<PAGE>
As filed with the Securities and Exchange Commission on December 17, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HOMEGROCER.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5411 91-1863408
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
10230 N.E. Points Drive
Kirkland, Washington 98033
(425) 201-7500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Mary Alice Taylor
HomeGrocer.com, Inc.
Chief Executive Officer
10230 N.E. Points Drive
Kirkland, Washington 98033
(425) 201-7500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------
COPIES TO:
<TABLE>
<S> <C>
William W. Ericson, Esq. Daniel G. Kelly, Jr., Esq.
Sonya F. Erickson, Esq. DAVIS POLK & WARDWELL
VENTURE LAW GROUP 1600 El Camino Real
A Professional Corporation Menlo Park, CA 94025
4750 Carillon Point
Kirkland, WA 98033
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title Of Each Class Of Securities Aggregate Offering Amount Of
To Be Registered Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.001.......................... $250,000,000 $66,000
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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- -------------------------------------------------------------------------------
Explanatory Note
This registration statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of shares of common stock. The second prospectus relates
to a concurrent offering outside the United States and Canada of an aggregate
of shares of common stock. The prospectuses for each of the U.S.
offering and the international offering will be identical with the exception
of an alternate front cover page for the international offering. This
alternate page appears in this registration statement immediately following
the complete prospectus for the U.S. offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 2000
Shares
[LOGO OF HOMEGROCER.COM]
Common Stock
------------
HomeGrocer.com, Inc. is offering shares of common stock. This is
our initial public offering and no public market currently exists for our
shares.
------------
We will apply to list our common stock on the Nasdaq National Market under the
symbol "HOMG."
------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
------------
PRICE $ A SHARE
------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions HomeGrocer.com
-------- ------------- --------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
</TABLE>
HomeGrocer.com has granted the underwriters the right to purchase up to an
additional shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock
to purchasers on , 2000.
------------
MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
BANC OF AMERICA SECURITIES LLC
J.C. BRADFORD & CO.
, 2000
<PAGE>
The gatefold includes color photographs of the following:
1. Screen shots of HomeGrocer's web site;
2. A customer sitting at a computer;
3. HomeGrocer.com employees performing tasks in a customer fulfillment
center;
4. A HomeGrocer.com truck driving through a neighborhood;
5. A HomeGrocer.com delivery person bringing bags of groceries to a
customer's counter; and
6. Various food items.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <S> <C>
Prospectus Summary.................. 4 Business........................... 30
Risk Factors........................ 7 Management......................... 43
Special Note Regarding Forward- Related Party Transactions......... 55
Looking Statements................. 20 Principal Stockholders............. 58
Use of Proceeds..................... 20 Description of Capital Stock....... 60
Dividend Policy..................... 20 Shares Eligible for Future Sale.... 63
Capitalization...................... 21 Material U.S. Federal Tax
Dilution............................ 22 Considerations for Non-U.S.
Selected Financial Data............. 23 Holders........................... 65
Management's Discussion and Analysis Underwriters....................... 67
of Financial Condition and Results Legal Matters...................... 69
of Operations...................... 24 Experts............................ 69
Additional Information Available
to You............................ 70
Index to Financial Statements...... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in those jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale of our common stock.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession
or distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to
inform yourselves about and to observe any restrictions relating to this
offering and the distribution of this prospectus.
Until , 1999, 25 days after commencement of the offering, all dealers
effecting transactions in our common stock, whether or not participating in
this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
"HomeGrocer," "HomeGrocer.com," "Peach Party," "here comes the grocery
store" and the HomeGrocer.com corporate logo are trademarks of HomeGrocer.com.
All other brand names or trademarks appearing in this prospectus are the
property of their respective holders.
Unless otherwise indicated, all information contained in this prospectus:
. assumes no exercise of the underwriters' over-allotment option;
. assumes our anticipated reincorporation from Delaware to Washington upon
effectiveness of this offering;
. reflects the 2-for-1 stock split of the common stock effected in
November 1999; and
. gives effect to the conversion of all outstanding shares of preferred
stock into 73,206,738 shares of common stock effective upon the closing
of this offering.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding HomeGrocer.com and our financial statements and the
related notes appearing elsewhere in this prospectus.
THE COMPANY
HomeGrocer.com is a leading Internet retailer of grocery and other consumer
products. We operate our own state-of-the-art distribution system providing
next-day home delivery of a wide range of products, including high quality food
items, at prices competitive with traditional store prices. Our goals are to
expand nationally and to be our customers' preferred regular provider of
household consumables.
We have rapidly expanded since our initial launch of service in June 1998
and currently serve customers in three markets: Seattle, Washington; Portland,
Oregon; and Orange County/Los Angeles, California. We expect to begin service
in eight to ten additional metropolitan areas in the next 12 months. Our
technology and the design of our customer fulfillment centers, or CFCs, permit
us to rapidly expand our service into new markets.
Our web site, www.homegrocer.com, features an extensive product selection,
including the freshest available fruit, vegetables, dairy products, baked
goods, meat and fish and a wide assortment of non-perishable items and
household products. We also offer health and beauty products, wine and beer,
fresh flowers, pet products, home office supplies, postage stamps, seasonal
items and top-selling books, video games and movies. Our professional buyers
purchase the highest quality products available from premium specialty
suppliers and local sources, in addition to national suppliers.
We believe that our emphasis on high-quality customer service has created
significant brand awareness and loyalty for the HomeGrocer.com shopping
experience. We have made deliveries to over 50,000 households since inception.
We believe that our core grocery business provides us with a strong platform to
expand into other product and service areas.
Our management team has extensive technology, grocery and merchandising
experience, as well as experience in developing national distribution and
delivery systems. Amazon.com, our largest shareholder, will introduce our
service to its customers residing in our service areas under our agreement with
them. Our other shareholders include affiliates of a number of leading
e-commerce investors such as Hummer Winblad Venture Partners, Kleiner Perkins
Caufield & Byers, The Barksdale Group, Madrona Investment Group and Liberty
Media.
We were incorporated in British Columbia, Canada in January 1997,
reincorporated in Delaware in September 1997 and plan to reincorporate in
Washington in the first quarter of 2000. Our principal executive offices are
located at 10230 N.E. Points Drive, Kirkland, Washington 98033, and our
telephone number is (425) 201-7500. Information contained in our web site at
www.homegrocer.com does not constitute part of this prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered....................... shares
Common stock to be outstanding after the
offering.................................. shares
Use of proceeds............................ Finance the first phase of a national
expansion, including the establishment of
new customer fulfillment centers, and other
general corporate purposes
Proposed Nasdaq National Market symbol..... HOMG
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering is based on the number of shares outstanding at November 30, 1999.
This number does not take into account 7,354,722 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $1.31 per share, 2,749,248 shares of common stock issuable
upon exercise of warrants at a weighted average exercise price of $1.00 per
share and 2,509,142 shares of common stock available for grant under our stock
plans at November 30, 1999.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table contains summary financial data for HomeGrocer.com. You
should read this information along with our financial statements and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
51 Weeks From 52 Weeks 39 Weeks 39 Weeks
January 15, 1997 Ended Ended Ended
(Inception) to January 2, October 3, October 2,
January 3, 1998 1999 1998 1999
---------------- ---------- ---------- ----------
(in thousands, except share and per share
amounts)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales................. $ -- $ 1,094 $ 299 $ 10,886
Cost of sales............. -- 1,018 281 8,919
---------- ---------- ---------- ----------
Gross profit............ -- 76 18 1,967
Selling, general, and
administrative expenses.. 1,064 7,455 4,427 28,005
Stock-based compensation
expense.................. 230 412 250 13,667
---------- ---------- ---------- ----------
Loss from operations.... (1,294) (7,791) (4,659) (39,705)
Other income/(expense),
net...................... (61) (118) (156) 569
---------- ---------- ---------- ----------
Net loss................ $ (1,355) $ (7,909) $ (4,815) $ (39,136)
========== ========== ========== ==========
Pro forma basic and
diluted net loss per
share (1)................ $ (0.14) $ (0.34) $ (0.26) $ (0.68)
========== ========== ========== ==========
Weighted average shares
outstanding used to
compute pro forma basic
and diluted net loss per
share (1)................ 10,034,721 23,046,228 18,454,537 57,813,650
========== ========== ========== ==========
</TABLE>
The actual column in the following table sets forth HomeGrocer.com's summary
balance sheet data as of October 2, 1999. The pro forma column reflects the
sale of 8,062,726 shares of redeemable preferred stock subsequent to October 2,
1999 for $46.8 million and the lapse of the redemption provision on the Series
D preferred stock leading to its reclassification as shareholders' equity. The
pro forma as adjusted column reflects the conversion of all outstanding shares
of preferred stock into 73,206,738 shares of common stock and the sale of
shares of our common stock in this offering at an initial public
offering price of $ per share and the application of our estimated net
proceeds.
<TABLE>
<CAPTION>
At October 2, 1999
-----------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $ 67,402 $114,166 $
Working capital.................................. 63,780 110,544
Total assets..................................... 106,013 152,777
Long-term obligations, less current portion...... 2,956 2,956 2,956
Redeemable preferred stock....................... 59,773 -- --
Total shareholders' equity....................... 31,406 137,943
</TABLE>
- --------
(1) See note 1 of notes to financial statements for an explanation of the
determination of the number of weighted average shares used to compute pro
forma net loss per share amounts.
6
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involves a high degree
of risk. You should carefully consider the following risks before making an
investment decision. The trading price of our common stock could decline if
any of these risks materializes, and investors could lose all or part of their
investment. You also should refer to the other information appearing elsewhere
in this prospectus, including our financial statements and the related notes.
We are an early stage company operating in the e-commerce market, which makes
it difficult for investors to evaluate our business and prospects.
Prior to June 1998, we were focused on developing our web site and
constructing and equipping our first customer fulfillment center, or CFC,
serving the Seattle, Washington area. We did not begin commercial operations
in the Seattle area until June 1998, the Portland, Oregon area until May 1999,
and the Orange County, California area until September 1999. Our limited
operating history makes it difficult to evaluate our financial results and
future plans. You must consider our business and prospects in light of the
risks and difficulties we encounter as an early stage company in the new and
rapidly evolving market of e-commerce. These risks and difficulties include,
but are not limited to:
. a complex and unproven business system;
. lack of sufficient customers, orders, sales or cash flow;
. insufficient density of customers in our geographic markets;
. difficulties in managing rapid growth in personnel and operations;
. inability to achieve labor efficiencies to serve customers profitably;
. high capital expenditures associated with our CFCs, delivery trucks,
systems and technologies;
. significant start-up losses incurred in opening new CFCs; and
. lack of widespread acceptance of the Internet as a means of purchasing
groceries and other consumer products.
We cannot be certain that our business will be successful or that we will
be able to address these risks. Our failure to address any of the risks
described above could hurt our business.
If a sufficient number of grocery shoppers do not accept our Internet
solution, we may never become profitable.
We have not operated profitably to date. If we do not achieve and maintain
customer volumes and sufficient density of our deliveries in our market areas
at a reasonable cost, we will not be able to increase our revenues or achieve
profitability. The market for e-commerce is new and rapidly evolving. It is
uncertain whether e-commerce will achieve and sustain high levels of demand
and market acceptance, particularly in the home delivery industry. Our success
will depend to a substantial extent on the willingness of consumers to
increase their use of online services as a means of buying groceries and other
products and services. We may not be able to convert a large number of
consumers from traditional shopping methods to online shopping for groceries
and other consumer products. Even if we are successful in attracting online
customers, we expect that it may take several years to achieve a sufficient
base of customers in a given market. Specific factors that could prevent
widespread customer acceptance include:
. prolonged delivery time compared to the immediate receipt of products at
a traditional store;
. perceptions that online delivery services are premium services and
therefore may be more expensive than traditional grocery stores;
7
<PAGE>
. customers' desire to see and touch products, particularly fresh produce,
prior to purchase;
. product selection that is less varied than customers desire;
. perceived or actual lack of security or privacy of online transactions;
and
. difficulties in making accurate and timely deliveries to customers.
Moreover, the growth of our business will depend on the growth of the
number of consumers who have access to personal computers or other systems
that can access the Internet. If e-commerce, especially in the grocery
industry, does not achieve high levels of demand and market acceptance, we may
never become profitable.
Our customer fulfillment center and delivery service model may not be readily
or cost-effectively replicable in additional geographic markets; as a result,
we may fail to expand our business effectively.
A critical part of our business strategy is to expand our business by
opening CFCs in additional geographic markets at a rapid pace. Our expansion
strategy is dependent upon our ability to replicate our CFC and delivery
service model in a timely and cost-effective manner. Our strategy of using
portable proprietary technology to quickly open CFCs in pre-existing
warehouses may not be as effective as we anticipate. Because our three
principal CFCs have been operational for less than six months, we have not yet
demonstrated whether our CFCs and delivery service model are in fact readily
and cost-effectively replicable for long-term use or across additional
markets.
Our ability to successfully and cost-effectively build our business system
in additional geographic markets will also depend upon a number of factors,
including:
. the availability of appropriate and affordable sites that can
accommodate our CFCs;
. our ability to obtain zoning and other types of permits for our new
facilities without substantial delays;
. our ability to construct CFCs or make tenant improvements at our leased
CFC sites without delay or cost overruns;
. the availability of, or delays in obtaining, trucks and other equipment
necessary to expand our service;
. our ability to successfully and cost-effectively hire and train
qualified employees; and
. our ability to develop relationships with local and regional
distributors, vendors and other product providers to ensure a reliable
and cost-effective supply of products.
The number, timing and cost of opening new CFCs are dependent on these factors
and are therefore uncertain.
The launch of the HomeGrocer.com service in additional metropolitan
locations may also require us to expand and upgrade our technology
infrastructure and business systems, including our integrated set of software
tools and business processes for delivery management, web site production,
customer service and order fulfillment. Our existing technology may not be
able to accommodate increased volumes of traffic and transactions that may
arise in the future from our expansion into other metropolitan locations.
Upgrading our current technology could result in material expenses. Also, the
strain placed on our resources by simultaneous launches of the HomeGrocer.com
service in multiple metropolitan locations may jeopardize future scheduled
launches or the quality of our service in a particular location. If we fail to
launch our service in new markets in a timely and cost effective manner or if
the market fails to accept our new services, we may not generate the revenue
we expect, and we could incur substantial additional operating costs.
8
<PAGE>
We may incur unexpected costs or face substantial delays in finding adequate
facilities for our customer fulfillment centers, which could hurt our
business.
Much of our expansion is dependent on our ability to locate and lease
suitable sites for additional CFCs. We may be unable to find adequate
facilities to lease that meet our timing, location and cost expectations. Even
if we are able to locate an adequate facility, we may face additional delays
and costs in negotiating and reviewing the lease agreement, examining the site
for compliance with governmental regulations, such as zoning and environmental
compliance, and procuring the necessary permits for our operation. If we incur
significant unexpected costs or face substantial delays in finding adequate
facilities for our CFCs, we may never achieve profitability.
We have limited experience in managing geographically diverse operations,
which may inhibit our growth.
Although we have expanded geographically, we have limited experience
operating in multiple regions or in managing multiple CFCs. Accordingly, the
success of our current and planned expansion will depend upon a number of
factors, including:
. our ability to integrate the operations of new CFCs into our existing
operations;
. our ability to coordinate and manage distribution operations in
multiple, geographically distant locations; and
. our ability to establish and maintain adequate management and
information systems and financial controls.
Our failure to successfully address these factors could inhibit our growth.
If we encounter operational difficulties, systems interruptions or capacity
constraints, our business could suffer adverse publicity, erosion of customer
trust and loss of income.
To the extent that customer traffic grows substantially, we will need to
expand the capacity of our web site and transaction processing systems to
accommodate a larger number of customers. If we are unable to scale our
systems, we may suffer from unanticipated system disruptions, slower response
times, degradation in levels of customer service, impaired quality and speed
of order fulfillment or delays in reporting accurate financial information. We
may not accurately predict the rate or timing of increases in the use of our
web site to allow us to effectively upgrade or expand our transaction
processing systems.
The satisfactory performance, reliability and availability of our web site
and transaction processing systems are critical to our reputation and our
ability to attract and retain customers and maintain adequate customer service
levels. Any future systems interruption that results in the unavailability of
our web site or reduces order fulfillment performance could result in negative
publicity and reduce the volume of goods sold.
In addition, our business relies on complex systems to manage the process
from the receipt of orders to the delivery of goods to our customers. We have,
from time to time, experienced operational "bugs" in our systems and
technologies that have resulted in order errors, such as missing items and
delays in deliveries. Operational bugs may arise from one or more factors
including mechanical equipment failures, computer server or system failures,
network outages, software bugs, power failures and human error. We may not be
able to correct every problem in a timely manner. We expect bugs to continue
to occur from time to time and our operations may experience significant
inefficiencies or failures. If we are unable to meet customer demand or
service expectations as a result of operational issues, we may be unable to
develop customer relationships that result in repeat orders, which would hurt
our business.
9
<PAGE>
In addition, our communications hardware and certain of our other computer
hardware operations are located at a web site hosting provider in Seattle,
Washington. The hardware for our warehouse management and inventory system is
maintained in our corporate data center in Kirkland, Washington. Fires,
floods, earthquakes, power losses, telecommunications failures, break-ins and
similar events could damage these systems or cause them to fail completely.
Problems faced by our hosting provider, with the telecommunications network
providers with whom it contracts or with the systems by which it allocates
capacity among its customers, including HomeGrocer.com, could adversely impact
the customer shopping experience and, consequently, our business. Our
insurance policies may not adequately compensate us for any losses that may
occur due to any failures or interruptions in our systems.
We anticipate significant increases in our operating expenses and continuing
losses for the next several years.
We incurred net losses of $7.9 million for the fiscal year ended January 2,
1999 and $39.1 million for the 39 weeks ended October 2, 1999. Because we
intend to open numerous CFCs over the next few years in connection with our
planned expansion and because our CFCs historically lose money over the first
several quarters, we anticipate that our net losses for the fiscal year ended
December 31, 2000 will be significantly greater than in prior years.
Specifically, the expansion will require us to continue to incur significant
capital and operating expenses for many items, including:
. equipment for new CFCs in additional geographic markets;
. a sufficient number of delivery vehicles per CFC to meet customer
demand;
. continued expansion and development of operations at our existing CFCs;
. increases in personnel at our current and future CFCs;
. brand development, marketing and other promotional activities; and
. continued development of our computer network, web site, warehouse
management and order fulfillment systems and delivery infrastructure.
As a result, we expect to continue to experience substantial operating
losses on a quarterly and annual basis for the foreseeable future. To achieve
profitability, we must accomplish most or all of the following objectives:
. substantially increase our number of new and repeat customers and the
number of orders placed by them;
. increase our average order size;
. increase the geographic density of our customer orders, so as to make
our delivery system more efficient;
. expand into new markets to spread our corporate overhead and web site
maintenance costs over a larger base; and
. achieve service and warehousing efficiencies.
We may not be able to achieve these objectives. Because of the significant
capital and operating expenses associated with our expansion plan and the need
for an increased number of CFCs, our overall losses will increase
significantly from current levels. However, if we fail to expand our service
as planned, we may be unable to establish the base of customers and levels of
efficiency we need to achieve profitability. If we do achieve profitability,
we may not be able to sustain or increase this profitability on a quarterly or
annual basis in the future. If we cannot achieve or sustain profitability, we
may not be able to meet our working capital requirements, which would inhibit
our growth.
10
<PAGE>
We will need substantial additional capital to fund our planned expansion, and
we cannot be sure that additional financing will be available.
We require substantial amounts of working capital to fund our business. In
addition, the opening of new CFCs and the continued development of our order
fulfillment and delivery systems require significant amounts of capital. Since
our inception, we have experienced negative cash flow from operations and
expect to experience significant negative cash flow from operations for the
foreseeable future. In the past, we have funded our operating losses and
capital expenditures through proceeds from equity offerings, debt financing
and equipment leases. We expect to require substantial additional capital to
fund our expansion program and operating expenses beyond those raised in this
offering. Our future capital needs will be highly dependent on the number and
actual cost of additional CFCs we open, the timing of openings and the success
of our facilities once they are launched. We cannot be certain that additional
financing will be available to us on favorable terms when required, or at all.
If we are unable to obtain sufficient additional capital when needed, we could
be forced to alter our business strategy, delay or abandon some of our
expansion plans or sell assets. Any of these events would have a material
adverse effect on our business, financial condition and our ability to reduce
losses or generate profits. In addition, if we raise additional funds through
the issuance of equity, equity-linked, debt or other securities, those
securities may have rights, preferences or privileges senior or equal to those
of the rights of our common stock and our stockholders may experience
dilution.
Our limited operating history makes financial forecasting difficult for us and
for financial analysts that may publish estimates of our financial results.
As a result of our limited operating history, it is difficult to accurately
forecast our total revenue, revenue per CFC, gross and operating margins, real
estate and labor costs, average order size, number of orders per day and other
financial and operating data. We have a limited amount of meaningful
historical financial data upon which to base planned operating expenses. Sales
and operating results are difficult to forecast because they generally depend
on the growth of our customer base and the volume of the orders we receive, as
well as the mix of products sold. As a result, we may be unable to make
accurate financial forecasts and adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall. We believe that these
difficulties also apply to financial analysts that may publish estimates of
our financial results. This inability to accurately forecast our results could
cause our net losses in a given quarter to be greater than expected and could
cause a decline in the trading price of our common stock.
Our quarter-to-quarter operating results are expected to be volatile and
difficult to predict.
We expect our quarterly operating results to fluctuate significantly in the
future based on a variety of factors. These factors are also expected to
affect our long-term performance. Some of these factors include:
. the timing of our expansion plans as we build out and begin to operate
new CFCs in additional geographic markets;
. changes in pricing policies or our product and service offerings;
. increases in personnel, marketing and other operating expenses to
support our anticipated growth;
. our ability to obtain new customers or retain existing customers at
reasonable cost;
. our ability to manage our distribution and delivery operations to handle
significant increases in the number of customers and orders or to
overcome system or technology difficulties associated with these
increases;
. development of strategic business relationships;
. competitive factors;
. our ability to adequately maintain, upgrade and develop our web site,
our computer network or the systems that we use to process customer
orders and payments; and
. Internet or other external system failures.
11
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In addition to these factors, our quarter-to-quarter operating results are
expected to fluctuate based upon seasonal purchasing patterns of our customers
and the mix of groceries and other products sold by us. For instance, we
expect lower sales in the summer months, which is a popular vacation season,
and higher sales during the weeks preceding Thanksgiving.
Due to all of these factors, we expect our operating results to be volatile
and difficult to predict. As a result, quarter-to-quarter comparisons of our
operating results may not be good indicators of our future performance. In
addition, it is possible that in the future quarterly operating results could
be below the expectations of investors or the expectations published in any
research reports or other analyses of HomeGrocer.com. In that event, the price
of our common stock could decline substantially.
Our business will suffer if we fail to manage our growth properly.
We have expanded our operations rapidly since our inception. We continue to
increase the scope of our operations and have increased our headcount
substantially. Our total number of employees grew from approximately 100 on
January 1, 1999 to approximately 950 on November 30, 1999. We plan to hire a
significant number of additional employees. This growth has placed, and our
anticipated growth in future operations will continue to place, a significant
strain on our management systems and resources. Our ability to successfully
offer our service and implement our business plan in a rapidly evolving market
requires an effective planning and management process. We expect that we will
need to continue to improve our financial and managerial controls, reporting
systems and procedures, and will need to continue to expand, train and manage
our work force nationwide. Competition for highly skilled and customer service
oriented employees is intense. We may fail to attract, assimilate or retain
qualified personnel to fulfill our current or future needs. Our planned rapid
growth places a significant demand on management and financial and operational
resources. In order to grow and achieve financial success, we must:
. retain existing personnel;
. hire, train, manage and retain additional qualified personnel; and
. effectively manage multiple relationships with our customers, suppliers
and other third parties.
Our failure to do so would harm our business, decrease our revenue and
hinder us from being able to achieve profitability.
If we fail to generate sufficient levels of repeat orders and market
penetration, our revenues could be significantly lower than expected.
In the online retail industry, customer attrition rates, or the rates at
which subscribers cancel a service, are generally high. Although we do not
charge a subscription fee for our service, we do depend upon customers to
continue to order from us after their initial order is placed. We compete to
retain customers once they have used our service. A critical part of our
business strategy depends on hiring, training and retaining customer friendly
delivery persons to interact directly with the customer on a regular basis and
promote customer loyalty. In addition, we must ensure that our customer
service agents who answer telephone and email inquiries offer prompt attention
and helpful information in response to our customers' concerns. If we fail to
provide high quality customer care and experience significant decreases in
repeat customer orders as a percentage of orders delivered, or if we are
unable to establish sufficient customer loyalty needed for market penetration,
our business could be hurt. Retention of customers is also dependent on
operational execution. If orders are incomplete or not delivered on time,
customer retention rates could decline, causing revenue and profitability to
decline as well.
We face intense competition from traditional grocery retailers and anticipate
increased competition from online grocery retailers in our existing and future
markets.
The grocery retailing market is extremely competitive. Local, regional, and
national food chains, independent food stores and markets, as well as online
grocery retailers comprise our principal competition, although we also face
substantial competition from convenience stores, liquor retailers, membership
warehouse clubs, specialty retailers, supercenters and drugstores. Many of our
existing and potential competitors,
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<PAGE>
particularly traditional grocers and retailers, have existed for a longer
period of time, have greater financial resources and have more established
relationships with leading manufacturers, suppliers and advertisers than we
do.
In November 1999, a traditional grocery chain, Albertson's, introduced an
Internet based service in the Seattle area and Webvan, an online grocery
retailer, recently announced it will introduce its online grocery service in
the Seattle area sometime in 2000. We expect our competition will intensify as
more traditional and online grocery retailers offer competitive services, both
in Seattle and other markets.
The number and nature of competitors and the amount of competition we will
experience will vary by market area. We expect to compete with traditional
grocery stores in every market and other online grocers in most markets,
including companies such as Webvan, Peapod, NetGrocer, HomeRuns, ShopLink.com
and Streamline.com. The principal competitive factors that affect our business
are product selection, product quality, customer service, price and
convenience. For traditional grocers, convenience is largely a function of
location and hours of operation. For online grocers, it is primarily
determined by ease of use of the web site and availability of delivery times.
If we fail to effectively compete in any of these areas, we may lose existing
and potential customers and face decreased demand for our products and
services, which would hurt our business.
If our efforts to build strong brand identity and customer loyalty are not
successful, our business will suffer.
We believe that establishing and maintaining brand identity and brand
loyalty is critical to attracting consumers. Furthermore, we believe that the
importance of brand loyalty will increase with the proliferation of Internet
retailers. In order to attract and retain consumers and vendors and respond to
competitive pressures, we intend to increase spending substantially to create
and maintain brand loyalty. We plan to accomplish this goal by expanding our
current television, radio and newspaper advertising campaigns and by
conducting online advertising campaigns. We believe the cost of our
advertising campaigns could increase substantially in the future. If our
branding efforts are not successful, we may lose the opportunity to build the
large number of customers necessary to make our service viable.
Customer loyalty will also depend on our success in consistently providing
a high quality shopping experience for purchasing groceries and other
products. If consumers do not perceive our service offerings to be of high
quality, or if we introduce new services that are not favorably received by
consumers, the value of the HomeGrocer.com brand could be harmed. Any brand
impairment or dilution could decrease the attractiveness of HomeGrocer.com to
consumers, which could harm our reputation, reduce our sales and cause us to
lose customers.
We do not have long term contracts with our suppliers and could face
disruptions in our supply of products.
We expect to derive a significant percentage of our net sales from high
volume non-perishable items, well-known brand name products and fresh foods.
We purchase products from a network of suppliers, wholesalers, brokers and
distributors. We currently rely on one primary supplier for a substantial
portion of our non-perishable products in Seattle and Portland. We rely on a
second supplier in the Orange County/Los Angeles area. We do not have long
term or exclusive contracts with these suppliers. The loss of any of our
suppliers could cause disruptions in our supply of products and harm our
business. We purchase a number of top brands and high volume items directly
from manufacturers and may increase our use of direct suppliers as our product
volumes increase with additional CFCs. We also utilize premium specialty
suppliers and local sources for gourmet foods, traditional and organic
produce, bakery items, fish and meats and floral products. From time to time,
we may experience difficulty in obtaining sufficient product allocations from
a key vendor. In addition, our key vendors may establish their own online
retailing efforts, which may impact our ability to obtain sufficient product
allocations from these vendors. Many of our key vendors also supply products
to the retail grocery industry and our online competitors. If we are unable to
obtain sufficient quantities of products in a timely fashion from our key
vendors to meet customer demand, our business would suffer.
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<PAGE>
The loss of the services of one or more of our key personnel, or our failure
to attract, assimilate and retain customer service personnel in the future
would seriously harm our business.
The loss of the services of one or more of our key personnel could
seriously harm our business. We depend on the continued services and
performance of our senior management and other key personnel. Two of our
executive officers, Mr. Drayton and Mr. Deering, are Canadian citizens who
hold visas to work in the United States. If the Immigration and Naturalization
Service were to deny a renewal of either of these visas and we were to lose
the services of either of these officers, our business could suffer.
Our future success also depends upon attracting and retaining the continued
service of our executive officers, delivery persons, and other key software
development, merchandising, marketing and support personnel. Our relationships
with all of our employees are at will. Additionally, there are low levels of
unemployment in the Seattle, Portland, and Orange County/Los Angeles areas, as
well as in many of the regions in which we plan to operate. These low levels
of unemployment have led to upward pressure on wage rates, which can make it
more difficult and costly for us to attract and retain qualified employees.
The loss of key personnel, including qualified delivery persons, or the
failure to attract additional personnel, could adversely affect our business.
Several key members of our management team have only recently joined us and if
they are not successfully integrated into our business or fail to work
together as a management team, our business will suffer.
Several key members of our management team have joined us since September
1, 1999, including Mary Alice Taylor, our Chairman and Chief Executive
Officer, and several other officers. If we do not effectively integrate these
executives and key personnel into our business, or if they do not work
together as a management team to enable us to implement our business strategy,
our business will suffer.
We may not be able to obtain required licenses or permits for the sale of
alcohol in a cost-effective manner or at all, which would hurt our sales and
profitability.
For the 39 weeks ended October 2, 1999, sales of alcohol accounted for
approximately 5% of our sales. We will be required to obtain state, and in
some cases county and municipal, licenses and permits for the sale and
delivery of alcohol in new markets. Some jurisdictions do not allow companies
such as ours to sell alcohol. We cannot assure you that we will be able to
obtain any or all required permits or licenses in a timely manner, or at all.
We may be forced to incur substantial costs and experience significant delays
in obtaining these permits or licenses. In addition, the U.S. Congress is
considering enacting legislation, which would restrict the interstate sale of
alcoholic beverages over the Internet. Changes to existing laws or our
inability to obtain required permits or licenses could prevent us from selling
alcohol in one or more of our geographic markets or in a portion of those
markets. In those locations where we cannot obtain alcohol permits or
licenses, we will be unable to sell these items and will lose an opportunity
to increase revenue.
We are required to verify the age of purchasers of our alcohol and tobacco
products and the failure to do so may have a negative impact on our reputation
and make us vulnerable to liability claims.
We are required to verify the age of purchasers of our alcohol and tobacco
products. While our delivery personnel undergo training, which includes the
requirement to check identification for orders containing alcohol or tobacco
products, if our delivery personnel fail to request the proper identification
or if false identification cards are presented by the purchaser, we could face
substantial penalties and legal liability for sales of alcohol and tobacco
products to underage persons. Any inquiry or investigation from a regulatory
authority could have a negative impact on our reputation and any liability
claims could require us to spend significant time and money in litigation.
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<PAGE>
We may incur significant costs or experience product availability delays in
complying with regulations applicable to the sale of food products, which may
hurt our business.
As of the date of this prospectus, we are not regulated by the U.S.
Department of Agriculture, or USDA. Whether the handling of food items in our
CFCs, such as meat and fish, will subject us to USDA regulation in the future
will depend on several factors, including whether we sell food products on a
wholesale basis or whether we obtain food products from non-USDA inspected
facilities. Although we have designed our food handling operations to comply
with USDA regulations, in the future the USDA may require costly changes to
our food handling operations. We are also required to comply with local health
regulations concerning the preparation and packaging of any prepared food
items, such as deli salads that we prepare on site. Applicable federal, state
or local regulations may cause us to incur substantial compliance costs or
delay the availability of items at one or more of our CFCs. In addition, any
inquiry or investigation from a food regulatory authority could have a
negative impact on our reputation. The occurrence of any of these events could
delay or impair our expansion plans and could cause us to lose customers.
We depend on only four customer fulfillment centers to fulfill customer
orders; the loss or interruption of operations of any of these centers could
significantly harm our business.
We currently operate four CFCs in the metropolitan areas of Seattle,
Washington, Portland, Oregon and Orange County/Los Angeles, California. Our
business would be hurt if any external factors affect our current CFCs in any
of these areas. Such factors may include:
. prolonged power or equipment failures;
. traffic congestion;
. prolonged gasoline shortages;
. disruptions in the transportation infrastructure including bridges,
tunnels and roads;
. refrigeration failures; or
. fires, floods, earthquakes, adverse weather conditions or other
disasters.
Since each of our current CFCs is located in an earthquake-prone area, we
are particularly susceptible to the risk of damage to, or total destruction
of, these CFCs and the surrounding transportation infrastructure. We may not
be adequately insured to cover the total amount of any losses caused by any of
the above events. In addition, we are not insured against any business
interruptions caused by earthquakes or to major transportation infrastructure
disruptions or other events that do not occur on our premises.
We could face liability based on the actions of our drivers.
We use our own professional drivers to deliver products from our CFCs to
our customers as well as to transport non-perishable goods between CFCs. We
may face potential liability related to the actions of our delivery drivers
while on duty. If negligent, illegal or unprofessional conduct of our drivers
were to occur, it could harm our reputation and our business.
Our reputation and business will be harmed if our online security measures
fail.
Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. We rely on security and authentication
technology to perform real-time credit card authorizations. We cannot predict
whether events or developments will result in a compromise or breach of the
technology we use to protect a customer's personal information. Furthermore,
our computer servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. We may need to expend
significant additional capital and other resources to protect against a
security breach or to alleviate problems caused by any breaches. We cannot
assure you that we can prevent all security breaches, and any failure to do so
could hurt our reputation and business.
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<PAGE>
We may need to make costly changes in how we conduct our business if
government regulation of the Internet and e-commerce increases.
The adoption or modification of laws or regulations relating to the
Internet, e-commerce and large-scale retail store operations could adversely
affect the manner in which we currently conduct our business. In addition, the
growth and development of the market for e-commerce may lead to more stringent
consumer protection laws, which may impose additional burdens on us. Laws and
regulations directly applicable to communications or commerce over the
Internet are becoming more prevalent. The U.S. government recently enacted
Internet laws regarding privacy, copyrights, taxation and the transmission of
sexually explicit material. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet. If
we are required to comply with new regulations or legislation or new
interpretations of existing regulations or legislation, this compliance could
cause us to incur additional expenses or alter our business model.
We may face product claims that create liability and adverse publicity.
Grocery and other related products can contain contaminants due to inherent
defects in the products or improper storage or handling. If any of the
products that we sell causes harm to any of our customers, we could be
vulnerable to product liability lawsuits. If we are found liable under a
product liability claim, or even if we successfully defend ourselves against
this type of a claim, we could be forced to spend a substantial amount of
money in litigation expenses, our reputation could suffer and customers may
substantially reduce their orders or stop ordering from us.
If the protection of our trademarks and proprietary rights is inadequate, our
business may be seriously harmed.
We regard copyrights, service marks, trademarks, trade secrets and similar
intellectual property as important to our success. We rely on trademark and
copyright law, trade secret protection and confidentiality or license
agreements with our employees, customers, partners and others to protect our
proprietary rights; however, the steps we take to protect our proprietary
rights may be inadequate. Because our business and its underlying technology
infrastructure have developed rapidly since our incorporation, the ownership
of proprietary rights in our technology may be subject to uncertainty. Our
failure to protect our proprietary rights could materially harm our business
and competitive position.
We currently have no patents. From time to time, we may decide to file
patent applications relating to aspects of our proprietary technology. Other
parties may independently develop similar or competing technology or design
around any patents that may be issued to us. We cannot assure you that any of
these applications will be approved, that any issued patents will protect our
intellectual property or that any issued patents will not be challenged by
third parties.
Intellectual property claims against us can be costly and could result in the
loss of significant rights.
Intellectual property rights are becoming increasingly important to us and
other e-commerce retailers. Many companies are devoting significant resources
to developing patents that could affect many aspects of our business. Other
parties may assert infringement or unfair competition claims against us that
could relate to any aspect of our technologies, business processes or other
intellectual property. We cannot predict whether third parties will assert
claims of infringement against us, the subject matter of any of these claims,
or whether these assertions or prosecutions will harm our business. If we are
forced to defend ourselves against any of these claims, whether they are with
or without merit or are determined in our favor, then we may face costly
litigation, diversion of technical and management attention, an inability to
use our current web site technology or product shipment delays. As a result of
a dispute, we may have to develop non-infringing technology or enter into
royalty or licensing agreements. These royalty or licensing agreements, if
required, may be unavailable on terms acceptable to us, or at all. If there is
a successful claim of infringement against us and we are unable to develop
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<PAGE>
non-infringing technology or license the infringed or similar technology on a
timely basis, our business and competitive position may be hurt.
We have received a letter on behalf of a graphic artist alleging that our
corporate peach logo violates that artist's copyright. The artist has
threatened, but not instituted, legal proceedings. We do not believe that the
artist's allegations have merit. However, this claim, even if not meritorious,
could be expensive and could divert our attention from our core business
operations. If we become liable to the artist for copyright infringement, we
could be required to pay substantial damages, obtain a license from the artist
or modify our corporate logo, any of which could be expensive or compromise
our brand identity. We believe that the design agency that created this logo
for us has a contractual obligation to indemnify us for this claim.
We may not be able to protect our domain names against all infringers, which
could decrease the value of our brand name and proprietary rights.
We currently own the Internet domain name "homegrocer.com," as well as
various other related names. Domain names generally are regulated by Internet
regulatory bodies. The regulation of domain names in the United States and in
foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. The relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we could be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our brand name, trademarks and other proprietary rights.
We may be liable for the Internet content that we publish.
As a publisher of online content, we face potential liability based on the
nature and content of materials that we publish or distribute. If we face
liability, particularly liability that is not covered by our insurance or is
in excess of our insurance coverage, then our reputation and our business may
suffer.
We may face material costs if the software, computer technology and other
systems we use are not year 2000 compliant.
Any failure of our material systems, our vendors' material systems or the
Internet to be year 2000 compliant would have materially negative consequences
for us. These consequences would include difficulties in operating our web
site effectively, taking product orders, making product deliveries or
conducting other fundamental parts of our business. We also depend on the year
2000 compliance of the computer systems and financial services used by
consumers. A significant disruption in the ability of consumers to reliably
access the Internet, especially our web site, or to use their credit cards
would have an adverse effect on our operations and demand for our services.
Our officers and directors and some existing stockholders will exercise
significant control over HomeGrocer.com and could prevent or delay beneficial
corporate actions.
After this offering, our executive officers and directors and their
immediate family members and affiliated venture capital funds beneficially
will own or control approximately % of our outstanding common stock.
Individually, after this offering, Amazon.com will beneficially own
approximately % of our outstanding common stock. As a result, these
stockholders are able to exercise significant control over all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which could delay or prevent
another entity from acquiring or merging with us. See "Principal
Stockholders."
Provisions of our charter documents and Washington law could discourage our
acquisition by a third party.
Specific provisions of our articles of incorporation and bylaws and
Washington law could make it more difficult for a third party to acquire
HomeGrocer.com, even if doing so would be beneficial to our shareholders.
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<PAGE>
Our articles of incorporation and bylaws provide for the establishment of a
classified board of directors, the elimination of the ability of shareholders
to call special meetings and of cumulative voting for directors, and
procedures for advance notification of shareholder proposals. The presence of
a classified board and the elimination of cumulative voting may make it more
difficult for an acquirer to replace our board of directors. Further, the
elimination of cumulative voting substantially reduces the ability of minority
shareholders to obtain representation on the board of directors.
Upon completion of this offering, our board of directors will have the
authority to issue up to 10,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions, including the
voting rights, of those shares without any further vote or action by our
shareholders. The issuance of preferred stock could have the effect of
delaying, deferring or preventing a change of control of HomeGrocer.com and
may adversely affect the market price of our common stock.
Washington law imposes restrictions on some transactions between a
corporation and significant shareholders. Chapter 23B.19 of the Washington
Business Corporation Act prohibits a "target corporation," with some
exceptions, from engaging in particular significant business transactions with
an "acquiring person," which is defined as a person or group of persons that
beneficially owns 10% or more of the voting securities of the target
cooperation, for a period of five years after the acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members
of the target corporation's board of directors prior to the acquisition.
Prohibited transactions include, among other things:
. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;
. termination of 5% or more of the employees of the target corporation as
a result of the acquiring person's acquisition of 10% or more of the
shares; or
. allowing the acquiring person to receive any disproportionate benefit as
a shareholder.
A corporation may not opt out of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of
HomeGrocer.com.
The foregoing provisions of our charter documents and Washington law could
have the effect of making it more difficult or more expensive for a third
party to acquire, or could discourage a third party from attempting to
acquire, control of HomeGrocer.com. These provisions may therefore have the
effect of limiting the price that investors might be willing to pay in the
future for our common stock. For a more complete discussion of these
provisions, see "Description of Capital Stock."
Our stock price could be volatile and could decline following this offering.
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly consumer-oriented
Internet-related companies, have been highly volatile. You may not be able to
resell your shares at or above the initial public offering price. The price at
which our common stock will trade after this offering is likely to be volatile
and may fluctuate substantially due to factors such as:
. fluctuations in quarter-to-quarter and annual operating results;
. variations between our actual results and the expectations of investors
or published reports or analyses of HomeGrocer.com;
. announcements by us or others and developments affecting our business,
systems or expansion plans; and
. conditions and trends in e-commerce industries, particularly the online
grocery industry.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.
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<PAGE>
Future sales of our common stock may cause our stock price to decline.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Based on shares outstanding as of November 30, 1999, upon
completion of this offering we will have outstanding shares of common
stock, assuming no exercise of the underwriters' over-allotment option. Of
these shares, the shares of our common stock sold in this offering will
be freely tradable, without restriction, in the public market. Our directors,
officers and certain other stockholders have entered into lock-up agreements
in connection with this offering, generally providing that they will not sell,
otherwise dispose of or transfer any of the economic consequences of ownership
of our common stock or other securities without the prior written consent of
Morgan Stanley & Co. Incorporated. The lock-up restrictions will expire 180
days after the date of this prospectus. As a result, a substantial number of
shares of our common stock will be eligible for sale in the public market
after the expiration of the customary lock-up period following an initial
public offering.
In addition, approximately 10,103,970 shares under outstanding options and
warrants and approximately 2,509,142 shares available for grant under our
stock option plans as of November 30, 1999 will become eligible for sale in
the public market once permitted by provisions of various vesting agreements,
lock-up agreements and Rules 144 and 701 under the Securities Act, as
applicable. See "Shares Eligible for Future Sale."
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that may be affected by
a number of risks and uncertainties, many of which are beyond our control. All
statements, other than statements of historical facts included in this
prospectus, regarding our strategy, future operations, financial position,
estimated revenues or losses, projected costs, prospects, plans and objectives
of management are forward-looking statements. When used in this prospectus,
the words "will," "believe," "anticipate," "intend," "estimate," "expect,"
"project" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. All forward-looking statements speak only as of the date of
this prospectus. You should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in or suggested by the forward-looking statements we make in this
prospectus are reasonable, we can give no assurance that these plans,
intentions or expectations will be achieved. We disclose some of the important
factors that could cause our actual results to differ materially from our
expectations under "Risk Factors" and elsewhere in this prospectus. These
cautionary statements qualify all forward-looking statements attributable to
us or persons acting on our behalf.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock in this
offering are estimated to be $ million after deducting the underwriting
discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $ million.
The principal purpose of this offering is to fund the first phase of our
expansion program. The secondary purposes of this offering are to increase our
working capital, create a public market for our common stock, facilitate our
future access to the public capital markets and increase our visibility in the
marketplace. We expect to use the net proceeds of the offering for expansion
and general corporate purposes. Pending such uses, we intend to invest the net
proceeds from the offering in interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and reinvest any future
earnings in the growth of our business and do not anticipate paying any cash
dividends in the foreseeable future.
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CAPITALIZATION
The actual column in the following table sets forth HomeGrocer.com's actual
capitalization as of October 2, 1999. The pro forma column in the following
table gives effect to:
. The sale of 8,062,726 shares of redeemable preferred stock for $5.80 per
share in October and November of 1999; and
. The lapse of the redemption provision on the redeemable preferred stock
and subsequent reclassification of all 18,407,546 shares of the
redeemable preferred stock to shareholders' equity.
The pro forma as adjusted column in the following table gives effect to
each item in the pro forma column and:
. The anticipated filing of an amendment to our articles of incorporation
to provide for authorized capital stock of 1,000,000,000 shares of
common stock and 10,000,000 shares of undesignated preferred stock;
. The conversion of all outstanding shares of preferred stock into shares
of common stock upon the closing of this offering; and
. The receipt of the net proceeds from the sale by HomeGrocer.com of the
shares of common stock at the initial public offering price of $ per
share, after deducting underwriting discounts and commissions and
estimated offering expenses.
<TABLE>
<CAPTION>
October 2, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands except share and
per share amounts)
<S> <C> <C> <C>
Cash, cash equivalents and marketable
securities.................................... $ 72,315 $119,079 $
======== ======== ========
Current portion of long-term obligations....... 1,892 1,892 1,892
======== ======== ========
Long-term obligations, less current portion.... 2,956 2,956 2,956
-------- -------- --------
Redeemable preferred stock..................... 59,773 -- --
-------- -------- --------
Shareholders' equity:
Convertible preferred stock, $0.001 par
value; authorized: 78,357,142 shares actual
and pro forma, 10,000,000 shares pro forma
as adjusted; issued and outstanding:
54,799,192 shares actual, 73,206,738 shares
pro forma, none pro forma as adjusted....... 55 73 --
Common stock, $0.001 par value; authorized:
130,000,000 shares actual and pro forma,
1,000,000,000 shares pro forma as adjusted;
issued and outstanding: 25,348,436 shares
actual, 98,555,174 shares pro forma and
pro forma as adjusted............. 25 25
Additional paid-in capital................... 114,722 221,241
Notes receivable from officers for common
stock....................................... (3,231) (3,231) (3,231)
Deferred stock-based compensation............ (31,765) (31,765) (31,765)
Accumulated deficit.......................... (48,400) (48,400) (48,400)
-------- -------- --------
Total shareholders' equity................. 31,406 137,943
-------- -------- --------
Total capitalization..................... $ 94,135 $140,899 $
======== ======== ========
</TABLE>
The common stock to be outstanding after this offering is based on shares
outstanding as of October 2, 1999 and excludes:
. options outstanding to purchase a total of 6,189,300 shares of common
stock at a weighted average exercise price of $0.43 per share and an
additional 5,603,264 shares of common stock available for grant under
our stock option plans; and
. warrants outstanding to purchase a total of 2,899,248 shares of common
stock with a weighted average exercise price of $0.97 per share (of
which warrants to purchase 150,000 shares were exercised in October 1999
and warrants to purchase an additional 2,015,666 shares are expected to
be exercised prior to completion of the offering).
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of October 2, 1999 was $137.9
million or approximately $1.40 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding, after giving effect to the conversion of all shares of outstanding
preferred stock into 73,206,738 shares of common stock upon the closing of this
offering. Dilution in pro forma net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of
common stock in the offering made hereby and the net tangible book value per
share of common stock immediately after the completion of this offering. After
giving effect to the sale of the shares of common stock offered by us at the
initial public offering price of $ per share and after deducting the
underwriting discount and estimated offering expenses, the net tangible book
value of HomeGrocer.com at , 1999 would have been $ million or
approximately $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders as of ,
1999 and an immediate dilution of $ per share to new investors of common
stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ................... $
Pro forma net tangible book value before the offering............ $1.40
Increase attributable to new investors...........................
-----
Pro forma net tangible book value after the offering...............
-----
Dilution per share to new investors................................ $
=====
</TABLE>
The following table summarizes on a pro forma basis, as of October 2, 1999,
the differences between the existing stockholders and new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid.
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration
-------------- --------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ % $ % $
New investors................
----- ----- --------- ---------
Totals..................... 100.0% $ 100.0%
===== ===== ========= =========
</TABLE>
The number of shares held by new public investors will be or
approximately % ( shares, or approximately % if the underwriters'
over-allotment option is exercised in full) of the total number of shares of
common stock outstanding after this offering. See "Principal Stockholders" for
a more detailed description of our stockholders prior to this offering.
As of October 2, 1999, there were:
. options outstanding to purchase a total of 6,189,300 shares of common
stock at a weighted average exercise price of $0.43 per share and an
additional 5,603,264 shares of common stock available for grant under
our stock option plans.
. warrants outstanding to purchase a total of 2,899,248 shares of common
stock with a weighted average exercise price of $0.97 per share (of
which we expect warrants to purchase shares will be exercised
immediately prior to completion of the offering); and
To the extent outstanding options and warrants are exercised, there will be
further dilution to new investors.
22
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements of HomeGrocer.com and the related
notes included elsewhere in this prospectus. The selected statement of
operations data set forth below for the period from January 15, 1997
(inception) to January 3, 1998 and for the fiscal year ended January 2, 1999,
and the selected balance sheet data as of January 3, 1998 and January 2, 1999
have been derived from the audited financial statements of HomeGrocer.com
included elsewhere in this prospectus, which have been audited by Ernst &
Young LLP, Independent Auditors. The selected statement of operations data for
the 39 weeks ended October 3, 1998 and October 2, 1999 and the selected
balance sheet data as of October 2, 1999 have been derived from unaudited
financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which we consider
necessary for a fair presentation of the results of operations for this
period. The historical results are not necessarily indicative of results to be
expected for any future period.
<TABLE>
<CAPTION>
51 Weeks From
January 15, 1997 52 Weeks Ended 39 Weeks Ended
(Inception) to January 2, --------------------------------
January 3, 1998 1999 October 3, 1998 October 2, 1999
---------------- -------------- --------------- ---------------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $ -- $ 1,094 $ 299 $ 10,886
Cost of sales........... -- 1,018 281 8,919
---------- ---------- ---------- ----------
Gross profit.......... -- 76 18 1,967
Selling, general, and
administrative
expenses............... 1,064 7,455 4,427 28,005
Stock-based compensation
expense................ 230 412 250 13,667
---------- ---------- ---------- ----------
Loss from operations.. (1,294) (7,791) (4,659) (39,705)
Other income/(expense),
net.................... (61) (118) (156) 569
---------- ---------- ---------- ----------
Net loss.............. $ (1,355) $ (7,909) $ (4,815) $ (39,136)
========== ========== ========== ==========
Pro forma basic and
diluted net loss per
share (1).............. $ (0.14) $ (0.34) $ (0.26) $ (0.68)
========== ========== ========== ==========
Weighted average shares
outstanding used to
compute pro forma basic
and diluted net loss
per share (1).......... 10,034,721 23,046,228 18,454,537 57,813,650
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of
------------------------------------------------
January 3, 1998 January 2, 1999 October 2, 1999
--------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.... $ 313 $1,084 $ 67,402
Working capital (deficit).... (1,296) 373 63,780
Total assets................. 997 3,558 106,013
Long-term obligations, less
current portion............. -- 880 2,956
Redeemable preferred stock... -- -- 59,773
Total shareholders' equity
(deficit).................... (643) 1,387 31,406
</TABLE>
- --------
(1) See note 1 of notes to financial statements for an explanation of the
determination of the number of weighted average shares used to compute pro
forma net loss per share amounts.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of
HomeGrocer.com. Prospective investors are cautioned that such statements
involve risks and uncertainties, and that actual events or results may differ
materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this prospectus,
including the matters set forth under the caption "Risk Factors," which could
cause actual results to differ materially from those indicated by such
forward-looking statements.
Overview
HomeGrocer.com is a leading Internet retailer of grocery and other consumer
products. We operate our own state-of-the-art distribution system providing
next-day home delivery of a wide range of products, including high quality
food items, at prices competitive to traditional store prices. Our goals are
to expand nationally and to be our customers' preferred regular provider of
household consumables. Our technology and the design of our customer
fulfillment centers, or CFCs, permit us to rapidly expand our service into new
markets. We believe that our core grocery business provides us with a strong
platform to expand into other product and service areas.
We commercially launched our Storefront at www.homegrocer.com and began
delivering groceries to the Seattle market from our Bellevue, Washington CFC
in June 1998. We have rapidly expanded since our initial launch of service and
currently serve customers in two additional markets: Portland, Oregon since
May 1999 and Orange County, California since September 1999. We relocated our
Bellevue CFC to a significantly larger and more automated facility in Renton,
Washington on October 31, 1999, and opened a second CFC in the Orange
County/Los Angeles, California market in November 1999. We expect to begin
service in eight to ten additional metropolitan areas in the next 12 months.
Since our inception, we have devoted significant resources to the following
activities:
. developing our business plan;
. designing, implementing and enhancing our Storefront;
. recruiting and training a team of experienced employees;
. designing and integrating business systems and technology;
. designing, equipping and operating our CFCs;
. establishing relationships with our vendors;
. promoting the HomeGrocer.com brand; and
. raising capital.
We have incurred net losses of $48.4 million from inception to October 2,
1999. We believe that we will continue to incur net losses for at least the
next several years and that the amount of these losses will increase
significantly from current levels. Many of our first-time customers cite word-
of-mouth and the visibility of our distinctive trucks in their neighborhoods
as the foremost factors attracting them to our Storefront. Hence, sales in new
markets increase gradually as word-of-mouth spreads and more people see our
trucks.
We have operated in the Seattle market for 18 months, and while revenues
have grown steadily over this period, our Seattle operations are not yet cash
flow positive. We believe that our operations in subsequent markets will
achieve positive operating cash flow faster than our Seattle operations, in
part because of the knowledge obtained in the Seattle market. We also
anticipate that increased customer acceptance of the Internet and the national
growth in online grocery shopping will enable our revenues to grow at a more
rapid pace in new markets. Many of the markets where we intend to begin
operations in the next few years also have larger populations than the Seattle
metropolitan area.
24
<PAGE>
As we expand our operations into new markets over the next several years,
our business will consist of a mix of mature and new CFCs. Our growth plans
over the next several years are aggressive and will likely result in
substantially greater losses from a large number of new facilities than the
earnings anticipated from a smaller number of mature facilities. As such, we
anticipate reporting substantial net losses over the next few years, with the
magnitude of such losses being related to the speed, scope and success of our
expansion plans.
We estimate that our cash on hand and the proceeds of this offering are
sufficient to establish approximately 12 new CFCs. This takes into
consideration the costs of leasehold improvements in each CFC, the costs to
purchase the related delivery vehicles, the anticipated negative cash flows
from each CFC in its initial several quarters of operation and corporate
overhead. We anticipate opening numerous additional CFCs in each of the next
several years. These expansion plans will require significantly more capital
than the proceeds of this offering. If capital is not available at some future
date at a reasonable cost, we may decide to reduce the number of new CFCs that
are developed by us in future years. We believe that a reduction in the speed
or scope of our expansion could result in our achieving profitability at an
earlier date than would otherwise be possible. However, the level of such
profitability might ultimately be less than what might be achieved if capital
is available and we are able to execute our entire expansion strategy.
We have a limited operating history on which to base an evaluation of our
business and prospects. Our prospects must be considered in light of the
risks, expenses and difficulties encountered by companies in their early stage
of development, particularly companies in new and rapidly evolving markets
like e-commerce. See "Risk Factors" for a more complete description of the
many risks we face.
Results of Operations
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our
operating results, including our gross profit and operating expenses as a
percentage of net sales, are not necessarily meaningful and should not be
relied upon as an indication of future performance. Our financial results are
summarized below.
<TABLE>
<CAPTION>
51 Weeks From
January 15, 1997 52 Weeks Ended 39 Weeks Ended 39 Weeks Ended
(Inception) to January 2, October 3, October 2,
January 3, 1998 1999 1998 1999
---------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $ -- $ 1,094 $ 299 $ 10,886
Cost of sales........... -- 1,018 281 8,919
------- ------- ------- --------
Gross profit.......... -- 76 18 1,967
Selling, general, and
administrative......... 1,064 7,455 4,427 28,005
Stock-based compensation
expense................ 230 412 250 13,667
------- ------- ------- --------
Loss from operations.. (1,294) (7,791) (4,659) (39,705)
Interest expense........ (61) (172) (156) (241)
Interest income......... -- 54 -- 930
Other expense........... -- -- -- (120)
------- ------- ------- --------
Net loss.............. $(1,355) $(7,909) $(4,815) $(39,136)
======= ======= ======= ========
</TABLE>
39 Weeks Ended October 3, 1998 and 39 Weeks Ended October 2, 1999
Net Sales. Our sales, net of returns and promotional discounts, increased
from $299,000 in the 39 weeks ended October 3, 1998 to $10.9 million in the
same period of the current year. This increase in net sales resulted from the
increase in the number of markets served, a full period of service in the
Seattle market, an increase in
25
<PAGE>
the average number of orders per day and an increase in the average size of
orders. The average order size in the Seattle market was $99 in the 39 weeks
ended October 2, 1999, compared to $89 for the 18 weeks ended October 3, 1998.
The average number of orders delivered per day in the Seattle market was 241,
365 and 426 in the first, second and third quarters of 1999, respectively,
compared to 36 and 108 in the third and fourth quarters of 1998.
Gross Profit. Our cost of sales consists of the cost of merchandise sold to
customers, including inbound freight costs and complimentary products. Gross
profit increased from $18,000 in the 39 weeks ended October 3, 1998 to $2.0
million in the same period of the current year. The increase in gross profit
was primarily due to increased sales volumes and more days of commercial
operation.
Selling, General and Administrative. Our selling, general and
administrative expenses include costs related to fulfillment and occupancy,
delivery of products, customer service, advertising and promotional
expenditures, information technology and administration, and corporate
overhead. Selling, general and administrative expenses increased from $4.4
million in the 39 weeks ended October 3, 1998 to $28.0 million in the same
period of the current year. This increase was primarily due to increased
payroll and related costs associated with operating three CFCs during the
current period as compared to one CFC that operated during only part of the
prior year period. We also increased advertising and promotional expenses and
other costs associated with our expanding operations. Selling, general and
administrative expenses are expected to continue to increase in absolute
dollars as we continue to execute our expansion plans, aggressively market the
HomeGrocer.com brand and continue enhancing and expanding our information
systems.
Stock-Based Compensation Expense. Stock-based compensation expense consists
primarily of the amortization of deferred stock compensation resulting from
the grant of stock options or sale of restricted stock at exercise or sale
prices subsequently deemed to be less than the fair value of the common stock
on the grant or sale date. We recorded total deferred stock-based compensation
of $44.7 million for the 39-week period ended October 2, 1999 in connection
with stock options granted and restricted stock issued during the period. This
cost is being amortized to expense over the vesting periods of the applicable
agreements, resulting in amortization of deferred stock-based compensation
totaling $12.9 million for the 39-week period ended October 2, 1999.
Additionally, $751,000 of stock-based compensation expense was recorded in
connection with stock options granted to outside consultants. The $44.7
million of deferred stock-based compensation for stock options and restricted
stock issued through October 2, 1999 is expected to be amortized in the
amounts of $6.5 million for the fourth quarter of 1999, $14.6 million for the
fiscal year ended 2000, $7.1 million for the fiscal year ended 2001, $3.1
million for the fiscal year ended 2002 and $532,000 for the fiscal year ended
2003. Such amortization amounts assume that all vesting periods are completed
by all employees; to the extent that unvested options are forfeited by an
employee, previously recorded amortization related to the unvested options
would be credited to stock-based compensation expense.
Interest Income. Interest income of $930,000 in the 39 weeks ended October
2, 1999 resulted from the investment of cash, cash equivalents and marketable
securities. Such funds were provided primarily from our sale of equity.
Interest Expense. Interest expense increased from $156,000 in the 39 weeks
ended October 3, 1998 to $241,000 in the current period as a result of
borrowing arrangements we entered into primarily to finance purchases of fixed
assets and fund operations and expansion.
Income Taxes. There was no provision or benefit for income taxes for any
period since inception due to our operating losses. As of January 2, 1999, we
had approximately $8.8 million of net operating loss carryforwards for federal
income tax purposes, which expire beginning in 2017. In 1999, due to the
issuance and sale of Series C preferred stock, we incurred an ownership change
pursuant to applicable regulations under the Internal Revenue Code of 1986, as
amended. Therefore, our use of $8.8 million of losses incurred through the
date of these ownership changes will be limited to approximately $1.0 million
per year during the carryforward period. Our anticipated initial public
offering is not expected to cause an additional ownership change. We have
26
<PAGE>
provided a full valuation allowance on the deferred tax asset, consisting
primarily of net operating loss carryforwards, because we believe there is
substantial uncertainty as to our ability to use such tax loss carryforwards.
51 Weeks Ended January 3, 1998 and 52 Weeks Ended January 2, 1999
We report on a fiscal year basis that ends on the Saturday nearest December
31. Fiscal 1997 was a 51-week year that commenced at inception on January 15,
1997 and ended on January 3, 1998 and fiscal 1998 was a 52-week year that
ended on January 2, 1999.
Net Sales. We commercially launched our Storefront and began delivering to
customers in the Seattle market in June 1998.
Gross Profit. The fiscal 1998 gross profit is reflective of low sales
volume and competitive pricing, as well as various types of promotional
discounts and incentives offered to increase HomeGrocer.com brand awareness
and loyalty.
Selling, General and Administrative. Selling, general and administrative
expenses increased primarily as a result of costs associated with launching
our Storefront and commencing delivery operations in June 1998. In fiscal
1998, we increased headcount in all functional areas, increased advertising
and promotional expenditures and began leasing our first customer fulfillment
center, delivery vehicles and corporate headquarters.
Stock-Based Compensation Expense. Stock-based compensation expense for
fiscal 1997 and fiscal 1998 related to stock options granted to outside
consultants in exchange for services rendered.
Interest Income. Interest income increased as our average cash and cash
equivalents balance increased. Funds for investment were provided primarily
from the sale of equity.
Interest Expense. Interest expense increased as a result of borrowing
arrangements we entered into primarily to finance purchases of fixed assets
and fund operating activities.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through sales of
preferred stock with net cash proceeds of $121.7 million through October 2,
1999. Subsequent to October 2, 1999, an additional $46.8 million in net
proceeds was received from additional sales of preferred stock.
Net cash used in operating activities was $5.0 million and $17.6 million
for the 39 weeks ended October 3, 1998 and October 2, 1999, respectively. Net
cash used in operating activities for each of these periods consisted
primarily of our net losses, offset in part by non-cash charges and increases
in accounts payable and other current liabilities.
Net cash used in investing activities was $921,000 and $30.8 million for
the 39 weeks ended October 3, 1998 and October 2, 1999, respectively. Net cash
used in investing activities for both periods consisted of purchases of fixed
assets and, for the 39 weeks ended October 2, 1999, also consisted of
purchases of marketable securities and an increase in deposits and restricted
cash balances. The restricted cash balances were a result of a deposit
required to support certain letters of credit.
Net cash provided by financing activities was $9.6 million and $114.7
million for the 39 weeks ended October 3, 1998 and October 2, 1999,
respectively. Net cash provided by financing activities consisted primarily of
proceeds from sales of equity.
As of October 2, 1999, we had $67.4 million of cash and cash equivalents.
As of that date, our principal commitments consisted of minimum lease payments
due under operating leases totaling approximately $73.0 million over 15 years
and agreements to purchase additional delivery vehicles in the fourth quarter
of fiscal
27
<PAGE>
1999 and in fiscal 2000 totaling approximately $40.8 million. We anticipate a
substantial increase in our capital expenditures and lease commitments as we
construct CFCs and begin operations in new markets.
We currently expect that the net proceeds of this offering, together with
our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures for the next 12 months. Our capital
needs are highly dependent on the pace of our expansion plans. We anticipate
that, in the future, we may need to raise additional funds through the
issuance of equity, equity-related, debt or other securities. Such securities
may have rights, preferences or privileges senior or equal to those of the
rights of our common stock and our shareholders may experience dilution. We
cannot be certain that additional financing will be available to us on
acceptable terms when required, or at all.
New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. SOP 98-1 requires all costs related to
the development of internal use software other than those incurred during the
application development stage to be expensed as incurred. Costs incurred
during the application development stage are required to be capitalized and
amortized over the estimated useful life of the software. We adopted SOP 98-1
on January 3, 1999 and there was no significant impact on our financial
position or operating results upon adoption.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 requires costs of start-up activities and organization
costs be expensed as incurred. We adopted SOP 98-5 on January 3, 1999 and
there was no significant impact on our financial position or operating results
upon adoption.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income. We do not expect
that the adoption of SFAS No. 133 will have a material impact on our financial
statements because we do not currently hold any derivative instruments.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements.
We do not believe SAB No. 101 will have an impact on the way we currently
recognize revenue.
Year 2000 Issues
We believe that we are reasonably prepared for the year 2000 and the impact
that this might have on our technology systems. There can be no assurance,
however, that this is the case. The total cost associated with our Year 2000
remediation effort has not been material and is not expected to be material in
future periods. The worst case scenario related to the Year 2000 would be an
inability for our customers to access our web site and an inability for us to
assemble and deliver their orders. The risk of such scenario should be known
shortly after December 31, 1999. We have performed extensive testing and have
developed extensive contingency plans related to the Year 2000 issue.
Nevertheless, it is possible that such measures will be inadequate and a
failure of technology-based systems could have an adverse effect on our
business.
28
<PAGE>
Quantitative and Qualitative Disclosure About Market Risk
We maintain a short-term investment portfolio consisting primarily of
commercial paper with maturities of four months or less. Such securities are
subject to interest rate risk and will rise and fall in value if market
interest rates change. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates.
Our restricted cash is invested in certificates of deposit. There is
inherent risk in these instruments as they mature and are immediately renewed
at current market rates. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates.
We believe that the market risk arising from our holdings of financial
instruments is not material.
The following table provides information about our investment portfolio,
restricted cash, capital lease obligations and long-term debt as of October 2,
1999, principal cash flows and related weighted average interest rates by
expected maturity dates.
<TABLE>
<CAPTION>
Year of Maturity
---------------------------------------- Total
After Carrying
1999 2000 2001 2002 2003 2003 Value
------- ------ ---- ---- ---- ----- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents... $67,402 -- -- -- -- -- $67,402
Average interest rate...... 5.02% -- -- -- -- -- 5.02%
Marketable securities....... -- $4,913 -- -- $ 4,913
Average interest rate...... -- 5.83% -- -- -- -- 5.83%
Restricted cash-certificates
of deposit................. $ 2,675 $2,772 -- -- -- -- $ 5,447
Average interest rate...... 5.09% 5.76% -- -- -- -- 5.43%
Capital lease obligations... $ 232 $ 952 $965 $730 $9 -- $ 2,888
Average fixed interest..... 10.5% 10.5% 10.5% 10.5% 10.5% -- 10.5%
Long-term debt.............. $ 230 $ 980 $535 $215 -- -- $ 1,960
Average fixed interest..... 9.54% 9.54% 9.54% 9.54% -- -- 9.54%
</TABLE>
Cash and cash equivalents and marketable securities consist primarily of
instruments with fixed rates of interest. Fair value approximates carrying
value for the above financing instruments.
29
<PAGE>
BUSINESS
Overview
HomeGrocer.com is a leading Internet retailer of grocery and other consumer
products. We operate our own state-of-the-art distribution system providing
next-day home delivery of a wide range of products, including high quality
food items, at prices competitive with traditional store prices. Our goals are
to expand nationally and to be our customers' preferred regular provider of
household consumables.
We have rapidly expanded since our initial launch of service in June 1998,
and currently serve customers in three markets: Seattle, Washington; Portland,
Oregon; and Orange County/Los Angeles, California. We expect to begin service
in eight to ten additional metropolitan areas in the next 12 months. Our
technology and the design of our customer fulfillment centers, or CFCs, permit
us to rapidly expand our service into new markets.
Our web site, www.homegrocer.com, features an extensive product selection,
including the freshest available fruit, vegetables, dairy products, baked
goods, meat and fish and a wide assortment of non-perishable items and
household products. We also offer health and beauty products, wine and beer,
fresh flowers, pet products, home office supplies, postage stamps, seasonal
items and top-selling books, video games and movies. Our professional buyers
purchase the highest quality products available from premium specialty
suppliers and local sources, in addition to national suppliers.
We believe that our emphasis on high-quality customer service has created
significant brand awareness and loyalty for the HomeGrocer.com shopping
experience. We have made deliveries to over 50,000 households since inception.
We believe that our core grocery business provides us with a strong platform
to expand into other product and service areas.
Our management team has extensive technology, grocery and merchandising
experience, as well as experience in developing national distribution and
delivery systems. Amazon.com, our largest shareholder, will introduce our
service to its customers residing in our service areas under our agreement
with them. Our other shareholders include affiliates of a number of leading
e-commerce investors such as Hummer Winblad Venture Partners, Kleiner Perkins
Caufield & Byers, The Barksdale Group, Madrona Investment Group and Liberty
Media.
30
<PAGE>
Industry
Growth of the Internet and E-Commerce
The Internet has emerged as a mass market communications medium, enabling
millions of users to obtain and share information, interact with each other
and conduct business electronically. The increasing affordability of personal
computers and Internet access, coupled with increasing speed, convenience and
improvements in content, have led to rapid growth in Internet usage. Market
research firm International Data Corporation estimates that the number of
individuals in the United States using the Internet will increase from
approximately 62.8 million at the end of 1998 to approximately 177.0 million
at the end of 2003, representing a compound annual growth rate, or CAGR, of
over 23%. The chart below illustrates the historical and anticipated growth in
the number of households with personal computers and Internet subscriptions.
[Bar chart entitled "Numbers of Personal Computers and Online Subscriptions in
U.S. Households" The chart has two bars for each year from 1997 until 2002.
The first bar is labeled "Total Households with PCs at End of Year" and the
second bar is labeled "Total Households with Online Subscriptions at End of
Year." There are labels on the right side of the chart indicating that the
compounded annual growth rate is 27% for the first bar and 5% for the second
bar. Below the chart is a caption that reads: "Source: International Data
Corporation"]
The Internet has also emerged as a significant channel for the electronic
transaction of business or e-commerce. According to IDC, over the next five
years the number of individuals in the United States making purchases online
will increase at a CAGR of approximately 28% from 21.1 million in 1998 to 72.1
million in 2003. Forrester Research, another market research firm, has
estimated that this growing group of consumers, making increasing amounts of
online purchases, will cause total U.S. Internet retail commerce to grow from
approximately $20.3 billion in 1999 to approximately $184.5 billion in 2004,
representing a CAGR of over 55%.
Traditional Grocery Retailing
The grocery market is one of the largest retail segments of the U.S.
economy. Retail supermarket sales were approximately $449 billion in 1998,
according to the Food Marketing Institute. In addition, sales of over-the-
counter medication and non-medication health and beauty products were
approximately $57 billion in 1998 according to the National Association of
Chain Drug Stores. Both markets are localized and fragmented.
The retail industry has principally evolved into very large stores offering
a wide variety of items. Typical large grocery stores, for example, offer from
15,000 to as many as 40,000 unique items, including many different sized
packages of the same products. We estimate, based on the historical shopping
patterns of our customers,
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that the typical household purchases less than 200 unique grocery items.
Hence, on a typical shopping trip to a traditional store, the consumer must
sort through thousands of items to locate the dozens of items to be purchased.
Most traditional retailers compound this burden by positioning staple products
in inconvenient locations within the store to induce impulse purchases while
the consumer seeks the items on his or her shopping list. For example, milk is
typically found at the back of a traditional store while the checkout counter
is surrounded by candies, toys and magazines. This system is time-consuming
and tiring for the consumer.
According to the Food Marketing Institute, the average customer at a
traditional grocery store spent approximately 75 minutes per shopping trip in
1998, not including travel time. Traditional retail shoppers are also burdened
with carrying shopping bags and bulky items to their cars and then again into
their homes. Grocery shopping is inconvenient for many consumers and a
particularly difficult experience for elderly persons, disabled individuals or
parents with small children. According to a study conducted by the Food
Marketing Department of Philadelphia's St. Joseph's University, two-thirds of
U.S. consumers dislike the grocery shopping experience. Yet, according to A.C.
Nielsen, the average U.S. household shops for groceries more than 100 times
per year, while spending, according to FMI, more than $4,500 per year. Based
on the above data, the average U.S. household spends over 125 hours per year
on a necessary task that most consumers dislike.
The traditional grocery store format also creates numerous difficulties for
the retailer. Grocery chains typically have distribution centers near each
major city and multiple stores, each with a large parking lot, on expensive
real estate throughout the metropolitan area. Large inventories must be
maintained within each store in order to provide the consumer with the
expected visual appearance. The size of such inventories can result in
spoilage or less fresh product being sold to the consumer. Often, the ambient
temperature and lighting that is preferred by the customer in such stores is
not the ideal climate for the products themselves, particularly for meats,
dairy products and produce. Additionally, produce in particular is regularly
handled by numerous employees and customers, resulting in significant product
damage. Finally, each store must have a sufficient number of checkout and food
service counters. The needs for staffing these areas can vary widely during
the year, the week and the operating day.
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Online Grocery Retailing Opportunity
The evolution of the Internet has created opportunities to provide a much
more convenient shopping experience at prices similar to those available in
traditional stores. Forrester Research estimates that online grocery spending
in the United States will grow at a CAGR of 101% over the next five years,
from $513 million in 1999 to $16.9 billion by 2004. Despite its size in
absolute terms, this spending is expected to represent less than 5% of the
total U.S. market for grocery products in 2004. Forrester Research also
estimates that online sales of health and beauty products, another market that
HomeGrocer.com addresses, will grow from $509 million in 1999 to $10.3 billion
in 2004. Even at that level, online sales will represent only a small part of
the total U.S. market for health and beauty products in 2004. Given the
growing use of the Internet, online grocery retailers have the opportunity to
expand rapidly into a void in a large marketplace.
The chart below shows the total sizes of various retail segments in which
products are offered by HomeGrocer.com, although currently we only offer best-
selling books and videos and we may not be able to sell alcoholic beverages in
every market.
[Bar chart entitled "Total U.S. Retail Market Segments" The chart contains
eight bars that are labeled from left to right as follows: "Groceries(1)";
"Home Meal Replacements(2); "OTC Medications and Non-Medication HBA(3)";
"Wine/Beer/Spirits(4)"; "Books(5)"; "Pet Food/Pet Supplies(6)";
"Videocassettes(7)"; "Cut Flowers and Cut Greens(8)." Below the chart is a
caption that reads: "Source: (1) Food Marketing Institute; (2) AC Nielsen; (3)
IMS Health, National Association of Chain Drug Stores, A.C. Nielsen; (4) Adams
Business Media; (5) American Association of Publishers; (6) Pet Industry Joint
Advisory Council; (7) Paul Kagan Associates; (8) U.S. Department of
Agriculture."]
We believe online grocery retailing permits operators to offer a better
shopping experience while having reduced capital and operating expenses
compared to traditional retail stores. For example, our search, personal
shopping list and checkout functions can greatly expedite the process of
selecting and purchasing a customer's groceries. Meanwhile, online operators
can also avoid the significant real estate, personnel and inventory costs of
operating multiple stores in a particular area.
The HomeGrocer.com Solution
We provide a compelling value proposition for our customers by providing
superior products at competitive prices in a more convenient manner. The
HomeGrocer.com solution provides:
Convenience. Our service makes it easy for consumers to restock their
kitchens. Our Internet ordering process, available 24 hours each day, seven
days each week, allows our customers to shop whenever they want
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from their homes, offices or any location with Internet access. Customers then
select a convenient time for home delivery. By offering a convenient
alternative to a traditional store, we transform an unpleasant task into a
fast, enjoyable shopping experience.
Superior Product Quality. We focus on earning our customers' trust by
delivering superior products, especially perishable items such as meat,
breads, fruits and vegetables. Before we enter a geographic market, we
identify and establish relationships with the highest quality suppliers. We
equip both our trucks and CFCs with ambient, refrigerated and frozen zones to
ensure product freshness at the customer's door. Our personal shoppers,
proprietary technology and distribution process ensure that our products are
inspected for quality, handled fewer times than both our online and offline
competitors and stored in proper temperature settings, leading to improved
product quality and reduced spoilage.
Competitive Prices. Our prices are competitive with traditional retail
store prices. We do not charge any membership fees or delivery fees for first-
time orders or for subsequent orders over $75. Our efficient supply chain and
proprietary technology allow us to provide free home delivery, while charging
competitive prices for our products.
Complete Product Offering. We offer a broad range of consumer products and
strive to satisfy all of our customers' household needs. This includes
offering a significant number of specialty products, such as premium pet
supplies that generally are not available at traditional grocery stores, and
products that reflect local market tastes. We have relationships with local
suppliers in each of our markets.
High Quality Customer Service. We seek to provide the best customer service
at every opportunity. Our toll-free help line is staffed seven days each week
from 7 a.m. to 11 p.m., and we strive to answer customer emails within four
hours. Those customers who have shopped with us at least five times shop an
average of approximately twice every four weeks. Each shopping experience
concludes with a HomeGrocer.com delivery person interacting face-to-face with
our customer, typically in our customer's kitchen. Our delivery staff is
selected and trained to deliver friendly, efficient and reliable customer
service. From January through October 1999, our on-time delivery rate in the
Seattle area was greater than 98%.
Highly Interactive and Personalized Storefront. Our web site, which we call
our Storefront, is designed to provide our customers with a superior shopping
experience. Our personalization features can reduce the average shopping time
for a repeat shopper to as little as 10-15 minutes. Our Storefront enables a
customer to quickly and easily reorder products from an automatically
generated list, called the "My HomeGrocer List", or to create customized lists
such as a weekly shopping list or diet-based list of favorite products.
Customers can also order all of the ingredients for featured recipes with a
single click.
Accurate and Timely Fulfillment. Our technologies fully integrate our
Storefront, warehouse management, inventory, billing and routing systems.
Throughout the process, our proprietary software maintains a perpetual
inventory of the items on the shelves of each CFC, the precise location within
the CFC of each item, the items in each customer's tote and the location of
each tote. This system ensures the accuracy and timeliness of delivery of each
customer's order.
Growth Strategy
HomeGrocer.com intends to establish itself as the leading provider of
friendly, reliable home delivery of groceries. Our goal is to establish a
long-term relationship with our customers and earn their trust to deliver
other high quality products to their homes. Key elements of our growth
strategy include:
Accelerate National Expansion. We believe that a significant opportunity
exists to expand our service into metropolitan areas across the United States.
We currently offer service in Seattle, Washington; Portland, Oregon; and
Orange County/Los Angeles, California. We intend to initiate delivery service
in approximately eight to ten additional U.S. markets over the next 12 months.
In some markets, we anticipate that multiple CFCs will be required to
adequately serve demand. In those markets, we may open with a single "hub" CFC
servicing the entire metropolitan area. As demand grows, we may add additional
CFCs in those markets.
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Capitalize on Easily Replicated Model. By converting existing warehouse
space or warehouses already under construction, we are able to establish
operations in new markets rapidly. We can use an existing CFC to begin to
serve nearby areas and generate revenues, while we establish a new CFC for
that area. Our CFCs and delivery services are designed to be easily and
rapidly replicated. Our warehouse management system has been designed to be
flexible to allow different product and warehouse configurations and to enable
us to add new CFCs on an aggressive rollout schedule. By opening three new
facilities in three months during the fall of 1999, we have proven our ability
to expand quickly and to operate in multiple locations.
Extend Our Brand to Expand Market Share. We have positioned HomeGrocer.com
as a leading brand for quality products and convenient, friendly and reliable
delivery service. Through our television and radio advertising campaigns,
community promotional activities, media relationships and the visibility of
our logo on our trucks, we build and reinforce consumer recognition of our
brand. We believe that becoming a reliable supplier of quality groceries to
the home is a platform for us to expand our offerings into numerous other
consumer products and services. Since inception, we have expanded our product
offerings to include pet supplies, fresh flowers, health and beauty products,
wine, postage stamps and top-selling books, video games and movies. We intend
to continue to expand our product and service offerings in an effort to become
an essential shopping resource for the home. Such additional products may
include cookware and housewares, photo finishing and prepared meals.
Maximize Delivery Density in Each Market. By providing excellent and
reliable service and through direct marketing programs, we intend to build the
density of our customer base in each market. This density is important in
increasing the efficiency of the distribution network and creating a
competitive advantage over our traditional and online competitors.
Realize Economies of Scale and Purchasing Power. We have invested heavily
in our Storefront and other technologies and have assembled a corporate team
to plan and execute our national expansion. We expect that overhead expenses
will not grow as rapidly as our revenue in future periods. Furthermore, as we
grow, we intend to take advantage of our increased purchasing power to receive
better pricing from our suppliers, to purchase more frequently directly from
manufacturers rather than wholesalers and to expand our private label
offerings, which have higher profit margins.
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HomeGrocer.com Operations
There are three key operational aspects to the HomeGrocer.com solution: our
Storefront, our CFCs and our delivery service with its integrated technology
and distinctive trucks with the "Peach" logo. Our commitment to technology and
our focus on satisfying our customers permeate our operations.
The HomeGrocer.com Storefront
Our Storefront is a user-friendly, informative and personalized web site
that enables users to quickly and easily navigate and purchase from a wide
selection of items. Some of the key features of our Storefront are evident in
the illustrations and description below:
The "What's New" page is the home page for repeat shoppers.
[Screen shot of HomeGrocer's "What's New" web site page.]
The main shopping page currently features the major categories on the left,
the items in a selected category in the center and a perpetual shopping basket
on the right.
[Screen shot of HomeGrocer's main shopping web site page]
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. The main shopping page allows access to all of the approximately 9,000-
12,000 items in stock at the appropriate CFC for the customer's zip
code, using an intuitively organized list of categories.
. The customer has an opportunity to see all products in a particular
category before making a selection, similar to scanning the shelves of a
traditional store.
. We provide high-quality pictures of products photographed in our in-
house digital studio.
. The "My HomeGrocer List" feature automatically lists items that the
customer has purchased previously. Thus, after one or two shopping
visits, the customer no longer has to sort through the entire available
selection to find his or her most frequently purchased items.
. The "What's New" section provides customers and suppliers with a
merchandising format to highlight products and product categories.
. The "Lists" function allows the customer to establish a standard weekly
or monthly shopping list, making it easy for the customer to re-supply
his or her kitchen with the household's standard items.
. The "Search" feature allows the customer to quickly search the entire
database for specific items. This supplants the process of physically
searching through the aisles of a traditional store.
. Throughout the shopping experience, the customer's screen contains a
continuously updated list of the items in the customer's virtual
shopping cart and the total cost of the order.
. The "Recipes" function provides menu planning suggestions and allows the
customer to order all of the ingredients for a recipe with a single
click.
. The customer's shopping cart is maintained at all times on our servers.
If a customer's connection is interrupted or his or her personal
computer is turned off, the shopping cart in progress is still intact
for future ordering. This also allows the customer to use our site as a
perpetual shopping list to accumulate items until he or she is ready to
schedule a delivery.
. The customer, either before or after shopping, can reserve a specific
delivery window, which may be on the next day or at any time within the
next two weeks. We currently use 90 minute delivery windows and maintain
high on-time delivery rates.
. We currently offer delivery windows from 1:30 p.m. to 9:30 p.m. Monday
through Friday, 9:30 a.m. to 4:00 p.m. on Saturday, and 1:30 p.m. to
8:00 p.m. on Sunday.
. The customer can modify his or her order until 11:00 p.m. the day prior
to the scheduled delivery.
Customer Fulfillment Centers
We operate large CFCs that are organized for efficient assembling of
orders. Perishable items, such as meats, dairy products, produce and frozen
foods, are kept in rooms with temperatures appropriate for each product.
We locate our CFCs in non-retail districts where real estate is
considerably less expensive than the locations of most supermarkets. Given the
size of our facilities and because there is no need to have surplus product
for customer displays, our CFCs can operate with less inventory relative to
sales than traditional supermarkets and have higher inventory turnover. Our
CFCs also have fewer limitations on shelf space and are designed to serve a
larger customer base than traditional supermarkets; therefore, we believe we
can eventually offer a significantly larger selection of products than most
traditional grocery stores.
We currently operate CFCs of approximately 100,000 square feet each in
Renton, Washington, and Irvine and Fullerton, California. We also operate a
smaller CFC of approximately 20,000 square feet in Tualatin, Oregon that,
together with our Renton facility, serves customers in the Portland
metropolitan area. Identical software systems are implemented at each CFC,
allowing for efficient central management and enabling the
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continued easy replication of our CFC model across multiple locations. When
operating near designed capacity, each full-sized CFC, together with its
related delivery infrastructure, should employ approximately 300 individuals.
Our Technology and Delivery Systems
We have invested heavily in proprietary and third party technologies that
fully integrate our Storefront and our warehouse management, inventory and
delivery routing systems. This integrated technology handles the complex
logistics of thousands of available items, three temperature zones, multiple
truck routes and numerous delivery windows. The core of this technology is our
proprietary software that enables reliable and efficient transaction
processing through Internet and application servers. This technology enables
our Internet and application servers to scale up to large volumes of
transactions at multiple locations.
We designed our system to use technology to enhance the efficiency of
personal shoppers assembling the customer orders in the warehouse. Personal
shoppers wear wrist-mounted display devices that provide instructions from the
system and direct the shopper, using the most efficient sequence, to the
location of the specific customer items. A finger-mounted bar-code scanner
confirms that the proper item was selected and has been placed into the
correct customer's tote. We have successfully deployed this technology in all
of our CFCs in multiple markets. We have designed the process to establish new
distribution operations quickly and efficiently and to increase volume without
compromising product quality or order accuracy.
We also employ a routing and scheduling system that manages the delivery of
orders. Trucks deliver orders to assigned neighborhoods. Each route has
timeslots that are 90 minute time windows in which orders are scheduled to be
delivered. This system spreads the truck loads in an orderly manner. Once a
delivery is scheduled, a route-planning feature of the system determines the
most efficient route to deliver goods to the customer's home. Each aspect of
this process is tightly integrated and enables us to provide high quality and
timely service to our customers.
Our drivers are our ambassadors of customer care. Selected and trained to
be courteous and efficient, the drivers, if requested, carry the products
directly into the customer's kitchen. Each driver is authorized to replace
items or credit the customer's bill if the customer is not 100% satisfied.
Drivers are forbidden to solicit or accept tips. Whenever possible, we
schedule our drivers to visit the same neighborhoods on a regular schedule,
thereby providing the drivers an opportunity to establish relationships with
our regular customers. We believe the direct personal interaction between our
employees and our customers, which is rare in the Internet industry, fosters
the development of long-term relationships with our customers.
Customer Care
Ongoing customer support is important to our ability to establish and
maintain long-term relationships with our customers. We seek frequent
meaningful communication with our customers to enable us to continually
improve our service. For example, a customer service representative calls each
customer after the delivery of the first order to ensure his or her
satisfaction. We also offer numerous automated help options on the Storefront
and a rapid email response service. Our team of customer support and service
personnel handle general customer inquiries, answer customer questions about
the ordering process, and investigate the status of orders, deliveries and
payments. Our customer service representatives are available through our toll
free telephone number seven days each week from 7 a.m. to 11 p.m.
Marketing and Promotion
Our marketing and promotion programs are designed to strengthen the
HomeGrocer.com brand name, encourage trials of our service in our target
markets, build strong customer loyalty, maximize repeat purchases and increase
our average order size. We intend to build our brand name and customer loyalty
through our 100% customer satisfaction guarantee, public relations programs,
advertising campaigns, promotional activities and the visibility of our
branded trucks and uniformed delivery employees in customer neighborhoods.
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Amazon.com will introduce our service to its customers residing in our
service areas under our advertising agreement with Amazon.com, our largest
shareholder.
We have recently begun television advertising to build consumer awareness
for HomeGrocer.com. In addition, we utilize extensive radio advertising and
direct mail programs to attract first-time shoppers. To encourage a second
shopping experience and to demonstrate the high quality of our fresh produce,
we provide a free bag of produce with every first-time order. The second
shopping experience also allows a customer to experience the "My HomeGrocer
List" feature, which is designed to make online shopping faster and more
convenient with every subsequent purchase.
We also conduct corporate and "Peach Party" marketing programs. Through our
corporate programs, we offer employees of Fortune 500 and other large
corporations special incentives and discounts to encourage their use of our
service. The "Peach Party" marketing programs involve a customer hosting a
party for acquaintances and neighbors. We provide sample food and refreshments
and a trained representative demonstrates the use of our Storefront.
In the future, we expect to be able to provide, using collaborative
filtering technology, increasingly targeted and customized services based on
customer purchasing, preference and behavioral data generated through our
Storefront. We believe that personalization of our services will significantly
increase the value of our shopping solution for our customers.
Supply Relationships
We source products from a network of food, houseware and health and beauty
aid manufacturers, wholesalers, brokers and distributors. We currently rely on
rapid fulfillment from national and regional distributors for a substantial
portion of our products. In the Seattle and Portland markets, approximately
48% of our current product offerings are sourced through a single national
wholesaler. For our two new CFCs in Orange County, where that wholesaler does
not operate, we are using a different principal supplier. We purchase a number
of top brands and high volume items directly from manufacturers and may
increase our use of this direct purchasing as our product volumes increase
with additional CFCs. We also utilize premium specialty suppliers or local
sources for gourmet foods, traditional and organic produce, bakery items, fish
and meats and floral products. As of November 30, 1999, we were purchasing
products from 73 distributors and directly from over 36 manufacturers.
Competition
We are the first major online grocery retailer to operate in the Seattle,
Portland and Orange County/Los Angeles markets. However, the grocery retailing
market is extremely competitive. Local, regional, and national grocery stores,
independent food stores and supermarkets, as well as online grocery retailers
comprise our principal competition, although we also face substantial
competition from convenience stores, liquor retailers, membership warehouse
clubs, specialty retailers, supercenters, and drugstore chains. Many of our
existing and potential competitors, particularly traditional grocers and
retailers, are larger and have substantially greater resources than we do. We
expect online competition from other online and traditional grocers and
retailers to intensify in the future.
Currently, our potential competitors include between five and ten online
grocery retailers such as Webvan, Peapod, NetGrocer, HomeRuns, ShopLink.com
and Streamline.com and an expanding number of traditional retailers entering
the market. For example, in November 1999, Albertson's introduced an Internet
based service in the Seattle area, and Webvan recently announced it will
introduce its online grocery service in the Seattle area sometime in 2000. The
number and nature of competitors and the amount of competition we will
experience will vary over time and by market area.
The principal competitive factors that affect our business are convenience,
quality of products and service, breadth of product selection, price and
customer loyalty to traditional and online grocery retailers. We believe
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that we compare favorably to other online grocery retailers with respect to
each of these factors. However, many traditional grocery retailers may have
substantially greater levels of customer loyalty and serve many more locations
than we currently do. Consumers are often familiar with the layout of a
specific traditional store and may be resistant to learning other layouts or
shopping techniques. If we fail to effectively compete in any one of these
areas, we may lose existing and potential customers. This could materially
harm our business.
Government Regulation
In addition to regulations applicable to businesses generally or directly
applicable to e-commerce, we are subject to a variety of regulations
concerning the handling, sale and delivery of food, alcohol and tobacco
products. Currently, we are not subject to regulation by the U.S. Department
of Agriculture, or USDA. Whether the handling of certain food items in our
distribution facility, such as meat and fish, will subject us to USDA
regulation in the future will depend on several factors, including whether we
sell food products on a wholesale basis or whether we obtain food products
from non-USDA inspected facilities. Although we have designed our food
handling operations to comply with USDA regulations, in the future the USDA
may require changes to our food handling operations. We are also required to
comply with local health regulations concerning the preparation and packaging
of any prepared food items, such as deli salads that we prepare on site. Any
applicable federal, state or local regulations may cause us to incur
substantial compliance costs or delay the availability of a number of items at
one or more of our CFCs. In addition, any inquiry or investigation from a food
regulatory authority could have a negative impact on our reputation. Any of
these events could delay or impair our business and expansion plans and could
cause us to lose customers.
We will be required to obtain state, and in some cases county and
municipal, licenses and permits for the sale of alcohol in each location in
which we deliver. We cannot assure you that we will be able to obtain any
required permits or licenses in a timely manner, or at all. We may be forced
to incur substantial costs and experience significant delays in obtaining
these permits or licenses. In addition, the U.S. Congress is considering
enacting legislation that would restrict the interstate sale of alcoholic
beverages over the Internet. Changes to existing laws or our inability to
obtain required permits or licenses could prevent us from selling alcohol or
tobacco products in one or more of our geographic markets or a portion of
those markets where a market extends over two or more licensing jurisdictions.
In those locations where we cannot obtain alcohol permits or licenses, we will
be unable to sell these items, which could hurt our business.
In addition, it is possible that a number of laws and regulations may be
adopted with respect to the Internet and e-commerce that could adversely
affect the manner in which we currently conduct our business. In addition, the
growth and development of the market for e-commerce may lead to more stringent
consumer protection laws which may impose additional burdens on us. Laws and
regulations directly applicable to communications or commerce over the
Internet are becoming more prevalent. The U.S. government recently enacted
Internet laws regarding privacy, copyrights, taxation and the transmission of
sexually explicit material. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel and taxation apply to the Internet. If
we are required to comply with new regulations or legislation or new
interpretations of existing regulations or legislation, this compliance could
cause us to incur additional expenses or alter our business model.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws were adopted
prior to the wide use of the Internet. As a result, they do not contemplate or
address the unique issues of the Internet and related technologies. Changes in
laws intended to address these issues could create uncertainty in the Internet
marketplace. This uncertainty could reduce demand for our services or increase
the cost of doing business as a result of litigation costs or increased
service delivery costs.
