces.
No Fire Alarm or Life Safety System.
No special "High Voltage" requirements.
No additional sub-panels other than those in electrical closets.
9. No panic hardware.
No Card Readers or other security hardware.
10. Acoustical ceiling treatment.
11. Cost of permits, fees, and utility company fees associated with the
"warm shell" are paid by Lessor.
12. Builder's risk insurance - to be provided by Owner.
<PAGE> 19
Work Letter
Exhibit D
TrueTime, Inc., (hereinafter called "Lessee") and Westwind Business Park
(hereinafter called "Lessor" are executing simultaneously with this Letter
Agreement, the written lease to which this Letter Agreement is attached covering
the premises described in said lease (hereinafter called "the premises").
To induce Lessee to enter into said lease (which is hereby incorporated by
reference to the extent that the provisions of this agreement may apply thereto)
and in consideration of the mutual covenants hereinafter contained, Lessor and
Lessee mutually agree as follows:
1. Plans and Specifications:
(a) DES shall be retained to design all architectural, mechanical, and
electrical engineering plans required for the performance of the
work (hereinafter referred to as "Building Standard Work") herein
below described, including completed detailed plans and
specifications for Lessee's partition layout, reflective ceiling,
heating and air conditioning, electrical outlets and switches and
telephone outlets. The preliminary space plan and material
specification list are attached as Exhibit D.
(b) It is understood and agreed that Lessee may require work
(hereinafter referred to as "Building Non-Standard Work")
different from or in addition to said Building Standard Work. In
such event, any architectural, mechanical, and electrical plans
and specifications required shall be furnished, at Lessee's sole
cost and expense to Lessor's office for its approval or the cost
of such plans prepared by Lessor shall be borne by Lessee.
(c) It is understood and agreed that all plans and specifications
referred to hereinabove in subparagraphs (a) and (b) are subject
to the Lessor's approval, which the Lessor agrees shall not be
unreasonably withheld. Lessee also agrees that, when requested by
Lessor's office, Lessee will furnish complete information
reflecting Lessee's requirements and that complete plans and
specifications will be approved by Lessee on or before March 1,
2000.
2. Building Standard Work:
Lessor shall retain Midstate Construction to furnish and install all of
the following "Building Standard work" limited to the quantities
specified by the Lessor and Lessee on the final approved plans. Office
area described in the following paragraphs will be taken to mean net
usable area measured from outside of exterior walls and to the center
of the "warm" shall walls outlined on Exhibit C.
The Lessor shall provide, at its cost, the following Tenant Improvements:
ITEM DESCRIPTION
- ---- -----------
Floor Coverings
HVAC
Electrical Lighting
Electrical Outlets
Computer Cabling
Cabinets
Doors-Millwork
Partitions
Wall Finish
Window Covering
Signage
Wall Paper
Plumbing-Bathroom
Electrical Service
Warehouse Lights
Insulation
Dropped Ceilings
Sprinklers
Utilities
Warehouse Improvements
Other:
3. Building Non-Standard Work at Lessee's Cost and Expense:
Provided Lessee's plans and specifications are furnished within the
same time provided hereinabove in Paragraph 1(d), the Lessor shall
cause Lessee's "Building Non-Standard Work" to be installed by Lessor's
contractor, but at Lessee's sole cost and expense. If available Tenant
Improvement funds can be applied toward these expenses.
<PAGE> 20
Prior to commencing any such work, Midstate Construction or DES, shall
submit to Lessee a written estimate of the cost thereof. Said written
estimate shall be attached hereto and made a part of this Work Letter.
If Lessee shall fail to approve this Work Letter after submission
thereof, such failure shall be deemed a disapproval thereof, and
Lessor's contractor shall not proceed with such work. Cost of all work
in excess of building standards shall be paid for prior to the start of
work.
4. Substitution and Credits
Lessee may select difference new materials in placing of "Building
Standard Work" materials which would otherwise be initially furnished
and installed by Lessor in the interior of the premises under the
provisions of this Work Letter Agreement, provided such selection is
indicated on said Lessee's final plans.
5. The total allowance of all of the items in Paragraphs 2, 3 and 4 shall
be $30.00 per usable square foot. Any excess shall be paid by Lessee
prior to commending work.