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Intellectual Property
We regard copyrights, service marks, trademarks, trade secrets and similar
intellectual property as important to our success. We rely on patent,
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to
protect our proprietary rights; however, the steps we take to protect our
proprietary rights may be inadequate. We have a registered trademark in the
United States for "HomeGrocer," and have filed trademark registration
applications for the marks "HomeGrocer.com," "Peach Party," the HomeGrocer.com
logo in the United States and abroad. We have also filed a trademark
application for our slogan "here comes the grocery store" in the United
States.
From time to time, we expect to file patent applications directed to
aspects of our proprietary technology. We currently have no patents protecting
our technology. We cannot assure you that any of our pending patent
applications will be approved, that any issued patents will protect our
intellectual property or that any issued patents or trademark registrations
will not be challenged by third parties.
Employees
As of November 30, 1999, we had 949 employees, consisting of 119 employed
in the information technology area, 68 in operations and administration, 33 in
merchandising, 20 in marketing and 709 at our CFCs and performing related
delivery services. We expect to hire additional personnel as we expand
operations and staff additional CFCs. Although some companies that operate in
the trucking, warehouse and grocery industries are subject to collective
bargaining agreements, we are not currently represented by a labor union. We
have not experienced any work stoppages and consider our employee relations to
be good.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not currently a party
to any material litigation.
We have received a letter from a graphic artist alleging that our corporate
peach logo violates that artist's copyright. The artist has threatened, but
not instituted, legal proceedings. We do not believe that the artist's
allegations have merit. However, this claim, even if not meritorious, could be
expensive and could divert our attention from our core business operations. If
we become liable to the artist for copyright infringement, we could be
required to pay substantial damages, obtain a license from the artist or
modify our corporate logo, any of which could be expensive or compromise our
brand identity. We believe that the design agency that created this logo for
us has a contractual obligation to indemnify us for this claim.
Facilities
Our corporate offices are located in Kirkland, Washington where we lease
approximately 81,000 square feet. We lease approximately 72,000 square feet of
that space under a lease that expires in 2004, with an option to renew for two
additional five-year terms. We sublease from another tenant the remaining
approximately 9,000 square feet of space under a sublease that expires in
2008, with no option to renew. Of this 81,000 square feet, we currently occupy
approximately 64,000 square feet and sublease approximately 17,000 square feet
to another tenant under a sublease that expires in August 31, 2000. We
anticipate we will require additional office space in the future to
accommodate our growth.
We also lease approximately 320,000 square feet for our Renton, Washington
CFC under a lease that expires in 2007, with an option to renew for an
additional five years. We currently sublease approximately 200,000 square feet
of this space to third parties. We also lease an aggregate of approximately
764,000 square feet for our current and future CFCs in the Portland, Oregon
and Southern California markets under leases that expire from 2009 to 2015. We
are evaluating sites and negotiating leases for CFCs in additional markets.
Although we expect those sites to be available, we cannot assure you that
suitable sites will be available on
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commercially reasonable terms. We do not own any real estate and we expect,
wherever possible, to lease CFCs in the additional markets we enter.
Environmental Matters
We are subject to various environmental laws and regulations governing the
maintenance of our vehicles, the operation of real property, and the
generation, storage, use, emission, discharge, transportation and disposal of
oil or other hazardous materials, and the health and safety of our employees.
These laws may impose liability even if we did not know of, or were not
responsible for contamination or other damage. Based on current information,
however, we are aware of no liabilities under environmental laws which would be
expected to have a material adverse effect on our business, results of
operations or financial condition.
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MANAGEMENT
Executive Officers and Directors
The names and ages of the executive officers and directors of
HomeGrocer.com as of November 30, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<C> <C> <S>
Mary Alice Taylor........... 49 Chief Executive Officer and Chairman of the
Board
J. Terrence Drayton......... 39 President and Director
Daniel R. Lee............... 43 Senior Vice President and Chief Financial
Officer
Mary B. Anderson............ 44 Vice President of Finance
Rex L. Carter............... 47 Senior Vice President of Systems Development
& Technology
Ken Deering................. 40 Vice President of Storefront
Robert G. Duffy............. 38 Chief Information Officer
Corwin J. Karaffa........... 44 Senior Vice President of Operations
Jonathan W. Landers......... 47 Senior Vice President of Marketing and Sales
Daniel J. Murphy............ 53 Vice President of Merchandising
David A. Pace............... 40 Senior Vice President of People Capability
Kristin H. Stred............ 40 Senior Vice President, General Counsel and
Secretary
Tom A. Alberg(1)............ 59 Director
Charles K. Barbo............ 58 Director
James L. Barksdale(2)....... 56 Director
Mark P. Gorenberg(1)........ 44 Director
Jonathan D. Lazarus(2)...... 48 Director
Douglas Mackenzie(2)........ 40 Director
David Risher(1)............. 34 Director
Philip S. Schlein........... 65 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mary Alice Taylor has served as chairman and chief executive officer of
HomeGrocer.com since September 1999. Prior to joining HomeGrocer.com, Ms.
Taylor served as corporate executive vice president of Global Operations and
Technology for Citigroup from January 1997 to September 1999 where she was
responsible for standardizing and centralizing worldwide operations and
leading quality and cost-effectiveness efforts. From June 1980 until January
1997, Ms. Taylor held various positions with Federal Express, serving most
recently as senior vice president of Ground Operations where she was
responsible for all aspects of pickup and delivery operations in North
America. Prior to her positions at Citigroup and Federal Express, from 1977 to
1980 she was the financial planning manager of U.S. Operations with Northern
Telecom, Inc. From 1973 to 1977 Ms. Taylor was the controller at Cook
Investment Properties, a division of Cook Industries and from 1971 to 1973,
Ms. Taylor served as senior accountant, oil and gas explorations with Shell
Oil. Ms. Taylor also serves as a director on the boards of Autodesk and Dell
Computer. Previously she served on the boards of The Perrigo Company and
Allstate Insurance Company. Ms. Taylor holds a B.A. in finance from
Mississippi State University and is a Certified Public Accountant.
J. Terrence Drayton co-founded HomeGrocer.com and has served as its
president since the incorporation of its predecessor in January 1997. Mr.
Drayton also served as chief executive officer of HomeGrocer.com from January
1997 until September 1999. Prior to co-founding HomeGrocer.com, Mr. Drayton
was involved for more than ten years as co-founder and senior manager of two
of the leading bottled water companies in Canada. From November 1991 to
January 1996, Mr. Drayton was the president of the home and office division of
Aquaterra, a Canadian bottled water company producing the brand names Crystal
Springs and Labrador. From September 1989 through September 1991 Mr. Drayton
served as chairman and chief executive officer of Telepost
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Communications, a publicly traded Canadian film and video post-production
company. From March 1986 to May 1989 Mr. Drayton was the co-founder, executive
vice president and co-chief executive officer for Laurentian Spring Valley
Water. He holds a B.Comm. from the University of Calgary and an M.B.A. from
York University.
Daniel R. Lee joined HomeGrocer.com as chief financial officer in November
1999 and was also appointed senior vice president in December 1999. From
February 1992 to September 1999, Mr. Lee served as chief financial officer,
treasurer and senior vice president of finance and development for Mirage
Resorts, a publicly traded company (NYSE:MIR) that develops and operates
large-scale resort hotels. From February 1990 to February 1992, he was a
director of equity research for CS First Boston, an investment bank. From July
1980 to February 1990, he held various positions with the investment bank
Drexel Burnham Lambert, most recently as a managing director. Mr. Lee holds a
B.S. and an M.B.A., both from Cornell University, and he is a Chartered
Financial Analyst.
Mary B. Anderson joined HomeGrocer.com as a full-time consultant in
February 1999 and has served as vice president of finance since August 1999.
Prior to joining HomeGrocer.com, Ms. Anderson was executive vice president and
chief financial officer of CyberSafe, an enterprise network security software
company, from June 1997 to November 1998. From June 1995 to June 1997, Ms.
Anderson served as chief financial officer and vice president of business
operations at AT&T Wireless Services, Wireless Data Division (formerly McCaw
Cellular Communications). From April 1991 to June 1995, Ms. Anderson served as
vice president of finance for McCaw Cellular Communications and LIN
Broadcasting. From June 1979 to April 1991 she served in various capacities at
Seafirst Bank, most recently as senior vice president. Ms. Anderson holds a
B.S. in Management from Purdue University and an M.B.A. from the University of
Washington. She is also a Washington State Certified Public Accountant.
Rex L. Carter has served as vice president of systems development and
technology of HomeGrocer.com since November 1999 and was also appointed senior
vice president in December 1999. Prior to joining HomeGrocer.com, from
February 1993 to November 1999, Mr. Carter was with the Carlson Companies, an
owner and operator of hotels, restaurants and travel agencies, most recently
serving as senior vice president and chief information officer. From May 1991
to February 1993, Mr. Carlson was a senior manager with EDS (Electronic Data
Systems). From September 1978 to May 1991, Mr. Carter held a variety of
officer positions, including vice president of telecommunications and
technology centers, for the subsidiary companies of Texas Air Corporation.
From 1974 to 1978, Mr. Carter held the positions of consultant and senior
consultant with Booz, Allen & Hamilton, management consultants. Mr. Carter
holds a B.S. in engineering from Purdue University. He also attended Xavier
(Ohio) Graduate School of Business and is a registered Professional Engineer
with the State of Ohio.
Ken Deering co-founded HomeGrocer.com. Since inception, he has held several
positions with HomeGrocer.com and its predecessor, including marketing manager
from August 1996 to October 1997, vice president of business development from
October 1997 to May 1999 and vice president of storefront from May 1999 to the
present. Prior to his involvement with HomeGrocer.com, Mr. Deering was an
independent management consultant through his firm, Heldeer Ventures, from
August 1994 to August 1996. From January 1992 to July 1994, Mr. Deering held
the positions of general manager and then vice president of sales and
marketing for Offshore Systems, a developer of electronic marine positioning
systems. Over the prior 12 years, Mr. Deering held various marketing and
operations positions, including six years at Glenayre Technologies, a
developer of software for wireless personal communication systems. Mr. Deering
has a sales and marketing management diploma from the University of British
Columbia.
Robert G. Duffy joined HomeGrocer.com in June 1998 as its chief technology
officer and since September 1998 has served as its chief information officer.
From January 1998 to May 1998, Mr. Duffy was a management consultant at
Analytical Software where he led the technology initiatives that launched
HomeGrocer.com. From March 1993 to December 1997, Mr. Duffy was a management
consultant and one of the founders of the systems integration practice of BEST
Consulting where he provided management and
44
<PAGE>
technology consulting services to various Fortune 100 companies. From October
1985 to February 1993, he worked for Andersen Consulting, co-founding
Andersen's Workstation Technology Group where he managed the development of a
high volume perishables warehouse management system. From May 1983 to
September 1985, he was a software engineer with NASA's Johnson Space Center.
Mr. Duffy has a B.S. in applied mathematics/operations research from the
University of Tulsa's College of Engineering.
Corwin J. Karaffa has served as vice president of operations of
HomeGrocer.com since September 1999 and was appointed senior vice president in
December 1999. Before joining HomeGrocer.com, from January 1995 to August
1999, Mr. Karaffa was the vice president of distribution of Certified Grocers
of California, a retailer-owned grocery cooperative serving 2,700 retail
stores. From March 1985 to January 1995, Mr. Karaffa held various management
positions with Procter & Gamble, most recently as manager of distribution
development. From June 1977 to March 1985, Mr. Karaffa was a U.S. Naval
aviator. Mr. Karaffa has a B.S. in political science from the United States
Naval Academy in Annapolis, Maryland.
Jonathan W. Landers has served as vice president of marketing and sales for
HomeGrocer.com since November 1998 and was appointed senior vice president in
December 1999. Prior to joining HomeGrocer.com, Mr. Landers was the vice
president of marketing for Norm Thompson Outfitters, Inc. in Hillsboro, Oregon
from May 1997 to November 1998. From April 1992 to April 1997, Mr. Landers was
vice president of corporate marketing and new business development for the
National Geographic Society in Washington D.C. From October 1991 to March
1992, he was interim vice president of corporate marketing for Russell
Athletic in Alexander City, Alabama. From February 1989 to December 1991, Mr.
Landers was the president and chief executive officer of Neuhaus (U.S.A.) in
Port Washington, New York and from August 1983 to January 1989, Mr. Landers
held various positions within Sara Lee subsidiaries including Hanes and Coach
Leatherware. Mr. Landers holds a B.A. in government from Bowdoin College and
an M.B.A. from Columbia University.
Daniel J. Murphy has served as vice president of merchandising for
HomeGrocer.com since May 1999. Prior to joining HomeGrocer.com, from October
1998 to May 1999, Mr. Murphy was vice president of U.S.A., Retail Client
Services for Inter-Act Systems. Prior to that, from October 1997 to October
1998, Mr. Murphy was vice president of sales and merchandising for Super Fresh
Food Markets. From July 1989 to October 1997, he was vice president of sales
and merchandising for Shop Rite Supermarkets, a subsidiary of Wakefern Food
Corporation. From May 1985 to July 1989, Mr. Murphy was the director of
merchandising for Wakefern Food Corporation, a member-owned food cooperative,
and from September 1979 to May 1985, he was the director of chain store sales
for The Coca-Cola Bottling Co. of New York. He holds a B.A. in business
administration and a B.S. in secondary education from John F. Kennedy College.
David A. Pace joined HomeGrocer.com in September 1999 as vice president of
people capability and was appointed senior vice president in December 1999.
Prior to joining HomeGrocer.com, from October 1997 to September 1999, Mr. Pace
was with Tricon Restaurants International, a restaurant management company,
most recently as senior vice president of human resources. Prior to his
position with Tricon, from June 1981 to October 1997, Mr. Pace was with
PepsiCo throughout the United States, Africa, Middle East and Europe, most
recently as senior vice president, Human Resources for PepsiCo Restaurants
International. Mr. Pace holds a B.S. in industrial and labor relations from
Cornell University.
Kristin H. Stred joined HomeGrocer.com as vice president and general
counsel in September 1999 and was appointed senior vice president in December
1999. Prior to joining HomeGrocer.com, from July 1992 to September 1999, Ms.
Stred held various positions with Shurgard Storage Centers, a developer of
self-storage properties, and its predecessor companies, where she was most
recently senior vice president and general counsel. From October 1991 to July
1992, she was an attorney with Boeing and from July 1987 to September 1991,
Ms. Stred was assistant general counsel at King Broadcasting. From June 1984
to July 1987, she practiced law at Garvey, Schubert & Barer, a Seattle based
law firm. Ms. Stred holds a B.A. in history and a J.D., both from Harvard
University.
Tom A. Alberg has served as a director of HomeGrocer.com since June 1998.
He has been a principal of Madrona Investment Group, a venture investment
firm, since January 1996 and a managing director of Madrona
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<PAGE>
Venture Fund, a venture capital fund, since October 1999. Prior to that time,
Mr. Alberg was the President and a director of LIN Broadcasting, a cellular
telephone company, from April 1991 to October 1995, and an Executive Vice
President of AT&T Wireless Services, formerly McCaw Cellular Communications,
from July 1990 to October 1995. Prior to July 1990, Mr. Alberg was chairman of
the executive committee and a partner in the law firm of Perkins Coie in
Seattle. Mr. Alberg is also a director of Active Voice, Advanced Digital
Information, Amazon.com, Emeritus, Teledesic and Visio. Mr. Alberg received
his B.A. from Harvard University and his J.D. from Columbia University.
Charles K. Barbo has served as a director of HomeGrocer.com since October
1997. In 1972, Mr. Barbo co-founded the predecessor of Shurgard Storage
Centers, a developer of self-storage properties, and served most recently as
president and chairman of the board until March 1995 when he became chairman
and chief executive officer of Shurgard Storage Centers. Mr. Barbo is a
graduate of the Owner/President Management Program of Harvard Business School
and has a B.A. in history from the University of Washington.
James L. Barksdale has served as a director of HomeGrocer.com since April
1999. Mr. Barksdale has been managing partner of The Barksdale Group, an
investment and advisory group, since May 1999. He was president and chief
executive officer of Netscape Communications from January 1995 until March
1999, when Netscape was acquired by America Online. From January 1992 to
December 1994, Mr. Barksdale served as president and chief operating officer
of AT&T Wireless Services, Wireless Data Division (formerly McCaw Cellular
Communications), and from September 1994 to December 1994 also served as the
chief executive officer. Prior to that, from April 1983 to January 1992, he
served as executive vice president and chief operating officer of Federal
Express and from 1979 to 1983 he served as the chief information officer. Mr.
Barksdale is also a director of 3Com, Liberate Technologies, Federal Express,
Robert Mondavi, Respond.com, Sun Microsystems and America Online. Mr.
Barksdale holds a B.A. in business from the University of Mississippi.
Mark P. Gorenberg has served as a director of HomeGrocer.com since March
1999. Since July 1993, Mr. Gorenberg has been a general partner of Hummer
Winblad Venture Partners, an investment partnership, and, from July 1990 to
June 1993, Mr. Gorenberg was an associate of Hummer Winblad Venture Partners.
Prior to joining Hummer Winblad Venture Partners, Mr. Gorenberg was a senior
software manager in Advanced Product Development at Sun Microsystems. Mr.
Gorenberg is also a director of AdForce and seven private companies. Mr.
Gorenberg received a B.S. in electrical engineering from the Massachusetts
Institute of Technology, an M.S. in electrical engineering from the University
of Minnesota and an M.S. in engineering management from Stanford University.
Jonathan D. Lazarus has served as a director of HomeGrocer.com since
September 1998. Since retiring from Microsoft in September 1996, Mr. Lazarus
has spent most of his time working with small companies who are exploring the
commercial entrepreneurial opportunities of the Internet and personal
computing. From July 1988 to September 1996, Mr. Lazarus worked at Microsoft,
where he served most recently as vice president, strategic relations. Mr.
Lazarus currently serves on the boards of directors of Ziff-Davis, DataChannel
and Vision Solutions. Mr. Lazarus holds a B.S. in communications from Temple
University.
Douglas Mackenzie has served as a director of HomeGrocer.com since
September 1998. Mr. Mackenzie has been a partner with Kleiner Perkins Caufield
& Byers, a venture capital firm, since 1992. Currently, Mr. Mackenzie also
serves on the boards of directors of Visio Corporation, Marimba, Pivotal
Corporation and E.piphany. Mr. Mackenzie holds an A.B. in economics and an
M.S. in industrial engineering, both from Stanford University, and an M.B.A.
from Harvard Business School.
David Risher has served as a director of HomeGrocer.com since April 1999.
From February 1997 to the present, Mr. Risher has held several positions at
Amazon.com. where he is presently the senior vice president of Product
Development. From July 1991 to February 1997, Mr. Risher held a variety of
marketing and project management positions at Microsoft, most recently as
founder and product unit manager for MS Investor, Microsoft's web site for
personal investment. Mr. Risher received his B.A. in comparative literature
from Princeton University and an M.B.A. from Harvard Business School.
46
<PAGE>
Philip S. Schlein has served as a director of HomeGrocer.com from October
1997 to December 1997 and from April 1998 through the present. Mr. Schlein has
been a general partner, and subsequently a venture partner, of U.S. Venture
Partners, a venture capital firm, since April 1985. Mr. Schlein held various
executive positions with Macy's from 1957 to 1973 and was president and chief
executive officer of Macy's California division from 1974 to 1985.
Additionally, Mr. Schlein currently serves as a director of bebe stores, Ross
Stores, Xoom.com, Burnham Pacific and Quick Response Services. Mr. Schlein
holds a B.S. in economics from the University of Pennsylvania.
Board Composition
Our bylaws currently authorize ten directors and we have ten directors on
our board. Each director is elected for a period of one year at the annual
meeting of stockholders and serves until the next annual meeting or until a
successor is duly elected and qualified. Our executive officers serve at the
discretion of our board of directors. There are no family relationships among
any of our directors or executive officers.
Our board of directors will be divided into three classes effective upon an
amendment to our articles of incorporation which will occur upon the closing
of the offering. The Class I directors, James L. Barksdale, Mark P. Gorenberg,
and Philip S. Schlein, will serve an initial term until the 2000 annual
meeting of stockholders, the Class II directors, Charles K. Barbo, J. Terrence
Drayton, Jonathan D. Lazarus and Douglas Mackenzie, will serve an initial term
until the 2001 annual meeting of stockholders, and the Class III directors,
Tom A. Alberg, David Risher and Mary Alice Taylor, will serve an initial term
until the 2002 annual meeting of stockholders. Each class will be elected for
a three-year term following its initial term.
Board Compensation
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors. Directors are also eligible to
participate in our 1997 stock incentive compensation plan and our 1999 stock
incentive plan, and beginning as of the effective date of this offering, they
will be eligible to participate in our 1999 Directors' Stock Option Plan and
in our 1999 Employee Stock Purchase Plan. All of our 1999 plans are subject to
stockholder approval, which we expect to receive prior to the closing of this
offering. See "Stock Plans."
Pursuant to our 1997 stock incentive compensation plan, in April 1998, Mr.
Barbo was granted an option to purchase 500,000 shares of common stock and an
additional option to purchase 200,000 shares of common stock, each with an
exercise price of $0.25 per share; in April 1998, Mr. Schlein was granted an
option to purchase 200,000 shares of common stock at an exercise price of
$0.25 per share; in June 1998, Mr. Alberg was granted an option to purchase
200,000 shares of common stock at an exercise price of $0.25 per share; in
November 1998, Mr. Lazarus was granted an option to purchase 200,000 shares of
common stock at an exercise price of $0.25 per share; and in April 1999, Mr.
Barksdale was granted an option to purchase 200,000 shares of common stock at
an exercise price of $0.45 per share. Each of these options is fully vested
and exercisable at this time.
Board Committees
In April 1998, the board established an audit committee and a compensation
committee. The audit committee reviews our annual audit, meets with
independent auditors and oversees the effectiveness of financial management
practices. The audit committee currently consists of Tom A. Alberg, Mark P.
Gorenberg and David Risher. The compensation committee recommends compensation
for certain of our personnel to the board and administers our stock plans. The
compensation committee currently consists of James L. Barksdale, Jonathan D.
Lazarus and Douglas Mackenzie.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
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<PAGE>
Executive Compensation
The following table provides summary information concerning the
compensation received for services rendered to HomeGrocer.com during the
fiscal year ended January 2, 1999 by our chief executive officer and each of
the other most highly compensated executive officers whose aggregate
compensation during fiscal year 1998 exceeded $100,000. Throughout this
prospectus, we refer to the following officers as our named executive
officers. None of our other executive officers who held office as of January
2, 1999 met the definition of "highly compensated" within the meaning of the
Securities and Exchange Commission's executive compensation disclosure rules.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------- Securities
Other Annual Underlying
Name and Principal Positions Salary ($) Bonus ($) Compensation ($) Options (#)
- ---------------------------- ---------- --------- ---------------- ------------
<S> <C> <C> <C> <C>
J. Terrence Drayton(1)...... $81,411 -- -- --
President and Former Chief
Executive Officer
Ken Deering................. $99,539 $43,468 -- 520,000
Vice President of
Storefront and Former Vice
President of Business
Development
</TABLE>
- --------
(1) Mr. Drayton served as chief executive officer of HomeGrocer.com from
January 1997 to September 1999. Mary Alice Taylor has served as chief
executive officer of HomeGrocer.com since September 9, 1999 and was not
employed by HomeGrocer.com in the year ended January 2, 1999.
Option Grants
The following table provides summary information regarding stock options
granted to the named executive officers during the fiscal year ended January
2, 1999. The options were granted pursuant to our 1997 stock incentive
compensation plan. In accordance with the rules of the Securities and Exchange
Commission, also shown below is the potential realizable value over the term
of the option, the period from the grant date to the expiration date, giving
effect to an assumed initial public offering price of $ per share and
based on assumed rated of stock appreciation of 5% and 10%, compounded
annually. These rates are mandated by the Securities and Exchange Commission
and do not represent our estimate of our future common stock price. Actual
gains, if any, on stock option exercises will depend on the future performance
of our common stock. In the year ended January 2, 1999, we granted options to
acquire up to an aggregate of 4,509,000 shares of common stock to employees
and directors, all under our 1997 stock incentive compensation plan and, with
the exception of two grants dated April 21, 1998, all at exercise prices equal
to the fair market value of our common stock on the date of grant as
determined in good faith by our board of directors.
<TABLE>
<CAPTION>
Potential
Realizable
Value At
Assumed Annual
Rates
of Stock Price
Appreciation
For Option
Individual Grants Term
----------------------------- ---------------
Number Of Percent Of
Securities Total Options
Underlying Granted To Exercise Or
Options Granted Employees In Base Price Expiration
Name (#)(1) Fiscal Year ($/Share) Date(1) 5% 10%
- ---- --------------- ------------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ken Deering............. 120,000 2.66% $0.09 --
Ken Deering............. 400,000 8.87% 0.25 --
</TABLE>
Option Grants in the Fiscal Year Ended January 2, 1999
- --------
(1) Mr. Deering's options were fully vested upon grant and he exercised them
in full on September 22, 1999.
48
<PAGE>
Option Exercises and Holdings
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the
named executive officers as of January 2, 1999. No options were exercised by
the named executive officers during the year ended January 2, 1999.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at January 2, 1999 January 2, 1999(1)
-------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Ken Deering...... 120,000 0 $ 0
Ken Deering...... 400,000 0 0
</TABLE>
- --------
(1) Value is determined by subtracting the exercise price from the proposed
initial public offering price of the common stock, multiplied by the
number of shares underlying the options.
Employment Agreements
We have entered into employment agreements with three of our executive
officers:
Mary Alice Taylor. In September 1999, we entered into an employment
agreement with Mary Alice Taylor, our chairman and chief executive officer.
Under the agreement, we agreed to pay Ms. Taylor an annual base salary of
$200,000 and a quarterly bonus to be determined by the compensation committee.
In connection with this employment agreement we also granted Ms. Taylor an
option to purchase 4,500,000 shares of our common stock. On September 9, 1999
Ms. Taylor purchased 1,500,000 shares of our common stock at a purchase price
of $0.45 per share and exercised options to purchase 4,500,000 shares of
common stock at an exercise price of $0.45 per share. We also loaned Ms.
Taylor a total of $2,241,000 pursuant to two full recourse promissory notes,
each with an annual interest rate of 5.98%. Ms. Taylor used this loan and cash
to purchase the 1,500,000 shares and to exercise the 4,500,000 options. All
principal and accrued interest under the loan remains outstanding and is due
and payable on September 9, 2004. As of November 30, 1999, the outstanding
balance of Ms. Taylor's loan was approximately $2,272,000.
As of November 30, 1999, HomeGrocer.com had a right to repurchase 4,500,000
shares of unvested common stock held by Ms. Taylor. This right lapses with
respect to one-fourth ( 1/4th) of the unvested shares on September 2, 2000,
and thereafter on the second day of every month at a rate of one forty-eighth
( 1/48th) of the total number of shares, until all of the shares are released
from the repurchase option, subject to Ms. Taylor's continued service with
HomeGrocer.com. If Ms. Taylor dies or becomes permanently disabled, the
repurchase right will lapse to the extent of the greater of 50% of the shares
still subject to the repurchase right or the number of shares that would have
vested had Ms. Taylor continued in the employment of HomeGrocer.com for an
additional 12 months. If Ms. Taylor's employment is terminated without cause
or she resigns for good reason, the lesser of 750,000 shares or all of the
shares still subject to the repurchase right shall be released from the
repurchase right and we will pay Ms. Taylor's salary for two years after the
date of her termination or resignation. If HomeGrocer.com merges into or is
acquired by another entity and Ms. Taylor is not offered a similar position
with similar responsibilities by the surviving entity, the greater of
3,000,000 shares or the number of shares that would have been released from
the repurchase right if Ms. Taylor had continued her employment for another
two years, will be released from the repurchase right. Under the terms of the
agreement, we also granted Ms. Taylor piggyback registration rights for her
shares of common stock. HomeGrocer.com will also pay relocation-related
expenses incurred by Ms. Taylor.
J. Terrence Drayton. In June 1999, we entered into an employment agreement
with J. Terrence Drayton, our president. Under the employment agreement, we
agreed to pay Mr. Drayton a base salary of $200,000 per year and a quarterly
bonus to be determined by the compensation committee. In connection with this
employment agreement, we also granted Mr. Drayton an option to purchase
1,650,000 shares of our common stock. On September 9, 1999 Mr. Drayton
purchased 550,000 shares of HomeGrocer.com common stock at a price of
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<PAGE>
$0.45 per share and exercised options to purchase 1,650,000 shares of common
stock at an exercise price of $0.45 per share. We also loaned Mr. Drayton
$990,000 pursuant to two full recourse promissory notes, each with an annual
interest rate of 5.98%. Mr. Drayton used this loan to purchase the 550,000
shares and to exercise the 1,650,000 options. All principal and accrued
interest under the loan remains outstanding and is due and payable on
September 9, 2004. As of November 30, 1999, the outstanding balance of Mr.
Drayton's loan was approximately $1,003,000.
As of November 30, 1999, HomeGrocer.com had a right to repurchase 1,650,000
shares of unvested common stock held by Mr. Drayton. This right will lapse
with respect to one-fourth ( 1/4th) of the total number of shares as of June
11, 2000, and thereafter on the eleventh day of every month at a rate of one
forty-eighth ( 1/48th) of the total number of shares, until all of the shares
are released from the repurchase option, subject to Mr. Drayton's continued
service with HomeGrocer.com. If Mr. Drayton dies or becomes permanently
disabled, the repurchase right will lapse to the extent of the greater of 50%
of the shares still subject to the repurchase right or the number of shares
that would have vested had Mr. Drayton continued in the employment of
HomeGrocer.com for 12 months. Under the agreement, if Mr. Drayton's employment
is terminated without cause or he resigns for good reason, the lesser of
270,000 shares or all of the shares still subject to the repurchase right
shall be released from the repurchase right and we will pay Mr. Drayton's
salary for two years after the date of his termination or resignation. If
HomeGrocer.com merges into or is acquired by another entity and Mr. Drayton is
not offered a similar position with similar responsibilities by the surviving
entity, the greater of 1,100,000 shares or the number of shares that would
have been released from the repurchase right if Mr. Drayton had continued his
employment for another two years will be released from the repurchase right.
Under the terms of the agreement, we also granted Mr. Drayton piggyback
registration rights for his shares of common stock.
Daniel R. Lee. In November 1999, we entered into an employment agreement
with Daniel R. Lee, our senior vice president and chief financial officer.
Under the agreement, we agreed to pay Mr. Lee a base salary of $180,000 per
year and a quarterly bonus to be determined by the compensation committee. The
bonus is guaranteed to be at least $50,000 for 2000. We granted Mr. Lee an
option to purchase 1,200,000 shares of our common stock at an exercise price
of $2.50 per share. Of these, 300,000 shares will vest on November 8, 2000,
and the remainder will vest over the following three years on the third day of
every month at the rate of 25,000 shares per month. If Mr. Lee's employment is
terminated by HomeGrocer.com during the first year, his option will become
vested according to the pro-rated number of months that he was employed with
HomeGrocer.com.
David A. Pace. In August 1999, we entered into an employment agreement with
David A. Pace, our senior vice president of people capability. Under the
agreement, we agreed to pay Mr. Pace a base salary of $175,000 per year and a
quarterly bonus guaranteed to be $50,000 for 1999. If Mr. Pace's employment is
terminated by HomeGrocer.com during the first year Mr. Pace is entitled to
receive continuation of his salary for 12 months beyond the date of his
termination.
Stock Plans
1999 Stock Incentive Plan. The 1999 stock incentive plan was adopted by the
board of directors in December 1999. We will be submitting it for approval by
the stockholders prior to the closing of this offering. We have reserved a
total of 12,500,000 shares plus an annual increase on the first day of each of
the next five HomeGrocer.com fiscal years beginning in 2001 equal to the
lesser of 2,500,000 shares or 2.5% of the outstanding shares of common stock
on the last day of the preceding fiscal year for issuance under the 1999 stock
incentive plan. HomeGrocer.com has not issued any options or other stock
awards under the 1999 stock incentive plan to date. The 1999 stock incentive
plan provides for the grant of incentive stock options to employees and
directors who are employees, and the grant of nonstatutory stock options and
awards of restricted stock, stock appreciation rights and stock units to
employees, non-employee directors and consultants. The compensation committee
currently administers the 1999 stock incentive plan. The administrator of the
1999 stock incentive plan will determine number, vesting schedule, and
exercise price for options, or conditions for awards of restricted stock,
stock appreciation rights and stock units granted under the 1999 stock
incentive plan, provided, however, an individual employee may not receive
aggregate option grants and other stock awards for more than 2,500,000 shares
in any fiscal year, and the exercise price of incentive stock options must be
at least
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equal to the fair market value of the common stock on the date of grant or, in
the case of a 10% shareholder, at least equal to 110% of the fair market value
of the common stock on the date of grant. Payment of the exercise price or
purchase price may be made in cash or other consideration as determined by the
administrator. In the event a participant is terminated from service for
HomeGrocer.com in circumstances that may constitute cause, the participant's
right to exercise any award is suspended until the administrator determines
whether cause existed, and if so, the participant's rights with respect to the
award are forfeited.
In the event of a sale of all or substantially all of the assets of
HomeGrocer.com, or the merger or consolidation of HomeGrocer.com with or into
another corporation, the administrator may take any one or more of the
following actions, in its discretion:
. Provide that outstanding awards, or certain types of outstanding awards,
shall be assumed or equivalent awards be substituted by the successor
corporation;
. Provide notice to award recipients that all awards, or certain types of
awards, to the extent then exercisable or to be exercisable as a result
of the transaction, must be exercised on or before a specified date
after which the awards terminate;
. Terminate each award, or certain types of awards, in exchange for a
payment equal to the excess of the fair market value of the shares
underlying the award that are vested and exercisable immediately prior
to the closing of the transaction over the exercise price with respect
to such shares;
. Facilitate the exercise of awards that become exercisable as a result of
the transaction by adopting procedures providing for the exercise of
unvested awards contingent on the consummation of the transaction; or
. Provide that repurchase rights with respect to stock purchased upon
exercise of an option or a stock purchase right be assigned to the
successor corporation, or if not so assigned, lapse in full upon the
consummation of the transaction.
The board of directors may amend or terminate the 1999 stock incentive plan
provided that no action that impairs the rights of any holder of an
outstanding option may be taken without the holder's consent. In addition, we
will obtain requisite stockholder approval for any action requiring
stockholder approval under applicable law. The 1999 stock incentive plan will
terminate in December 2009 unless the board of directors terminates it
earlier.
1997 Stock Incentive Compensation Plan. The 1997 plan was adopted by the
board of directors and approved by the stockholders on October 7, 1997. It
provides for the grant of incentive stock options to employees and the grant
of nonstatutory stock options and stock awards to employees, non-employee
directors and consultants. A total of 15,924,334 shares of common stock has
been reserved for issuance under the 1997 plan as of the date of this
offering. As of November 30, 1999, options to purchase 6,060,470 shares of
common stock had been exercised, options to purchase a total of 7,354,722
shares at a weighted average exercise price of $1.31 were outstanding and
2,509,142 shares remained available for future grants. The plan has no fixed
expiration date; provided, however, that no incentive stock options may be
granted more than ten years after the plan's adoption (on October 7, 1997).
Accordingly, after October 7, 2007, no incentive stock options may be granted
under the 1997 plan.
The 1997 plan is currently administered by the compensation committee of
the board of directors. The terms of options and stock awards granted under
the 1997 Plan are determined by the administrator, including the number of
shares underlying options, exercise price, term and exercisability. The term
of options shall be 10 years from date of grant unless otherwise established
by the administrator, and options generally vest at the rate of 25% of the
total number of shares subject to options 12 months after the date of grant
and 1/48th of the total number of shares subject to options each month
thereafter. The exercise price of incentive stock options must be at least
equal to the fair market value of the common stock on the date of grant or, in
the case of a 10% shareholder, at least equal to 110% of the fair market value
of the common stock on the date of grant. Payment of the exercise price or
purchase price may be made in cash or other consideration as determined by the
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administrator. The 1997 plan does not impose an annual limitation on the
number of shares subject to options that may be issued to any individual
employee.
In addition, upon a sale of all or substantially all of the HomeGrocer.com
assets, or a merger or consolidation of HomeGrocer.com with or into another
corporation, all options outstanding under the 1997 plan will be assumed or
equivalent options substituted by the successor corporation, unless the
successor corporation does not agree to this assumption or substitution, in
which case the options shall automatically accelerate so that each option
shall, immediately prior to the closing of the transaction, become 100% vested
and exercisable. Any options that are assumed or replaced in the sale, merger
or consolidation that do not otherwise accelerate, shall be accelerated in the
event that the option holder's employment or services are terminated within
two years following the transaction unless the option holder is terminated for
cause or leaves voluntarily without good reason. Also, the acceleration of
options shall not occur if it would make unavailable "pooling of interest"
accounting treatment for the sale, merger or consolidation.
1999 Directors' Stock Option Plan. The 1999 directors' plan was adopted by
our board of directors in December 1999. We will be submitting it for approval
by the stockholders prior to the closing of this offering. A total of 500,000
shares of common stock has been reserved for issuance under the directors'
plan. The directors' plan provides for the grant of nonstatutory stock options
to non-employee directors of HomeGrocer.com. The directors' plan is designed
to work automatically without administration; however, to the extent
administration is necessary, it will be performed by the board of directors.
To the extent that conflicts of interest arise, it is expected that conflicts
will be addressed by having any interested director abstain from both
deliberations and voting regarding matters in which the director has a
personal interest. Unless terminated earlier, the directors' plan will
terminate in December 2009.
The directors' plan provides that each person who becomes a non-employee
director of HomeGrocer.com will be granted a nonstatutory stock option to
purchase 20,000 shares of common stock on the date on which he or she first
becomes a non-employee director of HomeGrocer.com, which option will vest and
become exercisable in installments of 25% of the total number of shares
subject to the option on the first, second, third and fourth anniversaries of
the date of grant. Thereafter, on the date of our annual stockholders' meeting
each year, each non-employee director of HomeGrocer.com will be granted an
additional option to purchase 5,000 shares of common stock if, on that date,
he or she has served on our board of directors for at least six months, which
option shall be fully vested and exercisable on the date of grant. Such annual
grants become exercisable in full on the fourth anniversary of the date of
grant. No option granted under the directors' plan is transferable by the
option holder other than by will or the laws of descent or distribution or
under a domestic relations order, and each option is exercisable, during the
lifetime of the option holder, only by that option holder. The exercise price
of all stock options granted under the directors' plan shall be equal to the
fair market value of a share of HomeGrocer.com common stock on the date of
grant of the option. Options granted under the directors' plan have a term of
ten years. However, unvested options will terminate when the optionee ceases
to serve as a director and vested options will terminate if they are not
exercised within 12 months after the director's death or disability or within
90 days after the director ceases to serve as a director for any other reason.
In the event of a sale of all or substantially all of the assets of
HomeGrocer.com, or the merger or consolidation of HomeGrocer.com with or into
another corporation in which HomeGrocer.com is not the surviving corporation
or in which the ownership of more than 50% of the total combined voting power
of HomeGrocer.com outstanding securities changes hands, or if during any two
consecutive two-year periods persons who constitute the board at the beginning
of such period (or who were appointed by a majority of the board in place at
the beginning of such period) cease to constitute at least 50% of the board,
each option outstanding under the directors' plan will be assumed or
equivalent options substituted by our acquirer, unless our acquirer does not
agree to such assumption or substitution, in which case the options will
terminate upon consummation of the transaction to the extent not previously
exercised. In connection with any acquisition, each director holding options
under the directors' plan will have the right to exercise his or her options
immediately before the consummation of the merger as to all shares underlying
the options, including shares which would not have been vested and exercisable
but for the acquisition. Our board of directors may amend or terminate the
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directors' plan as long as such action does not adversely affect any
outstanding option and we obtain stockholder approval for any amendment to the
extent required by law.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan,
or the 1999 purchase plan, provides our employees with an opportunity to
purchase our common stock through accumulated payroll deductions. This plan
will become effective upon the closing of this offering. A total of 3,000,000
shares of common stock have been reserved for issuance under the 1999 purchase
plan, plus an annual increase on the first day of each of our next five fiscal
years from 2001 through 2005 equal to the lesser of:
. 500,000 shares;
. 0.5% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or
. any lesser amount determined by the board.
The 1999 purchase plan will be administered by the board of directors or by
a committee appointed by the board. The 1999 purchase plan permits eligible
employees to purchase common stock through payroll deductions up to a maximum
of $25,000 of fair market value of such stock in each calendar year or up to a
maximum of 2,500 shares for each purchase period, whichever is lesser.
Employees are eligible to participate if they are employed by us or any
majority-owned subsidiary for at least an average of 20 hours per week and
customarily more than five months in any calendar year. However, an employee
cannot participate in the plan at any time his or her participation in the
plan would cause his or her outstanding options plus ownership of stock to
equal 5% or more of the total voting power or value of all classes of our
stock.
Unless the board of directors or its committee determines otherwise, the
plan will operate by a series of overlapping offering periods of approximately
12 months' duration, with new offering periods (other than the first offering
period) commencing on the first trading day on or after January 1 and July 1
of each year. The first offering period will commence on the date of this
prospectus and end on the last trading day or before December 31, 2000. Each
offering period will generally consist of two consecutive purchase periods of
six months' duration, at the end of which the amount in participants' accounts
will be used to make an automatic purchase of shares to be held in a plan
account on their behalf. The price at which common stock will be purchased
under the 1999 purchase plan is equal to 85% of the fair market value of the
common stock on the first day of the offering period or on the last day of the
applicable purchase period, whichever is lower. The employee may be required
to hold the stock for a minimum period after purchase. The initial purchase
period will commence on the date of this prospectus and end on the last
trading day on or before June 30, 2000, with a subsequent purchase period
commencing on the first trading day on or after July 1 and ending on the last
day of the offering period in December 2000. Employees may end their
participation in an offering period at any time, and participation
automatically ends on termination of employment. In addition, if the fair
market value of the common stock on a purchase date is less than the fair
market value at the beginning of the offering period, then after the purchase
on that purchase date each participant in that offering period will
automatically be withdrawn from that offering period and re-enrolled in the
new 12-month offering period beginning on the next trading day.
In the event we are acquired or we sell substantially all of our assets,
each outstanding option to purchase shares under the 1999 purchase plan will
be assumed or an equivalent option substituted by our acquirer. If our
acquirer does not agree to assume or substitute for the option, any offering
period then in progress will be shortened and a new purchase date occurring
prior to the closing of the transaction will be set.
Generally, our board may change or terminate offering, holding and purchase
periods, including extending new offering periods to up to 27 months'
duration, and may amend, modify or terminate the 1999 purchase plan at any
time as long as such action does not adversely affect any outstanding rights
to purchase stock under the 1999 purchase plan. However, the board may amend
or terminate the 1999 purchase plan or an offering period even if it would
adversely affect outstanding options in order to avoid our incurring adverse
accounting charges. Unless terminated earlier by the board, the 1999 purchase
plan will terminate twenty years after the closing of the offering. The 1999
purchase plan is intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended.
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401(k) Plan
We maintain the HomeGrocer.com 401(k) Plan for eligible employees. In order
to be a participant in the 401(k) plan, an employee must have attained age 21
and have worked for HomeGrocer.com for three months. Eligible employees may
join the plan at the beginning of each quarter. A participant may contribute
up to the lesser of 20% of his or her total annual compensation to the 401(k)
plan on a pre-tax basis, or a statutorily prescribed pre-tax annual limit. The
annual limit for 1999 is $10,000. Each participant is fully vested in his or
her deferred salary contributions. Participant contributions are held and
invested by the 401(k) plan's trustee.
Currently, we match participant contributions dollar for dollar up to 5% of
their compensation if the participant has performed at least 1,000 hours of
service during the year. Matching contributions vest 33% after two years of
service, 66% after three years of service, and 100% after four years of
service. HomeGrocer.com currently pays the administrative costs for the plan.
The 401(k) plan is intended to qualify under Section 401 of the Internal
Revenue Code, so that contributions by us or our employees to the 401(k) plan,
and income earned on the 401(k) plan contributions, are not taxable to
employees until withdrawn from the 401(k) plan, and so that our contributions
will be deductible by us when made.
Limitation of Liability and Indemnification Matters
Our articles of incorporation, which we expect to be in force on the date
of this prospectus, limit the liability of directors to the fullest extent
permitted by the Washington Business Corporation Act as it currently exists or
as it may be amended in the future. Consequently, subject to the Washington
Business Corporation Act, no director shall be personally liable to
HomeGrocer.com or its shareholders for monetary damages resulting from his or
her conduct as a director of HomeGrocer.com, except liability for:
. acts or omissions involving intentional misconduct or knowing violations
of law;
. unlawful distributions; or
. transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally
entitled.
Our articles of incorporation also provide that we shall indemnify any
individual made a party to a proceeding because that individual is or was a
director of HomeGrocer.com and shall advance or reimburse reasonable expenses
incurred by such individual in advance of the final disposition of the
proceeding to the full extent permitted by applicable law. Any repeal of or
modification to our articles of incorporation may not adversely affect any
right of a director of HomeGrocer.com who is or was a director at the time of
such repeal or modification. To the extent the provisions of our articles of
incorporation provide for indemnification of directors for liabilities arising
under the Securities Act of 1933, those provisions are, in the opinion of the
Securities and Exchange Commission, against public policy as expressed in the
Securities Act and they are therefore unenforceable.
Our bylaws provide that we shall indemnify our directors and officers and
may indemnify our employees and agents to the full extent permitted by law. In
addition, we have entered into separate indemnification agreements with our
directors and executive officers that could require us, among other things, to
indemnify them against certain liabilities that arise because of their status
or service as directors or executive officers and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. Finally, we intend to purchase and maintain a liability insurance
policy pursuant to which our directors and officers may be indemnified against
liability they may incur for serving in their capacities as directors and
officers of HomeGrocer.com.
We believe that the limitation of liability provision in our articles of
incorporation, the indemnification provisions in our bylaws, the
indemnification agreements and the liability insurance policy will facilitate
our ability to continue to attract and retain qualified individuals to serve
as directors and officers of HomeGrocer.com.
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RELATED PARTY TRANSACTIONS
From our inception through November 30, 1999, we have issued and sold
shares of our capital stock as follows:
. 27,427,136 shares of common stock at a weighted average price of $0.27
per share of cash and other consideration,
. 8,000,000 shares of Series A preferred stock at a price of $0.50 per
share in February, April, June and July 1998,
. 16,857,142 shares of Series B preferred stock at a price of $0.35 per
share in September 1998,
. 29,942,050 shares of Series C preferred stock at a price of $1.75 per
share in April and May 1999,
. 18,407,546 shares of Series D preferred stock at a price of $5.80 per
share in September through November 1999,
. warrants to purchase 1,800,000 shares of common stock at a price of
$0.375 per share,
. warrants to purchase 1,269,786 shares of common stock at a price of
$0.50 per share,
. warrants to purchase 153,600 shares of Series C preferred stock at a
price of $0.78125 per share, and
. warrants to purchase 275,862 shares of Series D preferred stock at a
price of $5.80 per share.
The following table summarizes the shares of capital stock purchased by
executive officers, directors and five-percent stockholders of HomeGrocer.com,
and persons and entities associated with them, in the private placement
transactions described above. Shares held by affiliated persons and entities
have been added together for the purposes of this chart. See "Principal
Stockholders" for a chart of beneficial owners.
<TABLE>
<CAPTION>
Outstanding
Warrants
Series A Series B Series C Series D to Purchase
Common Preferred Preferred Preferred Preferred Common
Investor Stock Stock Stock Stock Stock Stock
- -------- --------- --------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mary Alice Taylor (1)... 6,000,000 -- -- -- 17,240 --
J. Terrence Drayton
(2).................... 6,150,000 -- -- 2,758 -- 100,000
Amazon.com, Inc. (3).... -- -- -- 24,285,716 3,448,274 --
Hummer Winblad Venture
Partners (3)........... 700,000 800,000 8,285,714 484,732 3,448,274 --
Kleiner Perkins Caufield
& Byers (4)............ 1,300,000 200,000 8,285,714 484,732 3,448,274 200,000
The Barksdale Group,
L.L.C. (5)............. 200,000 -- -- 2,857,142 2,586,206 --
Charles Barbo (6)....... 1,000,000 700,000 -- 38,618 229,490 --
Madrona Investment
Group, LLC (7)......... 200,000 500,000 -- 27,586 862,068 300,000
Ken Deering (8)......... 1,120,000 -- -- -- -- --
Lazarus Family
Investments LLC (9).... 200,000 200,000 285,714 26,798 170,756 --
Philip S. Schlein....... 200,000 50,000 -- 2,758 20,000 --
</TABLE>
- --------
(1) Includes shares held by Mary Alice Taylor, Mary Alice Taylor 1999 5-Year
GRAT, Taylor Family 1999 Trust, Emery DeWitt Wooten 1999 5-Year GRAT and
GMME Partnership, L.P. Ms. Taylor is a director of HomeGrocer.com.
4,500,000 of Ms. Taylor's shares are subject to a repurchase right in
favor of HomeGrocer.com pursuant to an agreement between Ms. Taylor and
HomeGrocer.com.
(2) Includes shares held by J. Terrence Drayton, Terran Ventures, Inc.,
Drayton Resources Ltd. and Drayton Consulting Services, Ltd. 1,650,000 of
Mr. Drayton's shares are subject to a repurchase right in favor of
HomeGrocer.com pursuant to an agreement between Mr. Drayton and
HomeGrocer.com. Includes warrants to purchase 100,000 shares of common
stock held by Terran Ventures, Inc.
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(3) Includes shares held by Hummer Winblad Venture Partners III, L.P., Hummer
Winblad Venture Partners IV, L.P. and Hummer Winblad Technology Fund III,
L.P.
(4) Includes shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB
VIII Founders Fund, L.P. and KPCB Information Sciences Zaibatsu Fund II,
L.P. Includes warrants to purchase 200,000 shares of common stock held by
Kleiner Perkins Funds-related entities.
(5) Includes shares held by The Barksdale Group, L.L.C., Peter L.S. Currie (a
principal and officer of The Barksdale Group, LLC), James L. Barksdale,
Pickwick Group, L.P. and Barksdale Investments, L.L.C. The other
Barksdale-related entities disclaim beneficial ownership of 344,740
shares of Series D preferred stock held by Mr. Currie.
(6) Includes shares held by C&LB Family Limited Partnership, Charles Barbo,
Charles K. and Linda K. Barbo, Anne Barbo, Julie Anne Barbo Trust dated
12/10/91 and Sarah Barbo Staiger.
(7) Includes warrants to purchase 300,000 shares of common stock held by
Madrona Investment Group, LLC, 431,034 shares held by Madrona Holding I,
L.L.C. for the benefit of Madrona Venture Fund I-A, L.P., Madrona Venture
Fund I-B, L.P. and Madrona Managing Director Fund, LLC.
(8) Does not include an option to purchase 100,000 shares of common stock
held by Mr. Deering.
(9) Includes shares held by Lazarus Family Investments LLC, Lazarus Family
Investments III, LLC and Lazarus Family Investments II, LLC. Jonathan
Lazarus, a director of HomeGrocer.com, is a principal in each of these
funds.
In September 1997, we entered into an agreement with J. Terrence Drayton.
Pursuant to this agreement, as of November 30, 1999, we had a right to
repurchase 66,560 shares of common stock held by Mr. Drayton. The remaining
shares subject to this agreement will be fully vested by December 31, 1999.
In September 1999, we made loans to Mary Alice Taylor, our chief executive
officer, and J. Terrence Drayton, our president, in connection with their
exercises of stock options and purchases of our common stock. See
"Management--Employment Agreements."
In September 1999, we entered into an agreement with Mary Alice Taylor
pursuant to which Ms. Taylor purchased an aggregate of 6,000,000 shares of our
common stock outside of our 1997 stock incentive compensation plan. As part of
such agreement, Ms. Taylor has granted to us a right of repurchase with
respect to 4,500,000 shares of our common stock. Our repurchase right lapses
over a period of four years. See "Management--Employment Agreements."
In June 1999, we entered into an agreement with J. Terrence Drayton
pursuant to which Mr. Drayton purchased an aggregate of 2,200,000 shares of
our common stock outside of our 1997 stock incentive compensation plan. As
part of such agreement, Mr. Drayton has granted to us a right of repurchase
with respect to 1,650,000 shares of our common stock. Our repurchase right
lapses over a period of four years. See "Management--Employment Agreements."
In November 1999, we entered into an agreement with Amazon.com, LLC under
which we have agreed to pay Amazon for advertising services over the next two
years. Amazon.com, LLC is a wholly owned subsidiary of Amazon.com, Inc. Two of
our board members, Tom Alberg and David Risher, are Amazon.com affiliates: one
a member of Amazon.com's board of directors and the other senior vice
president of product development.
Amazon.com, Inc. also has certain special shareholder rights pursuant to an
agreement with Homegrocer.com:
. If we receive an offer to purchase capital stock representing more than
20% of our capital stock or all or substantially all of our assets, we
must give notice of the terms of the offer to Amazon.com, and Amazon.com
has seven days to determine whether to accept the terms. If Amazon.com
does not accept the terms, we are free to complete such a transaction
with a third party on no more favorable terms for
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a period of 60 days. After this 60 day period, we must again give Amazon
notice of any such offer. This right expires four years after the
closing of this offering.
. Amazon.com had the right to purchase its pro rata portion of the shares
issued in this offering to maintain its percentage ownership of
HomeGrocer.com. Amazon.com has agreed in writing to waive this right.
. Amazon.com may not acquire more than 35% of our capital stock unless
Amazon.com first negotiates with us to purchase all of our capital
stock. This restriction will terminate on the closing of this offering.
Julie Barbo, daughter of HomeGrocer.com director Charles K. Barbo, has
served as a business and legal consultant to HomeGrocer.com and was our
assistant secretary until December 1999.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of November 30, 1999 and as adjusted to
reflect the sale of the common stock offered by HomeGrocer.com under this
prospectus by:
. each of HomeGrocer.com directors and named executive officers;
. all directors and executive officers as a group; and
. each person who is known to own beneficially more than 5% of our common
stock.
Except as otherwise noted, the address of each person listed in the table
is c/o HomeGrocer.com, 10230 N.E. Points Drive, Kirkland, Washington 98033.
The table includes all shares of common stock issuable within 60 days of
November 30, 1999 upon the exercise of options and other rights beneficially
owned by the indicated stockholders on that date. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares. To
the knowledge of HomeGrocer.com, except under applicable community property
laws or as otherwise indicated, the persons named in the table have sole
voting and sole investment control with respect to all shares beneficially
owned. Assuming the conversion of all outstanding shares of preferred stock,
the applicable percentage of ownership for each stockholder is based on
100,633,874 shares of common stock outstanding as of November 30, 1999,
together with applicable options for that stockholder. The number of shares
underlying options and warrants listed below includes only those shares
underlying options and warrants immediately exercisable or exercisable within
60 days of November 30, 1999. Shares of common stock issuable upon exercise of
options and other rights beneficially owned were deemed outstanding for the
purpose of computing the percentage ownership of the person holding these
options and other rights, but are not deemed outstanding for computing the
percentage ownership of any other person.
<TABLE>
<CAPTION>
Percentage of
Shares Common Stock
Number of Underlying Outstanding (1)
Shares ---------- -----------------
Name and Address of Beneficial Beneficially Options & Before After
Owner Owned Warrants Offering Offering
- ------------------------------ ------------ --------- -------- --------
<S> <C> <C> <C> <C>
Amazon.com, Inc. (2)............... 27,733,990 -- 27.56%
1200 12th Avenue S., Suite 1200
Seattle, WA 98144
Kleiner Perkins Caufield & Byers
(3)............................... 13,718,720 200,000 13.80
2750 Sand Hill Road
Menlo Park, CA 94025
Hummer Winblad Venture Partners
(4)............................... 13,718,720 -- 13.63
2 South Park, 2nd Floor
San Francisco, CA 94107
J. Terrence Drayton (5)............ 6,152,758 100,000 6.21
Mary Alice Taylor (6).............. 6,017,240 -- 5.98
The Barksdale Group, L.L.C. (7).... 5,643,348 -- 5.61
2730 Sand Hill Road, Suite 100
Menlo Park, CA 94043
Charles K. Barbo (8)............... 1,968,108 -- 1.96
1155 Valley Street, Suite 400
Seattle, WA 98109
Madrona Investment Group, LLC (9).. 1,589,654 300,000 1.87
1000 Second Avenue, Suite 3700
Seattle, WA 98104
Ken Deering........................ 1,120,000 100,000 1.21
Jonathan D. Lazarus (10)........... 883,268 -- *
One Mercer Plaza 2835 82nd Avenue
S.E., Suite 310
Mercer Island, WA 98040
Philip S. Schlein.................. 272,758 -- *
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
All directors and executive
officers as a group (20 persons)
(11).............................. 79,997,564 2,376,000 79.97
</TABLE>
- -------
* Less than 1% of the outstanding shares of common stock.
(1) Assumes no exercise of the underwriters' over-allotment option.
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<PAGE>
(2) David Risher, a director of HomeGrocer.com and a vice president of
Amazon.com, Inc., disclaims beneficial ownership of the shares held by
Amazon.com.
(3) Includes shares held by Hummer Winblad Venture Partners III, L.P., Hummer
Winblad Venture Partners IV, L.P. and Hummer Winblad Technology Fund III,
L.P. Mark Gorenberg, a director of HomeGrocer.com, is a principal in
Hummer Winblad Venture Partners. Mr. Gorenberg disclaims beneficial
ownership of the shares held by these entities except to the extent of
his pecuniary interest in those shares.
(4) Includes shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB
VIII Founders Fund, L.P. and KPCB Information Sciences Zaibatsu Fund II,
L.P. Douglas Mackenzie, a director of HomeGrocer.com, and a general
partner of the Kleiner Perkins funds, disclaims beneficial ownership of
shares held by these entities except to the extent of his pecuniary
interest therein; also includes 200,000 shares issuable upon exercise of
warrants held by affiliates of Kleiner Perkins Caufield & Byers VIII,
L.P.
(5) Includes shares held by J. Terrence Drayton, Terran Ventures, Inc.,
Drayton Resources Ltd. and Drayton Consulting Services Ltd. Mr. Drayton
disclaims beneficial ownership of shares held by Drayton Consulting
Services, Ltd. As of November 30, 1999 1,650,000 of Mr. Drayton's shares
are subject to a repurchase right in favor of HomeGrocer.com pursuant to
an agreement between Mr. Drayton and HomeGrocer.com; also includes
100,000 shares issuable upon exercise of warrants held by Terran
Ventures, Inc.
(6) Includes shares held by Mary Alice Taylor, Mary Alice Taylor 1999 5-Year
GRAT, Taylor Family 1999 Trust, Emery DeWitt Wooten 1999 5-Year GRAT and
GMME Partnership, L.P. Ms. Taylor, chief executive officer and chairman
of the board of directors of HomeGrocer.com, disclaims beneficial
ownership of the shares held by the Taylor Family 1999 Trust. As of
November 30, 1999 4,500,000 of Ms. Taylor's shares are subject to a
repurchase right in favor of HomeGrocer.com pursuant to an agreement
between Ms. Taylor and HomeGrocer.com.
(7) Includes shares held by The Barksdale Group, L.L.C., Peter LS Currie (a
principal and officer of The Barksdale Group, LLC), James L. Barksdale,
Pickwick Group, L.P. and Barksdale Investments, L.L.C. The other
Barksdale-related entities disclaim beneficial ownership of 344,740
shares of Series D preferred stock held by Mr. Currie.
(8) Includes shares held by C&LB Family Limited Partnership, Charles K.
Barbo, Charles K. and Linda K. Barbo, Anne Barbo, Julie Anne Barbo Trust
dated 12/10/91 and Sarah Barbo Staiger. Charles K. Barbo, a director of
HomeGrocer.com, disclaims beneficial ownership of the shares held by Anne
Barbo, the Julie Anne Barbo Trust dated 12/10/91 and Sarah Barbo Staiger.
(9) Includes 300,000 shares issuable upon exercise of warrants held by
Madrona Investment Group, LLC and 431,034 shares held by Madrona Holdings
I, L.L.C. for the benefit of Madrona Venture Fund I-A, L.P., Madrona
Venture Fund I-B, L.P. and Madrona Managing Director Fund, L.L.C.
Mr. Alberg, a director of HomeGrocer.com and a principal of Madrona
Investment Group, LLC and the Madrona funds, disclaims beneficial
ownership of the shares held by Madrona Investment Group, LLC and the
Madrona funds except to the extent of his pecuniary interest therein.
(10) Includes shares held by Lazarus Family Investments LLC, Lazarus Family
Investments III, LLC and Lazarus Family Investments II, LLC. Jonathan
Lazarus, a director of HomeGrocer.com, is a principal in each of these
funds.
(11) Includes all shares described above and an additional 3,455,000 shares
held by other executive officers, of which 1,179,000 shares were
outstanding as of November 30, 1999 and 2,276,000 shares were subject to
options or warrants exercisable within 60 days of November 30, 1999.
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DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, HomeGrocer.com will be authorized to
issue 1,000,000,000 shares of common stock, $0.001 par value per share, and
10,000,000 shares of undesignated preferred stock, $0.001 par value per share.
All currently outstanding shares of preferred stock will be converted into
common stock upon the closing of this offering.
Common Stock
As of November 30, 1999, there were 100,633,874 shares of common stock
outstanding that were held of record by 282 stockholders after giving effect
to the conversion of all outstanding shares of our preferred stock into common
stock. After giving effect to this offering and the conversion of our
currently outstanding preferred stock into common stock upon the closing of
this offering, there will be shares of common stock outstanding,
assuming no exercise of the underwriter's over-allotment option.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any preferred stock that may be
outstanding after the completion of this offering, holders of common stock are
entitled to receive ratably such dividends as may be declared by the board of
directors out of funds legally available for that purpose. In the event of
liquidation, dissolution or winding up of HomeGrocer.com, the holders of
common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to the prior distribution rights of any
preferred stock that may be outstanding after the completion of this offering.
The common stock has no preemptive or conversion rights or other subscription
rights. The outstanding shares of common stock are, and the shares of common
stock to be issued upon completion of this offering will be, fully paid and
non-assessable.
Preferred Stock
Upon the closing of the offering, all outstanding shares of preferred stock
will be converted into 73,206,738 shares of common stock and automatically
retired. Thereafter, the board of directors will have the authority, without
further action by the stockholders, to issue up to 10,000,000 shares of
preferred stock, $0.001 par value, in one or more series. The board of
directors will also have the authority to designate the rights, preferences,
privileges and restrictions of each such series, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series. The issuance of preferred stock may have the effect
of delaying, deferring or preventing a change in control of HomeGrocer.com
without further action by the stockholders. The issuance of preferred stock
with voting and conversion rights may also adversely affect the voting power
of the holders of common stock. In certain circumstances, an issuance of
preferred stock could have the effect of decreasing the market price of the
common stock. HomeGrocer.com currently has no plans to issue any shares of
preferred stock.
Warrants
As of November 30, 1999, there were warrants outstanding to purchase an
aggregate of 2,749,248 shares of common stock, at a weighted average exercise
price of $1.00 per share. Warrants to purchase 2,015,666 shares of common
stock will expire, if not exercised, upon completion of the offering. Warrants
to purchase the other 733,582 shares of common stock will expire between July
20, 2005 and September 15, 2009. Generally, each warrant contains provisions
for the adjustment of the exercise price and the aggregate number of shares
issuable upon the exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassifications or
consolidations.
Registration Rights
The holders of 84,481,738 shares of common stock (assuming the conversion
of all outstanding preferred stock upon completion of this offering) and
warrants to purchase 2,749,248 shares of common stock or their transferees are
entitled to certain rights with respect to the registration of such shares
under the Securities Act. These rights are provided under the terms of various
agreements between HomeGrocer.com and the holders of
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these securities. Subject to limitations in these agreements, the holders of
at least 25% of these securities then outstanding, or a lesser amount if the
offering price to the public would be an aggregate of at least $5,000,000, may
require on two occasions beginning six months after the date of this
prospectus that we use our best efforts to register these securities for
public resale if Form S-3 is not available. If HomeGrocer.com registers any of
its common stock either for its own account or for the account of other
security holders, the holders of these securities are entitled to include
their shares of common stock in that registration, subject to the ability of
the underwriters to limit the number of shares included in the offering. The
holders of these securities may also require us, not more than twice in any
12-month period, to register all or a portion of these securities on Form S-3
when the use of that form becomes available, provided, among other
limitations, that the proposed aggregate selling price, net of any
underwriters' discounts or commissions, is at least $1,000,000. We will be
responsible for paying all registration expenses, and the holders selling
their shares will be responsible for paying all selling expenses.
Washington Anti-Takeover Law and Certain Charter and Bylaw Provisions
Certain provisions of Washington law and our articles of incorporation and
bylaws could make more difficult the acquisition of HomeGrocer.com by means of
a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions, summarized below, are expected to
discourage certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of
HomeGrocer.com to first negotiate with us. We believe that the benefits of
increased protection of our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure
HomeGrocer.com outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
Election and Removal of Directors. Effective upon the closing of this
offering, our articles of incorporation will provide for the division of our
board of directors into three classes, as nearly as equal in number as
possible, with the directors in each class serving for a three-year term, and
one class being elected each year by our shareholders. The initial term of the
Class I directors expires at our annual meeting of shareholders to be held in
2000; the initial term of the Class II directors expires at our annual meeting
of shareholders to be held in 2001; and the initial term of the Class III
directors expires at our annual meeting of shareholders to be held in 2002.
Thereafter, the term of each class of directors will be three years. This
system of electing and removing directors generally makes it more difficult
for shareholders to replace a majority of the members of our board of
directors and may tend to discourage a third party from making a tender offer
or otherwise attempting to gain control of HomeGrocer.com and may have the
effect of maintaining the incumbency of our board of directors.
Supermajority Vote to Amend Certain Bylaw Provisions. Effective upon the
completion of this offering, our bylaws will provide that (1) any amendment to
the bylaws that increases or reduces the authorized number of directors shall
require the affirmative approval of at least two-thirds of the directors and
(2) any amendment or repeal of the bylaws relating to these provisions by the
shareholders will require the affirmative approval of holders of at least two-
thirds of our outstanding capital stock. This provision is principally
intended to prevent a shareholder or shareholders having a majority of the
common stock from making changes in the bylaws to increase the number of
directors or reduce the authority of our board or directors. It also may have
the effect of discouraging efforts to acquire control of the board of
directors and thus make takeovers or changes in control more difficult.
Shareholder Meetings. Effective upon the completion of this offering, our
bylaws will provide that, except as otherwise required by law or by our
articles of incorporation, special meetings of the shareholders may only be
called pursuant to a resolution adopted by our chief executive officer,
president, the chairman of our board of directors or a majority of the board
of directors. These provisions of our articles of incorporation and bylaws
could discourage potential acquisition proposals and could delay or prevent a
change of control. Our intent in using these provisions is to enhance the
likelihood of continuity and stability in the composition of our board of
directors and in the policies formulated by them and to discourage certain
types of transactions that may involve an actual or threatened change of
control. These provisions are designed to reduce our vulnerability to an
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unsolicited acquisition proposal and to discourage certain tactics that may be
used in proxy fights. However, these provisions could have the effect of
discouraging others from making tender offers for our shares and, as a
consequence, they could inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts. Such provisions
could have the effect of preventing changes in our management.
Requirements for Advance Notification of Shareholder Nominations and
Proposals. Effective upon the completion of this offering, our bylaws will
contain advance notice procedures with respect to shareholder proposals and
the nomination of candidates for election as directors, other than nominations
made by or at the direction of the board of directors or a committee thereof.
Elimination of Shareholder Action by Written Consent. Effective upon the
closing of this offering, our articles of incorporation will not permit
shareholders to act by written consent.
Elimination of Cumulative Voting. Effective upon the closing of this
offering, our articles of incorporation and bylaws will not provide for
cumulative voting in the election of directors.
Undesignated Preferred Stock. Effective upon the closing of this offering,
our board of directors, without shareholder approval, has the authority under
our articles of incorporation to issue up to 10,000,000 shares of preferred
stock with rights superior to the rights of our common stock. The
authorization of undesignated preferred stock makes it possible for our board
of directors to issue preferred stock with voting or other rights or
preferences that could defer hostile takeovers or delay changes in control or
management of HomeGrocer.com.
Approval of Certain Business Combinations. Upon completion of this
offering, our articles of incorporation will require that certain business
combinations (including a merger, share exchange and the sale, lease,
exchange, mortgage, pledge, transfer or other disposition or encumbrance of a
substantial portion of our assets other than in the usual and regular course
of business) be approved by the holders of at least two-thirds of our
outstanding capital stock.
Washington Anti-Takeover Law. Washington law imposes restrictions on some
transactions between a corporation and certain significant shareholders.
Chapter 23B.19 of the Washington Business Corporation Act prohibits a "target
corporation", with some exceptions, from engaging in certain significant
business transactions with an "acquiring person", which is defined as a person
or group of persons that beneficially owns 10% or more of the voting
securities of the target corporation, for a period of five years after such
acquisition, unless the transaction or acquisition of shares is approved by a
majority of the members of the target corporation's board of directors prior
to the time of such acquisition. Such prohibited transactions include, among
other things:
. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from the acquiring person;
. termination of 5% or more of the employees of the target corporation as
a result of the acquiring person's acquisition of 10% or more of the
shares; or
. allowing the acquiring person to receive any disproportionate benefit as
a shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not opt out of this statute. This provision may have the
effect of delaying, deterring or preventing a change of control of
HomeGrocer.com.
In addition to the provisions summarized above, Amazon.com's right of first
refusal may also delay, defer or prevent a change of control. See "Related
Party Transactions."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services LLC. The Transfer Agent's address is 520 Pike Street,
Suite 1220, Seattle, WA 98101, and its telephone number is (206) 674-3030.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering
because of certain contractual and legal restrictions on resale, sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of the offering, we will have shares of
common stock outstanding. Of these shares, shares sold in the
offering (plus any shares issued upon exercise of the underwriters' over-
allotment option) will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of HomeGrocer.com as that
term is defined in Rule 144 under the Securities Act, which generally includes
officers, directors or 10% stockholders.
The remaining shares outstanding are "restricted securities"
within the meaning of Rule 144 under the Securities Act. These shares may be
sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 promulgated under the
Securities Act, which are summarized below. Sales of these shares in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
Each of our officers, directors and certain other stockholders have entered
into lock-up agreements generally providing that they will not sell, otherwise
dispose of or transfer any of the economic consequences of ownership of our
common stock or other securities during the period ending 180 days after the
date of this prospectus without the prior written consent of Morgan Stanley &
Co. Incorporated. See "Underwriters" for a more complete description of the
lock-up agreements. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144 and 701, shares subject to lock-up agreements will not be salable
from the date of this prospectus until such agreements expire or are waived by
the designated underwriters' representative. Taking into account the lock-up
agreements, and assuming Morgan Stanley & Co. Incorporated does not release
stockholders from these agreements, the following shares will be eligible for
sale in the public market at the following times:
. Beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market.
. Beginning 180 days after the effective date, approximately
shares will be eligible for sale pursuant to Rule 701 and approximately
additional shares will be eligible for sale pursuant to Rule
144, of which all but shares are held by affiliates.
. An additional shares will be eligible for sale pursuant to
Rule 144 by . Shares eligible to be sold by affiliates
pursuant to Rule 144 are subject to volume restrictions as described
below.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements (180 days after the date of this
prospectus) of a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (1) 1% of the number of shares of common stock then
outstanding (which will equal approximately shares immediately
after the offering); or (2) the average weekly trading volume of the common
stock during the four calendar weeks preceding the sale. Sales under Rule 144
are also subject to certain manner of sale provisions and notice requirements
and to the availability of current public information about HomeGrocer.com.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
HomeGrocer.com at any time during the three months preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years,
is entitled to sell such shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
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The holders of approximately 84,481,738 shares of common stock and warrants
to purchase 2,749,248 shares of common stock or their transferees are also
entitled to certain rights with respect to registration of their shares of
common stock for offer or sale to the public. If the holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, the sales could have a material adverse effect on
the market price for our common stock.
As a result of the lock-up agreements, all of our employees holding over
shares of common stock or stock options may not sell shares acquired
upon exercise until 180 days after the date of this prospectus. Beginning 180
days after the date of this prospectus, any employee, officer or director of
or consultant to HomeGrocer.com who purchased shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. In addition,
we intend to file registration statements under the Securities Act as promptly
as possible after the effective date to register shares to be issued pursuant
to our employee benefit plans. As a result, any options exercised under the
Stock Plan or any other benefit plan after the effectiveness of such
registration statement will also be freely tradable in the public market,
except that shares held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information requirements of Rule
144 unless otherwise resalable under Rule 701. As of November 30, 1999, there
were outstanding options to purchase 7,354,722 shares of common stock, of
which options to purchase approximately 333,710 shares were vested and
exercisable.
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MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of common stock
by a beneficial owner that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity that, for U.S. federal income tax purposes, is a non-resident
alien individual, a foreign corporation, a foreign partnership, or a foreign
estate or trust.
This discussion is based on the Internal Revenue Code of 1986, as amended,
and administrative interpretations as of the date of this prospectus, all of
which are subject to change, including changes with retroactive effect. This
discussion does not address all aspects of U.S. federal income and estate
taxation that may be relevant to Non-U.S. Holders in light of their particular
circumstances and does not address any tax consequences arising under the laws
of any state, local or foreign jurisdiction. Prospective holders should
consult their tax advisors with respect to the particular tax consequences to
them of owning and disposing of common stock, including the consequences under
the laws of any state, local or foreign jurisdiction.
Dividends
Dividends paid to a Non-U.S. Holder of common stock generally will be
subject to withholding tax at a 30% rate or a reduced rate specified by an
applicable income tax treaty. For purposes of determining whether tax is to be
withheld at a reduced rate under an income tax treaty, HomeGrocer.com will
presume that dividends, if any, paid on or before December 31, 2000 to an
address in a foreign country are paid to a resident of that country unless it
has knowledge that the presumption is not warranted.
In order to obtain a reduced rate of withholding for dividends paid after
December 31, 2000, a Non-U.S. Holder will be required to provide an Internal
Revenue Service Form W-8BEN certifying its entitlement to benefits under a
treaty. In addition, in certain cases where dividends are paid to a Non-U.S.
Holder that is a partnership or other pass-through entity, persons holding an
interest in the entity may need to provide the required certification.
The withholding tax does not apply to dividends paid to a Non-U.S. Holder
that provides a Form 4224 or, after December 31, 2000, a Form W-8ECI,
certifying that the dividends are effectively connected with the Non-U.S.
Holder's conduct of a trade or business within the United States. Instead, the
effectively connected dividends will be subject to regular U.S. income tax as
if the Non-U.S. Holder were a U.S. resident. A non-U.S. corporation receiving
effectively connected dividends may also be subject to an additional "branch
profits tax" imposed at a rate of 30% (or a lower treaty rate) on an earnings
amount that is net of the regular tax.
We do not anticipate paying any dividends in the foreseeable future.
Gain on Disposition of Common Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on gain realized on a sale or other disposition of common stock unless:
. the gain is effectively connected with a trade or business of the Non-
U.S. Holder in the United States,
. in the case of certain Non-U.S. Holders who are non-resident alien
individuals and hold the common stock as a capital asset, the
individuals are present in the United States for 183 or more days in the
taxable year of the disposition,
. the Non-U.S. Holder is subject to tax under the provisions of the Code
regarding the taxation of U.S. expatriates, or
. HomeGrocer.com is or has been a U.S. real property holding corporation
at any time within the five-year period preceding the disposition or the
Non-U.S. Holder's holding period, whichever period is shorter.
The tax relating to stock in a U.S. real property holding corporation does
not apply to a Non-U.S. Holder whose holdings, actual and constructive, at all
times during the applicable period, amount to 5% or less of the
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common stock of a U.S. real property holding corporation, provided that the
common stock is regularly traded on an established securities market.
Generally, a corporation is a U.S. real property holding corporation if the
fair market value of its U.S. real property interests, as defined in the Code
and applicable regulations, equals or exceeds 50% of the aggregate fair market
value of its worldwide real property interests and its other assets used or
held for use in a trade or business. HomeGrocer.com believes that it is not,
and does not anticipate becoming, a U.S. real property holding corporation.
Information Reporting Requirements and Backup Withholding
HomeGrocer.com must report to the IRS the amount of dividends paid, the
name and address of the recipient, and the amount of any tax withheld. A
similar report is sent to the Non-U.S. Holder. Under tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence. Dividends paid on or before December 31,
2000 at an address outside the United States are not subject to backup
withholding, unless the payor has knowledge that the payee is a U.S. person.
However, a Non-U.S. Holder may need to certify its non-U.S. status in order to
avoid backup withholding at a 31% rate on dividends paid after December 31,
2000 or dividends paid on or before that date at an address inside the United
States.
U.S. information reporting and backup withholding generally will not apply
to a payment of proceeds of a disposition of common stock where the
transaction is effected outside the United States through a non-U.S. office of
a non-U.S. broker. However, a Non-U.S. Holder may need to certify its non-U.S.
status in order to avoid information reporting and backup withholding at a 31%
rate on disposition proceeds where the transaction is effected by or through a
U.S. office of a broker. In addition, U.S. information reporting requirements
may apply to the proceeds of a disposition effected by or through a non-U.S.
office of a U.S. broker, or by a non-U.S. broker with specified connections to
the United States.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. When withholding results in an overpayment of taxes, a refund may be
obtained if the required information is furnished to the IRS.
Federal Estate Tax
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the common stock will be
required to include the value of the stock in his gross estate for U.S.
federal estate tax purposes, and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the U.S. underwriters named
below, for whom Morgan Stanley & Co. Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation, Hambrecht & Quist LLC, Banc of America
Securities LLC and J.C. Bradford & Co. are acting as U.S. representatives, and
the international underwriters named below for whom Morgan Stanley & Co.
International Limited and Donaldson, Lufkin & Jenrette International, are
acting as international representatives, have severally agreed to purchase,
and HomeGrocer.com has agreed to sell to them, severally, the number of shares
indicated below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated................................
Donaldson, Lufkin & Jenrette Securities Corporation..............
Hambrecht & Quist LLC............................................
Banc of America Securities LLC...................................
J.C. Bradford & Co. .............................................
Morgan Stanley Dean Witter Online Inc............................
DLJdirect Inc....................................................
Subtotal.........................................................
=========
International Underwriters:
Morgan Stanley & Co. International Limited.......................
Donaldson, Lufkin & Jenrette International.......................
Hambrecht & Quist LLC............................................
Banc of America Securities LLC...................................
J.C. Bradford & Co. .............................................
Subtotal.........................................................
Total..........................................................
=========
</TABLE>
The U.S. underwriters and the international underwriters, and the U.S.
representatives and the international representatives, are collectively
referred to as the "underwriters" and the "representatives," respectively. The
underwriters are offering the shares of common stock subject to their
acceptance of the shares from HomeGrocer.com and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered by this prospectus are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock offered by
this prospectus if any such shares are taken. However, the underwriters are
not required to take or pay for the shares covered by the underwriters' over-
allotment option described below.
In the agreement between U.S. and international underwriters, sales may be
made between U.S. underwriters and international underwriters of any number of
shares as may be mutually agreed. The per share price of any shares sold by
the underwriters shall be the public offering price listed on the cover page
of this prospectus, in U.S. dollars, less an amount not greater than the per
share amount of the concession to dealers described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to certain dealers at a price that represents
a concession not in excess of $ a share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain dealers. After the
initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
67
<PAGE>
HomeGrocer.com has granted to the U.S. underwriters an option, exercisable
for 30 days from the date of this prospectus, to purchase up to an aggregate
of additional shares of common stock at the public offering price listed on
the cover page of this prospectus, less underwriting discounts and
commissions. The U.S. underwriters may exercise this option solely for the
purpose of covering overallotments, if any, made in connection with the
offering of the shares of common stock offered by this prospectus. To the
extent the option is exercised, each U.S. underwriter will become obligated,
subject to certain conditions, to purchase about the same percentage of the
additional shares of common stock as the number listed next to the U.S.
underwriter's name in the preceding table bears to the total number of shares
of common stock listed next to the names of all U.S. underwriters in the
preceding table. If the U.S. underwriters' option is exercised in full, the
total price to the public would be $ , the total underwriters' discounts
and commissions would be $ and total proceeds to HomeGrocer.com would be
$ .
Morgan Stanley Dean Witter Online Inc., an affiliate of Morgan Stanley &
Co. Incorporated, and DLJdirect Inc., an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation, are acting as underwriters in connection with
the offering and will distribute shares of common stock over the Internet to
their respective eligible account holders.
The underwriters have informed HomeGrocer.com that they do not intend sales
to discretionary accounts to exceed 5% of the total number of shares of common
stock offered by them.
We will apply for quotation of our common stock on the Nasdaq National
Market under the symbol "HOMG."
Each of HomeGrocer.com and the directors, executive officers and certain
other stockholders of HomeGrocer.com have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, it will not, during the period ending 180 days after the date of
this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in this paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by HomeGrocer.com of shares of common stock upon the
exercise of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus of which the underwriters
have been advised in writing; or
. transactions by any person other than HomeGrocer.com relating to shares
of common stock or other securities acquired in open market transactions
after the completion of the offering of the shares.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
68
<PAGE>
HomeGrocer.com and the underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
At the request of the Company, the Underwriters have reserved for sale, at
the initial offering price, up to shares offered hereby for
directors, officers, employees, business associates, and related persons of
the Company. The shares of common stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares that are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares
offered hereby.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between HomeGrocer.com and the U.S. representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of HomeGrocer.com and its industry in general, sales, earnings and
certain other financial operating information of HomeGrocer.com in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of HomeGrocer.com. The estimated
initial public offering price range set forth on the cover page of this
preliminary prospectus is subject to change as a result of market conditions
and other factors.
As of the date of this prospectus, Access Technology Partners, L.P. owns
689,656 shares of our Series D preferred stock. Access Technology Partners is
a fund of investors that is managed by an entity associated with Hambrecht &
Quist LLC, one of the representatives in this offering. Certain employees and
entities associated with Hambrecht & Quist LLC own an aggregate of 172,412
shares of our Series D preferred stock.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
HomeGrocer.com by Venture Law Group, A Professional Corporation, Kirkland,
Washington. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Davis Polk & Wardwell, Menlo Park,
California. As of the date of this prospectus, directors of Venture Law Group
and an investment partnership affiliated with Venture Law Group own 53,878
shares of our Series D preferred stock, which will convert into 53,878 shares
of common stock upon completion of this offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at January 3, 1998 and January 2, 1999, and for the period from
January 15, 1997 (inception) to January 3, 1998 and for the year ended January
2, 1999, as set forth in their report. We have included our financial
statements in the prospectus and elsewhere in the registration in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
69
<PAGE>
ADDITIONAL INFORMATION AVAILABLE TO YOU
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common
stock offered hereby. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits and schedules. For
further information with respect to HomeGrocer.com and the common stock
offered hereby, we refer you to the registration statement and to the exhibits
and schedules. Statements made in this prospectus concerning the contents of
any document referred to herein are not necessarily complete. With respect to
each such document filed as an exhibit to the registration statement, we refer
you to the exhibit for a more complete description of the matter involved. The
registration statement and the exhibits and schedules may be inspected without
charge at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, NY 10048, and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of the registration statement may be
obtained from the SEC's offices upon payment of fees prescribed by the SEC.
The SEC maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the SEC. The address of the site is www.sec.gov.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Shareholders' Equity (Deficit)................................ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
HomeGrocer.com, Inc.
We have audited the accompanying balance sheets of HomeGrocer.com, Inc. as of
January 3, 1998 and January 2, 1999, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the period from January 15,
1997 (inception) to January 3, 1998 and the year ended January 2, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HomeGrocer.com, Inc. at
January 3, 1998 and January 2, 1999, and the results of its operations and its
cash flows for the period from January 15, 1997 (inception) to January 3, 1998
and the year ended January 2, 1999, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Seattle, Washington
February 19, 1999, except for Note 9,
as to which the date is
December 14, 1999
F-2
<PAGE>
HOMEGROCER.COM, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
Equity
January 3, January 2, October 2, October 2,
1998 1999 1999 1999
---------- ---------- ---------- -------------
(Unaudited) (Note 9)
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.... $ 313 $1,084 $ 67,402
Marketable securities........ -- -- 4,913
Inventories.................. -- 284 1,159
Prepaid expenses and other
current assets.............. 31 296 1,968
------ ------ --------
Total current assets....... 344 1,664 75,442
Fixed assets, net............ 386 1,237 21,825
Deposits and other long-term
assets...................... 267 657 3,299
Restricted cash.............. -- -- 5,447
------ ------ --------
Total assets............... $ 997 $3,558 $106,013
====== ====== ========
Liabilities & Shareholders'
Equity (Deficit)
Current liabilities:
Convertible notes payable.... $ 900 $ -- $ --
Accounts payable............. 150 199 5,174
Accrued liabilities.......... 590 522 2,666
Accrued compensation and
related liabilities......... -- 239 1,930
Current portion of capital
lease obligations........... -- 209 936
Current portion of long-term
debt........................ -- 122 956
------ ------ --------
Total current liabilities.. 1,640 1,291 11,662
Capital lease obligations...... -- 602 1,952
Long-term debt................. -- 278 1,004
Other long-term liabilities.... -- -- 216
------ ------ --------
Total liabilities.......... 1,640 2,171 14,834
Commitments and contingencies
Redeemable preferred stock..... -- -- 59,773
Shareholders' equity (deficit):
Convertible preferred stock,
$0.001 par value:
78,357,142 shares
authorized;
Series A, 8,000,000 shares
authorized, 8,000,000
issued and outstanding at
January 2, 1999 and
October 2, 1999 (none
pro forma); liquidation
preference of $4,000 at
January 2, 1999 and
October 2, 1999 (none pro
forma);................... -- 8 8
Series B, 16,857,142 shares
authorized, 16,857,142
issued and outstanding at
January 2, 1999 and
October 2, 1999 (none
pro forma); liquidation
preference of $5,900 at
January 2, 1999 and
October 2, 1999 (none pro
forma);................... -- 17 17
Series C, 30,200,000 shares
authorized, 29,942,050
issued and outstanding at
October 2, 1999;
liquidation preference of
$52,399 at October 2, 1999
(none pro forma).......... -- -- 30
Common stock, $0.001 par
value:
130,000,000 shares
authorized;
16,000,000 issued and
outstanding at January 3,
1998, 12,416,666 at
January 2, 1999 and
25,348,436 at October 2,
1999 (90,492,448 pro
forma).................... 16 12 25 $ 90
Additional paid-in-capital... 696 10,614 114,722 174,485
Notes receivable from
officers for common stock... -- -- (3,231) (3,231)
Deferred stock-based
compensation................ -- -- (31,765) (31,765)
Accumulated deficit.......... (1,355) (9,264) (48,400) (48,400)
------ ------ -------- --------
Total shareholders' equity
(deficit)................. ( 643) 1,387 31,406 $ 91,179
------ ------ -------- ========
Total liabilities &
shareholders' equity...... $ 997 $3,558 $106,013
====== ====== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
HOMEGROCER.COM, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
51 Weeks from 52 Weeks 39 Weeks 39 Weeks
January 15, 1997 Ended Ended Ended
(Inception) to January 2, October 3, October 2,
January 3, 1998 1999 1998 1999
---------------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales................. $ -- $ 1,094 $ 299 $ 10,886
Cost of sales............. -- 1,018 281 8,919
---------- ---------- ---------- ----------
Gross profit............ -- 76 18 1,967
Selling, general and
administrative expenses.. 1,064 7,455 4,427 28,005
Stock-based compensation
expense.................. 230 412 250 13,667
---------- ---------- ---------- ----------
Loss from operations.... (1,294) (7,791) (4,659) (39,705)
Interest expense.......... (61) (172) (156) (241)
Interest income........... -- 54 -- 930
Other expense............. -- -- -- (120)
---------- ---------- ---------- ----------
Net loss................ $ (1,355) $ (7,909) $ (4,815) $ (39,136)
========== ========== ========== ==========
Basic and diluted net loss
per share................ $ (0.14) $ (0.72) $ (0.45) $ (2.76)
========== ========== ========== ==========
Pro forma basic and
diluted net loss per
share.................... $ (0.14) $ (0.34) $ (0.26) $ (0.68)
========== ========== ========== ==========
Weighted average shares
outstanding used to
compute basic and diluted
net loss per share....... 10,034,721 11,004,174 10,737,512 14,188,651
========== ========== ========== ==========
Weighted average shares
outstanding used to
compute pro forma basic
and diluted net loss per
share.................... 10,034,721 23,046,228 18,454,537 57,813,650
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
HOMEGROCER.COM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Preferred Stock
----------------------------------------------------
Notes
Series A Series B Series C Common Stock Additional Receivable Deferred
---------------- ----------------- ----------------- ------------------ Paid-in from Stock-based
Shares Amount Shares Amount Shares Amount Shares Amount Capital Officers Compensation
--------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of common
stock........... -- $ -- -- $-- -- $-- 15,200,000 $15 $ 277 $ -- $ --
Issuance of
common stock
warrants with
convertible
promissory
notes........... -- -- -- -- -- -- -- -- 190 -- --
Stock issued and
stock options
granted in
exchange for
consulting
services........ -- -- -- -- -- -- 800,000 1 229 -- --
Net loss and
comprehensive
loss for the
period ended
January 3,
1998............ -- -- -- -- -- -- -- -- -- -- --
--------- ---- ---------- --- ---------- --- ---------- --- -------- ------- --------
Balance at
January 3,
1998............ -- -- -- -- -- -- 16,000,000 16 696 -- --
Repurchase of
common stock.... (3,333,334) (4) 2
Issuance of
common stock
warrants for
goods and
services........ -- -- -- -- -- -- -- -- 27 -- --
Stock options
granted in
exchange for
consulting
services........ -- -- -- -- -- -- -- -- 191 -- --
Issuance of
Series A
preferred stock,
net of offering
costs of $74.... 7,500,000 8 -- -- -- -- -- -- 3,669 -- --
Issuance of
Series A
preferred stock
for consulting
services........ 500,000 -- -- -- -- -- -- -- 250 -- --
Issuance of
Series B
preferred stock,
net of offering
costs of $48.... -- -- 16,857,142 17 -- -- -- -- 5,835 -- --
Issuance of
Series C
preferred stock
warrants for
goods and
services........ -- -- -- -- -- -- -- -- 84 -- --
Common stock
returned in
settlement with
service
provider........ -- -- -- -- -- -- (250,000) -- (140) -- --
Net loss and
comprehensive
loss for the
fiscal year
ended January 2,
1999............ -- -- -- -- -- -- -- -- -- -- --
--------- ---- ---------- --- ---------- --- ---------- --- -------- ------- --------
Balance at
January 2,
1999............ 8,000,000 8 16,857,142 17 -- -- 12,416,666 12 10,614 -- --
Issuance of
Series C
preferred stock,
net of offering
costs of $48*... -- -- -- -- 29,942,050 30 -- -- 52,320 -- --
Issuance of
warrants to
purchase shares
of Series D
redeemable
preferred
stock*.......... -- -- -- -- -- -- -- -- 1,361 -- --
Stock options
granted in
exchange for
consulting
services*....... -- -- -- -- -- -- -- -- 751 -- --
Exercise of
common stock
options*........ -- -- -- -- -- -- 10,281,770 10 3,851 -- --
Issuance of
restricted
common stock*... -- -- -- -- -- -- 2,050,000 2 920 -- --
Exercise of
warrants to
purchase common
stock*.......... -- -- -- -- -- -- 600,000 1 224 -- --
Notes receivable
from officers
for common
stock*.......... -- -- -- -- -- -- -- -- -- (3,231) --
Deferred stock-
based
compensation*... -- -- -- -- -- -- -- -- 44,681 -- (44,681)
Amortization of
stock-based
compensation*... -- -- -- -- -- -- -- -- -- -- 12,916
Net loss and
comprehensive
loss for the
fiscal period
ended October 2,
1999*........... -- -- -- -- -- -- -- -- -- -- --
--------- ---- ---------- --- ---------- --- ---------- --- -------- ------- --------
Balance at
October 2,
1999*........... 8,000,000 $ 8 16,857,142 $17 29,942,050 $30 25,348,436 $25 $114,722 $(3,231) $(31,765)
========= ==== ========== === ========== === ========== === ======== ======= ========
<CAPTION>
Total
Shareholders'
Accumulated Equity
Deficit (Deficit)
----------- -------------
<S> <C> <C>
Sale of common
stock........... $ -- $ 292
Issuance of
common stock
warrants with
convertible
promissory
notes........... -- 190
Stock issued and
stock options
granted in
exchange for
consulting
services........ -- 230
Net loss and
comprehensive
loss for the
period ended
January 3,
1998............ (1,355) (1,355)
----------- -------------
Balance at
January 3,
1998............ (1,355) (643)
Repurchase of
common stock.... (2)
Issuance of
common stock
warrants for
goods and
services........ -- 27
Stock options
granted in
exchange for
consulting
services........ -- 191
Issuance of
Series A
preferred stock,
net of offering
costs of $74.... -- 3,677
Issuance of
Series A
preferred stock
for consulting
services........ -- 250
Issuance of
Series B
preferred stock,
net of offering
costs of $48.... -- 5,852
Issuance of
Series C
preferred stock
warrants for
goods and
services........ -- 84
Common stock
returned in
settlement with
service
provider........ -- (140)
Net loss and
comprehensive
loss for the
fiscal year
ended January 2,
1999............ (7,909) (7,909)
----------- -------------
Balance at
January 2,
1999............ (9,264) 1,387
Issuance of
Series C
preferred stock,
net of offering
costs of $48*... -- 52,350
Issuance of
warrants to
purchase shares
of Series D
redeemable
preferred
stock*.......... -- 1,361
Stock options
granted in
exchange for
consulting
services*....... -- 751
Exercise of
common stock
options*........ -- 3,861
Issuance of
restricted
common stock*... -- 922
Exercise of
warrants to
purchase common
stock*.......... -- 225
Notes receivable
from officers
for common
stock*.......... -- (3,231)
Deferred stock-
based
compensation*... -- 0
Amortization of
stock-based
compensation*... -- 12,916
Net loss and
comprehensive
loss for the
fiscal period
ended October 2,
1999*........... (39,136) (39,136)
----------- -------------
Balance at
October 2,
1999*........... $(48,400) $ 31,406
=========== =============
</TABLE>
- -----
* Unaudited
See accompanying notes.
F-5
<PAGE>
HOMEGROCER.COM, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
51 Weeks from 52 Weeks 39 Weeks 39 Weeks
January 15, 1997 Ended Ended Ended
(Inception) to January 2, October 3, October 2,
January 3, 1998 1999 1998 1999
---------------- ---------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net loss................ $(1,355) $(7,909) $(4,815) $(39,136)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation.......... 7 175 119 1,051
Amortization.......... 57 132 -- 18
Stock-based
compensation
expense.............. 230 412 250 13,667
Loss on disposal of
fixed assets......... -- -- -- 128
Changes in operating
assets and
liabilities:
Prepaid expenses and
other current
assets............... (165) (265) (211) (1,214)
Inventories........... -- (284) (226) (875)
Accounts payable...... 740 49 246 4,975
Accrued liabilities... -- (68) (329) 2,144
Accrued compensation
and related
liabilities.......... -- 239 5 1,691
------- ------- ------- --------
Net cash used in
operating activities... (486) (7,519) (4,961) (17,551)
Investing Activities:
Purchases of fixed
assets................. (393) (737) (694) (19,340)
Purchases of marketable
securities............. -- -- -- (4,913)
Deposits and other...... -- (571) (227) (1,083)
Restricted cash......... -- -- -- (5,447)
------- ------- ------- --------
Net cash used in
investing activities... (393) (1,308) (921) (30,783)
Financing Activities:
Net proceeds from sale
of Series A preferred
stock.................. -- 2,926 2,926 --
Net proceeds from sale
of Series B preferred
stock.................. -- 5,852 5,852 --
Net proceeds from sale
of Series C preferred
stock.................. -- -- -- 52,350
Net proceeds from sale
of Series D redeemable
preferred stock........ -- -- -- 59,773
Proceeds from sale
(repurchase) of common
stock.................. 292 (2) (2) --
Proceeds from exercise
of stock options....... -- -- -- 1,093
Proceeds from exercise
of warrants............ -- -- -- 225
Proceeds from (repayment
of) convertible notes.. 900 (100) (100) --
Proceeds from notes
payable................ -- 900 400 --
Repayment of notes
payable................ -- (500) -- --
Proceeds from sale
leaseback.............. -- 522 522 --
Proceeds from long-term
debt................... -- -- -- 2,310
Repayments of long-term
debt................... -- -- -- (751)
Repayments of capital
lease obligations...... -- -- -- (348)
------- ------- ------- --------
Net cash provided by
financing activities... 1,192 9,598 9,598 114,652
------- ------- ------- --------
Net increase in cash and
cash equivalents....... 313 771 3,716 66,318
Cash and cash
equivalents, beginning
of period.............. -- 313 313 1,084
------- ------- ------- --------
Cash and cash
equivalents, end of
period................. $ 313 $ 1,084 $ 4,029 $ 67,402
======= ======= ======= ========
Supplemental Cash Flow
Information:
Cash paid during the
period for interest.... -- $ 35 $ 6 $ 216
Noncash Financing and
Investing Activities:
Fixed assets acquired
through capital lease.. -- $ 811 -- $ 2,424
Issuance of warrants to
purchase common stock
in connection with
convertible notes
issued................. $ 190 -- -- --
Conversion of notes to
Series A preferred
stock (net of
convertible note
origination fees)...... -- $ 751 $ 751 --
Issuance of warrants to
purchase preferred
stock in connection
with loan agreement.... -- -- -- $ 1,361
Issuance of notes
receivable for officers
to purchase common
stock.................. -- -- -- $ (3,231)
</TABLE>
See accompanying notes.
F-6
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
1. Significant Accounting Policies
Description of Business
HomeGrocer.com, Inc. (the "Company") is an Internet retailer of grocery and
other consumer products. The Company operates its own distribution system
providing next-day delivery of products. The Company began delivering
groceries to the Seattle market from its first customer fulfillment center
("CFC") located in Bellevue, Washington in June 1998. As of November 30, 1999,
the Company was delivering groceries from four CFCs in the following markets:
<TABLE>
<CAPTION>
CFC Location Delivery Commencement Markets Served
- ------------ --------------------- --------------
<S> <C> <C>
Renton, WA (formerly Bellevue) June 1998 Seattle
Tualatin, OR May 1999 Portland
Irvine, CA September 1999 Orange County
Fullerton, CA November 1999 Orange County/Los Angeles
</TABLE>
The Company was incorporated on January 15, 1997 in British Columbia,
Canada as GrocerNet Home Shopping, Inc. On September 29, 1997, the Company
reincorporated in Delaware as HomeGrocer.com, Inc.
The Company has incurred significant operating losses since its inception.
To date, the Company has financed its operations primarily through the
issuance of equity securities. The Company's current expansion plans as well
as costs associated with increasing its customer base in its existing markets
will require additional financing. The Company believes that additional
financing can be obtained from existing or new investors. However, there can
be no assurance that the Company will be able to obtain additional financing
on acceptable terms, if at all.
Fiscal Year
The Company reports on a 52/53 week fiscal year basis that ends on the
Saturday nearest December 31. Because the Company commenced on January 15,
1997 (inception), the fiscal year ended January 3, 1998 was a 51-week year.
Fiscal year 1998 was a 52-week year that ended on January 2, 1999.
Interim Financial Information
The interim financial information as of October 2, 1999 and for the 39
weeks ended October 3, 1998 and October 2, 1999 is unaudited, but has been
prepared on the same basis as the audited financial statements and in the
opinion of management, such unaudited financial information includes all
adjustments necessary, consisting of normal recurring adjustments, for a fair
presentation of the interim information. Operating results for the 39 weeks
ended October 2, 1999 are not necessarily indicative of the results that may
be expected for the 52 weeks ending January 1, 2000.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents are carried at fair market value, which approximates cost.
F-7
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
Marketable Securities
The Company considers all investments with a maturity of more than three
months but less than one year when purchased and investments to be sold within
one year to be short-term and available-for-sale. The Company's marketable
securities consist primarily of commercial paper.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of its holdings of cash,
cash equivalents and marketable securities. Banking with and purchasing
commercial paper from credit-worthy institutions mitigates risks associated
with cash, cash equivalents and marketable securities.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, marketable
securities, capital lease and other long-term obligations. The carrying value
of all financial instruments approximates fair market value.
Inventories
Inventories are stated at the lower of cost (using the weighted average
cost method) or market. The Company's largest vendor accounted for
approximately 29% of the Company's purchases in fiscal 1998. The vendor's
inability to supply product in a timely manner or on terms acceptable to the
Company would not adversely affect the Company's ability to meet customers'
demands, as products are readily available from other sources.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation and
amortization. Fixed assets are depreciated on a straight-line basis over the
estimated useful lives of the assets, which range from two to fifteen years.
Fixed assets purchased under capital leases are amortized on a straight-line
basis over the lesser of the estimated useful life of the asset or lease term.
The Company evaluates the recoverability of its long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Impairment is measured by comparing the carrying
value of the long-lived assets to the estimated undiscounted future cash flows
expected to result from use of the assets and their ultimate disposition. In
circumstances where impairment is determined to exist, the Company will write
down the asset to its fair value based on the present value of estimated
expected future cash flows. To date, no such impairment has been indicated.
Restricted Cash
The Company entered into various lease agreements requiring the Company to
issue letters of credit. The bank has required the Company to maintain certain
balances on deposit as security for the letters of credit. These letters of
credit expire at various dates ranging from July 2000 through August 2015.
Income Taxes
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets
F-8
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
and liabilities using the enacted tax rates and laws that are expected to be
in effect when the differences are recovered. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
Revenue Recognition
The Company recognizes revenues from product sales, net of promotional
discounts, when products are delivered to customers. The Company provides an
allowance for sales returns, which have been insignificant, based upon
historical experience.
Advertising Costs
The costs of advertising are expensed as incurred. The Company incurred
advertising costs of $1.0 million, $789,000 and $3.1 million, respectively,
for the 52 weeks ended January 2, 1999, and the 39 weeks ended October 3, 1998
and October 2, 1999, respectively. No similar costs were incurred in fiscal
1997.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB No. 25"), and related
interpretations, in accounting for employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123").
APB No. 25 provides that the compensation expense related to the Company's
employee stock options is measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide pro forma disclosure of the impact of applying the fair value method
of SFAS No. 123. The Company recognizes compensation expense for options
granted to non-employees in accordance with the provisions of SFAS No. 123 and
the Emerging Issues Task Force consensus Issue in 96-18, Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.
Net Loss Per Share
Net loss per share is calculated using the weighted average number of
common shares outstanding less the number of shares subject to repurchase.
Shares associated with outstanding stock options, warrants, redeemable
preferred stock and convertible preferred stock are not included in the
calculation of diluted loss per share because they are antidilutive.
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share is calculated using the weighted average
number of common shares outstanding less shares subject to repurchase,
including the pro forma effects of the automatic conversion of all outstanding
redeemable preferred stock and convertible preferred stock into shares of
common stock effective upon closing of the Company's initial public offering
as if such conversion had occurred at the original date of issuance.
F-9
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
The following table sets forth the computation of basic and diluted loss
per share and pro forma basic and diluted loss per share for the periods
indicated:
<TABLE>
<CAPTION>
51 Weeks from 52 Weeks 39 Weeks 39 Weeks
January 15, 1997 Ended Ended Ended
(Inception) to January 2, October 3, October 2,
January 3, 1998 1999 1998 1999
---------------- ----------- ----------- -----------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Net loss.............. $ (1,355) $ (7,909) $ (4,815) $ (39,136)
=========== =========== =========== ===========
Denominator:
Weighted average
common shares
outstanding.......... 15,868,041 13,833,333 14,315,018 16,259,711
Less: Weighted average
shares subject to
repurchase
agreements........... (5,833,320) (2,789,159) (3,577,506) (2,071,060)
----------- ----------- ----------- -----------
Denominator for basic
and diluted
calculation.......... 10,034,721 11,044,174 10,737,512 14,188,651
Weighted average
effect of pro forma
conversion of
securities:
Series A convertible
preferred stock.... -- 6,259,511 5,679,348 8,000,000
Series B convertible
preferred stock.... -- 5,742,543 2,037,677 16,857,142
Series C convertible
preferred stock.... -- -- -- 18,654,178
Series D redeemable
preferred stock.... -- -- -- 113,679
----------- ----------- ----------- -----------
Denominator for pro
forma basic and
diluted.............. 10,034,721 23,046,228 18,454,537 57,813,650
=========== =========== =========== ===========
Net loss per share:
Basic and diluted..... $ (0.14) $ (0.72) $ (0.45) $ (2.76)
=========== =========== =========== ===========
Pro forma basic and
diluted.............. $ (0.14) $ (0.34) $ (0.26) $ (0.68)
=========== =========== =========== ===========
</TABLE>
At January 3, 1998, January 2, 1999, October 3, 1998 and October 2, 1999,
3,666,653, 7,642,986, 8,081,280 and 16,458,652, respectively, shares of common
stock subject to repurchase, stock options and warrants were excluded from the
computation of actual and pro forma diluted loss per share, as their impact
was antidilutive. If the Company had reported net income, the calculation of
earnings per share would have included the dilutive effect of these common
stock equivalents using the treasury stock method. Subsequent to October 2,
1999 the Company sold an additional 8,062,726 shares of redeemable preferred
stock.
Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company adopted SFAS No. 130 on January 4,
1998. The Company has no items that would have been classified as other
comprehensive income or loss.
Segment Information
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131 redefines
how operating segments are determined and requires
F-10
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
disclosure of certain financial and descriptive information about a company's
operating segments. The Company adopted SFAS No. 131 on January 4, 1998.
Provisions of this statement require annual disclosure in the year of adoption
and interim reporting for periods thereafter. The Company operates in one
principal business segment across domestic markets.
New Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 requires all
costs related to the development of internal use software other than those
incurred during the application development stage to be expensed as incurred.
Costs incurred during the application development stage are required to be
capitalized and amortized over the estimated useful life of the software. The
Company adopted SOP 98-1 on January 3, 1999 and there was no significant
impact on the Company's financial position or operating results upon adoption.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities ("SOP 98-5"). SOP 98-5 requires costs of start-up activities and
organization costs be expensed as incurred. The Company adopted SOP 98-5 on
January 3, 1999 and there was no significant impact on the Company's financial
position or operating results upon adoption.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. SFAS
No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income. The
Company does not expect that the adoption of SFAS No. 133 will have a material
impact on its financial statements because the Company does not currently hold
any derivative instruments.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB No. 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company does not believe
SAB No. 101 will have an impact on the way it currently recognizes revenue.
2. Fixed Assets
Fixed assets, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
January 3, January 2, October 2,
1998 1999 1999
---------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Computers, equipment and software........ $205 $ 923 $ 8,499
Machinery and equipment.................. -- -- 396
Furniture and fixtures................... 160 334 712
Leasehold improvements................... 28 162 803
Construction in progress................. -- -- 12,648
---- ------ -------
393 1,419 23,058
Less accumulated depreciation and
amortization............................ (7) (182) (1,233)
---- ------ -------
$386 $1,237 $21,825
==== ====== =======
</TABLE>
F-11
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
In July 1998, the Company entered into a sale leaseback transaction under
which the Company sold assets with a total net book value of $522,000 to First
Corporation. No gain or loss was recognized in connection with this sale
leaseback transaction because the fair value of the equipment sold
approximated net book value. The commitment for leasing this equipment is
being recorded as an operating lease.
At January 2, 1999 and October 2, 1999, fixed assets held under capital
leases totaled $811,000 and $3,235,000, respectively, and accumulated
amortization for these assets totaled $25,000 and $467,000, respectively.
Construction in progress at October 2, 1999 represents leasehold improvements
and equipment purchases related to CFCs which were not placed in service at
October 2, 1999.
3. Debt
Long-Term Debt
The Company incurred debt of $400,000 through a credit facility with
Silicon Valley Bank bearing interest at prime plus 1% (8.75% at January 2,
1999) and requiring 36 equal payments commencing January 1999. The general
assets of the Company exclusive of intellectual property secured the facility.
All amounts outstanding under the credit facility at January 2, 1999 were
repaid in August 1999 and the agreement was terminated.
Original maturities of notes payable were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1999................................................................... $122
2000................................................................... 133
2001................................................................... 133
2002................................................................... 12
----
$400
====
</TABLE>
The Company has entered into various Payment Plan Agreements with Oracle
Credit Corporation. The dates of the agreements range from November 1998
through May 1999 and have payment terms ranging from seven to 12 quarters. The
interest rates on the agreements range from 6.72% to 13.65%. As of October 2,
1999, the total amount outstanding under these agreements was $2.0 million.
Convertible Promissory Notes
In November and December 1997, the Company issued convertible promissory
notes with an aggregate face amount of $900,000. The notes bear interest at 6%
per annum and were convertible or redeemable upon completion of the Series A
preferred stock financing. The notes also contained a provision providing for
the issuance of warrants to purchase 1,800,000 shares of common stock at $0.38
per share and expire on December 31, 2000, but terminate earlier if not
exercised prior to an initial public offering. The fair market value of these
warrants was determined using the Black-Scholes pricing model to be $189,000
and was amortized to interest expense during fiscal 1997 and 1998. During the
first 39 weeks of fiscal 1999, warrants to purchase 600,000 shares were
exercised and the remaining warrants to purchase 1,200,000 shares are
exercisable at October 2, 1999.
In February 1998, holders of the convertible notes elected to convert
$800,000 of the outstanding notes into 1,600,000 shares of Series A preferred
stock. The Company redeemed the remaining $100,000 outstanding convertible
notes.
F-12
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
Outstanding Letters of Credit
In 1998, the Company issued letters of credit with an aggregate amount of
$68,000 to suppliers to guarantee payment on orders. The letters of credit are
secured by time deposits that mature at the expiration date of the letters of
credit. The deposits are reported as noncurrent other assets as the supplier
and bank have required that the letters of credit and underlying deposits
remain in place through the end of 1999.
4. Leases
The Company leases its operating facility, certain operating equipment and
its delivery fleet under noncancelable leases. The leases have lives of three
to seven years without rights to extend the leases.
Aggregate rental expense for the 51 weeks ended January 3, 1998, 52 weeks
ended January 2, 1999 and the 39 weeks ended October 3, 1998 and October 2,
1999 was $50,000, $603,000, $500,000 and $1.7 million, respectively. Future
minimum payments under capital leases and noncancelable operating leases
during the next five years for leases with a remaining life in excess of one
year at January 2, 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1999....................................................... $267 $1,116
2000....................................................... 267 1,044
2001....................................................... 266 755
2002....................................................... 133 329
2003....................................................... -- 301
Thereafter................................................. -- 456
---- ------
Total minimum payments..................................... 933 $4,001
======
Less amount representing interest.......................... 122
----
Present value of minimum lease payments.................... 811
Less current portion of capital lease obligations.......... 209
----
Noncurrent capital lease obligations....................... $602
====
</TABLE>
In July and August 1998, the Company issued a warrant to purchase 304,120
shares of common stock in connection with equipment lease and loan agreements.
The fair market value of this warrant was determined using the Black-Scholes
pricing model to be $27,000 and is being amortized to interest expense over
the terms of the agreements. This warrant has an exercise price of $0.50 per
share and is exercisable on or before the later of seven years from the date
of issuance, or three years from the closing of an initial public offering.
In November 1998, the Company entered into a Master Lease Agreement with
Comdisco, Inc. ("Comdisco"), under which Comdisco agreed to provide the
Company lease financing, up to an aggregate purchase price of $3.0 million.
Leases executed pursuant to this loan agreement aggregated to approximately
$811,000 and provide for equal monthly payments over a 30 or 42-month term
with implicit interest rates ranging from 9 to 18%. As of January 2, 1999,
approximately $2.2 million was available under this agreement. The Company
accounts for its obligations under the Master Lease Agreement as capital
leases. As part of the Master Lease Agreement, the Company granted Comdisco a
warrant to purchase 153,600 shares of Series C preferred stock at an exercise
price of $0.78 per share. This warrant is exercisable for a period of seven
years from the date of issuance or three years from the date of the Company's
initial public offering, whichever is longer. The fair market value of this
warrant was determined using the Black-Scholes pricing model to be $84,000.
F-13
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
In August 1999, the Company entered into a Lease Agreement with Valley
Freightliner, Inc ("VFI") and a related financing agreement with Mercedes-Benz
Credit Corporation ("MBCC"). Under the terms of the agreement, the Company
will lease its delivery fleet from VFI for a period of 84 months following
receipt of the vehicles. The Company has no option to purchase the vehicles at
any time and is obligated to pay VFI a guaranteed residual value of $12,500
per vehicle at the end of the lease term. The Company will account for its
obligations under the Lease Agreement as capital leases. As of October 2,
1999, the Company had not recorded any fixed assets or capital lease
obligations under this agreement. The financing agreement entered into with
MBCC is a revolving line of credit. Under the agreement, the Company may
borrow up to $10.0 million for the purchase of delivery vehicles or to finance
the lease of such vehicles. Amounts available under the agreement will
increase for every $50.0 million increase in the Company's shareholders'
equity up to a maximum amount available of $20.0 million. The agreement
restricts the Company's ability to pay dividends and the line of credit
expires on June 30, 2000. Borrowings under the line are payable in 84 monthly
installments.
In September 1999, the Company entered into a Subordinated Loan and
Security Agreement with Comdisco. Under the terms of the agreement, Comdisco
agreed to loan up to $10.0 million to the Company in minimum installments of
$1.0 million. Borrowings under the agreement are due and payable in 36 equal
monthly payments and amounts outstanding bear interest at 11%. In connection
with the Subordinated Loan and Security Agreement, the Company granted
Comdisco a warrant to purchase 275,862 shares of Series D preferred stock at
an exercise price of $5.80 per share. The warrant is exercisable for a period
of ten years from the date of issuance or five years from the date of the
Company's initial public offering, whichever is earlier. The fair market value
of this warrant was determined using the Black-Scholes pricing model to be
$1.4 million and is being amortized as interest expense over 40 months which
is the term of the underlying Subordinated Loan and Security Agreement.
5. Income Taxes
The Company did not provide any current or deferred United States federal
income tax provision or benefit for any of the periods presented because it
has experienced operating losses since inception. The Company provided a full
valuation allowance on the net deferred tax asset, consisting primarily of net
operating loss carryforwards, because management believes there is substantial
uncertainty as to its ability to use such tax loss carryforwards.
As of January 2, 1999, the Company had approximately $8.8 million of net
operating loss carryforwards for federal income tax purposes, which expire
beginning in 2017. In 1999, due to the issuance and sale of Series C preferred
stock, the Company incurred an ownership change pursuant to applicable
regulations under the Internal Revenue Code of 1986, as amended. The Company's
anticipated initial public offering will most likely not cause an additional
ownership change. Therefore, the Company's use of the $8.8 million of net
operating losses incurred through January 2, 1999, as well as losses incurred
subsequent thereto until the date of ownership change, will be limited to
approximately $1.0 million per year in order to offset future taxable income.
To the extent that any single-year loss is not utilized to the full amount of
the limitation, such unused loss is carried over to subsequent years until the
earlier of its utilization or the expiration of the relevant carryforward
period.
F-14
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows (in
thousands):
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $379 $2,796
Accruals on financial statements in excess of tax
returns............................................. 98 336
----- -------
Total deferred tax assets.......................... 477 3,132
Deferred tax liabilities--depreciation............... 23 46
Net deferred tax assets............................ 454 3,086
----- -------
Less valuation allowance........................... (454) (3,086)
----- -------
$ 0 $ 0
===== =======
</TABLE>
Because the Company's utilization of these deferred tax assets is dependent
on future profits that are not assured, a valuation allowance equal to the
deferred tax assets has been provided. The valuation reserve increased
$2,632,000 during fiscal 1998.
6. Stockholders' Equity
Common Stock
In fiscal 1997, the Company sold 15,200,000 shares of common stock for
$292,000.
In September 1997, the Company's founders entered into common shareholders'
agreements whereby the Company has the right to repurchase 6,000,000 shares of
common stock held by the founders at the original purchase price of $0.0005
per share if their employment terminates under certain circumstances. The
Company's right of repurchase lapses quarterly from December 31, 1997 through
September 30, 2000. In addition, the Company has the option to purchase any
unrestricted shares from the founders upon termination at fair market value.
In December 1997, one founder left the employment of the Company. The
Company exercised its repurchase right in February 1998 as to 2,000,000 shares
for $1,000. In August 1998, another founder left the employment of the
Company. The Company exercised its repurchase right as to 1,333,334 shares for
$667. The Company did not exercise its right to purchase either of the
founders' unrestricted shares.
In August 1998, as a part of the Series B preferred stock financing, the
lapsing schedule for the Company's remaining founder was accelerated such that
his remaining shares would become fully vested by December 31, 1999. At
January 2, 1999, and October 2, 1999, 566,600 and 66,560 shares, respectively,
held by the remaining founder were subject to repurchase at the original
purchase price under the common shareholders' agreement.
Preferred Stock
In February, April, June and July 1998, the Company issued 8,000,000 shares
of Series A preferred stock. Net proceeds of $3.7 million were obtained from
the conversion of $800,000 of notes for 1,600,000 shares, the sale of
5,900,000 shares at $0.50 per share and the issuance of 500,000 shares in
exchange for services. In June 1998, the Company issued a warrant to purchase
965,666 shares of common stock to an investor as part of
F-15
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
the Series A preferred stock financing. The exercise price of this warrant is
$0.50 per share and it is exercisable through December 31, 2000, but
terminates earlier if not exercised prior to an initial public offering.
In September 1998, 16,857,142 shares of Series B preferred stock were
issued at a price of $0.35 per share, resulting in net proceeds of $5.9
million.
In January and February 1999, certain preferred stock shareholders provided
$2.0 million of bridge financing. In April and May 1999, 29,942,050 shares of
Series C preferred stock were sold at a price of $1.75 per share, resulting in
net proceeds of $52.4 million, including $1.7 million of shareholder loans
obtained in 1999 that were converted into 969,464 shares of Series C preferred
stock. As part of the Series C preferred stock offering agreement, the Company
granted one of the Series C investors an initial public offering purchase
option, which option has been waived.
In September, October and November 1999, 18,407,546 shares of Series D
preferred stock were sold at a price of $5.80 per share, resulting in net
proceeds of $106.5 million. At October 2, 1999, net proceeds of $59.8 million
from the sale of Series D preferred stock were classified on the balance sheet
as redeemable preferred stock, because the Series D shareholders held the
right to require the Company to repurchase their shares of Series D preferred
stock if the Hart-Scott-Rodino Act ("HSR") waiting period on HSR filings had
not expired by December 31, 1999. As of November 30, 1999, all waiting periods
on HSR filings had expired.
Subject to certain conditions, the preferred stock has mandatory conversion
requirements in the event of a qualified initial public offering of the
Company's common stock in which net proceeds exceed $75.0 million and a price
of not less than $5.80 per share, or if a majority of the preferred
stockholders, voting as a single class, elects to convert to common stock. In
the event of any distribution of assets upon liquidation of the Company,
holders of Series A, Series B, Series C and Series D preferred stock shall
first receive a liquidation preference of $0.50 per share, $0.35 per share,
$1.75 per share and $5.80 per share respectively, plus cumulative dividends,
if and when declared, at an annual rate of 9%. Each share of outstanding
preferred stock has voting rights equivalent to the number of common shares
issuable, if converted.
Stock Option Plan
In October 1997, the Company adopted the 1997 Stock Incentive Compensation
Plan (the "1997 Plan"), under which the Company grants incentive stock options
and nonqualified stock options to employees, officers and consultants.
Incentive stock options are exercisable at prices that are no less than the
fair market value of the stock on the date of grant. Generally, options
granted under the 1997 Plan become exercisable immediately and vest over four
years. Shares issued upon exercise of options that are unvested are restricted
and subject to repurchase by the Company upon termination of employment or
services and such restrictions lapse over the original vesting schedule.
Nonqualified stock options are granted at a price and vesting period
determined by the Board of Directors. Options under the 1997 Plan generally
have a term of ten years. The 1997 Plan expires ten years from the date of
adoption.
F-16
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
A summary of activity related to the Company's stock option plan follows:
<TABLE>
<CAPTION>
Shares Available Weighted-Average
for Future Grant Options Exercise Price
---------------- ---------- ----------------
<S> <C> <C> <C>
1997 Plan adoption............... 10,124,334 -- $ --
Granted........................ (4,509,000) 4,509,000 0.24
Canceled....................... 656,000 (656,000) 0.25
---------- ----------
Balance, January 2, 1999......... 6,271,334 3,853,000 0.24
1997 Plan amendment............ 5,800,000 -- --
Granted........................ (6,789,800) 6,789,800 0.43
Exercised...................... -- (4,137,770) 0.26
Repurchase of restricted
shares........................ 6,000 -- 0.25
Canceled....................... 315,730 (315,730) 0.30
---------- ----------
Balance, October 2, 1999......... 5,603,264 6,189,300 $0.43
========== ==========
</TABLE>
The following information is provided for options outstanding and
exercisable at January 2, 1999:
<TABLE>
<CAPTION>
Outstanding Vested and Exercisable
------------------------------------------- ------------------------
Weighted-Average
Remaining Weighted-
Exercise Number of Weighted-Average Contractual Number of Average
Price Range Options Exercise Price Life (Years) Options Exercise Price
----------- --------- ---------------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.09 160,000 $0.09 9.3 160,000 $0.09
0.25 3,693,000 0.25 9.5 1,818,500 0.25
--------- ---------
3,853,000 1,978,500
========= =========
</TABLE>
Under APB No. 25, no compensation expense is recognized when the exercise
price of the Company's employee stock options equals the fair value of the
underlying stock on the date of grant. Deferred stock-based compensation was
recorded when the exercise price of an option or the sales price of restricted
stock was lower than the subsequently deemed fair value for financial
reporting purposes of the underlying common stock. The Company recorded
aggregate deferred stock-based compensation of $44.7 million for the 39 weeks
ended October 2, 1999 and will amortize the deferred stock-based compensation
over the vesting period of the underlying options. Amortization of deferred
stock-based compensation was $12.9 million for the 39 weeks ended October 2,
1999.
F-17
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
Had the Company elected to recognize compensation cost based on the fair
value of the options as prescribed by SFAS 123, the pro forma net loss would
have been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Net loss, as reported.............................................. $(7,909)
Incremental pro forma compensation expense under SFAS 123.......... (111)
-------
Pro forma net loss under SFAS 123.................................. $(8,020)
=======
Basic and diluted net loss per share, as reported.................. $ (0.72)
=======
Basic and diluted net loss per share, pro forma.................... $ (0.73)
=======
Pro forma basic and diluted net loss per share, as reported........ $ (0.34)
=======
Pro forma basic and diluted net loss per share, pro forma.......... $ (0.35)
=======
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the minimum value method. For 1998, the weighted-average values were
estimated using an average expected life of 3.4 years, risk-free interest
rates from 4.2% to 5.6%, and no dividends. The weighted-average fair value for
options granted during 1998 was $0.04 per share. The initial impact on pro
forma net loss may not be representative of compensation expense in future
years, when the effect of the amortization of multiple awards would be
reflected in the results of operations.
Common Stock Reserved
The following shares of common stock were reserved for future issuance:
<TABLE>
<CAPTION>
January 2,
1999
----------
<S> <C>
Outstanding stock options....................................... 3,853,000
Stock options available for future grant........................ 6,271,334
Warrants to purchase common stock............................... 3,069,786
Conversion of convertible preferred stock:
Series A....................................................... 8,000,000
Series B....................................................... 16,857,142
Warrant to purchase Series C preferred stock that is convertible
to common stock................................................ 153,600
----------
Total common shares reserved for future issuance................ 38,204,862
==========
</TABLE>
Stock Option Grants and Restricted Stock Sales
In September 1999, two officers of the Company were granted nonqualified
stock options to purchase 6,150,000 shares of the Company's common stock for
$0.45 per share. The options were granted outside of the Company's 1997 Plan
and vest over periods of four years. The option agreements also provide that
in the event the officer's employment is terminated for other than cause or in
the event of a change in control whereby the officer is not offered a position
with similar responsibilities, additional shares will vest to the officer.
These shares are subject to a repurchase option which gives the Company the
right to purchase such shares at a price equal to that paid by the officers.
The repurchase option expires over the original vesting schedule of the
underlying
F-18
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
option. In addition to the stock options, in September 1999, the Company sold
2,050,000 shares of restricted common stock to the same two officers at $0.45
per share. The shares are fully vested but are subject to a right of first
refusal, whereby the Company has the right to purchase the shares for the same
price and terms as offered to the officers by a third party. This right
expires upon the Company's successful completion of an initial public
offering.
In September 1999, the Company loaned the two officers $3,231,000 to enable
them to exercise the stock options granted to them and purchase the restricted
shares of the Company's common stock. The promissory notes are with full
recourse against the officers, bear interest at 5.98% and are payable in full
on September 9, 2004. Principal amounts outstanding under the notes are
reflected as a component of shareholders' equity.
7. Commitments and Contingencies
The Company entered into a service agreement in April 1997 with a
consultant pursuant to which the Company issued 800,000 shares of common stock
($230,000) in 1997 and 500,000 shares of Series A preferred stock ($250,000)
in 1998 for services provided. In October 1998, the service agreement was
terminated and the consultant returned 250,000 shares of common stock.
The Company is party to routine claims and litigation incidental to its
business. The Company believes the ultimate resolution of these routine
matters will not have a material adverse effect on its financial position and
results of operations.
8. Employee Benefit Plan
The Company has a 401(k) Plan that is available to all employees over the
age of 21 who have been with the Company over 90 days and work over 1,000
hours per year. Eligible employees may contribute up to 20% of their annual
compensation to the 401(k) Plan, subject to limitations imposed by federal
income tax regulations. Each participant is fully vested in his or her
deferred salary contribution. The Company matches participants' contributions
to the 401(k) Plan up to 5% of the participants' compensation. The Company's
fiscal 1998 matching contribution was $23,000. The Company's matching
contributions vest 33% after two years of service, 66% after three years of
service and 100% after four years of service.
9. Subsequent Events
Stock Split
In November 1999, the shareholders approved a two-for-one stock split of
shares, warrants and options outstanding which became effective on November
23, 1999. All share and per share amounts in the accompanying financial
statements have been adjusted to reflect the stock split.
Proposed Initial Public Offering of Common Stock
On December 14, 1999, the Board of Directors authorized the Company to
proceed with an initial public offering of its common stock. If the offering
is consummated as currently expected, all of the outstanding preferred stock
will automatically convert into common stock. The unaudited pro forma
shareholders' equity at October 2, 1999 reflects the anticipated conversion of
all outstanding shares of Series A, Series B, Series C and Series D preferred
stock into 65,144,012 shares of common stock upon completion of the offering
and change in the capital structure of the Company.
F-19
<PAGE>
HOMEGROCER.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of October 2, 1999 and for the 39 weeks ended
October 3, 1998 and October 2, 1999 is unaudited)
Stock Option and Employee Stock Purchase Plans
In November 1999, the Company granted options to employees and non-employee
directors to purchase 3,202,000 shares of its common stock. Included in the
November 1999 grant is an initial option grant to an officer to purchase
1,200,000 shares of common stock. The exercise price of the options granted
was equal to the deemed fair value of the underlying common stock on the date
of grant or $2.50 per share.
On December 14, 1999, the Company's 1999 Stock Incentive Plan ("1999 Stock
Plan") was adopted by the Board of Directors, subject to shareholder approval.
A total of 12,500,000 shares have been reserved for issuance under the plan
subject to an annual increase on the first day of each of the Company's next
five fiscal years beginning in fiscal 2001 equal to the lesser of 2,500,000
shares or 2.5% of outstanding shares on the last day of the preceding fiscal
year. The number of options granted, the exercise price of the option and the
option vesting period will be determined by the plan administrator, subject to
certain restrictions. Unless terminated earlier by the Board of Directors, the
plan will terminate in December 2009.
On December 14, 1999, the Company's 1999 Directors' Stock Option Plan
("1999 Directors' Plan") was adopted by the Board of Directors, subject to
shareholder approval. A total of 500,000 shares of common stock has been
reserved for issuance under the plan. The 1999 Directors' Plan provides for a
nonstatutory stock option grant to purchase 20,000 shares of common stock on
the date on which the individual becomes a non-employee director. Thereafter,
on the date of the Company's annual shareholders' meeting, each non-employee
director who has served as a director of the Company for six months will be
granted an additional option to purchase 5,000 shares. Options granted under
the plan will vest ratably over four years and have a term of 10 years. Unless
terminated earlier, the plan will terminate in December 2009.
On December 14, 1999, the Company's 1999 Employee Stock Purchase Plan
("1999 Purchase Plan") was adopted by the Board of Directors, subject to
shareholder approval. If approved by the shareholders, the 1999 Purchase Plan
will become effective upon the completion of the initial public offering. A
total of 3,000,000 shares of common stock has been reserved for issuance under
the plan plus an annual automatic increase on the first day of each fiscal
year beginning in 2001 and continuing through 2005 equal to the lesser of
500,000 shares, 0.5% of our outstanding shares or the number of shares
determined by the Board of Directors. Under the plan, eligible employees may
purchase common stock at 85% of the lesser of the fair market value of the
Company's common stock on the first or last day of the previous six or 12
months. Employees may end their participation in the plan at any time during
the offering period. Unless terminated earlier, the plan will terminate in
December 2019.
Commitments
As of November 30, 1999, the Company has signed agreements to purchase
additional delivery vehicles with an estimated cost of $40.8 million.
As of November 30, 1999, in addition to the four CFCs currently in
operation, the Company had signed agreements to lease three additional CFCs.
The Company's minimum lease commitments related to the seven CFCs and its
corporate headquarters totaled approximately $84.0 million over 15 years.
F-20
<PAGE>
[Color Artwork]
[Description to be Filed by Amendment]
<PAGE>
[ARTWORK]
[Photograph of the back of a HomeGrocer.com delivery truck displaying
HomeGrocer.com's peach logo]
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 2000
Shares
[LOGO OF HOMEGROCER.COM]
Common Stock
------------
HomeGrocer.com, Inc. is offering shares of common stock. This is
our initial public offering and no public market currently exists for our
shares.
------------
We will apply to list our common stock on the Nasdaq National Market under the
symbol "HOMG."
------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
------------
PRICE $ A SHARE
------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions HomeGrocer.com
-------- ------------- --------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
</TABLE>
HomeGrocer.com has granted the underwriters the right to purchase up to an
additional shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. International Limited expects to deliver the shares of
common stock to purchasers on , 2000.
------------
MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
HAMBRECHT & QUIST
BANC OF AMERICA SECURITIES LLC
J.C. BRADFORD & CO.
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by HomeGrocer.com in
connection with the sale of common stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee............................................ *
NASD filing fee................................................. *
Nasdaq National Market listing fee.............................. *
Printing and engraving expenses................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Blue Sky qualification fees and expenses........................ *
Transfer Agent and Registrar fees............................... *
Miscellaneous fees and expenses................................. *
Total....................................................... *
</TABLE>
- --------
* to be filed by amendment
Item 14. Indemnification of Directors and Officers
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on
terms sufficiently broad to permit indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). The registrant's Amended and Restated Bylaws (Exhibit 3.4
hereto) provide for indemnification of the registrant's directors, officers,
employees and agents to the maximum extent permitted by Washington law. The
directors and officers of the registrant also may be indemnified against
liability they may incur for serving in that capacity pursuant to a liability
insurance policy maintained by the registrant for such purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in certain circumstances
involving intentional misconduct, knowing violations of law or illegal
corporate loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. The Registrant's Amended and Restated
Articles of Incorporation (Exhibit 3.2 hereto) contains provisions
implementing, to the fullest extent permitted by Washington law, such
limitations on a director's liability to the registrant and its shareholders.
The registrant has entered into indemnification agreements with its
officers and directors, the form of which is attached as Exhibit 10.21 to this
Registration Statement and incorporated herein by reference. The
indemnification agreements provide the registrant's officers and directors
with indemnification to the maximum extent permitted by the WBCA.
Item 15. Recent Sales of Unregistered Securities
Since inception, HomeGrocer.com has sold and issued the following
securities:
1. From inception to November 30, 1999, HomeGrocer.com issued 14,528,800
options to purchase common stock of HomeGrocer.com with a weighted average
price of $0.83 to a number of employees and directors of and consultants to
HomeGrocer.com.
II-1
<PAGE>
2. On February 11, 1998, April 3, 1998, June 2, 1998 and July 16, 1998,
HomeGrocer.com issued 8,000,000 shares of its Series A preferred stock to
investors for aggregate cash consideration of $4,000,000.
3. On September 1, 1998, HomeGrocer.com issued 16,857,142 shares of its
Series B preferred stock to investors for aggregate cash consideration of
approximately $5,900,000.
4. On April 13, 1999 and May 13, 1999, HomeGrocer.com issued 29,942,050
shares of its Series C preferred stock to investors for aggregate cash
consideration of approximately $52,399,000.
5. On September 30, 1999, October 13, 1999, October 29, 1999, November
12, 1999 and November 18, 1999, HomeGrocer.com issued 18,407,546 shares of
its Series D preferred stock to investors for aggregate cash consideration
of approximately $106,764,000.
6. On September 9, 1999, the Company granted two officers options to
purchase an aggregate of 6,150,000 shares of common stock and the two
officers exercised the options to purchase the shares on that date. The
options were exercised for aggregate consideration of $5,535,000 in the
form of cash and promissory notes from the officers. Additionally, on
September 9, 1999, the Company sold the two officers an aggregate of
2,050,000 shares of common stock for aggregate consideration of $1,845,000
in the form of cash and promissory notes from the officers.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) or
Regulation D, or other applicable exemption of such Securities Act as
transactions by an issuer not involving any public offering. In addition,
certain issuances described in Item 1 were deemed exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with HomeGrocer.com, to information about HomeGrocer.com.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of HomeGrocer.com.
3.2* Amended and Restated Articles of Incorporation of HomeGrocer.com
(proposed).
3.3 Bylaws of HomeGrocer.com.
3.4* Amended and Restated Bylaws of HomeGrocer.com (proposed).
4.1* Specimen Stock Certificate.
4.2 Third Amended and Restated Investors Rights Agreement dated September
30, 1999, as amended.
4.3 Warrant Agreement to purchase Series C Preferred Stock dated November
9, 1998 issued by HomeGrocer.com in favor of Comdisco, Inc.
4.4 Warrant Agreement to purchase Series D Preferred Stock dated September
15, 1999 issued by HomeGrocer.com in favor of Comdisco, Inc.
4.5 Form of Common Stock Purchase Warrant issued by HomeGrocer.com to
certain lenders.
4.6 Form of Common Stock Warrant Certificate issued by HomeGrocer.com in
connection with its preferred stock financings.
5.1* Opinion of Venture Law Group regarding the legality of the common stock
being registered.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.1*+ Advertising Agreement dated November 18, 1999 between HomeGrocer.com
and Amazon.com, LLC.
10.2 Lease Agreement dated August 16, 1999 between HomeGrocer.com and Valley
Freightliner, Inc.
10.3 Revolving Line of Credit Commitment Letter dated June 11, 1999 by
Mercedes-Benz Credit Corporation in favor of HomeGrocer.com, Inc.
10.4 Master Lease Agreement dated November 9, 1998 between HomeGrocer.com
and Comdisco, Inc.
10.5 Addendum to Master Lease Agreement dated as of November 9, 1999 between
HomeGrocer.com and Comdisco, Inc.
10.6 Subordinated Loan and Security Agreement dated September 15, 1999
between HomeGrocer.com and Comdisco, Inc.
10.7 Form of Promissory Note dated September 9, 1999 issued by Mary Alice
Taylor in favor of HomeGrocer.com.
10.8 Form of Promissory Note dated September 9, 1999 issued by J. Terrence
Drayton in favor of HomeGrocer.com.
10.9* Employment Agreement dated September 2, 1999 between HomeGrocer.com and
Mary Alice Taylor.
10.10* Employment Agreement dated June 1, 1999 between HomeGrocer.com and J.
Terrence Drayton.
10.11* Employment Agreement dated November 3, 1999 between HomeGrocer.com and
Daniel R. Lee.
10.12* Employment Agreement dated August 31, 1999 between HomeGrocer.com and
David A. Pace.
10.13 Facility Lease dated May 19, 1999 between HomeGrocer.com, as sublessee,
and The Plaza at Yarrow Bay, LLC.
10.14 Facility Sublease dated July 22, 1999 between HomeGrocer.com, as
sublessor, and AT&T Wireless Services of Washington, Inc.
10.15 Facility Sublease dated April 8, 1999 between HomeGrocer.com, as
sublessee, and Delta Engineering and Manufacturing.
10.16 Facility Lease dated July 23, 1999 between HomeGrocer.com, as lessee,
and Exposition Property Associates (interest transferred from The
Ezralow Company, LLC).
10.17 Facility Lease dated November 4, 1996 between HomeGrocer.com, as
successor in interest to the lessee, and Benaroya Capital Company, LLC.
10.18 Facility Sublease dated June 24, 1999 between HomeGrocer.com, as
sublessor, and A&M Warehouses, Incorporated.
10.19 Facility Lease dated July 8, 1999 between HomeGrocer.com, as lessee,
and Lincoln-RECP Fullerton OPCO, LLC.
10.20 Facility Lease dated August 10, 1999 between HomeGrocer.com, as lessee,
and Realty Associates Iowa Corporation.
10.21* Facility Lease dated May 24, 1999 between HomeGrocer.com, as sublessee,
and The Concourse Joint Venture.
10.22 Amendment No. 1 dated June 21, 1999 to the Facility Lease dated May 24,
1999 between HomeGrocer.com, as sublessee, and The Concourse Joint
Venture.
10.23 Facility Sublease dated November 15, 1999 between HomeGrocer.com, as
sublessee, and Thyssen Dover Elevator.
10.24 Facility Lease dated November 15, 1999 between HomeGrocer.com, as
lessee, and Watson Partners, L.P.
10.25 Form of Indemnification Agreement between HomeGrocer.com and each of
its Officers and Directors.
10.26* 1997 Stock Incentive Compensation Plan dated April 1997.
10.27* 1999 Stock Incentive Plan dated December 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.28* 1999 Employee Stock Purchase Plan dated December 1999.
10.29* 1999 Directors' Stock Option Plan dated December 1999.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young, LLP
23.2* Consent of Venture Law Group (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page to Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested for portions of the copy of the
exhibit filed with the Securities and Exchange Commission. The omitted
information has been filed separately with the Securities and Exchange
Commission under our application for confidential treatment.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Kirkland, State of
Washington on December 17, 1999.
HomeGrocer.com, Inc.
/s/ Mary Alice Taylor
By: _________________________________
Mary Alice Taylor
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Mary
Alice Taylor and Daniel R. Lee, and each of them, as his or her attorney-in-
fact, with full power of substitution, for him or her in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and any and all Registration Statements
filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in
connection with or related to the offering contemplated by this Registration
Statement and its amendments, if any, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorney to any and all amendments to said
Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Mary Alice Taylor Chairman of the Board and December 17, 1999
______________________________________ Chief Executive Officer
Mary Alice Taylor
/s/ Daniel R. Lee Chief Financial Officer December 17, 1999
______________________________________
Daniel R. Lee
/s/ J. Terrence Drayton President and Director December 17, 1999
______________________________________
J. Terrence Drayton
/s/ Tom A. Alberg Director December 17, 1999
______________________________________
Tom A. Alberg
/s/ Charles K. Barbo Director December 17, 1999
______________________________________
Charles K. Barbo
/s/ James L. Barksdale Director December 17, 1999
______________________________________
James L. Barksdale
/s/ Mark P. Gorenberg Director December 17, 1999
______________________________________
Mark P. Gorenberg
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jonathan D. Lazarus Director December 17, 1999
______________________________________
Jonathan D. Lazarus
/s/ Douglas Mackenzie Director December 17, 1999
______________________________________
Douglas Mackenzie
/s/ David Risher Director December 17, 1999
______________________________________
David Risher
/s/ Philip S. Schlein Director December 17, 1999
______________________________________
Philip S. Schlein
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of HomeGrocer.com.
3.2* Amended and Restated Articles of Incorporation of HomeGrocer.com
(proposed).
3.3 Bylaws of HomeGrocer.com.
3.4* Amended and Restated Bylaws of HomeGrocer.com (proposed).
4.1* Specimen Stock Certificate.
4.2 Third Amended and Restated Investors Rights Agreement dated September
30, 1999, as amended.
4.3 Warrant Agreement to purchase Series C Preferred Stock dated November
9, 1998 issued by HomeGrocer.com in favor of Comdisco, Inc.
4.4 Warrant Agreement to purchase Series D Preferred Stock dated September
15, 1999 issued by HomeGrocer.com in favor of Comdisco, Inc.
4.5 Form of Common Stock Purchase Warrant issued by HomeGrocer.com to
certain lenders.
4.6 Form of Common Stock Warrant Certificate issued by HomeGrocer.com in
connection with its preferred stock financings.
5.1* Opinion of Venture Law Group regarding the legality of the common stock
being registered.
10.1*+ Advertising Agreement dated November 18, 1999 between HomeGrocer.com
and Amazon.com, LLC.
10.2 Lease Agreement dated August 16, 1999 between HomeGrocer.com and Valley
Freightliner, Inc.
10.3 Revolving Line of Credit Commitment Letter dated June 11, 1999 by
Mercedes-Benz Credit Corporation in favor of HomeGrocer.com, Inc.
10.4 Master Lease Agreement dated November 9, 1998 between HomeGrocer.com
and Comdisco, Inc.
10.5 Addendum to Master Lease Agreement dated as of November 9, 1999 between
HomeGrocer.com and Comdisco, Inc.
10.6 Subordinated Loan and Security Agreement dated September 15, 1999
between HomeGrocer.com and Comdisco, Inc.
10.7 Form of Promissory Note dated September 9, 1999 issued by Mary Alice
Taylor in favor of HomeGrocer.com.
10.8 Form of Promissory Note dated September 9, 1999 issued by J. Terrence
Drayton in favor of HomeGrocer.com.
10.9* Employment Agreement dated September 2, 1999 between HomeGrocer.com and
Mary Alice Taylor.
10.10* Employment Agreement dated June 1, 1999 between HomeGrocer.com and J.
Terrence Drayton.
10.11* Employment Agreement dated November 3, 1999 between HomeGrocer.com and
Daniel R. Lee.
10.12* Employment Agreement dated August 31, 1999 between HomeGrocer.com and
David A. Pace.
10.13 Facility Lease dated May 19, 1999 between HomeGrocer.com, as sublessee,
and The Plaza at Yarrow Bay, LLC.
10.14 Facility Sublease dated July 22, 1999 between HomeGrocer.com, as
sublessor, and AT&T Wireless Services of Washington, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.15 Facility Sublease dated April 8, 1999 between HomeGrocer.com, as
sublessee, and Delta Engineering and Manufacturing.
10.16 Facility Lease dated July 23, 1999 between HomeGrocer.com, as lessee,
and Exposition Property Associates (interest transferred from The
Ezralow Company, LLC).
10.17 Facility Lease dated November 4, 1996 between HomeGrocer.com, as
successor in interest to the lessee, and Benaroya Capital Company, LLC.
10.18 Facility Sublease dated June 24, 1999 between HomeGrocer.com, as
sublessor, and A&M Warehouses, Incorporated.
10.19 Facility Lease dated July 8, 1999 between HomeGrocer.com, as lessee,
and Lincoln-RECP Fullerton OPCO, LLC.
10.20 Facility Lease dated August 10, 1999 between HomeGrocer.com, as lessee,
and Realty Associates Iowa Corporation.
10.21* Facility Lease dated May 24, 1999 between HomeGrocer.com, as sublessee,
and The Concourse Joint Venture.
10.22 Amendment No. 1 dated June 21, 1999 to the Facility Lease dated May 24,
1999 between HomeGrocer.com, as sublessee, and The Concourse Joint
Venture.
10.23 Facility Sublease dated November 15, 1999 between HomeGrocer.com, as
sublessee, and Thyssen Dover Elevator.
10.24 Facility Lease dated November 15, 1999 between HomeGrocer.com, as
lessee, and Watson Partners, L.P.
10.25 Form of Indemnification Agreement between HomeGrocer.com and each of
its Officers and Directors.
10.26* 1997 Stock Incentive Compensation Plan dated April 1997.
10.27* 1999 Stock Incentive Plan dated December 1999.
10.28* 1999 Employee Stock Purchase Plan dated December 1999.
10.29* 1999 Directors' Stock Option Plan dated December 1999.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young, LLP
23.2* Consent of Venture Law Group (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page to Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested for portions of the copy of the
exhibit filed with the Securities and Exchange Commission. The omitted
information has been filed separately with the Securities and Exchange
Commission under our application for confidential treatment.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
HOMEGROCER.COM, INC.
HOMEGROCER.COM, INC. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify that
1. The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on September 29, 1997.
2. A resolution setting forth the following Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation"), proposing the
amendments to be made thereby, and declaring the advisability of said
amendments, was duly proposed by the Corporation's Board of Directors (the
"Board of Directors") and adopted by this Corporation's stockholders pursuant to
the applicable provisions of Sections 228, 242 and 245 of the DGCL.
ARTICLE 1. NAME
The name of this Corporation is HomeGrocer.com, Inc.
ARTICLE 2. AGENT
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, zip code 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE 3. PURPOSES
The purpose of this Corporation is to engage in any lawful act or activity
for which corporations may be organized under the DGCL.
ARTICLE 4. SHARES
4.1 Authorized Shares
Upon the effective date of the filing of this Restated Certificate of
Incorporation, each share of the Corporation's outstanding capital stock shall
be converted and reconstituted into two (2) shares of capital stock (the "Stock
Split"). No further adjustment of any preference or price set forth in this
Article 4 shall be made as a result of the Stock Split, as all share amounts per
share and per share numbers set forth in this Restated Certificate of
Incorporation have been appropriately adjusted to reflect the Stock Split.
<PAGE>
The total authorized stock of this Corporation shall consist of 130,000,000
shares of common stock having a par value of $0.001 per share (the "Common
Stock") and 78,357,142 shares of preferred stock having a par value of $0.001
per share (the "Preferred Stock").
The Preferred Stock shall be divided into series: 8,000,000 shares of
Preferred Stock shall be designated Series A Preferred Stock (the "Series A
Stock"), 16,857,142 shares of Preferred Stock shall be designated Series B
Preferred Stock (the "Series B Stock"), 30,200,000 shares of Preferred Stock
shall be designated Series C Preferred Stock (the "Series C Stock"), and
23,300,000 shares of Preferred Stock shall be designated Series D Preferred
Stock (the "Series D Stock").
The relative powers, preferences, special rights, qualifications,
limitations and restrictions granted to or imposed on the Preferred Stock and
the Common Stock are set forth below.
4.2 Preferred Stock
The rights, preferences, restrictions and other matters relating to
Preferred Stock are set forth below.
4.2.1 Liquidation Rights
Upon the voluntary or involuntary dissolution, liquidation or winding up of
the Corporation, the Corporation's assets available for distribution to the
Corporation's stockholders shall be distributed in the following order and
amounts:
(a) General. The holders of Preferred Stock shall be entitled to
-------
receive, prior and in preference to any distribution of any of the Corporation's
assets to the holders of Common Stock by reason of their ownership thereof, an
amount per share equal to the sum of: (i) Fifty Cents ($.50) for each
outstanding share of Series A Stock, Thirty-Five Cents ($.35) for each
outstanding share of Series B Stock, One Dollar Seventy Five Cents ($1.75) for
each outstanding share of Series C Stock, and Five Dollars Eighty Cents ($5.80)
for each outstanding share of Series D Stock; and (ii) all declared but unpaid
dividends on such shares of Preferred Stock. If, upon the occurrence of such
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, the assets and funds thus distributed among the holders of
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of Preferred Stock in the same proportions as the full
preferential amount each such holder would otherwise be entitled to receive
bears to the total of the full preferential amount that would otherwise be
payable to the holders of Preferred Stock.
(b) Limitation. Upon the completion of the distributions set forth
----------
in Section 4.2.1(a), if assets remain in the Corporation, the holders of Common
Stock, Series A Stock, Series B Stock, and Series C Stock shall be entitled to
share ratably (as though all such shares of Preferred Stock were converted to
Common Stock under the provisions of this Restated Certificate of Incorporation,
as at any time amended) in the Corporation's remaining assets until such time as
-2-
<PAGE>
the holders of Series A Stock have been paid an aggregate of One Dollar Fifty
Cents ($1.50) per share of Series A Stock, the holders of Series B Stock have
been paid an aggregate of One Dollar Five Cents ($1.05) per share of Series B
Stock, the holders of Series C Stock have been paid an aggregate of Five Dollars
Twenty-Five Cents ($5.25) per share of Series C Stock, pursuant to Section
4.2.1(a) and this Section 4.2.l(b). After the holders of the Series A Stock,
Series B Stock, and Series C Stock have received an aggregate amount under
Section 4.2.1(a) and this Section 4.2.1(b) equal to One Dollar Fifty Cents
($1.50) per share, One Dollar Five Cents ($1.05) per share, and Five Dollars
Twenty-Five Cents ($5.25) per share, respectively, the remaining assets of the
Corporation available for distribution to stockholders shall be distributed
ratably among the holders of Common Stock.
(c) Treatment of Consolidations, Mergers and Sales of Assets. The
--------------------------------------------------------
sale of all or substantially all of the Corporation's assets or stock, or the
acquisition of the Corporation by another entity by means of any transaction or
Series of related transactions (including, without limitation, any merger,
consolidation, share exchange or reorganization), that results in the transfer
of fifty percent (50%) or more of the outstanding voting power of the
Corporation shall be regarded as a liquidation within the meaning of this
Section 4.2.1; provided, however, that each holder of Preferred Stock shall have
-------- -------
the right to elect the benefits of the provisions of Section 4.2.3 or other
applicable conversion provisions prior to any distribution in connection with
the liquidation, dissolution or winding up of the Corporation pursuant to this
Section 4.2.1.
(d) Distributions Other Than Cash. Whenever the distribution provided
-----------------------------
for in this Section 4.2.1 shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Corporation's Board of Directors. Any securities
shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty (30)
day period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange or system over the thirty (30) day period ending three (3) days prior
to the closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by this Corporation and
the holders of at least a majority of shares of Preferred Stock, voting together
as a single class and on an as-converted to Common Stock basis.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a
-3-
<PAGE>
stockholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in (i) (A), (B)
and (C) to reflect the approximate fair market value thereof, as mutually
determined by this Corporation and the holders of at least a majority of shares
of Preferred Stock, voting together as a single class and on an as-converted to
Common Stock basis.
4.2.2 Voting Power
(a) General. Subject to Section 4.2.2(c) hereof, and except as
-------
provided in Section 4.2.2(d), each holder of Preferred Stock shall be entitled
to vote on all matters and shall be entitled to that number of votes equal to
the largest number of whole shares of Common Stock into which such holder's
shares of Preferred Stock could be converted under Section 4.2.3, at the record
date for the determination of stockholders entitled to vote on such matter, or,
if no such record date is established, at the date on which notice of the
meeting of stockholders at which the vote is to be taken is mailed, or the date
any written consent of stockholders is solicited if the vote is not to be taken
at a meeting. Except as otherwise expressly provided herein or by DGCL, the
holders of shares of Preferred Stock and Common Stock shall vote together as a
single class on all matters.
(b) Board of Directors.
------------------
(i) As long as at least a majority of the shares of Series A
Stock originally issued remain outstanding, the holders of such shares of Series
A Stock shall be entitled to elect one (1) director of the Corporation at each
annual election of directors. As long as at least a majority of the shares of
Series B Stock originally issued remain outstanding, the holders of such shares
of Series B Stock shall be entitled to elect two (2) directors of the
Corporation at each annual election of directors. As long as at least a majority
of the shares of Series C Stock originally issued remain outstanding, the
holders of such shares of Series C Stock shall be entitled to elect one (1)
director of the Corporation at each annual election of directors. The holders of
outstanding Common Stock shall be entitled to elect two (2) directors of the
Corporation at each annual election of directors. The holders of Preferred Stock
and Common Stock, voting together as a single class and not as separate Series
and on an as-converted to Common Stock basis, shall be entitled to elect any
remaining directors of the Corporation.
(ii) In the case of any vacancy (other than a vacancy caused by
removal) in the office of a director occurring among the directors elected by
the holders of a class or Series of stock pursuant to this Section 4.2.2(b)(ii),
the remaining directors so elected by that class or Series may by affirmative
vote of a majority thereof (or the remaining director so elected if there be but
one, or if there are no such directors remaining, by the affirmative vote of the
holders of a majority of the shares of that class or series), elect a successor
or successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or Series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of the shares of the class or Series of stock
entitled to elect such director or directors, given either at a special meeting
of
-4-
<PAGE>
such stockholders duly called for that purpose or pursuant to a written consent
of stockholders, and any vacancy thereby created may be filled by the holders of
that class or Series of stock represented at the meeting or pursuant to such
written consent.
(c) Preferred Stock Voting. For as long as at least ten percent (10%)
----------------------
of the originally issued shares of the Preferred Stock remains outstanding,
without the affirmative consent of the holders of at least a majority of
Preferred Stock then outstanding, voting together as a separate class and on an
as-converted to Common Stock basis, given by written consent or by vote at a
meeting called for such purpose for which notice shall have been given to the
holders of Preferred Stock, the Corporation shall not:
(i) create or issue (or obligate itself to authorize or
issue), by reclassification or otherwise, any security of the Corporation having
rights, preferences or privileges senior to or on parity with the Series A
Stock, Series B Stock, Series C Stock or Series D Stock with respect to
dividends or upon liquidation, or superior to the Series A Stock, Series B
Stock, Series C Stock or Series D Stock with respect to voting rights;
(ii) sell, convey or otherwise dispose of all or substantially
all of its property or business or merge into or consolidate with any other
corporation (other than a wholly owned subsidiary corporation) or effect any
transaction or Series of related transactions in which more than fifty percent
(50%) of the voting power of the Corporation is disposed of, unless holders of
the Corporation's equity securities hold a majority of the voting power of the
surviving entity;
(iii) redeem or repurchase, or declare or pay any dividend or
distribution on, any of the Corporation's capital stock (except for (A) cash
dividends declared in accordance with Section 4.2.6 and (B) the repurchase or
redemption of shares from employees, officers, directors, consultants or other
persons performing work for the Corporation pursuant to employment or similar
vesting agreements or other stock repurchase agreements approved by the Board of
Directors);
(iv) authorize any increase in the number of authorized shares
of Common Stock or Preferred Stock;
(v) change or modify the terms, rights or preferences of the
Preferred Stock or any Series thereof;
(vi) increase the aggregate number of shares of Common Stock
issuable under the Corporation's 1997 Stock Incentive Compensation Plan to more
than 15,924,334 (as proportionally adjusted to take into account stock splits,
stock dividends, stock consolidations and the like), unless such increase is
unanimously approved by the Corporation's Board of Directors;
(vii) take any action that would result in the taxation of the
holders of Preferred Stock under Section 305 of the Internal Revenue Code;
(viii) increase the size of the Board of Directors to more than
ten (10) members; or
-5-
<PAGE>
(ix) amend the Restated Certificate of Incorporation or the
Bylaws of the Corporation in any manner adverse to the holders of Preferred
Stock.
For as long as at least ten percent (10%) of the originally issued shares
of any Series of Preferred Stock remains outstanding, without the affirmative
consent of the holders of at least a majority of that Series then outstanding,
voting together as a separate Series and on an as-converted to Common Stock
basis, given by written consent or by vote at a meeting called for such purpose
for which notice shall have been given to the holders of the shares of that
series, the Corporation shall not:
(x) authorize any increase in the number of authorized shares
of that series;
(xi) change or modify the terms, rights or preferences of that
series; or
(xii) amend the Restated Certificate of Incorporation or the
Bylaws of the Corporation in any manner adverse to the holders of that series.
(d) Except as required by law, the holders of the Series D Stock shall
have none of the voting rights described in this Section 4.2.2 until the date
that is one day after the earlier of the date of termination or expiration of
the waiting period required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, with respect to each of the holders listed on Exhibit A
---------
of that certain Series D Preferred Stock Purchase Agreement between the
Corporation and the purchasers of the Corporation's Series D Preferred Stock to
which such waiting period would apply.
4.2.3 Conversion Rights
The holders of Preferred Stock shall have the following rights with respect
to the conversion of Preferred Stock into Common Stock:
(a) General.
-------
(i) Voluntary Conversion. Any share of Preferred Stock may,
--------------------
at the option of the holder, be converted at any time into such number of fully
paid and nonassessable shares of Common Stock as is equal to the product
obtained by multiplying the applicable Conversion Rate (determined under Section
4.2.3(b)) by the number of shares of Preferred Stock being converted.
(ii) Mandatory Conversion. Without any further action by the
--------------------
holder of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent, shares of
Preferred Stock shall be automatically converted into that number of shares of
Common Stock into which such Preferred Stock is convertible pursuant to Section
4.2.3(a)(i), as follows: (A) all outstanding shares of Preferred Stock shall
convert into Common Stock immediately prior to the closing of a firm commitment
underwritten public offering of shares of Common Stock (any such underwritten
offering, regardless of compliance with clause (1) and (2) herein, being a
"Public Offering") in which (1) the net proceeds from such offering to the
Corporation shall be at least $75,000,000 (after deduction of underwriters'
discounts and
-6-
<PAGE>
commissions and expenses of the offering) and (2) the price paid by the public
for such shares shall be at least Five Dollars Eighty Cents ($5.80)
(appropriately adjusted to reflect the occurrence of any event described in
paragraph 4.2.3(d)(i)) and (B) all outstanding shares of a particular Series of
Preferred Stock shall convert into Common Stock on the date specified by written
consent or agreement of the holders of at least a majority of the shares of that
Series then outstanding, voting together as a separate Series and on an as-
converted to Common Stock basis.
(b) Conversion Rates. The conversion rate for Series A Stock in
----------------
effect at any time (the "Series A Conversion Rate") shall equal Fifty Cents
($.50) divided by the Series A Conversion Price, calculated as provided in
Section 4.2.3(c). The conversion rate for the Series B Stock in effect at any
time (the "Series B Conversion Rate") shall equal Thirty-Five Cents ($.35)
divided by the Series B Conversion Price, calculated as provided in Section
4.2.3(c). The conversion rate for the Series C Stock in effect at any time (the
"Series C Conversion Rate") shall equal One Dollar Seventy-Five Cents ($1.75)
divided by the Series C Conversion Price, calculated as provided in Section
4.2.3(c). The conversion rate for the Series D Stock in effect at any time (the
"Series D Conversion Rate") shall equal Five Dollars Eighty Cents ($5.80)
divided by the Series D Conversion Price calculated as provided in Section
4.2.3(c).
(c) Conversion Prices. The conversion price for Series A Stock
-----------------
in effect from time to time, except as adjusted in accordance with Section
4.2.3(d), shall be Fifty Cents ($.50) per share (the "Series A Conversion
Price"). The conversion price for Series B Stock in effect from time to time,
except as adjusted in accordance with Section 4.2.3(d), shall be Thirty-Five
Cents ($.35) per share (the "Series B Conversion Price"). The conversion price
for Series C Stock in effect from time to time, except as adjusted in accordance
with Section 4.2.3(d) shall be One Dollar Seventy-Five Cents ($1.75) per share
(the "Series C Conversion Price"). The conversion price for Series D Stock in
effect from time to time, except as adjusted in accordance with Section 4.2.3(d)
shall be Five Dollars Eighty Cents ($5.80) per share (the "Series D Conversion
Price"). The Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price and the Series D Conversion Price are collectively
referred to herein as the "Conversion Prices."
(d) Adjustments to Applicable Conversion Prices.
-------------------------------------------
(i) Extraordinary Common Stock Event. Upon the happening
--------------------------------
of an Extraordinary Common Stock Event (as defined below) after April 13, 1999,
the Conversion Prices shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying the then effective
Conversion Prices by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price and the
Series D Conversion Price, respectively. The Conversion Prices, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events. "Extraordinary Common Stock Event"
shall
-7-
<PAGE>
mean (A) the issuance of additional shares of Common Stock as a dividend or
other distribution on outstanding Common Stock of the Corporation, (B) a
subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (C) a combination of outstanding shares of Common
Stock into a smaller number of shares of Common Stock.
(ii) Sale of Shares Below Applicable Conversion Prices.
-------------------------------------------------
(A) If at any time after April 13, 1999, the
Corporation shall issue any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price or the
Series D Conversion Price, as the case may be, in effect immediately before the
issuance of such Additional Stock, the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price and the Series D Conversion
Price in effect upon issuance (except as otherwise provided in this Section
4.2.3(d)(ii)) shall be adjusted to a price equal to the quotient obtained by
dividing the total computed under clause (y) below by the total computed under
clause (z) below, as follows:
(y) an amount equal to the sum of (1) the result
obtained by multiplying the number of shares of Common Stock deemed outstanding
immediately before such issuance (which shall include the actual number of
shares outstanding, plus all shares issuable upon the conversion or exercise of
all outstanding convertible securities, warrants and options) by the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price then in effect and (2) the aggregate consideration, if any,
received by the Corporation upon the issuance of such Additional Stock; and
(z) the number of shares of Common Stock
outstanding immediately after such issuance (including the shares deemed
outstanding as provided above).
(B) No adjustment of the applicable Conversion Price
shall be made in an amount less than $.01 per share, provided that any
adjustments that are not required to be made by reason of this sentence shall be
carried forward and shall be taken into account in any subsequent adjustment
made to the Conversion Prices. Except as provided in Sections 4.2.3(d)(ii)(E)(x)
and (y), no adjustment of the Conversion Prices shall have the effect of
increasing the Conversion Prices above the Conversion Prices in effect
immediately before such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any discounts, commissions or other expenses allowed, paid or
incurred by the Corporation for any underwriting or otherwise in connection with
the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Corporation's Board of Directors irrespective of any accounting treatment.
-8-
<PAGE>
(E) In the case of the issuance of options to purchase
or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock, or options to purchase or rights to
subscribe such convertible or exchangeable securities (which options, rights or
convertible or exchangeable securities are not excluded from the definition of
Additional Stock), the following provisions shall apply:
(v) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock, but without taking into account potential
antidilution adjustments, shall be deemed to have been issued at the time such
options or rights were issued for a consideration equal to the consideration
(determined in the manner provided in Sections 4.2.3(d)(ii)(C) and (D)) received
by the Corporation upon the issuance of such options or rights, plus the minimum
purchase price provided in such options or rights, but without taking into
account potential antidilution adjustments, for the Common Stock covered
thereby, but no further adjustment to the Conversion Prices shall be made for
the actual issuance of Common Stock upon the exercise of such options or rights
in accordance with their terms;
(w) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange, but without taking
into account potential antidilution adjustments, for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued for a
consideration equal to the consideration received by the Corporation for any
such securities and related options or rights, plus the additional
consideration, if any, to be received by the Corporation, but without taking
into account potential antidilution adjustments, upon the conversion or exchange
of such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Sections
4.2.3(d)(ii)(C) and (D)), but no further adjustments to the Conversion Prices
shall be made for the actual issuance of Common Stock upon the conversion or
exchange of such securities in accordance with their terms;
(x) if such options, rights or convertible or
exchangeable securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Prices computed upon the original
issue thereof, and any subsequent adjustments based thereon, shall, upon such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease with respect to such options, rights and securities not already
exercised, converted or exchanged before such increase or decrease became
effective, but no further adjustment to the Conversion Prices shall be made for
the actual issuance of Common Stock upon the exercise of any such options or
rights or the conversion or exchange of such securities in accordance with their
terms;
(y) upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange, or the
expiration of any options or rights
-9-
<PAGE>
related to such convertible or exchangeable securities, the Conversion Prices
shall forthwith be readjusted to such Conversion Prices as would have been
obtained had the adjustment that was made upon the issuance of such options,
rights or securities, or options or rights related to such securities, been made
upon the basis of the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights, upon the conversion
or exchange of such securities or upon the exercise of the options or rights
related to such securities and the number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to subsections
4.2.3(d)(ii)(E)(v) and (w) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either subsection
4.2.3(d)(ii)(E)(x) or (y); and
(z) if any such options or rights shall be issued
in connection with the issuance and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific consideration
is allocated to such options or rights by the parties thereto, such options or
rights shall be deemed to have been issued for such consideration as determined
in good faith by the Corporation's Board.
(iii) Additional Stock. "Additional Stock" shall mean any
----------------
shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock issued (or deemed to have been issued
pursuant to Section 4.2.3(d)(ii)(E)) by the Corporation after April 13, 1999
other than:
(A) Common Stock issued pursuant to a transaction
described in Section 4.2.3(d)(i);
(B) up to 15,924,334 shares of Common Stock (as
proportionally adjusted to take into account stock splits, stock dividends,
stock consolidations and the like) issued or issuable pursuant to stock options
granted to officers, employees, directors, consultants, agents, advisors or
independent contractors (unless a greater number is unanimously approved by the
Corporation's Board of Directors) and up to an aggregate of 2,899,248 shares of
Preferred Stock and Common Stock (as proportionally adjusted to take into
account stock splits, stock dividends, stock consolidations and the like)
issuable upon the exercise of warrants outstanding on the date this Restated
Certificate of Incorporation is filed with the Secretary of State of the State
of Delaware;
(C) Common Stock issued or issuable upon conversion of
Preferred Stock;
(D) capital stock, or options or warrants to purchase
capital stock, issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financing or similar transactions
which are not primarily for equity financing purposes and that are unanimously
approved by the Board of Directors of the Corporation;
(E) capital stock or warrants or options to purchase
capital stock issued in connection with bona fide acquisitions, mergers or
similar transactions, the terms of which are unanimously approved by the Board
of Directors of the Corporation;
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<PAGE>
(F) Common Stock issued or issuable in a public
offering prior to or in connection with the conversion of all outstanding shares
of Preferred Stock converted to Common Stock;
(G) Common Stock issued to corporate partners or in
connection with other strategic alliances unanimously approved by the Board of
Directors; and
(H) Such additional securities that are designated as
excluded from the definition of Additional Stock by the unanimous approval of
the Board of Directors.
(e) Capital Reorganization or Reclassification. If the Common
------------------------------------------
Stock issuable upon the conversion of Preferred Stock shall be changed into the
same or a different number of shares of any class or classes of stock of the
Corporation, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for in Section 4.2.3(d) or a merger, consolidation, share exchange or
reorganization provided for in Section 4.2.1(c)), then and in each such event
the holder of each share of Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change by holders of the number of shares of Common Stock into which such
share of Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(f) Certificate as to Adjustments; Notice by the Corporation.
--------------------------------------------------------
In each case of an adjustment or readjustment of the Series A Conversion Rate,
Series B Conversion Rate, Series C Conversion Rate, or Series D Conversion Rate,
the Corporation at its expense will furnish each holder of Series A Stock,
Series B Stock, Series C Stock or Series D Stock, as applicable, with a
certificate, signed by the Corporation's Chief Financial Officer or Treasurer,
showing such adjustment or readjustment and stating in detail the facts upon
which such adjustment or readjustment is based.
(g) Mechanics of Conversion. Before any holder of Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the Preferred
Stock, and shall give written notice to the Corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of
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<PAGE>
1933, as amended, the conversion may, at the option of any holder tendering
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock upon conversion of such Preferred
Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
(h) Cash in Lieu of Fractional Shares. No fractional shares of
---------------------------------
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Preferred Stock, but the Corporation shall pay to the
holder of such shares a cash adjustment in respect of such fractional shares in
an amount equal to the same fraction of the market price per share of the Common
Stock (as determined in a reasonable manner prescribed by the Corporation's
Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the total number of shares of Preferred Stock being converted at any
one time by any holder thereof, not upon each share of Preferred Stock being
converted.
(i) Partial Conversion. In the event some but not all of the
------------------
shares of Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the shares of Preferred Stock that were not converted.
(j) Reservation of Common Stock. The Corporation shall at all
---------------------------
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Preferred Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
the Preferred Stock and, if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then-outstanding shares of the Preferred Stock, the Corporation shall as soon as
reasonably practicable take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
4.2.4 No Reissuance of Stock
No share or shares of Preferred Stock converted, purchased or otherwise
acquired by the Corporation shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares that the Corporation shall be
authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of Preferred Stock accordingly.
4.2.5 No Redemption
The Preferred Stock is not redeemable.
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<PAGE>
4.2.6 Dividends
(a) Holders of shares of Series A Stock, Series B Stock, Series C
Stock and Series D Stock shall be entitled, in preference to dividends on shares
of Common Stock, to receive out of funds that are legally available therefor, on
a pari passu basis per share, when, as and if declared by the Board of
Directors, noncumulative cash dividends at the rate of $.045 per annum, $.0315
per annum, $.1575 per annum and $.522 per annum on each outstanding share of
Series A Stock, Series B Stock, Series C Stock and Series D Stock, respectively
(as adjusted for any stock dividends, combinations or splits with respect to
such shares).
(b) So long as any shares of Preferred Stock shall remain
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on shares of Common Stock
until all declared and unpaid dividends on the Preferred Stock have been paid.
(c) No cash dividends shall be declared on the Common Stock unless
and until a cash dividend in an amount equal to or greater than the dividend
declared on the Common Stock shall have been paid to, or declared and a sum
sufficient for the payment thereof set apart for the Preferred Stock. For
purposes of this provision, dividends shall be compared on an as-converted-to-
Common Stock basis.
4.2.7 Notices of Record Date
In the event of:
(a) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation; or
(b) any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then and in each such event the Corporation shall mail or
deliver, or cause to be mailed or delivered, to each holder of Preferred Stock,
a notice specifying: (i) the date on which any such reorganization,
reclassification, recapitalization, merger, consolidation, transfer,
dissolution, liquidation or winding up is expected to become effective; and (ii)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, merger,
consolidation, transfer, dissolution, liquidation or winding up. Such notice
shall be mailed or delivered at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
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<PAGE>
4.3 Common Stock
The rights, preferences, privileges and restrictions granted to and imposed
on the Common Stock are as set forth below:
(a) Dividend Rights. Subject to prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
(b) Liquidation Rights. Upon the liquidation, dissolution or
------------------
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in Section 4.2.1.
(c) Redemption. The Common Stock is not redeemable.
----------
(d) Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote for each such share, and shall be entitled to notice
of any stockholders' meeting in accordance with the Bylaws of the Corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE 5. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws for the Corporation, subject to the power of the stockholders to amend or
repeal such Bylaws. The stockholders shall also have the power to adopt, amend
or repeal the Bylaws for the Corporation.
ARTICLE 6. ELECTION OF DIRECTORS
Written ballots are not required in the election of Directors.
ARTICLE 7. PREEMPTIVE RIGHTS
Preemptive rights shall not exist with respect to shares of stock or
securities convertible into shares of stock of the Corporation unless otherwise
agreed to by the Corporation.
ARTICLE 8. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of this Corporation.
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<PAGE>
ARTICLE 9. AMENDMENTS TO RESTATED CERTIFICATE
OF INCORPORATION
The Corporation reserves the right to amend or repeal any of the provisions
contained in this Restated Certificate of Incorporation in any manner now or
hereafter permitted by law, and the rights of the stockholders of this
corporation are granted subject to this reservation. The Corporation will not,
by amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in carrying out all
provisions of Article 4 and in the taking of all action as may be necessary or
appropriate in order to protect the rights of the holders of Preferred Stock
against impairment.
ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the DGCL, as it exists on the date hereof or may
hereafter be amended, permits the limitation or elimination of the liability of
directors, a director of this corporation shall not be liable to this
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any amendment to or repeal of this Article 10 shall not
adversely affect any right or protection of a director of this corporation for
or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
ARTICLE 11. INDEMNIFICATION
(a) To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Corporation (and any other persons to which DGCL permits the Corporation
to provide indemnification) through bylaw provisions, agreements with such
agents or other persons, vote of stockholders of disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the DGCL, subject only to limits created by applicable DGCL
(statutory or non-statutory), with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
(b) Any amendment, repeal or modification of the foregoing provisions of
this Article 10 shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such directors, officer or agent occurring prior to, such
amendment, repeal or modification.
ARTICLE 12. ACTION BY STOCKHOLDERS WITHOUT A
MEETING
Only action properly brought before the stockholders by or at the direction
of the Board of Directors may be taken without a meeting, without prior notice
and without a vote, if a written
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<PAGE>
consent setting forth the action so taken is signed by the holders of the
outstanding shares of stock entitled to be voted with respect to the subject
matter thereof having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
ARTICLE 13. BUSINESS COMBINATIONS WITH
INTERESTED STOCKHOLDERS
The corporation expressly elects not to be governed by Section 203(a) of
Title 8 of the DGCL.
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<PAGE>
EXHIBIT 3.3
BYLAWS
OF
HOMEGROCER.COM, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1. OFFICES.................................................................................... 1
SECTION 2. STOCKHOLDERS............................................................................... 1
2.1 Annual Meeting...................................................................... 1
2.2 Special Meetings.................................................................... 1
2.3 Place of Meeting.................................................................... 1
2.4 Notice of Meeting................................................................... 2
2.5 Waiver of Notice.................................................................... 2
2.5.1 Waiver in Writing...................................................... 2
2.5.2 Waiver by Attendance................................................... 2
2.6 Fixing of Record Date for Determining Stockholders.................................. 3
2.6.1 Meetings............................................................... 3
2.6.2 Consent to Corporate Action Without a Meeting.......................... 3
2.6.3 Dividends, Distributions and Other Rights.............................. 3
2.7 Voting List......................................................................... 4
2.8 Quorum.............................................................................. 4
2.9 Manner of Acting.................................................................... 4
2.10 Proxies............................................................................. 5
2.10.1 Appointment............................................................ 5
2.10.2 Delivery to Corporation; Duration...................................... 5
2.11 Voting of Shares.................................................................... 5
2.12 Voting for Directors................................................................ 6
2.13 Action by Stockholders Without a Meeting............................................ 6
SECTION 3. BOARD OF DIRECTORS......................................................................... 7
3.1 General Powers...................................................................... 7
3.2 Number and Tenure................................................................... 7
3.3 Annual and Regular Meetings......................................................... 7
3.4 Special Meetings.................................................................... 7
3.5 Meetings by Telephone............................................................... 7
3.6 Notice of Special Meetings.......................................................... 8
3.6.1 Personal Delivery...................................................... 8
3.6.2 Delivery by Mail....................................................... 8
3.6.3 Delivery by Private Carrier............................................ 8
3.6.4 Facsimile Notice....................................................... 8
3.6.5 Delivery by Telegraph.................................................. 8
3.6.6 Oral Notice............................................................ 8
3.7 Waiver of Notice.................................................................... 9
3.7.1 In Writing............................................................. 9
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
3.7.2 By Attendance.......................................................... 9
3.8 Quorum.............................................................................. 9
3.9 Manner of Acting.................................................................... 9
3.10 Presumption of Assent............................................................... 9
3.11 Action by Board or Committees Without a Meeting..................................... 10
3.12 Resignation......................................................................... 10
3.13 Removal............................................................................. 10
3.14 Vacancies........................................................................... 10
3.15 Committees.......................................................................... 10
3.15.1 Creation and Authority of Committees................................... 10
3.15.2 Minutes of Meetings.................................................... 11
3.15.3 Quorum and Manner of Acting............................................ 11
3.15.4 Resignation............................................................ 11
3.15.5 Removal................................................................ 12
3.16 Compensation........................................................................ 12
SECTION 4. OFFICERS................................................................................... 12
4.1 Number.............................................................................. 12
4.2 Election and Term of Office......................................................... 12
4.3 Resignation......................................................................... 12
4.4 Removal............................................................................. 13
4.5 Vacancies........................................................................... 13
4.6 Chairman of the Board............................................................... 13
4.7 President........................................................................... 13
4.8 Vice President...................................................................... 14
4.9 Secretary........................................................................... 14
4.10 Treasurer........................................................................... 14
4.11 Salaries............................................................................ 14
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS...................................................... 15
5.1 Contracts........................................................................... 15
5.2 Loans to the Corporation............................................................ 15
5.3 Checks, Drafts, Etc................................................................. 15
5.4 Deposits............................................................................ 15
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER................................................. 15
6.1 Issuance of Shares.................................................................. 15
6.2 Certificates for Shares............................................................. 15
6.3 Stock Records....................................................................... 16
6.4 Restriction on Transfer............................................................. 16
6.5 Transfer of Shares.................................................................. 16
6.6 Lost or Destroyed Certificates...................................................... 17
6.7 Shares of Another Corporation....................................................... 17
6.8 No Transfers in Violation of Regulation S........................................... 17
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
SECTION 7. BOOKS AND RECORDS.......................................................................... 17
SECTION 8. ACCOUNTING YEAR............................................................................ 17
SECTION 9. SEAL....................................................................................... 17
SECTION 10. INDEMNIFICATION........................................................................... 18
10.1 Right to Indemnification............................................................ 18
10.2 Right of Indemnitee to Bring Suit................................................... 19
10.3 Nonexclusivity of Rights............................................................ 19
10.4 Insurance, Contracts and Funding.................................................... 19
10.5 Indemnification of Employees and Agents of the Corporation.......................... 20
10.6 Persons Serving Other Entities...................................................... 20
10.7 Procedures for the Submission of Claims............................................. 20
SECTION 11. AMENDMENTS OR REPEAL...................................................................... 20
</TABLE>
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<PAGE>
BYLAWS
OF
HOMEGROWER.COM, INC.
SECTION 1. OFFICES
The principal office of the corporation shall be located at its principal
place of business or such other place as the Board of Directors (the "Board")
may designate. The corporation may have such other offices, either within or
without the State of Delaware, as the Board may designate or as the business of
the corporation may require from time to time.
SECTION 2. STOCKHOLDERS
2.1 Annual Meeting
The annual meeting of the stockholders shall be held each year within 180
days after the fiscal year end of the corporation at a date, time and location
determined by resolution of the Board for the purpose of electing Directors and
transacting such other business as may properly come before the meeting. If the
day fixed for the annual meeting is a legal holiday at the place of the meeting,
the meeting shall be held on the next succeeding business day. If the annual
meeting is not held on the date designated therefor, the Board shall cause the
meeting to be held on such other date as may be convenient.
2.2 Special Meetings
The Chairman of the Board, the Chief Executive Officer, the President or
the Board may call special meetings of the stockholders for any purpose.
Holders of not less than 30% of all the outstanding shares of the corporation
entitled to vote at the meeting may call special meetings of the stockholders
for any purpose by giving notice to the corporation as specified in subsection
2.4 hereof.
2.3 Place of Meeting
All meetings shall be held at the principal office of the corporation or at
such other place within or without the State of Delaware designated by the
Board, by any persons entitled to call a meeting hereunder or in a waiver of
notice signed by all the stockholders entitled to notice of the meeting.
<PAGE>
2.4 Notice of Meeting
The Chairman of the Board, the Chief Executive Officer, the President, the
Secretary, the Board, or stockholders calling an annual or special meeting of
stockholders as provided for herein, shall cause to be delivered to each
stockholder entitled to notice of or to vote at the meeting either personally or
by mail, not less than 10 nor more than 60 days before the meeting, written
notice stating the place, day and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Upon
written request by the holders of not less than the number of outstanding shares
of the corporation specified in subsection 2.2 hereof and entitled to vote at
the meeting, such stockholders may request that the corporation call a special
meeting of stockholders. Within 60 days of such a request, it shall be the duty
of the Secretary to give notice of a special meeting of stockholders to be held
on such date and at such place and hour as the Secretary may fix, and if the
Secretary shall neglect or refuse to issue such notice within such 60-day
period, the person making the request may do so and may fix the date for such
meeting. If such notice is mailed, it shall be deemed delivered when deposited
in the official government mail properly addressed to the stockholder at such
stockholder's address as it appears on the stock transfer books of the
corporation with postage prepaid. Notice given in any other manner shall be
deemed delivered when dispatched to the stockholder's address, telephone number
or other number appearing on the stock transfer records of the corporation.
2.5 Waiver of Notice
2.5.1 Waiver in Writing
Whenever any notice is required to be given to any stockholder under the
provisions of these Bylaws, the Certificate of Incorporation or the General
Corporation Law of the State of Delaware, as now or hereafter amended (the
"DGCL"), a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
2.5.2 Waiver by Attendance
The attendance of a stockholder at a meeting shall constitute a waiver of
notice of such meeting, except when a stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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<PAGE>
2.6 Fixing of Record Date for Determining Stockholders
2.6.1 Meetings
For the purpose of determining stockholders entitled to notice of and to
vote at any meeting of stockholders or any adjournment thereof, the Board may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which record date
shall be not more than 60 (or the maximum number permitted by applicable law)
nor less than 10 days before the date of such meeting. If no record date is
fixed by the Board, the record date for determining stockholders entitled to
notice of and to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of and to vote at the meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
2.6.2 Consent to Corporate Action Without a Meeting
For the purpose of determining stockholders entitled to consent to
corporate action in writing without a meeting, the Board may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board, and which date shall not be more than
10 (or the maximum number permitted by applicable law) days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is required by Chapter 1 of the DGCL,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board and prior action by the Board is required by Chapter 1 of the DGCL,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the day
on which the Board adopts the resolution taking such prior action.
2.6.3 Dividends, Distributions and Other Rights
For the purpose of determining stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the
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<PAGE>
purpose of any other lawful action, the Board may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than 60 (or the
maximum number permitted by applicable law) days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
2.7 Voting List
At least 10 days before each meeting of stockholders, a complete list of
the stockholders entitled to vote at such meeting, or any adjournment thereof,
shall be made, arranged in alphabetical order, with the address of and number of
shares held by each stockholder. This list shall be open to examination by any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of 10 days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. This list shall also be produced and kept at such meeting for
inspection by any stockholder who is present.
2.8 Quorum
A majority of the outstanding shares of the corporation entitled to vote,
present in person or represented by proxy at the meeting, shall constitute a
quorum at a meeting of the stockholders; provided, that where a separate vote by
a class or classes is required, a majority of the outstanding shares of such
class or classes, present in person or represented by proxy at the meeting,
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If less than a majority of the outstanding shares entitled to vote
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. If a quorum is
present or represented at a reconvened meeting following such an adjournment,
any business may be transacted that might have been transacted at the meeting as
originally called. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
2.9 Manner of Acting
In all matters other than the election of Directors, if a quorum is
present, the affirmative vote of the majority of the outstanding shares present
in person or represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of the stockholders, unless the vote of a
greater number is required by these Bylaws, the Certificate of Incorporation or
the DGCL. Where a separate vote by a class or classes is required, if a quorum
of such class or classes is present, the affirmative vote of the majority of
outstanding
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<PAGE>
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class or classes. Directors shall be elected by
a plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of Directors.
2.10 Proxies
2.10.1 Appointment
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy. Such
authorization may be accomplished by the stockholder or such stockholder's
authorized officer, director, employee or agent executing a writing or causing
his or her signature to be affixed to such writing by any reasonable means,
including facsimile signature, or (b) transmitting or authorizing the
transmission of a telegram, cablegram or other means of electronic transmission
to the intended holder of the proxy or to a proxy solicitation firm, proxy
support service or similar agent duly authorized by the intended proxy holder to
receive such transmission; provided, that any such telegram, cablegram or other
electronic transmission must either set forth or be accompanied by information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
by which a stockholder has authorized another person to act as proxy for such
stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
2.10.2 Delivery to Corporation; Duration
A proxy shall be filed with the Secretary before or at the time of the
meeting or the delivery to the corporation of the consent to corporate action in
writing. A proxy shall become invalid three years after the date of its
execution unless otherwise provided in the proxy. A proxy with respect to a
specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof.
2.11 Voting of Shares
Unless otherwise provided in the Certificate of Incorporation or the DGCL,
each outstanding share entitled to vote with respect to the subject matter of an
issue submitted to a meeting of stockholders shall be entitled to one vote upon
each such issue.
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2.12 Voting for Directors
Unless otherwise provided in the Certificate of Incorporation or the DGCL,
each stockholder entitled to vote at an election of Directors may vote, in
person or by proxy, the number of shares owned by such stockholder for as many
persons as there are Directors to be elected and for whose election such
stockholder has a right to vote.
2.13 Action by Stockholders Without a Meeting
Only action properly brought before the stockholders by or at the direction
of the Board may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall (a) be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
(as determined in accordance with subsection 2.6.2 hereof) and (b) be delivered
to the corporation by delivery to its registered office in the State of
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the records of proceedings of meetings of
stockholders. Delivery made to the corporation's registered office shall be by
hand or by certified mail or registered mail, return receipt requested. Every
written consent shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless written consents signed by the requisite
number of stockholders entitled to vote with respect to the subject matter
thereof are delivered to the corporation, in the manner required by this Section
2, within 60 (or the maximum number permitted by applicable law) days of the
earliest dated consent delivered to the corporation in the manner required by
this Section 2. The validity of any consent executed by a proxy for a
stockholder pursuant to a telegram, cablegram or other means of electronic
transmission transmitted to such proxy holder by or upon the authorization of
the stockholder shall be determined by or at the direction of the Secretary. A
written record of the information upon which the person making such
determination relied shall be made and kept in the records of the proceedings of
the stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing, and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by a
sufficient number of holders to take the action were delivered to the
corporation as provided in this Section 2.13. Any such consent shall be
inserted in the minute book as if it were the minutes of a meeting of the
stockholders.
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SECTION 3. BOARD OF DIRECTORS
3.1 General Powers
The business and affairs of the corporation shall be managed by the Board.
3.2 Number and Tenure
The Board shall be composed of not less than six nor more than eleven
Directors, the specific number to be set by resolution of the Board provided
that the Board may consist of fewer than six Directors until vacancies are
filled. The number of Directors may be changed from time to time by amendment
to these Bylaws, but no decrease in the number of Directors shall have the
effect of shortening the term of any incumbent Director. Unless a Director
resigns or is removed, he or she shall hold office until the next annual meeting
of stockholders or until his or her successor is elected, whichever is later.
Directors need not be stockholders of the corporation or residents of the State
of Delaware.
3.3 Annual and Regular Meetings
An annual Board meeting shall be held without notice immediately after and
at the same place as the annual meeting of stockholders. By resolution, the
Board or any committee designated by the Board may specify the time and place
either within or without the State of Delaware for holding regular meetings
thereof without notice other than such resolution.
3.4 Special Meetings
Special meetings of the Board or any committee appointed by the Board may
be called by or at the request of the Chairman of the Board, the Chief Executive
Officer, the President, the Secretary or, in the case of special Board meetings,
any one Director and, in the case of any special meeting of any committee
appointed by the Board, by the Chairman thereof. The person or persons
authorized to call special meetings may fix any place either within or
without the State of Delaware as the place for holding any special meeting
called by them.
3.5 Meetings by Telephone
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation by such means
shall constitute presence in person at a meeting.
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3.6 Notice of Special Meetings
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally by
telephone or in person. Neither the business to be transacted at, nor the
purpose of, any special meeting need be specified in the notice of such meeting.
3.6.1 Personal Delivery
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least two days before the meeting.
3.6.2 Delivery by Mail
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail properly addressed to a Director at
his or her address shown on the records of the corporation with postage prepaid
at least five days before the meeting.