6. Lessor to install building standard and building non-standard
improvements in a good workmanlike manner and in accordance with the
County and Lessee approved plans and specifications. Lessor to proceed
diligently with said installation so as to meet the occupancy date
stipulated in the lease.
7. Lessor shall prepare and Lessee shall approve an integrated
construction schedule of shell building and Tenant Improvement work.
Lessee shall have three (3) days written which to approve or request
modifications to the plans so submitted.
8. The shell building construction plans and specs, the warm shell
construction plans and specs, Tenant Improvement Construction Plans and
specs, and all engineering and specialist reports when approved by both
Lessee and Lessor will supersede this document and be the final
agreement between parties.
Lessor Lessee
/s/ Roger D. MacKenzie /s/ Elizabeth A. Withers
- ------------------------------------ ---------------------------
<PAGE> 21
[DIAGRAM OMITTED]
(EXHIBIT E)
<PAGE> 22
EXHIBIT F
LEASING DISCLOSURE REGARDING
REAL ESTATE AGENCY RELATIONSHIP
When you enter into a discussion with a real estate agent regarding a real
estate transaction, you should from the outset understand what type of agency
relationship or representation you wish to have with the agent in the
transaction.
LANDLORD'S AGENT
A Landlord's agent under a listing agreement with the Landlord acts as the agent
for the Landlord. A Landlord's agent or a subagent of that agent has the
following affirmative obligations:
To the Landlord:
(a) A fiduciary duty of utmost care, integrity, honesty and loyalty in
dealing with the Landlord.
To the Tenant and the Landlord:
(a) Diligent exercise of reasonably skill and care in performance of the
agent's duties.
(b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting
the value or desirability of the property that care not known to, or
within the diligent attention and observation of, the parties.
An agent is not obligated to reveal to either party any confidential information
obtained from the other party which does not involve the affirmative duties set
forth above.
TENANT'S AGENT
A Tenant's agent can, with a Tenant's consent, agree to act as agent for the
Tenant only. In these situations, the agent is not the Landlord's agent, even if
by agreement the agent may receive compensation for services rendered, either in
full or in part from the Landlord. An agent acting only for a Tenant has the
following affirmative obligations.
To the Tenant:
(a) A fiduciary duty of utmost care, integrity, honesty and loyalty in
dealings with the Tenant.
To the Tenant and the Landlord:
(a) Diligent exercise of reasonable skill and care in performance of the
agent's duties.
(b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting
the value or desirability of the property that are not known to, or
within the diligent attention and observation of, the parties.
An agent is not obligated to reveal to either party any confidential information
obtained from the other party which does not involve the affirmative duties set
forth above.
AGENT REPRESENTING BOTH LANDLORD AND TENANT
A real estate agent, either acting directly or through one or more associate
licensees, can legally be the agent of both the Landlord and the Tenant in a
transaction, but only with the knowledge and consent of both the Landlord and
the Tenant.
In a dual agency situation, the agent has the following affirmative obligations
to both the Landlord and the Tenant.
(a) A fiduciary duty of utmost care, integrity, honest and loyalty in the
dealings with either Landlord or Tenant.
(b) Other duties to the Landlord and the Tenant as stated above in their
respective sections.
In representing both Landlord and Tenant, the agent may not, without the express
permission of the respective party, disclose to the other party that the
Landlord will accept a rent less than the listed rent or that the Tenant will
pay a rent greater than the rent offered.
The above duties of the agent in a real estate transaction do not relieve a
Landlord or Tenant from the responsibility to protect their own interests. You
should carefully read all agreements to assure that they adequately express your
understanding of the transaction. A real estate agent is a person qualified to
advise about real estate. If legal or tax advice is desired, consult a competent
professional.
You should read its consents each time it is presented to you, considering the
relationship between you and the real estate agent in your specific transaction.
WE ACKNOWLEDGE RECEIPT OF A COPY OF THIS DISCLOSURE.
LANDLORD/TENANT /s/ Elizabeth A. Withers Date 3-3-00
-------------------------------- ---------
LANDLORD/TENANT Date
---------------------------------- ---------
================================================================================
SIGN BELOW TO AUTHORIZE TYPE OF AGENCY
Keegan & Coppin Co., Inc., is the agent of (check one).