3.6.3 Delivery by Private Carrier
If notice is given by private carrier, the notice shall be deemed effective
when dispatched to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.6.4 Facsimile Notice
If notice is delivered by wire or wireless equipment that transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.6.5 Delivery by Telegraph
If notice is delivered by telegraph, the notice shall be deemed effective
if the content thereof is delivered to the telegraph company at least two days
before the meeting for delivery to a Director at his or her address shown on the
records of the corporation.
3.6.6 Oral Notice
If notice is delivered orally, by telephone or in person, the notice shall
be deemed effective if personally given to the Director at least two days before
the meeting.
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3.7 Waiver of Notice
3.7.1 In Writing
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Certificate of Incorporation or the DGCL, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board or any
committee appointed by the Board need be specified in the waiver of notice of
such meeting.
3.7.2 By Attendance
The attendance of a Director at a Board or committee meeting shall
constitute a waiver of notice of such meeting, except when a Director attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
3.8 Quorum
A majority of the total number of Directors fixed by or in the manner
provided in these Bylaws or, if vacancies exist on the Board, a majority of the
total number of Directors then serving on the Board (provided, however, that
such number may be not less than one-third of the total number of Directors
fixed by or in the manner provided in these Bylaws) shall constitute a quorum
for the transaction of business at any Board meeting. If less than a majority
are present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
3.9 Manner of Acting
The act of the majority of the Directors present at a Board or committee
meeting at which there is a quorum shall be the act of the Board or committee,
unless the vote of a greater number is required by these Bylaws, the Certificate
of Incorporation or the DGCL.
3.10 Presumption of Assent
A Director of the corporation present at a Board or committee meeting at
which action on any corporate matter is taken shall be presumed to have assented
to the action taken unless his or her dissent is entered in the minutes of the
meeting, or unless such Director files a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof, or
forwards such dissent by registered mail to the Secretary of the corporation
immediately after the adjournment of the meeting. A Director who voted in favor
of such action may not dissent.
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3.11 Action by Board or Committees Without a Meeting
Any action that could be taken at a meeting of the Board or of any
committee appointed by the Board may be taken without a meeting if a written
consent setting forth the action so taken is signed by each of the Directors or
by each committee member. Any such written consent shall be inserted in the
minute book as if it were the minutes of a Board or a committee meeting.
3.12 Resignation
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the Chief Executive Officer, the President, the Secretary
or the Board, or to the registered office of the corporation. Any such
resignation shall take effect at the time specified therein or, if the time is
not specified, upon delivery thereof and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
3.13 Removal
At a meeting of stockholders called expressly for that purpose, one or more
members of the Board (including the entire Board) may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote on the election of Directors.
3.14 Vacancies
Any vacancy occurring on the Board may be filled by the affirmative vote of
a majority of the remaining Directors even if such Directors represent less than
a quorum of the Board. A Director elected to fill a vacancy shall be elected
for the unexpired term of his or her predecessor in office. Any directorship to
be filled by reason of an increase in the number of Directors may be filled by
the Board.
3.15 Committees
3.15.1 Creation and Authority of Committees
The Board may, by resolution passed by a majority of the number of
Directors fixed by or in the manner provided in these Bylaws, appoint standing
or temporary committees, each committee to consist of one or more Directors of
the corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the
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meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board establishing
such committee or as otherwise provided in these Bylaws, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers that require it; but no such committee
shall have the power or authority in reference to (a) amending the Certificate
of Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board as provided in Section 151 (a) of the DGCL, fix the designations,
preferences or rights of such shares to the extent permitted under Section 141
of the DGCL), (b) adopting an agreement of merger or consolidation under Section
251 or 252 of the DGCL, (c) recommending to the stockholders the sale, lease or
exchange or other disposition of all or substantially all the property and
assets of the corporation, (d) recommending to the stockholders a dissolution of
the corporation or a revocation of a dissolution, or (e) amending these Bylaws;
and, unless expressly provided by resolution of the Board, no such committee
shall have the power or authority to declare a dividend, to authorize the
issuance of stock or to adopt a certificate of ownership and merger pursuant to
Section 253 of the DGCL.
3.15.2 Minutes of Meetings
All committees so appointed shall keep regular minutes of their meetings
and shall cause them to be recorded in books kept for that purpose.
3.15.3 Quorum and Manner of Acting
A majority of the number of Directors composing any committee of the Board,
as established and fixed by resolution of the Board, shall constitute a quorum
for the transaction of business at any meeting of such committee but, if less
than a majority are present at a meeting, a majority of such Directors present
may adjourn the meeting from time to time without further notice. The act of a
majority of the members of a committee present at a meeting at which a quorum is
present shall be the act of such committee.
3.15.4 Resignation
Any member of any committee may resign at any time by delivering written
notice to the Chairman of the Board, the Chief Executive Officer, the President,
the Secretary, the Board or the Chairman of such committee. Any such
resignation shall take effect at the time specified therein or, if the time is
not specified, upon delivery thereof and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
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3.15.5 Removal
The Board may remove from office any member of any committee elected or
appointed by it, but only by the affirmative vote of not less than a majority of
the number of Directors fixed by or in the manner provided in these Bylaws.
3.16 Compensation
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, a fixed sum
for attendance at each Board or committee meeting or a stated salary as Director
or a committee member, or a combination of the foregoing. No such payment shall
preclude any Director or committee member from serving the corporation in any
other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 Number
The officers of the corporation shall be a President, a Secretary and a
Treasurer, each of whom shall be elected by the Board. A Chief Executive
Officer, one or more Vice Presidents and such other officers and assistant
officers, including a Chairman of the Board, may be elected or appointed by the
Board, such officers and assistant officers to hold office for such period, have
such authority and perform such duties as are provided in these Bylaws or as may
be provided by resolution of the Board. Any officer may be assigned by the
Board any additional title that the Board deems appropriate. The Board may
delegate to any officer or agent the power to appoint any such subordinate
officers or agents and to prescribe their respective terms of office, authority
and duties. Any two or more offices may be held by the same person.
4.2 Election and Term of Office
The officers of the corporation shall be elected annually by the Board at
the Board meeting held after the annual meeting of the stockholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as a Board meeting conveniently may be held. Unless an officer
dies, resigns or is removed from office, he or she shall hold office until the
next annual meeting of the Board or until his or her successor is elected.
4.3 Resignation
Any officer may resign at any time by delivering written notice to the
Chairman of the Board, the Chief Executive Officer, the President, a Vice
President, the Secretary or the
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Board. Any such resignation shall take effect at the time specified therein or,
if the time is not specified, upon delivery thereof and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
4.4 Removal
Any officer or agent elected or appointed by the Board may be removed by
the Board whenever in its judgment the best interests of the corporation would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
4.5 Vacancies
A vacancy in any office because of death, resignation, removal,
disqualification, creation of a new office or any other cause may be filled by
the Board for the unexpired portion of the term, or for a new term established
by the Board.
4.6 Chairman of the Board
If elected, the Chairman of the Board shall perform such duties as shall be
assigned to him or her by the Board from time to time and shall preside over
meetings of the Board and stockholders unless another officer is appointed or
designated by the Board as Chairman of such meeting. In the absence of a
Chairman of the Board, the Chief Executive Officer, if any, of the corporation
shall preside over meetings of the Board and stockholders unless another officer
is appointed or designated by the Board as Chairman of such meeting.
4.7 President
The President shall be the chief executive officer of the corporation
unless some other officer is so designated by the Board, shall preside over
meetings of the Board and stockholders in the absence of a Chairman of the Board
and a Chief Executive Officer and, subject to the Board's control, shall
supervise and control all the assets, business and affairs of the corporation.
The President may sign certificates for shares of the corporation, deeds,
mortgages, bonds, contracts or other instruments, except when the signing and
execution thereof have been expressly delegated by the Board or by these Bylaws
to some other officer or agent of the corporation or are required by law to be
otherwise signed or executed by some other officer or in some other manner. In
general, the President shall perform all duties incident to the office of
President and such other duties as are prescribed by the Board from time to
time.
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4.8 Vice President
In the event of the death of the President or his or her inability to act,
the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Any Vice President may sign with the Secretary
or any Assistant Secretary certificates for shares of the corporation. Vice
Presidents shall have, to the extent authorized by the President or the Board,
the same powers as the President to sign deeds, mortgages, bonds, contracts or
other instruments. Vice Presidents shall perform such other duties as from time
to time may be assigned to them by the President or the Board.
4.9 Secretary
The Secretary shall be responsible for preparation of minutes of meetings
of the Board and stockholders, maintenance of the corporation's records and
stock registers, and authentication of the corporation's records and shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the President or
the Board. In the absence of the Secretary, an Assistant Secretary may perform
the duties of the Secretary.
4.10 Treasurer
If required by the Board, the Treasurer shall give a bond for the faithful
discharge of his or her duties in such amount and with such surety or sureties
as the Board shall determine. The Treasurer shall: have charge and custody of
and be responsible for all funds and securities of the corporation; receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws; sign certificates for shares of the corporation; and in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her by the President or the
Board. In the absence of the Treasurer, an Assistant Treasurer may perform the
duties of the Treasurer.
4.11 Salaries
The salaries of the officers shall be fixed from time to time by the Board
or by any person or persons to whom the Board has delegated such authority. No
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a Director of the corporation.
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SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 Loans to the Corporation
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board. Such authority may be general or confined to specific instances.
5.3 Checks, Drafts, Etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, or agent or agents,
of the corporation and in such manner as is from time to time determined by
resolution of the Board.
5.4 Deposits
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares
No shares of the corporation shall be issued unless authorized by the
Board, which authorization shall include the maximum number of shares to be
issued and the consideration to be received for each share.
6.2 Certificates for Shares
Certificates representing shares of the corporation shall be signed by the
Chairman of the Board or a Vice Chairman of the Board, if any, the Chief
Executive Officer, if any, or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
any of whose signatures may be a facsimile. The Board may in its discretion
appoint responsible banks or trust companies from time to time to act as
transfer agents and registrars of the stock of the corporation; and, when such
appointments shall have been made, no stock certificate shall be valid until
countersigned by one of such transfer agents and registered by one of such
registrars. In case any officer, transfer agent or registrar
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who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if such person was such officer, transfer agent or registrar at the date of
issue. All certificates shall include on their face written notice of any
restrictions that may be imposed on the transferability of such shares and shall
be consecutively numbered or otherwise identified.
6.3 Stock Records
The stock transfer books shall be kept at the registered office or
principal place of business of the corporation or at the office of the
corporation's transfer agent or registrar. The name and address of each person
to whom certificates for shares are issued, together with the class and number
of shares represented by each such certificate and the date of issue thereof,
shall be entered on the stock transfer books of the corporation. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
6.4 Restriction on Transfer
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, that reads substantially as follows:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933 or any applicable state law, and no
interest therein may be sold, distributed, assigned, offered, pledged
or otherwise transferred unless (a) there is an effective registration
statement under such Act and applicable state securities laws covering
any such transaction involving said securities, (b) this corporation
receives an opinion of legal counsel for the holder of these
securities (concurred in by legal counsel for this corporation)
stating that such transaction is exempt from registration or (c) this
corporation otherwise satisfies itself that such transaction is exempt
from registration. Neither the offering of the securities nor any
offering materials have been reviewed by any administrator under the
Securities Act of 1933 or any applicable state law."
6.5 Transfer of Shares
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the
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holder of record thereof or by his or her legal representative, who shall
furnish proper evidence of authority to transfer, or by his or her attorney-in-
fact authorized by power of attorney duly executed and filed with the Secretary
of the corporation. All certificates surrendered to the corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificates for a like number of shares shall have been surrendered and
cancelled.
6.6 Lost or Destroyed Certificates
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
6.7 Shares of Another Corporation
Shares owned by the corporation in another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the Board may determine
or, in the absence of such determination, by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President of the corporation.
6.8 No Transfers in Violation of Regulation S
With respect to any shares of the corporation issued in reliance on
Regulation S under the Securities Act of 1933, as amended ("Regulation S"),
neither the corporation nor its transfer agent shall effect any transfer of such
shares on the stock transfer books of the corporation unless such transfer is
made in accordance with the provisions of Regulation S.
SECTION 7. BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its stockholders
and Board and such other records as may be necessary or advisable.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year, provided
that if a different accounting year is at any time selected for purposes of
federal income taxes, the accounting year shall be the year so selected.
SECTION 9. SEAL
The seal of the corporation, if any, shall consist of the name of the
corporation, the state of its incorporation and the year of its incorporation.
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SECTION 10. INDEMNIFICATION
10.1 Right to Indemnification
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved (including, without limitation, as a witness) in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a Director, officer, employee or agent of the
corporation or that, being or having been such a Director, officer, employee or
agent of the corporation, he or she is or was serving at the request of the
corporation as a Director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as such a
Director, officer, employee or agent or in any other capacity while serving as
such a Director, officer, employee or agent, shall be indemnified and held
harmless by the corporation to the full extent permitted by the DGCL, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the corporation to provide
broader indemnification rights than permitted prior thereto), or by other
applicable law as then in effect, against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) actually and reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall continue
as to an indemnitee who has ceased to be a Director, officer, employee or agent
and shall inure to the benefit of the indemnitee's heirs, executors and
administrators; provided, however, that except as provided in subsection 10.2
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hereof with respect to proceedings seeking to enforce rights to indemnification,
the corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized or ratified by the Board. The right
to indemnification conferred in this subsection 10.1 shall be a contract right
and shall include the right to be paid by the corporation the expenses incurred
in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that if the DGCL
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so requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a Director, officer, employee or agent (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under this subsection 10.1 or otherwise.
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10.2 Right of Indemnitee to Bring Suit
If a claim under subsection 10.1 hereof is not paid in full by the
corporation within 60 days after a written claim has been received by the
corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. The indemnitee shall be presumed
to be entitled to indemnification under this Section 10 upon submission of a
written claim (and, in an action brought to enforce a claim for an advancement
of expenses, where the required undertaking, if any is required, has been
tendered to the corporation), and thereafter the corporation shall have the
burden of proof to overcome the presumption that the indemnitee is not so
entitled. Neither the failure of the corporation (including its Board,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances nor an actual determination by the corporation
(including its Board, independent legal counsel or its stockholders) that the
indemnitee is not entitled to indemnification shall be a defense to the suit or
create a presumption that the indemnitee is not so entitled.
10.3 Nonexclusivity of Rights
The rights to indemnification and to the advancement of expenses conferred
in this Section 10 shall not be exclusive of any other right that any person may
have or hereafter acquire under any statute, agreement, vote of stockholders or
disinterested Directors, provisions of the Certificate of Incorporation or these
Bylaws or otherwise. Notwithstanding any amendment to or repeal of this Section
10, any indemnitee shall be entitled to indemnification in accordance with the
provisions hereof with respect to any acts or omissions of such indemnitee
occurring prior to such amendment or repeal.
10.4 Insurance, Contracts and Funding
The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the DGCL.
The corporation, without further stockholder approval, may enter into contracts
with any Director, officer, employee or agent in furtherance of the provisions
of this Section 10 and may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in this Section 10.
-19-
<PAGE>
10.5 Indemnification of Employees and Agents of the Corporation
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees or agents or groups of
employees or agents of the corporation with the same scope and effect as the
provisions of this Section 10 with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation;
provided, however, that an undertaking shall be made by an employee or agent
- -------- -------
only if required by the Board.
10.6 Persons Serving Other Entities
Any person who is or was a Director, officer or employee of the corporation
who is or was serving (a) as a Director or officer of another corporation of
which a majority of the shares entitled to vote in the election of its Directors
is held by the corporation or (b) in an executive or management capacity in a
partnership, joint venture, trust or other enterprise of which the corporation
or a wholly owned subsidiary of the corporation is a general partner or has a
majority ownership shall be deemed to be so serving at the request of the
corporation and entitled to indemnification and advancement of expenses under
subsection 10.1 hereof.
10.7 Procedures for the Submission of Claims
The Board may establish reasonable procedures for the submission of claims
for indemnification pursuant to this Section 10, determination of the
entitlement of any person thereto and review of any such determination. Such
procedures shall be set forth in an appendix to these Bylaws and shall be deemed
for all purposes to be a part hereof.
SECTION 11. AMENDMENTS OR REPEAL
These Bylaws may be amended or repealed and new Bylaws may be adopted by
the Board. The stockholders may also amend and repeal these Bylaws or adopt new
Bylaws. All Bylaws made by the Board may be amended or repealed by the
stockholders. Notwithstanding any amendment to Section 10 hereof or repeal of
these Bylaws, or of any amendment or repeal of any of the procedures that may be
established by the Board pursuant to Section 10 hereof, any indemnitee shall be
entitled to indemnification in accordance with the provisions hereof and thereof
with respect to any acts or omissions of such indemnitee occurring prior to such
amendment or repeal.
-20-
<PAGE>
EXHIBIT 4.2
HOMEGROCER.COM, INC.
THIRD AMENDED AND RESTATED INVESTOR RIGHTS
AGREEMENT
September 30, 1999
<PAGE>
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement")
is made as of September 30, 1999, by and among HomeGrocer.com, Inc., a Delaware
corporation (the "Company"), and the investors listed on Exhibit A hereto
---------
(each, an "Investor" and, collectively, the "Investors"). This Agreement is
intended to amend and restate that certain Second Amended and Restated Investor
Rights Agreement between the Company and the parties thereto, dated as of April
13, 1999 (the "Prior Agreement").
RECITALS
A. WHEREAS, certain of the Investors own Series A Preferred Stock (the
"Series A Stock"), Series B Preferred Stock (the "Series B Stock"), and Series C
Preferred Stock (the "Series C Stock") and certain of the Investors are
purchasing shares of the Company's Series D Preferred Stock (the "Series D
Stock," and together with the Series A Stock, Series B Stock and Series C Stock,
the "Preferred Stock") pursuant to that certain Series D Preferred Stock
Purchase Agreement dated as of the date hereof between the Company and the
Investors (the "Purchase Agreement"); and
B. WHEREAS, the Company and the Investors who own Series A Stock, Series B
Stock and Series C Stock are parties to the Prior Agreement; and
C. WHEREAS, it is a condition to the obligations of the Investors under
the Purchase Agreement that this Agreement be executed by the parties hereto,
and the parties are willing to execute, and to be bound by the provisions of,
this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
1.1 "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.2 "Convertible Securities" shall mean Shares of Series A Stock,
Series B Stock, Series C Stock and Series D Stock.
1.3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.4 "Form S-3" shall mean Form S-3 issued by the Commission or any
substantially similar form then in effect.
1.5 "Holder" shall mean any holder of outstanding Registrable
Securities which have not been sold to the public, but only if such holder is
one of the Investors or an assignee or transferee of registration rights as
permitted by Section 12.
-2-
<PAGE>
1.6 "Initiating Holders" shall mean Holders who in the aggregate hold
at least thirty-three and one-third percent (33 1/3%) of the Registrable
Securities.
1.7 "Material Adverse Event" shall mean an occurrence having a
consequence that either: (a) is materially adverse as to the business,
properties, prospects, or financial condition of the Company; or (b) is
reasonably foreseeable, has a reasonable likelihood of occurring, and if it were
to occur might materially and adversely affect the business, properties,
prospects, or financial condition of the Company.
1.8 The terms "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (a "Registration Statement"), and the
declaration or ordering of the effectiveness of such Registration Statement.
1.9 "Registrable Securities" shall mean all Common Stock not
previously sold to the public and issued or issuable upon conversion or exercise
of any of the Company's Convertible Securities purchased by or issued to the
Investors, including Common Stock issued pursuant to stock splits, stock
dividends and similar distributions, and any securities of the Company granted
registration rights pursuant to Section 11 of this Agreement; provided, however,
--------- -------
that shares of Common Stock or other securities shall cease to be treated as
Registrable Securities at such time as they: (i) have been sold pursuant to an
effective Registration Statement under the Securities Act; or (ii) have
otherwise been sold or transferred to or through a broker, dealer or underwriter
in a public distribution or a public securities transaction.
1.10 "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 5, 6 or 7 of this Agreement, including,
without limitation, all federal and state registration, qualification, and
filing fees, printing expenses, fees and disbursements of counsel for the
Company and one special counsel for the Holders (if different from counsel for
the Company), blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration.
1.11 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
1.12 "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement.
2. Financial Statements and Reports to Stockholders.
------------------------------------------------
2.1 Information. As long as any Investor holds at least 750,000 shares
-----------
(as adjusted for stock splits, stock dividends and similar events) of
Convertible Securities or Common Stock issued upon conversion of the Convertible
Securities, the Company shall deliver to such Investor:
(a) As soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, an audited
consolidated balance sheet of the Company as of the end of such year and audited
consolidated statements of income, stockholders' equity and cash flow for such
year, which year-end financial reports shall be in
-3-
<PAGE>
reasonable detail and shall be prepared in accordance with generally accepted
accounting principles and accompanied by the opinion of independent public
accountants of nationally recognized standing selected by the Company;
(b) As soon as practicable after the end of each quarter, and in
any event within thirty (30) days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such quarter, and
consolidated statements of income and cash flow for such quarter and for the
current fiscal year to date, in reasonable detail and including comparisons to
budget, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes) and accompanied by a certificate of the
Chief Financial Officer or Chief Executive Officer of the Company confirming
that such statements fairly and accurately present the financial condition and
results of operation of the Company, subject to changes resulting from year-end
audit adjustment;
(c) Contemporaneously with delivery to holders of Common Stock, a
copy of each report of the Company delivered to holders of Common Stock; and
(d) Such other information relating to the financial condition,
business, prospects, or corporate affairs of the Company as the Investor or any
assignee of the Investor may reasonably request, subject to the Investor's
execution of a confidentiality agreement reasonably satisfactory to the Company.
2.2 Inspection. As long as any Investor holds at least 750,000 shares
----------
(as adjusted for stock splits, stock dividends and similar events) of
Convertible Securities or Common Stock issued upon conversion of the Convertible
Securities, the Company shall permit such Investor, or such Investor's
authorized representatives, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances, and accounts with its officers, all upon
reasonable notice and at such reasonable times as may be requested by each such
Investor, subject to the Investor's execution of a confidentiality agreement
reasonably satisfactory to the Company.
3. Termination of Information and Inspection Covenants. The covenants set
---------------------------------------------------
forth in Section 2 shall terminate as to Investors and be of no further force or
effect when the sale of securities pursuant to a Registration Statement filed by
the Company under the Securities Act in connection with the firm commitment
underwritten offering of its securities to the general public is closed or when
the Company first becomes subject to the periodic reporting requirements of
Sections 13 or 15(d) of the Exchange Act, whichever event shall first occur.
4. Right of First Refusal.
----------------------
4.1 Pro Rata Share. The Company hereby grants to each Investor the
--------------
right of first refusal to purchase its Pro Rata Share (as defined below) of any
New Securities (as defined below) that the Company may, from time to time,
propose to sell and issue. The Investors may purchase New Securities on the same
terms and at the same price at which the Company proposes to sell the New
Securities. The "Pro Rata Share" of each Investor, for purposes of this right of
first refusal, is the ratio of: (a) the total number of shares of Common Stock
held by such Investor (including any shares of Common Stock into which shares of
Convertible Securities held by such Investor are convertible); to (b) the total
number of shares of Common Stock outstanding (including any shares of Common
Stock into which outstanding shares of Convertible Securities are convertible).
An Investor shall be entitled to apportion the right of first
-4-
<PAGE>
refusal hereby granted among itself and its partners and affiliates in such
proportions as it deems appropriate.
4.2 New Securities. "New Securities" shall mean any capital stock of
--------------
the Company, whether authorized or not, and any rights, options, or warrants to
purchase said capital stock, and securities of any type whatsoever that are, or
may become, convertible into or exercisable for said capital stock; provided,
---------
however, that "New Securities" does not include: (a) securities issuable upon
- -------
conversion of the Convertible Securities issued or issuable on the date of this
Agreement; (b) securities issued pursuant to the acquisition of another
corporation by the Company by merger, purchase of substantially all of the
assets, or other reorganization, if approved by the Company's Board of
Directors; (c) options to purchase shares of Common Stock granted pursuant to
the Company's 1997 Stock Incentive Compensation Plan (or any other employee
stock plan approved by the Board of Directors) or shares issuable upon exercise
of such options; (d) shares issuable upon exercise of warrants outstanding as of
the date of this Agreement; (e) securities issued to financial institutions or
lessors in connection with commercial credit arrangements, equipment financing
or similar transactions, provided such issuances are other than primarily for
--------
equity financing purposes, limited to an aggregate of no more than one-half
percent (0.5%) of the Company's outstanding equity securities on an as-converted
basis, and, approved by the Company's Board of Directors; (f) securities issued
to corporate partners or in connection with other strategic alliances approved
by the Company's Board of Directors; (g) shares issued without consideration
pursuant to a stock dividend, stock split, or similar transaction; and (h)
shares of Series D Stock issued pursuant to the Purchase Agreement.
Notwithstanding the foregoing, Amazon.com, Inc. shall be entitled to purchase
its Pro Rata Share with respect to issuances described in (b) and (f) of this
Section.
4.3 Notice of Proposed Issuance: Exercise of Right of First Refusal.
---------------------------------------------------------------
In the event the Company proposes to undertake an issuance of New Securities, it
shall give to each Investor written notice (the "Notice") of its intention,
describing the type of New Securities, the price, the terms upon which the
Company proposes to issue the same, the number of shares that each Investor is
entitled to purchase, and a statement that each Investor shall have fifteen (15)
days to respond to such Notice. Each Investor shall have fifteen (15) days from
the date of mailing of the Notice by the Company to agree to purchase all of its
Pro Rata Share of the New Securities for the price and upon the terms specified
in the Notice by giving written notice to the Company and stating therein that
it wishes to purchase the New Securities. Payment for such New Securities shall
be made under the same terms and at the closing for the sale of such New
Securities.
4.4 Sale of New Securities by Company. The Company shall have sixty
---------------------------------
(60) days after the expiration of the fifteen (15) day period referenced in
Section 4.3 to sell or enter into an agreement (pursuant to which the sale of
New Securities covered thereby shall be closed, if at all, within thirty (30)
days from the date of said agreement) to sell the New Securities respecting
which the Investors' rights of first refusal were not exercised, at a price and
upon general terms no more favorable to the purchaser thereof than specified in
the Notice. In the event the Company has not sold, or entered into an agreement
to sell the New Securities within said sixty (60) day period (or sold and issued
New Securities in accordance with the foregoing within thirty (30) days from the
date of said agreement), the Company shall not thereafter issue or sell any New
Securities without first offering such securities to the Investors in the manner
provided above.
4.5 Termination of Right of First Refusal. The covenants of the
-------------------------------------
Company set
-5-
<PAGE>
forth in this Section 4 shall be terminated and be of no further force or effect
upon the earlier of: (a) immediately prior to the closing of the first public
offering of the Common Stock of the Company effected pursuant to a Registration
Statement filed with, and declared effective by, the Commission under the
Securities Act, that results in net offering proceeds (after deduction of
underwriters' discounts and commissions and expenses of the offering) of at
least Seventy-Five Million Dollars ($75,000,000) at a per share price of at
least Eleven Dollars Sixty Cents ($11.60) (subject to proportional adjustment
for stock splits, dividends, consolidations, recapitalizations and similar
events); and (b) the date on which less than ten percent (10%) of the shares of
Preferred Stock originally issued remain outstanding. Such covenants shall
terminate as to any Investor as of the date such Investor no longer holds any
shares of the capital stock of the Company.
5. Demand Registration.
-------------------
5.1 Request for Registration on Form Other Than Form S-3
----------------------------------------------------
(a) Subject to the terms of this Agreement, in the event that the
Company shall receive from the Initiating Holders a written request that the
Company effect any Registration with respect to all or a part of the Registrable
Securities on a form other than Form S-3 for an offering of at least twenty-five
(25%) of the then outstanding Registrable Securities (or any lesser percent if
the reasonably anticipated aggregate offering price to the public would exceed
$5,000,000 ($75,000,000 if such written request is with respect to an initial
public offering)), the Company shall: (i) promptly give written notice of the
proposed Registration to all other Holders; and (ii) as soon as practicable, use
its reasonable best efforts to effect Registration of the Registrable Securities
specified in such request, together with any Registrable Securities of any
Holder joining in such request as are specified in a written request given
within twenty (20) days after written notice from the Company. The Company shall
not be obligated to take any action to effect any such registration pursuant to
this Section 5.1: (A) prior to the earlier of January 1, 2002, or One Hundred
Eighty (180) days following the closing date of the first public offering of the
Common Stock of the Company effected pursuant to a Registration Statement filed
with, and declared effective by, the Commission under the Securities Act; (B) at
any time within One Hundred Eighty (180) days following the effective date of
any Registration Statement on Form S-1 (or any successor form); or (C) if the
Company has effected two (2) such Registrations pursuant to this Section 5.1;
provided, that a Registration that is withdrawn or otherwise abandoned will not
- --------
count toward this limitation unless it is withdrawn or abandoned at the request
of the Investors for reasons other than the occurrence of a Material Adverse
Event.
(b) Notwithstanding the provisions of Section 5.1(a), if the
Company shall furnish to all such Holders who joined in the request a
certificate signed by the Chief Executive Officer of the Company stating that,
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for any Registration to be effected as
requested under Section 5.1(a), the Company shall have the right, exercisable
not more than once in any twelve (12) month period, to defer the filing of a
Registration Statement with respect to such offering for a period of not more
than ninety (90) days from delivery of the request of the Initiating Holders.
5.2 Request for Registration on Form S-3.
------------------------------------
(a) If a Holder or Holders of outstanding Registrable Securities
request that the Company file a Registration Statement on Form S-3 (or any
successor form to Form S-3)
-6-
<PAGE>
for a public offering of shares of Registrable Securities in which the aggregate
price to the public would exceed $1,000,000, and the Company is a registrant
entitled to use Form S-3 to register the Registrable Securities for such an
offering, the Company shall: (i) promptly give written notice of the proposed
Registration to all other Holders; and (ii) as soon as practicable, use its
reasonable efforts to effect Registration of the Registrable Securities
specified n such request, together with any Registrable Securities of any Holder
joining in such request as are specified in a written request given within
twenty (20) days after written notice from the Company. The substantive
provisions of Section 5.4 shall be applicable to each Registration initiated
under this Section 5.2.
(b) Notwithstanding the provisions of Section 5.2(a), if the
Company shall furnish to all Holders who joined in the request a certificate
signed by the Chief Executive Officer of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for any Registration to be effected as requested
under Section 5.2(a), the Company shall have the right, exercisable not more
than once in any twelve (12) month-period, to defer the filing of a Registration
Statement with respect to such offering for a period of not more than ninety
(90) days from delivery of the request of the Holder.
5.3 Registration of Other Securities in Demand Registration. Any
-------------------------------------------------------
Registration Statement filed pursuant to the request of the Initiating Holders
under this Section 5 may, subject to the provisions of Section 5.4, include
securities registered for the account of the Company in addition to Registrable
Securities.
5.4 Underwriting in a Demand Registration.
--------------------------------------
(a) Notice of Underwriting. If the Initiating Holders intend to
----------------------
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as part of their request made
pursuant to this Section 5, and the Company shall include such information in
the written notice referred to in Section 5.1 or 5.2. The right of any Holder to
Registration pursuant to Section 5 shall be conditioned upon such Holder's
agreement to participate in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting.
(b) Inclusion of Other Holders in Demand Registration. If the
-------------------------------------------------
Company, officers or directors of the Company holding Common Stock other than
Registrable Securities, or holders of securities other than Registrable
Securities, request inclusion in such Registration, the Initiating Holders, to
the extent they deem advisable and consistent with the goals of such
Registration, may, in their sole discretion, on behalf of all Holders, offer to
any or all of the Company, such officers or directors, and such holders of
securities other than Registrable Securities that such securities other than
Registrable Securities be included in the underwriting and may condition such
offer on the acceptance by such persons of the terms of this Section 5. In the
event, however, that the number of shares so included exceeds the number of
shares of Registrable Securities included by all Holders, such Registration
shall be treated as governed by Section 6 rather than Section 5, and it shall
not count as a Registration for purposes of Section 5.1.
(c) Selection of Underwriter in Demand Registration. The
-----------------------------------------------
Company shall (together with all Holders proposing to distribute their
securities through such
-7-
<PAGE>
underwriting) enter into an underwriting agreement with the representative of
the underwriter or underwriters (the "Underwriter's Representative") selected
for such underwriting by the Holders of a majority of the Registrable Securities
being registered by the Initiating Holders and agreed to by the Company.
(d) Marketing Limitation in Demand Registration. In the event the
-------------------------------------------
Underwriter's Representative advises the Initiating Holders in writing that
market factors (including, without limitation, the aggregate number of shares of
Common Stock requested to be Registered, the general condition of the market,
and the status of the persons proposing to sell securities pursuant to the
Registration) require a limitation of the number of shares to be underwritten,
then: (a) first the Common Stock (other than Registrable Securities) held by
officers or directors of the Company; (b) next the securities other than
Registrable Securities; and (c) last the securities requested to be registered
by the Company, shall be excluded from such Registration to the extent required
by such limitation. If a limitation of the number of shares is still required,
the Initiating Holders shall so advise all Holders and the number of shares of
Registrable Securities that may be included in the Registration and underwriting
shall be allocated among all Holders in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities entitled to inclusion in such
Registration held by such Holders at the time of filing the Registration
Statement. No Registrable Securities or other securities excluded from the
underwriting by reason of this Section 5.4(d) shall be included in such
Registration Statement.
6. Piggyback Registration.
----------------------
6.1 Notice of Piggyback Registration and Inclusion of Registrable
-------------------------------------------------------------
Securities. Subject to the terms of this Agreement, in the event the Company
- ----------
decides to Register any of its Common Stock (either for its own account or the
account of a security holder or holders exercising demand registration rights)
on a form that would be suitable for a registration involving solely Registrable
Securities, the Company will: (a) promptly give each Holder written notice
thereof; and (b) include in such Registration, and in any underwriting involved
therein, all the Registrable Securities specified in a written request delivered
to the Company by any Holder within twenty (20) days after delivery of such
written notice from the Company.
6.2 Underwriting in Piggyback Registration.
------------------------- ------------
(a) Notice of Underwriting in Piggyback Registration. If the
------------------------------------------------
Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise the Holders as
part of the written notice given pursuant to Section 6.1. In such event, the
right of any Holder to Registration shall be conditioned upon such underwriting
and the inclusion of such Holder's Registrable Securities in such underwriting
to the extent provided in this Section 6. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement with the Underwriter's Representative for such
offering.
(b) Marketing Limitation in Piggyback Registration. In the event
----------------------------------------------
the Underwriter's Representative advises the Holders seeking Registration of
Registrable Securities pursuant to Section 6, in writing, that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
-8-
<PAGE>
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative (subject to the allocation priority set forth in
Section 6.2 (c)) may limit the number of shares of Registrable Securities to be
included in such Registration.
(c) Allocation of Shares in Piggyback Registration. In the
----------------------------------------------
event that the Underwriter's Representative limits the number of shares to be
included in a Registration pursuant to Section 6.2 (b), the number of shares to
be included in such Registration shall be allocated (subject to Section 6.2 (b))
in the following manner: the shares (other than Registrable Securities) held by
officers or directors of the Company shall be excluded from such Registration
and underwriting to the extent required by such limitation. If a limitation of
the number of shares is still required after such exclusion, the number of
shares that may be included in the Registration and underwriting by selling
stockholders shall be allocated among all other holders thereof, in proportion,
as nearly as practicable, to the respective amounts of securities (including
Registrable Securities) which such holders would otherwise be entitled to
include in such Registration or in such other proportion as shall be mutually
agreed to by such holders; provided, however, that with respect to a
--------- -------
Registration other than the Registration relating to the Company's initial
public offering, the number of Registrable Securities included in such
Registration shall not be reduced to less than thirty percent (30%) of the
aggregate number of all shares so included. No Registrable Securities or other
securities excluded from the underwriting by reason of this Section 6.2 (c)
shall be included in the Registration Statement.
7. Expenses of Registration.
------------------------
All Registration Expenses incurred in connection with an aggregate of two
(2) Registrations pursuant to Section 5.1 and in connection with Registrations
pursuant to Sections 5.2 and 6 shall be borne by the Company. The Company shall
not be required to pay for any expenses of any Registration proceeding begun
pursuant to Section 5 if the Registration request is subsequently withdrawn at
the request of the Holders of a majority of the Registrable Securities to be
Registered (which Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one (1)
demand Registration pursuant to Section 5; provided, that if at the time of such
--------
withdrawal, the Holders have learned of a Material Adverse Event not known to
the Holders at the time of their request, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section 5.
All Selling Expenses shall be borne by the holders of the securities Registered,
pro rata on the basis of the number of shares Registered.
8. Registration Procedures and Obligations.
---------------------------------------
8.1 Company Obligations. Whenever required under this Agreement to
-------------------
effect the Registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) prepare and file with the Commission a Registration Statement
with respect to such Registrable Securities and use its reasonable best efforts
to cause such Registration Statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities Registered
thereunder, keep such Registration Statement effective for up to one hundred
twenty (120) days;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such
-9-
<PAGE>
Registration Statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement;
(c) furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them;
(d) use its reasonable best efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
--------
or as a condition thereto to qualify to do business or to file a general consent
to service of process or to become subject to taxation in any such states or
jurisdictions;
(e) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by such
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) provide a transfer agent and registrar for all Registrable
Securities Registered pursuant to such Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such Registration; and
(h) furnish, at the request of any Holder requesting Registration
of Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered for sale in connection with a registration
pursuant to this Agreement: (i) an opinion, dated such date, of the counsel
representing the company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering; and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
8.2 Information Furnished by Holder. It shall be a condition precedent
-------------------------------
to the Company's obligations under this Agreement that each Holder of
Registrable Securities included in any Registration, furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
or Holders as the Company may reasonably request.
9. Termination of Rights.
---------------------
The rights of any particular Holder to cause the Company to Register
securities under Sections 5.1, 5.2 and 6 shall terminate ten (10) years after
the effective date of the Company's initial public offering or, as to any
Holder, such earlier time at which all Registrable Securities held by such
Holder (and any affiliate of the Holder with whom such Holder must aggregate its
-10-
<PAGE>
sales under Rule 144) can be sold in any three (3) month period without
registration in compliance with Rule 144 of the Act.
10. Indemnification.
---------------
10.1 Company's Indemnification of Holders. To the extent permitted by
------------------------------------
law, the Company will indemnify each Holder, each of its officers, directors,
and constituent partners, legal counsel for the Holders, and each person
controlling such Holder within the meaning of the Securities Act, with respect
to which Registration, qualification, or compliance of Registrable Securities
has been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter, against all claims, losses, damages,
or liabilities (or actions in respect thereof) to the extent such claims,
losses, damages, or liabilities arise out of or are based upon any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus or other document (including any related Registration Statement)
incident to any such Registration, qualification, or compliance, or are based on
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
light of the circumstances under which they were made, or any violation by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such Registration, qualification, or compliance;
and the Company will reimburse each such Holder, each such underwriter, and each
person who controls any such Holder or underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action as such expenses are incurred;
provided, however, that the indemnity contained in this Section 10.1 shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability,
or action if settlement is effected without the consent of the Company (which
consent shall not unreasonably be withheld); provided, further, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability, or expense arises out of or is based upon any untrue
statement or omission based upon written information furnished to the Company by
such Holder, underwriter, or controlling person and stated to be for use in
connection with the offering of securities of the Company; provided, further,
that this indemnity agreement with respect to a preliminary prospectus shall not
inure to the benefit of any Holder from whom the person asserting any such
losses, liabilities, claims, damages or expenses purchased Registrable
Securities, or any person controlling such Holder, if a copy of the prospectus
(as amended or supplemented at the time of sale) was not sent or given by or on
behalf of the Holder to such person and if the prospectus (as so amended or
supplemented) would have corrected the defect giving rise to such loss,
liability, claim, damage or expense unless such failure to send or give the
prospectus resulted from noncompliance by the Company with Section 8.1(c) or (1)
hereof.
10.2 Holder's Indemnification of Company. To the extent permitted by
-----------------------------------
law, each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such Registration, qualification or
compliance is being effected pursuant to this Agreement, indemnify the Company,
each of its directors and officers, each legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's securities
covered by such a Registration Statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors, and constituent partners, and each
person controlling such other Holder, against all claims, losses, damages, and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained in
any such Registration Statement, prospectus, offering circular, or other
document, or any omission
-11-
<PAGE>
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in light of
the circumstances under which they were made, or any violation by such Holder of
any rule or regulation promulgated under the Securities Act applicable to such
Holder and relating to action or inaction required of such Holder in connection
with any such Registration, qualification, or compliance, and will reimburse the
Company, such Holders, such directors, officers, partners, persons, law and
accounting firms, underwriters or control persons for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case to the extent, but
in each case only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such Registration
Statement, prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use in connection with the offering of
securities of the Company; provided, however, that the indemnity contained in
-------- -------
this Section 10.2 shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if settlement is effected without the
consent of such Holder (which consent shall not be unreasonably withheld);
provided, further, that each Holder's liability under this Section 10.2 shall
not exceed such Holder's net proceeds from the offering of securities made in
connection with such Registration.
10.3 Indemnification Procedure. Promptly after receipt by an
-------------------------
indemnified party under this Section 10 of notice of the commencement of any
action, such indemnified party wills if a claim in respect thereof is to be made
against an indemnifying party under this Section 10, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim; provided, however, that the indemnifying party
shall be entitled to select counsel for the defense of such claim with the
approval of any parties entitled to indemnification, which approval shall not be
unreasonably withheld; provided further, however, that if either party
reasonably determines that there may be a conflict between the positions of the
Company and the Holders in conducting the defense of such action, suit or
proceeding by reason of recognized claims for indemnity under this Section 10,
then such party shall be entitled to separate counsel to conduct the defense to
the extent reasonably determined by such counsel to be necessary to protect the
interests of such party at the expense of the indemnifying party. The failure to
notify an indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability of the indemnifying party to defend such action,
shall relieve such indemnifying party, to the extent so prejudiced, of any
liability to the indemnified party under this Section 10, but the omission so to
notify the indemnifying party will not relieve such party of any liability that
such party may have to any indemnified party other than under this Section 10.
10.4 Contribution. If the indemnification provided for in this Section
------------
10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying, such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information
-12-
<PAGE>
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission. Each Holder's liability under this Section
10.4 shall not exceed such Holder's net proceeds from the offering of securities
made in connection with such Registration.
11. Limitations on Registration Rights Granted to Other Securities.
--------------------------------------------------------------
From and after the date of this Agreement, the Company shall not, without
the prior written consent of the Holders of a majority of the Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company that would allow such holder or prospective
holder: (a) to include such securities in any registration filed under Section 6
hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of such securities will not reduce the amount of the
Registrable Securities of the Holders that are included; or (b) to demand
registration of their securities.
12. Transfer of Rights.
------------------
The rights to information and inspection under Section 2, the right to
purchase under Section 4 and the right to cause the Company to Register
securities granted by the Company to the Investors under this Agreement may be
assigned by any Holder to a transferee or assignee of any Convertible Securities
or Registrable Securities acquiring at least ten percent (10%) of such Holder's
Convertible Securities or Registrable Securities; provided, however, that the
--------- -------
Company must receive written notice prior to the time of said transfer, stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such information and Registration rights are
being assigned.
13. Market Stand-off.
----------------
Each Holder hereby agrees that, if so requested by the Company and the
Underwriter's Representative (if any) in connection with the Company's initial
public offering, such Holder shall not sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company without the prior
written consent of the Company and the Underwriter's Representative for such
period of time (not to exceed 180 days) following the effective date of a
Registration Statement of the Company filed under the Securities Act, as may be
requested by the Underwriter's Representative. The obligations of Holders under
this Section 13 shall be conditioned upon similar agreements being in effect
with each other stockholder who is an officer, director, or five percent (5%)
stockholder of the Company.
14. Reports Under the Exchange Act.
------------------------------
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the
Commission that may at any time permit a Holder to sell securities of the
Company to the public without Registration or pursuant to a Registration on Form
S-3, the Company agrees to:
14.1 make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after the effective date of the
first Registration Statement filed by the Company for the offering of its
securities to the general public;
-13-
<PAGE>
14.2 take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first Registration Statement filed by the Company for the offering of
its securities to the general public is declared effective;
14.3 file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
14.4 furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request: (a) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at
any time after ninety (90) days after the effective date of the first
Registration Statement filed by the Company), the Securities Act, and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
Registered on Form S-3 (at any time after it so qualifies); (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company; and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the
Commission which permits the selling of any such securities without Registration
or pursuant to such form.
15. Transactions with Affiliates.
----------------------------
Except for transactions contemplated by this Agreement or as otherwise
approved by a disinterested majority of the Company's Board of Directors, for as
long as at least ten percent (10%) of the originally issued shares of Preferred
Stock, taken together, remains outstanding, neither the Company nor any of its
subsidiaries shall enter into any transaction with any director, officer or
holder of more than five percent (5%) of the outstanding capital stock of any
class or series of capital stock of the Company or any of its subsidiaries, any
member of the family of any such person, or any corporation, partnership, trust
or other entity in which any such person, or member of the family of any such
person, is a director, officer trustee, partner or holder of more than five
percent (5%) of the outstanding equity interests thereof, except for
transactions on customary terms related to such person's employment or service
as a director.
16. Terms Applicable to Amazon. com, Inc.
-------------------------------------
16.1 Major Transactions. For purposes of this section, a "Major
------------------
Transaction" shall mean any of: (a) an offer, sale or other transfer, in a
single transaction or a series of related transactions, of(i) all or
substantially all of the assets of the Company, or (ii) securities of the
Company representing, directly or indirectly, more than twenty percent (20%) of
the voting power of the Company; and (b) any transaction that would constitute a
"liquidation" under the provisions of the Company's Restated Certificate of
Incorporation.
In the event: (i) the Company signs any agreement, whether
binding or nonbinding, under which the Company will enter into a Major
Transaction; (ii) the Chief Executive Officer of the Company discusses a
specific proposal for a Major Transaction with one or more members of the
Company's Board of Directors; or (iii) the management of the Company determines
in good faith that a Major Transaction is more likely than not to arise out of a
proposal made by a third party, then, for each such Major Transaction, the
Company shall promptly give Amazon.com, Inc. notice of same. Such notice shall
set forth the details of such
-14-
<PAGE>
agreement, discussion or determination (i.e., the terms of such Major
Transaction proposed by the Company or the offeror). Amazon.com, Inc. shall have
seven (7) days from the date of such notice in which to accept such terms. In
the event that Amazon.com, Inc. has not accepted such terms within such period,
then Amazon.com, Inc. will be deemed to have waived its opportunity with respect
to the Major Transaction, and the Company shall be free to complete such Major
Transaction with a third party for sixty (60) days on terms no more favorable
than those last offered to Amazon.com, Inc. After the 60-day period, the
opportunity with respect to any Major Transaction must again be offered to
Amazon.com, Inc.
In the event that a Major Transaction is proposed in which the Company
is offered value other than cash or marketable securities, the Board of
Directors of the Company shall make a good faith determination of that value for
the purposes of the notice described above.
The rights of Amazon.com, Inc. under this Section 16.1 shall terminate
on the date that is four (4) years from the closing of the Company's initial
public offering registered with the Commission.
16.2 Restriction. Neither Amazon.com, Inc. nor its affiliates shall
-----------
acquire or control more than thirty-five percent (35%) of the Company's shares
on a fully-diluted basis unless Amazon.com, Inc. first negotiates with the
Company's Board of Directors in good faith for the purchase of all of the
Company's capital stock. If Amazon.com and the Company's Board of Directors
negotiating in good faith cannot reach agreement on the price or terms for such
acquisition within twenty (20) business days after notice from Amazon.com to the
Company, Amazon.com may, in its discretion, either: (a) make an offer to
purchase all of the Company's capital stock at a price it reasonably believes to
be fair market value; or (b) not proceed with the acquisition of the Company's
shares in excess of thirty-five percent (35%). This provision remains in place
for each proposed acquisition of the Company's shares by Amazon.com, Inc. and
shall terminate on the earlier of: (i) the Company's initial public offering
registered with the Commission; or (ii) four years from the date of this
Agreement.
16.3 Public Offering. The Company hereby grants to Amazon.com a right
---------------
of first offer to purchase shares of the Company's Common Stock (the "IPO
Purchase Option") in the first public offering of the Common Stock of the
Company effected pursuant to a Registration Statement filed with, and declared
effective by, the Commission under the Securities Act (the "Public Offering") at
a price equal to the Public Offering price of such shares of Common Stock. If
Amazon.com, Inc. exercises its IPO Purchase Option, it shall have the right to
purchase a pro rata portion of such offering such that Amazon.com, Inc. shall be
able to maintain after the Public Offering the same proportionate ownership
interest in the Company as it held before the Public Offering. The Company shall
deliver notice of the Public Offering to Amazon.com, Inc. within ten (10) days
following the filing of a registration statement relating to the Public
Offering. Such notice shall set forth the number of shares of Common Stock that
Amazon.com. Inc. shall have the right to buy, and the basis for the computation
of such number. Within five (5) days following delivery of such notice,
Amazon.com, Inc. may exercise the IPO Purchase Option (by delivery of notice to
such effect to the Company) for a number of shares up to the maximum number set
forth in such notice. To the extent Ainazon.com, Inc. does not exercise the IPO
Purchase Option within such five (5) day period, the Company shall have no
further obligation to Amazon.com, Inc. under this Section 16.3.
Amazon.com, Inc.'s exercise of the IPO Purchase Option shall be deemed
an expression of interest in receiving an offer by the Company to purchase the
number of shares
-15-
<PAGE>
indicated in Amazon.com's notice. The Company's offer to sell such Shares to
Amazon.com, Inc. shall be deemed to occur automatically upon the completion of
the earliest to occur of each of: (a) the Company's providing Amazon.com, Inc.
with a copy of the final prospectus filed with the Securities and Exchange
Commission with respect to the shares; and (b) two hours after the latest to
occur of(A) notice to Amazon.com, Inc. of the effectiveness of the Public
Offering registration statement and (B) notice to Amazon.com, Inc. of the
Company's determination of the offering price (the completion of the last to
occur of the foregoing, the "Offer Commencement"). Amazon.com, Inc. shall have
an unconditional right to terminate its IPO Purchase Option and revoke its
exercise thereof by written notice to the Company on or before the Offer
Commencement.
Once revoked by Amazon.com, Inc., the IPO Purchase Option shall become
null and void. Amazon.com, Inc.'s exercise of the IPO Purchase Option shall,
unless so revoked on or before the Offer Commencement, automatically be deemed
to be a binding commitment to purchase the shares indicated by Amazon.com, Inc.
in its notice to the Company when each of the actions specified in the
immediately preceding sentence have occurred. Amazon.com, Inc.'s purchase of the
shares shall occur simultaneously with the closing of the purchase and sale of
the other shares distributed in the Public Offering. It is the intent of the
parties that the shares issued to Amazon.com, Inc. shall be fully registered
shares, offered and sold in the Public Offering. Shares purchased by Amazon.com,
Inc. pursuant to its exercise of the LPO Purchase Option shall be subject to the
provisions of Section 13 ("Market Stand-Off") of this Agreement.
In the event that the Company shall determine that making such Public
Offering to Amazon.com, Inc. is infeasible due to applicable regulatory
restrictions (which determination shall be reasonably acceptable to Amazon.com,
Inc.), then the Company shall in lieu thereof make a concurrent private
placement offering of such securities to Amazon.com, Inc. (or its Company
approved designated affiliate(s)) and shall provide reasonably acceptable
registration rights with respect to such privately placed securities.
16.4 Assignment. The foregoing rights of Amazon.com, Inc. shall be
----------
assignable to affiliates of Amazon.com, Inc. only with the prior approval of the
Company, not to be unreasonably withheld.
17. Hart-Scott-Rodino Act
---------------------
The Company hereby agrees that if the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), has
not expired or terminated on or prior to December 31, 1999 with respect to each
of the Holders of the Series D Stock listed on Exhibit A to the Purchase
Agreement, then each Holder of Series D Stock (regardless of whether a filing
under the HSR Act was required with respect to such Holder and regardless of
whether the waiting period under the HSR Act has expired or terminated with
respect to such Holder) shall have the right to require the Company to
repurchase from such Holder, at a purchase price equal to eleven dollars sixty
cents ($11.60) per share, each share of Series D Stock held by that Holder. Such
right may be exercised by each Holder at any time on or after December 31, 1999
by delivering the certificates representing the shares of Series D Stock held by
that Holder to the Company, endorsed for transfer, together with a written
notice indicating that Holder's election to exercise its right to require the
Company to repurchase, and the Company shall be obligated to deliver the
purchase price to that Holder on the date on which it receives such delivery and
notice from that Holder (or if such notice is delivered on a day that is not a
business day, on the next business day). The obligation of the Company to
repurchase
-16-
<PAGE>
such stock shall be a contract obligation, and the Holders shall have the right
to enforce such obligation through appropriate legal proceedings.
The Company shall provide: (a) written notice to each Holder on the
date that the waiting period under the HSR Act has expired or terminated or on
or before December 20, 1999 if the waiting period under the HSR Act has not
expired or terminated on or before that date; and (b) periodic updates from the
date hereof until the date that the waiting period under the HSR Act has expired
or terminated to each Holder as to the status of the filing and clearance of the
transactions contemplated hereby under the HSR Act
18. Miscellaneous
-------------
18.1 No Conflicts. The parties hereto represent that they are not
------------
parties to and do not know of any other agreements that conflict with any of the
provisions of this Agreement.
18.2 Successors. The provisions of this Agreement shall inure to the
----------
benefit of and shall be binding upon the successors and assigns of the parties
hereto, including any successors in interest to or transferees or assignees of
any shares of capital stock of the Company.
18.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18.4 Modification. This Agreement shall not be subject to
------------
modification or amendment or waiver in any respect, except by an instrument in
writing signed by: (a) the Company; and (b) the holders of a majority of the
Registrable Securities (including for this purpose all securities of the Company
convertible into or exchangeable for Registrable Securities). Any amendment,
modification or waiver effected in accordance with this Section 18.4 shall be
binding upon each holder of any Registrable Securities, each future holder of
all such Registrable Securities and the Company. Notwithstanding the foregoing,
any party who becomes a party to the Purchase Agreement as an "Investor"
pursuant to Section 1.3 of the Purchase Agreement shall become a party to this
Agreement, without the need for any further consent, approval or signature of
any party to this Agreement.
18.5 Aggregation of Stock. All Preferred Stock held or acquired by
--------------------
affiliated persons or entities shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
18.6 Applicable Law. This Agreement shall for all purposes be
--------------
governed by and construed in accordance with the laws of the State of Delaware,
without reference to the conflicts of laws portions thereof.
18.7 Notices. All notices, demands or other communications desired or
-------
required to be given by any party to any other party hereto shall be in writing
and shall be deemed effectively given upon: (a) personal delivery (including via
facsimile transmission); (b)delivery by courier or overnight service; or (c)
deposit with the United States Post Office registered or certified, return
receipt requested, postage prepaid, addressed: (i) if to the Company, to the
address specified on the signature pages hereto, Attn: Chief Executive Officer
(ii) if to. an Investor, to the address specified on the signature pages and
Exhibit A hereto; or (iii) to such
- ---------
-17-
<PAGE>
other addresses and to the attention of such other individuals as the Company or
any Investor shall have designated in writing to the other parties.
18.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provisions shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.
18.9 Specific Performance. Each of the parties to this Agreement
--------------------
agrees that the other parties to this Agreement will be irreparably damaged if
this Agreement is not specifically enforced. Upon a breach or threatened breach
of the terms, covenants and/or conditions of this Agreement by any party to this
Agreement, the parties to this Agreement shall, in addition to all other
remedies, each be entitled to a temporary or permanent injunction, without
showing any actual damage, and/or a decree for specific performance, in
accordance with the provisions of this Agreement.
18.10 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
18.11 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the Company and the Investors relative to the subject matter
hereof.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first above written.
COMPANY:
HOMEGROCER.COM, INC.
By: /s/ Mary Alice Taylor
-------------------------------------
Mary Alice Taylor
Chief Executive Officer
Address: 10230 N.E. Points Drive
Kirkland, Washington 98033
INVESTORS:
[signatures of all investors intentionally
deleted]
-19-
<PAGE>
Exhibit A
---------
LIST OF INVESTORS
<TABLE>
<S> <C>
522618 BC Ltd. C&LB Family Limited Partnership
3845 Bishop Place 1155 Valley Street, Suite 400
North Vancouver, BC V7G 2B3 Seattle, WA 98109
CANADA
Harvey Chiang
Amazon. com, Inc. 2949 Euclid Ave.
1200 12th Avenue South, Suite 1200 Vancouver, BC V5R 5C7
Seattle, WA 98144 CANADA
Attn: General Counsel
Comdisco, Inc.
Analytical Software, Inc. 3000 Sand Hill Road, Building 1, Suite 155
2517 Eastlake Avenue E., Suite 200 Menlo Park, CA 94025
Seattle, WA 98102 Attn: Grace Gilen
Anne Barbo Comdisco, Inc.
1155 Valley Street, Suite 400 611 North River Road
Seattle, WA 98109 Rosemont, IL 60018
Attn: Venture Group
Charles K. and Linda K. Barbo
1155 Valley Street, Suite 400 Peter LS Currie
Seattle, WA 98109 c/o The Barksdale Group
2730 Sand Hill Road, Suite 100
Julie Anne Barbo Trust dated 12/10/91 Menlo Park, CA 94043
2318 Shoreland Drive S
Seattle, WA 98144 Dennis H. Daugs Jr.
1207 McGilvra Blvd. East
Sarah Barbo Seattle, WA 98112
1155 Valley Street, Suite 400
Seattle, WA 98109 Steven Dietz
2121 Avenue of the Stars
The Barksdale Group, L.L.C. Fox Plaza, Suite 3100
2730 Sand Hill Road, Suite 100 Los Angeles, CA 90067
Menlo Park, CA 94043
John D. Dinning
Barksdale Investments, L.P. Suite 630, 999 - 8th St. S.W.
2730 Sand Hill Road, Suite 100 Calgary, Alberta T2R 1J5
Menlo Park, CA 94043 CANADA
Barksdale Ventures, L.L.C. Michael B. Donald
2730 Sand Hill Road, Suite 100 1445-120th Ave. NE
Menlo Park, CA 94043 Bellevue, WA 98005
Linde R. Behringer J. Terrence Drayton
4333 Phinney Ave. N. 10230 NE Points, Dr.
Seattle, WA 98103-7101 Kirkland, WA 98033
Geoffrey A. Boguch
10900 NE 4th St., Suite 1510
Bellevue, WA 98004
</TABLE>
-20-
<PAGE>
<TABLE>
<S> <C>
James Dugan KPCB Information Sciences Zaibatsu Fund II, L.P.
7841 S. 180th St. 2750 Sand Hill Road
Kent, WA 98032 Menlo Park, CA 94025
Fitpro Pty Ltd KPCB VIII Founders Fund, L.P.
15 Hopetown Avenue 2750 Sand Hill Road
Balmoral N.S.W. 2088 Menlo Park, CA 94025
AUSTRALIA
Stewart A. Konzen
A. Lynn Flygare and Gary Raden 11403 154th Place NE
The Highlands Redmond, WA 98052
Seattle, WA 98177
Bruce Krogman
Francis Fraser Limited 4007 NE 38th Street
23 Apex Road Seattle, WA 98105
Toronto, Ontario M6A 2V6
CANADA Lazarus Family Investments LLC
One Mercer Plaza
Dr. Linda Gordon and Dr. David Wasylynko 2835 82nd Avenue S.E., Suite 310
1877 Laronde Dr. Mercer Island, WA 98040
Surrey, British Columbia
CANADA Liberty HG, Inc.
9197 South Peoria Street
William B. Hanaford Englewood, CO 80112
19161 Randall Rd. Attn: Charles Tanabe
Juneau, AK 99801
Madrona Investment Group, LLC
Arthur W. Harrigan, Jr. 1000 Second Avenue, Suite 3700
999 Third Avenue, 44th Floor Seattle, WA 98104
Seattle, WA 98104
Richard Middleton Jr.
Heffring Investment Group 4646 Oyster Bay Rd. NW
#404, 1550 - 8 St. S.W. Olympia, WA 98502
Calgary, Alberta T2R 1K1
CANADA Mark and Marianne Mowat
1845 Broadmoor Dr. E.
Hummer Winblad Technology Fund III, L.P. Seattle, WA 98112
2 South Park, 2nd floor
San Francisco, CA 94107 Organic, Inc.
510 Third St
Hummer Winblad Venture Partners III, L.P. San Francisco, CA 94105
2 South Park 2nd floor
San Francisco, CA 94107 Pickwick Group, L.P.
2730 Sand Hill Road, Suite 100
Hummer Winbiad Venture Partners IV, L.P. Menlo Park, CA 94043
2 South Park 2nd Floor
San Francisco, CA 94107 John Radostits
8616 51st Ave. N.W., Suite 206
Kleiner Perkins Caufield & Byers VIII, L.P. Edmonton, Alberta T6E 6E6
2750 Sand Hill Road CANADA
Menlo Park, CA 94025
</TABLE>
-21-
<PAGE>
Richard J. Robbins and
Bonnie B. Robbins, Tenants in Common
1325 4th Avenue, Suite 1930
Seattle, WA 98101
Philip Schlein
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
S. Josef and Teresa Selak
2417 43rd Avenue W
Seattle, WA 98199
Donald Sokolnicki
7319 Pinehurst Dr.
Cincinnati, OH 45244
Ron M. Sonntag
14930 141st Ave. SE
Snohomish, WA 98290
Spanish Caravan Investments LLC
l6l6 Federal Ave E
Seattle, WA 98102
Dennis M. Weibling
2300 Carillon Point
Kirkland, WA 98033
R. Kirk Wilson
1420 Country Club Drive
Burlington, WA 98233
Richard S. Woodward
1305 Riverdale Avenue SW
Calgary, Alberta
CANADA
-22-
<PAGE>
EXHIBIT 4.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Preferred Stock of
HomeGrocer.com, Inc.
Dated as of November 9, 1998 (the "Effective Date")
WHEREAS, HomeGrocer.com, Inc., a Delaware corporation (the "Company") has
entered into a Master Lease Agreement dated as of November 9, 1998, Equipment
Schedule No. VL-1, VL-2 and VL-3 dated as of November 9, 1998, and related
Summary Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a
Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
-----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, that number of fully paid and non-
assessable shares of the Company's Preferred Stock, consisting of shares of (i)
a new series of Preferred Stock to be created in connection with the Next Round
(as hereinafter defined) or (ii) Series B Preferred Stock to be authorized if
the Next Round fails to be completed by June 30, 1999, ("Preferred Stock") equal
to $120,000 divided by the exercise price as defined below(`Exercise Price")
The Exercise Price shall be equal to sum of the price of each share sold in
the Series B Preferred Stock financing (i.e. $0.70) (the "Last Round") plus the
product of (a) the difference between the price per share of the Preferred Stock
issued in the next round of equity financing (the "Next Round") and the Last
Round, multiplied by (b) the fraction resulting from dividing (x)
<PAGE>
the number of days from the date of closing of the Last Round to the date of
execution of the Leases, by (y) the number of days from the date of the closing
of the Last Round to the date of closing of the Next Round; provided however, if
the Next Round is not successfully completed by June 30, 1999, then the Exercise
Price shall be equal to $0.70 per share.
The number and purchase price of such shares are subject to adjustment as
provided in Section 8 hereof.
The shares of Preferred Stock subject to this Warrant have not been
authorized as of the date of this Warrant. The Company agrees that (i) such
Preferred Stock shall be shares of the new series authorized and created for use
in the Next Round if completed by June 30, 1999 and, in connection therewith,
shall authorize and reserve such shares for issuance on exercise of this
Warrant, and (ii) it will authorize, and use its best efforts to obtain
shareholder approval to authorize, additional shares of Series B Preferred Stock
and will reserve such shares for issuance on exercise of this Warrant I the Next
Round is not completed by June 30, 1998.
2. TERM OF THE WARRANT AGREEMENT.
------------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and, subject to Section 1, shall be exercisable for a period
of (i) seven (7) years or (ii) three (3) years from the effective date of the
Company's initial public offering, whichever is longer.
Notwithstanding the term of this Warrant Agreement fixed pursuant to the
above paragraph, the right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised immediately upon the closing of a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person, that results in the holders
of the Company's voting equity securities immediately prior to such event owing
less than a majority interest in the voting securities of the surviving or
successor corporation immediately following such event (the "Merger); provided
that the surviving or successor corporation so request that the Warrantholder
exercised at that time.
The Company shall notify the Warrantholder if the Merger is proposed in
accordance with the terms of 8(g) hereof, and if the Company fails to deliver
such written notice, then notwithstanding anything to the contrary in this
Warrant Agreement, the rights to purchase the Company's Preferred Stock shall
not expire until the Company complies with such notice provisions. Such notice
shall also contain such details of the proposed Merger as are reasonable in the
circumstances. If such closing does not take place, the Company shall promptly
notify the Warrantholder that such proposed transaction has been terminated, and
the Warrantholder may rescind any exercise of its purchase rights promptly after
such notice of termination of the proposed transaction if the exercise of
Warrants has occurred after the Company notified the Warrantholder that the
Merger was proposed. In the event of such recission, the Warrants will continue
to be exercisable on the same terms and conditions contained herein.
-2-
<PAGE>
3. EXERCISE OF THE PURCHASE RIGHTS.
--------------------------------
Subject to Section 1, the purchase rights set forth in this Warrant
Agreement are exercisable by the Warrantholder, in whole or in part, at any
time, or from time to time, prior to the expiration of the term set forth in
Section 2 above, by tendering to the Company at its principal office a notice of
exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"),
duly completed and executed. Promptly upon receipt of the Notice of Exercise and
the payment of the purchase price in accordance with the terms set forth below,
and in no event later than twenty-one (21) days thereafter, the Company shall
issue to the Warrantholder a certificate for the number of shares of Preferred
Stock purchased and shall execute the acknowledgment of exercise in the form
attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the
number of shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement relating
to such public offering has been declared effective by the SEC, then the fair
market value per share shall be the product of (x) the initial "Price to Public"
specified in the final prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the product of (x) the average of the closing prices over a
twenty-one (21) day period ending three days before the day the current fair
market value of the securities is being determined and
-3-
<PAGE>
(y) the number of shares of Common Stock into which each share of Preferred
Stock is convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the product of (x) the average of the closing bid and asked
prices quoted on the NASDAQ system (or similar system) over the twenty-one (21)
day period ending three days before the day the current fair market value of the
securities is being determined and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x) the
price per share as determined in good faith by its Board of Directors as the
fair market value and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise, unless the
Company shall become subject to a Merger as defined in Section 2, in which case
the fair market value of Preferred Stock shall be deemed to be the value
received by the holders of the Company's Preferred Stock on a common equivalent
basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
----------------------
(a) Authorization and Reservation of Shares. Subject to Section 1, during
---------------------------------------
the term of this Warrant Agreement, the Company will at all times have
authorized and reserved a sufficient number of shares of its Preferred Stock to
provide for the exercise of the rights to purchase Preferred Stock as provided
for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
-4-
<PAGE>
5. NO FRACTIONAL SHARES OR SCRIP.
------------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
-------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
------------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
------------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
-5-
<PAGE>
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's Preferred
Stock, then the Exercise Price shall be adjusted, from and after the record date
of such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of all shares of the
Company's Preferred Stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
----------------------------------
of equipment leased pursuant to the Leases exceeds $3,000,000, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shall be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost exceeds $3,000,000 by 4%, and (ii) dividing the product
thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit -- (the "Charter). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, which notice
shall include (a) the price at which such stock or security is to be sold, (b)
the number of shares to be issued, and (c) such other information as necessary
for Warrantholder to determine if a dilutive event has occurred. -
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering: or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder (A)
at least twenty (20) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred
-6-
<PAGE>
Stock shall be entitled thereto) or for determining rights to vote in respect of
such Merger Event, dissolution, liquidation or winding up; (B) in the case of
any such Merger Event, dissolution, liquidation or winding up, at least twenty
(20) days' prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Preferred Stock shall be entitled to
exchange their Preferred Stock for securities or other property deliverable upon
such Merger Event, dissolution, liquidation or winding up); and (C) in the case
of a public offering, the Company shall give the Warrantholder at least twenty
(20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the notice is deemed given pursuant to Section 13.(e)
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
---------------------------------------------------------
(a) Reservation of Preferred Stock. Subject to Section 1, the Preferred
------------------------------
Stock issuable upon exercise of the Warrantholder's rights will be duty
authorized and duly and validly reserved and, when issued in accordance with the
provisions of this Warrant Agreement, will be validly issued, fully paid and
non-assessable, and will be free of any taxes, liens, charges or encumbrances of
any nature whatsoever; provided, however, that the Preferred Stock issuable
pursuant to this Warrant Agreement may be subject to restrictions on transfer
under state and/or Federal securities laws. The Company has made available to
the Warrantholder true, correct and complete copies of its Charter and Bylaws,
as amended. The issuance of certificates for shares of Preferred Stock upon
exercise of the Warrant Agreement shall be made without charge to the
Warrantholder for any issuance tax in respect thereof, or other cost incurred by
the Company in connection with such exercise and the related issuance of shares
of Preferred Stock. The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved and the issuance and delivery of
any certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duty authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or
-7-
<PAGE>
other instrument to which it is a party or by which it is bound, and the Leases
and this Warrant Agreement constitute legal, valid and binding agreements of the
Company, enforceable in accordance with their respective terms: except that, as
provided in Section 1, the Preferred Stock has not yet been authorized or
reserved for issuance on exercise of the Warrant and such authorization and
reservation will be subject to Section 1 and subject to the approval of the
shareholders in accordance with the Delaware General Business Corporation Law.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) Preferred Stock. There are 12,500,000 shares of preferred stock
---------------
authorized 4,000,000 shares of which have been designated as Series A Preferred
Stock (the Series a Stock'), of which 4,000,000 shares are issued and
outstanding and 8,428,571 shares of which have been designated Series Preferred
Stock (the "Series B Stock"), of which 8,428,571 shares are issued and
outstanding.
(ii) Common Stock. There are 35,000,000 shares of Common Stock
------------
authorized 6,333,333 shares of which are issued and outstanding and 1,666,667
shares of which are held in the Company's treasury. Of the authorized but
unissued Common Stock, 4,000,000 shares are reserved for issuance upon the
conversion of the Series A Stock, 8,428,571 shares as reserved for issuance upon
conversion of the Series B Stock, 5,062,167 shares are reserved for issuance
under the Company's stock option plan and 1,532,833 shares are reserved for
issuance upon exercise of warrants.
(iii) Except for (a) the conversion privileges of the Series a Stock
and Series B Stock, (b) the other rights, privileges and agreements contained
tin the First Amended and Restated Investor Rights Agreement and first Amended
and Restated Rights First Refusal and co-Sale Agreement, both dated as of
September 1, 1998, between the Company and various investors, (c) Amended and
Restated Common Stockholder Agreement dated as of September 1, 1998 between the
Company and J. Terrence Drayton, and (d) as set forth in paragraph (ii) above,
there are no outstanding options, warrants, subscriptions, rights (including
conversion or preemptive rights or first refusal rights), agreements for the
purchase or acquisition from the company or by the Company of any shares of the
Company's capital stock or securities convertible into its capital stock.
-8-
<PAGE>
(iv) Under the Company's Certificate of Incorporation, no shareholder
of the Company has preemptive rights to purchase new issuances of the Company's
capital stock.
(e) Insurance. The Company has in full farce and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarity situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
----------------------------------------
Warrant Agreement or in the First Amended and Restated Investor Rights Agreement
dated as of September 1, 1998, the Company is not, pursuant to the terms of any
other agreement currently in existence, under any obligation to register under
the 1933 Act any of its presently outstanding securities or any of its
securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
---------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (I) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
-9-
<PAGE>
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act), or file reports pursuant to
Section 15(d), of the 1934 Act", or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule. (f) Accredited Investor. Warrantholder is an
"accredited investor within the meaning of the Securities and Exchange Rule 501
of Regulation 0, as presently in effect.
-10-
<PAGE>
11. TRANSFERS.
----------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers and all such transfers shall be limited to
affiliates of such Warrantholder. The transfer shall be recorded on the books of
the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
12. MISCELLANEOUS.
--------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery, overnight
courier or mail as hereinafter set forth) or five (5) days after deposit in the
United States mail, by registered or certified mail, addressed (i) to the
Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, Attention:
Venture Lease Administration, cc: Legal Department, Attention.: General Counsel,
(and/or, if by facsimile, (847) 518-5.465 and (847)518-5088) and (ii) to the
Company at 1445 -- 120th Avenue NE, Bellevue, Washington 98005, Attention: Chief
Financial Officer (and/or if by facsimile, (425) 688-1451 or at such other
address as any such party may subsequently designate by written notice to the
other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
-11-
<PAGE>
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
-12-
<PAGE>
Company: HOMEGROCER.COM, INC.
By: /s/: Terry Drayton
------------------------
Title: President and CEO
------------------------
Warrantholder: COMDISCO, INC.
By: /s/: Geir C. Hansen
------------------------
Title: Senior Vice President
------------------------
-13-
<PAGE>
EXHIBIT 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of Preferred Stock of
HomeGrocer.com, Inc.
Dated as of September 15, 1999 (the "Effective Date")
WHEREAS, HomeGrocer.com, Inc., a Delaware corporation (the "Company") has
entered into a Subordinated Loan and Security Agreement dated as of September
15, 1999, and related Subordinated Promissory Note(s) (collectively, the
"Loans") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loans, the right to purchase shares of Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loans and in consideration of the mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 137,931 fully paid and non-
assessable shares of the Company's Series D Preferred Stock (the "Preferred
Stock") at an exercise price of $11.60 per share (the "Exercise Price").
The shares of Preferred Stock subject to this Warrant have not been
authorized as of this date of this Warrant. The Company agrees that (i) such
Preferred Stock shall be shares of the new series authorized and created for use
in the next round of equity financing ("Next Round") if completed by December
31, 1999 and, in connection therewith, shall authorize and reserve such
<PAGE>
shares for issuance on exercise of this Warrant, and (ii) it will authorize, and
use its best efforts to obtain shareholder approval to authorize shares of
Series D Preferred Stock and will reserve such shares for issuance on exercise
of this Warrant.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and, subject to Section 1, shall be exercisable for a period
of: (i) ten (10) years; or (ii) five (5) years from the effective date of the
Company's initial public offering, whichever is earlier.
Notwithstanding the term of this Warrant Agreement fixed pursuant to the
above paragraph, the right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised, immediately upon the closing of a merger or
consolidation of the Company with or into another corporation, when the Company
is not the surviving corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person, that results in the holders
of the Company's voting equity securities immediately prior to such event owning
less than a majority interest in the voting securities of the surviving or
successor corporation immediately following such event (the "Merger"); provided
that the surviving or successor corporation so request that the Warrantholder
exercise at that time.
The Company shall notify the Warrantholder if the Merger is proposed in
accordance with the terms of 8(g) hereof, and if the Company fails to deliver
such written notice, then notwithstanding anything to the contrary in this
Warrant Agreement, the rights to purchase the Company's Preferred Stock shall
not expire until the Company complies with such notice provisions. Such notice
shall also contain such details of the proposed Merger as are reasonable in the
circumstances. If such closing does not take place, the Company shall promptly
notify the Warrantholder that such proposed transaction has been terminated, and
the Warrantholder may rescind any exercise of its purchase rights promptly after
such notice of termination of the proposed transaction if the exercise of
Warrants has occurred after the Company notified the Warrantholder that the
Merger was proposed. In the event of such recission, the Warrants will continue
to be exercisable on the same terms and conditions contained herein.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
Subject to Section 1, the purchase rights set forth in this Warrant
Agreement are exercisable by the Warrantholder, in whole or in part, at any
time, or from time to time, prior to the expiration of the term set forth in
Section 2 above, by tendering to the Company, at its principal office, a notice
of exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"),
duly completed and executed. Promptly upon receipt of the Notice of Exercise and
the payment of the purchase price in accordance with the terms set forth below,
and in no event later than twenty-one (21) days thereafter, the Company shall
issue to the Warrantholder a certificate for the number of shares of Preferred
Stock purchased and shall execute the acknowledgment of exercise in the form
attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the
number of shares which remain subject to future purchases, if any.
-2-
<PAGE>
The Exercise Price may be paid at the Warrantholder's election either: (i)
by cash or check; or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement relating
to such public offering has been declared effective by the SEC, then the fair
market value per share shall be the product of (x) the initial "Price to Public"
specified in the final prospectus with respect to the offering and (y) the
number of shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the product of (x) the average of the closing prices over a five
(5) day period ending three days before the day the current fair market value of
the securities is being determined and (y) the number of shares of Common Stock
into which each share of Preferred Stock is convertible at the time of such
exercise; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the product of (x) the average of the closing bid and asked
prices quoted on the NASDAQ system (or similar system) over the five (5) day
period ending three days before the day the current fair market value of the
securities is being determined and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x) the
price per share as determined in good faith by its Board of Directors as the
fair market value and (y) the number of shares of Common Stock into
-3-
<PAGE>
which each share of Preferred Stock is convertible at the time of such exercise,
unless the Company shall become subject to a Merger as defined in Section 2, in
which case the fair market value of Preferred Stock shall be deemed to be the
value received by the holders of the Company's Preferred Stock on a common
equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. Subject to Section 1, during
the term of this Warrant Agreement, the Company will at all times have
authorized and reserved a sufficient number of shares of its Preferred Stock to
provide for the exercise of the rights to purchase Preferred Stock as provided
for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
-4-
<PAGE>
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's Preferred
Stock, then the Exercise Price shall be adjusted, from and after the record date
of such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of all shares of the
Company's Preferred Stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon
-5-
<PAGE>
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
(e) Right to Purchase Additional Stock. If the Company has not paid any
----------------------------------
Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its
entirety by the Maturity Date (as defined in the applicable Subordinated
Promissory Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Warrantholder shall have
the right to purchase from the Company, at the Exercise Price (adjusted as set
forth herein), an additional number of shares of Preferred Stock which number
shall be determined by (i) multiplying the outstanding principal amount which
due but unpaid by 1% and (ii) dividing the product thereof by the Exercise
Price.
(f) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit IV (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) there shall be any Merger Event; (iii) there shall be an
initial public offering; or (iv) there shall be any voluntary dissolution,
liquidation or winding up of the Company; then, in connection with each such
event, the Company shall send to the Warrantholder: (A) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event, dissolution, liquidation or winding up; (B) in the case of any such
Merger Event, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up); and (C) in the case of a
public offering, the Company shall give the Warrantholder at least twenty (20)
days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the notice is deemed given pursuant to Section 13.(e)
-6-
<PAGE>
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. Subject to Section 1, the Preferred
------------------------------
Stock issuable upon exercise of the Warrantholder's rights will be duly
authorized and duly and validly reserved and, when issued in accordance with the
provisions of this Warrant Agreement, will be validly issued, fully paid and
non-assessable, and will be free of any taxes, liens, charges or encumbrances of
any nature whatsoever; provided, however, that the Preferred Stock issuable
pursuant to this Warrant Agreement may be subject to restrictions on transfer
under state and/or Federal securities laws. The Company has made available to
the Warrantholder true, correct and complete copies of its Charter and Bylaws,
as amended. The issuance of certificates for shares of Preferred Stock upon
exercise of the Warrant Agreement shall be made without charge to the
Warrantholder for any issuance tax in respect thereof, or other cost incurred by
the Company in connection with such exercise and the related issuance of shares
of Preferred Stock. The Company shall not be required to pay any tax which may
be payable in respect of any transfer involved and the issuance and delivery of
any certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loans and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Loans and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms; except that, as provided in Section 1, the Preferred Stock has
not yet been authorized or reserved for issuance on exercise of the Warrant and
such authorization and reservation will be subject to Section 1 and subject to
the approval of the shareholders in accordance with the Delaware General
Business Corporation Law.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all federal and state securities laws. The Company's
capitalization is as set forth in Exhibit V.
-7-
<PAGE>
Except for (a) the conversion privileges of the Series A Preferred Stock,
the Series B Preferred Stock, and the Series C Preferred Stock, (b) the other
rights, privileges and agreements contained in the Second Amended and Restated
Investor Rights Agreement and Second Amended and Restated Right of First Refusal
Agreement, both dated as of April 13, 1999, between the Company and various
Investors, (c) the Amended and Restated Common Stockholder Agreement dated as of
September 1, 1998 between the Company and J. Terrence Drayton, and (d) as set
forth in Exhibit V, there are no outstanding options, warrants, subscriptions,
rights (including conversion or preemptive rights or first refusal rights),
agreements for the purchase or acquisition from the company or by the Company of
any shares of the Company's capital stock or securities convertible into its
capital stock.
Under the Company's Certificate of Incorporation, no shareholder of the
Company has preemptive rights to purchase new issuances of the Company's capital
stock.
(e) Insurance. The Company has in full force and effect insurance policies,
---------
with extended coverage, insuring the Company and its property and business
against such losses and risks, and in such amounts, as are customary for
corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
----------------------------------------
Warrant Agreement or in the First Amended and Restated Investor Rights Agreement
dated as of September 1, 1998, the Company is not, pursuant to the terms of any
other agreement currently in existence, under any obligation to register under
the 1933 Act any of its presently outstanding securities or any of its
securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from: (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten (10) days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
-8-
<PAGE>
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands: (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof; and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until: (i)
it shall have notified the Company of the proposed disposition; and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the
-9-
<PAGE>
1934 Act (the "1934 Act"), or file reports pursuant to Section 15(d), of the
1934 Act", or if a registration statement covering the securities under the 1933
Act is not in effect when it desires to sell: (i) the rights to purchase
Preferred Stock pursuant to this Warrant Agreement; or (ii) the Preferred Stock
issuable upon exercise of the right to purchase, it may be required to hold such
securities for an indefinite period. The Warrantholder also understands that any
sale of its rights of the Warrantholder to purchase Preferred Stock or Preferred
Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may
be made only in accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers and all such transfers shall be limited to
affiliates of such Warrantholder. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit Ill (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery, overnight
courier or mail as hereinafter set forth) or five (5) days after deposit in the
United States mail, by registered or certified mail, addressed: (i) to
-10-
<PAGE>
the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, Attention:
Venture Lease Administration, cc: Legal Department, Attention: General Counsel,
(and/or, if by facsimile, (847) 518-5465 and (847) 518-5088); and (ii) to the
Company at 10230 Northeast Points Drive, Kirkland, Washington 98033, Attention:
Chief Financial Officer (and/or if by facsimile, (425) 201.7575) or at such
other address as any such party may subsequently designate by written notice to
the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by-a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
-11-
<PAGE>
Company: HOMEGROCER.COM, INC.
By: /s/: Terry Drayton
----------------------
Title: President and CEO
----------------------
Warrantholder: COMDISCO, INC.
By: /s/: Geir C. Hansen
-------------------------
Title: Senior Vice President
-------------------------
-12-
<PAGE>
EXHIBIT 4.5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
- --------------------------------------------------------------------------------
Date of Issuance: [DATE] Number of Shares: [NUMBER OF SHARES]
------ ------------------
(subject to adjustment)
HOMEGROCER.COM, INC.
Common Stock Purchase Warrant
-----------------------------
HOMEGROCER.COM, INC. (the "Company"), for value received, hereby certifies
that [LENDER NAME], or its registered assigns (the "Registered Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company up
to [NUMBER OF SHARES] shares of Common Stock of the Company ("Common Stock"), at
a purchase price of $1.00 per share, subject to adjustment as hereinafter
provided, at any time after the date hereof and on or before the later of (i)
seven (7) years from the date of issuance hereof, or (ii) three (3) years from
the closing of the initial public offering of the Company's Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"). The number of shares purchasable upon exercise
of this Warrant, and the purchase price per share, each as adjusted from time to
time pursuant to the provisions of this Warrant, are hereinafter referred to as
the "Warrant Stock" and the "Purchase Price," respectively. The Company
represents and warrants to the Registered Holder that the initial purchase price
referenced on the first page of this Warrant is not greater than the price per
share at which the Series A Preferred Stock was last issued in an arms-length
transaction in which at 1east 500,000 shares were sold.
1. Exercise
--------
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the purchase form appended hereto
as Exhibit A duly executed by such Registered Holder or by such Registered
---------
Holder's duly authorized attorney, at the principal office of the Company, or at
such other office or agency as the Company may designate, accompanied by payment
of the Purchase Price payable in respect of the number of shares of Warrant
Stock purchased upon such exercise. If this Warrant is exercised, prior to the
closing of the initial public offering of the Company's Common Stock, the
Registered Holder agrees to execute the Company's Common Stockholder Agreement.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been
<PAGE>
surrendered to the Company as provided in Section 1(a) above. At such time, the
person or persons in whose name or names any certificates for Warrant Stock
shall be issuable upon such exercise as provided in Section 1(d) below shall be
deemed to have become the holder or holders of record of the Warrant Stock
represented by such certificates.
(c) Net Issue Exercise
------------------
(i) In lieu of exercising this Warrant in the manner provided
above in Section 1(a), the Registered Holder may elect to receive shares equal
to the value of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company together with
notice of such election in which event the Company shall issue to holder a
number of shares of Common Stock computed using the following formula:
X= Y (A - B)
---------
A
Where X = The number of shares of Common Stock to be issued to the
Registered Holder.
Y = The number of shares of Common Stock purchasable under this
Warrant (at the date of such calculation).
A = The fair market value of one share of Common Stock (at the date
of such calculation).
B = The Purchase Price (as adjusted to the date of such calculation).
(ii) For purposes of this Section 1(c), the fair market value
of Common Stock shall be the price per share as determined in good faith by the
Board of Directors.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 clays thereafter, the Company at its
expense will cause to be issued in the name of, and delivered to, the Registered
Holder, or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may direct:
(i) a certificate or certificates for the number of shares of
Warrant Stock to which such Registered Holder shall be entitled, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called for
on the face of this Warrant minus the number of such shares purchased by the
Registered Holder upon such exercise as provided in Section 1(a) above.
2. Adjustments
-----------
(a) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in
-2-
<PAGE>
respect of Common Stock, the Purchase Price in effect immediately prior to such
subdivision or at the record date of such dividend shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such
dividend be proportionately reduced. If outstanding shares of Common Stock shall
be combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased. When any
adjustment is required to be made in the Purchase Price, the number of shares of
Warrant Stock purchasable upon the exercise of this Warrant shall be changed to
the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(b) In case of any reclassification or change of the outstanding
securities of the Company or of any reorganization of the Company (or any other
corporation the stock or securities of which are at the Time receivable upon the
exercise of this Warrant) or any similar corporate reorganization on or after
the date hereof, then and in each such case the holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraph (a); and in each such case, the terms of
this Section 2 shall be applicable to the shares of stock or other securities
properly receivable upon the exercise of this Warrant after such consummation.
(c) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in Section 2(a) or (b) above.
3. Transfers
---------
(a) Subject to the provisions of Section 3(b) hereto, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of the Warrant with a properly executed assignment (in the form of Exhibit B
---------
hereto) at the principal office of the Company.
(b) Each holder of this Warrant acknowledges that this Warrant and
the Warrant Stock have not been registered under the Securities Act, and agrees
not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose
of this Warrant or any Warrant Stock issued upon its exercise in the absence of
(1) an effective registration statement under the Act as to this Warrant or such
Warrant Stock and registration or qualification of this Warrant or such Warrant
Stock under any applicable Blue Sky or state securities law then in effect, or
(ii) an opinion of counsel, satisfactory to the Company, that such registration
and qualification are not
-3-
<PAGE>
required. Each certificate or other instrument for Warrant Stock issued upon the
exercise of this Warrant shall bear a legend substantially to the foregoing
effect.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
-------- -------
warrant is properly assigned in blank, the Company may (but shall not be
required to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
(d) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change such Registered Holder's address as shown on the warrant register by
written notice to the Company requesting such change.
4. No Impairment. The Company will not, by amendment of its charter or
-------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
5. Liquidating Dividends. If the Company pays a dividend or makes a
---------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
--------------------
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Stock purchased upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such shares of Warrant Stock immediately prior to the date on which a record was
taken for such Liquidating Dividend or, if no record was taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution were determined.
6. Piggyback Registration Rights
-----------------------------
(a) If the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Registered
Holder) any of its stock under the Securities Act in connection with the public
offering of such securities solely for cash, the Company shall, at such time,
promptly give the Registered Holder written notice of such registration. Upon
the written request of the Registered Holder given within twenty (20) days after
mailing of such notice by the Company, the Company shall cause to be registered
under the Securities Act all of the shares of Warrant Stock issued upon exercise
of this Warrant (the "Registrable Securities") that the Registered Holder has
requested to be registered. Notwithstanding the foregoing, if the total amount
of securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold
-4-
<PAGE>
other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling stockholders).
(b) The Company shall bear and pay all expenses incurred in
connection with any registration, filing or qualification of Registrable
Securities with respect to the registrations hereunder, including (without
limitation) all registration, filing, and qualification fees, printers' and
accounting fees relating or apportionable thereto and the reasonable fees and
disbursements of one counsel for the selling stockholders selected by them with
the approval of the Company, which approval shall not be unreasonably withheld,
but excluding underwriting discounts and commissions relating to Registrable
Securities.
(c) The Company will indemnify each Holder of Registrable Securities
and each of its officers, directors and partners, and each person controlling
such Holder, with respect to which such registration, qualification or
compliance has been effected pursuant to this Warrant, and each underwriter, if
any, and each person who controls any underwriter of the Registrable Securities
held by or issuable to such Holder, against all claims, losses, expenses,
damages and liabilities (or actions in respect thereto) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934 as amended (Exchange Act), or any state securities law applicable to
the Company or any rule or regulation promulgated under the Securities Act, the
Exchange Act or any such state law and relating to action or inaction required
of the Company in connection with any such registration, qualification of
compliance, and will reimburse each such Holder, each of its officers, directors
and partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, within a reasonable amount of
time after incurred for any reasonable legal and any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection shall not apply to amounts paid in settlement of
any such claim, loss, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld); and provided further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder or underwriter specifically for use therein. The Company shall
not, except with the consent of Holder, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof
-5-
<PAGE>
the giving by the claimant or plaintiff to Holder a release from all liability
with respect to such claim or litigation.
(d) At all times after the effective date of the first registration
statement filed by the Company for the offering of its securities to the general
public, the Company agrees to use its best efforts to take such actions as are
necessary and appropriate to make available to the Registered Holder the
benefits of Rule 144 promulgated under the Securities Act and any other rule or
regulation of the Securities and Exchange Commission (the "SEC") that may at any
time permit the Registered Holder to sell securities of the Company to the
public without registration, including filing with the SEC in a timely manner
all reports and other documents required under the Securities Act and the
Securities Exchange Act of 1934.
7. Notices of Certain Transactions/Delivery of Certain Documents.
-------------------------------------------------------------
(a) So long as Registered Holder holds this Warrant and/or any of the
Common Stock the Company shall deliver to Registered Holder:
(i) Promptly after mailing, copies of all notices or other
written communications to the shareholders of the Company; and
(ii) Within 90 days after the end of each fiscal year of the
Company, the annual audited financial statements of the Company certified by
independent public accountants of recognized standing; and
(iii) Within 45 days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
(b) In case:
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right, to subscribe for or purchase any shares of stock of any
class or any other securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company, any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the surviving entity), or any transfer of all or substantially all of the
assets of the Company, or
(iii) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
-6-
<PAGE>
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, arid stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which holders shall be holders of record of Common Stock (or
such other stock or securities at the time deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up). Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
8. Reservation of Stock. The Company will at all times reserve and keep
--------------------
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
--------------------
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 3
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
11. Mailing of Notices. Any notice required or permitted pursuant to this
------------------
Warrant shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, addressed (a) if to the Registered Holder, to the address of the
Registered Holder most recently furnished in writing to the Company and (b) if
to the Company, to the address set forth below or subsequently modified by
written notice to the Registered Holder.
12. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
13. No Fractional Shares. No fractional shares of Common Stock will be
--------------------
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise
-7-
<PAGE>
be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the fair market value of one share of Common Stock on the date of
exercise, as determined in good faith by the Company's Board of Directors.
14. Amendment or Waiver. Any term of this Warrant may be amended or
-------------------
waived only by an instrument in writing signed by the party against which
enforcement of the amendment or waiver is sought.
15. Headings. The headings in this Warrant are for purposes of reference
--------
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
16. Governing Law. This Warrant shall be governed, construed and
-------------
interpreted in accordance with the laws of the State of Oregon, without giving
effect to principles of conflicts of law. In case any provision of this Warrant
shall be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Warrant shall not in any way
be affected or impaired thereby.
17. Entire Agreement. Except as otherwise set forth herein, this Warrant
----------------
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
HOMEGROCER.COM, INC.
By: /s/ Terry Drayton
-------------------
Address: 1445 120th AVENUE NE
----------------------
BELLEVUE, WA 98005
----------------------
-8-
<PAGE>
Warrantholders who currently hold this Form of Common Stock Warrant
- -------------------------------------------------------------------
Number of
Date Lender Name Shares
- -------------------------------------------------------------------
10/19/98 First Portland Corporation 2,060
- -------------------------------------------------------------------
N/A First Portland Corporation 36,000
- -------------------------------------------------------------------
7/29/98 Silicon Valley Bank 24,000
- -------------------------------------------------------------------
7/20/98 First Portland Corporation 90,000
- -------------------------------------------------------------------
-9-
<PAGE>
EXHIBIT 4.6
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE LAW, AND NO
INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION
INVOLVING SAID SECURITIES, (II) THIS CORPORATION RECEIVES AN OPINION OF LEGAL
COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (III) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION.
No. [WARRANT NUMBER] WARRANT TO PURCHASE
GRANT DATE: [DATE] SHARES OF COMMON STOCK
HOMEGROCER.COM, INC.
COMMON STOCK WARRANT CERTIFICATE
For value received, HOMEGROCER.COM, INC., a Delaware corporation (the
"Company"), grants to [HOLDER NAME] (the "Holder") the right, subject to the
terms of this Warrant, to purchase at any time and from time to time during the
period commencing on the Grant Date and ending on the Expiration Date, as
defined below, at a price per share equal to $[PRICE] (the "Basic Exercise
Price"), up to [NUMBER OF SHARES] fully paid and nonassessable shares of Common
Stock of the Company. The Basic Exercise Price and the number of shares that may
be purchased are subject to adjustment under the terms of this Warrant.
1. DEFINITIONS
As used in this Warrant, unless the context otherwise requires:
1.1 "Basic Exercise Price" means the price at which each Warrant Share may
--------------------
be purchased upon exercise of this Warrant as stated in the first sentence of
this Warrant.
1.2 "Exercise Date" means any date when this Warrant is exercised, in
-------------
whole or in part, in the manner indicated in Sections 2.1 and 2.2 hereof.
1.3 "Exercise Price" means the Basic Exercise Price; provided, however,
--------------
that if an adjustment is required under Section 7 hereof, then "Exercise Price"
means, after each such adjustment, the price at which each Warrant Share may be
purchased upon exercise
<PAGE>
of this Warrant immediately after the last such adjustment.
1.4 "Expiration Date" means 5:00 p.m., Seattle time, on December 31, 2000.
---------------
1.5 "Grant Date" means the date this Warrant was first granted as stated
----------
at the beginning of this Warrant.
1.6 "Securities Act" means the Securities Act of 1933, as amended from
--------------
time to time, and all rules and regulations promulgated thereunder, or any act,
rules or regulations that replace the Securities Act or any such rules and
regulations.
1.7 "Common Stock" means the Common Stock of the Company existing on the
------------
Grant Date.
1.8 "Warrant" means this Common Stock Warrant and each subsequent Common
-------
Stock Warrant, if any, for which this Warrant is exchanged.
1.9 "Warrant Shares" means any shares of Common Stock or other securities
--------------
issued or subject to issuance upon exercise of this Warrant or upon exchange of
a Warrant Share for Warrant Shares of different denominations.
2. DURATION AND EXERCISE OF WARRANT
2.1 Exercise Period
Subject to the provisions of Section 7.1(d) hereof, this Warrant may be
exercised at any time after the Grant Date and on or before the Expiration Date.
After the Expiration Date, this Warrant shall become void, and all rights to
purchase Warrant Shares shall thereupon cease.
2.2 Procedure for Exercise
This Warrant may be exercised by the Holder, in whole or in part, by (i)
surrendering this Warrant to the Company, (ii) tendering to the Company payment
of the Exercise Price for the Warrant Shares for which exercise is made and
(iii) executing and delivering to the Company the Exercise Form attached hereto.
Upon exercise, the Holder will be deemed to be the holder of record of the
Warrant Shares for which exercise is made, even though the transfer or registrar
books of the Company may then be closed or certificates representing such
Warrant Shares may not then be actually delivered to the Holder.
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<PAGE>
2.3 Certificates and Agreement
Within a reasonable time but no more than 30 days after exercise,
certificates for such Warrant Shares shall be delivered to the Holder, and,
unless this Warrant has expired, a Warrant representing the number of Warrant
Shares, if any, with respect to which this Warrant shall not have been
exercised, shall be issued to the Holder.
2.4 Securities Act Compliance
Unless the transfer of the Warrant Shares shall have been registered under
the Securities Act, as a condition of its delivery of the certificates for the
Warrant Shares, the Company may require the Holder (including the transferee of
the Warrant Shares in whose name the Warrant Shares are to be registered) to
deliver to the Company, in writing, representations regarding the purchaser's
sophistication, investment intent, acquisition for his, her or its own account
and such other matters as are reasonable and customary for purchasers of
securities in an unregistered private offering, and the Company may place
conspicuously upon each certificate representing the Warrant Shares a legend
substantially in the following form, the terms of which are agreed to by the
Holder (including such transferee):
The securities evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), or applicable state
law, and no interest therein may be sold, distributed, assigned, offered,
pledged or otherwise transferred unless (i) there is an effective
registration statement under the Act and applicable state securities laws
covering any such transaction involving said securities, (ii) this
corporation receives an opinion of legal counsel for the holder of these
securities satisfactory to this corporation stating that such transaction
is exempt from registration, or (iii) this corporation otherwise satisfies
itself that such transaction is exempt from registration.
2.5 Taxes
The Company covenants and agrees that it will pay when due and payable any
and all stamp or transfer taxes that may be payable in connection with the
issuance of this Warrant, or the issuance of any Warrant Shares upon the
exercise of this Warrant. The Company shall not, however, be required to pay any
tax that may be payable in respect of any subsequent transfer of this Warrant or
of the Warrant Shares.
3. VALIDITY AND RESERVATION OF WARRANT SHARES
The Company covenants that this Warrant and all shares of Common Stock
issued
-3-
<PAGE>
upon exercise of this Warrant in accordance with the terms hereof will be
validly issued, fully paid and nonassessable. The Company agrees that as long as
this Warrant may be exercised, the Company will have authorized and reserved for
issuance upon exercise of this Warrant a sufficient number of Warrant Shares to
provide for exercise in full.
4. FRACTIONAL SHARES
No fractional Warrant Share shall be issued upon the exercise of this
Warrant. With respect to any fraction of a Warrant Share otherwise issuable upon
any such exercise, the Company shall pay to the Holder an amount in cash equal
to such fraction multiplied by the Exercise Price.
5. LIMITED RIGHTS OF HOLDER
The Holder shall not, solely by virtue of being the Holder of this Warrant,
have any of the rights of a holder of Common Stock, either at law or in equity,
until such Warrant shall have been exercised and the Holder shall be deemed to
be the holder of record of Warrant Shares as provided in this Warrant, at which
time the person or persons in whose name or names the certificate or
certificates for Warrant Shares being purchased are to be issued shall be deemed
the holder or holders of record of such shares for all purposes.
6. EXCHANGE OR LOSS OF WARRANT
6.1 Exchange
This Warrant is exchangeable, without expense to the Holder and upon
surrender hereof to the Company, for Warrants of different denominations
entitling the Holder to purchase Warrant Shares equal in total number and
identical in type to the Warrant Shares covered by this Warrant.
6.2 Loss, Theft, Destruction or Mutilation
Upon receipt by the Company of satisfactory evidence of the loss, theft,
destruction or mutilation of this Warrant and either (in the case of loss, theft
or destruction) reasonable indemnification or (in the case of mutilation) the
surrender of this Warrant for cancellation, the Company will execute and deliver
to the Holder, without charge, a new Warrant of like denomination. Any such new
Warrant executed and delivered shall constitute an additional obligation of the
Company, whether or not this Warrant, reportedly lost, stolen, destroyed or
mutilated, shall be at any time presented by anyone to the Company for exercise.
-4-
<PAGE>
7. ADJUSTMENTS
7.1 General
If any of the following events shall occur at any time or from time to time
prior to the exercise in full or expiration of this Warrant, the following
adjustments shall be made to the number and kind of Warrant Shares or other
property issuable upon exercise of this Warrant, with the exceptions hereinafter
provided:
(a) Recapitalization
In case the Company effects a subdivision, combination, reclassification or
other recapitalization of its outstanding shares of Common Stock into a greater
or lesser number of shares of Common Stock, the number of Warrant Shares
issuable upon exercise of this Warrant immediately after such subdivision,
combination, reclassification or other recapitalization shall be proportionately
increased or decreased, as the case may be.
(b) Stock Dividends
If the Company shall declare a dividend on its Common Stock payable in
stock or other securities of the Company or of any other corporation to the
holders of its Common Stock, the Holder shall, without additional cost, be
entitled to receive upon the exercise of this Warrant, in addition to the
Warrant Shares to which such Holder is otherwise entitled upon such exercise,
the number of shares of stock, or other securities that such Holder would have
been entitled to receive if such Holder had been a holder, on the record date
for such dividend, of the number of shares of Common Stock so purchased under
this Warrant.
(c) Merger or Consolidation - No Change In Control
In case of any merger, consolidation or reorganization of the Company with
or into one or more corporations that results in holders of the Company's voting
equity securities immediately prior to such event together owning a majority
interest of the voting equity securities of the surviving corporation
immediately following such event, the Holder, upon the exercise of this Warrant
after the record date for determination of shareholders entitled thereto, shall
receive, in lieu of or in addition to any shares of Common Stock, the
proportionate share of all stock or other securities (appropriately adjusted for
any subsequent events of the issuer of such stock or securities that are of the
kind that would cause an adjustment hereunder) or other property issued, paid or
delivered for or on all the Common Stock as would have been allocable to the
Warrant Shares so purchased under this Warrant had this Warrant been exercised
immediately prior to said record date.
-5-
<PAGE>
(d) Merger or Consolidation - Change in Control
In case of any merger, consolidation or reorganization of the Company with
or into one or more other corporations, that results in the holders of the
Company's voting equity securities immediately prior to such event together
owning less than a majority interest of the voting securities of the surviving
corporation immediately following such event, or in case of any sale, lease,
transfer or conveyance to another corporation of all or substantially all the
assets of the Company or any proposed liquidation of the Company, then in any
such event the Holder shall be given notice of such proposed action at
approximately the same time and in substantially the same manner as the holders
of the Common Stock. The Holder may attend the meeting of the Company's
shareholders at which such action is considered and voted upon. If the proposed
action is approved according to applicable law by the shareholders of all
corporations or other entities that are parties to the proposed action, the
Holder shall be so notified in writing by the Company by registered or certified
mail at least 10 business days before the effectiveness thereof. Notwithstanding
the period of exercisability stated on the face of this Warrant, this Warrant
shall become forever null and void to the extent not exercised on or before 5:00
p.m., Pacific time, on the tenth business day following the delivery of such
notice.
(e) Initial Public Offering
In connection with the initial public offering of the Company's Common
Stock, the Holder shall be notified in writing by the Company at least 20
business days before the proposed closing date of such offering. Notwithstanding
the period of exercisability stated on the face of this Warrant, this Warrant
shall become forever null and void to the extent the Holder does not irrevocably
agree on or before the 10th business day following such notice to exercise this
Warrant upon the closing of the offering; provided, however, that if the
offering does not close, this Warrant shall remain in full force and effect.
7.2 Exercise Price Adjusted
(a) General
After any adjustment of the number of Warrant Shares issuable upon exercise
of this Warrant pursuant to Section 7.1 hereof, the Exercise Price shall be
adjusted to a new Exercise Price obtained by (i) multiplying the number of
Warrant Shares issuable upon exercise of this Warrant immediately before such
adjustment by the Exercise Price in effect immediately before such adjustment
and (ii) dividing the product so obtained by the number of Warrant Shares
issuable upon exercise of this Warrant immediately after such adjustment.
-6-
<PAGE>
(b) Minimum Adjustment Not Required
Anything in this Section 7.2 to the contrary notwithstanding, the Company
shall not be required, except as hereinafter provided, to make any adjustment of
the Exercise Price in any case in which the amount by which such Exercise Price
would be increased or reduced, in accordance with the foregoing provisions,
would be less than $.0l, but in such a case, any adjustment that would otherwise
be required to be made will be carried forward and made at the time and together
with the next subsequent adjustment that, together with any and all such
adjustments so carried forward, shall amount to not less than $.0l; provided,
however, that adjustments in the Exercise Price shall be required and made in
accordance with the provisions of this Section 7.2 (other than this Section
7.2(b)) not later than such time as may be required in order to preserve the
tax-free nature of any distribution (within the meaning of Section 305 of the
United States Internal Revenue Code of 1986, as amended) to the Holder or the
holders of Common Stock. In the event of any subdivision, combination,
reclassification or other recapitalization of shares of Common Stock, said
amount (as theretofore decreased or increased) shall be proportionately
decreased or increased.
7.3 Notice of Adjustment
Whenever events occur requiring the Exercise Price to be adjusted, the
Company shall promptly file with its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, a certificate of its
chief financial officer or treasurer showing the adjusted Exercise Price,
setting forth in reasonable detail the acts requiring such adjustment, and
stating such other facts as shall be necessary to show the manner and figures
used to compute such adjustment. Such chief financial officer's certificate
shall be made available at all reasonable times for inspection by the Holder.
Promptly after each such adjustment, the Company shall mail a copy of such
certificate by certified mail to the Holder. The Company shall endorse on any
Warrant executed and delivered by the Company a description of each adjustment,
if any, under this Section 7 as the result of events occurring before the
execution and delivery of the Warrant.
If, within 45 days of the mailing of such certificate, the Holder
notifies the Company in writing of the Holder's good-faith disagreement with the
adjusted Exercise Price contained in the Company certificate, then the Company
will promptly obtain a certificate of a firm of independent certified public
accountants of recognized standing selected by the Company's Board of Directors
(who may be the regular auditors of the Company) covering the same items
required by the Company certificate. The Company will promptly mail a copy of
the accountants' certificate to the Holder of this Warrant. The certificate of
the firm of independent public accountants will be conclusive evidence of the
correctness of the computations with respect to any adjustment of the Exercise
Price.
-7-
<PAGE>
8. NOTICES TO HOLDER
So long as this Warrant is outstanding, whenever the Company shall
expect to (i) pay any dividend or distribution upon the Common Stock, (ii)
effect any recapitalization, merger, consolidation, reorganization, transfer,
sale, lease or conveyance as referred to in Section 7 hereof, or (iii) be
involved in any voluntary or involuntary dissolution, liquidation or winding up
of the Company, at least 10 days before the proposed action or any applicable
record date, the Company shall give the Holder written notice describing the
proposed action and stating the date on which (x) a record date is to be fixed
for the purpose of such dividend, distribution or right or (y) such
recapitalization, merger, consolidation, reorganization, transfer, sale, lease,
conveyance, dissolution, liquidation or winding up is to take place and when, if
any date is to be fixed, the record holders of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such recapitalization, merger, consolidation, reorganization,
transfer, sale, lease, conveyance, dissolution, liquidation or winding up.
9. MISCELLANEOUS
9.1 Successors and Assigns
All the covenants and provisions of this Warrant that are by or for the
benefit of the Company or of the Holder shall bind and inure to the benefit of
their respective permitted successors and assigns hereunder. This Warrant may
not be transferred or assigned without the consent of the Company except to a
partner or shareholder of the Holder.
9.2 Notice
Notice or demand pursuant to this Warrant to be given or made by the
Holder to or on the Company shall be sufficiently given or made if sent by
registered or certified mail, postage prepaid, addressed, until another address
is designated in writing by the Company, as follows:
HomeGrocer.com, Inc.
1445 120th Ave. N.E.
Bellevue, WA 98004
Any notice or demand authorized by this Warrant to be given or made by
the Company to or on the Holder shall be given to the Holder by registered or
certified mail, postage prepaid, addressed at his, her or its last known address
as it shall appear on the
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<PAGE>
books of the Company, until another address is designated in writing.
9.3 Applicable Law
The validity, interpretation and performance of this Warrant shall be
governed by the laws of the State of Washington.
9.4 Headings
The Section headings herein are for convenience only and are not part
of this Warrant and shall not affect the interpretation thereof.
9.5 Amendment
The terms of this Warrant may be amended only with the written consent
of the Company and the Holder of this Warrant.
HOMEGROCER.COM, INC.
Dated: [DATE] By /s/ Terry Drayton
---- -------------------------
Name Terry Drayton
-----------------------
Its _______________________
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<PAGE>
Warrantholders who currently hold this Form of Common Stock Warrant
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Warrant Number of
Number Holder Name Date Price Shares
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
W-2 Madrona Investment Group, LLC 2/11/98 $0.75 150,000
- --------------------------------------------------------------------------------------------
W-5 Michael B. Donald 2/11/99 $0.75 50,000
- --------------------------------------------------------------------------------------------
W-6 Heffring Investment Group Inc. 2/11/98 $0.75 50,000
- --------------------------------------------------------------------------------------------
W-7 Richard J. Robbins & Bonnie B. Robbins 2/11/99 $0.75 50,000
JTWROS
- --------------------------------------------------------------------------------------------
W-9 Dennis M. Weibling 2/11/99 $0.75 50,000
- --------------------------------------------------------------------------------------------
W-12 Terran Ventures, Inc. 2/11/1998 $0.75 50,000
- --------------------------------------------------------------------------------------------
W-13 Fitpro Pty. Ltd. 6/25/1998 $1.00 482,833
- --------------------------------------------------------------------------------------------
W-14 Kleiner Perkins Caufield & Byers VIII 4/26/1999 $0.75 92,160
- --------------------------------------------------------------------------------------------
W-15 KPCB VIII Founders Fund 4/26/1999 $0.75 5,340
- --------------------------------------------------------------------------------------------
W-16 KPCB Information Sciences Zaibatsu 4/26/1999 $0.75 2,500
Fund II
- --------------------------------------------------------------------------------------------
W-17 John Maynard 10/26/1999 $0.75 25,000
- --------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
EXHIBIT 10.2
MERCEDES-BENZ CREDIT CORPORATION
LEASE AGREEMENT
---------------
[LOGO] (Open-End)
______________________________________________________________________________
LESSOR - LESSEE
Lessor's Name: Valley Freightliner, Inc.
Street Address: 277 Stewart Road SW
City: Pacific, State: WA. Zip: 98047 *101*
Lessee's Name: HomeGrocer.com, Inc.
Street Address: 10230 Points Drive
Bldg. #2
City: Kirkland, State: WA. Zip: 98033
______________________________________________________________________________
* *
This Lease Agreement (hereinafter "Lease") is entered into on the 16th day of
August, 1999, by and between the Lessor named above (hereinafter "Lessor") and
the Lessee named above (hereinafter "Lessee").
1. EQUIPMENT LEASED. Lessor agrees to lease to Lessee and Lessee agrees to lease
from Lessor each item of equipment described in each Schedule now or
hereafter executed pursuant to this Lease, together with any attachments or
accessories now or hereafter incorporated in or attached to said equipment
(hereinafter "Equipment").
It is hereby agreed that additional Equipment may be leased hereunder by the
execution of additional Schedules by Lessor and Lessee. Each such Schedule,
when so executed, shall constitute a separate Lease of the Equipment
described therein. Except as specifically modified in any Schedule, all of
the terms and conditions of this Lease shall govern the rights and
obligations of Lessee and Lessor with respect to the Equipment described in
the Schedules. Whenever reference is made herein to "this Lease" or "the
Lease" it shall be deemed to include all Schedules now or hereafter executed
under this Lease.
2. TERM. This Lease shall commence on the delivery date stated on the applicable
Schedule(s) and shall continue until all rental payments as hereinafter
described, and all of Lessee's other obligations hereunder, have been
satisfied in fill by Lessee.
<PAGE>
3. RENTAL. Lessee agrees to pay Lessor monthly payments in an amount and for the
term indicated in the Schedule(s) without reduction or set off for any
reason, except as otherwise provided in this Lease.
The first payment shall be due on the date stated in the Schedule(s).
4. LATE CHARGE; DISHONORED CHECKS. In the event Lessee fails to pay in fill any
rental payment, or any other sum required to be paid hereunder by Lessee,
within ten (10) days of its due date, Lessor may, without declaring Lessee to
be in default, charge Lessee an amount equal to five percent (5%) of such
past due amounts or the maximum allowed by applicable state law. In addition,
Lessor may collect from Lessee a fee for dishonored checks. Such fee shall
not exceed $35 or the maximum amount permitted by applicable law. The
imposition of such a charge by Lessor shall in no way alter Lessor's right to
additionally or subsequently declare Lessee to be in default or to exercise
any of its remedies under this Lease.
5. FEES AND TAXES. Lessee agrees to pay when due all fees, sales and use taxes,
duties, assessments, highway use taxes, or other taxes and charges, however
designated, now or hereafter levied or based upon the purchase, rental,
ownership, use, possession, leasing, operation, control, maintenance or sale
of the Equipment, whether or not paid or payable by Lessor (excluding
Lessor's net income, franchise and business and occupation taxes), and shall
supply Lessor with proof of payment upon written demand therefor by Lessor.
6. INSURANCE. With respect to the Equipment, Lessee shall provide and maintain,
at its own expense, public liability insurance for bodily injury or death and
property damage insurance with an aggregate limit of not less than $750,000
per occurrence, or such other higher limit as may be required by law.
Lessee shall also provide and maintain, at its own expense, collision and
upset insurance with a deductible of not more than $2,500, and fire, theft
and combined additional insurance with a deductible of not more than $2,500.
All insurance required herein shall protect Lessor and Lessee as their
interests may appear. All insurance required to be provided by Lessee shall
designate Lessor as an additional insured and loss payee and shall, by the
terms of the policies or appropriate endorsements thereto: (a) be primary to,
and in no respect excess or contributory to or contingent upon, any liability
insurance provided by Lessor; (b) waive any right of subrogation against
Lessor, (c) provide that all liability insurance shall first be applied
against any claim against Lessor; (d) provide that all insurance proceeds are
to be paid directly to Lessor in respect of any damage to the Equipment; and
(e) provide that
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<PAGE>
coverage may not be changed, altered or canceled by the issuing insurance
company without twenty (20) days prior written notice to Lessor.
All insurance required herein to be provided by Lessee shall be placed with
an insurance company acceptable to and approved by Lessor. Lessor shall be
provided with certificates of insurance (or other document(s) acceptable to
Lessor) evidencing the insurance coverage required herein and establishing
that such insurance is in effect with respect to the Equipment.
With respect to any such insurance, Lessee hereby appoints Lessor, or
Lessor's assignee, as Lessee's attorney in fact, with fill power to: (a)
determine at Lessor's discretion what is a reasonable sum for settlement
and/or compromise of claim or suit; (b) institute suit in Lessee's name, or
in Lessor's name, or both, and to add any costs or expenses relating to the
suit or claim, including legal fees and expenses, to the balance of Lessee's
obligations under the Lease; and (c) sign in Lessee's name any settlement,
draft or check.
Lessee agrees that any excess or umbrella liability insurance which it may
have in addition to the minimum requirements set forth above shall also
include the interest of Lessor, to the extent permitted by law.
7. LESSOR'S RIGHT TO PAY. If Lessee fails to insure the Equipment as required by
Section 6 or if Lessee fails to pay and discharge any or all fees, taxes,
liens and other charges as required by Section 5, Lessor, without prejudice
to any other rights hereunder, may (but shall not be obligated to) provide
such insurance, or may pay and discharge such fees, taxes, liens or other
charges, and Lessee agrees to repay said sums to Lessor upon demand. If
Lessee fails to repay Lessor within ten (10) days of the sending of Lessor's
demand for repayment, Lessor may assess a late charge on such amounts in
accordance with Section 4 hereof. If such amounts, including late charges,
remain unpaid for ten (10) additional days, then Lessee shall also be liable
for interest thereon at the default rate of interest set forth in Section 14,
or the maximum amount permitted by law.
8. INDEMNIFICATION. Lessee assumes liability for and agrees to defend, indemnify
and hold Lessor harmless from any claim for liability (including, without
limitation, claims involving strict liability in tort or product liability),
loss, cost, expense or damage of every nature (including, without limitation,
fines, forfeitures, penalties, settlements and attorney's fees) by or to any
person and regardless of its basis, which directly or indirectly results from
or pertains to the purchase, sale, leasing, manufacture, delivery, ownership,
use, possession, operation, condition (including, without limitation, latent
or other defects, whether or not discoverable, and patent, trademark and
copyright infringement), removal, return or storage of the Equipment, the
breach by Lessee of any covenant or condition of this Lease, or the
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<PAGE>
recovery of claims under insurance policies thereon. LESSEE'S INDEMNITIES
AND LIABILITIES SHALL CONTINUE IN FULL FORCE AND EFFECT, NOTWITHSTANDING THE
EXPIRATION OR TERMINATION OF THIS LEASE FOR ANY REASON.
Upon request by Lessor, Lessee shall assume the defense of all demands,
claims, actions, suits and all other proceedings against Lessor for which
indemnity is provided herein and shall allow Lessor to participate in the
defense thereof. Lessee shall be subrogated to all rights of Lessor for any
matter for which Lessee has assumed obligation hereunder and may not settle
such demand, claim Or action without Lessor's prior consent. Lessor shall be
subrogated to all rights of Lessee for any matter for which Lessor has
assumed obligation hereunder and may settle such demand, claim or action
without Lessee's prior consent.
9. ASSIGNMENT. All right, title and interest in and to this Lease, as well as
to the Equipment, may be assigned at any time by Lessor without Lessee's
consent. Upon notice of any assignment by Lessor or its assignee, Lessee
shall make all payments coming due hereunder to the assignee without offset,
counterclaim or defense of any kind. It is expressly understood that any
reference in this Lease to "Lessor" shall be construed to mean Lessor or
Lessor's assignee.
Lessee shall not assign, transfer or sublet this Lease, the Equipment or
Lessee's interest hereunder without Lessor's prior written consent (which
may be withheld at Lessor's sole discretion), nor shall Lessee's interest
hereunder inure to the benefit of any trustee, receiver, creditor or
successor of Lessee or its property, whether or not in bankruptcy, or
whether by operation of law or otherwise.
10. OWNERSHIP/TITLE/LIENS. Lessor and Lessee intend for this agreement to be a
true lease; consequently; ownership of and title to all Equipment shall be
and remain in Lessor, notwithstanding possession and use thereof by Lessee.
Lessee has not acquired, and will not acquire by its acceptance of this
Lease, any proprietary rights or interest in the Equipment. Lessee
acknowledges that unless and until Lessor allows Lessee to purchase the
Equipment pursuant to Section 15, Lessee's interest shall be that of lessee
and not owner. Lessee shall keep the Equipment free from all liens and
encumbrances during the term of this Lease.
11. USE, INSPECTION AND ALTERATIONS. Lessee at its sole expense shall have the
Equipment serviced in accordance with the manufacturer's approved
maintenance schedules, ensure that maintenance records are available for
review by Lessor at reasonable times and places and maintain the Equipment
in good repair, appearance, functional order, and good lawful operating
condition.
-4-
<PAGE>
Lessee shall not: (a) use or permit the use of the Equipment in any
unintended, injurious or unlawful manner; (b) use or permit the use of the
Equipment primarily for personal, family, household or agricultural
purposes; (c) subject the Equipment to unusual, extreme or severe operating
condition; or (d) change or alter the Equipment without Lessor's prior
written consent, except that Lessee shall make such alterations and
improvements, at Lessee's expense, as may be required from time to time to
meet the requirements of law or of any federal, state or local governmental
authority having jurisdiction over the Equipment.
To ensure compliance with the foregoing, Lessor shall have the right, at any
time, to enter Lessee's premises or elsewhere to inspect the Equipment or to
observe its use. All improvements and alterations, other than improvements
which can be readily removed without causing damage to the Equipment and
without rendering the Equipment unable to comply with law, shall become part
of the Equipment and shall be the property of Lessor.
12. LOSS AND DAMAGE. Lessee hereby assumes all risk of loss, including theft or
destruction, and the risk of damage to the Equipment, from any and every
cause whatsoever, whether or not such loss is covered by insurance. Loss or
damage to the Equipment, or any part thereof, shall not relieve Lessee of
any obligation under this Lease.
If the Equipment is damaged or destroyed in an accident or other occurrence
or confiscated by any governmental authority or subjected to any tax lien or
is stolen, abandoned or subjected to undue peril, Lessee will notify Lessor
within ten (10) days of such occurrence or condition.
If any item of Equipment is damaged and in a condition which Lessor believes
may be reasonably repaired, Lessee shall repair the same to good working
order. If the Equipment is damaged and in a condition which Lessor believes
is beyond reasonable repair, or with respect to any other occurrence or
condition set forth above, Lessor may terminate this Lease with respect to
that Equipment immediately. If the Lease is terminated, Lessee's termination
liability shall be the sum of the following: (1) any Lease payments or other
amounts due and owing as of the time of termination; plus (2) the balance of
the Lease payments Lessee would have made had the Lease gone to fill term
(less a deduction for the time value of such payments computed in accordance
with the simple interest method); plus (3) the Residual Value as set forth
in the Schedule(s) (less a deduction. for the time value of such payments
computed in accordance with the simple interest method); plus (4) an amount
equal to one monthly Lease payment; plus (5) any and all commissions, fees
or other amounts paid by Lessor's assignee as consideration for assignment
of this Lease; less the proceeds Lessor receives from the insurance provided
by Lessee, if any. Lessee expressly understands and agrees that in the event
of a total loss, Lessee's insurance policy may not be sufficient to
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<PAGE>
completely satisfy Lessee's indebtedness, and Lessee agrees that in such
event Lessee shall be liable for, and shall pay Lessor upon demand therefor,
the amount of any such deficiency.
13. SPECIAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE. Lessee
represents, warrants and covenants to Lessor that: (a) the Equipment will
not be used outside of the United States during more than 50 percent of any
calendar year or partial calendar year during the term of this Lease; (b)
Lessee is not and will not become an organization exempt from the tax
imposed by Chapter 1 of the Internal Revenue Code of 1986 nor will Lessee
allow any such entity to use the Equipment; and (c) Lessee is not the United
States, any State (including the District of Columbia) or political
subdivision thereof, or any agency or instrumentality of the United States,
any State or political subdivision thereof or any international
organization, nor will Lessee allow any such entity to use the Equipment.
Lessee acknowledges that if any representation, warranty or covenant herein
is false or if it takes any action or omits to take any action which causes
any such representation, warranty or covenant to be false or to be breached,
Lessor, or the affiliate group of which it is a member, may suffer adverse
tax consequences. Accordingly, Lessee agrees that if it breaches any such
representation, warranty or covenant or if the same shall be or become
false, this Lease shall be deemed to be in default and Lessee shall be
liable to Lessor in the manner and for the amounts specified in Section 14
hereof.
14. DEFAULT; LESSOR'S REMEDIES. Time is of the essence in this Lease, and Lessor
may declare this Lease to be in default and terminated upon the occurrence
of any of the following events: (a) Lessee's failure to pay when due the
fill amount of any payment required hereunder or under any other loan,
retail installment contract or lease with Lessor or any other person or
shall default in the performance of any of the obligations or covenants
hereunder or thereunder, including, without limitation, rent, taxes, liens,
insurance, indemnification, repair or other charge; or (b) the making of any
false or misleading statement by Lessee prior to or in connection with this
Lease; or (c) Lessee's death, dissolution, insolvency or other termination
of existence; or (d) Lessee's becoming the subject of a petition in
bankruptcy, either voluntarily or involuntarily, or making an assignment for
the benefit of creditors, or being named or subjected to a suit for the
appointment of a receiver; or (e) seizure of or levy upon the Equipment by
reason of any legal or governmental process directed against Lessee; or (f)
any bankruptcy, insolvency, termination or default of any guarantor of
Lessee; (g) if any guaranty supporting Lessee's obligations hereunder shall
fail to remain in full force and effect.
Upon Lessee's default, Lessee shall be liable for, and shall pay Lessor upon
demand, the sum of the following as liquidated damages: (1) any Lease
payments or other amounts due and owing as of the time of default; plus (2)
the balance of the Lease payments Lessee would
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have paid had the Lease gone to full term (less a deduction for the time
value of such payments computed in accordance with the Rule of 78's); plus
(3) the Residual Value as set forth in the Schedule(s) (less a deduction for
the time value of such payments computed in accordance with the Rule of
78's); plus (4) an amount equal to one monthly Lease payment; plus (5) any
and all commissions, fees or other amounts paid by Lessor's assignee as
consideration for the assignment of this Lease (collectively, the "Default
Liability").
In the event of Lessee's default, Lessee agrees to surrender the Equipment
to Lessor at such location as Lessor may designate, and agrees that Lessor
may take possession of the Equipment wherever the same may be found, whether
on Lessee's premises or elsewhere, in accordance with applicable law, Lessee
further agrees that any and all rights or interests Lessee may have in the
Equipment shall be extinguished upon Lessee's default, If Lessor obtains
possession of the Equipment following Lessee's default, Lessor shall dispose
of the Equipment by public or private sale in the wholesale or retail
market, and such disposition may be with or without notice to Lessee.
Following any such sale, Lessor shall deduct from the Default Liability the
amount of any proceeds obtained upon disposition of the Equipment, less any
costs or expenses incurred by Lessor in connection with the repossession,
storage, restoration and/or disposition of the Equipment.
Lessor may assess, and Lessee will be liable for, interest on the total
amounts Lessee may owe to Lessor from time to time by reason of Lessee's
default at the rate of eighteen percent (18%) per annum, unless a lower rate
is required by applicable law, in which case that rate shall apply, both
before and after judgment.
Lessee understands and agrees that the remedies provided under this Lease in
favor of Lessor upon default shall not be exclusive, but shall be cumulative
and in addition to any other remedies available to Lessor, whether existing
in law, equity or bankruptcy.
15. PURCHASE OPTION. It is understood and agreed that Lessee has no option to
purchase the Equipment at any time; however, if Lessor does choose to sell
the equipment to Lessee, it will only be upon the expiration of the Lease
and for an amount equal to the Residual Value set forth in the Schedule(s).
If Lessee accepts Lessor's offer, Lessee must also pay any official fees and
taxes assessed in connection with the purchase, plus any other amounts due
hereunder but not paid at the time of termination. Lessee expressly
understands that Lessee shall have absolutely no equity or other ownership
rights in the Equipment prior to the expiration of the Lease.
16. END OF LEASE TERMINATION LIABILITY. Upon the expiration of this Lease,
Lessee shall, at Lessee's expense, assemble and return the Equipment
unencumbered at
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Lessor's place of business, or at such other place as Lessor specifies, in
the same condition, appearance and functional order as received, reasonable
and ordinary wear and tear excepted.
Upon the return of the Equipment as herein provided, Lessor will sell the
Equipment at a public or private sale `with or without notice to Lessee. If
the amount received from the sale (less sales tax payable, reasonable sales
commissions and restoration and storage costs, if any) exceeds the Residual
Value of the Equipment as set forth in the Schedule(s), the amount of such
surplus shall be paid to Lessee. If the amount received from the sale (less
sales tax payable, reasonable sales commissions and restoration and storage
costs, if any) is less than the Residual Value of the Equipment as set forth
in the Schedule(s), Lessee shall be liable for, and shall pay upon demand,
the amount of such deficiency to Lessor. Lessee acknowledges that the
potential benefit or liability contemplated by this Section 16 is not
intended to create any equity interest in the Equipment for Lessee, but
rather are designed as incentives for Lessee to properly maintain the
Equipment as required by this Lease.
17. ADDITIONAL SECURITY. To further secure the performance of Lessee's
obligations to Lessor, hereunder or otherwise, Lessee hereby grants to
Lessor a first security interest in (a) all equipment leased by Lessee from
Mercedes-Benz Credit Corporation (Lessee's interest in said equipment being
assigned to the full extent of Lessee's interest therein); and (b) all
equipment purchased by Lessee and financed by Mercedes-Benz Credit
Corporation.
18. DISCLAIMER OF WARRANTIES. LESSOR IS NOT THE PRODUCER, MANUFACTURER OR
DESIGNER OF THE EQUIPMENT, AND LESSOR MAKES NO WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THIS LEASE OR THE EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR INTENDED USE. LESSOR SPECIFICALLY DISCLAIMS ANY AND ALL LIABILITY
FOR CONSEQUENTIAL DAMAGES.
Lessor agrees, however, to assign to Lessee all of the manufacturer's
standard warranties applicable to the Equipment, together with any rights
and remedies afforded thereunder, to the extent that those warranties,
rights and remedies are assignable.
19. ENTIRE AGREEMENT; WAIVER. This Lease and the Schedule(s) referred to herein
constitute the entire agreement of the parties hereto. No waiver or
modification of this Lease or any Schedule shall be effective unless in
writing and signed by both parties. No waiver by Lessor of any obligation of
Lessee under this Lease shall be deemed a waiver of Lessor's right to
subsequent or other full and timely performance,
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20. BINDING ON SUCCESSORS AND PERMITTED ASSIGNS. This Lease shall be binding
upon and inure to the benefit of any permitted successors and assigns of
Lessor and Lessee.
21. COSTS AND ATTORNEY'S FEES. If Lessor employs an agent or other party for
purposes of collection or repossession, or refers this Lease to an attorney
for purposes of collection, repossession or enforcement of Lessor's
interests herein, Lessee agrees to reimburse Lessor upon Lessor's demand for
all of Lessor's repossession costs, attorney's fees and expenses to the
extent permitted by applicable state law.
22. NOTICES. All notices and payments shall be mailed to the respective parties
at the addresses set forth above or such other address as a party may
provide to the other party in writing.
23. GOVERNING LAW; JURISDICTION. This Lease shall be deemed to have been made in
the state named in Lessor's address above, and shall be interpreted, and the
rights and liabilities of the parties determined, by the laws and courts of
that state, to the exclusion of the courts of any other state or country,
provided, however, that Lessor shall have the right, but not the obligation,
to litigate in any state or country in which Lessee, the Equipment, or any
of Lessee's or any guarantor's assets are located. LESSEE WAIVES ANY AND ALL
RIGHT TO A JURY TRIAL REGARDING ANY DISPUTE ARISING HEREUNDER.
24. SEVERABILITY. If any of the provisions of this Lease are prohibited by or
held invalid under applicable laws or regulations of any jurisdiction in
which this Lease is sought to be enforced, then that provision shall be
considered inapplicable and omitted but shall not invalidate the remaining
provisions.
25. HEADINGS. Headings at the beginning of each section are solely for the
convenience of the parties and shall not be considered when interpreting
this Lease.
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BY SIGNING BELOW, LESSEE ACKNOWLEDGES THAT LESSOR'S SIGNATURE ON THIS LEASE WILL
HAVE THE EFFECT OF ASSIGNING ALL RIGHT, TITLE AND INTEREST OF LESSOR TO AND IN
THIS LEASE AND THE EQUIPMENT TO MERCEDES-BENZ CREDIT CORPORATION, AND THAT
LESSEE ACCEPTS THE TERMS AND CONDITIONS OF THIS LEASE.
I HAVE RECEIVED AND READ A COMPLETED COPY OF THIS LEASE BEFORE SIGNING BELOW.
Lessee: HomeGrocer.com, Inc.
By: /s/: Terry Drayton
------------------
Title: President and CEO
BY SIGNING BELOW, LESSOR ACCEPTS THE TERMS AND CONDITIONS OF THIS LEASE AND
ASSIGNS ALL RIGHT, TITLE AND INTEREST TO AND IN THIS LEASE AND THE EQUIPMENT TO
MERCEDES-BENZ CREDIT CORPORATION PURSUANT TO THE TERMS OF THE EQUIPMENT PURCHASE
AND LEASE ASSIGNMENT AGREEMENT BY AND BETWEEN LESSOR AND MERCEDES-BENZ CREDIT
CORPORATION.
Lessor: Valley Freightliner, Inc.
By: /s/ Jim Elkins
--------------
Title: G.M.
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EXHIBIT 10.3
[Mercedes-Benz Credit Corporation Letterhead]
VIA FACSIMILE
6/11/99
Terry Drayton, President & CEO
HormeGrocer.Com, Inc.
1445 120th Avenue NE
Bellevue WA, 98005
Re: Revolving Line of Credit Commitment
Dear Mr. Drayton:
Mercedes-Benz Credit Corporation ("MBCC") is pleased to make the following
commitment to HomeGrocer.Com, Inc. for the TRAC, FMV lease and retail finance of
new trucks purchased from an authorized Freightliner dealer. The revolving line
of credit pursuant to this commitment shall initially be $7,000,000. The line
of credit will increase to $10,000,000 with a $50,000,000 increase in
stockholders equity subsequent to the May 2, 1999 financial statements.
Thereafter, for every additional $50,000,000 increase in stockholders equity,
the line of credit will be increased by $5,000,000 up to a maximum of
$20,000,000 (i.e., another $50,000,000 additional equity investment will
increase the line of credit from $10,000,000 to $15,000,000). This Commitment
is subject to the terms and conditions outlined below,
Commitment Number: 670221782
Expiration Date: This Commitment will expire on June 30, 2000 (The
"Expiration Date"). Any transaction funded pursuant to
this Commitment must be presented to MBCC at least five
(5) business days prior to the Expiration Date.
Equipment: New Freightliner Trucks with multi-temperature van
bodies attached.
Type of Lease: Master Lease Agreement or Retail Installment
Contract - Security Agreement
Term: New Trucks (TRAC Lease) - 60 Months
New trucks (Retail) - 72 Months
Lease Payment Lease
Factor/Finance Rate First $7,000,000 in funding Payment Factor: Advance
0.01800 Arrears 0.02816; Funding over $7,000,000
Payment Factor: Advance 0.01789 Arrears 0.01805
The factors quoted above are valid through September
30, 1999 and are subject to an incremental factor of
.00012 for each .25 increase/decrease in the US
Treasury Yield to maturity rate corresponding to the
lease term. Factor fixed at date of delivery. 60 month
US Treasury yields (as of 6/7/99) is 5.86%.
Retail
<PAGE>
First $7,000,000 in funding Rate: 72 Month US Treasury
Bill (As provided by MBCC) plus 323 Basis Points, fixed
at time of contract date. Funding over $7,000,000 Rate:
72 Month US Treasury Sill (As provided by MBCC) plus
303 Basis Points, fixed at time of contract date. The
Basis Point adjustment will expire on December 31,
1999.
Residual Factor: New Trucks 60 Months - 17%
New Trucks 72 Months - 0%
Loan Funding: All amounts funded pursuant to this Commitment shall
deplete the Loan Amount on a pro rata basis (e.g., a
$50,000 contract funded by MBCC shall decrease the
funds available under the Loan Amount by $50,000).
Payments made by HomeGrocer.Com, Inc. on accounts
funded pursuant to this Commitment will replenish the
credit available under the Loan Amount provided,
however, that at no time shall the amounts outstanding
under this Commitment exceed the Loan Amount.
Loan Covenants: HomeGrocer.Com. Inc. to provide Mercedes-Benz Credit
Corporation with annual financial statements within
ninety (90) days after the end of each fiscal year end.
HomeGrocer.Com, Inc. to provide Mercedes-Benz Credit
Corporation with quarterly financial statements within
thirty (30) days after the end of each fiscal quarter.
The occurrence of an event of default under
HomeGrocer.Com's agreements with U.S. Bank, Silicone
Valley Bank, Comdisco and Ryder shall be deemed a
default under the loan obligation to Mercedes-Benz
Credit Corporation.
In the event that Amazon.Com, Inc. Hummer Winblad
Venture Partners or Kleiner Perkins Caufield & Byers
terminates their ownership in HomeGrocer.Com, Inc.
Mercedes-Benz Credit Corporation reserves the right to
suspend further funding on undelivered units.
Insurance: Physical Damage Insurance listing MBCC as loss payee
with a deductible of not more than $2,500 per unit.
Liability insurance listing MBCC as additional insured
with a combined single limit coverage of not less than
$750,000.
Security: Evidence of MBCC's ownership interest (lease) or first
lien (retail) on the title to the equipment.
Documents: Master Lease Agreement or Retail lnstallment Contract -
Security Agreement in the form acceptable to MBCC.
Secretary's Certificate for HomeGrocer.Com, Inc
Agreement not to make distributions or dividends.
UCC-1 filing on refer units.
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Evidence of additional stockholders equity investment
if funding will cause the outstanding balance to exceed
$7,000,000.
Evidence of Sales Tax Payment or Sales Tax Exemption
Form with each transaction (retail contract or lease
schedule "A").
Such other documentation as MBCC customarily requires
for transactions of this nature.
Maximum Level: This Commitment is limited to the Loan Amount,
Notwithstanding the terms of this Commitment or any
other commitment issued by MBCC, at no time shall
Homegrocer.Com, Inc.'s outstanding account balances
with MBCC exceed the approved line of credit amount up
to a maximum of $20,000,000. The revolving line of
credit pursuant to this commitment shall initially be
$7,000,000. The line of credit will increase to
$10,000,000 with a $50,000,000 increase in stockholders
equity subsequent to the May 2, 1999 financial
statements. Thereafter, for every additional
$50,000,000 increase in stockholders equity, the line
of credit will be increased by $5,000,000 up to a
maximum of $20,000,000 (i.e. another $50,000,000
additional equity investment will increase the line of
credit from $10,000,000 to $15,000,000).
MBCC's obligation described herein shall also be subject to the condition that
as of the date of each funding of equipment, no material adverse change has
occurred in the business or financial condition of HomeGrocer.Com, Inc.
If you find the terms of this Commitment Letter acceptable, please execute the
enclosed copy of this letter and return the executed copy to the undersigned. If
MBCC does not receive an executed copy of this Commitment Letter, then MBCC is
under no obligation with respect to the transaction described herein.
We are pleased that you have chosen MBCC to be the source for your equipment
leasing. MBCC looks forward to assisting you with your equipment leasing needs
now and far into the future. If you have any questions, please do not hesitate
to contact your District Finance Manager, Brandon Bridwell, at (800) 826-6862.
Sincerely,
/s/ Bert Gaston /s/ Brandon Bridwell
Bert Gaston Brandon Bridwell
General Manager, Credit District Finance Manager
On behalf of HomeGrocer.com, Inc., I have reviewed commitment number 670221782,
dated June 11, 1999. Signing below does not obligate HomeGrocer.com, Inc. to
transact with Mercedes-Benz Credit Corporation. However, by signing below it is
acknowledged and agreed by HomeGrocer.com. inc. that the terms and conditions of
the commitment described herein shall be binding upon funding with Mercedes-Benz
Credit Corporation.
HomeGrocer.com, Inc.
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Name:_________________________
Title:________________________
Date:_________________________
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EXHIBIT 10.4
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease) dated November 9, 1998 by and
between COMDISCO. INC. ("Lessor") and HOMEGROCER,COM, INC. ("Lessee). IN
CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Summary
Equipment Schedule. In the event of a conflict, the terms of the applicable
Schedule prevail over this Master Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment,
will be bound to its rental obligations for each item of Equipment and the term
of a Summary Equipment Schedule will begin and continue through the Initial Term
and thereafter until terminated by either party upon prior written notice
received during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. Rent and Payment.
Rent is due and payable in advance on the first day of each Rent Interval
at the address specified in Lessor's invoice. Interim Rent is due and payable
when invoiced. If any payment is not made when due, Lessee will pay a Late
Charge on the overdue amount. Upon Lessee's execution of each Schedule. Lessee
will pay Lessor the Advance specified on the Schedule. The Advance will be
credited towards the final Rent payment if Lessee is not then in default. No
interest will be paid on the Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee
that, so long as Lessee is not in default, Lessor will not disturb Lessee's
quiet and peaceful possession, and unrestricted use of the Equipment. To the
extent permitted by the manufacturer, Lessor assigns to Lessee during the term
of the Summary Equipment Schedule any manufacturer's warranties for the
Equipment. LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT
OR ITS FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any
liability, claim, loss, damage or expense of any kind (including strict
liability in tort) caused by the Equipment except for any loss or damage caused
by the willful misconduct or negligent acts of Lessor. In no event is Lessor
responsible for special. incidental or consequential damages.
<PAGE>
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the
rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee
authorizes Lessor, as Lessee's agent, and at Lessor's expense, to prepare,
execute and file in Lessee's name precautionary Uniform Commercial Code
financing statements showing the interest of the Owner, Lessor, and any Assignee
or Secured Party in the Equipment and to insert serial numbers in Summary
Equipment Schedules as appropriate. Lessee will, at its expense, keep the
Equipment free and clear from any liens or encumbrances of any kind (except any
caused by Lessor) and will indemnify and hold the Owner, Lessor, any Assignee
and Secured Party harmless from and against any loss caused by Lessee's failure
to do so, except where such is caused by Lessor.
5.2 Relocation or Sublease. Upon prior written notice, Lessee may
relocate Equipment to any location within the continental United States provided
(i) the Equipment will not be used by an entity exempt from federal income tax,
and (ii) all additional costs (including any administrative fees, additional
taxes and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor
and the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other
transfer by Lessor will not relieve Lessor of its obligations to Lessee and will
not materially change Lessee's duties or materially increase the burdens or
risks imposed on Lessee. The Lessee consents to and will acknowledge such
assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's
rights, but will not be obligated to perform any of the obligations of Lessor
The Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and the
Secured Party continues to receive all Rent payable under the Schedule; and
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(b) Lessee will pay all Rent and all other amounts payable to the
Secured Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense or
claim;
(c) Subject to and without impairment of Lessee's leasehold rights in
the Equipment, Lessee holds the Equipment for the Secured Party to the extent of
the Secured Party's rights in that Equipment.
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is absolute
and unconditional and is not subject to any abatement, reduction, set-off,
defense. counterclaim, interruption, deferment or recoupment for any reason
whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Summary Equipment Schedule against Lessor, Lessee or the
Equipment by any governmental authority (except only federal, state, local and
franchise taxes on the capital or the net income of Lessor). Lessor will file
all personal property tax returns for the Equipment and pay alt such property
taxes due. Lessee will reimburse Lessor for property taxes within thirty (30)
days of receipt of an invoice.
7. Care, Use and Maintenance; Inspection by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided re-
certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents,
warrants and covenants that with respect to the Master Lease and each Schedule
executed hereunder:
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(a) The Lessee is a corporation duly organized and validly existing in
good standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business: and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of, or constitute
a default under, any indenture, mortgage, contract or other instrument to which
it is a party or by which it is bound, and Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee, enforceable in
accordance with their terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and rules of law
concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or,
to the knowledge of the Lessee, threatened against or affecting the Lessee in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits. computer software and Copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others,
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in lull force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and Other similar laws affecting
the rights of creditors generally. and rules of law concerning equitable
remedies.
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9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule.
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including. without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided. however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2.
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest
with labels provided by Lessor. Lessee will keep all Equipment free from any
other marking or labeling which might be interpreted as a claim of ownership.
11. Indemnity.
With regard to bodily injury and property damage liability only, Lessee
will indemnify and hold Lessor, any Assignee and any Secured Party harmless from
and against any and all claims, costs, expenses, damages and liabilities,
including reasonable attorneys' fees, arising out of the ownership (for strict
liability in tort only), selection, possession, leasing, operation, control,
use, maintenance, delivery, return or other disposition of the Equipment during
the term of this Master Lease or until Lessee's obligations under the Master
Lease terminate. However, Lessee is not responsible to a party indemnified
hereunder for any claims, costs, expenses, damages and liabilities occasioned by
the negligent acts of such indemnified party. Lessee agrees to carry bodily
injury and property damage liability insurance during the term of the Master
Lease in amounts and against risks customarily insured against by the Lessee on
equipment owned by it. Any amounts received by Lessor under that insurance will
be credited against Lessee's obligations under this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned. Lessee
relieves Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each
item of Equipment in an amount not less than the Casualty Value. All policies
for such insurance will name the Lessor and any Secured Party as additional
insured and as loss payee, and will provide for at least thirty (30) days prior
written notice to the
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Lessor of cancellation or expiration, and will insure Lessor's interests
regardless of any breach or violation by Lessee of any representation, warranty
or condition contained in such policies and will be primary without right of
contribution from any insurance effected by Lessor. Upon the execution of any
Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor, Lessee will promptly repair any damaged item or Equipment
unless such Equipment has suffered a Casualty Loss. Within fifteen (15) days of
a Casualty Loss, Lessee will provide written notice of that loss to Lessor and
Lessee will, at Lessee's option, either (a) replace the item of Equipment with
Like Equipment and marketable title to the Like Equipment will automatically
vest in Lessor or (b) pay the Casualty Value and after that payment and the
payment of all other amounts due and owing with respect to that item of
Equipment, Lessee's obligation to pay further Rent for the item of Equipment
will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events
of Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) business days after written notice;
or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation or warranty made by
the Lessee in the Schedule or in any document or certificate furnished to the
Lessor hereunder if that failure or inaccuracy Continues for ten (10) business
days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the filing by
Lessee or the filing against Lessee of any petition under any bankruptcy or
insolvency law or for the appointment of a trustee or other officer with similar
powers, the adjudication of Lessee as insolvent, the liquidation of Lessee, or
the taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its Assignee
or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all Rent due under
the defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a
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Secured Party plus any prepayment fees charged to Lessor by the Secured Party
or, if there is no Secured Party, then discounted at 6%) together with all Rent
and other amounts currently due as liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to remove and
repossess the Equipment without being liable to Lessee for damages due to the
repossession, except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law. are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term less the
Default Costs: or
(b) if leased, the present value (discounted at three percent (3%) over
the U.S. Treasury Notes of comparable maturity to the term of the re-lease) of
the rentals for a _________ not to exceed the Initial Term, less the Default
Costs.
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor
may recover, the amount by which the proceeds are less than the liquidated
damages and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. Upon invitation of Lessee, one representative of
Lessor will have the right to attend Lessee's corporate Board of Directors
meetings and Lessee will give Lessor reasonable notice in advance of any special
Board of Directors meeting, which notice will provide an agenda of the subject
matter to be discussed at such board meeting. Lessee will provide Lessor with a
certified copy of the minutes of each Board of Directors meeting within thirty
(30) days following the date of such meeting held during the term of this Master
Lease.
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14.2 Financial Statements. As soon as practicable at the end of each
month (and in any event within thirty (30) days), Lessee will provide to Lessor
the same information which Lessee provides to its Board of Directors, but which
will include not less than a monthly income statement, balance sheet and
statement of cash flows prepared in accordance with generally accepted
accounting principles, consistently applied (the "Financial Statements"). As
soon as practicable at the end of each fiscal year, Lessee will provide to
Lessor audited Financial Statements setting forth in comparative form the
corresponding figures for the fiscal year (and in any event within ninety (90)
days), and accompanied by an audit report and opinion of the independent
certified public accountants selected by Lessee. Lessee will promptly furnish
to Lessor any additional information (including, but not limited to. tax
returns, income statements. balance sheets and names of principal creditors) as
Lessor reasonably believes necessary to evaluate Lessee's continuing ability to
meet financial obligations. After the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee,
Lessor will not be obligated to lease any Equipment which would have a
Commencement Date after said notice if: (i) Lessee is in default under this
Master Lease or any Schedule; (ii) Lessee is in default under any loan
agreement, the result of which would allow the _________ or any secured party to
demand immediate payment of any material indebtedness; (iii) there is a material
adverse change in Lessee's credit standing: or (iv) Lessor determines (in
reasonable good faith) that Lessee will be unable to perform its obligations
under this Master Lease or any Schedule.
14.4 Merger and Sale Provisions. Lessee will notify Lessor of any
proposed Merger at least sixty (60) days prior to the closing date. Lessor may,
in its discretion, either (i) consent to the assignment of the Master Lease and
all relevant Schedules to the successor entity, or (ii) terminate the Master
Lease and all relevant Schedules. If Lessor elects to consent to the
assignment, Lessee and its successor will sign the assignment documentation
provided by Lessor. If Lessor elects to terminate the Master Lease and all
relevant Schedules, then Lessee will pay Lessor all amounts then due and owing
and a termination fee equal to the present value (discounted at 6%) of the
remaining Rent for the balance of the Initial Term(s) of all Schedules, and will
return the Equipment in accordance with Section 9. Lessor hereby consents to
any Merger in which the acquiring entity has a Moody's Bond Rating of BA3 or
better or a commercially acceptable equivalent measure of creditworthiness as
reasonably determined by Lessor.
14.5 Entire Agreement. This Master Lease and associated Schedules and
Summary Equipment Schedules supersede alt other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRIT1NG SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
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14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but
not limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 Notices. Any notice, request or other communication to either party
by the other will be given in writing and deemed received upon the earlier of
(1) actual receipt or (3) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL
HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2.A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master
Lease or any Schedule is for any reason held invalid, illegal or unenforceable.
the remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease arid any Schedule may be executed
in any number of counterparts, each of which will be deemed an original, but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part of a Schedule. The Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 Licensed Products. Lessee will obtain no title to Licensed Products
which will at all times remain the property of the owner of the Licensed
Products. A license from the owner may be required and it is Lessee's
responsibility to obtain any required license before the use of
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the Licensed Products. Lessee agrees to treat the Licensed Products as
confidential information of the owner, to observe all copyright restrictions,
and not to reproduce or sell the Licensed Products.
14.14 Secretary's Certificate. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority. Upon the execution of each Schedule with a purchase price in excess
of 51,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel
in a form acceptable to Lessor regarding the representations and warranties in
Section 8.
14.15 Electronic Communications. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.16 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 Equipment Procurement Charges/Progress Payments. Lessee hereby
agrees that Lessor shall not, by virtue of its entering into this Master Lease,
be required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 Definitions.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution
of each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights
as owner and Lessor of Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
Casualty Value - means the greater of the aggregate Rent remaining to be
paid for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Date - is defined in each Schedule.
Default Costs - means reasonable attorney's fees and remarketing costs
resulting from a Lessee default or Lessor's enforcement of its remedies.
Delivery Date - means date of delivery of Inventory Equipment to Lessee's
address.
Equipment - means the property described on a Summary Equipment Schedule
and any replacement for that property required or permitted by this Master Lease
or a Schedule.
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Event of Default - means the events described in Subsection 13.1.
Fair Market Value - means the aggregate amount which would be obtainable in
an arms -length transaction between an informed and willing seller under no
compulsion to sell.
Initial Term - means the period of time beginning on the first day of the
first full Rent Interval following the Commencement Date for all items of
Equipment and continuing for the number of Rent Intervals indicated on a
Schedule.
Interim Rent - means the pro-rats portion of Rent due for the period from
the Commencement Date through but not including the first day of the first full
Rent Interval included in the Initial Term.
Late Charge - means the lesser of five percent (5%) of the payment due or
the maximum amount permitted by the law of the state where the Equipment is
located.
Licensed Products - means any software or other licensed products attached
to the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the
same model, type, configuration and manufacture as Equipment - means any
consolidation or merger of the Lessee with or into any other corporation or
entity, any sale or conveyance of all or substantially all of the assets or
stock of the Lessee by or to any other person or entity in which Lessee is not
the Surviving entity.
Notice Period - means not less than ninety (90) days nor more than twelve
(12) months prior to the expiration of the lease term.
Owner - means the owner of Equipment.
Rent - means the rent Lessee wilt pay for each item of Equipment expressed
in a Summary Equipment Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Schedule - means either an Equipment Schedule or a Licensed Products
Schedule which incorporates all of the terms and conditions of this Master
Lease.
Secured Party - means an entity to whom Lessor has granted a security
interest for the purpose of securing a loan.
Summary Equipment Schedule - means a certificate provided by Lessor
summarizing all of the Equipment for which Lessor has received Lessee approved
vendor invoices, purchase documents and/or evidence of delivery during a
calendar quarter which will incorporate all of the terms and conditions of the
related Schedule and this Master Lease and will constitute a separate lease for
the equipment leased thereunder.
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IN WITNESS WHEREOF. the parties hereto have executed this Master Lease on
or as of the day and year first above written.
HOMEGROCER.COM. INC. COMDISCO, INC.,
as Lessee as Lessor
By: /s/ Terry Drayton By: /s/ Geir Hansen
-------------------------- -------------------------------
Title: President & CEO Title: Sr. VP
----------------------- ----------------------------
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EXHIBIT 10.5
ADDENDUM TO THE MASTER LEASE AGREEMENT DATED AS OF NOVEMBER 9, 1998 BETWEEN
HOMEGROCER.COM, INC., AS LESSEE AND COM DISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the above-
referenced Master Lease are hereby modified and amended as follows:
1) Section 2., "Term."
To the end of this section, add "The term of each Summary Equipment
Schedule shall continue on a month to month basis until the appropriate prior
written notice is received by Lessor."
2) Section 3., "Rent and Payment"
Delete the second sentence in its entirety.
In the third sentence, delete "If any payment is not made when due," and
replace with "If any payment is not made within five days of notice from
Lessor,".
3) Section 6.2., "Taxes and Fees"
In the sixth line after "net income" insert "or gross income".
4) Section 7.1., "Care, Use and Maintenance"
Delete the second sentence
In line nine, after "maintains" insert ", and with the exception of
personal computers and software included in the Equipment,".
5) Section 13.1., "Default"
In subparagraph (b), in the last line, delete "ten (10)" and replace with
"thirty (30)".
In line 2 of subparagraph (c), after "to pay its debts" insert "(exceeding
$100,000)".
6) Section 13.2., "Remedies"
To the beginning of the last sentence add "Except to the extent that such
remedies would be duplicative".
7) Section 14.1., "Board Attendance"
Delete this section in its entirety.
8) Section 14.4., "Merger and Sale Provisions"
<PAGE>
In line 2, delete "sixty (60)" and replace with "twenty (20)".
In line 9, after "Schedules, and will" insert "either" and to the end of
this sentence add "or purchase the Equipment as set forth in the applicable
Equipment Schedule."
9) Section 14.16., "Landlord/Mortgagee Waiver"
Delete this section in its entirety.
10) Section 14.18., Definitions
In the definition of "Casualty Value" delete "aggregate" and replace with
the present value (discounted at 6%)".
Delete the definition of "Interim Rent".
HOMEGROCER.COM, INC. COMDISCO, INC.
as LESSEE as LESSOR
By: /s/ Terry Drayton By: /s/ Geir Hansen
--------------------------- ---------------------------
Title: President & CEO Title: Sr. VP
----------------------- ------------------------
Date: Date: November 23, 1998
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EXHIBIT 10.6
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of September 15, 1999, is
entered into by and between HomeGrocer.com, Inc., a Delaware corporation, with
its chief executive office, and principal place of business located at 10230
Northeast Points Drive, Kirkland, WA 98033 (the "Borrower") and Comdisco, Inc.,
a Delaware corporation, with its principal place of business located at 6111
North River Road, Rosemont, Illinois 60018 (the "Lender" or sometimes,
"Comdisco"). In consideration of the mutual agreements contained herein, the
parties hereto agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a loan
in the aggregate principal amount of Ten Million and 00/100 Dollars
($10,000,000.00) in minimum installments of One Million Dollars ($1,000,000) (as
the same may from time to time be amended, modified, supplemented or revised,
the "Loan"), which would be evidenced by Subordinated Promissory Notes executed
by Borrower substantially in the form of Exhibit A attached hereto (as the same
---------
may from time to time be amended, modified, supplemented or restated the
"Note(s)").
WHEREAS, Lender is willing to make the Loan on the terms and conditions set
forth in this Agreement, and
WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate
to Senior Debt (as defined herein) to the extent set forth in the Subordination
Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall have
the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "Account" means any "account," as such term is defined in Section 9106
of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all accounts receivable, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Borrower's rights in, to and under
all
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purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Borrower's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all monies due or to become due to Borrower under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Borrower (whether or not yet earned by performance on the
part of Borrower or in connection with any other transaction), now in existence
or hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any Person with respect to any of the foregoing.
1.2 "Account Debtor" means any "account debtor," as such term is defined
in Section 9105(1)(a) of the UCC.
1.3 "Advance" means each installment made by the Lender to Borrower
pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral.
1.4 "Advance Date" means the funding date of any Advance of the Loan.
1.5 "Advance Request" means the request by Borrower for an Advance under
the Loan, each to be substantially in the form of Exhibit B attached hereto, as
---------
submitted by Borrower to Lender from time to time.
1.6 "Chattel Paper" means any "chattel paper," as such term is defined in
Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.7 "Closing Date" means the date hereof.
1.8 "Collateral" shall have the meaning assigned to such term in Section 3
of this Agreement.
1.9 "Contracts" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.10 "Copyrights" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds, or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
1.11 "Copyright License" means any written agreement granting any right to
use any Copyright or Copyright registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
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1.12 "Documents" means any "documents," as such term is defined in Section
9105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
1.13 "Equipment" means any "equipment," as such term is defined in Section
9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
1.14 "Excluded Agreements" means (i) any Warrant Agreement(s) executed
hereunder, and any other warrants (including without limitation, the warrant
agreement dated as of November 9, 1998) to acquire, or agreements governing the
rights of the holders of, any equity security of Borrower, (ii) any stock of the
Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the
Master Lease Agreement dated as of November 9, 1998 between Borrower, as lessee,
and Lender, as lessor, including, without limitation, any Equipment Schedules
and Summary Equipment Schedules to the Master Lease Agreement executed or
delivered by Borrower pursuant thereto and any other modifications or amendments
thereof, whereby Borrower (as lessee) leases equipment, software, or goods from
Lender (as lessor) to Borrower (as lessee).
1.15 "Facility Fee" means 0.75% of the principal amount of the Loan due at
the Closing Date ($75,000).
1.16 "Fixtures" means any "fixtures," as such term is defined in Section
9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
1.17 "General Intangibles" means any "general intangibles," as such term
is defined in Section 9106 of the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest and,
in any event, shall include, without limitation, all right, title and interest
which Borrower may now or hereafter have in or under any contract, all customer
lists, interests in partnerships, joint ventures and other business
associations, claims in or under insurance policies, including unearned
premiums, uncertificated securities, deposit accounts (including as defined in
Section 9105(e) of the UCC), rights to receive tax refunds and other payments
and rights of indemnification.
1.18 "Instruments" means any "instrument," as such term is defined in
Section 9105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.19 "Intellectual Property" means all Copyrights, Trademarks, Patents,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not
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<PAGE>
patented or patentable), technical information, procedures, designs, knowledge,
know-how, software, data bases, skill, expertise, experience, processes, models,
drawings, materials and records.
1.20 "Inventory" means any "inventory," as such term is defined in Section
9109(4) of the UCC, wherever located, now or hereafter owned or acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest, and,
in any event, shall include, without limitation, all inventory, goods and other
personal property which are held by or on behalf of Borrower for sale or lease
or are furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed or to be
used or consumed in Borrower's business, or the processing, packaging,
promotion, delivery or shipping of the same, and all furnished goods whether or
not such inventory is listed on any schedules, assignments or reports furnished
to Lender from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Borrower or is held
by Borrower or by others for Borrower's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Borrower or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
1.21 "License" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.22 "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.23 "Loan Documents" shall mean and include this Agreement, the Note(s),
and any other documents executed in connection with the Secured Obligations or
the transactions contemplated hereby, as the same may from time to time be
amended, modified, supplemented or restated, provided, that the Loan Documents
--------
shall ~ include any of the Excluded Agreements.
1.24 "Material Adverse Effect" means a material adverse effect upon: (i)
the business, operations, properties, assets or conditions (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender
to enforce, the Secured Obligations other than limitations on Lender's ability
to enforce the Secured Obligations under any Subordination Agreement.
1.25 "Maturity Date" means the date thirty-six (36) months from the
Advance Date of each installment of the Loan.
1.26 "Patent License" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
1.27 "Patents" means all of the following now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) letters patent of,
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or rights corresponding thereto in, the United States or any other county, all
registrations and recordings thereof, and all applications for letters patent
of, or rights corresponding thereto in the United States or any other country,
including, without limitation, registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country; (b) all reissues,
continuations, continuations-in-part or extensions thereof; (c) all petty
patents, divisionals, and patents of addition; and (d) all patents to issue in
any such applications.
1.28 "Permitted Liens" means any and all of the following:
(i) Liens in favor of Lender;
(ii) Liens related to, or arising in connection with, Senior Debt;
(iii) any Liens existing as of the date hereof;
(iv) Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its books;
(v) purchase money Liens (i) on Equipment acquired or held by
Borrower incurred for financing the acquisition of the Equipment, or (ii)
existing on Equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the Equipment;
(vi) leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business;
(vii) Liens arising from judgements, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(viii) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower; provided such Liens are not granted in contemplation of or in
connection with the acquisition of such asset by Borrower;
(ix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of customs duties in connection with the
importation of goods;
(x) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums;
(xi) deposits under worker's compensation, unemployment insurance,
social security and other similar laws, or to secure the performance of bids,
tenders or contracts (other than for the repayment of borrowed money) or to
secure indemnity, performance or other similar bonds for the performance of
bids, tenders or contracts (other than for the repayment of borrowed money) to
secure statutory obligations (other than liens arising under ERISA or
Environmental Liens) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business;
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(xii) Liens arising by operation of law such as artisians',
mechanics', materialmen's, carriers', warehousemen's liens incurred in the
ordinary course of business;
(xiii) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (i-xiv) above, provided that any extension, renewal or replacement Lien
shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase.
1.29 "Proceeds" means "proceeds," as such term is defined in Section
9306(1) of the UCC and, in any event, shall include, without limitation, (a) any
and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to Borrower from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Borrower from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of Borrower against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
1.30 "Receivables" shall mean and include all of the Borrowers accounts,
instruments, documents, chattel paper and general intangibles whether secured or
unsecured, whether now existing or hereafter created or arising, and whether or
not specifically sold or assigned to Lender hereunder.
1.31 "Secured Obligations" shall mean and include all principal, interest,
fees, costs, or other liabilities or obligations for monetary amounts owed by
Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note(s), or any of the other Loan Documents, whether
or not evidenced by any Note(s), Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.32 "Senior Creditor" means a bank, insurance company, pension fund, or
other institutional lender to be determined, or a syndication of such
institutional lenders that provides Senior Debt financing to Borrower; provided,
--------
that Senior Creditor shall not include any officer, director, shareholder,
venture capital investor, or insider of Borrower, or any affiliate of the
foregoing persons, except upon the express written consent of Lender.
1.33 "Senior Debt" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees charges, expenses, costs, professional fees and expenses, and
reimbursement obligations at any time owing by Borrower to Senior Creditor under
the Senior Loan Documents, including, but not limited to such amounts as may
accrue or be incurred before or after default or workout or the
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commencement of any liquidation, dissolution, bankruptcy, receivership or
reorganization by or against Borrower.
1.34 "Senior Loan Documents" means the loan agreement between Borrower and
Senior Creditor and any other agreement, security agreement, document,
promissory note, UCC financing statement, or instrument executed by Borrower in
favor of Senior Creditor pursuant to or in connection with the Senior Debt or
the loan agreement, as the same may from time to time be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.35 "Subordination Agreement" means the Subordination Agreement of even
date herewith, entered into between Borrower and Lender for the benefit of
Senior Creditor.
1.36 "Trademark License" means any written agreement granting any right to
use any Trademark or Trademark registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.37 "Trademarks" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
1.38 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.39 "Warrant Agreement(s)" shall mean those agreements entered into in
connection with the Loan, substantially in the form attached hereto as Exhibit C
---------
pursuant to which Borrower granted Lender the right to purchase that number of
shares of Series C Preferred Stock of Borrower as more particularly set forth
therein.
SECTION 2. THE LOAN
2.1 The outstanding principal amount of the Loan, together with interest
thereon precomputed at the rate of eleven percent (11%) per annum, shall be due
and payable over a period of thirty six (36) months, such 36-month period shall
begin on the first day of the first full calendar month following the Advance
Date (the "Commencement Date"). Payments shall be made in thirty-six (36) equal
monthly installments of principal together with accrued interest, beginning on
the Commencement Date and continuing for the following thirty-five (35) months
(each, a "Payment Date"). If any payment under the Note(s) shall be payable on a
day other than a business day, then such payment shall be due and payable on the
next succeeding business day.
2.2 Borrower shall have the option to prepay the Note(s) in whole or in
part, after twelve (12) months from the Closing Date by paying the principal
amount thereon together with all accrued and unpaid interest with respect to
such principal amount, as of the date of such
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prepayment, without premium. In the event Borrower prepays the Note(s) within
twelve (12) months from the Closing Date hereof (unless in conjunction with an
IPO, whereupon no penalty or premium shall apply), Borrower shall pay the
principal amount together with all accrued and unpaid interest and a prepayment
premium equal to one percent (1%) of the then outstanding principal amount.
2.3 (a) Notwithstanding any provision in this Agreement, the Note(s), or
any other Loan Document, it is not the parties' intent to contract for, charge
or receive interest at a rate that is greater than the maximum rate permissible
by law which a court of competent jurisdiction shall deem applicable hereto
(which under the laws of the State of Illinois shall be deemed to be the laws
relating to permissible rates of interest on commercial loans) (the "Maximum
Rate"). If the Borrower actually pays Lender an amount of interest, chargeable
on the total aggregate principal Secured Obligations of Borrower under this
Agreement and the Note(s) (as said rate is calculated over a period of time from
the date of this Agreement through the end of time that any principal is
outstanding on the Note(s)), which amount of interest exceeds interest
calculated at the Maximum Rate on said principal chargeable over said period of
time, then such excess interest actually paid by Borrower shall be applied
first, to the payment of principal outstanding on the Note(s); second, after all
principal is repaid, to the payment of Lender's out of pocket costs, expenses,
and professional fees which are owed by Borrower to Lender under this Agreement
or the Loan Documents; and third, after all principal, costs, expenses, and
professional fees owed by Borrower to Lender are repaid, the excess (if any)
shall be refunded to Borrower, and the effective rate of interest will be
automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rate set forth in Section 2.1.
(c) Upon and during the continuation of an Event of Default hereunder,
all Secured Obligations, including principal, interest, compounded interest, and
professional fees, shall bear interest at a rate per annum equal to the rate set
forth in Section 2.1. plus five percent (5%) per annum ("Default Rate").
2.4 If the Borrower has not repaid the outstanding principal amount under
the Loan in its entirety by the Maturity Date (as defined in the applicable
Note(s)), then for each additional month, or portion thereof, thereafter that
the outstanding principal is not paid, Lender shall have the right to purchase
from the Borrower, at the Exercise Price (adjusted, as set forth and defined in
the Warrant Agreement), an additional number of shares of Preferred Stock which
number shall be determined by (i) multiplying the outstanding principal amount
which is due but unpaid by one percent (1%) and (ii) dividing the product
thereof by the Exercise Price.
SECTION 3. SECURITY INTEREST
As security for the prompt, complete and indefeasible payment when due
(whether at stated payment dates or otherwise) of all the Secured Obligations
and in order to induce Lender to make the Loan upon the terms and subject to the
conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Lender for security purposes only, and hereby
--------------------------
grants to Lender a security interest in, all of Borrower's right, title and
interest in, to and under each of the following (all of which being hereinafter
collectively called the "Collateral"):
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(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether tangible or
intangible and whether now or hereafter owned or existing, leased,
consigned by or to, or acquired by, Borrower and wherever located; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing.
The foregoing Collateral excludes Intellectual Property currently held or
hereafter obtained, including without limitation, the Borrower's right, title
and interest in or licenses to all patents, trademarks, service marks,
tradenames, copyrights, trade secrets, database or other information, and any
other proprietary rights or processes, provided, however, in the event Borrower
transfers, sells, assigns, hypothecates or otherwise encumbers its Intellectual
Property, without Lender's prior written consent, Lender's security interest
shall be deemed to include Intellectual Property.
Notwithstanding the foregoing, the security interest granted herein shall
not extend to and the term "Collateral" shall not include any property, rights
or licenses to the extent the granting of a security interest therein (i) would
be contrary to applicable law, or (ii) is prohibited by or would constitute a
default under any agreement or document governing such property, rights or
licenses (but only to the extent such prohibition is enforceable under
applicable law).
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that:
4.1 Borrower owns all right title and interest in and to the Collateral,
free of all liens, security interests, encumbrances and claims whatsoever,
except for Permitted Liens.
4.2 Borrower has the full power and authority to grant and convey to the
Lender, a perfected security interest in the Collateral as security for the
Secured Obligations, free of all liens, security interests, encumbrances and
claims, other than Permitted Liens and shall execute such Uniform Commercial
Code financing statements in connection herewith as the Lender may reasonably
request. Except as set forth herein, no other lien, security interest, adverse
claim or encumbrance has been created by Borrower or is known by Borrower to
exist with respect to any Collateral.
4.3 Borrower is a corporation duly organized, legally existing and in good
standing under the laws of the State of Delaware, and is duly qualified as a
foreign corporation in all
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jurisdictions in which the nature of its business or location of its properties
require such qualifications except where the failure to be qualified could
reasonably be expected to have a Material Adverse Effect.
4.4 Borrower's execution, delivery and performance of the Note(s), this
Agreement, all financing statements, all other Loan Documents required to be
delivered or executed in connection herewith, and the Warrant Agreement(s) have
been duly authorized by all necessary corporate action of Borrower, the
individual or individuals executing the Loan Documents and the Warrant
Agreement(s) were duly authorized to do so; and the Loan Documents and the
Warrant Agreement(s) constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization or other similar laws
generally affecting the enforcement of the rights of creditors.
4.5 This Agreement, the other Loan Documents and the Warrant Agreement(s)
do not and will not violate any provisions of Borrower's Certificate of
Incorporation, bylaws or any material contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which the Borrower is subject, or
result in the creation or imposition of any lien, security interest or other
encumbrance upon the Collateral, other than those created by this Agreement.
4.6 The execution, delivery and performance of this Agreement, the other
Loan Documents and the Warrant Agreement(s) do not require the consent or
approval of any other person or entity including, without limitation, any
regulatory authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any state thereof.
4.7 No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.8 No fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute an "event of default" as defined
under the Senior Loan Documents between Borrower and Senior Creditor.
4.9 Borrower has filed and will file all tax returns, federal, state and
local, which it is required to file and has duly paid or fully reserved for all
taxes or installments thereof (including any interest or penalties) as and when
due, which have or may become due pursuant to such returns or pursuant to any
assessment received by Borrower for the three (3) years preceding the Closing
Date, if any (including any taxes being contested in good faith and by
appropriate proceedings).
SECTION 5. INSURANCE
5.1 So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained commercial general liability insurance
against risks customarily insured against in Borrower's line of business. Such
risks shall include, without limitation, the risks of death, bodily injury and
property damage. So long as there are any Secured Obligations outstanding,
Borrower shall also cause to be carried and maintained insurance upon the
Collateral and Borrower's business, covering casualty, hazard and such other
property risks in amounts equal to the full replacement cost of the Collateral.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee
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and additional insured. Borrower shall use commercially reasonable efforts to
cause all policies evidencing such insurance to provide for at least thirty (30)
days prior written notice by the underwriter or insurance company to Lender in
the event of cancellation or expiration. Such policies shall be issued by such
insurers and in such amounts as are reasonably acceptable to Lender.
5.2 Borrower shall and does hereby indemnify and hold Lender, its agents
and shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including, without limitation, such claims, costs,
expenses, damages and liabilities based on liability in tort, including without
limitation, strict liability in tort), including reasonable attorneys' fees,
arising out of the disposition or utilization of the Collateral, other than
claims arising at or caused by Lender's gross negligence or willful misconduct.
SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30) days)
after the end of each month, unaudited interim financial statements as of
the end of such month (prepared on a consolidated and consolidating basis,
if applicable), including balance sheet and related statements of income
and cash flows accompanied by a report detailing any material contingencies
(including the commencement of any material litigation by or against
Borrower) or any other occurrence that could reasonably be expected to have
a Material Adverse Effect, all certified by Borrower's Chief Executive
Officer or Chief Financial Officer to be true and correct;
(b) as soon as practicable (and in any event within one hundred twenty
(120) days) after the end of each fiscal year, audited financial statements
as of the end of such year (prepared on a consolidated and consolidating
basis, if applicable), including balance sheet and related statements of
income and cash flows, and setting forth in comparative form the
corresponding figures for the preceding fiscal year, certified by a firm of
independent certified public accountants selected by Borrower and
reasonably acceptable to Lender, accompanied by any management report from
such accountants;
(c) promptly after the sending or filing thereof, as the case may be,
copies of any proxy statements, financial statements or reports which
Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange; and
(d) promptly, any additional information, financial or otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate Borrower's
continuing ability to meet its financial obligations.
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6.2 Subject to Borrower's normal security procedures, Borrower shall
permit any authorized representative of Lender and its attorneys and accountants
on reasonable notice to inspect, examine and make copies and abstracts of the
books of account and records of Borrower at reasonable times during normal
business hours. In addition, such representative of Lender and its attorneys and
accountants shall have the right to meet with management and officers of the
Company to discuss such books of account and records. Notwithstanding any
provision of this Agreement to the contrary, Borrower shall not be required to
disclose, permit the inspection, examination, copying or making extracts of, or
discuss, any document, information or other matter that the disclosure of which
to Lender or their designated representative, is then prohibited by (a) law, or
(b) an agreement binding Borrower that was not entered into the by Borrower for
the primary purpose of concealing information from the Lender.
6.3 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents;
procure any instruments or documents as may be reasonably requested by Lender;
and take all further action that may be reasonably necessary or desirable, or
that Lender may reasonably request, to confirm, perfect, preserve and protect
the security interests intended to be granted hereby, and in addition, and for
such purposes only, Borrower hereby authorizes Lender to execute and deliver on
behalf of Borrower and to file such financing statements, security agreement and
other documents without the signature of Borrower either in Lender's name or in
the name of Borrower as agent and attorney-in-fact for Borrower. The parties
agree that a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof.
6.4 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any Lien placed
thereon by Lender and Permitted Liens) and shall give Lender immediate written
notice thereof.
6.5 Without Lender's prior written consent, Borrower shall not (a) grant
any material extension of the time of payment of any of the Receivables, (b) to
any material extent, compromise, compound or settle the same for less than the
full amount thereof, except to the extent that such compromise or settlement
arises from a good faith dispute between the parties and is resolved pursuant to
the Borrower's customary business practices, (c) release, wholly or partly, any
Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon other than trade discounts granted in the ordinary course of
business of Borrower and except to the extent that such release, credit or
discount arises from a good faith dispute between the parties and is resolved
pursuant to the Borrower's customary business practices.
6.6 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear and except if the Borrower determines in its reasonable business
judgement that it is in the best interest of the Borrower not to do so) and from
time to time make or cause to be made all necessary and proper repairs, renewals
and replacements thereto and shall competently manage and care for its property
in accordance with prudent industry practices.
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6.7 Borrower shall not merge with and into any other entity; or sell or
convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of thirty (30) days prior to the
closing date and requesting Lender's consent to the assignment of all of
Borrower's Secured Obligations hereunder to the successor entity in form and
substance satisfactory to Lender provided that such consent by the Lender shall
not be required in any transaction in which the acquiring entity has a Moody's
Bond Rating of BA3 or better or a commercially acceptable equivalent measure of
creditworthiness as reasonably determined by Lessor. In the event Lender does
not consent to such assignment the parties agree Borrower shall prepay the Loan
in accordance with Section 2.2 hereof.
6.8 Borrower shall not, without the prior written consent of Lender, such
consent not to be unreasonably withheld,
(i) declare or pay any cash dividend or make a distribution on any class
of stock, other than:
(a) the repurchase of its capital stock from directors, officers,
employees and/or consultants upon exercise of its right of repurchase upon
termination of employment or services to Borrower, or
(b) conversion of any of its convertible securities into other
securities pursuant to the terms of such convertible securities or otherwise in
exchange therefor; or
(ii) transfer, sell, lease, lend or in any other manner convey any
equitable, beneficial or legal interest in any material portion of the assets of
Borrower other than:
(a) inventory sold in the normal course of business,
(b) transfers of non-exclusive licenses and similar arrangements for
the use of the property of Borrower,
(c) transfers of worn-out or obsolete Equipment or Equipment financed
by other vendors,
(d) joint ventures or strategic partnerships consisting of licensing
of technology, the development of technology or the providing of technical
support,
(e) investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business,
(f) travel advances, employee relocation loans and other employee
loans and advances in the ordinary course of business,
(g) loans to employees, officers or directors relating to the purchase
of equity securities of the Borrower,
(h) other loans to officers and employees of the Borrower in an
aggregate amount not in excess of $100,000 outstanding at any time, or
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(i) other transfers which in the aggregate do not exceed $100,000 in
any fiscal year.
6.9 Subject to Borrower's normal security procedures, and upon the prior
request of Lender, Borrower shall, during business hours, make the Inventory and
Equipment available to Lender for inspection at the place where it is normally
located and shall make Borrower's log and maintenance records pertaining to the
Inventory and Equipment available to Lender for inspection. Borrower shall take
all action necessary to maintain such logs and maintenance records in a correct
and complete fashion.
6.10 Borrower covenants and agrees to pay when due, all taxes, fees or
other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, Lender or the
Collateral arising from Borrower's ownership, possession, use, operation or
disposition thereof or upon Borrower's rents, receipts or earnings arising
therefrom provided, however, that Borrower shall not be responsible for any
taxes, fees or other charges arising from the income of Lender. Borrower shall
file on or before the due date therefor all personal property tax returns in
respect of the Collateral. Notwithstanding the foregoing, Borrower may contest,
in good faith and by appropriate proceedings, taxes for which Borrower maintains
adequate reserves therefor.
6.11 Borrower shall not relocate any item of the Collateral (other than
sale of inventory in the ordinary course of business and "mobile goods" as such
term is defined in the Illinois Commercial Code) unless (i) such relocation
shall be within the continental United States (ii) Borrower shall first cause to
be filed and/or delivered to the Lender all Uniform Commercial Code financing
statements, certificates or other documents or instruments necessary to continue
in effect the perfected security interest of the Lender in the Collateral, and
(iii) have given the Lender no less than thirty (30) days prior written notice
of such relocation.
6.12 Borrower shall not sell, transfer, assign, hypothecate or otherwise
encumber its Intellectual Property, other than licenses in the ordinary course
of business, without Lender's prior written consent, provided, however, that
Borrower may grant Senior Lender a security interest in Borrower's Intellectual
Property. Notwithstanding the foregoing, in the event Senior Lender is granted
any security interest in any intellectual property rights or interest of
Borrower, Borrower agrees to provide Lender with written notice thereof and that
Lender shall receive a second position security interest in such intellectual
property rights or interest, subordinate to Senior Lender.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to fund the Loan on each Advance Date shall be
subject to Lender's discretion and satisfactory completion of its due diligence
and approval process, and satisfaction by Borrower or waiver by Lender, in
Lender's sole discretion, of the following conditions:
7.1 Availability. The Advance Date for any installment shall occur on or
before January 12, 2000.
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<PAGE>
7.2 Contingencies. Borrower shall have (a) executed Equipment Schedules
under the Master Lease Agreement dated November 9, 1998, between Borrower and
Lender in the aggregate minimum amount of One Million Two Hundred Fifty Thousand
Dollars ($1,250,000) and (b) achieved 75% or more of its cumulative revenue and
125% (75%) or less (more) of its cumulative net loss (income) projections in the
prior three (3) months (the "Projections Test"). If Borrower has not achieved
the Projections Test, Borrower may request funds so long as Borrower has a
current cash balance in excess of twenty million dollars ($20,000,000).
7.3 Document Delivery. Borrower, on or prior to the Closing Date, shall
have delivered to Lender the following:
(a) executed originals of the Agreement, the Warrant Agreement, the
Subordination Agreement, and any documents reasonably required by Lender to
effectuate the liens of Lender, with respect to all Collateral;
(b) certified copy of resolutions of Borrower's board of directors
evidencing approval of the borrowing and other transactions evidenced by
the Loan Documents and the Warrant Agreement(s);
(c) certified copies of the Certificate of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would have a
Material Adverse Effect;
(e) payment of the Facility Fee;
(f) financial forecast;
(g) such other documents as Lender may reasonably request.
7.4 Advance Request. Borrower shall:
(a) deliver to Lender, at least five (5) business day prior to the
Advance Date, written notice in the form of an Advance Request, or as
otherwise specified by Lender from time to time, specifying the date and
amount of such Advance and wire transfer instructions.
(b) deliver executed original Note(s) as set forth in Section 2, as
applicable.
(c) such other documents as Lender may reasonably request.
7.5 Perfection of Security Interests. Borrower shall have taken or caused
to be taken such actions requested by Lender to grant Lender a perfected
security interest in the Collateral, subject only to Permitted Liens. Such
actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be necessary or desirable to
perfect the security interest of Lender in such Collateral.
-15-
<PAGE>
7.6 Absence of Events of Defaults. As of the Closing Date or the Advance
Date, no fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute an Event of Default under this
Agreement or any of the Loan Documents and no fact or condition exists that
would (or would, with the passage of time, the giving of notice, or both)
constitute an event of default as defined in the Senior Loan Documents between
Borrower and Senior Creditor.
7.7 Material Adverse Effect. As of the Closing Date or the Advance Date,
no event which has had or could reasonably be expected to have a Material
Adverse Effect has occurred and is continuing.
SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note(s)
and other Loan Documents:
8.1 Borrower defaults in the payment of any principal, interest or other
Secured Obligation involving the payment of money under this Agreement, the
Note(s) or any of the other Loan Documents, and such default continues for more
than five (5) days after the due date thereof; or
8.2 Borrower defaults in the performance of any other covenant or Secured
Obligation of Borrower hereunder or under the Note(s) or any of the other Loan
Documents, and such default continues for more than twenty (20) days after
Lender has given notice of such default to Borrower.
8.3 Any representation or warranty made herein by Borrower shall prove to
have been false or misleading in any material respect; or
8.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower; or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
8.5 Sixty (60) days shall have expired after the commencement of an action
by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
-16-
<PAGE>
8.6 Sixty (60) days shall have expired after the appointment, without the
consent or acquiescence of Borrower, of any trustee, receiver or liquidator of
Borrower or of all or any substantial part of the properties of Borrower without
such appointment being vacated; or
8.7 Upon the occurrence and during the continuance of a default (and after
all applicable grace periods have expired) by Borrower under any Excluded
Agreement(s), any other promissory note, agreement for borrowed money, or any
other agreement, in each case, between Borrower and Lender that has not been
cured within any applicable grace period; or
8.8 Upon the occurrence and during the continuance of a default under any
lease or other agreement or obligation of Borrower involving an amount in excess
of $250,000.00 that has not been cured within any applicable grace period or
having a Material Adverse Effect; or the entry of any judgment against Borrower
involving an award in excess of $250,000.00 that could reasonably be expected to
have a Material Adverse Effect, that has not been bonded or stayed on appeal
within thirty (30) days; or
8.9 The occurrence of any material event of default as defined under the
Senior Loan Documents that has not been cured within any applicable grace
period.
SECTION 9. REMEDIES
Upon the occurrence and continuance of any one or more Events of Default,
Lender, at its option, may declare the Note and all of the other Secured
Obligations to be accelerated and immediately due and payable (provided, that
--------
upon the occurrence of an Event of Default of the type described in Sections 8.4
or 8.5, the Note(s) and all of the other Secured Obligations shall automatically
be accelerated and made due and payable without any further act), whereupon the
unpaid principal of and accrued interest on such Note(s) and all other
outstanding Secured Obligations shall become immediately due and payable, and
shall thereafter bear interest at the Default Rate set forth in, and calculated
according to, Section 2.3 (c) of this Agreement. Lender may exercise all rights
and remedies with respect to the Collateral under the Loan Documents or
otherwise available to it under applicable law, including the right to release,
hold or otherwise dispose of all or any part of the Collateral and the right to
occupy, utilize, process and commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
ten (10) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender in the following order of
priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs and
professionals' and advisors' fees and expenses;
-17-
<PAGE>
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in its
sole discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction may
direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordination Agreement.
SECTION 10. MISCELLANEOUS
10.1 Continuation of Security Interest. This is a continuing Agreement and
the grant of a security interest hereunder shall remain in full force and effect
and all the rights, powers and remedies of Lender hereunder shall continue to
exist until the Secured Obligations are paid in full as the same become due and
payable and until Lender has executed a written termination statement (which
Lender shall execute at Borrower's request upon full payment of the Secured
Obligations hereunder), releasing to Borrower, without recourse, the Collateral
and all rights conveyed hereby and returning possession of the Collateral to
Borrower. The rights, powers and remedies of Lender hereunder shall be in
addition to all rights, powers and remedies given by statute or rule of law and
are cumulative. The exercise of any one or more of the rights, powers and
remedies provided herein shall not be construed as a waiver of or election of
remedies with respect to any other rights, powers and remedies of Lender.
10.2 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
10.3 Notice. Except as otherwise provided herein, all notices and service
of process required, contemplated, or permitted hereunder or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given or delivered upon the earlier of: (i) the first business
day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the fifth
calendar day after deposit in the United States mails certified mail, return
receipt requested, with proper first class postage prepaid, and shall be
addressed to the party to be notified as follows:
(a) If to Lender:
------------
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5088
-18-
<PAGE>
With a copy to:
--------------
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5465
(b) If to Borrower:
--------------
10230 Northeast Points Drive
Kirkland, WA 98033
Attention: Terry Drayton
Facsimile: (425) 201-7575
Phone: (425) 201-7500
or to such other address as each party may designate for itself by like notice.
10.4 Entire Agreement; Amendments. This Agreement, the Note(s), and the
other Loan Documents, and the Warrant Agreement(s) constitute the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof and thereof, and supersede and replace in their entirety any prior
proposals, term sheets, letters, negotiations or other documents or agreements,
whether written or oral, with respect to the subject matter hereof or thereof
(including, without limitation, Lender's proposal letter dated May 21, 1999, all
of which are merged herein and therein. None of the terms of this Agreement, the
Note(s), any of the other Loan Documents or Warrant Agreement(s) may be amended
except by an instrument executed by each of the parties hereto.
10.5 Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
10.6 No Waiver. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
10.7 Survival. All agreements, representations and warranties contained in
this Agreement, the Note(s), the other Loan Documents and the Warrant
Agreement(s) or in any document delivered pursuant hereto or thereto shall be
for the benefit of Lender and shall survive the execution and delivery of this
Agreement and the expiration or other termination of this Agreement as to
Sections 5.2 and 6.10.
10.8 Successor and Assigns. The provisions of this Agreement, the other
Loan Documents and the Warrant Agreement(s) shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any). Unless otherwise
provided herein, Borrower shall not assign its obligations under this Agreement,
the Note(s), any of the other Loan Documents or the Warrant Agreement(s),
without Lender's express written consent, and any such attempted assignment
shall be void and of no effect. Lender may assign, transfer, or endorse its
rights
-19-
<PAGE>
hereunder and under the other Loan Documents or Warrant Agreement(s) without
prior notice to Borrower, and all of such rights shall inure to the benefit of
Lender's successors and assigns.
10.9 Further Indemnification. Borrower agrees to pay, and to save Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement, except
that Borrower shall not indemnify Lender for any taxes based upon the income of
Lender.