(Name of Listing Agent)
X The Landlord exclusively; or
- -------
Both the Tenant and Landlord
- -------
CONFIRMED AND AUTHORIZED:
Landlord: /s/ Roger D. MacKenzie Date 3/7/00
------------------------------------------ ----------
Landlord: Date
------------------------------------------ ----------
Agent: Keegan & Coppin Company, Inc. By: Date
------------------------------ ------------ --------
- --------------------------------------------------------------------------------
Orion Partners, is the agent of (check one);
(Name of Listing Agent)
X The Tenant exclusively; or
- ------
The Landlord exclusively; or
- ------
Both the Tenant and Landlord
- ------
Tenant: /s/ Elizabeth A. Withers Date 3-3-00
----------------------------------------------- ----------
Tenant: Date
----------------------------------------------- ----------
Agent: Keegan & Coppin Company, Inc. By: Date
------------------------------ --------- ----------
<PAGE> 23
STANDARD LEASE DISCLOSURE ADDENDUM
EXHIBIT G
NOTICE TO OWNERS, BUYERS AND TENANTS REGARDING HAZARDOUS WASTES AND SUBSTANCES
AND UNDERGROUND STORAGE TANKS
Comprehensive federal and state laws and regulations have been enacted in the
last few years in an effort to develop controls over the use, storage, handling,
cleanup, removal and disposal of hazardous wastes or substances. Some of these
laws and regulations, such as, for example, the so-called "Super Fund Act",
provide for broad liability schemes wherein an owner, tenant or other user of
the property may be liable for cleanup costs and damages regardless of fault.
Other laws and regulations set standards for the handling of asbestos or
establish requirements for the use, modification, abandonment, or closing of
underground storage tanks.
It is not practical or possible to list all such laws and regulations in this
Notice. Therefore, lessors and lessees are urged to consult legal counsel to
determine their respective rights and liabilities with respect to the issues
described in this Notice as well as other aspects of the proposed transaction.
If various materials that have been or may be in the future determined to be
toxic, hazardous or undesirable, or are going to be used, stored, handled or
disposed of on the property, or if the property has or may have underground
storage tanks for storage of such hazardous materials, or that such materials
may be in the equipment, improvements or soil, it is essential that legal and
technical advice be obtained to determine, among other things, what permits and
approvals have been or may be required, if any, the estimated costs and expenses
associated with the use, storage, handling, cleanup, removal or disposal of the
hazardous wastes or substances and what contractual provisions and protection
are necessary or desirable. It may also be important to obtain expert assistance
for site investigations and building inspections. The past uses of the property
may provide valuable information as to the likelihood of hazardous wastes or
substances, or underground storage tanks being on the property.
The term "hazardous wastes or substances" is used in this Notice in its very
broadest sense and includes, but is not limited to, all those listed under
Proposition 65, petroleum base products, paints and solvents, lead, cyanide,
DDT, printing inks, acids, pesticides, ammonium compounds, asbestos, PCBs and
other chemical products. Hazardous wastes or substances and underground storage
tanks may be present on all types of real property. This Notice is, therefore,
meant to apply to any transaction involving any type of real property, whether
improved or unimproved.
Although Keegan & Coppin Co., Inc. or its salespeople, will disclose any
knowledge it actually possesses with respect to the existence of hazardous
wastes or substances, or underground storage tanks on the property, Keegan &
Coppin Co., Inc. has not made investigations or obtained reports regarding the
subject matter of this Notice, except as may be described in a separate written
document, studies or investigation by experts. Therefore, unless there are
additional documents or studies attached to this notice, lease or contract, this
will serve as notification that Keegan & Coppin Co., Inc. or its salespeople
make no representation regarding the existence or non-existence of hazardous
wastes or substances, or underground storage tanks on the property. You should
contact a professional, such as a civil engineer, geologist, industrial
hygienist or other persons with experience in these matters to advise you
concerning the property.
AMERICANS WITH DISABILITIES ACT (ADA)
On July 26, 1991, the federal legislation known as the Americans with
Disabilities Act (ADA) was signed into law by President Bush. The purpose of the
ADA is to integrate persons with disabilities into the economic and social
mainstream of American life. Title III of the ADA applies to Lessors and Lessees
of "places of public accommodation" and "commercial facilities", and requires
that places of public accommodation undertake "readily achievable" removal of
communication and access barriers to the disabled. This requirement of Title III
of the ADA is effective January 26, 1992.