10.10 Governing Law. This Agreement, the Note(s), the other Loan Documents
and the Warrant Agreement(s) have been negotiated and delivered to Lender in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. Payment to Lender by Borrower of the Secured Obligations
is due in the State of Illinois. This Agreement, the Note(s), the other Loan
Documents and the Warrant Agreement(s) shall be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
10.11 Consent To Jurisdiction And Venue. All judicial proceedings arising
in or under or related to this Agreement, the Note(s), any of the other Loan
Documents or Warrant Agreement(s) may be brought in any state or federal court
of competent jurisdiction located in the State of Illinois. By execution and
delivery of this Agreement, each party hereto generally and unconditionally: (a)
consents to personal jurisdiction in Cook County, State of Illinois; (b) waives
any objection as to jurisdiction or venue in Cook County, State of Illinois; (c)
agrees not to assert any defense based on lack of jurisdiction or venue in the
aforesaid courts; and (d) irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement, the Note(s), the other Loan
Documents or Warrant Agreement(s). Service of process on any party hereto in any
action arising out of or relating to this agreement shall be effective if given
in accordance with the requirements for notice set forth in Section 10.3, above
and shall be deemed effective and received as set forth in Section 10.3, above.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of either party to bring proceedings
in the courts of any other jurisdiction.
10.12 Mutual Waiver Of Jury Trial. Because disputes arising in connection
with complex financial transactions are most quickly and economically resolved
by an experienced and expert person and the parties wish applicable state and
federal laws to apply (rather than arbitration rules), the parties desire that
their disputes be resolved by a judge applying such applicable laws. EACH OF
BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY
OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR
ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR
ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver
extends to all such Claims, including, without limitation, Claims which involve
persons or entities other than Borrower and Lender; Claims which arise out of or
are in any way connected to the relationship between Borrower and Lender; and
any Claims for damages, breach of contract arising out of this Agreement, any
other Loan Document or any, of the Excluded Agreements, specific performance, or
any equitable or legal relief of any kind.
10.13 Confidentiality. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual
-20-
<PAGE>
Property, and any Financial Statements provided pursuant to Section 6 hereof,
constitute proprietary and confidential information of the Borrower (the
"Confidential Information"). Accordingly, Lender agrees that any Confidential
Information it may obtain in the course of acquiring, perfecting or foreclosing
on the Collateral or otherwise provided under this Agreement, provided such
Confidential Information is identified as confidential by Borrower at the time
of disclosure, shall be received in the strictest confidence and will not be
disclosed to any other person or entity in any manner whatsoever, in whole or in
part, without the prior written consent of the Borrower, unless and until Lender
has acquired indefeasible title thereto.
10.14 Counterparts. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
-21-
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered
this Agreement as of the day and year first above written.
BORROWER: HOMEGROCER.COM, INC.
Signature: /s/ Terry Drayton
--------------------------------
Print Name: Terry Drayton
--------------------------------
Title: President
-------------------------------------
Accepted in Rosemont, Illinois:
- -------------------------------
LENDER: COMDISCO, INC.
Signature: /s/ James Labe
---------------------------------
Print Name: James Labe
--------------------------------
Title: President
-------------------------------------
-22-
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
$[amount] Kirkland, Washington
September 9,1999
FOR VALUE RECEIVED, the undersigned, Mary Alice Taylor (the "Debtor"),
promises to pay to the order of HomeGrocer.com, Inc. (the"Holder"), or
its assigns, the principal sum of $[amount], together with interest from
the date of this Promissory Note on the unpaid principal balance at a rate
equal to 5.98% per annum, computed on the basis of the actual number of
days elapsed and a year of 360 days consisting of twelve 30-day months,
compounded annually. All unpaid principal, together with any then unpaid
and accrued interest and other amounts payable hereunder, shall be due and
payable September 9, 2004.
1. Security. This Promissory Note is secured by a pledge of [shares]
--------
shares of Common Stock of the Holder, and is subject to all of the terms
and provisions of that certain Nonqualified Stock Option Letter Agreement,
Exercise Notice and Restricted (Unvested) Stock Purchase Agreement, all
dated as of September 9,1999. The holder of this Promissory Note shall
have full recourse against the maker. The Company shall proceed first
against the collateral securing the Promissory Note in the Event of
Default and then against all other assets of the maker to the extent of
any remaining outstanding principal or interest under this Promissory
Note.
2. Rule 144. The undersigned understands that the holding period
--------
under Rule 144 of the Securities Act of 1933 generally will not begin to
run until this Note has been paid in full, unless this Promissory Note has
been adequately secured by collateral other than the shares purchased with
this Note.
3. Prepayment. The undersigned may prepay this Promissory Note in
----------
whole or in part and without penalty at any time. All payments hereon,
including any prepayment, shall be applied first to accrued interest and
second to the reduction of the principal.
4. Events of Default. The occurrence of any of the following shall
--------- -------
constitute an "Event of Default" under this Promissory Note:
(a) Failure to Pay Principal or Interest. The Debtor shall be deemed
------------------------------------
to be in default under this Promissory Note in the event payment of
principal or interest due on the Promissory Note shall be delinquent for a
period of ten (10) days or more.
<PAGE>
(b) Voluntary Bankruptcy or Insolvency Proceedings. Debtor shall (i)
----------------------------------------------
apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of its or any of its
creditors, (iii) be dissolved or liquidated in full or in part, (iv)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking
possession of its property by any official in an involuntary case or other
proceeding commenced against it, or (v) take any action for the purpose of
effecting any of the foregoing; or
(c) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
------------------------------------------------
the appointment of a receiver, trustee, liquidator or custodian of Debtor
or of all or a substantial part of the property thereof or an involuntary
case or other proceedings seeking liquidation, reorganization or other
relief with respect to Debtor or the debts thereof under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within sixty (60) days of commencement.
5. Rights of Holder upon Default. Upon the occurrence or existence
-----------------------------
of any Event of Default, immediately and without notice, all outstanding
obligations payable by Debtor hereunder shall automatically become
immediately due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived.
6. Successors and Assigns. The rights and obligations of the Debtor
----------------------
and the Holder shall be binding upon and benefit the successors, assigns,
heirs, administrators, and permitted transferees of the parties; provided,
however, that the Debtor may not assign its rights and obligations under
this Note (except by operation of law) without the prior written consent of
the Holder.
7. Waiver and Amendment. Any provision of this Promissory Note may
--------------------
be amended, waived or modified upon the written consent of Debtor and the
Holder.
8. Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a)
three (3) days after deposit with the U.S. Postal Service or other
applicable postal service, by registered or certified mail, postage
prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid or (d) one business day after the business day of
facsimile transmission, if delivered by facsimile transmission
<PAGE>
with copy by first class mail, postage prepaid, and shall be addressed (i)
if to Debtor, at Debtor's address as set forth in the Company's records,
and (ii) if to Company, at the address of its principal corporate offices
(attention: Corporate Secretary), or at such other address as a party may
designate by ten days' advance written notice to the other party pursuant
to the provisions above.
9. Payment. Payment shall be made in lawful tender of the United
-------
States.
10. Usury. In the event any interest is paid on this Promissory Note
-----
which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the
then legal maximum rate shall be deemed a payment of principal and applied
against the principal of this Promissory Note.
11. Severability. The holding of any provision of this Promissory
------------
Note to be invalid or unenforceable by a court of competent jurisdiction
shall not affect any other provisions and the other provisions of this Note
shall remain in full force and effect.
12. Governing Law. This Promissory Note and all actions arising out
-------------
of or in connection with this Note shall be governed by and construed in
accordance with the laws of the State of Washington, without regard to the
conflicts of law provisions of the State of Washington or of any other
state.
13. Miscellaneous.
--------------
(a) The Debtor hereby waives presentment, demand for performance,
notice of non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of the Holder in exercising any right
hereunder shall operate as a waiver of such right or any other right.
(b) If an action is instituted for collection of this Promissory
Note, the undersigned agrees to pay court costs and reasonable attorneys'
fees incurred by the holder hereof.
IN WITNESS WHEREOF, the undersigned has caused this Promissory Note to be
issued as of the date first written above.
/s/ Mary Alice Taylor
---------------------
Mary Alice Taylor
<PAGE>
Outstanding terms on this form of promissory note.
Amount Shares
- -------------------------------------------------------------
$2,025,000.00 2,250,000
- -------------------------------------------------------------
$ 216,000.00 240,000
- -------------------------------------------------------------
<PAGE>
EXHIBIT 10.8
PROMISSORY NOTE
$[amount] Kirkland, Washington
September 9, 1999
FOR VALUE RECEIVED, the undersigned, J. Terrence Drayton (the
"Debtor"), promises to pay to the order of HomeGrocer.com, Inc.
(the"Holder"), or its assigns, the principal sum of $[amount], together
with interest from the date of this Promissory Note on the unpaid
principal balance at a rate equal to 5.98% per annum, computed on the
basis of the actual number of days elapsed and a year of 360 days
consisting of twelve 30-day months, compounded annually. All unpaid
principal, together with any then unpaid and accrued interest and other
amounts payable hereunder, shall be due and payable September 9, 2004.
1. Security. This Promissory Note is secured by a pledge of [shares]
--------
shares of Common Stock of the Holder, and is subject to all of the terms
and provisions of that certain Nonqualified Stock Option Letter Agreement,
Exercise Notice and Restricted (Unvested) Stock Purchase Agreement, all
dated as of September 9,1999. The holder of this Promissory Note shall
have full recourse against the maker. The Company shall proceed first
against the collateral securing the Promissory Note in the Event of
Default and then against all other assets of the maker to the extent of
any remaining outstanding principal or interest under this Promissory
Note.
2. Rule 144. The undersigned understands that the holding period
--------
under Rule 144 of the Securities Act of 1933 generally will not begin to
run until this Note has been paid in full, unless this Promissory Note has
been adequately secured by collateral other than the shares purchased with
this
Note.
3. Prepayment. The undersigned may prepay this Promissory Note in
----------
whole or in part and without penalty at any time. All payments hereon,
including any prepayment, shall be applied first to accrued interest and
second to the reduction of the principal.
4. Events of Default. The occurrence of any of the following shall
--------- -------
constitute an "Event of Default" under this Promissory Note:
(a) Failure to Pay Principal or Interest. The Debtor shall be deemed
------------------------------------
to be in default under this Promissory Note in the event payment of
principal or interest due on the Promissory Note shall be delinquent for a
period of ten (10)
<PAGE>
days or more.
(b) Voluntary Bankruptcy or Insolvency Proceedings. Debtor shall (i)
----------------------------------------------
apply for or consent to the appointment of a receiver, trustee, liquidator
or custodian of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of its or any of its
creditors, (iii) be dissolved or liquidated in full or in part, (iv)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking
possession of its property by any official in an involuntary case or other
proceeding commenced against it, or (v) take any action for the purpose of
effecting any of the foregoing; or
(c) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
------------------------------------------------
the appointment of a receiver, trustee, liquidator or custodian of Debtor
or of all or a substantial part of the property thereof or an involuntary
case or other proceedings seeking liquidation, reorganization or other
relief with respect to Debtor or the debts thereof under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be
dismissed or discharged within sixty (60) days of commencement.
5. Rights of Holder upon Default. Upon the occurrence or existence
-----------------------------
of any Event of Default, immediately and without notice, all outstanding
obligations payable by Debtor hereunder shall automatically become
immediately due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived.
6. Successors and Assigns. The rights and obligations of the Debtor
----------------------
and the Holder shall be binding upon and benefit the successors, assigns,
heirs, administrators, and permitted transferees of the parties; provided,
however, that the Debtor may not assign its rights and obligations under
this Note (except by operation of law) without the prior written consent of
the Holder.
7. Waiver and Amendment. Any provision of this Promissory Note may
--------------------
be amended, waived or modified upon the written consent of Debtor and the
Holder.
8. Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a)
three (3) days after deposit with the U.S. Postal Service or other
applicable postal service, by registered or certified mail, postage
prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal
<PAGE>
Express or similar overnight courier, freight prepaid or (d) one business
day after the business day of facsimile transmission, if delivered by
facsimile transmission with copy by first class mail, postage prepaid, and
shall be addressed (i) if to Debtor, at Debtor's address as set forth in
the Company's records, and (ii) if to Company, at the address of its
principal corporate offices (attention: Corporate Secretary), or at such
other address as a party may designate by ten days' advance written notice
to the other party pursuant to the provisions above.
9. Payment. Payment shall be made in lawful tender of the United
-------
States.
10. Usury. In the event any interest is paid on this Promissory Note
-----
which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the
then legal maximum rate shall be deemed a payment of principal and applied
against the principal of this Promissory Note.
11. Severability. The holding of any provision of this Promissory
------------
Note to be invalid or unenforceable by a court of competent jurisdiction
shall not affect any other provisions and the other provisions of this Note
shall remain in full force and effect.
12. Governing Law. This Promissory Note and all actions arising out
-------------
of or in connection with this Note shall be governed by and construed in
accordance with the laws of the State of Washington, without regard to the
conflicts of law provisions of the State of Washington or of any other
state.
13. Miscellaneous.
--------------
(a) The Debtor hereby waives presentment, demand for performance,
notice of non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of the Holder in exercising any right
hereunder shall operate as a waiver of such right or any other right.
(b) If an action is instituted for collection of this Promissory
Note, the undersigned agrees to pay court costs and reasonable attorneys'
fees incurred by the holder hereof.
IN WITNESS WHEREOF, the undersigned has caused this Promissory Note to be
issued as of the date first written above.
/s/ J. Terrence Drayton
----------------------------------
J. Terrence Drayton
<PAGE>
Outstanding terms on this form of promissory note.
- ------------------------------------------------------
Amount Shares
- ------------------------------------------------------
$742,500.00 825,000
- ------------------------------------------------------
$247,500.00 275,000
- ------------------------------------------------------
<PAGE>
EXHIBIT 10.13
LEASE
THIS LEASE is made as of the 19th day of May, 1999, by and between THE
PLAZA AT YARROW BAY, LLC, a Washington limited liability company ("Landlord"),
and HomeGrocer.com, Inc., a Delaware corporation ("Tenant").
For and in consideration of the mutual promises, covenants and conditions
set forth in this Lease, Landlord and Tenant agree as follows:
SECTION I - PREMISES
1.1 Premises. Landlord hereby leases to Tenant and Tenant hereby leases
--------
from Landlord, those certain premises (the "Premises") having a rentable area of
72,104 square feet and a usable area of 68,874 square feet. The area of the
Premises is based upon the building area survey dated September 7, 1998,
prepared by Dick Connel Design Group. The Premises are situated on the first,
second, third and fourth floors of a building located on the real property
legally described in Exhibit A-1 attached, and all improvements thereon, and all
rights appurtenant thereto (the "Building"). The Premises are more particularly
shown on the floor plan of the Building attached to this Lease as Exhibit B. The
Building is part of a multi-phase project located on the real property legally
described on Exhibit A-2 attached, and all improvements thereon, and all rights
appurtenant thereto, commonly known as The Plaza at Yarrow Bay (the "Park"). The
Building is commonly referred to as Building II of the Park.
1.2 Reserved to Landlord. Landlord reserves all air rights over the
--------------------
Premises, the use of the exterior walls, the roof, and the right to install,
maintain, use, repair and replace pipes, ducts, conduits and wires leading
through the Premises in locations which will not materially interfere with
Tenant's use thereof to serve other parts of the Building and/or the Park.
1.3 Changes to Park. Landlord reserves the right at any time to make
---------------
alterations or additions to the Building and to build adjoining the same.
Landlord also reserves the right from time to time to construct other buildings
or improvements in the Park, to make alterations thereof or additions thereto,
and to relocate the various buildings, parking and other common areas comprising
the Park.
SECTION II - TERM
2.1 Lease Term. This Lease shall be for a term of approximately sixty (60)
----------
months, commencing the day (the "Commencement Date") specified in Landlord's
notice to Tenant in writing that the Premises will be available for Tenant's
occupancy; provided that if a portion of the Premises (but in no event less than
all of the Premises located on a given floor of the Building) becomes available
before some other portion of the Premises is available, then Landlord shall
provide the notice for Lease commencement for the available portion when it
1
<PAGE>
comes available and the Lease shall commence with respect to that space on the
date specified in Landlord's written notice to Tenant.
The "Target Commencement Date" is September 1, 1999, which date is only an
estimate of the date the Premises will be available for Tenant's occupancy.
Landlord shall have no liability to Tenant and this Lease shall not be void or
voidable if the Premises are not delivered to Tenant by the Target Commencement
Date. Notwithstanding the foregoing, if Landlord has not delivered possession of
the Premises to Tenant within sixty (60) days from the Target Commencement Date,
then at Tenant's option, which must be exercised by written notice given to
Landlord within thirty (30) days after the expiration of said 60-day period,
this Lease shall terminate and neither party shall have any further rights or
liabilities hereunder; provided, if Landlord is unable to deliver possession of
the Premises to Tenant within the 60-day period due to delays caused by Tenant,
or material shortages, labor strikes or other reasons beyond Landlord's control,
the 60-day period shall be extended by the number of days of delay experienced
by Landlord.
2.2 Early Entry. If Tenant is permitted entry to the Premises prior to
-----------
Commencement Date for the purpose of installing tenant improvements or fixtures
or any other purpose permitted by Landlord, such early entry will be at Tenant's
sole risk and subject to all the terms and provisions of this Lease as though
the Commencement Date had occurred, except for the payment of rent and
additional rent. Tenant, its agents and employees will not interfere with or
delay Landlord's completion of construction of any improvements to be made by
Landlord. All rights of Tenant under this Section 2.2 will be subject to the
requirements of all applicable building codes and zoning requirements, and must
not interfere with Landlord. Landlord has the right to impose such additional
conditions on Tenant's early entry as Landlord deems appropriate in its sole
discretion, and will further have the right to require that Tenant execute an
early entry agreement containing such conditions prior to Tenant's early entry.
2.3 Acceptance of Premises. Tenant shall inspect the Premises, or any
----------------------
portion thereof, upon taking possession, and except as Tenant may otherwise
notify Landlord in writing within thirty (30) days after taking possession,
Tenant shall be deemed to have accepted the Premises in their condition at that
time, except as to latent defects.
2.4 Term. The term of this Lease shall commence on the Commencement Date
----
for each respective floor and, regardless of when the Lease commences with
respect to various portions of the Premises, this Lease shall expire at 11:59
p.m. on August 31, 2004, unless sooner terminated or extended as provided in
this Lease.
2.5 Option to Extend.
----------------
a. So long as Tenant is not then in default under this Lease, and so
long as Tenant has not been ten (10) or more days late in payment of rent after
written notice thereof more than a total of three (3) times during the term of
this Lease, Tenant shall have the right to extend the Lease term for two (2)
additional five (5) year periods (each an "Additional Term") on
2
<PAGE>
the terms and conditions stated in this paragraph. To exercise its right to
extend this Lease for an Additional Term, Tenant must deliver to Landlord a
written notice exercising its rights under this paragraph at least two hundred
seventy (270) days, but not more than three hundred sixty (360) days, prior to
the date the Lease term will expire. All the terms and conditions of this Lease
shall apply during each Additional Term except (i) the minimum rent shall be an
amount mutually agreed to by Landlord and Tenant or determined by arbitration as
set forth below but in no event shall it be less than that due from Tenant
immediately prior to the commencement of the Additional Term; (ii) unless
otherwise agreed by Landlord in writing, there shall be no further extension
options; and (iii) except as set forth in Section 2.5(e) below, Landlord shall
have no tenant improvement or lease commission obligations with respect to the
Premises. When the rental rate for the Additional Term is determined, either by
agreement of the parties or pursuant to arbitration as provided below, Landlord
and Tenant shall enter into a lease extension agreement setting forth the new
minimum rent for the Premises and such other terms as may be applicable. If at
the time Tenant delivers to Landlord its written notice electing to extend this
Lease term, or at any time between such date and the commencement date of the
Additional Term, Tenant defaults under this Lease and fails to cure the default
within the applicable cure period, if any, Landlord shall have the option to
declare Tenant's notice of exercise null and void by written notice to Tenant,
in which case the Lease term shall expire on the expiration of the then current
Lease term.
b. If Tenant exercises an extension right under this paragraph, the
minimum rent for the Additional Term shall be the then "fair market rent"
(defined below) for the Premises. For purposes of this Lease, the term "fair
market rent" shall mean the triple net rate per rentable square foot that
willing, non-equity, non-renewal tenants are paying for comparable space in the
building and in comparable buildings in the Kirkland-Bellevue areas for leases
having a five (5) year term without including the value of any improvements paid
for by Tenant (but including any improvements made by Tenant at the commencement
of the initial Lease term). Landlord shall advise Tenant in writing of
Landlord's determination of fair market rent for the Premises not later than
thirty (30) days after Tenant exercises its extension right. Within thirty (30)
days after receiving Landlord's determination of fair market rent, Tenant shall
notify Landlord in writing whether or not Tenant accepts Landlord's
determination of fair market rent. If Tenant disagrees with Landlord's
determination of fair market rent, Tenant shall advise Landlord of Tenant's
determination of fair market rent in the notice required pursuant to the
preceding sentence. If Tenant fails to so notify Landlord prior to expiration of
its thirty (30) day period to respond to Landlord's notice, then Tenant's notice
exercising its renewal rights under this paragraph shall be deemed null and
void, unless otherwise agreed in writing by Landlord and Tenant. If Tenant does
not accept Landlord's determination of fair market rent, the parties shall
promptly meet and attempt to resolve their differences. If the parties have not
agreed on the fair market rent within sixty (60) days after Tenant has exercised
its renewal right, or sooner, if Tenant disagrees with Landlord's determination
of fairmarket rent, and Tenant's renewal option is still in effect in accordance
with the terms of this paragraph, then unless otherwise agreed in writing by the
parties, the parties shall submit the matter to arbitration in accordance with
the terms of paragraph (c) below. The last day of such period shall be referred
in this Lease as the "Arbitration Commencement Date."
3
<PAGE>
c. The arbitration will be conducted by three MIA real estate
appraisers who have been active over the five (5) year period ending on the
Arbitration Commencement Date in the appraisal of office properties in the
Kirkland-Bellevue area. One appraiser will be selected by Tenant, one appraiser
will be selected by Landlord, and the third will be selected by the two
appraisers so chosen. If the two appraisers chosen by the parties cannot agree
on a third appraiser within ten (10) days after the date the second appraiser
has been appointed, the third appraiser will be appointed by the Seattle office
of the American Arbitration Association upon the application of either party.
Each party shall select its appraiser within ten (10) days after the Arbitration
Commencement Date. If either party fails to select its appraiser within such ten
(10) day period, and the other party duly selects its appraiser, then the
appraiser selected by the other party shall be the sole arbitrator for
determining fair market rent. With twenty (20) days after the selection of the
third appraiser (or if only one appraiser is to render the decision, within
twenty (20) days after the last day of the above-referenced ten (10) day
period), the appraiser(s) shall determine fair market rent. The decision of a
majority of the appraisers shall control. If a majority of the appraisers do not
agree within the stipulated time period, then each appraiser shall in writing
render his or her separate determination as to fair market rent within five (5)
days after the expiration of the twenty (20) day period. In such case, the three
determinations shall be averaged to determine the fair market rent; however, if
the lowest fair market rent or the highest fair market rent is ten percent (10%)
lower or higher, as applicable, than the middle fair market rent, then the low
fair market rent and/or the high fair market rent, as applicable, shall be
disregarded and the remaining fair market rent(s) will be averaged in order to
establish the fair market rent.
d. Both parties may submit any information to the arbitrators for
their consideration, with copies to the other party. The arbitrators shall have
the right to consult experts and competent authorities for factual information
or evidence pertaining to the determination of fair market rent. The arbitrators
shall have no power to modify the provisions of this Lease. The determination of
the arbitrators will be final and binding upon Landlord and Tenant. The cost of
the arbitration will be paid by Landlord if the fair market rent is ninety
percent (90%) or less than the fair market rent specified in the notice given by
Landlord to Tenant; by Tenant if the fair market rent is one hundred ten percent
(110%) or more than the fair market rent specified in the notice given by Tenant
to Landlord; and otherwise shall be shared equally by Landlord and Tenant.
e. This option to extend is personal to Tenant and cannot be
transferred without Landlord's consent in accordance with this Lease, except
that a Transferee who satisfies the requirements of Section 11.2 below will also
receive a transfer of this option to extend. Each time the Tenant exercises an
extension option, Landlord shall provide Tenant a three dollar ($3.00) per
useable square foot tenant improvement allowance, at the commencement of the
Additional Term, or within ten (1.0) business days after delivery to Landlord of
invoices showing payment, whichever is later, to reimburse Tenant for its out-
of-pocket expenses to be made to improve or refurbish the Premises, including
repainting, carpeting, or other improvements. At Tenant's option and upon
presentation to Landlord of proof of expenses incurred, the three dollar ($3.00)
per useable square foot allowance provided to Tenant at the
4
<PAGE>
commencement of the first Additional Term may be applied to reimburse Tenant for
the hard cost of tenant improvements previously made to the Premises not
reimbursed out of the initial five dollar ($5.00) per useable square foot tenant
improvement allowance. The Tenant Improvement Allowance provided to Tenant for
the Second Additional Term shall not be applied to reimburse Tenant improvements
previously made to the Premises.
2.6 Right of First Offer. Tenant is granted a right of first offer to all
--------------------
(but not less than all) of Building IV of the Park if such space becomes
available for lease during the initial term of the Lease, provided that Tenant
is not then in default under this Lease, and provided that Tenant is not then
subleasing more than 25,000 rentable square feet of space in the Park, or has
not then assigned its interest in more than 25,000 rentable square feet of its
space in the Park. Landlord shall provide Tenant with written notice promptly
upon learning that all of Building IV will be available for Lease, and propose a
fair market rent and other lease terms and conditions ("Landlord's Notice"). If
Tenant fails to provide written notice within fifteen (15) days after receipt of
Landlord's Notice that it wishes to negotiate for the lease of all of Building
IV, the right of first offer shall expire. If Tenant provides Landlord with a
written reply within fifteen days of receiving Landlord's Notice that Tenant
wishes to negotiate for the lease of Building IV, then Landlord and Tenant shall
promptly commence negotiations for Tenant's lease of Building IV. If Landlord
and Tenant do not execute and mutually acceptable lease for Building IV, under
which Tenant will actually occupy the Premises, within thirty (30) days after
Landlord's Notice to Tenant under this paragraph, then the right of first offer
shall expire, and Landlord may lease Building IV space to other tenants.
SECTION III -- RENT
3.1 Minimum Rent. Tenant shall pay to Landlord, c/o JSH Properties, Inc.,
------------
at 10220 N.E. Points Drive, Suite 203, Kirkland, Washington 98033, or to such
other entity or address as may be specified by Landlord from time to time,
without any set-off or deduction whatsoever, as fixed minimum rent, the amounts
per month set forth on attached Exhibit D. Monthly installments of fixed minimum
rent are due on or before the first day of each month of the Lease term. Rent
for partial months shall be prorated; rent shall commence with respect to each
floor of the Premises ten (10) days after the Lease commences for such floor.
The minimum rent is referred to herein as "rent," and it does not include the
additional rent payable by Tenant pursuant to this Section III. Upon mutual
execution of this Lease, Tenant shall deposit with Landlord first month's rent
for the entire Premises. The rent rate shown on attached Exhibit D for the first
Lease year shall also apply to any rent owed by Tenant for any portion of the
Premises prior to September 1, 1999.
3.2 Additional Rent. In addition to rent, all other sums to be paid or
---------------
reimbursed by Tenant to Landlord, whether or not so designated, are "additional
rent" for the purposes of this Lease. If Tenant defaults in the performance of
any of its obligations hereunder, Landlord may, but shall not be obligated to,
perform such obligations, and the cost thereof to Landlord shall also be
additional rent. Unless otherwise specifically provided in this Lease, Tenant
shall pay Landlord all additional rent within ten (10) days after Landlord's
demand.
5
<PAGE>
3.3 Tenant's Contributions.
-----------------------
3.3.1 On or before the date on which Landlord delivers possession of
the entire Premises to Tenant, and no more than ninety (90) days after the
commencement of each calendar year thereafter, Landlord will notify Tenant in
writing of Landlord's estimate of Tenant's Share of estimated "Operating Costs"
and "Real Property Taxes" (such terms are defined in Section 3.3.2 below) for
the then current calendar year (or part thereof), which amount Tenant shall pay
in advance in twelve (12) equal monthly installments, due and payable without
set-off or deduction, on the first (1st) day of each calendar month. As used
herein, the term "Tenant's Share" is determined by multiplying the cost to be
shared by a fraction, the numerator of which is the rentable area of the
Premises from time to time and the denominator of which is the rentable area of
the Building for expenses related to the Building, and the rentable area of the
Park for expenses related to the Park. Within ninety (90) days after the end of
each year, Landlord will compute Tenant's Share for such year (or portion
thereof) based on actual costs and provide to Tenant an itemized statement (a
"Statement") of Tenant's Share for such year. If Tenant's Share of amounts due
for such year is greater than the amounts already paid by Tenant pursuant to
this Section 3.3, Tenant shall pay Landlord any deficiency within ten (10)
business days of receipt of written notice. If the total amount paid for such
year exceeds Tenant's Share, then Landlord shall credit such excess to the
payment of rent and additional rent which may thereafter become due, provided,
however, upon the expiration or sooner termination of the Lease term, Landlord
shall refund such excess to Tenant, provided that Landlord may offset any sums
owing to Tenant against sums then owed by Tenant to Landlord. If at any time
(but not more than once each calendar year) Landlord obtains additional
information regarding expenses, Landlord may at its election adjust the amount
of the monthly installments due during the balance of the year to reflect such
additional information, by giving Tenant written notice thereof, which notice
shall also state the amount of the deficiency, if any, in the prior monthly
payments for the calendar year. Tenant shall pay any such deficiency within
twenty (20) days of its receipt of the notice and shall make the adjusted
monthly payments for the remainder of the calendar year. At any time within
eighteen (18) months after a Statement for any particular calendar year is
provided to Tenant, upon twenty (20) days prior written notice and during normal
business hours at Landlord's office or at such other place as Landlord shall
reasonably designate, Tenant shall be entitled to inspect and examine the books
and records of Landlord related to the determination of any sums payable by
Tenant pursuant to this Section 3.3 which are the subject of the applicable
Statement.
If, after inspection and examination of such books and records, Tenant
disputes the amounts paid by Tenant pursuant to this Section 3.3, Tenant by
written notice to Landlord, may request an independent audit of such books and
records. The independent audit of Landlord's books and records shall be
conducted by a certified public accountant designated by Tenant and reasonably
acceptable to Landlord. The audit shall be limited to the determination of the
amount of any or all items payable by Tenant pursuant to this Section 3.3 for
the subject calendar year. If the audit discloses any amounts billed to and paid
by Tenant which are incorrect, the appropriate party shall pay to the other
party the deficiency or overpayment, as applicable, within thirty (30) days
after the results of the audit have been disclosed to both parties, unless
Landlord disputes
6
<PAGE>
the results of the audit within sixty (60) days of receipt of the results of the
audit, in which case, Landlord and Tenant shall agree upon a national accounting
firm to review and verify the Operating Costs, and provide the results to
Landlord and Tenant (the "Reconciliation Audit"). The determination as set forth
in the Reconciliation Audit shall be binding upon Landlord arid Tenant. If the
Reconciliation Audit is performed, Landlord and Tenant shall each pay one-half
of the cost of the Reconciliation Audit. The exercise by Tenant of its audit
rights hereunder shall not relieve Tenant of its obligations to pay prior to the
request for and inspection and examination of Landlord's books and records or
permit Tenant the right to audit any other sums. Additionally, Tenant agrees and
acknowledges that various tenants' lease provisions in the Building related to
Operating Costs vary, and that the audit right is set forth herein in the review
of books and records shall be confidential. With the exception of Tenant's
auditors, Tenant shall not disclose or discuss the audit or the results of the
audit to any third parties, including but not limited to any other tenants in
the Building or the Park. All costs and expenses of the audit shall be paid by
Tenant unless the audit shows that Landlord overstated Tenant's Share of the
subject calendar year by more than five percent (5%) of the actual amount
payable by Tenant, in which case Landlord shall pay all costs and expenses of
the audit. Notwithstanding any of the foregoing, Tenant shall not be entitled to
inspect or audit the books and records of Landlord more frequently than once
each calendar year.
3.3.2 For purposes of this Section 3.3, the following definitions
apply:
(i) "Operating Costs" shall mean all expenses paid or incurred
by Landlord or charged to Landlord for maintaining, operating, repairing,
replacing and administering the Building, the Park or both (including common
areas and facilities), and the personal property used in conjunction therewith,
together with a sum equal to five percent (5%) of the cost thereof (exclusive of
Real Property Taxes and professional management fees) as an administrative fee,
including, without limitation, the costs of refuse collection, water, sewer,
electricity, heat, air conditioning, fuel, light, fire protection, and other
utilities; services; supplies; janitorial and cleaning services; window washing;
snow, garbage and refuse removal; security services and systems; patching,
repair, maintenance, painting, lighting, cleaning, striping and securing parking
facilities; elevator operation, repair and maintenance; landscape maintenance;
services of independent contractors; compensation (including employment taxes
and fringe benefits) of all persons who perform duties in connection with the
operation, maintenance, repair, replacement and administration of the Park, the
Building or both, their equipment and common areas and facilities; insurance
premiums for all insurance carried with respect to the Building or the Park;
insurance deductibles for losses other than those caused by Landlord or those
for which Landlord has a right of reimbursement from a third party; licenses,
permits and inspection fees (but not Landlord's general business license and
related fees); subsidies and other payments required by public bodies, including
those for traffic signals and controls and for fire protection; professional
management fees (in amounts competitive with those charged by third party
property managers in connection with the management of comparable first class
office properties); legal and accounting expenses; and all other expenses or
charges whether or not hereinabove described which, in accordance with generally
accepted accounting and management practices, would be considered an expense of
maintaining, operating, repairing,
7
<PAGE>
replacing and administering the Building or the Park, but excluding: (a) costs
of any special services rendered to individual tenants (including Tenant) for
which a special charge is made; (b) Real Property Taxes; (c) lease payments on
capital equipment, or depreciation or amortization of costs (including without
limitation the cost of resurfacing parking lots) required to be capitalized in
accordance with generally accepted accounting practices (except Operating Costs
shall include amortization over their useful life, on a straight line basis, of
capital improvements made subsequent to the date the last party executes this
Lease which are either designed with a reasonable probability of reducing
Operating Costs for the Building or the Park, as applicable, or are required to
be made to operate the Building or the Park in accordance with applicable
federal, state and local laws, regulations, ordinances and codes); (d) executive
salaries (i.e., salaries of all persons above Building management level); (e)
salaries of Building management and service personnel to the extent such
personnel perform services not solely in connection with the management,
operation, repair or maintenance of the Building or the Park, unless such
salaries are prorated to reflect time spent on operating and managing the
Building or the Park, vis a vis time spent on matters unrelated to operating and
managing the Building or the Park; (f) real estate broker commissions; (g)
attorney's fees, costs and disbursements incurred by Landlord in any dispute
with a Tenant; (h) costs or expenses for which Landlord is reimbursed by an
insurer, condemnor, tenant or otherwise; (i) cost directly resulting from the
gross negligence or willful misconduct of Landlord or its employees, agents
and/or contractors; (j) costs resulting from Landlord's breach of this Lease, or
willful violation of any applicable law or violation of any covenants,
conditions or restrictions governing the Park; (k) "tenant improvements" to any
portion of the Building or Park; (I) costs incurred to bring the Premises for
the Building into compliance with applicable laws, regulations, ordinance or
codes, or to correct construction defects to the Building or the Park, but with
respect to violations of laws, regulations, ordinances or codes, only to the
extent such costs are incurred as a result of a violation that exists as of the
date of the Lease; (m) interest, charges and fees incurred on debt, payments and
mortgages and rent under ground leases owed on the Building or the Park; (n)
costs paid to the operator of a parking concession at the Building or the Park;
(o) advertising or promotional costs; and (p) costs incurred to investigate the
presence of any Hazardous Materials (as defined in Section 4.5), costs that
respond to any claim of Hazardous Materials being present at the Park, costs to
remove any Hazardous Materials from the Park and any judgment or other costs
incurred in connection with any Hazardous Materials releases, except to the
extent caused by the storage, use, disposal or release of the Hazardous
Materials in question by Tenant. Operating Costs also shall not include any
costs or expenses incurred by Landlord in connection with the initial
entitlement, construction or development of the Building pursuant to
governmental agreements, rules, codes, rules or statutes, such as the cost of
child care facilities; traffic mitigation fees; water and sewage connection,
recycling, or housing replacement fees; infrastructure and transportation fees;
costs occasioned by fire, acts of God or other casualty, or by the laws of
eminent domain or art programs. Tenant acknowledges Operating Costs shall
include Tenant's pro rata share of certain costs of maintaining, operating,
repairing, replacing and administering the common areas and facilities in the
Park.
(ii) "Real Property Taxes" shall mean all taxes on the Building, and
Landlord's share of any taxes applicable to the Park (including common areas and
facilities but
8
<PAGE>
excluding any other buildings in the Park in which Tenant is not an occupant),
and on personal property used in conjunction therewith, including surcharges and
all local governmental or quasi governmental improvement and other assessments
levied with respect to the Building or the Park and all other property used
directly in connection with the operation of the Building or the Park; and any
taxes levied or assessed in addition to or in lieu of, in whole or in part, such
real or personal property taxes, or any other tax upon leasing of the Building
or rents collected therefrom, other than any federal or state income tax,
franchise tax or transfer or excise tax.
3.4 Late Charge; Interest. If Tenant fails to pay any amount due hereunder
---------------------
within five (5) days of the due date, a late charge equal to five percent (5%)
of the unpaid amount shall be assessed and be immediately due and payable. In
addition, interest shall accrue on any payment which is more than five (5) days
past due at the rate of five percentage points (5%) per annum in excess of the
prime business lending rate published from time to time in the money rates
column of the Wall Street Journal, calculated from the date the payment was due
to the date of payment. If the Wall Street Journal ceases to quote a prime rate
or similar rate, interest calculated under this Section 3.4 shall be based on
the prime rate or similar rate of the largest United States national bank having
an office in Seattle, Washington. If the foregoing rate exceeds the maximum rate
permitted by applicable law, interest shall accrue at the maximum rate so
permitted by law, from the date due until paid on any amount not paid when due.
Landlord shall have the right to accept rent and all other payments, whether
full or partial, and negotiate checks and payments thereof, without any waiver
of rights, irrespective of any conditions to the contrary sought to be imposed
by Tenant.
SECTION IV - CONDUCT OF BUSINESS
4.1 Use of Premises. Tenant shall use the Premises only for general office
---------------
use, excluding medical or dental office, consistent with the operation of a
first class office building. Tenant shall not use or permit the use of the
Premises for any other business or purpose without Landlord's prior written
consent, which consent Landlord may grant or deny in its sole discretion. Tenant
shall promptly comply with the rules and regulations of the Building and the
Park, as set forth in Exhibit C attached, as the same may be changed from time-
to-time by Landlord upon reasonable notice to Tenant. Tenant shall not permit
any public or private nuisance to occur on the Premises, or any other act or
circumstance which disturbs the quiet enjoyment of any occupant of the Building
or the Park.
4.2 Appearance of Premises. Tenant shall maintain the Premises in a clean,
----------------------
orderly and neat fashion to conform with the high standards of the Building and
the Park, permitting no odors to be emitted from the Premises and neither commit
waste nor permit any waste to be committed thereon. Tenant shall not burn any
trash in or about the Premises or permit any accumulation of trash. Tenant shall
store all trash, refuse and waste material so as not to constitute a health or
fire hazard or nuisance, in adequately covered containers which are located
within the Premises which are not visible to the general public or in areas
designated by Landlord.
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4.3 Unlawful Use. Tenant shall not use or permit the Premises or any part
------------
thereof to be used for any purpose in violation of any municipal, county, state
or federal law, ordinance or regulation, or for any purpose offensive to the
standards of the community of which the Building is a part, or in any manner
which is not in the best interests of the tenants of the Building or the Park.
Tenant shall promptly comply, at its sole cost and expense, with all laws,
ordinances, and regulations now in force or hereafter adopted and with the
requirements of any board of fire underwriters or, similar body relating to or
affecting the condition, use or occupancy of the Premises.
Tenant shall not do or permit anything to be done in or about the Premises,
nor bring or keep anything therein which will increase the existing rate of or
affect any fire or other insurance upon the Building or any of its contents, or
cause a cancellation of any insurance policy covering the Building or any part
thereof or any of its contents. Tenant shall promptly upon demand reimburse
Landlord for any additional premium charged for any such policy by reason of
Tenant's failure to comply with the provisions of this Section.
Notwithstanding anything to the contrary in this Lease at the Commencement
Date the Landlord shall, at its expense, cause the Premises and the Common Areas
to conform to all requirements of any covenants, conditions, restrictions and
encumbrances applicable to the same, all underwriter's requirements, and all
rules, regulations, statutes, ordinances, laws and building codes applicable
thereto. Notwithstanding anything to the contrary in this Lease, Tenant's use of
the Premises for general office purposes is and will be permitted by all
applicable rules, regulations, statutes, ordinances, laws and building codes,
all fire underwriter's requirements and all covenants, conditions, restrictions
and encumbrances applicable to the same.
4.4 Liens and Encumbrances. Tenant shall keep the Premises free and clear
----------------------
of all liens and encumbrances arising or growing out of its use and occupancy of
the Premises. If any lien is filed against the Premises, the Building or the
Park as a result of the acts action or inaction of Tenant, Tenant shall upon
demand post a bond and cause such lien to be removed in accordance with State
law.
4.5 Hazardous Materials. Tenant shall not (either with or without
-------------------
negligence) cause or permit the escape, disposal or release of any biologically
or chemically active or other hazardous substances or materials within the
Premises, the Building or the Park in violation of any applicable law or
regulation. Tenant shall not allow the storage or use of such substances or
materials in any manner not sanctioned by law or by the highest standards
prevailing in the industry for the storage and use of such substances or
materials, nor allow to be brought into the Project any such materials or
substances except to use in the ordinary course of Tenant's business, and then
only after written notice is given to Landlord of the identity of such
substances or materials. Without limitation, hazardous substance and materials
shall include those substances or materials described in the first sentence of
this Section 4.5, and those described in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq., any applicable state or local laws and the regulations adopted
under these acts, the Washington Model Toxics Control Act, RCW Chapter
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70.105D, and asbestos ("Hazardous Materials"). If any lender or governmental
agency should shall ever require testing to ascertain whether or not there has
been any release of Hazardous Materials by Tenant or its employees, agents,
contractors, invitees or licensees anywhere in the Park, then the reasonable
costs thereof shall be reimbursed by Tenant to Landlord upon demand as
additional rent if such requirement applies to the Premises. In addition, Tenant
shall execute affidavits, representations and the like from time to time at
Landlord's request concerning Tenant's current actual knowledge and belief
regarding the presence of Hazardous Materials on the Premises. In all events,
Tenant shall indemnify Landlord in the manner elsewhere provided in the Lease
from any release of Hazardous Materials caused by Tenant or persons acting under
Tenant. The within covenants shall survive the expiration or earlier termination
of the Lease term. Tenant shall indemnify, defend and hold harmless Landlord
from any and all claims, damages, fines, judgments, penalties, liabilities or
losses (including, without limitation, a decrease in the value of the Premises
or Building, damages caused by loss or restriction of rentable or usable space,
or any damages caused by adverse impact on marketing of the space and any and
all sums paid for settlement of claims, litigation expenses, attorneys' fees,
consulting and expert fees) of whatever kind or nature, known or unknown,
contingent or otherwise, arising during or after the Lease term and arising as a
result of that contamination by Tenant. This indemnification includes, without
limitation, any and all costs incurred because of any investigation of the site
or any cleanup, removal or restoration mandated by federal, state or local
agency or political subdivision. Without limiting the foregoing, if Tenant
causes or permits the presence of any Hazardous Materials on the Premises or the
Building that results in contamination, Tenant shall promptly, at its sole
expense, take any and all necessary actions to return the Premises or Building
to the condition existing prior to the presence of any such Hazardous Materials
on the Premises or Building. Tenant shall first obtain Landlord's approval for
any such remedial action.
Except as previously disclosed to Tenant in writing, to the actual
knowledge of Landlord: (i) no Hazardous Materials are present on the Premises or
the Park or in the soil, surface water or groundwater thereof; (ii) no
underground storage tanks or asbestos containing building materials are present
on the Premises or the Park; and (iii) no proceeding or claim is pending or
threatened regarding the Premises or Park concerning any Hazardous Materials or
pursuant to and environmental law. Landlord has made available to Tenant all
reports and environmental assessments of the Premises or the Park conducted at
the request of or otherwise available to Landlord and Landlord has complied with
all environmental disclosure obligations imposed upon Landlord by applicable law
with respect to this transaction.
4.6 Signs. Tenant shall not erect or place, or permit to be erected or
-----
placed, or maintain any signs of any nature or kind whatsoever on the exterior
walls or windows of the Premises or elsewhere in the Park, except that (1)
Tenant has the nonexclusive right to place one exterior sign on the Building, at
Tenant's sole cost and subject to the other terms of this Section 4.6, and (2)
Tenant shall have the right to place signage on the monument sign east of the
Building on Lake Washington Boulevard, at Tenant's sole cost and subject to the
other terms of this Section 4.6, in the location currently occupied by AT&T
Wireless Services, Inc. when its signage is removed, at the expiration or sooner
termination of its Lease. Tenant agrees to abide
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by all signing rules and regulations, if any, promulgated by Landlord, and all
signage must comply with all applicable laws and regulations, and must be
acceptable to Landlord. In addition, Landlord agrees to provide Tenant with the
following signage identifying Tenant as an occupant of the. Building in size,
color and style acceptable to Landlord:
a. One (1) Building standard sign on the plaza level lobby directory.
b. One (1) Building standard sign at the main entry to the Premises.
4.7 Generator. During the Lease term, Tenant shall have use of the
---------
generator located near the Building and which currently serves the Premises and
other property. Landlord shall calculate and Tenant shall pay the costs of
operation (including electricity), and routine maintenance and repair of the
generator, in the same manner as Operating Costs are calculated and paid as
provided in this Lease. Tenant acknowledges that the generator currently serves
both the Building and Building IV in the Park. Landlord may allow other tenants
of the Park to use the generator, provided that the costs of operation, routine
maintenance and repair shall be divided equally among the number of tenants
using the generator.
SECTION V - UTILITIES AND OTHER CHARGES
5.1 Utilities and Services.
----------------------
5.1.1 In accordance with Section 3.3 of this Lease, as additional
rent, Tenant shall pay its share of all charges for heat, water, light, gas,
electricity, sewer, garbage, fire protection and any other utilities and/or
services used or consumed on or supplied to the Building and/or the Park,
including the Premises, and not separately metered or charged to Tenant or any
other tenant of the Building or the Park. Tenant shall be solely responsible for
and shall promptly pay when due all charges for telephone and all other charges
which are separately metered or charged to the Premises.
5.1.2 Landlord shall cause the public and common areas of the
Building, such as lobbies, elevators, stairs, corridors and restrooms, to be
maintained in reasonably good order and condition, except for damage occasioned
by any act or omission of Tenant or Tenant's officers, contractors, agents,
invitees, licensees or employees, the repair of which latter damage shall be
paid for by Tenant. Twenty-four (24) hours per day, seven (7) days per week,
Tenant shall have access to the Premises (subject to such Building and Park
security systems and procedures as may be in place from time to time), and
Tenant shall have available to it water and electrical service for lighting and
operation of 110-volt office machines. From 7:00 a.m. to 6:00 p.m. on weekdays
(i.e., Monday through Friday) and 8:00 a.m. to 1:00 p.m. on Saturdays, excluding
legal holidays and holiday weekends (collectively "Normal Business Hours"),
Landlord shall furnish the Premises with heat and air conditioning services. If
requested by Tenant, Landlord shall furnish such services at times other than
Normal Business Hours, and Tenant shall pay for the cost of such after-hours
services at rates established by Landlord from time to time.
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Landlord will provide janitorial services customary for buildings
comparable to the Building in quality and location, according to the schedule
attached hereto as Exhibit E. If Tenant requires excessive or specialized
janitorial services, Tenant shall promptly pay Landlord the additional costs and
expenses incurred by Landlord in providing such services.
The Building standard mechanical system is designed to accommodate
heating loads generated by lights and equipment using up to 2.5 watts per square
foot. Before installing lights and equipment in the Premises which in the
aggregate exceed such amount, Tenant shall obtain the written permission of
Landlord. Landlord may refuse to grant such permission unless Tenant agrees to
pay the cost of installing supplementary air conditioning units or electrical
systems as necessitated by such equipment or lights. In addition, Tenant shall
pay to Landlord in advance, on the first day of each month during the Lease
term, the amount estimated by Landlord as the cost of furnishing electricity for
the operation of such equipment or lights and the amount estimated by Landlord
as the costs of operation and maintenance of supplementary air conditioning
units or electrical systems as necessitated by Tenant's use of such equipment or
lights. Landlord shall be entitled to install and operate at Tenant's cost a
monitoring/metering system in the Premises to measure the added demands on
electricity, heating, ventilation, and air conditioning systems resulting from
such equipment and lights and from Tenant's after-hours heating, ventilation and
air conditioning service requirements. Tenant shall comply with Landlord's
instructions, rules and regulations for the use of drapes, blinds and
thermostats in the Building.
Landlord shall not be liable for any loss, injury or damage to person
or property caused by or resulting from any variation, interruption, or failure
of such services due to any cause whatsoever, or from failure to make any
repairs or perform any maintenance. No temporary interruption or failure of such
services incident to the making of repairs, alterations or improvements, or due
to accident, strike or conditions or other events beyond Landlord's reasonable
control shall be deemed an eviction of Tenant or to relieve Tenant from any of
Tenant's obligations hereunder or to give Tenant a right of action against
Landlord for damages; provided that in event of any vacation, interruption or
failure of service Landlord shall use its best efforts to restore service to the
Premises and to the Common Areas of the Park as soon as is reasonably possible
under the circumstances.
5.2 Licenses and Taxes. Tenant shall be liable for, and shall pay
------------------
throughout the term of this Lease, all license and excise fees and occupation
taxes covering the business conducted on the Premises and all personal property
taxes levied with respect to all personal property located at the Premises. If
any governmental authority levies a tax or license fee on rents payable under
this Lease or rents accruing from use of the Premises or a tax or license fee in
any form against Landlord or Tenant because of or measured by or based upon
income derived from the leasing or rental thereof (other than a net income tax
on Landlord's income), or a transaction privilege tax, such tax or license fee
shall be paid by Tenant, either directly if required by law, or by reimbursing
Landlord for the amount thereof upon demand.
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SECTION VI - LETTER OF CREDIT
6.1 Letter of Credit. Within ten (10) days after mutual execution of this
----------------
Lease, Tenant shall cause to be delivered to Landlord an irrevocable,
unconditional, transferable standby letter of credit in the initial sum of
$2,250,000, naming Landlord as beneficiary, issued by a lender acceptable to
Landlord and otherwise acceptable to Landlord in form and content (the "Letter
of Credit"). At least thirty (30) days prior to the expiration of the Letter of
Credit, Tenant shall be obligated to deliver to Landlord a renewal Letter of
Credit satisfying the terms of this Section 6.1. If no such renewal Letter of
Credit is provided, it shall be a material default of this Lease, and no cure
period shall apply to such default. The Letter of Credit shall be governed by
the Uniform Custom and Practices for Documentary Credits, 1993 Revision,
International Chamber of Commerce Publication Number 500.
Provided that Tenant is not then in default under this Lease, the Letter of
Credit may be reduced to the sum of $1,500,000 beginning on September 1, 2002,
and it may be further reduced to $1,000,000 beginning on September 1, 2003. The
Letter of Credit shall remain in place through November 30, 2004. If Tenant
breaches any covenant or condition of this Lease, including but not limited to
the payment of rent or additional rent, and fails to cure such breach within any
cure period provided in this Lease, Landlord may draw on the Letter of Credit
and apply any sums so drawn to reimburse itself for any damages suffered as a
result of Tenant's breach, regardless of whether Landlord has previously taken
any other action against Tenant. Any payment to Landlord from the Letter of
Credit shall not be construed as a payment of liquidated damages for any
default.
If this Lease includes an Additional Term, then during any such Additional
Term the Tenant shall maintain a Letter of Credit satisfying the terms of this
Section 6.1 in the amount of $1,000,000 throughout any such Additional Term.
Tenant may request that Landlord forego the requirement of a Letter of Credit
during any Additional Term, and Landlord may grant or deny this request in
Landlord's discretion.
SECTION VII - COMPLETION AND ALTERATIONS
7.1 Delivery of Premises. Landlord shall deliver the Premises to Tenant
--------------------
broom clean, and in good condition and repair, less reasonable wear and tear
from the previous tenant. The electrical, mechanical, I-P/AC, plumbing, elevator
and other systems serving the Premises and the Building shall be in good
condition and repair. Otherwise, the Premises shall be delivered in their
current condition. Landlord shall have no obligation to alter or construct any
tenant improvements on the Premises. Landlord shall provide a tenant improvement
allowance to Tenant in the amount of five dollars ($5.00) per usable square foot
for improvements to be made by Tenant to the Premises at the commencement of the
Lease term. All improvements shall be made by Tenant using contractors approved
by Landlord, and otherwise in accordance with the terms of Section 7.2 below.
The tenant improvement allowance shall be used to reimburse Tenant for hard
construction costs incurred in making improvements to the Premises, including
paint, carpet and interior modifications, provided that no portion of the tenant
improvement allowance shall be used for Tenant's networking or cabling. Tenant
shall submit its request for
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reimbursement to Landlord, together with written evidence showing eligible costs
incurred by Tenant, and Landlord shall reimburse Tenant for such eligible costs
incurred in compliance with this Lease within twenty (20) days after such
materials are submitted by Landlord to Tenant. Tenant, may at its option, seek
reimbursement from the tenant improvement allowance for improvements made at the
commencement of lease term, or later during the initial five (5) year lease
term; provided, however, that any portion of the initial tenant improvement
allowance not used during the initial five (5) year lease term shall cease to be
eligible for Tenant's reimbursement.
7.2 Alterations by Tenant. Tenant shall not make any alterations,
---------------------
additions or improvements in or to the Premises without first submitting to
Landlord professionally-prepared plans and specifications for such work and
obtaining Landlord's prior written approval thereof. Tenant covenants that it
will cause all such alterations, additions and improvements to be performed at
Tenant's sole cost and expense by Landlord or a contractor approved by Landlord
and in a manner which: (a) is consistent with the Landlord-approved plans and
specifications and any conditions imposed by Landlord in connection therewith;
(b) is in conformity with commercial standards; (c) includes acceptable
insurance coverage for Landlord's benefit; (d) does not affect the structural
integrity of the Building; (e) does not disrupt the business or operations of
adjoining tenants; and (f) does not invalidate or otherwise affect the
construction and systems warranties then in effect with respect to the Park.
With respect to any alterations, additions and improvements made by Landlord for
Tenant, Tenant shall pay Landlord a supervision fee which shall be in an amount
comparable to the fee a third party contractor would charge in connection with a
comparable project. Tenant shall secure all governmental permits and approvals,
as well as comply with all other applicable governmental requirements and
restrictions. All alterations, additions and improvements (expressly including
all light fixtures, heating, ventilation and air conditioning units and floor
coverings) shall be Tenant's property until expiration or earlier termination of
this Lease, and Tenant shall be entitled to all depreciation, amortization or
other fee benefits related thereto during the Lease term; upon expiration or
sooner termination of the Lease term such items shall immediately become the
property of Landlord without any obligation on its part to pay therefor. Tenant
shall remove such improvements on the termination of this Lease unless otherwise
directed by Landlord at the time Landlord approves such improvements. All trade
fixtures, appliances, equipment not affixed to the Premises and other personal
property of Tenant shall remain Tenant's property, and Tenant shall be entitled
to all depreciation thereto. Landlord shall respond to Tenant in writing of its
approval or disapproval of any proposed alteration under this paragraph with
fifteen (15) days following Tenant's written request for approval.
7.3 Nonstructural Alterations. Notwithstanding Section 7.2 above, Tenant
-------------------------
may construct interior, nonstructural alterations, additions and improvements
which do not affect the Building systems (the "Nonstructural Alterations") in
the Premises after prior written notice to Landlord, but without Landlord's
prior written approval, if the cost of such Nonstructural Additions does not
exceed Two Thousand Dollars ($2,000).
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SECTION VIII - MAINTENANCE OF PREMISES
8.1 Care of Premises. Tenant shall perform routine maintenance of the
----------------
Premises and otherwise keep, the Premises in good order, condition and repair.
Tenant shall reimburse Landlord for all damage done to the Building, the Park or
the Premises occasioned by any act or omission of Tenant or Tenant's officers,
employees, contractors, agents, invitees, licensees or employees, including, but
not limited to, cracking or breaking of glass. If Tenant fails to perform
routine maintenance or to keep the Premises in good order, condition and repair,
Landlord, at its option, may do so, and in such event upon receiving written
statements from Landlord, Tenant shall promptly pay the entire cost thereof as
additional rent. Landlord shall have the right to enter the Premises for such
purposes.
8.2 Repairs by Landlord: Maintenance and Repair Charges. Except for
---------------------------------------------------
repairs which are Tenant's responsibility under Section 8.1 above, all normal
repairs necessary to maintain the Premises and the Building in a reasonable
condition as a first class office building, as determined by Landlord in the
reasonable exercise of its discretion, shall be performed by Landlord and the
costs incurred by Landlord in so doing shall be reimbursed to Landlord as an
Operating Cost in accordance with Section 3.3 above. Except as provided in
Section XII below, there shall be no abatement of rent or additional rent and no
liability to Landlord under any circumstances by reason of any loss of or any
injury to property, lost profits, or for injury to or interference with Tenant's
business arising from the making of or Landlord's failure to make any repairs,
alterations or improvements or reduction of rent arising by reason of Landlord's
making of repairs, alterations or improvements.
8.3 Surrender of Premises. At the expiration or sooner termination of this
---------------------
Lease, Tenant shall return the Premises to Landlord in the same condition it was
in following Tenant's approved alterations made at the commencement of the Lease
term (unless otherwise directed by Landlord under terms of Section 7.2),
reasonable wear and tear, casualty and condemnation excepted. Prior to such
return, Tenant shall remove its trade fixtures and appliances and equipment
which have not been attached to the Premises, and shall restore the Premises to
the condition they were in. prior to the installation of said items. In no event
shall Tenant remove floor coverings; heating, ventilating and air conditioning
equipment; lighting equipment or fixtures; wall coverings; window coverings; or
other operating equipment or decorations unless otherwise directed by Landlord.
Tenant's obligation to perform this covenant shall survive the expiration or
termination of this Lease.
SECTION IX - COMMON AREAS
9.1 Control of Common Areas by Landlord. During the term of this Lease,
-----------------------------------
Tenant and its employees, customers and invitees, shall have the non-exclusive
right to use all entrances, lobbies and other public areas of the Building and
the Park (the "Common Areas"), in common with Landlord, other Building and Park
tenants and their respective employees, customers and invitees, Landlord at all
times shall have the exclusive control and management of the Common Areas and no
diminution of the Common Areas shall be deemed a constructive or actual eviction
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of Tenant or entitle Tenant to compensation. No diminution of the Common Areas
shall entitle Tenant to an abatement of rent, provided Tenant retains reasonable
use and enjoyment of the Premises. Landlord shall have the right from time to
time to establish, modify and enforce rules and regulations regarding the use of
the Common Areas and the right to change the area, level, location and
arrangement of the Common Areas.
9.2 Parking. One hundred forty-five (145) covered parking stalls in the
-------
Building parking garage have been allocated to the Premises and ninety-six (96)
uncovered parking stalls elsewhere in the Park have been allocated to the
Premises. All of the stalls allocated to the Premises are unreserved and
available on a first come, first served basis. Tenant shall pay for covered
parking stalls at the initial rate of forty dollars ($40) per month, which rate
shall be fixed for the first year of the Lease term. Thereafter, Landlord may
increase the cost of covered parking stalls to the fair market rental value of
such stalls, not to exceed an adjustment in excess of an increase of twenty five
percent (25%) per year, cumulative, beginning the commencement of the second
year during the Lease term. There shall be no charge to Tenant for use of
uncovered parking stalls during the first two (2) years of the Lease term.
Thereafter, Landlord may charge the fair market rental value for uncovered
parking stalls, provided that (i) the initial charge for such stalls shall not
exceed twenty dollars ($20) per stall, (ii) Landlord is charging all tenants in
the Park using uncovered parking stalls (unless Landlord cannot under the terms
of a lease existing as of the mutual execution of this Lease), and (iii) any
increase above the initial charge per parking shall be limited to twenty five
percent (25%) per year, cumulative, during the Lease term. If Tenant exercises
any option to renew this Lease, then the limitations on parking charges which
may be made by Landlord under this Lease shall not apply during any renewal
term, notwithstanding any language in Section 2.6 to the contrary, and Tenant
shall pay for covered and uncovered parking at the then fair market rental rate
during the renewal term. Tenant shall cause its employees and invitees to comply
with such rules and regulations from time-to-time promulgated with respect to
the parking areas of the Building and the Park.
SECTION X - INSURANCE AND INDEMNITY
10.1 Indemnification. Landlord shall not be liable for any injury to any
---------------
person, or for any loss of or damage to any property (including property of
Tenant) occurring in or about the Premises from any cause whatsoever, other than
the negligence or intentional misconduct of Landlord or its employees or agents.
Tenant shall indenmify, defend and save Landlord, its officers, agents,
employees and contractors, and other tenants and occupants of the Park, harmless
from all losses, damages, fines, penalties, liabilities and expenses (including
Landlord's personnel and overhead costs and attorneys' fees and other costs
incurred in connection with such claims, regardless of whether claims involve
litigation) resulting from any actual or alleged injury to any person or from
any actual or alleged loss of or damage to any property alleged to be
attributable to Tenant's operation or occupation of the Premises or caused by or
resulting from any act or omission of Tenant or any licensee, assignee, or
concessionaire, or of any officer, agent, employee, guest or invitee of any such
person in or about the Premises, including, but not limited to, the deposit or
release of hazardous or toxic materials or substances or Tenant's breach of its
obligations hereunder. Tenant agrees that the foregoing indemnity specifically
covers
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actions brought by its own employees. Notwithstanding any of the foregoing, if
losses, liabilities, damages, liens, costs and expenses so arising are caused by
the concurrent negligence of both Landlord and Tenant, their employees, agents,
invitees and licensees, Tenant shall indemnify Landlord only to the extent of
Tenant's own negligence or that of its officers, agents, employees, guests or
invitees. As between Landlord and Tenant, the foregoing indemnity is
specifically and expressly intended to constitute a waiver of Tenant's immunity
under Washington's Industrial Insurance Act, RCW Title 51, for the sole purpose
of and only to the extent necessary to provide Landlord with a full and complete
indemnity from claims made against Landlord by Tenant's employees. The
indemnification provided for in this Section with respect to acts or omissions
during the term of this Lease shall survive termination or expiration of this
Lease. Tenant shall promptly notify Landlord of casualties or accidents
occurring in or about the Premises. LANDLORD AND TENANT ACKNOWLEDGE THAT THE
INDEMNIFICATION PROVISIONS OF THIS SECTION 10.1 WERE SPECIFICALLY NEGOTIATED AND
AGREED UPON BY THEM.
10.2 Insurance. Tenant shall, at its own expense, maintain comprehensive
---------
or commercial general liability insurance with broad form and stop gap
(employer's liability) endorsements in minimum limits of $2,000,000 per
occurrence for property damage or loss and minimum limits of $2,000,000 per
occurrence for personal injuries and death, to indemnify Landlord, Tenant and
any lender designated by Landlord ("Lender") against claims, demands, losses,
damages, liabilities and expenses. Landlord shall have the right to periodically
review the appropriateness of such limits in view of changing industry
conditions and court decisions and to require a reasonable increase in such
limits upon ninety (90) days prior written notice to Tenant. Landlord and Lender
shall be named as additional insureds and shall be furnished with a copy of such
policy or policies of insurance which shall bear an endorsement that the same
shall not be canceled nor materially reduced in coverage or limits without
thirty (30) days prior written notice to Landlord and Lender. During the Lease
term, Tenant shall also maintain at its own expense insurance covering its
furniture, fixtures, equipment and inventory and all improvements which it makes
to the Premises in an amount equal to the full insurable value thereof, against
fire and such other perils as are covered by an all risk policy with plate glass
endorsement, including all glass on the Premises. All insurance required under
this Lease shall (a) be issued by insurance companies authorized to do business
in the State of Washington and having a financial rating of at least A, Class X
status, as rated in the most recent edition of Best's Insurance Reports, or with
companies otherwise acceptable to Landlord; (b) be issued as a primary policy,
or under the blanket policy, not contributing with and not in excess of coverage
which Landlord may carry; (c) in the case of the liability policy, contain a
contractual liability coverage endorsement covering Tenant's indemnification
duty; and (d) with deductibles reasonably approved by Landlord. If Tenant fails
to maintain such insurance, Landlord may do so, and Tenant shall reimburse
Landlord for the full expense thereof upon demand.
During the term of this Lease, Landlord shall maintain special extended
coverage casualty insurance on the Building in the amount of the replacement
cost of the Building, and on such other terms as Landlord deems appropriate.
Landlord may also maintain other insurance coverage for the Building or the
Park, including commercial general liability insurance and loss
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of rents insurance, in such amounts and on such terms as Landlord's lender may
require or as Landlord shall otherwise deem prudent in the exercise of its
business judgment.
10.3 Increase in Insurance Premiums. Tenant shall not keep, use, sell or
------------------------------
offer for sale in or upon the Premises any article which is prohibited by
Landlord's insurance policy. Tenant shall pay immediately any increase in
Landlord's premiums for insurance during the term of this Lease which results
from Tenant's occupancy or use of the Premises. In determining whether increased
premiums are the result of Tenant's use of the Premises, a schedule, issued by
the organization establishing the insurance rate on the Premises showing the
various components of such rate, shall be conclusive evidence of the several
items and charges which make up the insurance rate on the Premises.
10.4 Waiver of Subrogation. Notwithstanding any other provision in this
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Lease, neither Landlord nor Tenant shall be liable to the other party or to any
insurance company (by way of subrogation or otherwise) insuring the other party
for any loss or damage to any building, structure or tangible personal property
of the other occurring in or about the Premises, even though such loss or damage
might have been occasioned by the negligence of such party, its agents or
employees, if such loss or damage is covered by insurance benefiting the party
suffering such loss or damage or was required to be covered by insurance under
terms of this Lease. Each party shall cause each insurance policy obtained by it
to contain the waiver of subrogation clause.
SECTION XI- ASSIGNMENT AND SUBLETTING
11.1 Assignment or Sublease. Tenant shall not voluntarily, involuntarily
----------------------
or by operation of law, assign, sell, pledge, transfer, mortgage or encumber
this Lease or any interest therein, or sublet the whole or any part of the
Premises (any of which events being a "Transfer" and any such assignee,
purchaser, mortgagee, pledgee or other transferee being a "Transferee" for
purposes of this Section XI) without first obtaining Landlord's written consent,
which shall not be unreasonably withheld if all of the following conditions
precedent are fully and completely satisfied, but which otherwise may be
withheld by Landlord in its sole discretion:
(a) The proposed Transferee is at least as creditworthy as Tenant
when Tenant entered into this Lease, and satisfies Landlord's then current
credit standards for tenants of the Building and the Park, and in Landlord's
reasonable business judgment has the financial strength and stability to perform
all obligations under this Lease to be performed by Tenant as and when they fall
due.
(b) The proposed Transferee will use the Premises for a purpose which
in Landlord's opinion (i) is lawful, (ii) is consistent with the permitted use
of the Premises under this Lease, (iii) is consistent with the first class
character of business carried on by tenants at the Park does not conflict with
any exclusive rights or covenants not to compete in favor of any other tenant or
proposed tenant in the Building and the Park, (v) will not increase the
likelihood of damage or destruction, (vi) will not increase the rate of wear and
tear to the Premises or common
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areas, (for example, a tenant who will routinely operate at full capacity
outside of Normal Building Hours, or who has a significantly higher number of
personnel at the Premises per 1,000 rentable square feet than Tenant does upon
its full occupancy of the Premises), (vii) will not likely cause an increase in
insurance premiums for insurance policies applicable to the Building (unless the
proposed Transferee agrees to pay such additional cost), and (viii) will not
require new tenant improvements incompatible with then existing Building
systems.
(c) Tenant pays to Landlord all of Landlord's reasonable attorneys'
fees and costs incurred in connection with negotiation, review and processing of
the Transfer, plus a processing fee of $1,000.
(d) At the time of the proposed Transfer, Tenant is not in default
under or in breach of any term, provision or covenant of this Lease.
(e) In Landlord's reasonable business judgment: (i) the proposed
Transferee must have a first class business reputation, (ii) the proposed
transfer shall not create an undesirable mix of tenants at the Park, and (iii)
the proposed Transferee's business shall not be considered immoral or offensive
by other tenants at the Park.
(f) At least seventy-five percent (75%) for the rentable area of the
Building and the Park is leased to paying tenants, provided that for this
purpose the vacancy that may be created by the expiration of AT&T Wireless
Services, Inc. lease of Building IV at the Park on February 28, 2001 will not be
considered in this calculation.
(g) The Transfer will not otherwise have or cause a material adverse
impact on Landlord's interests in the Park, the Building or the Premises.
No Transfer shall relieve Tenant of any liability under this Lease. Consent to
any Transfer shall not operate as a waiver of the necessity of a consent to any
subsequent Transfer, and the terms of such consent shall be binding upon any
Person holding by, under or through Tenant.
11.2 Entity Ownership. The cumulative transfer (i.e. in one or more sales
----------------
or transfers, by operation of law or otherwise) of an aggregate of fifty percent
(50%) or more of the voting stock issued and outstanding on the date of this
Lease is executed by Landlord, including by creation or issuance of new stock of
a corporation which is (i) owned by Tenant, (ii) the corporate assignee of
Tenant, or (iii) any corporation which is a general partner in a general or
limited partnership or member of a limited liability company which is the tenant
or an assignee of the tenant of this Lease; or the cumulative transfer of an
aggregate of fifty percent (50%) or more of the ownership interest in a general
or limited partnership, limited liability company or other entity which is the
tenant or an assignee of the tenant, by which an aggregate of fifty percent
(50%) or more of such ownership interest is vested in a person or persons who
are riot general partners, members or other owners (except as the result of
transfer by gift or inheritance), shall be deemed a Transfer of this Lease and
shall be subject to the provisions of Section 11.1 except that for purposes of
this Section 11.2 only, Section 11.1(f) shall not apply. For the
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purpose of Section 11.1, any entity which has undergone any of the changes
described in this Section shall be deemed to be a Transferee. Prior to
completing a Transfer as described in this Section 11.2, Tenant shall furnish
to Landlord full and complete financial and business information on the intended
Transferee, and notify Landlord of any change in the use and occupancy of the
Premises that will result from such Transfer. Landlord shall have ten (10)
business days in which to provide Tenant with a written response as to whether
it will approve the Transfer occurring under this Section 11.2, according to the
criteria specified in Section 11.1 above (excluding Section 11.1 (f)). If
Landlord fails to respond to Tenant's request for consent to such a Transfer
within ten (10) business days after Landlord's receipt of all information
reasonably required to be provided by Tenant under this Section 11.2, then
Tenant's proposed transfer shall be deemed approved. The term "voting stock"
means the stock regularly entitled to vote for election of directors of the
corporation; and any stock, however denominated, which is convertible into such
voting stock, shall be treated for purposes of the foregoing as if it were in
fact converted. The two immediately preceding sentences, however, shall not be
applicable to any Tenant corporation the outstanding voting stock of which is
listed on a national securities exchange actively traded "over the counter", or
in connection with the listing of such stock on a national securities exchange.
11.3 Recapture by Landlord. Except as provided below in this Section 11.3,
---------------------
if Tenant at any time desires to Transfer this Lease, it shall give written
notice (a "Tenant Transfer Notice") to Landlord of its desire to do so at least
forty-five (45) days prior to the earliest effective date of any such Transfer.
The Tenant Transfer Notice shall identify specifically the portion of the
Premises that Tenant wishes to Transfer. If Tenant thereafter has a specific
Transfer that it wishes to complete, Tenant shall give a special written notice
(a "Tenant Transfer Specification") to Landlord which notice shall state the
rent at which it proposes so to Transfer and shall contain full and complete
financial and business information on its intended Transferee. In addition to
Landlord's rights under Section 11.1, Landlord may elect by notice to Tenant (a
"Landlord's Repossession Notice"), within ten (10) days of receipt of the Tenant
Transfer Specification, to terminate this Lease as to that portion of the
Premises subject to the Tenant Transfer Specification. If Landlord exercises
such right to terminate, Landlord shall be entitled to recover possession of the
portion of the Premises subject of the Tenant Transfer Specification on the
later of (i) the proposed date for possession by such Transferee, as set out in
the Tenant Transfer Notice, or (ii) forty-five (45) days after the date of
Landlord's Repossession Notice. If Landlord does not exercise such right to
terminate and otherwise approves the transfer, Tenant may thereafter Transfer
this Lease or a portion of the Premises subject thereof, but at a rental not
less than that offered to Landlord in the Tenant Transfer Specification and not
later than forty-five (45) days after delivery of the Tenant Transfer
Specification to Landlord, unless a further notice is given pursuant to this
section, provided (i) Landlord consents thereto pursuant to Section 11.1, (ii)
Tenant delivers to Landlord prior to the effective date of any such Transfer
duplicate originals of any instrument effecting such Transfer, in form and
content satisfactory to Landlord, and (iii) all amounts received by Tenant from
the Transferee for the transfer of the leasehold interest (but excluding
Tenant's personal property and other assets) in excess of the Rent payable
hereunder for the area of the Premises so Transferred shall belong to and shall
immediately be paid to Landlord as Additional Rent. No action or inaction by
Landlord in
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connection with its rights under this Section 11.3 shall constitute or be deemed
to constitute an approval of a proposed Transfer for purposes of Section 11.1
except as specifically set forth in a notice from Landlord to Tenant.
The recapture rights granted under this Section 11.3 shall not apply (i) to any
Transfer under Section 11.2, or (ii) any sublease(s) by Tenant of up to a total
subleased amount of twenty five thousand (25,000) rentable square feet at any
given time (e.g., one floor of the Building).
11.4 Assignee Obligation. Any Transferee other than a subtenant approved
-------------------
by Landlord shall assume all obligations of Tenant and shall be jointly and
severally liable with Tenant for the payment of rent, additional rent and other
charges and performance of all of Tenant's obligations under this Lease. Tenant
shall provide Landlord with full and complete duplicate originals of all
instruments of assignment, sublease or assumption. It shall not be unreasonable
for Landlord to withhold consent to a proposed assignment or sublease because it
wishes to exercise its right to recapture all or part of the Premises under
Section 11.3 hereof, or because (a) the proposed transferee is any governmental
agency, federal, state, local or foreign government or incorporation, (b) the
transfer would cause the Landlord to violate another lease or agreement to which
Landlord is a party or would give a Building tenant the right to cancel its
lease, or (c) the proposed transferee occupies space in the Building or the
Park, is negotiating with Landlord to lease space in the Building or the Park,
or has negotiated with Landlord to lease space in the Building or the Park
during the six (6) months immediately proceeding the notification from Tenant.
11.5 Additional Consideration. If Tenant assigns its interest under this
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Lease, or sublets all or any portion of the Premises, Tenant shall pay to
Landlord (in addition to minimum rent and all other amounts payable by Tenant
under this Lease) as additional rent, within ten (10) days after receipt, all
rent, bonus rent, assignment fees and other consideration for the demise of the
Premises payable by the assignee or subtenant in excess of (a) the rent
otherwise payable by Tenant from time to time under this Lease, and (b)
reasonable legal fees and leasing commissions incurred by Tenant due to the
sublease or assignment, and (c) out-of-pocket costs incurred by Tenant to pay
the costs of labor and materials paid to third parties for renovations made to
the premises to accommodate the assignee or subtenant.
11.6 Assignment by Landlord. If Landlord sells or otherwise transfers the
----------------------
Building, or if Landlord assigns its interest under this Lease (other than for
security purposes), such purchaser, transferee or assignee thereof shall be
deemed to have assumed Landlord's obligations hereunder, and Landlord shall
thereupon be relieved of all liabilities hereunder, but this Lease shall
otherwise remain in full force and effect.
SECTION XII - DESTRUCTION OF PREMISES
12.1 Partial Destruction. If the Premises are rendered partially
-------------------
untenantable by fire or other insured casualty. and if the damage is repairable
within sixty (60) days from the date of the occurrence (with the repair work and
preparations therefore to be done during regular working
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hours on regular work days), Landlord shall repair the Premises with due
diligence and the minimum rent shall be abated in the proportion that the
untenantable portion of the Premises bears to the whole thereof for the period
from the date of the casualty to the completion of the repairs. If thirty
percent (30%) or more of the rentable area of the Building is destroyed or
damaged, regardless of whether the Premises are damaged, Landlord may terminate
this Lease as of the date of such damage or destruction by giving notice to
Tenant within thirty (30) days thereafter of the election so to do.
12.2 Total Destruction. If the Premises are completely destroyed by fire
-----------------
or other casualty, or if they are damaged by uninsured casualty, or by insured
casualty to such an extent that the damage cannot be repaired within sixty (60)
days of the occurrence, Landlord shall have the option to restore the Premises
or to terminate this Lease on sixty (60) days written notice, effective as of
any date not more than sixty (60) days after the occurrence. If this Section
becomes applicable, Landlord shall advise Tenant within thirty (30) days after
such casualty whether Landlord elects to restore the Premises or to terminate
this Lease. If Landlord elects to restore the Premises, it shall commence and
prosecute the restoration work with diligence. For the period from the date of
the casualty until completion of the repairs (or the date of termination of this
Lease, if Landlord elects not to restore the Premises), the minimum rent shall
be abated in the same proportion that the untenantable portion of the Premises
bears to the whole thereof. If the Premises are totally damaged or destroyed,
and the repairs to the Premises can not be completed within six (6) months after
the damage or destruction (subject to delays such as force majeure delays which
are beyond Landlord's control), Landlord shall so notify Tenant in writing
within thirty (30) days after the casualty event, and Tenant shall have the
right to terminate this Lease by written notice given to Landlord within thirty
(30) days after receiving Landlord's notice.
12.3 Limitation. Except as otherwise provided in this Lease, Landlord shall not
be liable to Tenant for destruction or damage to any of Tenant's property
including fixtures, equipment or other improvements, or for damages or
compensation for inconvenience, loss of business or disruption arising from
repairs or restoration of any portion of the Building or the Premises.
SECTION XIII - EMINENT DOMAIN
13.1 Total Taking. If all of the Premises are taken by eminent domain,
------------
this Lease shall terminate as of the date Tenant is required to vacate the
Premises and all rentals shall be paid to that date. The term "eminent domain"
shall include the taking or damaging of property by, through or under any
governmental or statutory authority, and any purchase or acquisition in lieu
thereof, whether the damaging or taking is by government or any other person.
13.2 Partial Taking. If a taking of any part of the Premises by eminent
--------------
domain renders the remainder thereof unusable for the business of Tenant, in the
reasonable judgment of Landlord, this Lease may, at the option of either party,
be terminated by written notice given to the other party not more than thirty
(30) days after Landlord receives notice (and provides Tenant
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written notice) of the taking, and such termination shall be effective as of the
date when Tenant is required to vacate the portion of the Premises so taken. If
this Lease is so terminated, all rent shall be paid to the date of termination.
Whenever any portion of the Premises is taken by eminent domain and this Lease
is not terminated, Landlord shall at its expense proceed with all reasonable
dispatch to restore, to the extent of available proceeds and to the extent it is
reasonably prudent to do so, the remainder of the Premises to the condition it
was in immediately prior to such taking, and Tenant shall at its expense proceed
with all reasonable dispatch to restore its fixtures, furniture, furnishings,
floor covering and equipment to the same condition they were in immediately
prior to such taking. The minimum rent payable hereunder shall be reduced from
the date Tenant is required to partially vacate the Premises in the same
proportion that the area taken bears to the total area of the Premises prior to
taking.
13.3 Damages. Landlord reserves all right to the entire damage award or
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payment for any taking by eminent domain or a transfer in lieu thereof, and
Tenant waives all claim whatsoever against Landlord for damages for termination
of its leasehold interest in the Premises or for interference with its business
as a result of such taking. Tenant hereby grants and assigns to Landlord any
right Tenant may now have or hereafter acquire to such damages and agrees to
execute and deliver such further instruments of assignment as Landlord may from
time to time request; however, Tenant shall have the right to claim from the
condemning authority all compensation that may be recoverable by Tenant on
account of any loss incurred by Tenant in removing Tenant's furniture, trade
fixtures, equipment and moving expenses to the extent such damages are awarded
separately in the eminent domain proceeding and not as part of Landlord's
damages.
SECTION XIV - DEFAULT OF TENANT
14.1 Defaults.
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14.1.1 Time is of the essence of this Lease. Tenant shall be in
default under this Lease if: (i) Tenant violates or breaches or fails to keep or
perform any covenant, term or condition of this Lease (herein a "Breach") and
fails to cure within any applicable cure period; (ii) Tenant or any guarantor of
Tenant's obligations under this Lease (a "Guarantor") files or is the subject of
a petition in bankruptcy; (iii) a trustee or receiver is appointed for Tenant's
or any Guarantor's assets; (iv) Tenant or any Guarantor makes an assignment for
the benefit of creditors; or (v) Tenant vacates or abandons the Premises. If the
Breach under (i) above is the nonpayment of rent, additional rent or any other
sum payable by Tenant under this Lease, Tenant shall not be in default until
five (5) days after written notice of such non-payment. If the Breach under (i)
above is something other than nonpayment of rent, additional rent or any other
sum payable by Tenant under this Lease before Tenant shall be in default, Tenant
shall have thirty (30) days following receipt of written notice from Landlord to
cure the Breach; provided, if the nature of the Breach is such that the same
cannot reasonably be cured within such thirty (30) day period, the cure period
shall be extended for so long as may be reasonably necessary to cure the Breach
so long as Tenant commences the cure within the initial thirty (30) day period,
thereafter diligently prosecutes the cure to completion in good faith, and
furnishes Landlord with such
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assurances and indemnities as Landlord may reasonably require to insure
completion thereof and fully and completely protect Landlord from any loss or
liability resulting from any such default or any delay by Tenant in curing the
Breach. The foregoing notices and cure periods shall include but not be in
addition to any notices and cure periods otherwise required by RCW 59.12, as now
or hereafter amended, or any legislation in substitution thereof.
14.1.2 If a Breach is not cured within the applicable cure period, if
any, Landlord shall have the following rights and remedies, at its option which
shall not be exclusive, but shall be cumulative and in addition and supplemental
to any and all other rights and/or remedies that Landlord may have at law or if
equity: (1) to declare the term hereof ended and to reenter the Premises and
take possession thereof and remove all persons therefrom, and Tenant shall have
no further claim thereon or hereunder; (2) without declaring this Lease
terminated, to reenter the Premises and occupy the whole or any part thereof for
and on account of Tenant and to collect any unpaid rentals and other charges,
which have become payable, or which may thereafter become payable; or (3) even
though it may have reentered the Premises, to thereafter elect to terminate this
Lease and all of the rights of Tenant in or to the Premises. If Landlord
reenters the Premises under option (2) above, Landlord shall not be deemed to
have terminated this Lease or the liability of Tenant to pay any rental or other
charges thereafter accruing, or to have terminated Tenant's liability for
damages under any of the provisions hereof, by any such reentry or by any
action, in unlawful detainer or otherwise, to obtain possession of the Premises,
unless Landlord shall have notified Tenant in writing that it has so elected to
terminate this Lease, and Tenant further covenants that the service by Landlord
of any notice pursuant to the unlawful detainer statutes and the surrender of
possession pursuant to such notice shall not (unless Landlord elects to the
contrary at the time of or at any time subsequent to the serving of such notices
and such election is evidenced by written notice to Tenant) be deemed to be a
termination of this Lease. In the event of any entry or taking possession of the
Premises, Landlord shall have the right, but not the obligation, to remove
therefrom all or any part of the personal property located therein and may place
the same in storage at a public warehouse at the expense and risk of Tenant.
14.1.3 If Landlord elects to terminate this Lease pursuant to the
provisions of options (1) or (3) in Section 14.1.2 above, Landlord may recover
from Tenant as damages the following: (i) the worth at the time of award of any
unpaid rental which had been earned at the time of such termination; plus (ii)
the worth at the time of award of the amount by which the unpaid rental which
would have been earned after termination until the time of award exceeds the
amount of such rental loss Tenant proves could have been reasonably avoided;
plus (iii) the worth, at the time of award of the amount by which the unpaid
rental for the balance of the term after the time of award exceeds the amount of
such rental loss that Tenant proves could be reasonably avoided; plus (iv) any
other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant's failure to perform its obligations under this Lease,
including, but not limited, any costs or expenses incurred by Landlord in (1)
retaking possession of the Premises, including reasonable attorneys' fees
therefor, (2) maintaining or preserving the Premises after such default, (3)
preparing the Premises for reletting to a new tenant, including repairs or
alterations to the Premises for such reletting, (4) leasing commissions, and (5)
any
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other costs necessary or appropriate to relet the Premises; plus (v) at
Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by the laws of the State of
Washington; plus (vi) the total value at the time of the award of all of the
concessions granted to Tenant at the time of signing this Lease, prorated based
on the remainder of the initial term of the Lease. Notwithstanding the
foregoing, Landlord shall not be entitled to any duplicative damage awards. As
used in items (i) and (ii) above, the "worth at the time of award" is computed
by allowing interest at the interest rate specified in Section 3.4 hereof. As
used in item (iii) above, the "worth at the time of award" is computed by using
a discount rate of six percent (6%).
14.1.4 For all purposes of this Section 14.1 only, the term "rental"
shall be deemed to be the minimum rent and all additional rent and other sums
required to be paid by Tenant pursuant to the terms of this Lease. All such
sums, other than the minimum rent, shall, for the purpose of calculating any
amount due under the provisions of subparagraph (iii) above, be computed on the
basis of the average monthly amount thereof accruing during the immediately
preceding twelve (12) month period, except that if it becomes necessary to
compute such rental before such a twelve (12) month period has occurred then
such rental shall be computed on the basis of the average monthly amount hereof
accruing during such shorter period.
14.2 Lega1 Expenses. If either party consults an attorney in order to
--------------
enforce this Lease the prevailing party shall be entitled to reimbursement from
the non-prevailing party for the prevailing, party's reasonable costs and
attorneys' fee, whether such costs and attorneys' fees are incurred with or
without litigation, in a bankruptcy court or on appeal.
14.3 Remedies Cumulative; Waiver. Landlord's remedies hereunder are
---------------------------
cumulative, and Landlord's exercise of any right or remedy due to a default or
breach by Tenant shall not be deemed a waiver of, or alter, affect or prejudice
any other right or remedy which Landlord may have under this Lease or by law.
Neither the acceptance of rent nor any other acts or omissions of Landlord at
any time or times after the happening of any event authorizing the cancellation
or forfeiture of this Lease shall operate as a waiver of any past or future
violation, breach or failure to keep or perform any covenant, agreement, term or
condition hereof or to deprive Landlord of its right to cancel or forfeit this
Lease, upon the written notice provided for herein, at any time that cause for
cancellation or forfeiture may exist, or be construed so as at any future time
to stop Landlord from promptly exercising any other option, right or remedy that
it may have under any term or provision of this Lease.
SECTION XV - ACCESS BY LANDLORD; DEFAULT OF LANDLORD
15.1 Right of Entry. Landlord and its agents shall have the right to enter
--------------
the Premises at any time upon reasonable prior notice to Tenant of not less than
twenty-four (24) hours (except in cases of emergency), to examine the same, to
show them to prospective purchasers, lenders or (during the last nine (9) months
of the Lease term) tenants, to make such alterations, repairs, improvements or
additions as Landlord may deem necessary or desirable: provided, in an
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emergency or perceived emergency or to provide normal services (such as
janitorial service) to the Premises, no advance notice shall be required. If
Tenant is not personally present to permit entry and an entry is necessary in an
emergency, Landlord may enter the same by master key or may forcibly enter the
same, without rendering Landlord liable therefor. Nothing contained herein shall
be construed to impose upon Landlord any duty of repair except as specifically
provided for herein. Tenant shall not change the locks to the Premises without
first advising Landlord thereof and providing Landlord with evidence that the
new lock is keyed to Landlord's master key system for the Park. Landlord shall
abide by any security procedures designed to protect Tenant's proprietary or
confidential information and processes in exercising its right of entry.
15.2 Excavation. If Landlord authorizes an excavation upon land adjacent
----------
to the Premises, Tenant shall permit the person doing the excavation to enter
the Premises for the purpose of doing such work as Landlord deems necessary to
preserve the walls of the Building from injury or damage and to support the same
by proper foundations, without any claim for damage or indemnification against
Landlord or diminution or abatement of rent.
15.3 Default of Landlord. If Landlord defaults in the performance of any
-------------------
covenant required to be performed by Landlord, Tenant may serve upon Landlord a
written notice specifying the default. If Landlord does not remedy the default
within thirty (30) days following receipt thereof or, in the case of a default
which takes more than thirty (30) days to cure, if Landlord has not commenced to
remedy the same within thirty (30) days following receipt thereof, Tenant may,
after expiration of the notice period specified in Section 18.1 hereof, cure the
default on Landlord's behalf and the costs incurred by Tenant in so doing shall
be paid by Landlord to Tenant within thirty (30) days after Tenant's giving
Landlord written notice of the amounts so incurred, together with reasonable
supporting information or documentation.
SECTION XVI - SURRENDER OF PREMISES
16.1 Surrender of Possession. Tenant shall promptly yield and deliver to
-----------------------
Landlord possession of the Premises upon the expiration or earlier termination
of this Lease in the condition they were required to be maintained hereunder
(subject to the removals required or permitted hereunder). Landlord may place
and maintain a "For Rent" sign in conspicuous places on the Premises for sixty
(60) days prior to the expiration or earlier termination of this Lease.
16.2 Holding Over. Any holding over by Tenant after the expiration of the
------------
term hereof with Landlord's consent shall be construed as a tenancy from month
to month on the terms and conditions set forth herein, except as otherwise
agreed by the parties, which tenancy may be terminated by either party upon
thirty (30) days written notice to the other party. Any holding over by Tenant
after the expiration of the term hereof without Landlord's consent shall be
deemed to be a tenancy at will, terminable at any time by Landlord at a rental
rate equal to two (2) times the rental rate in effect on the date of such
expiration of the Lease term, prorated on a daily basis, and otherwise on the
terms, covenants and conditions of this Lease to the extent applicable.
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SECTION XVII - QUIET ENJOYMENT
17.1 Landlord's Covenant. Tenant, upon fully complying with and promptly
-------------------
performing all of the terms, covenants and conditions of this Lease on its part
to be performed, shall have and quietly enjoy the Premises for the term set
forth herein, if its performance of such terms, covenants and conditions
continues for such period, subject, however, to matters of record on the date
hereof and to those matters to which this Lease may be subsequently
subordinated.
SECTION XVIII - MISCELLANEOUS
18.1 Notices. Any notices required in accordance with any of the
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provisions herein shall be in writing and delivered or mailed by registered or
certified mail to the Landlord do JSH Properties, Inc., 10220 N.E. Points Drive,
Suite 203, Kirkland, Washington 98033, Attention: Property Manager; to Tenant at
the Premises; or to such other address as a party shall from time to time advise
the other party by a written notice given in accordance with this Section 18.1.
If Tenant is a partnership or joint enterprise, any notice required or permitted
hereunder may be given by or to any one partner thereof with the same force and
effect as if given by or to all thereof. A notice shall be deemed received two
(2) days after the postmark affixed on the envelope by the United States Post
Office.
18.2 Successors or Assigns. All of the terms, conditions, covenants and
---------------------
agreements of this Lease shall extend to and be binding upon Landlord, Tenant
and, subject to the terms of Section XI hereof, their respective heirs,
administrators, executors, successors and permitted assigns, and upon any person
or persons coming into ownership or possession of any interest in the Premises
by operation of law or otherwise, and shall be construed as covenants running
with the land.
18.3 Insolvency. If a petition is filed under the Bankruptcy Act or other
----------
law to have Tenant reorganized, dissolved or liquidated, or if a trustee or
receiver is appointed for Tenant's assets under the Bankruptcy Act or other law
or if a proceeding commenced to foreclose any mortgage or any other lien on
Tenant's interest in the Premises or on personal property kept or maintained
thereon, or if Tenant makes an assignment for the benefit of creditors, then
Tenant shall be deemed in default hereunder.
18.4 Tenant Defined. The word "Tenant" as used herein shall mean each and
--------------
every person, partnership or corporation who is mentioned as Tenant herein or
who executes this Lease as Tenant. If there shall be more than one Tenant, they
shall all be bound jointly and severally by the terms, covenants and agreements
herein.
18.5 Brokers' Commissions. Landlord will pay a commission to Brian Hatcher
--------------------
of Kidder, Matthew & Segner, Inc., who represented the Landlord in this
transaction ("Landlord's Broker") in accordance with a separate agreement
between Landlord and Landlord's Broker. Tenant agrees to indemnify and hold
Landlord harmless from all liabilities and claims for
28
<PAGE>
brokerage commissions or finder's fees growing out of agreements which Tenant
has made with persons or entities other than Landlord's Broker or Tenant's
Broker. Landlord's Broker shall share the commission with Geoff Boguch of
Colliers International ("Tenant's Broker"), who represented the Tenant on this
transaction, according to an agreement between Landlord's Broker and Tenant's
Broker.
18.6 Partial Invalidity. If any term, covenant or condition of this Lease
------------------
or the application thereof to any person or circumstance is, to any extent,
invalid or unenforceable, the remainder of this Lease, or the application of
such term, covenant or condition to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Lease shall be valid and be enforced to
the fullest extent permitted by law.
18.7 Recording. Neither Landlord or Tenant shall record this Lease or any
---------
memorandum hereof.
18.8 Subordination; Notice to Lender: Attornment.
-------------------------------------------
18.8.1 Unless otherwise designated by Landlord, this Lease shall be
subordinate to all existing or future mortgages and deeds of trust on the Park,
and to any extensions, renewals or replacements thereof; however, Tenant's
possession of the Premises pursuant to this Lease may not be disturbed by any
such mortgagee so long as Tenant is not in default under this Lease. Within
twenty (20) days of Landlord's request therefor Tenant shall execute and deliver
all instruments or certificates which Landlord or Lender may deem necessary or
appropriate to reflect such subordination of this Lease. Within twenty (20) days
of Landlord's request therefor, Tenant shall promptly execute and deliver to
third parties designated by Landlord an estoppel certificate or letter in the
form requested by Landlord or its lender that correctly recites the facts with
respect to the existence, terms and status of this Lease. Tenant agrees to
attorn to Landlord's successor following any foreclosure sale or transfer in
lieu thereof.
18.8.2 Tenant shall, within ten (10) days of demand, execute,
acknowledge and deliver to Landlord or its designee a written statement
certifying: (i) the date the Lease term commenced or will commence and the date
it expires; (ii) the date Tenant entered into occupancy of and commenced
business operations in the Premises; (iii) the amount of Base Rent and the date
to which Rent has been paid; (iv) that this Lease is in full force and effect
and has not been assigned, modified, supplemented or amended in any way (or
specifying the date and terms of each agreement so affecting this Lease) and
that no part of the Premises has been sublet (or to the extent such is not the
case, a copy of any sublease); (v) that, to the extent such is the case, this
Lease represents the entire agreement between the parties as to the Premises;
(vi) that Landlord is not in default under this Lease (or is such is not the
case, the extent and nature of such default); (vii) that all required advanced
by Landlord to Tenant on account of tenant improvements have been made (or the
extent that such is not the case); (viii) on the date of such certification
there are no existing defenses or claims which Tenant has against the
enforcement of this Lease by Landlord (or if such is not the case, the extent
and nature of such defenses or claims); (ix) the
29
<PAGE>
amount of the Security Deposit paid to Landlord; and (x) any other fact or
representation that a mortgagee or purchaser may reasonably request. It is
intended that any such statement delivered pursuant to this Section 18.8.2 shall
be fully and completely binding upon Tenant for all purposes of this Lease, may
be relied upon by a prospective purchaser or mortgagee of Landlord's interest,
or any assignee of any mortgage upon Landlord's interest in the Building or the
Land. If Tenant shall fail to respond within ten (10) days of receipt of a
written request by Landlord therefor, Tenant shall be deemed to have given a
certificate as above provided without modification and shall be conclusively
deemed to have admitted the accuracy of any information supplied by Landlord to
a prospective purchaser or mortgagee, that this Lease is full force and effect,
that there are no uncured defaults in Landlord's performance, that the Security
Deposit is as stated in this Lease and that not more than one month's Rent has
been paid in advance.
18.8.3 Notwithstanding anything to the contrary in this Lease,
Landlord shall not be in default under any provision of this Lease unless
written notice specifying such default is given to Landlord and to any lender
who has been identified to Tenant in writing as a party to whom notice must be
sent. Any lender of Landlord entitled to notice pursuant to the preceding
sentence shall have the right to cure any default on behalf of Landlord within
the later of (a) thirty (30) days after receipt of such notice, or (b) thirty
(30) days after the expiration of any cure period provided to Landlord pursuant
to this Lease; provided, if such default cannot reasonably be cured within such
thirty (30) day period, Landlord's lender shall be entitled to such additional
time as may be reasonably necessary to cure the default, if within the thirty
(30) day period the lender commences and thereafter diligently pursues the
actions necessary for the lender to cure such default by Landlord (including, if
possession of the Premises is necessary to cure the default, commencing such
judicial or non-judicial proceedings as may be necessary for lender or a
receiver to take possession of the Premises). So long as a lender is diligently
taking the actions reasonably necessary for it to cure Landlord's default,
Tenant shall not exercise its remedies for Landlord's default under this Lease.
18.8.4 Upon mutual execution of this Lease, Landlord shall use its
best efforts to obtain from the lender holding a deed of trust lien encumbering
the Premises a subordination, attornment and nondisturbance agreement regarding
this Lease on the standard form used by such deed of trust beneficiary with such
changes thereto as are reasonably satisfactory to Tenant and to the deed of
trust beneficiary ("SAND"). Landlord shall use its best efforts to obtain an
SAND from any lender acquiring an interest in the Premises after mutual
execution of this Lease.
18.9 Financial Statements. Within ten (10) days after Landlord's request
--------------------
therefor, but not more frequently than four (4) times per year, and subject to a
nondisclosure covenant to be signed by Landlord and any recipient of such
information with respect to the information conveyed, Tenant shall deliver t&
Landlord such current financial statements regarding Tenant as Landlord may
reasonably request. Tenant shall certify the accuracy of such statements.
Landlord may make the financial statements available to potential lenders or
purchasers, but shall otherwise preserve their confidentiality except in
connection with legal proceedings between the parties or as otherwise directed
by court rule or order.
30
<PAGE>
18.10 Liability of Landlord. Tenant shall look solely to Landlord's
---------------------
interests in the Building (including without limitation the rents, issues and
profits from the Building) for the satisfaction of any judgment or decree
against Landlord based upon any default under this Lease, and no other property
or assets of the Landlord (or its partners) shall be subject to levy, execution
or other enforcement procedures for satisfaction of any such judgment or decree.
18.11 Force Majeure. Landlord shall not be deemed in default hereof nor
-------------
liable for damages arising from its failure to perform its duties or obligations
hereunder if such is due to causes beyond its reasonable control, including, but
not limited to, acts of God, acts of civil or military authorities, fires,
floods, windstorms. earthquakes, strikes or other labor disturbances, civil
commotion or war.
18.12 Transportation Management Program; Recycling. Tenant shall cooperate
--------------------------------------------
with Landlord in meeting the objectives and complying with the terms and
conditions of any transportation management plan applicable to the Building or
the Park. Landlord will provide Tenant with a copy of any such transportation
management plan now or hereafter in effect. In addition, Tenant will cooperate
with and participate in any and all recycling programs now or hereafter in place
with respect to the Building or the Park.
18.13 Cure Right of Landlord. All covenants and agreements to be kept or
----------------------
performed under Tenant under any of the terms of this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any abatement of rent.
If Tenant shall fail to pay any sum of money, other than rent, required to be
paid by hereunder or shall fail to perform any other act on its part to be
performed hereunder, Landlord may, but shall not be obligated to, and without
waiving any default of Tenant or rights or remedies of Landlord or releasing
Tenant from any obligations of Tenant hereunder, make any such payment or
perform any such other act on Tenant's part to be made or performed as in this
Lease provided.
All sums so paid by Landlord and all necessary incidental costs,
together with the interest thereon at the default rate as provided in Section
3.4 from the date of such payment by Landlord, shall be paid to Landlord
forthwith on demand, and Landlord shall have (in addition to any other right or
remedy of Landlord) the same rights and remedies in the event of nonpayment
thereof by Tenant as in the case of default by Tenant and the nonpayment of
rent.
18.14 Name of Building. Landlord may adapt or change the name or address
----------------
or identity of the Building or any part thereof or the Park (or any part
thereof) including roof signs, ground level and lobby signage and any other
Building or Park identification.
18.15 Tax on Rent. The Rent herein is exclusive of any sales, business and
-----------
occupation, gross receipts or other tax based on Rents, or tax on Tenant's
property or tax upon or measured by the number of employees of Tenant, or any
similar tax or charge. If any such tax or charge be hereinafter enacted, and
imposed upon Landlord. Tenant shall pay Landlord the amount thereof concurrently
with each monthly Rent payment. If it shall not be lawful for Tenant so to
reimburse Landlord, the monthly Rent payable to Landlord under this Lease shall
be revised to
31
<PAGE>
net Landlord the same net rental after imposition of any such tax or charge upon
Landlord as would have been payable to Landlord prior to the imposition of such
tax or charge. Tenant shall not be liable to reimburse Landlord for any federal
income tax or other income tax of a general nature applicable to Landlord's
income.
18.16 Light, Air and View. Landlord does not guarantee the continued
-------------------
present status of light or air over any property adjoining or in the vicinity of
the Building or the Park. Any diminution or shutting off of light, air or view
by any structure which may be erected near or adjacent to the Building or the
Park shall in no way affect this Lease or impose any liability on Landlord.
SECTION XIX - EXECUTION OF LEASE
19.1 Execution by Landlord and Tenant: Approval of Lender. Landlord shall
----------------------------------------------------
not be deemed to have made an offer to Tenant by furnishing Tenant with a copy
of this Lease with particulars inserted. No contractual or other rights shall
exist or be created between Landlord and Tenant until all parties hereto have
executed this Lease and, until it has been approved in writing by Lender and
fully executed copies have been delivered to Landlord and Tenant. Tenant agrees
to make such changes herein as may be requested by Lender so long as such do not
increase amounts due from Tenant hereunder or otherwise materially alter its
rights hereunder.
SECTION XX - ENTIRE AGREEMENT - APPLICABLE LAW
20.1 Entire Agreement - Applicable Law. This Lease and the Exhibits
---------------------------------
attached hereto, and by this reference incorporated herein, set forth the entire
agreement of Landlord and Tenant concerning the Premises, and there are no other
agreements or understanding, oral or written, between Landlord and Tenant
concerning the Premises. Any subsequent modification or amendment of this Lease
shall be binding upon Landlord and Tenant only if reduced to writing and signed
by them. This Lease shall be governed by, and construed in accordance with the
laws of the State of Washington.
32
<PAGE>
DATED as of the day and year first written above.
LANDLORD:
THE PLAZA AT YARROW BAY, LLC,
a Washington limited liability company
By: HAL Realty 111, Inc., Manager
By: /s/ Paul Manheim
------------------------
Its: Vice President and CEO
-----------------------
TENANT:
HomeGrocer.com, Inc., a Delaware corporation
By: /s/ Daryl F. Stromswold
-------------------------
Its: Assistant Secretary
------------------------
33
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 21st day of May, 1999, before me, a Notary Public in and for the State
---- ---
of Washington, duly commissioned and sworn, personally appeared Paul Manheim, to
me known to be the Vice President of HAL Realty III, Inc., Manager of THE PLAZA
AT YARROW BAY LLC, the limited liability company named in and which executed the
foregoing instrument; and he acknowledged to me that he signed the same as the
free and voluntary act and deed of said limited liability company for the uses
and purposes therein mentioned.
I certify that I know or have satisfactory evidence that the person appearing
before me and making this acknowledgment is the person whose true signature
appears on this document.
WITNESS my hand and official seal the day and year in this certificate above
written.
/s/ Mary S. McKinley
---------------------
Signature
/s/ Mary S. McKinley
---------------------
Print Name
NOTARY PUBLIC in and for the State of
Washington, residing at Kirkland
--------
My commission expires 12/04/02
--------
34
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 19th day of May, 1999, before me, a Notary Public in and for the
---- ---
State of Washington, duly commissioned and sworn, personally appeared Daryl
-----
Stromswold, to me known to be the Assistant Secretary of HomeGrocer.com, Inc.,
- ---------- -------------------
the corporation named in and which executed the foregoing instrument; and he
acknowledged to me that he signed the same as the free and voluntary act and
deed of said partnership for the uses and purposes therein mentioned.
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
WITNESS my hand and official seal the day and year in this certificate
above written.
[SEAL] /s/ Tom Read
----------------------------
Signature
Tom Read
----------------------------
Print Name
NOTARY PUBLIC in and for the State of
Washington, residing at Seattle.
--------
My commission expires 11/28/2000.
-----------
35
<PAGE>
EXHIBIT 10.14
SUBLEASE
--------
This Sublease (the "Sublease") is dated as of ______________, _________,
and is by and between HomeGrocer.com, Inc., a Delaware corporation ("Tenant")
and AT&T Wireless Services of Washington, Inc. ("Subtenant"). Tenant entered
into a lease (the "Lease") with Plaza at Yarrow Bay LLC, a Washington
corporation, as landlord ("Landlord"), dated May 19, 1999, regarding premises
known as 10230 NE Points Drive, Kirkland, Washington, Building II ("Building").
A copy of the Lease is attached hereto as Exhibit A and incorporated herein by
reference.
The parties hereto have agreed that Tenant shall sublet certain premises to
Subtenant. The parties agree as follows:
1. Premises. Subtenant hereby subleases from Tenant substantially all
--------
space on the fourth floor of the Building as delineated on the floor plan
attached hereto as Exhibit B (the "Premises -- Phase II") for the period from
August 30, 1999 through December 31, 1999 and (the "Premises -- Phase III") for
the period from August 30, 1999 through August 31, 2000. The square footage of
Phase I is approximately 3,312 U.S.F., Phase II is approximately 6,368 U.S.F.,
and Phase III is approximately 10,387 U.S.F. (Exhibit B). Subtenant shall not
commit, or permit to be committed, any occurrence, act or event which would
violate any term or condition of the Lease. In addition, Subtenant agrees to
sublease to Tenant the fourth floor space known as the ATAC, delineated on the
floor plan attached hereto as Exhibit B (the "Premises -- Phase I") for the
period of the Subtenant's existing lease from August 1, 1999 through August 29,
1999.
2. Term. This Sublease shall be for a term of approximately twelve (12)
----
months, beginning on August 30, 1999 (the "Commencement Date") and ending on
August 31, 2000, unless sooner terminated due to a default by Subtenant or
pursuant to the Lease. The term for specific sections of the leased space on
the fourth floor is phased, as defined in Section One above. Notwithstanding
the Commencement Date, if for any reason Tenant cannot deliver possession of the
Premises to Subtenant on the Commencement Date, Tenant shall not be subject to
liability therefor, nor shall such failure affect the validity of this Sublease
or obligations of the Subtenant hereunder or extend the term hereof, but in such
case Subtenant shall not be obligated to pay rent until possession of the
Premises is tendered to Subtenant. Notwithstanding the foregoing, if Tenant has
not delivered possession of the Premises to Subtenant within ninety (90) days
after the Commencement Date, then Subtenant may, at Subtenant's option, by
notice in writing to Tenant within ten (10) days thereafter, cancel this.
Sublease. If this Sublease is so canceled, all parties shall be discharged from
all obligations hereunder, and any prepaid rent or security deposit paid by
Subtenant shall be refunded to Subtenant. If Tenant permits Subtenant to occupy
the Premises prior to the Commencement Date, such occupancy shall be subject to
all the provisions of this Sublease. Early possession shall not advance the
termination date of this Sublease.
3. Rent. Subtenant shall pay to Tenant rent at the rate of $23.00 per
----
rentable square foot, NNN, in advance, on the first day of every month during
the term hereof, without deduction or offset.
<PAGE>
4. Use. The Premises shall be used in a manner consistent with current
---
operations, which are limited to network operations, product development lab and
related office space and for no other purpose. Any change in use will result in
immediate termination of this sublease.
5. Incorporation of Lease Terms. Except to the extent inconsistent with
----------------------------
the terms of this Sublease, all the terms and conditions contained in the Lease
are made terms and conditions of this Sublease (with each reference in the Lease
to Landlord and Tenant to be deemed to refer in this Sublease to Tenant and
Subtenant, respectively). Subtenant shall not have any right to exercise any
options provided to Tenant in the Lease without Tenant's prior written consent,
which consent may be withheld in Tenant's sole discretion.
6. Condition of Premises. Subtenant has inspected the Premises and
---------------------
accepts them in their present condition, AS IS, without warranty of any kind or
nature, express or implied. Subtenant hereby assumes all of Tenant's obligations
under the Lease (except as provided otherwise under Section 5 above, and except
as otherwise set forth in this Sublease), and agrees to perform all Tenant's
obligations under the Lease, as modified hereunder. In case of a conflict
between the Sublease and the Lease, the Sublease shall control.
Subtenant currently occupies the Premises under a direct Lease with
Landlord. At the expiration or sooner termination of this Sublease, Subtenant
shall restore the Premises to that condition required by Landlord in conformity
with the direct Lease between Landlord and Subtenant including, without
limitation, those measures identified in the Letter attached hereto as Exhibit
C.
7. Assignment. Subtenant shall not assign this Sublease nor sublet the
----------
Premises in whole or in part.
8. Additional Charges. Subtenant shall pay to Tenant, in advance on the
------------------
first day of each month hereunder, without deduction or offset, that portion of
additional rent or other sums owed under the Lease, including without limitation
under Sections 3.1, 3.2, 3.3 and 4.7 thereof, to the extent attributable to the
Premises (except as to Section 4.7 to be based on the area of the subleased
Premises to the area of the premises described in the Lease). If any such rent
or sums shall be owing due to additional use by Subtenant of any utility or
service in excess of Subtenant's proportionate part of additional use in the
Premises demised under the Lease, such excess shall be paid in its entirety by
Subtenant. Any rent or other sums payable by Subtenant under this Section 8
shall be deemed additional rent and shall be collectible as such. If Tenant
shall receive any refund under this Section 8, Subtenant shall be entitled to
the return of so much of the refund as shall be attributable to prior payments
by Subtenant.
9. Limitation. Notwithstanding anything contained herein to the contrary,
----------
the only services or rights to which Subtenant is entitled hereunder are those
to which Tenant is entitled under the Lease, and for all such services and
rights Subtenant will look to Landlord under the Lease.
10. Indemnity. Subtenant shall neither do nor permit anything to be done
---------
which would cause the Lease to be in default, or to be terminated or forfeited
by reason of any right of
-2-
<PAGE>
termination or forfeiture reserved or vested in Landlord under the Lease.
Subtenant shall indemnify and hold Tenant harmless from and against all claims,
liabilities, losses and expenses (including attorneys fees) of any kind
whatsoever by reason of any breach or default on the part of Subtenant by reason
of which the Lease may be terminated or forfeited.
11. Security Deposit. Subtenant has paid Tenant on the execution and
----------------
delivery of this Sublease the sum of one (1) month's rent as security for the
full and faithful performance of the terms, covenants and conditions of this
Sublease on the part of Subtenant to be performed or observed, including but not
limited to payment of rent and additional rent in default or for any other sum
which Tenant may expend or be required to expend by reason of Subtenant's
default. If Subtenant shall fully and faithfully comply with all the terms,
covenants and conditions of this Sublease on the part of Subtenant to be
performed or observed, the security deposit, or any unapplied balance thereof,
shall be returned to Subtenant after the time fixed as the expiration of the
demised term and after the removal of Subtenant and surrender of possession of
the Premises to Tenant.
12. Entire Agreement. All prior understandings and agreements between the
----------------
parties are merged within this Sublease, which alone fully and completely sets
forth the understanding of the parties; and this Sublease may not be changed or
terminated orally or in any manner other than by an agreement in writing which
is signed by the party against whom enforcement of the change or termination is
sought.
13. Notices. Any notice or demand which either party may or must give to
-------
the other hereunder shall be in writing and delivered personally or sent by
registered mail, postage prepaid, or sent by facsimile, addressed, if to Tenant,
as follows:
HomeGrocer.com, Inc.
Attn: Finance Department
10230 NE Points Drive
Kirkland, WA 98033
Fax No.: (425) 688-1451
and if to Subtenant, as follows:
AT&T Wireless Services of Washington, Inc.
7277 164th Avenue NE
Redmond, WA 98073
Fax No.: (425) 580-5640
Either party may, by notice in writing, direct the future notices or
demands be sent to a different address. Subtenant agrees to immediately notify
Tenant in the manner set forth above of any notice that Subtenant receives from
Landlord concerning the Premises, the Building, the Lease, or this Sublease.
Notices delivered personally shall be deemed given when delivered; notices sent
by facsimile shall be deemed given upon electric confirmation of successful
-3-
<PAGE>
transmission; and notices sent by mail shall be deemed given three (3) business
days after being placed in the mail.
14. Successors and Assigns. The covenants and agreements herein contained
----------------------
shall be binding upon and shall inure to the benefit of Tenant, Subtenant, and
their respective executors, administrators, successors and assigns.
15. Parking. To the extent available to Tenant under the Lease, Tenant
-------
shall make available to Subtenant forty-eight (48) covered parking spots at $40
per month and thirty-two (32) uncovered spots at no cost.
16. Generator. Tenant has use of the generator at the Plaza at Yarrow
---------
Bay. This generator is set up to provide emergency power supply to Buildings II
and IV of Plaza at Yarrow Bay. Tenant agrees to provide subtenant use of the
generator through February 2001. As long as Landlord consents to this use. The
cost of the generator will be split equally between the tenant and the
subtenant.
Dated this 22nd day of July, 1999.
---- ---- ----
TENANT:
HomeGrocer.com, Inc.,
a Delaware corporation
By: /s/ Jonathan W. Lanthew
-------------------------------
Name: Jonathan W. Lanthew
-----------------------------
Title: VP Marketing & Sales
----------------------------
SUBTENANT:
AT&T Wireless Services of Washington,
Inc., an Oregon corporation
By: /s/ Bob Mahlik
-------------------------------
Name: Bob Mahlik
-----------------------------
Title: VP SM & Real Estate
----------------------------
-4-
<PAGE>
EXHIBIT 10.15
SUBLEASE
THIS AGREEMENT OF SUBLEASE is made and entered into this ____ day of April,
1999, by and between Delta Engineering and Manufacturing, an Oregon Corporation
(hereinafter called "Sublessor"), and HomeGrocer.com, Inc., a Delaware
Corporation (hereinafter called "Sublessee").
WHEREAS, Riggs & Company, a division of Riggs Bank N.A., as Trustee of
Multi Employer Property Trust, successor in interest to Riggs Bank N.A.
(hereinafter called "Lessor"), and Sublessor entered into a Lease dated May 20,
1996, (hereinafter called the "Lease") for certain premises described therein,
located in Building E, 19801 SW 95th Place, Tualatin, Oregon as amended December
4, 1996 & April 17, 1997; and
WHEREAS, Sublessor desires to lease to Sublessee the premises under the
terms and conditions hereof; and
WHEREAS, Lessor has agreed to consent to such sublease;
NOW, THEREFORE, the parties mutually agree as follows:
1. Sublessor does hereby lease to Sublessee approximately 21,477 square
feet of space in Building E, located at 19801 SW 95th Place, Tualatin, Oregon,
Building E as shown on Exhibit C. Sublessor agrees to leave space in a "Broom
Clean" condition with all rack anchors removed from the warehouse floors,
otherwise Sublessee has inspected the premises and agrees to take the same in
their "AS-IS" condition at commencement of the Sublease term.
2. This Sublease shall commence on April 1, 1999, and terminate on April
30, 2000.
3. Sublessee shall pay to Sublessor, in advance, on or before the first
day of each month of the term thereof, rent in an amount which shall be no less
than Seven Thousand Three Hundred Two and No/100 Dollars ($7,302.00) in care of:
Delta Engineering and Manufacturing, 19500 SW Teton Avenue, Tualatin, Oregon
97065. Said rent shall be pro-rated in the event that the sublease commencement
is other than the first day of the month.
4. In addition to the above stated rent, Sublessee shall pay to
Sublessor, Sublessor's pro-rata share of the operating expenses as set forth in
Paragraphs 4A, 7, and l3B of the Lease the current amount of which is $2,856.00
per month and is subject to periodic adjustment. Such operating expenses shall
be pro-rated for the date of occupancy.
5. Sublessee shall pay to Sublessor Seven Thousand Three Hundred Two and
No/100 Dollars ($7,302.00) as security deposit upon the execution of this
Sublease as provided for in Paragraph 2B of the Lease.
6. Any notice to be given to either party hereunder shall be given in
writing at the following addresses:
<PAGE>
SUBLESSOR: SUBLESSEE:
Delta Engineering & Manufacturing Company HomeGrocer.com, Inc.
19500 SW Teton Avenue 1445 120th Avenue NE
Tualatin, Oregon 97065 Bellevue, Washington 98005-2127
Attn: Barry Houk Attn: Terry Drayton, CEO
(503) 692-4435 Phone (425) 943-2000 Phone
(503) 691-8291 Facsimile (425) 688-1451 Facsimile
7. The Lease, a copy (with all amendments and assignments) of which is
attached hereto as Exhibit B, and all of its terms and conditions, except to the
extent inconsistent with this Sublease, are hereby incorporated into this
Sublease herein as though fully set forth by this reference as if Sublessor were
the Landlord and Sublessee the Tenant. Sublessee shall perform and be subject to
all of the duties and obligations of Sublessor thereunder as applicable to the
subleased premises and to the term hereof. Sublessee shall promptly reimburse
Sublessor, upon demand, for any cost or expense to Sublessor accruing under the
Lease applicable to the term hereof and sublease premises, except for the
monthly rent paid by Sublessor to Lessor from and after the date hereof, except
for the Base Rent obligations under the Lease and as otherwise stated herein,
for which Sublessor shall remain responsible, Sublessee assumes and agrees to
perform all of the Tenant's obligations under the Lease and Sublessee shall be
liable to remove all its own alterations, including fixtures and equipment
Sublessee is purchasing from Sublessor, and to restore the premises to the
condition existing as of the date Sublessee entered into occupancy. Sublessee
shall not be obligated to remove the Tenant's alterations or to do any
restoration work that is necessary to return the premises to the condition that
existed as of the date the original Lease was signed (as would otherwise be
require by Paragraph 8 entitled "Alterations" of the Lease. Prior to altering
the condition of the premises existing at the time of this Sublease, Sublessee
shall first describe such alterations in writing to Sublessor and obtain
Sublessors consent to same which shall not be unreasonably withheld.
8. Sublessee shall defend and indemnify Sublessor from and against all
claims and liabilities (including but not limited to damages and attorney's
fees) incurred by Sublessor as a result of any Sublessee's breach of this
Sublease agreement. Such indemnification shall not apply to any obligation under
the Lease that arose prior to Sublessee taking occupancy for which Sublessor is
responsible or which relates to the conclusion in Section 14 of the Lease
entitled "Liability" (which contains broad indemnification provisions) for which
Sublessor would otherwise be responsible for such liability.
9. Sublessor shall have no right of Landlord liens as set forth in
Section 21 of the Lease.
10. Sublessee's obligation with respect to the indemnity pertaining to
Hazardous Materials as set forth in Section 26 of the Lease, shall only apply to
the period for which Sublessee has occupancy of the premises and those which
apply to Sublessee; use of activities of those of Sublessee; agents, contractors
and invitees.
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11. Sublessee is not entitled rights of First Refusal or rights to an
option to extend as set forth in paragraphs 30 and 31 of the Lease. In the event
Sublessee seeks to enter into a new Lease with Landlord for an extended term for
the premises Sublessor agrees to not exercise Its rights under these paragraphs.
12. Sublessor and Sublessee warrant that all necessary corporate and
partnership actions have been duly taken to permit Sublessor and Sublessee to
enter into the Sublease, and that each undersigned officer or general partner
has been duly authorized and instructed to execute this Sublease.
13. The Sublease shall be subject to and contingent upon the prior written
consent of Landlord. This Sublease may not be assigned, renewed or extended, nor
shall the Premises, or any part thereof, be further sublet without the prior
written consent of Landlord and Sublessor in each instance.
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<PAGE>
SUBLESSOR:
Delta Engineering and Manufacturing Company,
an Oregon Corporation
By: /s/ Barry Houk
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Name: Barry Houk
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Title: Vice President of Administration
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Date: April 12, 1999
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SUBLESSEE:
HomeGrocer.com, Inc.,
a Delaware corporation
By: /s/ Daryl L. Stromswold
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Name: Daryl L. Stromswold
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Title: Assistant Secretary
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Date: April 8, 1999
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<PAGE>
EXHIBIT 10.16
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 July
23, 1999, is made by and between THE EZRALOW COMPANY, LLC, a California limited
liability company ("Lessor") and HOMEGROCER.COM, 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 3450 S. La Brea Avenue, Los Angeles, California 90016, located in the
County of Los Angeles, 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) See Addendum Paragraphs 50 and 51
("Premises"). (See also Paragraph 2).
1.3 Term: Fifteen (15) years and partial month ("Original Term")
commencing as per Add. Para. 52 ("Commencement Date") and ending as per Addendum
Paragraph 52 ("Expiration Date"). (See also Paragraph 3).
1.4 Early Possession: as per Addendum Paragraph 53 ("Early Possession
Date"). (See also Paragraphs 3.2 and 3.3).
1.5 Base Rent: $ as per Add. Para. 54 per month ("Base Rent"), payable on
the first day of each month commencing on the Rent Commencement Date (See also
Paragraph 4). X If this box is checked, there are provisions in this Lease for
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the Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $158,400 as Base Rent for the period
equal to the first full calendar month of the Original Term.
1.7 Security Deposit: $ as per Addendum Paragraph 55 ("Security
Deposit"). (See also Paragraph 5).
1.8 Agreed Use: warehousing, retail distribution, ancillary office use
and other legally permitted uses. (See also Paragraph 6).
1.9 Insuring Party. Lessor is the "Insuring Party" unless otherwise
stated herein. (See also Paragraph 8).
1.10 Paragraph deleted.
1.11 Paragraph deleted.
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 75 and Exhibits "A," "A-1," "B," and "C,"
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 Delivery Date ("Start Date"), and, so long as the
required service contracts described in Paragraph 7.1(b)
<PAGE>
below are obtained by Lessee within thirty (30) days following the Start Date,
warrants that the existing exterior roof, 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 specificity 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. See Addendum Paragraph 52.
2.3 Compliance. Lessor warrants that the Base Building Work complies
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 Lessees 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: See Addendum Paragraph 56.
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific use of the Premises by Lessee as
compared with general nonrefrigerated, commercial warehousing, distribution,
and ancillary office 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 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 Expenditure 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 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 share thereof, Lessor shall have the option to terminate this Lease upon
120 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 deduct 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
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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 Paragraph deleted.
3. Term.
3.1 Term. The Commencement Date, Rent Commencement Date, Expiration Date
and Original Term of this Lease are as specified in Paragraph 1.3. and Add.
Para 52.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Rent Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease (including but not limited to the obligations to pay Real Property
Taxes and insurance premiums and to maintain the Premises) shall, however, be in
effect during such period. Any such early possession shall not affect the
Expiration Date.
3.3 Paragraph deleted. See Add. Para. 52.
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 so stating.
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<PAGE>
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. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. 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. If a change in control of Lessee occurs during this
Lease and following such change the financial condition of Lessee is, in
Lessor's reasonable judgment, significantly reduced. Lessee shall deposit such
additional monies with Lessor as shall be sufficient to cause the Security
Deposit to be at a commercially reasonable level based on said change in
financial condition. 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 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. See Add. Para. 55.
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 damage, 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.
6.2 Hazardous Substances. See Addendum Paragraph 57.
(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
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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 of 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 Substance to be spilled or released in, on. under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises 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 arty third party (provided, however, that Lessee shall have no liability
under this Lease with respect to underground migration of 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 specifically 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 or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost 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 Substances on 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
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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 $250,000 give written notice to Lessee,
within thirty (30) days after receipt by Lessor of knowledge of the occurrence
of such Hazardous Substance Condition, of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the 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 by which the cost of the remediation of such Hazardous Substance
Condition exceeds an amount equal to $250,000. 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. See Addendum
Paragraph 58.
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. See
Addendum Paragraph 59.
7. Maintenance; Repairs, Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations. See Addendum Paragraph 60.
(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 as 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, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices, specifically including the procurement and
maintenance of the service contracts
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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 age 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 and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements ("Basic Elements"), if
any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler,
and pressure vessels, (iii) fire extinguishing systems, including fire alarm
and/or smoke detection, (iv) 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.
(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 by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time.
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
therein, 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. See Addendum
Paragraph 61.
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 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, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $15,000 on a per-job basis.
(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
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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 $15,000, 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. See Add. Para. 62.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any 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) days 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 welt 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 De 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. See Addendum Paragraph 63.
8.1 Payment For Insurance. Lessee shall pay for all insurance required
under paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $3,000,000 per
occurrence. Premiums for policy periods commencing prior to or extending beyond
the Lease term shall be prorated to correspond to the Lease term. Payment shall
be made by Lessee to Lessor within ten (10) days following receipt of an
invoice.
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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 single limit coverage in an amount not less than $3,000,000
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 carried 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 not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 Property Insurance -- Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force 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 any 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 by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for 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 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
toss, 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) Adjacent Premises. If the Premises are part of a larger building,
or of a group of buildings owned by Lessor which are adjacent to the Premises.
the Lessee shall pay for any increase in the premiums for the property insurance
of such building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
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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 A-, IX 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. See
Addendum Paragraph 64.
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
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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. It 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 (ii) 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
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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. See Addendum Paragraph 65.
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.
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 tails 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) Abatement. 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. See Addendum Paragraph 66.
(b) Paragraph deleted.
9.7 Termination-Advance Payments. Upon termination of this Lease pursuant
to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
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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. See Addendum Paragraph 67.
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 moneys paid to
Lessor under this Paragraph may be intermingled with other moneys of Lessor and
shall not bear interest. In the event of a Breach by Lessee in the performance
of 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.
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, Lessee shall
pay
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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. See Addendum Paragraph
6.8.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. See Addendum Paragraph 9.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of fifty-one percent
(51%) or more of the voting control of Lessee shall constitute a change in
control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
fifty-one percent (51%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(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 o
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Rent or for 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.
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(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 not more
than $1,000 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 arid 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 alt or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. 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 sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease. to pay to Lessor all Rent due and to become due under the
sublease. Sublessee shall rely upon any such notice from Lessor and shall pay
alt Rents to Lessor without any obligation 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 attorney 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.
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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:
(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 a 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 Estoppel
Certificate, (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. (S) 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery 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 a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory 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
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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 proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of 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 defamer 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 defamer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or of 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 Lessees 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 or any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease
including the Allowance (as defined in Exhibit "C") 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
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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, nor 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 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, then 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 if 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 as 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 takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction
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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 Deleted.
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 on the Requesting
Party's Estoppel Certificate, and the Responding Party shall be estopped from
denying the truth of the facts contained in said Certificate. See Addendum
Paragraph 70.
(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.
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, ii
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
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined. 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 as outlined in Paragraph 6 above. See
Addendum Paragraph 71.
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
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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. See
Addendum Paragraph 72.
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.
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 by written
notice to the other specify a different address for 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 given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means 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 moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
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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 "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 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, Lessor shall obtain a Non-Disturbance Agreement from the
holder of any pro-existing Security Device which is secured by the Premises.
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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 agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises 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 "For Sale" 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. See Addendum Paragraph 73.
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. 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 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
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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. See Addendum Paragraph 74.
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
Estoppel Certificate, 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 right 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 Lessee. 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 agree that if will observe all reasonable rules and
regulations which Lessor may
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make from time to time for the management, safety, and care of said properties,
include the care 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 to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part at 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 same 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 Parties. 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. Paragraph deleted.
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.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
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INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO
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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 FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
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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 dates
specified above their respective signatures.
Executed at: Calabasas, California Executed at: Bellevue, Washington
on:_______________________________ on:_______________________________
By LESSOR: By LESSEE:
THE EZRALOW COMPANY, LLC, HOMEGROCER.COM, INC.,
a California limited liability company a Delaware corporation
By: /s/ Bryan Ezralow By: /s/ Terry Drayton
Name Printed: Bryan Ezralow Name Printed: Terry Drayton
--------------------
Title: President Title: President
---------------------------
By:_______________________________ By: /s/ Daryl L. Stromwold
Name Printed:_____________________ Name Printed: Daryl Stromwold
Title:____________________________ Title: Assistant Secretary
Address:__________________________ Address:10230 NE Points Drive
Kirkland WA 98033
Telephone: ( )_________________ Telephone: (425) 201-7500
Facsimile: ( )_________________ Facsimile: (425) 201-7575
Federal ID No.____________________ Federal ID No.____________________
NOTE: 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 So. Flower
Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax No.
(213) 687-8616
(C)Copyright 1997 -- By American Industrial Real Estate Association. All rights
reserved.
No part of these works may be reproduced in any form without permission in
writing
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ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT
LEASE BETWEEN
THE EZRALOW COMPANY, LLC, AS LESSOR, AND
HOMEGROCER.COM, INC., AS LESSEE,
DATED AS OF JULY 23, 1999
This Addendum ("Addendum") is made with respect to that certain Standard
Industrial/Commercial Lease - Net and Exhibits of even date herewith, by and
between THE EZRALOW COMPANY, LLC, a California limited liability company, as
Lessor, and HOMEGROCER.COM, INC., a Delaware corporation, as Lessee, concerning
certain real property and improvements located at 3450 S. La Brea Avenue, Los
Angeles, California, all as described and defined in said Standard
Industrial/Commercial Lease - Net and Exhibits.
Lessor and Lessee acknowledge and agree that, notwithstanding anything
contained in the Standard Industrial Lease/Commercial Lease -- Net and Exhibits
between them (to which this Addendum is attached) to the contrary, the
provisions set forth in this Addendum shall be a part of the Standard Industrial
Lease/Commercial Lease -- Net and Exhibits and shall supersede any contrary
provisions of the Standard Industrial Lease/Commercial Lease -- Net and
Exhibits. Any capitalized term used in this Addendum, unless specifically
defined herein, shall have the same meaning given such term in the Standard
Industrial Lease/Commercial Lease -- Net and Exhibits. The Standard Industrial
Lease/Commercial Lease -- Net and Exhibits attached thereto, together with this
Addendum and all other riders, rules and regulations referred to in any of the
foregoing, shall constitute, collectively, the Lease.
50. Premises and Project: [continued from Paragraph 1.2] a total of
approximately 330,000 leaseable square feet, as shown on Exhibit "A" attached
hereto and incorporated by this reference, distributed approximately equally on
two floors located within that certain two-story building shown on Exhibit "A"
(the "Premises"), together with the right to use, on a nonexclusive basis and
subject to reasonable rules and regulations of Lessor, the driveways, roadways,
alleyways, ramps, walkways, sidewalks, and parking spaces (but not to exceed the
maximum number of such parking spaces made available to Lessee pursuant to
Paragraph 51, below), and other common areas designated from time to time by
Lessor of that certain larger real estate development located on the land
legally described in Exhibit "A-i" attached hereto and incorporated by this
reference (together with the Premises, the "Project").
Notwithstanding the foregoing, Lessee shall be entitled, prior to the Rent
Commencement Date, to have its architect measure the square footage of the
Premises pursuant to the formula for such measurements used by Lessor and, if
Lessor shall concur that such measurement certified in writing by Lessee's
architect shall establish that the actual square footage of the Premises differs
materially from the estimated 330,000 leasable square feet specified in this
Paragraph above, the Base Rent, Security Deposit, and other rights and
obligations of the parties under this Lease which are based on such square
footage amount shall be adjusted equitably by increase or decrease, as
applicable, in accordance with the actual square footage certified by Lessee's
architect and adopted by Lessor. Lessee's failure to deliver its architect
written certification to Lessor prior to the Rent Commencement Date, together
with all underlying written calculations, field notes, and work papers, shall be
conclusively deemed Lessee's waiver of its rights hereunder and waiver of
objection to the square footage amounts specified in this Lease for the Premises
and otherwise and all amounts, percentages, proportions, fractions, and other
calculations derived therefrom. A difference shall be "material" hereunder if it
exceeds Ten Percent (10%) of the specified amount, regardless of whether such
different amount shall be greater or lesser than the specified amount.
51. Parking. Lessor shall make available for use by Lessee and its
employees, visitors, and invitees, on an unreserved basis, one hundred twenty
(120) passenger vehicle parking spaces in the exterior parking areas of the
Project outside the building of the Premises, and Lessee shall have the right to
use, together with its employees, visitors, and invitees. on an exclusive basis,
all passenger vehicle, truck, and other parking spaces in the interior parking
areas of the building of the Premises, all without additional charge by Lessor,
subject to Lessor's rules and regulations regarding parking within the Project.
All truck parking spaces made available to Lessee hereunder shall have minimum
dimensions of thirty (30) feet deep by eleven (11) feet wide and shall have
forty-five (45) feet of clearance for maneuvering purposes. Lessee shall
observe, and shall cause the observance by its employees, visitors, and
invitees, of Lessor's rules and regulations regarding parking within the
Project, and Lessee hereby agrees to indemnify, defend (with counsel
satisfactory to the indemnitee), and hold harmless Lessor and its employees,
agents, property managers, and contractors from and against all claims, losses,
damages, judgements, awards, and liabilities whatsoever arising or accruing from
any damage or injury to persons or property attributable to Lessee or its
employees, visitors, or invitees in connection with any of their use of the
parking areas of the Project, including without limitation failure to observe
Lessor's rules and regulations. Lessor reserves the right to reconfigure and
relocate all parking spaces of the Project as determined necessary or desirable,
provided that Lessor shall maintain at all times the minimum numbers of
passenger vehicle and truck parking spaces required above. Lessee's rights
hereunder shall be subject to the rights granted to an adjacent landowner for
certain parking spaces of the Project pursuant to that certain Covenant and
Agreement Regarding Maintenance of Off-Street Parking Spaces, dated March 27,
1996, and recorded on May 29, 1996, as Instrument No. 96-835901 of Official
Records of Los Angeles County ("Official Records") and that certain Parking
Easement Agreement, dated July 11, 1997, and recorded on July 14, 1997, as
Instrument No. 97-10523 88 of Official Records.
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<PAGE>
52. Term; Commencement; Expiration; and Extension of Term. [continued from
Paragraph 1.3] The Commencement Date shall mean and refer to the date of this
Lease. The Rent Commencement Date shall mean and refer to the earlier to occur
of:
(a) the date on which Lessee first opens for business to the general public
in the Premises; or
(b) the date upon which all of the following have been satisfied or
performed by the party charged below with such satisfaction or performance:
(i) Base Building Work and Delivery Date -- Lessor shall have
substantially completed, at Lessor's sole cost and expense, the repair
and refurbishment of the two-story commercial building and related
improvements of the Project, including driveways, roadways, alleyways,
ramps, walkways, sidewalks, and parking spaces existing on the Project
as of the date of this Lease (the "Existing Improvements") such that
the Existing Improvements, as of the Delivery Date (as defined below),
shall be in good and serviceable condition and repair for general
commercial use under the zone designation applicable to the Project
(as distinguished from Lessee's specific use), with the roof of the
Premises free of material leaks and all structural, electrical,
plumbing, standard HVAC and other major systems functioning,
reasonable wear and use excepted, and such that all of the foregoing,
as of the Delivery Date, shall comply with all applicable laws. All of
the foregoing work to be performed by Lessor hereunder, together with
that certain additional work listed on Exhibit "B" attached hereto and
incorporated by this reference to be substantially completed by Lessor
at its sole cost and expense, shall be collectively referred to herein
as the "Base Building Work." Upon Lessor's substantial completion of
the Base Building Work, either Lessor or Lessor's architect shall
provide written certification of same to Lessee, and the date of
delivery to Lessee of such written certification shall be referred to
herein as the "Delivery Date." Due to the complex nature of the Base
Building Work, it is anticipated that the Delivery Date may not occur
for ten (10) months after Lessor's commencement of the Base Building
Work, subject to Force Majeure (as defined below). Lessor agrees
diligently to prosecute the Base Building Work to completion as
provided herein, but in the event the Base Building Work has not been
substantially completed and the Delivery Date occurred by December 31,
2000, Lessee shall be entitled to a penalty to be applied against
Lessee's first Base Rent coming due under this Lease equal to One
Thousand Dollars ($1,000) for each 24-hour period after December 31.
2000 by which the substantial completion of the Base Building Work is
delayed.
If such substantial completion does not occur within six (6) months
after such date (without adjustment for Force Majeure), then either
Lessor or Lessee, upon thirty (30) days prior written notice delivered
to the other, shall be entitled to terminate this Lease, and the
parties shall thereafter be under no further liability under this
Lease, provided that if Lessee shall deliver such termination notice
as required hereunder and Lessor shall substantially complete the Base
Building Work and the Delivery Date occurs during such 30-day period,
Lessee's notice shall be null and void, and this Lease shall continue
in full force and effect.
(ii) Tenant Improvements Work -- Upon Lessor's substantial completion
of the Base Building Work, Lessee shall complete all other work
desired by Lessee to the Premises, at Lessee's sole cost and expense,
subject to Lessor's payment of the Allowance (as defined and described
in the Tenant Improvements Work Letter attached hereto at Exhibit "C"
and incorporated by this reference), and in accordance with the
requirements of the Tenant Improvements Work Letter attached at
Exhibit "C." Tenant shall have sixty (60) days from the Delivery Date
within which to complete the Tenant Improvements Work. In the event
the Tenant Improvements Work is not completed by Lessee within such
60-day period, the Tenant Improvements Work shall be deemed completed
at the expiration of such 60-day period for purposes of the Rent
Commencement Date, and Lessee agrees diligently to prosecute same to
completion thereafter. Tenant shall construct the Tenant Improvements
Work in good and workmanlike manner, in lien-free condition, and free
of defects in materials and workmanship.
(iii) Mutual Cooperation and Coordination -- Each party agrees to
cooperate with the other with respect to the exchange of status and
scheduling information regarding the progress of the Base Building
Work and Tenant Improvements Work. Lessor agrees to provide prior
notice to Lessee of the date estimated by Lessor for its acquisition
of the Project and the Delivery Date, respectively, and Lessor will
endeavor to provide Lessee with its notice regarding the Delivery
Date, if feasible for the notifying party, thirty (30) days prior to
the delivery or completion date estimated therein. Lessee agrees to
provide prior notice to Lessor of the date estimated by Lessee for the
completion of the Tenant Improvements Work, which notice will be
provided, if feasible, thirty (30) days prior to the completion date
estimated therein.
The Expiration Date shall mean and refer to the final business day of the
one hundred eightieth (180th) complete calendar month after the Rent
Commencement Date, subject to earlier termination in accordance with the
provisions of this
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Lease and subject further to Tenant's option to extend such Original Term as
provided below.
(c) Extension of Term: Lessee shall have the right, at Lessee's option, to
-----------------
extend the Original Term of this Lease for the Premises for two (2) consecutive
five (5) year periods (each, an "Option" and collectively, the "Options")
commencing, with respect to the first such Option, on the calendar day
immediately succeeding the Expiration Date and, with respect to the second such
Option, the calendar day immediately succeeding the expiration of the first
Option period, all upon, and subject to, the following terms and conditions:
(i) Lessee shall not, at the time it exercises either Option
hereunder, be in default under this Lease at any time from the date of
Tenant's notice to Landlord of its exercise of such Option through to
and including the commencement of the applicable Option period.
(ii) Each Option shall be upon the same terms, covenants, conditions,
provisions and agreements as are provided in this Lease, except that the Base
Rent shall be adjusted upon the commencement of each Option period to the Fair
Market Rental (as defined below) for the Premises applicable on such
commencement date, but in no event shall the Base Rent in effect for the
Premises upon commencement of each Option period be less than that in effect
immediately prior to such commencement. The term "Fair Market Rental," as used
herein, shall mean the annual base or fixed rent Landlord would accept in any
then-current new comparable brokered transactions for the Project and, if none,
comparable leased premises in a comparable area, for a comparable term, from a
non-expansion, non-renewal and non-equity tenant, and what a willing,
comparable, new, non-expansion, non-renewal, non-equity tenant would accept and
pay in a brokered transaction for the Premises or comparable leased premises in
a comparable area, both operating at arm's length and without duress, taking
into account all relevant factors and giving appropriate consideration to the
maintenance obligations of the parties, their respective insurance obligations,
and the method of allocation of the common area maintenance charges of the
Premises or the Project, among other relevant considerations, except that in no
event shall the Fair Market Rental be increased on account of any improvements
to the Premises installed, constructed, and paid for by Lessee after Lessor's
delivery of the Base Building or reduced by he absence of any broker's
commission payable in connection with Lessee's Option. The Fair Market Rental
shall be determined in accordance with the method provided in Paragraph
52(c)(iv) below.
(iii) Lessee shall exercise each Option by written notice to Lessor
delivered not later than twelve (12) months prior to the expiration of
the Original Term and the expiration of the first Option,
respectively, and, if Lessee shall not so exercise each Option in a
timely manner, such Option shall, immediately and without further
notice, be null, void and of no force or effect. Upon Lessee's failure
to exercise its first Option in accordance with the requirements of
this Paragraph, the Lessee's second Option shall, automatically and
without necessity of notice or demand of Lessee, shall immediately be
null, void and of no force or effect. Except as expressly provided in
this Paragraph, Tenant shall have no right to extend the term of this
Lease beyond the Expiration Date.
(iv) Within thirty (30) days after Lessee's delivery to Lessor of
Lessee's written notice of exercise of each Option provided hereunder,
Lessor shall provide written notice ("Lessor's Option Rental Notice")
to Lessee of the Fair Market Rental for the Premises to be paid by
Lessee during the applicable Option period. If Lessee disagrees with
the amount of the Fair Market Rental specified by Lessor in Lessor's
Option Rental Notice, within fifteen (15) days after Lessor's delivery
to Lessee of Lessor's Option Rental Notice, Lessee shall provide
written notice ("Lessee's Option Rental Notice") to Lessor of the Fair
Market Rental Lessee estimates in good faith to be due for the
Premises during the applicable Option period. If the parties are
unable to agree on the Fair Market Rental within fifteen (15) days
after Lessee's delivery to Lessor of Lessee's Option Rental Notice,
then the parties' dispute shall be resolved in accordance with the
requirements of this Paragraph upon written notice of either party,
which notice shall state the name, address and qualifications of an
appraiser selected by the notifying party, which appraiser shall be a
neutral, real estate appraiser and Member of the Appraisal Institute
having no fewer than seven (7) years' experience in the appraisal of
commercial leasehold properties reasonably comparable to the Project
("Qualified Appraiser"). Within ten (10) days following the notifying
party's appraisal notice, the other party shall either
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approve the Qualified Appraiser selected by the notifying party or
select a second Qualified Appraiser by giving written notice of the
name, address and qualification of said Qualified Appraiser. If either
party fails to select a Qualified Appraiser within the time period
specified for such party, then the other party shall be entitled to
select a Qualified Appraiser and such Qualified Appraiser shall be
deemed selected by both parties, shall solely resolve the parties'
dispute as the Acting Appraiser hereunder (as defined below), and no
other Qualified Appraiser shall be selected. If two Qualified
Appraisers are selected, they shall jointly select a third Qualified
Appraiser and such third Qualified Appraiser shall be the sole
Qualified Appraiser (the "Acting Appraiser") who shall resolve the
parties' dispute. If the two Qualified Appraisers fail to select the
Acting Appraiser, such Acting Appraiser shall be appointed by the
then-presiding judge of the Superior Court for the State of California
for the County of Los Angeles.
The Acting Appraiser shall notify the parties in a written notice
of decision of its determination of the Fair Market Rent for the
Premises during the applicable Option period by, in all events,
selecting either: (1) the amount specified for such Fair Market Rent
in the Lessor's Option Rental Notice or (ii) the amount specified for
such Fair Market Rent in the Lessee's Option Rental Notice, and such
determination by the Acting Appraiser shall be conclusively
determinative and final and binding on the parties as the Fair Market
Rent for the Premises during the applicable Option period. The Acting
Appraiser shall not be permitted to use as and for the Fair Market
Rent for the Premises during the applicable Option period any amount
other than as provided in either Lessor's Option Rental Notice or
Lessee's Option Rental Notice, and if either Lessor's Option Rental
Notice or Lessee's Option Rental Notice shall fail to specify an
amount of Fair Market Rent for the Premises during the applicable
Option period, then the amount so specified in the other party's
Option Rental Notice shall selected by the Acting Appraiser in his or
her notice of decision as the amount of Fair Market Rent for the
Premises during the applicable Option period. If neither Option Rental
Notice shall specify an amount of Fair Market Rent for the Premises
during the applicable Option period, however, each party shall re-
submit its Option Rental Notice to the Acting Appraiser within ten
(10) days of the Acting Appraiser's written request, complete with the
amount estimated by each party for Fair Market Rent for the Premises
during the applicable Option period, and the Acting Appraiser shall
make its determination based on such re-submitted Option Rental
Notices as provided above.
All fees, costs, and expenses of the Acting Appraiser and the
method of determination of the Fair Market Rent for the Premises
during the applicable Option period shall be borne in equal amounts by
Lessor and Lessee.
If any applicable Option period shall commence prior to the Acting
Appraiser's delivery of the notice of decision of his or her
determination of the Fair Market Rent for the Premises during such
Option period, Lessee shall pay as and for its Base Rent for the
Premises the lesser of the amounts specified for the Fair Market Value
Rent in Lessor's Option Rental Notice and Lessee's Option Rental
Notice. All fees, costs, and expenses of the Acting Appraiser and the
method of determination of the Fair Market Rent for the Premises
during the applicable Option period shall be borne in equal amounts by
Lessor and Lessee.
(d) Condition Precedent to Effectiveness of Lease: Lessor and Lessee
---------------------------------------------
acknowledge and agree that, as of the date of this Lease, Lessor is not the
owner of either the Premises or the Project, but Lessor has contractual rights
under an agreement of purchase and sale with the existing owner to purchase the
Premises and the Project (the "Acquisition Agreement"). Lessor agrees to use its
commercially reasonable efforts and to reasonably exercise its rights and
remedies under the Acquisition Agreement to acquire the Project, including the
Premises, but in no event shall Lessor have any liability to Lessee whatsoever
under this Lease or otherwise in the event of Lessor's failure to acquire the
Project, including the Premises, under the Acquisition Agreement. Upon delivery
by Lessor of notice to Lessee regarding Lessor's failure to acquire the Project,
including the Premises, under the Acquisition Agreement, this Lease shall be
terminated, any deposits paid or deposited by Lessee to Lessor under this Lease
shall be promptly returned to Lessee, and neither party shall have any liability
to the other under this Lease from and after the effective date of such
termination.
53. Early Possession. [continued from Paragraph 1.3] Lessee shall be
entitled to enter upon the Premises, as reasonably permitted by Lessor and on a
non-exclusive basis with Lessor and Lessor's contractors, prior to the Delivery
Date for the purpose of Lessee's commencement of the Tenant Improvements Work,
provided, however, that in no event shall such early entry by Lessee interfere
with or disrupt Lessor's or its contractor's activities on the Premises and in
the Project, and any delay resulting from such interference or disruption
attributable to Lessee or its contractors shall serve to extend any deadline or
time period for Lessor's performance by the period of such delay.
54. Base Rent and Adjustment. [continued from Paragraph 1.5] Lessee shall
pay the following base rent (the "Base Rent") for the Premises during the
periods provided below:
(1) From the Commencement Date through the thirty-sixth (36) month,
inclusive, of the Lease Term -- $1,900,800 per year, payable in
monthly installments of $158,400;
(2) During the thirty-seventh (37th) month through the seventy-second
(72nd) month, inclusive, of the Lease Term -- $2,059,200 per year,
payable in monthly installments of $171,600;
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(3) During the seventy-third (73rd) month through the one hundred
twentieth (120th) month, inclusive, of the Lease Term --
$2,217,600 per year, payable in monthly installments of $184,800;
(4) During the one hundred twenty-first (l2lth) month through the one
hundred fifty-sixth (156th) month, inclusive, of the Lease Term --
$2,415,600 per year, payable in monthly installments of $201,300;
(5) During the one hundred fifty-seventh (157th) month through the
Expiration Date, inclusive, of the Lease Term -- $2,613,600 per
year, payable in monthly installments of $217,800; and
(6) If Lessee shall exercise one or more of the Options, the Fair
Market Rental, as provided in Paragraph 51 above.
55. Security Deposit. [continued from Paragraph 1.7] Lessee shall deposit with
Lessor upon Lessee's execution of this Lease, except as provided below with
respect to the Letter of Credit (as defined below), Lessee's security deposit
(the "Security Deposit") which shall consist of both of the following: (i) the
sum of two (2) monthly installments of Base Rent and (ii) a stand-by, at-sight,
irrevocable letter of credit payable to Lessor, in form and substance acceptable
to Lessor, drawn on a commercial bank or other financial institution reasonably
satisfactory to Lessor ("Issuer"), in the stated amount required below, and
having a term, including renewal periods, of not less than the Lease Term,
including both Options, if exercised by Lessee (the "Letter of Credit"), which
Letter of Credit shall also provide that on Lessor's presentment of the Letter
of Credit to the issuing financial institution, together with Lessor's written
certificate certifying that Lessee has failed to perform any one or more of the
obligations required to be performed by Lessee under the Lease and has not cured
such failure or posted a cash security deposit with Lessor in the damages likely
to be caused by such failure to perform that has not been cured and further
certifying that the amount drawn on the Letter of Credit is the amount due
Lessor on account of the Lessee's default, after the application of any cash
security deposit of Lessee held by Lessor, then the Issuer shall pay such
requested amount, immediately and in full, without necessity of further action
or approval by Lessee or any third party. The Letter of Credit shall be in a
stated amount, at all times during the Lease Term, equal to not less than One
Million, Four Hundred Fifty Thousand Dollars ($1,450,000). The Letter of Credit
shall provide that it is governed by the Uniform Customs and Practice for
Documentary Credits (1993 revisions), International Chamber of Commerce
Publication No. 500. In the event Lessor transfers its interest in the Lease, at
Lessor's request and at no cost to Lessor or its transferee, a new Letter of
Credit shall be issued to the transferee of the Lessor ("Transferee") on the
same terms and conditions as required hereunder, except that the new Letter of
Credit shall be payable to the Transferee. Lessor shall surrender the existing
Letter of Credit to Lessee simultaneously with Lessee's delivery of the new
Letter of Credit to Transferee. Promptly after the Commencement Date, Lessee
shall provide the form of the Letter of Credit to Lessor for its approval. The
Letter of Credit issued by the Issuer shall be delivered by Lessee to Lessor on
the date Lessor acquires the Project, but in no event sooner than five (5) days
after Lessor's written notice that it has (or is about to) acquire the Project.
56. Compliance. [continued from Paragraph 2.3] Lessor's representation and
warranty set forth above shall include the compliance of the Base Building Work
with the general commercial/industrial zoning laws applicable for the Project
(as distinguished from Lessee's specific use), excluding the Tenant Improvements
and all other work to be completed by Lessee to the Premises. Based on the
foregoing and except for Lessor's representations and warranties expressly
provided in this Lease and Lessor's completion of the Base Building Work, Lessee
accepts the Premises and the Project in their "as-is," "with-all-faults"
condition existing as of the Commencement Date and waives all claims against
Lessor regarding same except as otherwise expressly provided in this Lease.
Lessee acknowledges and agrees that, in accepting the Premises and the Project
as provided herein, Lessee has, prior to the Commencement Date, made all
inspections, studies, and determinations of and regarding the Premises and the
Project as to Lessee seemed necessary or desirable.
57. Hazardous Substances. [continued from Paragraph 6.2] Except as
disclosed to Lessee in any reports, environmental assessments, and other
documents or information provided by Lessor or its employees, agents, or
representatives, including without limitation that certain Phase I Environmental
Site Assessment, prepared by Geomatrix Consultants, Inc., dated as of July 23,
1999, Lessor, to the best of Lessor's Actual Knowledge (as defined below) (i)
has received no written notice from any governmental authority regarding any
violation of law caused by or resulting from any Hazardous Substance on the
Premises; (ii) is unaware of the existence of any underground storage tanks or
asbestos-containing materials on the Premises; (iii) has neither been served
with, nor received written notice of, any action, proceeding, or claim pending
or threatened concerning any Hazardous Substance on or affecting the Premises.
Lessor has delivered to Lessee all material reports and environmental
assessments of the Premises regarding Hazardous Substances conducted at Lessor's
request or provided to Lessor in connection with Lessor's acquisition of the
Project.
58. Lessee's Compliance. [continued from Paragraph 6.3] Notwithstanding the
foregoing, Lessee's obligation to comply with all Applicable Requirements shall
not include the obligation to incur any cost, expense, or liability under any
Applicable Requirements with respect to any Hazardous Substance or Hazardous
Substance Condition not caused to exist on, or affect, the Premises or the
Project by Lessee or its employees, agents, or invitees.
59. Inspection. [continued from Section 6.4.] Notwithstanding the
foregoing, Lessor and Lessor's agents, except in the case of emergency, shall
provide Lessee with twenty-four (24) hours' notice prior to entry of the
Premises. Any such entry by Lessor and Lessor's agents shall comply with all
reasonable security measures of Lessee and shall not impair Lessee's
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operations more than reasonably necessary. During any such entry, Lessor and
Lessor's agents shall at all times be accompanied by a representative of Lessee.
60. Lessee's Obligations. [continued from Section 7.1] Notwithstanding
anything contained in Paragraph 7.1 to the contrary, Lessee's obligations under
such Paragraph shall in no event include any of the following:
(a) the maintenance or repair of the following portions or components
of the Premises: (i) building foundation, including slab, (ii) structural
components of the Premises, (iii) roof structure and membrane, (iv) exterior-
facing wall structure (excluding exterior or interior surface coverings and
finishes), (v) exterior rain gutters and down spouts, and (vi) utility lines and
connections to the Premises, but only to the point of connection to the
applicable meter(s) for the Premise and exclusive of such meter(s);
(b) any maintenance and repair required as a consequence of any
violation of any warranty granted hereunder by Lessor or other obligation under
this Lease of Lessor;
(c) any cost or expense of any maintenance or repair for which Lessee
shall be liable to Lessor with respect to which Lessor actually receives
reimbursement from a third party, excluding any insurer, (provided Lessor is
under no obligation to reimburse such third party for such amount when received
from Lessee); and
(d) any maintenance or repair necessitated by the negligence or
wrongful intentional acts or omissions of Lessor or its employees, agents, or
contractors, all of which shall be the obligation of Lessor, except to the
extent of any negligence or wrongful intentional acts or omissions of Lessee or
its employees, visitors, invitees, or contractors.
Notwithstanding anything contained in Paragraph 7.1(b) to the
contrary, Lessee shall be permitted, at Lessee's sole cost and expense, to have
qualified persons in Lessee's employ ("Qualified Staff") perform that portion of
the maintenance of the Basic Elements of the Premises which may be performed in
good and workmanlike manner by such Qualified Staff in lieu of Lessee's
obtaining a third party maintenance contract for such work, provided, however,
that: (i) such work to the Basic Elements or portion thereof may be performed by
Qualified Staff without voiding or otherwise impairing or limiting the coverage
of any third party warranty applicable to the Basic Elements or portion thereof
or insurance coverage available for the Premises and (ii) in the event Lessor
shall reasonably determine that the maintenance of the Basic Elements of the
Premises or any portion thereof is not being performed by Qualified Staff in
good and workmanlike manner and as otherwise required hereunder, Lessor shall
have the right upon thirty (30) days prior written notice to Lessee to terminate
Lessee's right to have Qualified Staff perform such maintenance and Lessee shall
procure within such 30-day period and thereafter maintain a maintenance contract
or contracts meeting the requirements of Paragraph 7.1(b) for such maintenance
formerly performed by Qualified Staff and if Lessee shall not so obtain such
maintenance contract or contracts, Lessor shall be entitled upon written notice
to obtain all of same for Lessee and at Lessee's sole cost and expense.
61. Lessor's Obligations. [continued from Section 7.2] Notwithstanding
anything contained in Paragraph 7.2 to the contrary, Lessor's obligations under
such Paragraph shall include the maintenance and repair of those portions or
components of the Premises described in Paragraph 60 above as Lessor's
obligation, except for the following:
(a) any maintenance and repair required as a consequence of any
default by Lessee in any of its obligations under this Lease;
(b) any cost or expense of any maintenance or repair for which Lessor
shall be liable to Lessee with respect to Which Lessee actually receives
reimbursement from a third party, excluding any insurer, (provided Lessee is
under no obligation to reimburse such third party for such amount when received
from Lessor); and
(c) any maintenance or repair necessitated by the negligence or
wrongful intentional acts or omissions of Lessee or its employees, agents,
invitees, or contractors,
62. Alterations; Consent. [continued from Section 7.3(b)] If Lessor's
consent is required for an Alteration and Lessor does not notify Lessee in
writing of its approval or disapproval within thirty (30) days following
Lessee's written request for approval, complete with detailed plans and any
additional information Lessor shall reasonably request, then Lessor shall be
deemed to have approved the proposed Alteration, as requested. If Lessor's
consent is required for any Utility Installation(s) and Lessor does not notify
Lessee in writing of its approval or disapproval within thirty (30) days
following Lessee's written request for approval, complete with detailed plans
and any additional information Lessor shall reasonably request, then Lessor
shall be deemed to have approved the proposed Utility Installation(s), as
requested.
63. Insurance. [continued from Article 8] Lessor shall be entitled to
provide any insurance coverage required of Lessor under this Lease pursuant to
blanket policies of insurance with any other property or properties of Lessor,
provided such blanket coverage shall not decrease the insurance coverages
available to the Premises to less than that required of Lessor under this Lease.
Notwithstanding any provision of this Article 8 to the contrary, Lessor may
require reasonable additional insurance coverages and/or increases in coverage
amounts from those required of Lessee's under this Article 8 from time to time
during the Term of this Lease, as Lessor shall deem warranted, provided,
however, that no such addition coverages or increases in coverage
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amounts shall exceed those required by comparable landlords of comparable
properties in the Baldwin Hills or comparable area.
64. Indemnity. [continued from Paragraph 8.7.] The reference in the first
sentence of this Paragraph to "Lessor's gross negligence or willful misconduct"
shall mean and refer to the gross negligence and willful misconduct of Lessor's
agents, contractors, and employees, as well as Lessor. Lessee's obligations
under this Paragraph shall also include other tenants of the Project and shall
extent to the use, occupancy, or other activities of Lessee and its employees,
contractors, invitees, customers, or other persons authorized or suffered by
Lessee to be on the Premises or the Project.
65. Insurance; Partial Damage; Insured Loss. [continued from Paragraph
9.2] Any obligation of Lessor to repair the Premises under this Paragraph 9.2
shall be limited to the actual insurance proceeds received by Lessor for such
repair. In the event that Lessor's reasonable estimated cost and expense of
repair of any Premises Partial Damage which is considered an Insured Loss
hereunder shall exceed the actual insurance proceeds reasonable estimated by
Lessor to be available to Lessor for such repair by One Hundred Thousand Dollars
($100,000) and if Lessee shall not agree to pay the entire such excess to
Lessor; such Premises Partial Damage shall be deemed an uninsured loss hereunder
and Paragraph 9.3 below shall apply thereto.
66. Remedies. [continued from Paragraph 9.6(b)] exercise its rights and
remedies provided under Paragraph 13.6 for breach by Lessor.
67. Real Property Taxes. [continued from Paragraph 10.11 The term "Real
Property Taxes" shall not include any charges, levies or fees directly related
to the use, storage, disposal or release of Hazardous Substances (except to the
extent of the Lessee's use storage, disposal or release of such Hazardous
Substances). If any charge, levy, or assessment under the Real Property Taxes
shall be permitted to be paid in installments, rather than in a lump sum, Lessee
shall only be required to pay to Lessor such amount of said charge, levy, or
assessment of Real Property Taxes as shall be based on the applicable
installment of principal and interest which would have become due during the
Lease Term had Lessor elected to pay such charge, levy or assessment in
installments over the longest permitted term. Lessee shall not be responsible
for any increase in Real Property Taxes caused by any sale or transfer of the
Project or any portion thereof sale by Lessor to any Affiliate of Lessor, the
term "Affiliate" being defined for these purposes as any entity owned by the
same entity(ies) and/or person(s), in the same combinations and proportions, as
Lessor.
Lessee, at its cost, shall have the right, at any time, to seek a reduction
in the assessed valuation of the Premises or to contest with the taxing
authority any increase in Real Property Taxes to be paid by Lessee, provided (i)
such action or context shall not result in any increase in the Real Property
Taxes for the Premises and the Project, (ii) Lessee shall have a good faith
basis for such reduction or contest, and (iii) Lessee shall pay all Real
Property Taxes due for the Premises prior to delinquency, subject to Lessee's
rights hereunder to appeal any such payment and receive a refund of any
overpayment. Lessor shall not be required to join in any proceeding or contest
brought by Lessee unless the provisions of any law require that the proceeding
or contest be brought by or in the name of Lessor. In that case Lessor shall
join in the proceedings or contest or permit it to be brought in Lessor's name
as long as Lessor is not required to bear any cost or incur any liability.
68. Utilities. [continued from Article 11] Lessee shall include in the
Tenant Improvement Work and the Tenant Plans approved by Lessor pursuant to the
attached Exhibit "C," separate metering, of the Premises to the extent the
Premises shall not already be separately metered, and Lessee shall pay all costs
of such separate metering, subject to Lessor's payment of the Allowance.
69. Assignment and Subletting. [continued from Article 12] Notwithstanding
anything to the contrary in this Article 12, Lessor agrees not to unreasonably
withhold its consent to Lessee's request to assign or sublet the Premises,
subject to Lessor's right to review, evaluate, and approve or disapprove any
proposed assignment or subletting, in good faith, based on the following
factors, among others: (a) any proposed material change in the use of the
Premises or any portion thereof; (b) the financial ability and credit and
financial history of the proposed assignee or sublessee; and (c) the nature of
the proposed assignee's or sublessee's business. No consent of Lessor shall be
required for any assignment of this Lease or subletting of the Premises to: (z)
a subsidiary, affiliate, division or corporation controlling, controlled by, or
under common control with Lessee (the term "control" being defined for these
purposes as the sale or transfer of 51% of more of the voting stock or partner
or member equity or other ownership interest in the applicable entity); (y) any
entity which succeeds to Lessee by merger, consolidation, or nonbankruptcy
reorganization; or (x) a purchaser of substantially all of Lessee's assets
located in the Premises. Any sale or transfer of Lessee's capital stock in the
ordinary course of Lessee's business and without change in control of Lessee's
Board of Directors shall not be deemed an assignment, subletting, or any other
transfer of the Lease or the Premises. If Lessor fails to respond to Lessee's
request to assign or subletting the Premises within thirty (30) days after
Lessor's receipt of Lessee's request, together with all documents and
information required or reasonably requested under this Article 12, Lessor shall
be deemed to have consented to such assignment or subletting of the Premises.
Notwithstanding Lessor's consent to any assignment or subletting and further
notwithstanding that no consent of Lessor may be necessary for any assignment or
subletting hereunder, in no event shall Lessee be released from continuing
liability as tenant under this Lease throughout the Term hereof.
70. Estoppel Certificates. [continued from end of Paragraph 16(b)]
Notwithstanding the foregoing, Lessee shall include in its estoppel certificate
such additional facts, matters, and statements as any lender of Lessor
("Lender") shall require
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and, if additionally required by any Lender, shall use Lender's standard form of
estoppel certificate, provided same shall not materially increase Lessee's
obligations nor materially impair Lessee's rights under this Lease.
71. Definition of Lessor. [continued from end of Paragraph 17], except that
any transfers or assignments by the original Lessor hereunder to any
corporation, partnership, trust, limited liability company, limited liability
partnership, other entity, or undivided or divided tenancy-in-common, owned or
controlled by the original Lessor; Pacific Development Partners, LLC; Bryan R.
Ezralow (principal of the original Lessor) individually or as trustee; and/or
Ronald Recht (principal of Pacific Development Partners) individually or as
trustee; singly or in any combination (control being defined for such purposes
as ownership of not less than 51% of the shares, partnership interest, or other
equity or ownership interest in and to such entity or tenancy-in-common), shall,
relieve the original Lessor of all liability under this Lease from and after the
effective date of the applicable transfer or assignment.
72. Limitation on Liability. [continued from end of Paragraph 20]
Notwithstanding the foregoing, Lessor's liability under this Lease shall be
limited, in all events, to Lessor's interest in the Premises.
73. Lessor's Access. [continued from end of Paragraph 32] Notwithstanding
the foregoing, Lessor shall conduct any entry onto the Premises in a manner
calculated to avoid unreasonable interference with, or disruption of, Lessee's
activities in the Premises, in compliance with Lessee's reasonable security
requirements, and, except in case of emergency, upon no fewer than twenty-four
(24) hours prior notice. Lessee shall be entitled to have its representative
accompany Lessor and Lessor's employees and agents at all times during any such
entry on the Premises. Notwithstanding anything to the contrary in this
Paragraph, Lessor's right to show the Premises to prospective lessees of the
Premises shall only apply during the final twelve (12) months of the term of
this Lease, as may be extended by Lessee pursuant to Paragraph 52.
74. Consents. [continued from Paragraph 36] Except as otherwise provided in
this Lease, whenever this Lease requires an approval, consent, designation,
determination or judgment by either Lessor or Lessee, such approval, consent,
designation, determination or judgment (including, without limiting the
generality of the foregoing, those required in connection with assignment and
subletting) shall not be unreasonable or unreasonably withheld or delayed, and
in exercising any right or remedy hereunder, each party shall at all times act
reasonably and in good faith.
75. Additional Provisions.
(a) Signage. Lessor and Lessee shall mutually agree on the signage to be
provided Lessee, at Lessee's sole cost and expense, for the Premises, and all
such signage, as mutually agreed, shall be incorporated into the Tenant
Improvements Work and Tenant's Plans approved by Lessor pursuant to attached
Exhibit "C."
(b) Subdivision; Lot Lines. Lessor and Lessee acknowledge that the land of
the Project is a single legal parcel upon which various improvements, including
the Premises, are located. Lessee agrees that, in the event Lessor shall
determine, at any time during the term of this Lease, to subdivide the Project
into multiple legal parcels, Lessee shall reasonably cooperate with Lessor and
Lessor's engineers, attorneys, and consultants with respect to such subdivision
and related activities, including execution, acknowledgement, and delivery by
Lessee of appropriate applications, maps, approvals, consents, an REA (as such
term is defined in Paragraph 75(c) below), and/or other documents and agreements
in connection therewith, at no cost or expense to Lessee and provided no
material increase in Lessee's obligations as tenant under this Lease or material
impairment of Lessee's rights as tenant under this Lease shall result from such
subdivision.
(c) Reciprocal Easement Agreement. If for any reason, whether or not related
to any subdivision of the Project as described in Paragraph 75(b) above, Lessor
shall determine to establish and record against the Project a written common
plan and scheme of reciprocal easements, covenants, restrictions, and other
rights and rights-of-way; allocation of common costs, expenses, and liabilities;
and other necessary or desirable statement of common rights and obligations
among the owner(s), tenant(s), and other occupant(s) of the Project
(collectively, the "REA"), Lessee agrees to cooperate reasonably with Lessor and
Lessor's engineers, attorneys, and consultants with respect to the REA,
including execution, acknowledgement, and delivery by Lessee of the REA, at no
cost or expense to Lessee and provided no material increase in Lessee's
obligations as tenant under this Lease or material impairment of Lessee's rights
as tenant under this Lease shall result from Lessee's execution and the
recording of the REA. Lessee agrees, upon Lessor written notice, to subordinate
this Lease to an REA or comparable written, recorded agreement meeting the
requirements of this Paragraph.
(d) Lessee Financial Statements. Lessee shall provide to Lessor at such
interval as Lessor shall specify from time to time (not less than annually, nor
more frequently than quarterly) Lessee's current, audited financial statements,
prepared by Lessee's accountants in accordance with generally accepted
accounting principals and certified by an officer of Lessee to be true, correct,
and accurate in all material respects. Lessor agrees to keep confidential such
financial statements provided by Lessee and to execute a reasonable
nondisclosure with Lessee as a condition to Lessee's release of such financial
statements. Lessor shall be permitted to share any confidential information
provided by Lessee, including Lessee's financial statements, as deemed necessary
by Lessor, with Lessor's employees, agents, attorneys, and accountants, and
actual or prospective lenders, investors,
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and purchasers, provided Lessor shall first advise such parties of the
requirement that they keep such information confidential.
(e) Reasonable Expenditures. Any expenditure by a party permitted or
required under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the fair market
value of the goods and services involved, shall be reasonably incurred, and
shall be substantiated by documentary evidence available for inspection and
review by the other party.
(f) Force Majeure. Except as expressly provided to the contrary in the
applicable provision of this Lease, any date or time period specified for either
party's performance or satisfaction of any obligation of such party (the
"Party") under this Lease shall be extended reasonably for any period of delay
attributable to any of the following causes (collectively, "Force Majeure"),
provided the Party shall have attempted diligently and in good faith, within the
limits of its capability, to perform or satisfy such obligation: (i) acts of
God, including flood, fire, earthquake, hurricane, tornado, landslide, and the
like; (ii) unseasonably inclement weather, (iii) unusual delay in the processing
or approval of governmental permits, authorizations, or approvals; (iv) strikes,
lockouts, or shortages of labor or materials; (v) material delay caused by, or
attributable to, the other party hereunder; and (vi) other causes beyond the
reasonable control of the Party.
(g) Equitable Allocation. Any cost or obligation of Lessee under this Lease
relating to the Project which includes any portion of the improvements of the
Project not included within the Premises or subject to Lessee's use or other
rights under this Lease, shall be equitably allocated to Lessee under this
Lease.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Addendum to
Standard Industrial/Commercial Single-Tenant Lease -- Net as of even date with
the Standard Industrial/ Commercial Single-Tenant Lease -- Net between Lessor
and Lessee to which this Addendum is attached,.
"Lessor"
THE EZRALOW COMPANY, LLC,
a California limited liability company
By: /s/ Bryan Ezralow
-------------------------------------------
Name: Bryan Ezralow
-------------
Title: President
-------------
"Lessee"
HOMEGROCER.COM, INC., a Delaware corporation
By: /s/ Terry Drayton
Name Printed: Terry Drayton
Title: President
By: /s/ Daryl L. Stromwold
Name Printed: Daryl Stromwold
Title: Assistant Secretary
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EXHIBIT 10.17
INDUSTRIAL LEASE
THIS LEASE AGREEMENT made this 4th day of November, 1996 by and between Benaroya
Capital Company, LLC, a Washington limited liability company (the "Lessor") and
G. Raden & Sons, Inc., a Washington corporation (the "Lessee").
1. PREMISES. Lessor does hereby lease to Lessee those certain premises, to
--------
wit: approximately 358,468 square feet of space as outlined in yellow on
Exhibit A attached hereto (hereinafter called "Premises") being situated
within the Project known as Park 405. See Legal Description attached as
Exhibit B.
2. TERM. This Lease shall be for a term of ten (10) years commencing March 1,
---- ---
1997 (the "Commencement Date"), and expiring February 28, 2007.(the
"Expiration Date"). Any change in the Commencement Date shall result in a
change in the Expiration Date of the Lease Term such that the term shall
remain ten (10) years in duration. Rent for any fractional calendar month
shall be the prorated portion of the rent computed on a daily basis.
3. RENT. Lessee covenants and agrees to pay Lessor at 1001 Fourth Avenue,
----
Suite 4700, Seattle, WA 98154, or to such other party or at such other
place as Lessor may hereafter designate, monthly rent in advance without
offset or deduction, on or before the first (1st) day of each month of the
Lease term as follows:
3/1/97 - 2/2/02 $122,861.00 per month
3/1/02 - 2/28/07 $141,290.00 per month
4. SECURITY DEPOSIT. Lessee shall deposit with Lessor on January 2, 1997, One
----------------
Hundred Forty-one Thousand Two Hundred Ninety and No/100 dollars
($141,290.00). Said sum shall be held by Lessor as security for the
faithful performance by Lessee of all the terms, covenants and conditions
of this Lease to be kept and performed by Lessee during the entire Term
hereof. If Lessee defaults with respect to any provision of this Lease,
including, but not limited to, the provisions relating to the payment of
Rent or other charges pr sums due under this Lease, Lessor may (but shall
not be required to) use, apply or retain all or any part of the security
deposit for the payment of any Rent or other charges or sums due under this
Lease or any sum in default, or for the payment of any amount which Lessor
may spend or become obligated to spend by reason of Lessee's default, or to
compensate Lessor for any other loss, damage, cost or expense (including
attorneys' fees) which Lessor may suffer or incur by reason of Lessee's
default. If any portion of said security deposit is so used or applied,
Lessee shall, within five (5) days after written demand therefor, deposit a
certified or cashier's check with Lessor in an amount sufficient to restore
the security deposit to its original amount and Lessee's failure to do so
shall be a default under this Lease. Lessor shall not be required to keep
the security deposit separate from its general funds and Lessee shall not
be entitled to interest on such deposit. If Lessee shall fully and
faithfully perform every provision of this Lease to be performed by it, the
security deposit or any balance thereof after
<PAGE>
deduction hereunder by Lessor shall be returned to Lessee (or, at Lessor's
option, to the last assignee of Lessee's interest hereunder) within thirty
(30) days following expiration of the Lease Term; provided, that in the
event this Lease shall be terminated upon the default of the Lessee, the
security deposit shall be retained by Lessor and all of Lessee's interest
therein shall terminate and the security deposit will be applied against
the damages suffered by Lessor by reason of the Lessee's default. In the
event of termination of Lessor's interest in this lease, Lessor shall
transfer said deposit to Lessor's successor in interest.
5. USE. Lessee shall use the Premises for the purposes of general
---
administration and sales offices in conjunction with warehouse and
distribution services and for no other purposes, without prior written
consent of Lessor, which consent will not be unreasonably withheld or
delayed and shall comply with all governmental laws, ordinances,
regulations, orders and directives and insurance requirements applicable to
Lessee's use of the Premises. Lessee shall not occupy or use or permit any
portion of the Premises to be occupied or used in such a manner or for any
purpose which would increase the cost of insurance coverage upon the
Premises, the building or the contents thereof.
6. RULES AND REGULATIONS. Lessee agrees to comply with any Rules and
---------------------
Regulations attached hereto, as well as such other reasonable rules and
regulations as may from time to time be adopted by Lessor for the
management, good order and safety of common areas, the building and its
Lessee(s). Lessee shall be responsible for the compliance with such rules
and regulations by its employees, agents and invitees. Lessor's failure to
enforce any of such rules and regulations against Lessee or any other
Lessee shall not be deemed to be a waiver of same.
7. MAINTENANCE. Lessee agrees by taking possession that the Premises are in
-----------
tenantable and good condition. Lessee shall at its expense and at all times
keep and maintain the Premises, including but not limited to storefronts,
exterior doors and windows, Lessee division walls and mechanical,
electrical, sprinkler and other utility systems, together with connections
to utility distribution systems, in good condition, repair and order and in
accordance with applicable laws, ordinances, rules, regulations and
requirements of government authorities end Insurance rating bureaus. Lessee
shall further keep the Premises and adjoining common areas in a neat,
clean, safe and sanitary condition; protect water, drain, gas and other
pipes to prevent freezing or clogging and repair all leaks and damage
caused thereby; replace all glass and panels in windows and doors of the
Premises which become cracked, broken or damaged and remove ice and snow
from entries and common areas immediately adjacent to the Premises. After
reasonable notice from Lessee, Lessor shall repair the roof, exterior walls
(excluding storefronts, doors and windows) foundations and common areas and
facilities, if any, and the cost thereof shall be share as provided in
Section 9 hereof.
8. UTILITIES AND FEES. Lessee agrees to pay promptly when due all charges for
------------------
light, heat, water, sewer, garbage, fire protection and other utilities and
services to the Premises, and all license fees and other governmental
charges levied on Lessee's property
-2-
<PAGE>
and the operation of Lessee's business on the Premises. Lessor shall not be
liable for any injury or damages suffered as a result of the interruption
of utilities or services by fire, or other casualty, strike, riot,
vandalism, the making of necessary repairs or improvements, or other causes
beyond Lessor's control.
9. MONTHLY OPERATING EXPENSE ADJUSTMENTS. Lessee shall pay as additional
-------------------------------------
monthly rent its prorata share of all expenses incurred by Lessor for
operation of the Project during the term or any extension hereof, as
follows:
a) Real Estate taxes and assessments.
b) Usual and necessary costs of operation, maintenance and repair as
determined by standard accounting practice, including without limitation,
all utilities and services not metered or charged directly to Lessee,
insurance, painting, upkeep and repair of building exterior, roofing,
parking, landscaping, and all common areas and facilities.
c) A Management fee equal to 1 1/2 percent of Lessee's monthly base rent.
Lessor shall from time to time estimate and provide notice to Lessee of its
monthly expense based upon existing costs. Such monthly estimated amount
shall be paid by Lessee on or before the first day of each month. Lessor,
annually or upon termination hereof, shall compute Lessee's actual
expenses. Any overpayment shall be applied as a credit to Lessee against
future expense payments. Any deficiency shall be paid to Lessor by Lessee
within fifteen (15) days after the date of Lessor's statement. Lessor's
records showing expenditures made for such expenses shall be available for
Lessee's inspection at any reasonable time.
10. LESSOR'S RESERVATIONS. Lessor reserves the right without liability to
---------------------
Lessee: (a) to inspect the Premises, to show them to prospective Lessees,
and if they are vacated, to prepare them for re-occupancy; (b) to retain at
all times and to use in appropriate instances keys to doors within and into
the Premises; (c) to make repairs, alterations, additions or improvements,
whether structural or otherwise, in or about the building, and for such
purposes to enter upon the Premises and during the continuance of any work,
to close common areas and to interrupt or temporarily suspend building
services and facilities, all without affecting any of Lessee's obligations
hereunder, so long as the Premises are reasonably accessible; and (d)
generally to perform any act relating to the safety, protection and
preservation of the Premises or building.
11. POSSESSION. Notwithstanding Paragraph 2 above, Lessee may occupy any or all
----------
of the Premises prior to the Commencement Date, upon substantial completion
of the Premises. If Lessor's offer of early possession of the Premises, or
any portion thereof, prior to the Commencement Date of the term of this
Lease is accepted by Lessee then both parties shall be bound by all of the
covenants, terms and conditions contained herein during such period of
early possession, except that the rental for any such period of early
possession shall be abated. Lessor shall not be liable for any damages
caused by failure to deliver
-3-
<PAGE>
possession of the Premises and Lessee shall not be liable for any rent
until such time as Lessor delivers possession.
12. ASSIGNMENT AND SUBLETTING, Lessee shall not either voluntarily or by
-------------------------
operation of law assign, transfer, convey or encumber this Lease or any
interest under it, or sublet to occupy or use the Premises without Lessor's
prior written consent. Lessor reserves the right to recapture the Premises
or applicab1e portion thereof in lieu of giving its consent by notice given
to Lessee within twenty (20) days after receipt of Lessee's written request
for assignment or subletting. Such recapture shall terminate this Lease as
to the applicable space effective on the prospective date of assignment or
subletting, which shall be the last day of a calendar month and not earlier
than sixty (60) days after receipt of Lessee's request hereunder. In the
event that Lessor shall not elect to recapture and shall thereafter give
its consent, Lessee shall pay Lessor a reasonable fee, not to exceed One
Thousand And No/100 Dollars ($1,000.00) to reimburse Lessor for processing
costs incurred in connection with such consent. Lessor's consent shall not
release or discharge Lessee from future liability under this Lease and
shall not waive Lessor's right to consent to any future assignment or
sublease. Any assignment or subletting without Lessor's consent shall be
void and shall, at Lessor's option, constitute a default under this Lease.
A transfer by the present majority shareholders of ownership or control of
a majority of the voting stock of a corporate Lessee shall be deemed an
assignment.
Notwithstanding the provisions of Paragraph 12 hereof, Lessee may assign or
sublet the Premises, or any portion thereof without Lessor's consent, to
any entity which controls, is controlled by or is under common control with
Lessee. Lessor acknowledges that A & M Warehouse, Inc. will initially
occupy the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment or sublease
shall not release Lessee of Liability under the terms of this Lease.
13. ALTERATIONS. After obtaining the prior written consent of Lessor, Lessee
-----------
may make minor alterations, additions and improvements in said Premises (so
long as such alterations, additions or improvements are not visible from
the exterior of the Premises) at its sole cost and expense. Lessee agrees
to save Lessor harmless from any damage, loss, or expense arising therefrom
and to comply with all laws, ordinances, rules and regulations. Upon
termination of this Lease, all alterations, additions and improvements made
in, to or on the Premises (including, without limitation all electrical,
lighting, plumbing, heating, air conditioning and communications equipment
and systems, doors, windows, partitions, drapery, carpeting, shelving,
counters, and physically attached fixtures, unless excluded by written
agreement annexed hereto), shall remain upon and be surrendered as a part
of the Premises; provided however, upon Lessor's request, Lessee shall
promptly remove those additions, alterations, or improvements as may be
specified by Lessor, and repair and restore the Premises to its original
condition at Lessee's sole cost and expense.
14. LIENS. Lessee shall keep the Premises free from any liens arising out of
-----
any work performed, materials furnished, equipment supplied, or obligations
incurred by or on
-4-
<PAGE>
behalf of Lessee. No work performed, material furnished, equipment supplied
or obligations incurred by or on behalf of Lessee shall be deemed to be for
the immediate use and benefit of Lessor so that no mechanic's lien or other
lien shall be allowed against Lessor's estate in the premises. Lessee shall
provide, at Lessee's own cost, a waiver of lien signed by any party
(including the Lessee) who commences to perform work, furnish materials, or
supply equipment to the Premises. Lessor does not authorize or consent to
the performance of any work, furnishing of material or supply of equipment
incurred by or on behalf of Lessee prior to Lessee providing Lessor with
the signed waiver of lien referred to above. Lessor may require, at
Lessee's sole cost and expense, a lien release and completion bond in an
amount equal to either the actual contract price or one and one-half times
the estimated cost of any improvements, additions or alterations in the
Premises which Lessee desires to make, to insure Lessor against any
liability for lien and to insure completion of the work.
15. SIGNS. All signs or symbols placed by Lessee in the windows and doors of
-----
the Premises, or upon any exterior part of the building, shall be subject
to Lessors prior written approval. Prior to termination of this Lease,
Lessee will remove all signs placed by it upon the Premises, and will
repair any damages caused by such removal.
16. INSURANCE.
---------
A. Lessee shall pay for and maintain, during the entire Lease Term, the
following policies of insurance:
(i) Commercial general liability insurance, including products,
completed operations coverage and auto liability insurance covering
Lessee's operations and the Premises including but not limited to
coverage for personal injuries with limits of not less than $2,000,000
combined single limit for death, personal injury, and property damage,
per occurrence, including Lessor as an additional insured. Such
policies shall be endorsed to provide contractual liability insurance
covering all liability assumed by Lessee under the provisions of this
Lease and a copy of said endorsement will be delivered to Lessor prior
to commencement of the Term.
(ii) Special cause of loss or "all risk" perils property insurance
upon all building improvements and alterations on the Premises and
upon Lessee's property, including but not limited to Fire and Extended
Coverage, Vandalism and Malicious Mischief, in the amount of one
hundred percent (100%) full replacement cost, including Lessor as an
additional insured, as its interests may appear, with a loss payable
clause in favor of Lessor to the extent of Lessor's interest in
property damaged, except to the extent proceeds are required to be
paid to holders of mortgages or trust deeds.
B. Each policy provided by Lessee shall expressly provide that it shall
not be subject to cancellation or material change without at least
thirty (30) days prior written notice to the Lessor. Lessee shall
furnish Lessor, prior to commencement of the
-5-
<PAGE>
Term, with insurance certificates and, upon request, copies of such
policies required to be maintained hereunder.
17. INDEMNITY AGAINST LIABILITY OR LOSS OR DAMAGE BY LESSEE.
-------------------------------------------------------
A. Lessee assumes all liability for and shall indemnify, hold harmless
and defend Lessor from and against all loss, damage or expense which
the Lessor may sustain or incur, and against any and all claims,
demands, suits and actions whatsoever, including expense of
investigation and litigation, on account of injury to or death of
persons, including without limitation employees of Lessor, employees
of Lessee or its affiliated companies or on account of damage to or
destruction of property, including without limitation property owned
by and property in the care, custody or control of Lessor during the
Term, due to or arising in any manner from:
(i) The acts or negligence of Lessee or any contractor,
subcontractor, or agent of Lessee, or their respective employees;
(ii) The condition, use or operation of the Premises and/or
materials or substances used by Lessee or any of its contractors,
subcontractors or agents of Lessee or by their respective employees,
regardless of whether or not furnished by Lessor under this Lease or
otherwise;
(iii) Any damage or injury to persons or property arising out of
Lessee's breach or this Lease, including, but not limited to,
obligations of Lessee under Section 7, Maintenance.
B. Lessor shall have no liability to Lessee as a result of loss or damage
to Lessee's property or for death or bodily injury caused by the acts
or omissions of other tenants in the project or by third parties
(including criminal acts).
C. It is mutually understood and agreed that the assumption of
liabilities and indemnification provided for in this Section shall
survive any termination of this Lease.
D. Notwithstanding the preceding provisions of this Section 17, Lessor
and Lessee, each herewith and hereby release and relieve the other and
waive its entire right of recovery against the other for loss or
damage arising out of or incident to perils insured against, whether
due to the negligence of either party, their agents, employees,
contractors, invitees or otherwise.
18. DAMAGE OR DESTRUCTION. If the Premises or the building in which the
---------------------
Premises are located shall be damaged or destroyed by fire or other
casualty, Lessor shall have the option either (a) to repair or rebuild
within one hundred twenty (120) days, or (b) not to repair or rebuild, and
to cancel this Lease on thirty (30) days notice. If Lessor fails to give
Lessee written notice of its election within thirty (30) days from the date
of damage, or if
-6-
<PAGE>
the restoration of the Premises cannot be completed within one hundred
twenty (120) days from date of notice, Lessee may cancel this Lease at its
option on thirty (30) days notice. During the period of untenantability,
rent shall abate in the same ratio as the portion of the Premises rendered
untenantable bears to the whole of the Premises; provided that if the
damage is due to the fault or neglect of Lessee, there shall be no
abatement of rent.
19. EMINENT DOMAIN. If the whole of the Premises shall be taken by any public
--------------
authority under the power of eminent domain, or purchased by the condemnor
in lieu thereof, then the term of this Lease shall cease as of the date
possession is taken by such public authority. If only part of the Premises
shall be so taken, the Lease shall terminate only as to the portion taken,
and shall continue in full force and effect as to the remainder of said
Premises, and the monthly rent shall be reduced proportionately; provided,
however, if the remainder of the Premises cannot be made tenantable for the
purposes for which Lessee has been using the Premises or if more than
twenty-five percent (25%) of the rentable square footage of the Premises
shall be so taken, then either party, by written notice to the other, given
at least thirty (30) days prior to the date that possession must be
surrendered to the public authority, may terminate this Lease effective as
of such surrender of possession. If any part of the building other than the
Premises shall be so taken so as to render in Lessor's opinion the
termination of this Lease beneficial to the remaining portion of the
building, Lessor shall have the right within sixty (60) days of said taking
to terminate this Lease upon thirty (30) days written notice to Lessee. In
the event of any taking, whether whole or partial, Lessor shall be entitled
to all awards, settlements, or compensation which may be given for the land
and buildings. Lessee shall have no claim against Lessor for the value of
any unexpired term of this Lease.