It is important that building owners identify and undertake "readily achievable"
removal of any such barriers in the common areas, sidewalks, parking lots and
other areas of the building under their control.
The lessor and lessee are responsible for compliance with ADA relating to
removal of barriers within the workplace i.e., arrangement of interior
furnishings and access within the premises, and any improvements installed by
lessor and lessee.
Keegan & Coppin Company, Inc. recommends that both parties seek expert advice
regarding the implications of the Act as it affects this Agreement.
ALQUIST-PRIOLO:
"The property which is the subject of this contract may be situated in a Special
Study Zone as designated under the Alquist-Priolo Geologic Hazard Act, Sections
2621-2625, inclusive, of the California Public Resources Code, and, as such, the
construction or development on this property of any structure for human
occupancy may be subject to the findings of a geologic report prepared by a
geologist registered in the State of California, unless such report is waived by
the City or County under the terms of that act. No representations on the
subject are made by the lessor or agent, and the lessee should make his own
inquiry or investigation".
FLOOD HAZARD AREA DISCLOSURE:
The subject property may be situated in a "Special Flood Hazard Area" as set
forth on a Federal Emergency Management Agency (FEMA) "Flood Insurance Rate Map"
(FIRM) or "Flood Hazard Boundary Map" (FHBM). The law provides that, as a
condition of obtaining financing on most structures located in a "Special Floods
Hazard Area", lender requires flood insurance where the property or its
attachments are security for a loan. Lessee should consult with experts
concerning the possible risk of flooding.
Acknowledgment:
Lessee: /s/ Elizabeth A. Withers Date: 3-3-00
-------------------------------- --------
Lessor: /s/ Roger D. MacKenzie Date: 3/7/00
-------------------------------- --------
<PAGE> 24
EXHIBIT H
OPTION(S) TO EXTEND
STANDARD LEASE ADDENDUM
DATED January 24, 2000
----------------------
BY AND BETWEEN (LESSOR) Westwind Business Park
-----------------------------------
-----------------------------------
(LESSEE) TrueTime, Inc.
-----------------------------------
-----------------------------------
ADDRESS OF PREMISES: Building T at The Westwind Business Park
------------------------------------------
Santa Rosa, CA
------------------------------------------
Paragraph
-----------
A. OPTIONS(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease for
three (3) additional sixty (60) month period(s) commencing when the prior term
expires upon each and all of the following terms and conditions:
(i) In order to exercise an option to extend, Lessee must give written
notice of such election to Lessor and Lessor must receive the same at least 9
But not more than 12 months prior to the date that the option period would
commence, time being of the essence. If proper notification of the exercise of
an option is not given and/or receive, such option shall automatically expire.
Options (if there are more than one) may only be exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to
Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of
this Option.
(iii) Except for the provisions of this Lease granting an option or
options to extend the term, all of the terms and conditions of this Lease except
where specifically modified by this option shall apply.
(iv) This Option is personal to the original Lessee, and cannot be
assigned or exercised by anyone other than said original Lessee and only while
the original Lessee is in full possession of the Premises and without the
intention of thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below: Check Method(s) to
be Used and Fill in Appropriately)
[ ] I. COST OF LIVING ADJUSTMENT(S) (COLA)
a. On (Fill in COLA Dates):
----------------------------------------------
- --------------------------------------------------------------------------------
the Base Rent shall be adjusted by the change, if any, from the Base Month
specified below, in the Consumer Price Index of the Bureau of Labor Statistics
of the U.S. Department of Labor for (select one): [ ] CPI W (Urban Wage Earners
and Clerical Workers) or [ ] CPI U (All Urban Consumers), for (Fill in Urban
Area):
- --------------------------------------------------------------------------------
(All Items (1982-1984 = 100), herein referred to as "CPI".
b. The monthly rent payable in accordance with paragraph A.1.a of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the CPI of the calendar month two months prior to the month(s)
specified in paragraph A.1.a above during which the adjustment is to take
effect, and the denominator of which shall be the CPI of the calendar month
which is two months prior to (select one): [ ] the first month of the term of
this Lease as set forth in paragraph 1.3 ("Base Month") or [ ] (Fill in Other
"Base Month"):______________. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall any such new monthly rent be less
than the rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the CPI shall be used to
make such calculation. In the event that the Parties cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.
[ ] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
a. On (Fill in MRV Adjustment Date(s))
-----------------------------------
- --------------------------------------------------------------------------------
the Base Rent shall be adjusted to the "Market Rental Value" of the property as
follows:
1) Four months prior to each market Rental Value Adjustment Date
described above, the Parties shall attempt to agree upon what the new MRV will
be on the adjustment date. If agreement cannot be reached, within thirty days,
then:
(a) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next thirty
days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a
reasonable determination of the MRV and submit such determination, in writing,
to arbitration in accordance with the following provisions:
Initials:/s/ EAW Initials: /s/ RDM
--------- -------
--------- -------
PAGE 1 OF 2
(C)1997-AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM OE-2-3/97E
<PAGE> 25
(ii) The three arbitrators shall within thirty days of the
appointment of the third arbitrator reach a decision as to what the actual MRV
for the Premises is, and whether Lessor's or Lessee's submitted MRV is the
closest thereto. The decision or a majority of the arbitrators shall be binding
on the Parties. The submitted MRV which is determined to be the closest to the
actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fail to appoint an arbitrator
within the specified fifteen days, the arbitrator timely appointed by one of
them shall reach a decision on his or her own, and said decision shall be
binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the
party whose submitted MRV is not selected, ie. the one that is NOT the closest
to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than
the rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of
calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the
new "Base Month" for the purpose of calculating any further Adjustments.
[X] III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth
below:
<TABLE>
<S> <C>
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
August 1, 2015 $ 126,120.04 per month
-------------------------------------- ---------------------------
August 1, 2018 $ 135,579.04 per month
-------------------------------------- ---------------------------
August 1, 2021 $ 145,747.47 per month
-------------------------------------- ---------------------------
August 1, 2024 $ 156,678.53 per month
-------------------------------------- ---------------------------
August 1, 2027 168,429.42 per month
</TABLE>
B. NOTICE:
UNLESS SPECIFIED OTHERWISE HEREIN, NOTICE OF ANY RENTAL ADJUSTMENTS, OTHER
THAN FIXED RENTAL ADJUSTMENTS, SHALL BE MADE AS SPECIFIED IN PARAGRAPH 23 OF THE
LEASE.
C. [STRIKE-OUT TEXT OMITTED]
INITIALS: /S/ RDM INITIALS: /S/ EAW
---------- -------
--------- -------
OPTION(S) TO EXTEND
PAGE 2 OF 2
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 S. FLOWER STREET,
SUITE 600, LOS ANGELES, CA 90017. (213) 687-8777. FAX NO. (213) 687-8616.
(C)1997-AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM OE-2-3/97E
<PAGE> 26
EXHIBIT I
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice
shall be inscribed, displayed or printed or affixed on or to any part of the
outside or [STRIKE-OUT TEXT OMITTED] of the Building without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant.
All approved signs or lettering on doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wall which may appear unsightly
from outside the Premises; provided, however, that landlord may furnish and
install a Building standard window covering at all exterior windows. Tenant
shall not without prior written consent of Landlord cover or otherwise sunscreen
any window.
2. The sidewalks, halls, passages, exits, entrances, elevators
and stairways shall not be obstructed by any of the Tenants or used by them for
any purpose other than for ingress and egress from their respective Premises.
3. [STRIKE-OUT TEXT OMITTED]
4. The toilet rooms, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substances of any kind whatsoever shall be thrown
therein and the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose agents,
officers, employees, contractors, servants, invitees or guests, shall have
caused it.
5. Tenant shall not overload the floor of the Premises or in
any way deface the Premises or any part thereof.
6. [STRIKE-OUT TEXT OMITTED]
7. Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substances in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable to the
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be brought in or kept in or about the
Premises or the Building.
8. No commercial cooking shall be done or permitted by any
Tenant on the Premises, nor shall the Premises be used for the storage of
merchandise, for washing clothes, for lodging, or for any improper,
objectionable or immoral purpose.
9. Tenant shall not use or keep in, on or about the Premises
or the Building any kerosene, gasoline or inflammable or combustible fluid or
material or use any method of heating or air conditioning other than that
supplied by the Landlord.
10. [STRIKE-OUT TEXT OMITTED]
11. [STRIKE-OUT TEXT OMITTED]
12. Landlord reserves the right to exclude or expel from the
Building any person who, in the judgment of Landlord, is intoxicated or under
the influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the Building.
13. Vending machines may be installed, maintained or operated
upon the Premises only for use by Tenant and Tenant's employees and occasional
invitees.
14. Landlord shall have the right, exercisable without notice
and without liability to Tenant, such liability limited to costs of replacement
stationary or literature to change the name and street address of the Building
of which the Premises are a part.
15. [STRIKE-OUT TEXT OMITTED]
16. Without the written consent of Landlord, Tenant shall not
use the name of the Building in connection with or in promoting or advertising
the business of Tenant except as Tenant's address.
17. [STRIKE-OUT TEXT OMITTED]
18. [STRIKE-OUT TEXT OMITTED]
<PAGE> 27
EXHIBIT J
BUILDING T
ESTIMATED MONTHLY OPERATING EXPENSES
TRUETIME, INC.
<TABLE>
<CAPTION>
ITEM $/Sq. Ft. Sq. Ft. $
<S> <C>
Taxes/Assessments 0.110
Insurance 0.008
Electricity (Pkg Lot & Elec. Room only) 0.003
Water Service 0.009
Landscape Maintenance 0.015
Pond Maintenance 0.000
Garbage Removal 0.016
Fire Protection 0.004
Maintenance General 0.005
Pest Control 0.001
Roof Repairs 0.000
Sweeping 0.003
Window Cleaning 0.004
Management Fee - 3.5% of monthly rent 0.044 x 70.281 = $ 3,074.75
HVAC Maintenance 0.008
-----
Total NNN-Tenant pays gas, elec &
janitorial for their space 0.230 x 70.281 = $ 16,143.55
-----------
</TABLE>
These costs are estimated based on existing one story flex buildings.
There is no history for two story office buildings
<PAGE> 1
EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 2000
--------------
<S> <C>
COMPUTATION OF BASIC EARNINGS PER SHARE:
Weighted average shares outstanding................................... 5,925,000
Weighted average shares and common stock equivalents.................. 5,925,000
==========
Net income ........................................................... $ 218
==========
VBasic earnings per share.............................................. $ 0.04
==========
COMPUTATION OF DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding .................................. 5,925,000
Dilutive impact of stock options, as determined by the
application of the treasury stock method ........................... 306,346
----------
Weighted average shares and common stock equivalents.................. 6,231,346
==========
Net income............................................................ $ 218
==========
Diluted earnings per share ........................................... $ 0.03
==========
</TABLE>
<PAGE> 1
EXHIBIT 15.1
May 12, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated May 10, 2000 on our review of interim
financial information of TrueTime, Inc (the "Company") as of March 31, 2000 and
for the three and six months ended March 31, 2000 and 1999, and included in the
Company's quarterly report on Form 10-Q for the quarter ended March 31, 2000 is
incorporated by reference in the Company's registration statement on Form S-8
(Reg. No. 333-35858). Pursuant to Rule 436(c) under the Securities Act of 1933,
this report should not be considered a part of the registration statement
prepared or certified by us within the meaning of Sections 7 and 11 of that Act.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN 10-Q, BALANCE SHEET AND INCOME STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 10,669
<SECURITIES> 0
<RECEIVABLES> 2,964
<ALLOWANCES> 25
<INVENTORY> 7,212
<CURRENT-ASSETS> 22,193
<PP&E> 2,924
<DEPRECIATION> 1,296
<TOTAL-ASSETS> 24,625
<CURRENT-LIABILITIES> 2,516
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 22,049
<TOTAL-LIABILITY-AND-EQUITY> 24,625
<SALES> 10,215
<TOTAL-REVENUES> 10,215
<CGS> 4,529
<TOTAL-COSTS> 4,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,155
<INCOME-TAX> 485
<INCOME-CONTINUING> 670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 670
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