20. INSOLVENCY. If Lessee shall be declared insolvent or bankrupt, or if
----------
Lessee's leasehold interest herein shall be levied upon or seized under
writ of any court of law, or if a trustee, receiver or assignee be
appointed for the property of Lessee, whether under operation of state or
federal statutes, then Lessor may, at its option, immediately, without
notice (notice being expressly waived), terminate this Lease and take
possession of said Premises, without, however, terminating Lessee's
obligations under this Lease.
21. DEFAULT AND RE-ENTRY. If Lessee fails to keep or perform any of the
--------------------
covenants and agreements herein contained, then the same shall constitute a
breach hereof, and if Lessee has not remedied such breach within three (3)
days after written notice thereof from Lessor if the breach is non-payment
of rent or other charges, or within ten (10) days after written notice
thereof from Lessor in the event of the breach of any other covenant, then
Lessor may, at its option, without further notice or demand:
(a) Cure such breach for the account and at the expense of Lessee and such
expense shall be deemed additional rent due on the first of the
following month; or
(b) Re-enter the Premises, remove all persons therefrom, take possession
of the Premises and remove all personal property therein at Lessee's
risk and expense
-7-
<PAGE>
and (1) terminate this Lease, or (2) without terminating the Lease or
in any way affecting the rights and remedies of Lessor or the
obligations of Lessee, re-let the whole or any part of the Premises as
agent for Lessee, upon such terms and conditions as Lessor may deem
advisable. In either event, any moneys received from Lessee and any
deposit or other amounts held by Lessor may first be applied by Lessor
to any damages suffered by Lessor as a result of such default,
including without limitation, costs and expenses incurred on re-entry
and re-letting, any unamortized tenant improvements and commissions,
cleaning, necessary repairs, restoration and alteration, and any
commissions incurred on re-letting, and the balance of such amounts
may be applied toward payment of other sums due to Lessor hereunder.
In the event the Premises are re-let for Lessee's account, Lessee
shall pay to Lessor monthly any deficiency; however, Lessor shall not
be required to pay any excess to Lessee. Upon termination of this
Lease or of Lessee's right to possession, Lessor has the right to
recover from Lessee: (1) The worth of the unpaid rent that had been
earned at the time of such termination; (2) The worth of the amount of
the unpaid rent that would have been earned after the date of such
termination; and (3) Any other amount, including court, attorney and
collection costs, necessary to compensate Lessor. "The Worth," as used
in Section (1) is to be allowing interest at 18% per year. "The worth"
as used for Section (2) is to be computed by discounting the amount at
the discount rate of the Federal Reserve Bank of San Francisco at the
time of termination. The above remedies of Lessor are cumulative and
in addition to any other remedies now or hereafter allowed by law or
elsewhere provided for in this Lease.
22. REMOVAL OF PROPERTY. Any property of Lessee removed by Lessor in accordance
-------------------
with Section 21 above may be stored by Lessor or may be deposited on any
area adjacent to the building at the sole risk and expense of Lessee and
without any further responsibility of Lessor, and Lessor may at its sole
discretion without or after removing said property, without obligation to
do so and without notice to Lessee, sell or dispose of the same at public
or private sale for the account of Lessee, in which event the proceeds
therefrom may be applied by Lessor upon any indebtedness due from Lessee to
Lessor. Lessee waives all claims for damages that may be caused by Lessor
re-entering the Premises and removing or disposing of said property as
herein provided.
23. COSTS AND ATTORNEYS' FEES. In the event either party shall commence legal
-------------------------
action to enforce any provision of this Lease, the court shall award to the
prevailing party all reasonable attorneys' fees and all costs incurred in
connection therewith, including fees and costs on appeal. Any action
relating to this Lease shall be brought in the County in which the Premises
are located or, at Lessor's election, in King County, Washington.
24. SUBROGATION WAIVER. Lessor and Lessee each herewith and hereby release and
------------------
relieve the other and waive its entire right of recovery against the other
for loss or damage arising out of or incident to the perils of fire,
explosion or any other perils described in the "all risk" insurance
endorsement approved for use in the state in which the Premises
-8-
<PAGE>
are situated which occurs in, on or about the Premises, whether due to the
negligence of either party, their agents, employees or otherwise.
25. HOLDING OVER. If Lessee, with the express consent of Lessor, shall hold
------------
over after the expiration of the term of this Lease, Lessee shall remain
bound by all the covenants and agreements herein, except that (a) the
tenancy shall be from month-to-month and (b) the monthly rent to be paid by
Lessee shall be determined by multiplying the monthly rent in effect
immediately preceding such expiration times 150%. If Lessee holds
possession of the Demised Premises after the expiration of the Lease
without the express written consent of Lessor, Lessee shall remain bound by
all the covenants and agreements herein, except that (a) the tenancy shall
be from month-to-month and (b) the monthly rent to be paid by Lessee shall
be determined by multiplying the monthly rent in effect immediately
preceding such expiration times 200%. Any such tenancy may be terminated as
provided by Washington State law.
26. SUBORDINATION AND ATTORNMENT: MORTGAGE PROTECTION.
-------------------------------------------------
A. SUBORDINATION-NOTICE TO MORTGAGEE. At the request of Lessor, Lessee
shall promptly execute, acknowledge and deliver, all instruments which
may be required to subordinate this Lease to any existing or future
mortgages, deeds of trust and/or other security documents on or
encumbering the Premises or on the leasehold interest held by Lessor,
and to any extensions, renewals, or replacements thereof, provided
that the mortgagee or beneficiary, as the case may be, shall agree to
recognize this Lease in the event of foreclosure if Lessee is not in
default at such time.
B. LESSEE'S CERTIFICATE. Lessee shall at any time and from time to time
upon not less than three (3) days prior written notice from Lessor
execute, acknowledge and deliver to Lessor a statement in writing (a)
certifying that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification and
certifying that this Lease as so modified is in full force and
effect), and the date to which the rental and other charges are paid
in advance, if any; and (b) acknowledging that there are not, to
Lessee's knowledge, any uncured defaults on the part of the Lessor or
Lessee hereunder, or specifying such defaults if any are claimed; and
(c) setting forth the date of commencement of rents and expiration of
the Lease Term hereof. Any such statement may be relied upon by any
prospective purchaser on encumbrancer of all or any portion of the
Premises of which the Premises are a part.
C. MORTGAGEE PROTECTION CLAUSE. Lessee agrees to notify any mortgagee
and/or trust deed holders, by registered mail, with a copy of any
notice of default served upon the Lessor, provided that prior to such
notice Lessee has been notified in writing (by way of Notice of
Assignment of Rents and Lease, or otherwise) of the addresses of such
mortgagees and/or trust deed holders. Lessee further agrees that if
Lessor shall have failed to cure such default, then the mortgagees
and/or trust deed holders have thirty (30) days within which to cure
-9-
<PAGE>
such default or if such default cannot be cured within that time, then
such additional times as may be necessary if within such thirty (30)
days any mortgagee and/or trust deed holder has commenced and is
diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings
if necessary to affect such cure), in which event this Lease shall not
be terminated if such remedies are being so diligently pursued.
27. SURRENDER OF POSSESSION. Lessee shall, prior to the termination of this
-----------------------
Lease or of Lessee's right to possession, remove from the Premises all
personal property which Lessee is entitled to remove and those alterations,
additions, improvements or signs which may be required by Lessor to be
removed, pursuant to Sections 12 and 14 above, and shall repair or pay for
all damage to the Premises caused by such removal. All such property
remaining and every interest of Lessee in the same shall be conclusively
presumed to have been conveyed by Lessee to Lessor under this Lease as a
bill of sale, without compensation, allowance, or credit to Lessee. Lessee
shall upon termination of this Lease or of Lessee's right of possession,
deliver all keys to Lessor and peacefully quit and surrender the Premises
without notice, neat and clean, and in as good condition as when Lessee
took possession, except for reasonable wear and tear as determined by
Lessor.
28. LATE PAYMENT AND INTEREST. If any amount due from Lessee is not received
-------------------------
in the office of Lessor on or before the fifth (5th) day following the date
upon which such amount is due and payable, a late charge of five percent
(5%) of said amount shall become immediately due and payable, which late
charge Lessor and Lessee agree represents a fair and reasonable estimate of
the processing and accounting costs that Lessor will incur by reason of
such late payment. All past due amounts owing to Lessor under this Lease,
including rent, shall be assessed interest at an annual percentage rate of
eighteen percent (18%) from the date due or date of invoice, whichever is
earlier, until paid.
29. NOTICE. Any notice required to be given by either party to the other
------
pursuant to the provisions of this Lease or any law, present or future,
shall be in writing, and shall be deemed to have been duly given or sent if
either delivered personally or deposited in the United States Mail, postage
prepaid, registered or certified, return receipt requested, addressed to
the Lessor at the address specified for the payment of rent under paragraph
3 of this Lease or to Lessee at the Premises or to such other address as
either party may designate to the other in writing from time to time:
A copy of any notice to Lessee will be sent by facsimile or private courier
delivery service to:
-10-
<PAGE>
Gary Raden, President
G. Raden & Sons, Inc.
8001 SW 16th Street
Renton, WA 98055
30. NO WAIVER OR COVENANTS. Time is of the essence of this Lease. Any waiver by
----------------------
either party of any breach hereof by the other shall not be considered a
waiver of any future similar or other breach.
31. BINDING ON HEIR, SUCCESSORS AND ASSIGNS. The covenants and agreements of
---------------------------------------
this Lease shall be binding upon the heirs, executors, administrators,
successors and assigns of both parties hereto, except as hereinabove
provided.
32. LESSOR'S ASSIGNMENT. It is fully understood that Lessor shall have the full
-------------------
right to assign this Lease, without any notice to Lessee, thereby relieving
Lessor from all and any liabilities; provided however, that the assignee
assumes all Lessor's responsibilities as set forth in this Lease.
33. OPTION TO EXTEND. Lessor hereby grants to Lessee the option to extend this
----------------
Lease for an additional term of five (5) years commencing on the first day
after the Expiration Date of the initial term (the "Renewal Term"). Lessee
must exercise the option to extend, if at all, by giving Lessor written
notice of such exercise not less than seven (7) months prior to the
Expiration Date of the initial term. Upon the exercise of the option to
extend, the term of this Lease shall be extended through the Expiration
Date of the Renewal Term on the same terms and conditions as contained
herein, except that there shall be no further option to extend the term of
this Lease beyond the Renewal Term, and the Base Monthly Rent during the
Renewal Term shall be determined pursuant to this Section.
Base Monthly Rent for the Renewal Term shall be the greater of (a) the Base
Monthly Rent scheduled for the final month of the preceding term, or (b)
the fair market rental for space in Park 405.
When Lessee exercises the option to extend this Lease, and no later than
five(s) months prior to the expiration of the initial term, Lessor and
Lessee shall execute and deliver an amendment to this Lease setting forth
the amount of Base Monthly Rent for the Renewal Term and the commencement
and expiration dates of the Renewal Term. If such Amendment is not
executed within the period referenced herein, any Option to Extend will
automatically terminate. In the event that the Lessor and Lessee are unable
to agree upon the fair market rate, the matter shall be determined by
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. The decision of the
arbitrators in such matter shall be final and binding upon the parties.
Following completion of the arbitration, the party whose estimate was most
at variance with the determination of the Arbitrator will pay all costs
associated with this arbitration.
34. ENVIRONMENTAL. See Rider One attached.
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<PAGE>
35. ENTIRE AGREEMENT. It is expressly understood and agreed by Lessor and
----------------
Lessee that there are no promises, agreements, conditions, understandings,
inducements, warranties, or representations, oral or written, express or
implied, between them, other than as herein set forth and that this Lease
shall not be modified in any manner except by an instrument in writing
executed by the parties.
LESSOR: LESSEE:
BENAROYA CAPITAL COMPANY, L.L.C. G. RADER & SONS, INC.
By: /s/ Larry R Benaroya By: /s/ Gary Raden
-------------------- --------------
Manager President
11/04/96 11/04/96
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<PAGE>
EXHIBIT 10.18
SUBLEASE AGREEMENT
1. PARTIES - This Sublease, dated ___________________ is made between
HomeGrocer.com, Inc. with its principal office at 1445 - l20th Avenue NE,
Bellevue, WA 98005-2127 (hereinafter referred to as ("Sublessor") and A&M
Warehouses, Incorporated, operating under the laws of the State of
Washington, having its principal office at 5002 D Street NW, Auburn,
Washington 98001 ("Sublessee")
2. MASTER LEASE - Sublessor is the Lessee under a lease dated November 4,
1996, an Assignment of Lease dated May 14, 1997 and subsequent Assignment
of Lease dated _____________________ wherein Benaroya Capital Company,
L.L.C. ("Lessor") leased to Sublessor the real property described in the
master lease which is attached hereto. Benaroya Capital Company, LLC
("Lessor") leased to Sublessor the real property described in the master
lease which is attached hereto and which is hereby incorporated into this
Sublease as Exhibit A. The Sublessee hereby agrees to abide by all the
terms and conditions of said master lease except for modifications to the
master lease that are agreed to in this Sublease Agreement.
3. PREMISES - Sublessor hereby subleases to Sublessee on the term and
conditions set forth in this Sublease the following portion of the Master
Premises ("Premises") as shown in Exhibit B.
4. WARRANTY BY SUBLESSOR - Sublessor warrants and represents to Sublessee the
Master Lease has not been amended or modified except as expressly set forth
herein, that Sublessor is not now, and as of the commencement of the Term
hereof will not be, in default or breach of any of the provisions of the
Master Lease, and that Sublessor has no knowledge of any claim by Lessor
that Sublessor is in default or breach of any of the provisions of the
Master Lease.
5. TERM - The Term of this Sublease shall commence on July 19, 1999
("Commencement Date"), or when Lessor consents to this Sublease, whichever
shall last occur, and end on February 28, 2007 ("Termination Date"), unless
otherwise sooner terminated in accordance with the provisions of the
Sublease. In the event the Term commences on a date other than the
Commencement Date, Sublessor and Sublessee shall execute a memorandum
setting forth the actual date of commencement of the Term. Possession of
the Premises ("Possession") shall be delivered to Sublessee on the
commencement of the Term. If for any reason Sublessor does not deliver
possession to Sublessee on the commencement of the Term, Sublessor shall
not be subject to any liability for such failure, the Termination Date
shall not be extended by the delay and the validity of this Sublease shall
not be Impaired, but rent shall abate until delivery of Possession. If
Sublessor permits Sublessee to take Possession before the commencement of
the Term, such early Possession shall not advance the Termination Date and
shall be subject to the provisions of the Sublease, including without
limitation the payment of rent.
<PAGE>
6. OPTION TO EXTEND - Sublessor hereby grants to Sublessee the option to
extend this Sublease for an additional term of five (5) years commencing on
the first day after the Expiration Date of the initial term (the "Renewal
Term"). Sublessee must exercise the option to extend, if at all, by giving
Sublessor written notice of such exercise not less than eight (8) months
prior to the Expiration of the initial term. Upon the exercise of the
option to extend, the term of this Sublease shall be extended through the
Expiration Date of the Renewal Term on the same terms and conditions as
contained herein, and the Base Rent during the Renewal Term shall be
determined pursuant to Section 33 of the Master Lease.
7. RENT - Base Rent. Sublessee shall pay to Sublessor as base rent, without
deduction (except as provided in Paragraph 8 below), set off, notice, on
demand at 1445 - 120th Avenue NE, Bellevue, WA 98005-2127 or at such other
place as Sublessor shall designate from time to time by notice to
Sublessee, $0.343 per month per square foot, from Commencement Date through
February 28, 2002 and $0.394 per cent per month per square foot from March
1, 2002 through February 28, 2007. All payments shall be made in advance on
the first day of each month. Sublessee shall pay to Sublessor upon
execution of this Sublease a sum equal to first months rent and common area
costs that will be applied to the first month's base rent and operating
costs. If the Term begins or ends on a day other than the first or last day
of the month, the rent for the partial months shall be prorated on a per
diem basis. Subsequent to the completion of Sublessor's tenant
improvements, Sublessor and Sublessee will enter into a letter agreement
specifying the exact square footage occupied by each party and the dollar
amount of the monthly rent.
8. RENT CREDIT - As consideration for assignment of Sublessee's lease to
Sublessor, Sublessee is granted a rent credit of $0.014 per month for each
square foot of space occupied by Sublessor. The amount may be deducted from
the monthly rent payment.
9. OPERATING COSTS - Operating Costs, Including but not limited to taxes,
utilities, or insurance; Sublessee shall pay to Sublessor as additional
rents seventeen (17%) percent of the base monthly rent in advance on the
first day of each month. Such provides for the payment by Sublessor of
Operating Costs on the basis of an estimate thereof, then as and when
adjustments between estimated and actual Operating Costs are made under the
Master Lease, the Obligations of Sublessor and Sublessee hereunder shall be
adjusted in like manner. Sublessor shall, upon request of Sublessee,
furnish Sublessee with copies of all statements submitted by Lessor of
actual or estimated Operating Costs during the term.
10. SECURITY DEPOSIT - Sublessee shall deposit with Sublessor upon execution of
this Sublease the sum of $70,500 as security for Sublessee's faithful
performance of Sublessee's obligations hereunder ("Security Deposit"). If
Sublessee fails to pay rent or other charges when due under this Sublease,
or fails to perform any of its other obligations hereunder, Sublessor may
use or apply all or any portion of the Security Deposit for the payment of
any rent or other amount then due hereunder and unpaid, for
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<PAGE>
the payment of any other sum for which Sublessor may become obligated by
reason of Sublessee's default or breach, or of any loss or damage sustained
by Sublessor as a result of Sublessee's default or breach. If Sublessor so
uses any portion of the Security Deposit, Sublessee shall, within ten (10)
days after written demand by Sublessor, restore the Security Deposit to the
full amount originally deposited, and Sublessee's failure to do so shall
constitute a default under this Sublease. Sublessor shall not be required
to keep the Security Deposit separate from its general accounts, and shall
have no obligation or liability for payment of interest on the Security
Deposit. In the event, the Sublessor assigns its interest in this Sublease,
Sublessor shall deliver to its assignee, if any, the Sublessee's interest
hereunder.
11. USE OF PREMISES - The Premises shall be used and occupied only for the
operation of public warehouse with associated administrative and
transportation activities, and for no other use or purpose.
12. ASSIGNMENT AND SUBLETTING - Sublessee shall not assign this Sublease or
further sublet all or any part of the Premises without the prior written
consent of Sublessor (and the consent of Lessor, if such is required under
the terms of the Master Lease).
13. OTHER PROVISIONS OF SUBLEASE - All applicable terms and conditions of the
Master Lease are incorporated into and made a part of this Sublease as if
Sublessor were the lessor thereunder, Sublessee the lessee thereunder, and
the Premises the Master Premises, except for the following: prorated
operating cost. Sublessee assumes and agrees to perform the lessee's
obligations under the Master Lease during the Term to the extent that such
obligations are applicable to the Premises, except that the obligation to
pay rent to Lessor under the Master Lease shall be considered performed by
Sublessee to the extent and in the amount rent is paid to Sublessor in
accordance with Section 6 of this Sublease. Sublessee shall not commit or
suffer any act or omission that will violate any of the provisions of the
Master Lease. Sublessor shall exercise due diligence in attempting to cause
Lessor to perform its obligations under the Master Lease for the benefit of
Sublessee. If the Master Lease terminates the Sublease shall terminate and
the parties shall relieved of any further liability or obligation under
this Sublease, provided however, that if the Master Lease terminates as a
result of a default or breach by Sublessor or Sublessee under this Sublease
and/or the Master Lease then the defaulting party shall be liable to the
non-defaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, If the Master Lease gives
Sublessor any right to terminate the Master Lease in the event of the
partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
14. ATTORNEY'S FEES - If Sublessor, Sublessee, or Broker shall commence an
action against the other arising out of or in connection with this
Sublease, the prevailing party shall be entitled to recover its costs of
suit and reasonable attorney's fees.
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<PAGE>
15. NOTICES - All notices and demands by either party shall be made by United
States mail and sent to the address for the parties specified herein.
16. CONSENT BY LESSOR - This Sublease shall be of no force or effect unless
consented to, in writing, by Lessor within ten (10) days after execution
thereof, if such consent is required under the terms of the Master Lease.
17. COMPLIANCE - The parties hereto agree to comply with all applicable
federal, state and local laws, regulations, codes, ordinances and
administrative orders having jurisdiction over the parties, property or the
subject matter of this Agreement, including, but not limited to, the 1964
Civil Rights Act and all amendments thereto, the Foreign Investment in Real
Property Tax Act, the Comprehensive Environmental Response Compensation and
Liability Act, and the American With Disabilities Act.
Sublessor: HomeGrocer.com, Inc. Sublessee: A & M Warehouses, Inc.
By: /s/ Daryl L. Stromswold By: /s/ Nick Harbert
--------------------------- ---------------------------
Name: Daryl L. Stromswold Name: Nick Harbert
------------------------- -------------------------
Title: Assistant Secretary Title: President
------------------------ ------------------------
Date: June 24, 1999 Date: 7-2-99
------------------------- -------------------------
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<PAGE>
EXHIBIT 10.19
LEASE AGREEMENT
(NNN)
Basic Lease Information
Lease Date: July 8, 1999
Landlord LINCOLN-RECP FULLERTON OPCO, LLC, a
Delaware limited liability company
Landlord's Address: c/o Legacy Partners Commercial, Inc.
30 Executive Park, Suite 100
Irvine, California 92614
Tenant: HOMEGROCER.COM, INC.,
a Delaware corporation
Tenant's Address: The Plaza At Yarrow Bay
10230 N.E. Points Drive
Kirkland, WA 98033
Premises: Approximately 98,600 rentable square
feet as shown on Exhibit A
Premises Address: 590 North Gilbert Street, Fullerton, CA
92834
Building: Approximately 98,600 rentable square
feet
Fullerton Crossroads ("Park"): Approximately 1,247,323 rentable square
feet
Term: October 1, 1999 ("Commencement Date"),
through September 30, 2009 ("Expiration
Date")
Base Rent: Forty Two Thousand Three Hundred Ninety
Eight and 00/100 Dollars ($42,398.00)
per month
Adjustments to Base Rent: April 1, 2002--September 30, 2004 at
$45,356.00 per month
October 1, 2004--March 31, 2007 at
$49,300.00 per month
April 1, 2007--September 30, 2009 at
$53,244.00 per month
Security Deposit ((P)4): Eight-four Thousand Seven Hundred
Ninety-six and 00/100 Dollars
($84,796.00)
*Tenant's Share of Tax Expenses ((P)6.1): 7.9% of the Park
*Tenant's Share of Tax Expenses ((P)6.2): 100% of the Lot
*Tenant's Share of Common Area Utility Costs ((P)7): 7.9% of the Park
*Tenant's Share of Utility Expenses ((P)7): 100% of the Building
*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.
Permitted Uses ((P)9): Food and related sundry items
distribution, related office support and
other comparable distribution uses, but
only to the extent permitted by the City
of Fullerton and all agencies and
governmental authorities having
jurisdiction thereof
Parking Spaces: One hundred seventy-one (171) spaces
Broker ((P)38): CB Richard Ellis for Tenant Grubb &
Ellis for Landlord
Exhibits: Exhibit A - Premises, Building, Lot
and/or Park
Exhibit B - Tenant Improvements
Exhibit B-1- Approved Final Drawings
Exhibit C - Rules and Regulations
Exhibit D - Covenants, conditions and
Restrictions
Exhibit E - Hazardous Materials
Disclosure Certificate - Example
Exhibit F - Change of Commencement Date
Exhibit G - Tenant's Initial Hazardous
Materials Disclosure Ceritificate
Exhibit H - Sign Criteria
Exhibit I - Subordination, Non-
Disturbance and Attornment Agreement
<PAGE>
LEASE AGREEMENT
DATE: This Lease is made and entered into as of the Lease Date set forth on
Page 1. The Basic Lease Information set forth on Page 1 and this Lease
are and shall be construed as a single instrument.
1. Premises
Landlord hereby leases the Premises to Tenant upon the terms and conditions
contained herein. Landlord hereby grants to Tenant a license for the right to
use, on a non-exclusive basis, parking areas and ancillary facilities located
within the Common Areas of the Park, subject to the terms of this Lease.
Landlord and Tenant hereby agree that for purposes of this Lease, as of the
Lease Date, the rentable square footage area of the Premises, the Building, the
Lot and the Park shall be deemed to be the number of rentable square feet as set
forth in the Basic Lease Information on Page 1. Tenant hereby acknowledges that
the rentable square footage of the Premises may include a proportionate share of
certain areas used in common by all occupants of the Building and/or the Park
(for example an electrical room or telephone room). Tenant further agrees that
the number of rentable square feet of the Building, the Lot and the Park may
subsequently change after the Lease Date commensurate with any modifications to
any of the foregoing by Landlord, and Tenant's Share shall accordingly change.
Landlord shall use commercially reasonable efforts not to unreasonably interfere
with Tenant's use of the Premises in connection with any construction of or
alterations to the Common Areas of the Park.
2. Adjustment of Commencement Date; Condition of the Premises
2.1 If Landlord cannot deliver possession of the Premises on the
Commencement Date, Landlord shall not be subject to any liability nor shall the
validity of the Lease be affected; provided, the Lease Term and the obligation
to pay Rent shall commence on the date possession is tendered and the Expiration
Date shall be extended commensurately. In the event the commencement date and/or
the expiration date of this Lease is other than the Commencement Date and/or
Expiration Date specified in the Basic Lease Information, as the case may be,
Landlord and Tenant shall execute a written amendment to this Lease,
substantially in the form of Exhibit F hereto, wherein the parties shall specify
the actual commencement date, expiration date and the date on which Tenant is to
commence paying Rent. The word "Term" whenever used herein refers to the initial
term of this Lease and any extension thereof. By taking possession of the
Premises, subject to the provisions regarding corrections of defects or
deficiencies as set forth below, Tenant shall be deemed to have accepted the
Premises in good condition and state of repair. After receipt by Landlord of
written notice from Tenant of the existence of any patent deficiencies or
defects in the construction of the Tenant Improvements (which notice shall
specify in reasonable detail the nature and extent of such deficiencies or
defects), Landlord shall use commercially reasonable efforts to cause the
general contractor to promptly correct and/or repair any patent deficiencies or
defects which are not caused by the acts or omissions of Tenant or any of
Tenant's Representatives (hereafter defined), during the ninety (90) day period
following the Commencement Date of this Lease. If Tenant fails to timely
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<PAGE>
deliver to Landlord such written notice of the aforementioned patent defects or
deficiencies within said 90-day period, Landlord shall have no obligation to
perform any such work thereafter, except as otherwise specifically provided in
Section 11 of this Lease. Tenant hereby acknowledges and agrees that neither
Landlord nor Landlord's agents or representatives has made any representations
or warranties as to the suitability, safety or fitness of the Premises for the
conduct of Tenant's business, Tenant's intended use of the Premises or for any
other purpose.
2.2 In the event Landlord permits Tenant to occupy the Premises prior to
the Commencement Date, such occupancy shall be at Tenant's sole risk and subject
to all the provisions of this Lease, including, but not limited to, the
requirement to pay Rent and the Security Deposit, and to obtain the insurance
required pursuant to this Lease and to deliver insurance certificates as
required herein. In addition to the foregoing, Landlord shall have the right to
impose such additional conditions on Tenant's early entry as Landlord shall deem
appropriate. If, at any time, Tenant is in default of any term, condition or
provision of this Lease, any such waiver by Landlord of Tenant's requirement to
pay rental payments shall be null and void and Tenant shall immediately pay to
Landlord all rental payments so waived by Landlord. Landlord and the general
contractor shall provide Tenant with a customary warranty for the Tenant
Improvements for one (1) year following Substantial Completion; provided,
however, any claim by Tenant under said warranty must be made by Tenant in
writing within said one (1) year period and must include the specific nature of
the problem. Tenant shall have the right, together with Landlord, to
concurrently enforce any warranties made by the general contractor or materials
suppliers in favor of Landlord with respect to the construction of the Tenant
Improvements.
3. Rent
On the date that Tenant executes this Lease, Tenant shall deliver to
Landlord the original executed Lease, the Base Rent (which shall be applied
against the Rent payable for the first month Tenant is required to pay Base
Rent), the Security Deposit, and all insurance certificates evidencing the
insurance required to be obtained by Tenant under Section 12 of this Lease.
Tenant agrees to pay Landlord, without prior notice or demand, or abatement,
offset, deduction or claim, the Base Rent described in the Basic Lease
Information, payable in advance at Landlord's address specified in the Basic
Lease Information on the Commencement Date and thereafter on the first (1st) day
of each month throughout the balance of the Term of the Lease. In addition to
the Base Rent set forth in the Basic Lease Information, Tenant shall pay
Landlord in advance on the Commencement Date and thereafter on the first (1st)
day of each month throughout the balance of the Term of this Lease, as
Additional Rent, Tenant's Share of Operating Expenses, Tax Expenses, Common Area
Utility Costs, and Utility Expenses, as well as the Administrative Expenses.
Tenant shall also pay to Landlord as Additional Rent hereunder, immediately on
Landlord's demand therefor, any and all costs and expenses incurred by Landlord
to enforce the provisions of this Lease, including, but not limited to, costs
associated with the delivery of notices, delivery and recordation of notice(s)
of default, attorneys' fees, expert fees, court costs and filing fees
(collectively, the "Enforcement Expenses"). The term "Rent" whenever used herein
refers to the aggregate of all these amounts. If Landlord permits Tenant to
occupy the Premises without requiring Tenant to pay rental payments for a period
of
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<PAGE>
time, the waiver of the requirement to pay rental payments shall only apply to
waiver of the Base Rent and Tenant shall otherwise perform all other obligations
of Tenant required hereunder. The Rent for any fractional part of a calendar
month at the commencement or termination of the Lease term shall be a prorated
amount of the Rent for a full calendar month based upon a thirty (30) day month.
The prorated Rent shall be paid on the Commencement Date and the first day of
the calendar month in which the date of termination occurs, as the case may be.
4. Security Deposit
Upon Tenant's execution of this Lease, Tenant shall deliver to Landlord, as
a Security Deposit for the performance by Tenant of its obligations under this
Lease, the amount specified in the Basic Lease Information. If Tenant is in
default, Landlord may, but without obligation to do so, use the Security
Deposit, or any portion thereof, to cure the default or to compensate Landlord
for all damages sustained by Landlord resulting from Tenant's default,
including, but not limited to the Enforcement Expenses. Tenant shall,
immediately on demand, pay to Landlord a sum equal to the portion of the
Security Deposit so applied or used so as to replenish the amount of the
Security Deposit held to increase such deposit to the amount initially deposited
with Landlord. At any time after Tenant has defaulted hereunder, Landlord may
require an increase in the amount of the Security Deposit required hereunder (in
an amount not to exceed twelve (12) months' Rent) for the then balance of the
Lease Term and Tenant shall, immediately on demand, pay to Landlord additional
sums in the amount of such increase. As soon as practicable after the
termination of this Lease, Landlord shall return the Security Deposit to Tenant,
less such amounts as are reasonably necessary, as determined solely by Landlord,
to remedy Tenant's default(s) hereunder or to otherwise restore the Premises to
a clean and safe condition, reasonable wear and tear excepted. If the cost to
restore the Premises exceeds the amount of the Security Deposit, Tenant shall
promptly deliver to Landlord any and all of such excess sums as reasonably
determined by Landlord. Landlord shall not be required to keep the Security
Deposit separate from other funds, and, unless otherwise required by law, Tenant
shall not be entitled to interest on the Security Deposit. In no event or
circumstance shall Tenant have the right to any use of the Security Deposit and,
specifically, Tenant may not use the Security Deposit as a credit or to
otherwise offset any payments required hereunder, including, but not limited to,
Rent or any portion thereof.
5. Tenant Improvements
Tenant hereby accepts the Premises as suitable for Tenant's intended use
and as being in good operating order, condition and repair, "AS IS", except as
specified in Exhibit B attached hereto. Landlord or Tenant, as the case may be,
shall install and construct the Tenant Improvements (as such term is defined in
Exhibit B hereto) in accordance with the terms, conditions, criteria and
provisions set forth in Exhibit B. Landlord and Tenant hereby agree to and shall
be bound by the terms, conditions and provisions of Exhibit B. Tenant
acknowledges and agrees that neither Landlord nor any of Landlord's agents,
representatives or employees has made any representations as to the suitability,
fitness or condition of the Premises for the conduct of Tenant's business or for
any other purpose, including without limitation, any storage
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<PAGE>
incidental thereto. Any exception to the foregoing provisions must be made by
express written agreement by both parties.
6. Additional Rent
It is intended by Landlord and Tenant that this Lease be a "triple net
lease." The costs and expenses described in this Section 6 and all other sums,
charges, costs and expenses specified in this Lease other than Base Rent are to
be paid by Tenant to Landlord as additional rent (collectively, "Additional
Rent").
6.1 Operating Expenses: In addition to the Base Rent set forth in Section
3, Tenant shall pay Tenant's Share, which is specified in the Basic Lease
Information, of all Operating Expenses as Additional Rent. The term "Operating
Expenses" as used herein shall mean the total amounts paid or payable by
Landlord in connection with the ownership, maintenance, repair and operation of
the Premises, the Building and the Lot, and where applicable, of the Park
referred to in the Basic Lease Information. The amount of Tenant's Share of
Operating Expenses shall be reviewed from time to time by Landlord and shall be
subject to modification by Landlord if there is a change in the rentable square
footage of the Premises, the Building and/or the Park. These Operating Expenses
may include, but are not limited to:
6.1.1 Landlord's cost of repairs to, and maintenance of the exterior
walls of the Building;
6.1.2 Landlord's cost of maintaining the outside paved area,
landscaping and other common areas for the Park. The term "Common Areas"
shall mean all areas and facilities within the Park exclusive of the
Premises and the other portions of the Park leasable exclusively to other
tenants. The Common Areas include, but are not limited to, interior
lobbies, mezzanines, parking areas, access and perimeter roads, sidewalks,
rail spurs, landscaped areas and similar areas and facilities;
6.1.3 Landlord's annual cost of insurance insuring against fire and
extended coverage (including, if Landlord elects, "all risk" or "special
purpose" coverage) and all other insurance, including, but not limited to,
earthquake, flood and/or surface water endorsements for the Building, the
Lot and the Park (including the Common Areas), rental value insurance
against loss of Rent in an amount equal to the amount of Rent for a period
of at least six (6) months commencing on the date of loss, and subject to
the provisions of Section 27 below, any deductible;
6.1.4 Landlord's cost of: (i) modifications and/or new improvements
to the Building, the Common Areas and/or the Park occasioned by any rules,
laws or regulations effective subsequent to the date on which the Building
was originally constructed; (ii) reasonably necessary replacement
improvements to the Building, the Common Areas and the Park after the Lease
Date (except any replacement improvements made by Landlord after Landlord
intentionally demolishes the Building, Common Areas or Park); and (iii) new
improvements to the Building, the Common Areas and/or the Park that reduce
operating costs or improve life/safety conditions, all as reasonably
determined
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<PAGE>
by Landlord, in its sole discretion; provided, however, if any of the
foregoing are in the nature of capital improvements, then the cost of such
capital improvements shall be amortized on a straight-line basis over a
reasonable period, which shall be the estimated useful life of such
modifications, new improvements or replacement improvements in question (at
an interest rate as reasonably determined by Landlord), and Tenant shall
pay Tenant's Share of the monthly amortized portion of such costs
(including interest charges) as part of the Operating Expenses herein;
6.1.5 If Landlord elects to so procure, Landlord's cost of
preventative maintenance, and repair contracts including, but not limited
to, contracts for elevator systems and heating, ventilation and air
conditioning systems, lifts for disabled persons, and trash or refuse
collection;
6.1.6 Landlord's cost of security and fire protection services for
the Building and/or the Park, as the case may be, if in Landlord's sole
discretion such services are provided;
6.1.7 If Tenant uses any such rail spur or rail crossing, Landlord's
cost for the maintenance and repair of any rail spur and rail crossing, and
for the creation and negotiation of, and pursuant to, any rail spur or
track agreements, licenses, easements or other similar undertakings;
6.1.8 Landlord's cost of supplies, equipment, rental equipment and
other similar items used in the operation and/or maintenance of the Park;
and
6.1.9 Landlord's cost for the repairs and maintenance items set forth
in Section 11.2 below.
Notwithstanding the foregoing, for purposes of this Lease, the term
"Operating Expenses" shall not include the following:
(i) Costs attributable to seeking and obtaining new tenants in the Park,
including construction of improvements for other occupants of the Park as well
as retaining existing tenants in the Park (other than Tenant), such as
advertising, promotion, brokerage commissions, architectural, engineering and
attorneys' fees;
(ii) Other than any interest charges for capital improvements referred to
in Section 6.1.4 hereinabove, any interest or payments on any financing for the
Building or the Park, and any bad debt loss, rent loss or reserves for same;
(iii) Any cost or expense which is actually reimbursed to Landlord through
insurance or otherwise;
(iv) Costs associated with the investigation and/or remediation of
Hazardous Materials (hereinafter defined) present in, on or about the Premises
or the Park, unless such costs and expenses are the responsibility of Tenant as
provided in Section 29 of this Lease, in which event
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<PAGE>
such costs and expenses shall be paid solely by Tenant in accordance with the
provisions of Section 29 of this Lease;
(v) Any costs, fines or penalties incurred solely and directly
resulting from actual violations by Landlord of any governmental rule or
authority for which Landlord is responsible hereunder;
(vi) Costs of repairs or other work necessitated by fire, windstorm or
other casualty (excluding any commercially reasonable deductibles) and/or costs
of repair or other work necessitated by the exercise of the right of eminent
domain to the extent insurance proceeds or a condemnation award, as applicable,
is actually received by Landlord for such purposes; provided such costs for
repairs or other work shall be paid by the parties in accordance with the
provisions of Sections 27 and 28 below;
(vii) costs of purchasing, installing and replacing artwork, excluding
repair and maintenance required as a result of normal wear and tear, to the
extent properly capitalized under generally accepted accounting and management
practices; and
(viii) The cost to repair or replace any construction defect in the
Building to the extent actually (not constructively) known to Landlord prior to
the Commencement Date.
(ix) Depreciation of the Buildings or any other improvements situated
within the Park;
(x) Overhead and profit paid to subsidiaries or affiliates of Landlord
for management services to the extent that the cost of those items would not
have been paid had the services been provided by unaffiliated parties on a
competitive basis; and
(xi) Other than any interest charges for capital improvements referred
to in Section 6.1.4 hereinabove, any interest or payment on any financing for
the Building or the Park, and any bad debt loss, rent loss or reserves for same.
6.2 Tax Expenses: In addition to the Base Rent set forth in Section 3,
Tenant shall pay its share, which is specified in the Basic Lease Information,
of all real property taxes applicable to the land and improvements included
within the Lot on which the Premises are situated and one hundred percent (100%)
of all personal property taxes now or hereafter assessed or levied against the
Premises or Tenant's personal property. The amount of Tenant's Share of Tax
Expenses shall be reviewed from time to time by Landlord and shall be subject to
modification by Landlord if there is a change in the rentable square footage of
the Premises, the Building and/or the Park. Tenant shall also pay one hundred
percent (100%) of any increase in real property taxes attributable, in
Landlord's sole discretion, to any and all alterations, Tenant Improvements or
other improvements of any kind, which are above standard improvements
customarily installed for similar buildings located within the Building or the
Park (as applicable), whatsoever placed in, on or about the Premises for the
benefit of, at the request of, or by Tenant. The term "Tax Expenses" shall mean
and include, without limitation, any form of tax and assessment (general,
special, supplemental, ordinary or extraordinary), commercial rental tax,
payments under any improvement bond or bonds, license fees, license tax,
business license fee,
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rental tax, transaction tax, levy, or penalty imposed by authority having the
direct or indirect power of tax (including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
district thereof) as against any legal or equitable interest of Landlord in the
Premises, the Building, the Lot or the Park, as against Landlord's right to rent
or as against Landlord's business of leasing the Premises or the occupancy of
Tenant or any other tax, fee, or excise, however described, including, but not
limited to, any value added tax, or any tax imposed in substitution (partially
or totally) of any tax previously included within the definition of real
property taxes, or any additional tax the nature of which was previously
included within the definition of real property taxes. The term "Tax Expenses"
shall not include any franchise, estate, inheritance, net income, or excess
profits tax imposed upon Landlord.
Subject to any limitations or restrictions imposed by any deeds of trust or
mortgages now or hereafter affecting the Premises or any portion thereof, Tenant
shall have the right, after delivering written notice thereof to Landlord, to
contest or review the amount or validity of any real property taxes and
assessments applicable to the Premises by appropriate legal proceedings, subject
to the following terms and provisions. Such right is not to be deemed or
construed in any way as relieving, modifying, or extending Tenant's covenant to
pay such Tax Expenses or Tenant's Pro Rata Share of Tax Expenses at the time and
in the manner provided in this Lease. As a condition to Tenant's right to
contest, (i) Tenant shall first give Landlord the opportunity to so contest such
Tax Expenses, and (ii) such contested Tax Expenses or Tenant's Pro Rata Share of
Tax Expenses shall be paid before delinquency. The foregoing notwithstanding, if
Landlord is not successful in its contest of such Tax Expenses or if Landlord
does not elect to so contest the Tax Expenses then Tenant may contest such Tax
Expenses in accordance with the following provisions. If payment of the Tax
Expenses or Tenant's Pro Rata Share of Tax Expenses would prejudice Tenant's
ability to contest such taxes and assessments, then as a condition to obtaining
Landlord's consent to Tenant's ability to bring such contest without prior
payment (if the legal proceeding shall not operate to prevent or stay the
collection of the tax so contested), Tenant shall, before instituting any such
proceeding, protect the Premises and the interest of Landlord and of the
beneficiary of a deed of trust or the mortgagee of a mortgage affecting the
Premises or any portion thereof against any lien upon all of any portion of the
Premises by a surety bond, issued by an insurance company acceptable to
Landlord, in an amount equal to the greater of one and one-half (1/2) times the
amount contested or the amount of the contested tax and the interest and
penalties in connection therewith. Any contest as to the validity or amount of
any tax shall be made by Tenant in Tenant's own name, or, if required by law, in
the name of Landlord or both Landlord and Tenant. Tenant shall indemnify,
defend, and hold the Indemnitees (hereafter defined) harmless from and against
any and all losses, liabilities, penalties, judgments, costs and expenses,
including without limitation, attorneys' fees, arising as a result of or in
connection with any such proceedings brought by Tenant whether in its own name
or not. Tenant shall be entitled to retain any refund of any such contested tax,
or Tenant's Pro Rata Share thereof, and penalties or interest thereon which have
been paid by Tenant. Nothing contained herein shall be construed as affecting or
limiting Landlord's right to contest any Tax Expenses.
6.3 Administrative Expenses: The Administrative Expenses set forth in
this Section 6.3 are considered part of Additional Rent. In addition to the Base
Rent set forth in Section 3 hereof, Tenant shall pay Landlord, without prior
notice or demand, commencing on the
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Commencement Date and continuing thereafter on the first (1st) day of each month
throughout the balance of the Term of this Lease, as compensation to Landlord
for accounting and management services rendered on behalf of the Building and/or
the Park, one-twelfth (1/12th) of an amount equal to ten percent (10%) of the
estimated amount of the aggregate of the Tenant's Share of (i) the total
Operating Expenses and Tax Expenses as described in Sections 6.1 and 6.2 above,
respectively, and (ii) all Common Area Utility Costs for the Park and Utility
Expenses for the Premises as described in Section 7 below (collectively, the
"Administrative Expenses"). Any reconciliation of the Administrative Expenses
shall be substantially in the same manner as specified in Section 6.5 below, to
the extent such provisions are applicable. Tenant's obligation to pay such
Administrative Expenses shall survive the expiration or earlier termination of
this Lease.
6.4 Payment of Expenses: Landlord shall estimate Tenant's Share of the
Operating Expenses and Tax Expenses for the calendar year in which the Lease
commences. Commencing on the Commencement Date, one-twelfth (1/12th) of this
estimated amount shall be paid by Tenant to Landlord, as Additional Rent, and
thereafter on the first (1st) day Of each month throughout the remaining months
of such calendar year. Thereafter, Landlord may estimate such expenses as of the
beginning of each calendar year during the Term of this Lease and Tenant shall
pay one-twelfth (1/12th) of such estimated amount as Additional Rent hereunder
on the first (1st) day of each month during such calendar year and for each
ensuing calendar year throughout the Term of this Lease. Tenant's obligation to
pay Tenant's Share of Operating Expenses and Tax Expenses shall survive the
expiration or earlier termination of this Lease.
6.5 Annual Reconciliation: By June 30th of each calendar year, or as soon
thereafter as reasonably possible Landlord shall endeavor to furnish Tenant with
an accounting of actual Operating Expenses and Tax Expenses. Within thirty (30)
days of Landlord's delivery of such accounting, Tenant shall pay to Landlord the
amount of any underpayment. Notwithstanding the foregoing, failure by Landlord
to give such accounting by such date shall not constitute a waiver by Landlord
of its right to collect any of Tenant's underpayment at any time. Landlord shall
credit the amount of any overpayment by Tenant toward the next estimated monthly
installment(s) falling due, or where the Term of the Lease has expired, refund
the amount of overpayment to Tenant. If the Term of the Lease expires prior to
the annual reconciliation of expenses Landlord shall have the right to
reasonably estimate Tenant's Share of such expenses, and if Landlord determines
that an underpayment is due, Tenant hereby agrees that Landlord shall be
entitled to deduct such underpayment from Tenant's Security Deposit.
Notwithstanding the foregoing, failure of Landlord to accurately estimate
Tenant's Share of such expenses or to otherwise perform such reconciliation of
expenses, including without limitation, Landlord's failure to deduct any portion
of any underpayment from Tenant's Security Deposit, shall not constitute a
waiver of Landlord's right to collect any of Tenant's underpayment at any time
during the Term of the Lease or at any time after the expiration or earlier
termination of this Lease.
6.6 Audit: After delivery to Landlord of at least thirty (30) days prior
written notice, Tenant, by itself or at its sole cost and expense through any
accountant designated by it, shall have the right to examine and/or audit the
books and records evidencing such costs and expenses
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for the previous one (1) calendar year, during Landlord's reasonable business
hours but not more frequently than once during any calendar year. Any such
accounting firm designated by Tenant may not be compensated on a contingency fee
basis. The results of any such audit (and any negotiations between the parties
related thereto) shall be maintained strictly confidential by Tenant and its
accounting firm and shall not be disclosed, published or otherwise disseminated
to any other party other than to Landlord and its authorized agents. Landlord
and Tenant shall use their best efforts to cooperate in such negotiations and to
promptly resolve any discrepancies between Landlord and Tenant in the accounting
of such costs and expenses.
7. Utilities
Utility Expenses, Common Area Utility Costs and all other sums or charges
set forth in this Section 7 are considered part of Additional Rent. In addition
to the Base Rent set forth in Section 3 hereof, Tenant shall pay the cost of all
water, sewer use, sewer discharge fees and sewer connection fees, gas, heat,
electricity, refuse pickup, janitorial service, telephone and other utilities
billed or metered separately to the Premises and/or Tenant. Tenant shall also
pay Tenant's Share of any assessments or charges for utility or similar purposes
included within any tax bill for the Lot on which the Premises are situated,
including, without limitation, entitlement fees related to Tenant's particular
use of the Premises, allocation unit fees, and/or any similar fees or charges,
and any penalties related thereto. For any such utility fees or use charges that
are not billed or metered separately to Tenant, including without limitation,
water and refuse pick up charges, Tenant shall pay to Landlord, as Additional
Rent, without prior notice or demand, on the Commencement Date and thereafter on
the first (1st) day of each month throughout the balance of the Term of this
Lease the amount which is attributable to Tenant's use of the utilities or
similar services, as reasonably estimated and determined by Landlord based upon
factors such as size of the Premises and intensity of use of such utilities by
Tenant such that Tenant shall pay the portion of such charges reasonably
consistent with Tenant's use of such utilities and similar services ("Utility
Expenses"). If Tenant disputes any such estimate or determination, then Tenant
shall either pay the estimated amount or cause the Premises to be separately
metered at Tenant's sole expense. In addition, Tenant shall pay to Landlord
Tenant's Share of any Common Area utility costs, fees, charges or expenses
("Common Area Utility Costs"). Tenant shall pay to Landlord one-twelfth (1/12th)
of the estimated amount of Tenant's Share of the Common Area Utility Costs on
the Commencement Date and thereafter on the first (1st) day of each month
throughout the balance of the Term of this Lease and any reconciliation thereof
shall be substantially in the same manner as specified in Section 6.5 above. The
amount of Tenant's Share of Common Area Utility Costs shall be reviewed from
time to time by Landlord and shall be subject to modification by Landlord if
there is a change in the rentable square footage of the Premises, the Building
and/or the Park. Tenant acknowledges that the Premises may become subject to the
rationing of utility services or restrictions on utility use as required by a
public utility company, governmental agency or other similar entity having
jurisdiction thereof. Notwithstanding any such rationing or restrictions on use
of any such utility services, Tenant acknowledges and agrees that its tenancy
and occupancy hereunder shall be subject to such rationing restrictions as may
be imposed upon Landlord, Tenant, the Premises, the Building or the Park, and
Tenant shall in no event be excused or relieved from any covenant or obligation
to be kept or performed by Tenant by reason of any such rationing or
restrictions. Tenant further
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agrees to timely and faithfully pay, prior to delinquency, any amount, tax,
charge, surcharge, assessment or imposition levied, assessed or imposed upon the
Premises, or Tenant's use and occupancy thereof. Notwithstanding anything to the
contrary contained herein, if permitted by applicable Laws, Landlord shall have
the right at any time and from time to time during the Term of this Lease to
either contract for service from a different company or companies (each such
company shall be referred to herein as an "Alternate Service Provider") other
than the company or companies presently providing electricity service for the
Building or the Park (the "Electric Service Provider") or continue to contract
for service from the Electric Service Provider, at Landlord's sole discretion.
Tenant hereby agrees to cooperate with Landlord, the Electric Service Provider,
and any Alternate Service Provider at all times and, as reasonably necessary,
shall allow Landlord, the Electric Service Provider, and any Alternate Service
Provider reasonable access to the Building's electric lines, feeders, risers,
wiring, and any other machinery within the Premises.
8. Late Charges
Any and all sums or charges set forth in this Section 8 are considered part
of Additional Rent. Tenant acknowledges that late payment (the fifth (5th) day
of each month or any time thereafter) by Tenant to Landlord of Base Rent,
Tenant's Share of Operating Expenses, Tax Expenses, Common Area Utility Costs,
and Utility Expenses, Administrative Expenses or other sums due hereunder, will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of such costs being extremely difficult and impracticable to fix. Such costs
include, without limitation, processing and accounting charges, and late charges
that may be imposed on Landlord by the terms of any note secured by any
encumbrance against the Premises, and late charges and penalties due to the late
payment of real property taxes on the Premises. Therefore, if any installment of
Rent or any other sum due from Tenant is not received by Landlord within four
(4) days after the date when otherwise due, Tenant shall promptly pay to
Landlord an additional sum equal to ten percent (10%) of such delinquent amount.
If Tenant delivers to Landlord a check for which there are not sufficient funds,
Landlord may, at its sole option, require Tenant to replace such check with a
cashier's check for the amount of such check and all other charges payable
hereunder. The parties agree that this late charge and the other charges
referenced above represent a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant. Acceptance of any late
charge or other charges shall not constitute a waiver by Landlord of Tenant's
default with respect to the delinquent amount, nor prevent Landlord from
exercising any of the other rights and remedies available to Landlord for any
other breach of Tenant under this Lease. If a late charge or other charge
becomes payable for any three (3) installments of Rent within any twelve (12)
month period, then Landlord, at Landlord's sole option, can either require the
Rent be paid quarterly in advance, or be paid monthly in advance by cashier's
check or by electronic funds transfer.
9. Use of Premises
9.1 Compliance with Laws, Recorded Matters, and Rules and Regulations:
The Premises are to be used solely for the purposes and uses specified in the
Basic Lease Information and for no other uses or purposes without Landlord's
prior written consent, which consent shall
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not be unreasonably withheld or delayed so long as the proposed use (i) does not
involve the use of Hazardous Materials other than as expressly permitted under
the provisions of Section 29 below, (ii) does not require any additional parking
in excess of the parking spaces already licensed to Tenant pursuant to the
provisions of Section 24 of this Lease, and (iii) is compatible and consistent
with the other uses then being made in the Park and in other similar types of
buildings in the vicinity of the Park, as reasonably determined by Landlord. The
use of the Premises by Tenant and its employees, representatives, agents,
invitees, licensees, subtenants, customers or contractors (collectively,
"Tenant's Representatives") shall be subject to, and at all times in compliance
with, (a) any and all applicable laws, ordinances, statutes, orders and
regulations as same exist from time to time (collectively, the "Laws"), (b) any
and all documents, matters or instruments, including without limitation, any
declarations of covenants, conditions and restrictions, and any supplements
thereto, each of which has been or hereafter is recorded in any official or
public records with respect to the Premises, the Building, the Lot and/or the
Park, or any portion thereof (collectively, the "Recorded Matters"), and (c) any
and all rules and regulations set forth in Exhibit C, attached to and made a
part of this Lease, and any other reasonable rules and regulations promulgated
by Landlord now or hereafter enacted relating to parking and the operation of
the Premises, the Building and the Park provided same are enforced on a non-
discriminatory basis, and do not materially and adversely affect Tenant's
operation in and from the Premises (collectively, the "Rules and Regulations").
Tenant agrees to, and does hereby, assume full and complete responsibility to
ensure that the Premises are adequate to fully meet the needs and requirements
of Tenant's intended operations of its business within the Premises, and
Tenant's use of the Premises and that same are in compliance with all applicable
Laws throughout the Term of this Lease. Additionally, Tenant shall be solely
responsible for the payment of all costs, fees and expenses associated with any
modifications, improvements or alterations to the Premises, Building, the Common
Areas and/or the Park occasioned by the enactment of, or changes to, any Laws
arising from Tenant's particular use of the Premises or alterations,
improvements or additions made to the Premises regardless of when such Laws
became effective.
9.2 Prohibition on Use: Tenant shall not use the Premises or permit
anything to be done in or about the Premises nor keep or bring anything therein
which will in any way conflict with any of the requirements of the Board of Fire
Underwriters or similar body now or hereafter constituted or in any way increase
the existing rate of or affect any policy of fire or other insurance upon the
Building or any of its contents, or cause a cancellation of any insurance
policy. No auctions may be held or otherwise conducted in, on or about the
Premises, the Building, the Lot or the Park without Landlord's written consent
thereto, which consent may be given or withheld in Landlord's sole discretion.
Tenant shall not do or permit anything to be done in or about the Premises which
will in any way obstruct or interfere with the rights of Landlord, other tenants
or occupants of the Building, other buildings in the Park, or other persons or
businesses in the area, or injure or annoy other tenants or use or allow the
Premises to be used for any unlawful or objectionable purpose, as determined by
Landlord, in its reasonable discretion, for the benefit, quiet enjoyment and use
by Landlord amid all other tenants or occupants of the Building or other
buildings in the Park; nor shall Tenant cause, maintain or permit any private or
public nuisance in, on or about the Premises, Building, Park and/or the Common
Areas, including, but not limited to, any offensive odors, noises, fumes or
vibrations.
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Tenant shall not damage or deface or otherwise commit or suffer to be committed
any waste in, upon or about the Premises. Tenant shall not place or store, nor
permit any other person or entity to place or store, any property, equipment,
materials, supplies, personal property or any other items or goods outside of
the Premises for any period of time. Tenant shall not permit any animals,
including, but not limited to, any household pets, to be brought or kept in or
about the Premises. Tenant shall place no loads upon the floors, walls, or
ceilings in excess of the maximum designed load permitted by the applicable
Uniform Building Code or which may damage the Building or outside areas; nor
place any harmful liquids in the drainage systems; nor dump or store waste
materials, refuse or other such materials, or allow such to remain outside the
Building area, except for any non-hazardous or non-harmful materials which may
be stored in refuse dumpsters or in any enclosed trash areas provided. Tenant
shall honor the terms of all Recorded Matters relating to the Premises, the
Building, the Lot and/or the Park. Tenant shall honor the Rules and Regulations.
If Tenant fails to comply with such Laws, Recorded Matters, Rules and
Regulations or the provisions of this Lease, Landlord shall have the right to
collect from Tenant a reasonable sum as a penalty, in addition to all rights and
remedies of Landlord hereunder including, but not limited to, the payment by
Tenant to Landlord of all Enforcement Expenses and Landlord's costs and
expenses, if any, to cum-e any of such failures of Tenant, if Landlord, at its
sole option, elects to undertake such cure.
10. Alterations and Additions; and Surrender of Premises
10.1 Alterations and Additions: Tenant shall be permitted to make, at its
sole cost and expense, non-structural alterations and additions to the Premises
without obtaining Landlord's prior written consent, provided the cost of the
same does not exceed $15,000 (the "Permitted Improvements"). Tenant, however,
shall first notify Landlord of such alterations or additions so that Landlord
may post a Notice of Non-Responsibility on the Premises. Within twenty (20) days
of Landlord's receipt of Tenant's written notice of any item comprising the
Permitted Improvements, Landlord shall notify Tenant, in writing, whether or not
Landlord will require Tenant to remove such item from the Premises upon the
expiration or earlier termination of this Lease. Except for the Permitted
Improvements, Tenant shall not install any signs, fixtures, improvements, nor
make or permit any other alterations or additions to the Premises without the
prior written consent of Landlord; provided, however, in no event may Tenant
make any penetrations to the roof which will affect the structural integrity of
the Building without first obtaining Landlord's prior written consent, which
consent may be given or withheld in Landlord's sole discretion. If any such
alteration or addition is expressly permitted by Landlord, Tenant shall deliver
at least twenty (20) days prior notice to Landlord, from the date Tenant intends
to commence construction, sufficient to enable Landlord to post a Notice of Non-
Responsibility. In all events, Tenant shall obtain all permits or other
governmental approvals prior to commencing any of such work and deliver a copy
of same to Landlord. All alterations and additions shall be installed by a
licensed contractor approved by Landlord, at Tenant's sole expense in compliance
with all applicable Laws (including, but not limited to, the ADA as defined
herein), Recorded Matters, and Rules and Regulations. Tenant shall keep the
Premises and the property on which the Premises are situated free from any liens
arising out of any work performed, materials furnished or obligations incurred
by or on behalf of Tenant. As a condition to Landlord's consent to the
installation of any fixtures, additions or other improvements,
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Landlord may require Tenant to post and obtain a completion and indemnity bond
for up to one hundred fifty percent (150%) of the cost of the work.
10.2 Surrender of Premises: Upon the termination of this Lease, whether
by forfeiture, lapse of time or otherwise, or upon the termination of Tenant's
right to possession of the Premises, Tenant will at once surrender and deliver
up the Premises, together with the fixtures (other than trade fixtures),
additions and improvements which Landlord has notified Tenant, in writing, that
Landlord will require Tenant not to remove, to Landlord in good condition and
repair (including, but not limited to, replacing all light bulbs and ballasts
not in good working condition) and in the condition in which the Premises
existed as of the Commencement Date, except for reasonable wear and tear.
Reasonable wear and tear shall not include any damage or deterioration to the
floors of the Premises arising from the use of forklifts in, on or about the
Premises (including, without limitation, any marks or stains of any portion of
the floors), and any damage or deterioration that would have been prevented by
proper maintenance by Tenant or Tenant otherwise performing all of its
obligations under this Lease. Upon such termination of this Lease, Tenant shall
remove all the Permitted Improvements (to the extent Landlord has notified
Tenant in writing, at the time set forth in Section 10.1, that it will require
such removal), tenant signage, trade fixtures, furniture, furnishings, personal
property, additions, and other improvements unless Landlord requests, in
writing, that Tenant not remove some or all of such fixtures (other than trade
fixtures), additions or improvements installed by, or on behalf of Tenant or
situated in or about the Premises. By the date which is twenty (20) days prior
to such termination of this Lease, Landlord shall notify Tenant in writing of
those fixtures (other than trade fixtures ) and the Permitted Improvements),
alterations, additions and other improvements which Landlord shall require
Tenant not to remove from the Premises. Tenant shall repair any damage caused by
the installation or removal of such signs, trade fixtures, furniture,
furnishings, fixtures, additions and improvements which are to be removed from
the Premises by Tenant hereunder. If Landlord fails to so notify Tenant at least
twenty (20) days prior to such termination of this Lease, then Tenant shall
remove all tenant signage, alterations, furniture, furnishings, trade fixtures,
additions and other improvements (other than the Tenant Improvements) installed
in or about the Premises by, or on behalf of Tenant. Tenant shall ensure that
the removal of such items and the repair of the Premises will be completed prior
to such termination of this Lease.
11. Repairs and Maintenance
11.1 Tenant's Repairs and Maintenance Obligations: Except for those
portions of the Building to be maintained by Landlord, as provided in Sections
11.2 and 11.3 below, Tenant shall, at Tenant's sole cost and expense, keep and
maintain the Premises and the adjacent dock and staging areas in good, clean and
safe condition and repair to the reasonable satisfaction of Landlord including
reasonable wear and tear, casualty and condemnation excepted, but not limited
to, repairing any damage caused by Tenant or Tenant's Representatives and
replacing any property so damaged by Tenant or Tenant's Representatives. Without
limiting the generality of the foregoing, Tenant shall be solely responsible for
maintaining, repairing and replacing (a) all mechanical systems, heating,
ventilation and air conditioning systems exclusively serving the Premises,
including, without limitation, Tenant's HVAC units, (b) all plumbing, electrical
wiring
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and equipment serving the Premises, (c) all interior lighting (including,
without limitation, light bulbs and/or ballasts) and exterior lighting serving
the Premises or adjacent to the Premises, (d) all glass, windows, window frames,
window casements, skylights, interior and exterior doors, door frames and door
closers, (e) all roll-up doors, ramps and dock equipment, including without
limitation, dock bumpers, dock plates, dock seals, dock levelers and dock
lights, (f) all tenant signage, (g) lifts for disabled persons serving the
Premises, (h) sprinkler systems, fire protection systems and security systems,
(i) all partitions, fixtures, equipment, interior painting, and interior walls
and floors of the Premises and every part thereof (including, without
limitation, any demising walls contiguous to any portion of the Premises); (j)
the roof and the roof membrane, including, without limitation, the structural
portions of the roof.
11.2 Reimbursable Repairs and Maintenance Obligations: Subject to the
provisions of Sections 6 and 9 of this Lease and except for (i) the obligations
of Tenant set forth in Section 11.1 above, (ii) the obligations of Landlord set
forth in Section 11.3 below, and (iii) the repairs rendered necessary by the
intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives, Landlord agrees, at Landlord's expense, subject to
reimbursement pursuant to Section 6 above, to keep in good repair the plumbing
and mechanical systems exterior to the Premises, any rail spur and rail
crossing, exterior walls of the Building, signage (exclusive of tenant signage),
and exterior electrical wiring and equipment, exterior lighting, exterior glass,
exterior doors/entrances and door closers, exterior window casements, exterior
painting of the Building (exclusive of the Premises), and underground utility
and sewer pipes outside the exterior walls of the Building. For purposes of this
Section 11.2, the term "exterior" shall mean outside of and not exclusively
serving the Premises. Unless otherwise notified by Landlord, in writing, that
Landlord has elected to procure and maintain the following described
contract(s), Tenant shall procure and maintain (a) the heating, ventilation and
air conditioning systems preventative maintenance and repair contract(s); such
contract(s) to be on a bi-monthly or quarterly basis, as reasonably determined
by Landlord, and (b) the fire and sprinkler protection services and preventative
maintenance and repair contract(s) (including, without limitation, monitoring
services); such contract(s) to be on a bi-monthly or quarterly basis, as
reasonably determined by Landlord. Landlord reserves the right, but without the
obligation to do so, to procure and maintain (i) the heating, ventilation and
air conditioning systems preventative maintenance and repair contract(s), and/or
(ii) the fire and sprinkler protection services and preventative maintenance and
repair contract(s) (including, without limitation, monitoring services). If
Landlord so elects to procure and maintain any such contract(s), Tenant will
reimburse Landlord for the cost thereof in accordance with the provisions of
Section 6 above. If Tenant procures and maintains any of such contract(s),
Tenant will promptly deliver to Landlord a true and complete copy of each such
contract and any and all renewals or extensions thereof, and each service report
or other summary received by Tenant pursuant to or in connection with such
contract(s).
11.3 Landlord's Repairs and Maintenance Obligations: Except for repairs
rendered necessary by the intentional or negligent acts or omissions of Tenant
or any of Tenant's Representatives, Landlord agrees, at Landlord's sole cost and
expense, to keep in good repair the structural portions of the floors,
foundations and exterior perimeter walls of the Building
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(exclusive of glass and exterior doors), as, and when, Landlord determines such
replacement to be necessary in Landlord's sole discretion.
11.4 Tenant's Failure to Perform Repairs amid Maintenance Obligations:
Except for normal maintenance and repair of the items described above, Tenant
shall have no right of access to or right to install any device on the roof of
the Building nor make any penetrations of the roof of the Building without the
express prior written consent of Landlord. If Tenant refuses or neglects to
repair and maintain the Premises and the adjacent areas properly as required
herein and to the reasonable satisfaction of Landlord, Landlord may, but without
obligation to do so, at any time make such repairs and/or maintenance without
Landlord having any liability to Tenant for any loss or damage that may accrue
to Tenant's merchandise, fixtures or other property, or to Tenant's business by
reason thereof, except to the extent any damage is caused by the willful
misconduct or gross negligence of Landlord or its authorized agents and
representatives. In the event Landlord makes such repairs and/or maintenance,
upon completion thereof Tenant shall pay to Landlord, as additional rent, the
Landlord's costs for making such repairs and/or maintenance, plus twenty percent
(20%) for overhead, upon presentation of a bill therefor, plus any Enforcement
Expenses. The obligations of Tenant hereunder shall survive the expiration of
the Term of this Lease or the earlier termination thereof. Tenant hereby waives
any right to repair at the expense of Landlord under any applicable Laws now or
hereafter in effect respecting the Premises.
12. Insurance
12.1 Types of Insurance: Tenant shall maintain in full force and effect at
all times during the Term of this Lease, at Tenant's sole cost and expense, for
the protection of Tenant and Landlord, as their interests may appear, policies
of insurance issued by a carrier or carriers reasonably acceptable to Landlord
and its lender(s) which afford the following coverages: (i) worker's
compensation: statutory limits; (ii) employer's liability, as required by law,
with a minimum limit of $100,000 per employee and $500,000 per occurrence; (iii)
commercial general liability insurance (occurrence form) providing coverage
against any and all claims for bodily injury and property damage occurring in,
on or about the Premises arising out of Tenant's and Tenant's Representatives'
use and/or occupancy of the Premises. Such insurance shall include coverage for
blanket contractual liability, fire damage, premises, personal injury, completed
operations, products liability, personal and advertising, and a plate-glass
rider to provide coverage for all glass in, on or about the Premises including,
without limitation, skylights. Such insurance shall have a combined single limit
of not less than One Million Dollars ($1,000,000) per occurrence with a Two
Million Dollar ($2,000,000) aggregate limit and excess/umbrella insurance in the
amount of Two Million Dollars ($2,000,000). If Tenant has other locations which
it owns or leases, the policy shall include an aggregate limit per location
endorsement. If necessary, as reasonably determined by Landlord, Tenant shall
provide for restoration of the aggregate limit; (iv) comprehensive automobile
liability insurance: a combined single limit of not less than $2,000,000 per
occurrence and insuring Tenant against liability for claims arising out of the
ownership, maintenance, or use of any owned, hired or non-owned automobiles; (v)
"all risk" or "special purpose" property insurance, including without
limitation, sprinkler leakage, boiler and machinery comprehensive form, if
applicable, covering damage to or loss of
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any personal property, trade fixtures, inventory, fixtures and equipment located
in, on or about the Premises, and in addition, coverage for flood, earthquake,
and business interruption of Tenant, together with, if the property of Tenant's
invitees is to be kept in the Premises, warehouser's legal liability or bailee
customers insurance for the full replacement cost of the property belonging to
invitees and located in the Premises. Such insurance shall be written on a
replacement cost basis (without deduction for depreciation) in an amount equal
to one hundred percent (100%) of the full replacement value of the aggregate of
the items referred to in this subparagraph (v); and (vi) such other insurance as
Landlord deems necessary and prudent or as may otherwise be required by any of
Landlord's lenders or joint venture partners.
12.2 Insurance Policies: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State of
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of at least A:X (or such higher rating as may be
required by a lender having a lien on the Premises) as set forth in the most
current issue of "A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed One Thousand
Dollars ($1,000). Tenant shall deliver to Landlord certificates of insurance and
true and complete copies of any and all endorsements required herein for all
insurance required to be maintained by Tenant hereunder at the time of execution
of this Lease by Tenant: Tenant shall, at least thirty (30) days prior to
expiration of each policy, furnish Landlord with certificates of renewal or
"binders" thereof. Each certificate shall expressly provide that such policies
shall not be cancelable or otherwise subject to modification except after thirty
(30) days prior written notice to the parties named as additional insureds as
required in this Lease (except for cancellation for nonpayment of premium, in
which event cancellation shall not take effect until at least ten (10) days'
notice has been given to Landlord). Tenant shall have the right to provide
insurance coverage which it is obligated to carry pursuant to the terms of this
Lease under a blanket insurance policy, provided such blanket policy expressly
affords coverage for the Premises and for Landlord as required by this Lease.
12.3 Additional Insureds and Coverage: Landlord, any property management
company and/or agent of Landlord for the Premises, the Building, the Lot or the
Park, and any lender(s) of Landlord having a lien against the Premises, the
Building, the Lot or the Park shall be named as additional insureds under all of
the policies required in Section l2.1(iii) above. Additionally, such policies
shall provide for severability of interest. All insurance to be maintained by
Tenant shall, except for workers' compensation and employer's liability
insurance, be primary, without right of contribution from insurance maintained
by Landlord. Any umbrella/excess liability policy (which shall be in "following
form") shall provide that if the underlying aggregate is exhausted, the excess
coverage will drop down as primary insurance. The limits of insurance maintained
by Tenant shall not limit Tenant's liability under this Lease. It is the
parties' intention that the insurance to be procured and maintained by Tenant as
required herein shall provide coverage for any and all damage or injury arising
from or related to Tenant's operations of its business and/or Tenant's or
Tenant's Representatives' use of the Premises and/or any of the areas within the
Park, whether such events occur within the Premises (as described in Exhibit A
hereto) or in any other areas of the Park. It is not contemplated or anticipated
by the parties that the aforementioned risks of loss be borne by Landlord's
insurance carriers, rather it is contemplated and anticipated by Landlord and
Tenant that such risks of loss
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be borne by Tenant's insurance carriers pursuant to the insurance policies
procured and maintained by Tenant as required herein.
12.4 Failure of Tenant to Purchase and Maintain Insurance: In the event
Tenant does not purchase the insurance required in this Lease or keep the same
in full force and effect throughout the Term of this Lease (including any
renewals or extensions), Landlord may, but without obligation to do so, purchase
the necessary insurance and pay the premiums therefor. If Landlord so elects to
purchase such insurance, Tenant shall promptly pay to Landlord as Additional
Rent, the amount so paid by Landlord, upon Landlord's demand therefor. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
Additional Rent, any and all Enforcement Expenses and damages which Landlord may
sustain by reason of Tenant's failure to obtain and maintain such insurance. If
Tenant fails to maintain any insurance required in this Lease, Tenant shall be
liable for all losses, damages and costs resulting from such failure.
13. Waiver of Subrogation
Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss of, or damage to, either parties'
property to the extent that such loss or damage is insured by an insurance
policy required to be in effect at the time of such loss or damage. Each party
shall obtain any special endorsements, if required by its insurer whereby the
insurer waives its rights of subrogation against the other party. This provision
is intended to waive fully, and for the benefit of the parties hereto, any
rights and/or claims which might give rise to a right of subrogation in favor of
any insurance carrier. The coverage obtained by Tenant pursuant to Section 12 of
this Lease shall include, without limitation, a waiver of subrogation
endorsement attached to the certificate of insurance. The provisions of this
Section 13 shall not apply in those instances in which such waiver of
subrogation would invalidate such insurance coverage or would cause either
party's insurance coverage to be voided or otherwise uncollectible.
14. Limitation of Liability and Indemnity
Except to the extent of damage resulting from the sole active gross
negligence or willful misconduct of Landlord or its authorized representatives,
Tenant agrees to protect, defend (with counsel acceptable to Landlord) and hold
Landlord and Landlord's lenders, partners, members, property management company
(if other than Landlord), agents, directors, officers, employees,
representatives, contractors, shareholders, successors and assigns and each of
their respective partners, members, directors, employees, representatives,
agents, contractors, shareholders, successors and assigns (collectively, the
"Indemnitees") harmless and indemnify the Indemnitees from and against all
liabilities, damages, claims, losses, judgments, charges and expenses (including
reasonable attorneys' fees, costs of court and expenses necessary in the
prosecution or defense of any litigation including the enforcement of this
provision) arising from or in any way related to, directly or indirectly, (i)
Tenant's or Tenant's Representatives' use of the Premises, Building and/or the
Park, (ii) time conduct of Tenant's business, (iii) from any activity, work or
thing done, permitted or suffered by Tenant in or about the Premises, (iv) in
any way connected with the Premises or with the improvements or personal
property therein, including, but not
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limited to, any liability for injury to person or property of Tenant, Tenant's
Representatives, or third party persons, and/or (v) Tenant's failure to perform
any covenant or obligation of Tenant under this Lease. Tenant agrees that the
obligations of Tenant herein shall survive the expiration or earlier termination
of this Lease.
Except to the extent of damage resulting from the sole active gross
negligence or willful misconduct of Landlord or its authorized representatives,
to the fullest extent permitted by law, Tenant agrees that neither Landlord nor
any of Landlord's lender(s), partners, members, employees, representatives,
legal representatives, successors or assigns shall at any time or to any extent
whatsoever be liable, responsible or in any way accountable for any loss,
liability, injury, death or damage to persons or property which at any time may
be suffered or sustained by Tenant or by any person(s) whomsoever who may at any
time be using, occupying or visiting the Premises, the Building or the Park,
including, but not limited to, any acts, errors or omissions by or on behalf of
any other tenants or occupants of the Building and/or the Park. Tenant shall
not, in any event or circumstance, be permitted to offset or otherwise credit
against any payments of Rent required herein for matters for which Landlord may
be liable hereunder. Landlord and its authorized representatives shall not be
liable for any interference with light or air, or for any latent defect in the
Premises or the Building.
15. Assignment and Subleasing
15.1 Prohibition: Tenant shall not assign, mortgage, hypothecate,
encumber, grant any license or concession, pledge or otherwise transfer this
Lease (collectively, "assignment"), in whole or in part, whether voluntarily or
involuntarily or by operation of law, nor sublet or permit occupancy by any
person other than Tenant of all or any portion of the Premises without first
obtaining the prior written consent of Landlord, which consent shall not be
unreasonably withheld. Tenant hereby agrees that Landlord may withhold its
consent to any proposed sublease or assignment if the proposed sublessee or
assignee or its business is subject to compliance with additional requirements
of the ADA (defined below) and/or Environmental Laws (defined below) beyond
those requirements which are applicable to Tenant, unless the proposed sublessee
or assignee shall (a) first deliver plans and specifications for complying with
such additional requirements and obtain Landlord's written consent thereto, and
(b) comply with all Landlord's conditions for or contained in such consent,
including without limitation, requirements for security to assure the lien-free
completion of such improvements. If Tenant seeks to sublet or assign all or any
portion of the Premises, Tenant shall deliver to Landlord at least thirty (30)
days prior to the proposed commencement of the sublease or assignment (the
"Proposed Effective Date") the following: (i) the name of the proposed assignee
or sublessee; (ii) such information as to such assignee's or sublessee's
financial responsibility and standing as Landlord may reasonably require; and
(iii) the aforementioned plans and specifications, if any. Within ten (10) days
after Landlord's receipt of a written request from Tenant that Tenant seeks to
sublet or assign all or any portion of the Premises, Landlord shall deliver to
Tenant a copy of Landlord's standard form of sublease or assignment agreement
(as applicable), which instrument shall be utilized for each proposed sublease
or assignment (as applicable), and such instrument shall include a provision
whereby the assignee or sublessee assumes all of Tenant's obligations hereunder
and agrees to be bound by the terms hereof. As Additional Rent hereunder, Tenant
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shall pay to Landlord a fee in the amount of five hundred dollars ($500) plus
Tenant shall reimburse Landlord for actual legal and other expenses incurred by
Landlord in connection with any actual or proposed assignment or subletting. In
the event the sublease or assignment (1) by itself or taken together with prior
sublease(s) or partial assignment(s) covers or totals, as the case may be, more
than twenty-five percent (25%) of the rentable square feet of the Premises or
(2) is for a term which by itself or taken together with prior or other
subleases or partial assignments is greater than fifty percent (50%) of the
period remaining in the Term of this Lease as of the time of the Proposed
Effective Date, then Landlord shall have the right, to be exercised by giving
written notice to Tenant, to recapture the space described in the sublease or
assignment. If such recapture notice is given, it shall serve to terminate this
Lease with respect to the proposed sublease or assignment space, or, if the
proposed sublease or assignment space covers all the Premises, it shall serve to
terminate the entire term of this Lease in either case, as of the Proposed
Effective Date. However, no termination of this Lease with respect to part or
all of the Premises shall become effective without the prior written consent,
where necessary, of the holder of each deed of trust encumbering the Premises or
any part thereof. If this Lease is terminated pursuant to the foregoing with
respect to less than the entire Premises, the Rent shall be adjusted on the
basis of the proportion of square feet retained by Tenant to the square feet
originally demised and this Lease as so amended shall continue thereafter in
full force and effect. Each permitted assignee or sublessee shall assume and be
deemed to assume this Lease and shall be and remain liable jointly and severally
with Tenant for payment of Rent and for the due performance of, and compliance
with all the terms, covenants, conditions and agreements herein contained on
Tenant's part to be performed or complied with, for the term of this Lease. No
assignment or subletting shall affect the continuing primary liability of Tenant
(which, following assignment, shall be joint and several with the assignee), and
Tenant shall not be released from performing any of the terms, covenants and
conditions of this Lease. Tenant hereby acknowledges and agrees that it
understands that Landlord's accounting department may process and accept Rent
payments without verifying that such payments are being made by Tenant, a
permitted sublessee or a permitted assignee in accordance with the provisions of
this Lease. Although such payments may be processed and accepted by such
accounting department personnel, any and all actions or omissions by the
personnel of Landlord's accounting department shall not be considered as
acceptance by Landlord of any proposed assignee or sublessee nor shall such
actions or omissions be deemed to be a substitute for the requirement that
Tenant obtain Landlord's prior written consent to any such subletting or
assignment, and any such actions or omissions by the personnel of Landlord's
accounting department shall not be considered as a voluntary relinquishment by
Landlord of any of its rights hereunder nor shall any voluntary relinquishment
of such rights be inferred therefrom. For purposes hereof, in the event Tenant
is a corporation, partnership, joint venture, trust or other entity other than a
natural person, any change in the direct or indirect ownership of Tenant
(whether pursuant to one or more transfers) which results in a change of more
than fifty percent (50%) in the direct or indirect ownership of Tenant shall be
deemed to be an assignment within the meaning of this Section 15 and shall be
subject to all the provisions hereof. Any and all options, first rights of
refusal, tenant improvement allowances and other similar rights granted to
Tenant in this Lease, if any, shall not be assignable by Tenant unless expressly
authorized in writing by Landlord.
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15.2 Excess Sublease Rental or Assignment Consideration: In the event of
any sublease or assignment of all or any portion of the Premises where the rent
or other consideration provided for in the sublease or assignment either
initially or over the term of the sublease or assignment exceeds the Rent or pro
rata portion of the Rent, as the case may be, for such space reserved in the
Lease, Tenant shall pay the Landlord monthly, as Additional Rent, at the same
time as the monthly installments of Rent are payable hereunder, seventy-five
percent (75%) of the excess of each such payment of rent or other consideration
in excess of the Rent called for hereunder.
15.3 Waiver: Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee, or failure by Landlord to take action against any assignee or
sublessee, Tenant waives notice of any default of any assignee or sublessee and
agrees that Landlord may, at its option, proceed against Tenant without having
taken action against or joined such assignee or sublessee, except that Tenant
shall .have the benefit of any indulgences, waivers and extensions of time
granted to any such assignee or sublessee.
15.4 Related Entities: Notwithstanding anything to the contrary contained
in this Section 15, so long as Tenant delivers to Landlord (1) at least fifteen
(15) business days prior written notice of its intention to assign or sublease
the Premises to any Related Entity, which notice shall set forth the name of the
Related Entity, (2) a copy of the proposed agreement pursuant to which such
assignment or sublease shall be effectuated, and (3) such other information
concerning the Related Entity as Landlord may reasonably require, including
without limitation, information regarding any change in the proposed use of any
portion of the Premises and any financial information with respect to such
Related Entity, and so long as (i) any change in the proposed use of the subject
portion of the Premises is in conformance with the uses permitted to be made.
under this Lease and do not involve the use or storage of any Hazardous
Materials (other than nominal amounts of ordinary household cleaners, office
supplies and janitorial supplies which are not regulated by any Environmental
Laws), and (ii) at the time of the proposed assignment or sublease, the net
profits and financial condition of the Related Entity is reasonably adequate and
sufficient in relation to the then remaining obligations of Tenant under this
Lease, then Tenant may assign this Lease or sublease any portion of the Premises
(X) to any Related Entity, or (Y) in connection with any merger, consolidation,
sale of shares of Tenant's corporate stock, or sale of substantially all of the
assets of Tenant, without having to obtain the prior written consent of Landlord
thereto. For purposes of this Lease the term "Related Entity" shall mean and
refer to any corporation or entity which controls, is controlled by or is under
common control with Tenant, as all of such terms are customarily used in the
industry.
16. Ad Valorem Taxes
Prior to delinquency, Tenant shall pay all taxes and assessments levied
upon trade fixtures, alterations, additions, improvements, inventories and
personal property located and/or installed on or in the Premises by, or on
behalf of, Tenant; and if requested by Landlord, Tenant shall promptly deliver
to Landlord copies of receipts for payment of all such taxes and
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assessments. To the extent any such taxes are not separately assessed or billed
to Tenant, Tenant shall pay the amount thereof as invoiced by Landlord.
17. Subordination
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, and at the election of Landlord or
any bona fide mortgagee or deed of trust beneficiary with a lien on all or any
portion of the Premises or any ground lessor with respect to the land of which
the Premises are a part, the rights of Tenant under this Lease and this Lease
shall be subject and subordinate at all times to: (i) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Building or the land upon which the Building is situated or both, and (ii) the
lien of any mortgage or deed of trust which may now exist or hereafter be
executed in any amount for which the Building, the Lot, ground leases or
underlying leases, or Landlord's interest or estate in any of said items is
specified as security. Notwithstanding the foregoing, Landlord or any such
ground lessor, mortgagee, or any beneficiary shall have the right to subordinate
or cause to be subordinated any such ground leases or underlying leases or any
such liens to this Lease. If any ground lease or underlying lease terminates for
any reason or any mortgage or deed of trust is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination and upon the request of such successor to Landlord, attorn to and
become the Tenant of the successor in interest to Landlord, provided such
successor in interest will not disturb Tenant's use, occupancy or quiet
enjoyment of the Premises so long as Tenant is not in default of the terms and
provisions of this Lease. The successor in interest to Landlord following
foreclosure, sale or deed in lieu thereof shall not be (a) liable for any, act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership; (b) subject to any offsets or defenses which Tenant
might have against any prior lessor; (c) bound by prepayment of more than one
(1) month's Rent, except in those instances when Tenant pays Rent quarterly in
advance pursuant to Section 8 hereof, then not more than three months' Rent; or
(d) liable to Tenant for any Security Deposit not actually received by such
successor in interest to the extent any portion or all of such Security Deposit
has not already been forfeited by, or refunded to, Tenant. Landlord shall be
liable to Tenant for all or any portion of the Security Deposit not forfeited
by, or refunded to Tenant, until and unless Landlord transfers such Security
Deposit to the successor in interest. Tenant covenants and agrees to execute
(and acknowledge if required by Landlord, any lender or ground lessor) and
deliver, within five (5) days of a demand or request by Landlord and in the form
requested by Landlord, ground lessor, mortgagee or beneficiary, any additional
documents evidencing the priority or subordination of this Lease with respect to
any such ground leases or underlying leases or the lien of any such mortgage or
deed of trust. Tenant's failure to timely execute and deliver such additional
documents shall, at Landlord's option, constitute a material default hereunder.
It is further agreed that Tenant shall be liable to Landlord, and shall
indemnify Landlord from and against any loss, cost, damage or expense,
incidental, consequential, or otherwise, arising or accruing directly or
indirectly, from any failure of Tenant to execute or deliver to Landlord any
such additional documents, together with any and all Enforcement Expenses.
Tenant hereby acknowledges that as of the date on which Landlord and Tenant
execute this Lease there is a deed of trust encumbering, and in force against,
the Premises and the Lot in favor of _Guaranty Bank_ (the "Current Lender").
Simultaneously with Tenant's
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execution and delivery of this Lease, Tenant shall sign, notarize and deliver a
subordination, non-disturbance and attornment agreement substantially in the
form of Exhibit I attached hereto, entitled "Subordination, Non-Disturbance and
Attornment Agreement." Within twenty (20) business days after both parties have
executed this Lease, Landlord shall deliver to Tenant a copy of the fully
executed Subordination, Non-Disturbance and Attornment Agreement, or if the
Current Lender records said agreement, an endorsed copy of said agreement. If
Landlord at any time during the Term of the Lease causes the Premises and the
Lot to be encumbered by a new deed of trust or mortgage pursuant to which the
beneficiary of such deed of trust or mortgage is a party or entity other than
the Current Lender, the parties acknowledge and agree that the form of any non-
disturbance and attornment agreement that, may be requested to be executed and
delivered by Tenant in connection therewith will not be the "Non-Disturbance and
Attornment Agreement" attached to the Lease as Exhibit I, but will be in
substantially the same form as Exhibit I hereto. If the foregoing occurs and/or
if any party which acquires, or otherwise succeeds to, Landlord's interest in
the Premises or the Lot (including without limitation, any ground lessee)
encumbers or places a lien against the Premises, the Building or the Lot with a
mortgage, deed of trust or similar security instrument and the beneficiary
thereof requires this Lease to be subordinated to such encumbrance or lien,
Landlord or the successor of Landlord will use commercially reasonable efforts
to provide to Tenant a subordination, non-disturbance and attornment agreement
in form reasonably acceptable to Landlord or such successor of Landlord, the
subject beneficiary and Tenant. If said subordination, non-disturbance and
attornment agreement is required and agreed upon by the aforesaid parties,
Landlord or the successor of Landlord, the subject beneficiary and Tenant shall
cause any such subordination, non-disturbance and attornment agreement to be
executed, acknowledged and recorded concurrently with, or as soon as practicable
after, the execution and recordation of any such lien, deed of trust or
mortgage. In addition to the foregoing, if Landlord enters into a ground lease
with regard to the Building and/or the Lot and such ground lessee requires this
Lease to be subordinated to such ground lease, the ground lessee and ground
lessor will use commercially reasonable efforts to provide to Tenant a
subordination, non-disturbance and attornment agreement in form reasonably
acceptable to such ground lessee, ground lessor, any beneficiary of ground
lessee, and to Tenant.
18. Right of Entry
Tenant grants Landlord or its agents the right to enter the Premises at all
reasonable times for purposes of inspection, exhibition, posting of notices,
repair or alteration. It is further agreed that Landlord shall have the right to
use any and all means Landlord deems necessary to enter the Premises in an
emergency. Landlord shall have the right to place "for rent" or "for lease"
signs on the outside of the Premises, the Building and in the Common Areas
during the last nine (9) months of the Lease Term. Landlord shall also have the
right to place "for sale" signs on the outside of the Building and in the Common
Areas at any time during the Lease Term. Tenant hereby waives any claim from
damages or for any injury or inconvenience to or interference with Tenant's
business, or any other loss occasioned thereby except for any claim for any of
the foregoing arising out of the sole active gross negligence or willful
misconduct of Landlord or its authorized representatives.
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19. Estoppel Certificate
Tenant shall execute (and acknowledge if required by any lender or ground
lessor) and deliver to Landlord, within ten (10) days after Landlord provides
such to Tenant, a statement in writing certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification), the date to which the Rent and other charges are paid in advance,
if any, acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder or specifying such defaults as are
claimed, and such other matters as Landlord may reasonably require. Any such
statement may be conclusively relied upon by Landlord and any prospective
purchaser or encumbrancer of the Premises. Tenant's failure to deliver such
statement within such time shall be conclusive upon the Tenant that (a) this
Lease is in full force and effect, without modification except as may be
represented by Landlord; (b) there are no uncured defaults in Landlord's
performance; and (c) not more than one month's Rent has been paid in advance,
except in those instances when Tenant pays Rent quarterly in advance pursuant to
Section 8 hereof, then not more than three month's Rent has been paid in
advance. Failure by Tenant to so deliver such certified estoppel certificate
within three (3) business days after written notice to Tenant that the above
referenced ten (10) day notice period has expired shall be a material default of
the provisions of this Lease. Tenant shall be liable to Landlord, and shall
indemnify Landlord from and against any loss, cost, damage or expense,
incidental, consequential, or otherwise, arising or accruing directly or
indirectly, from any failure of Tenant to execute or deliver to Landlord any
such certified estoppel certificate, together with any and all Enforcement
Expenses.
20. Tenant's Default
The occurrence of any one or more of the following events shall, at
Landlord's option, constitute a material default by Tenant of the provisions of
this Lease:
20.1 The abandonment of the Premises by Tenant or the vacation of the
Premises by Tenant which would cause any insurance policy to be invalidated or
otherwise lapse. Tenant agrees to notice and service of notice as provided for
in this Lease and waives any right to any other or further notice or service of
notice which Tenant may have under any statute or law now or hereafter in
effect;
20.2 The failure by Tenant to make any payment of Rent, Additional Rent or
any other payment required hereunder on the date said payment is due. Tenant
agrees to notice and service of notice as provided for in this Lease and waives
any right to any other or further notice or service of notice which Tenant may
have under any statute or law now or hereafter in effect;
20.3 The failure by Tenant to observe, perform or comply with any of the
conditions, covenants or provisions of this Lease (except failure to make any
payment of Rent and/or Additional Rent) and such failure is not cured within the
time period required under the provisions of this Lease. If such failure is
susceptible of cure but cannot reasonably be cured within the aforementioned
time period (if any), as determined solely by Landlord, Tenant shall promptly
commence the cure of such failure and thereafter diligently prosecute such cure
to completion within the time period specified by Landlord in any written notice
regarding such
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failure as may be delivered to Tenant by Landlord. In no event or circumstance
shall Tenant have more than fifteen (15) days to complete any such cure, unless
otherwise expressly agreed to in writing by Landlord (in Landlord's sole
discretion);
20.4 The making of a general assignment by Tenant for the benefit of
creditors, the filing of a voluntary petition by Tenant or the filing of an
involuntary petition by any of Tenant's creditors seeking the rehabilitation,
liquidation, or reorganization of Tenant under any law relating to bankruptcy,
insolvency or other relief of debtors and, in the case of an involuntary action,
the failure to remove or discharge the same within sixty (60) days of such
filing, the appointment of a receiver or other custodian to take possession of
substantially all of Tenant's assets or this leasehold, Tenant's insolvency or
inability to pay Tenant's debts or failure generally to pay Tenant's debts when
due, any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenant's assets, Tenant taking
any action toward the dissolution or winding tip of Tenant's affairs, the
cessation or suspension of Tenant's use of the Premises, or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets or
this leasehold;
20.5 Tenant's use or storage of Hazardous Materials in, on or about the
Premises, the Building, the Lot and/or the Park other than as expressly
permitted by the provisions of Section 29 below; or
20.6 The making of any material misrepresentation or omission by Tenant in
any materials delivered by or on behalf of Tenant to Landlord pursuant to this
Lease.
21. Remedies for Tenant's Default
21.1 Landlord's Rights: In the event of Tenant's material default under
this Lease, Landlord may terminate Tenant's right to possession of the Premises
by any lawful means in which case upon delivery of written notice by Landlord
this Lease shall terminate on the date specified by Landlord in such notice and
Tenant shall immediately surrender possession of the Premises to Landlord. In
addition, the Landlord shall have the immediate right of re-entry whether or not
this Lease is terminated, and if this right of re-entry is exercised following
abandonment of the Premises by Tenant, Landlord may consider any personal
property belonging to Tenant and left on the Premises to also have been
abandoned. No re-entry or taking possession of the Premises by Landlord pursuant
to this Section 21 shall be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant. If Landlord relets
the Premises or any portion thereof, (i) Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in reletting the Premises or any part
thereof, including, without limitation, broker's commissions, expenses of
cleaning, redecorating, and further improving the Premises and other similar
costs (collectively, the "Reletting Costs"), and (ii) the rent received by
Landlord from such reletting shall be applied to the payment of, first, any
indebtedness from Tenant to Landlord other than Base Rent, Operating Expenses,
Tax Expenses, Administrative Expenses, Common Area Utility Costs, and Utility
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Expenses; second, all costs including maintenance, incurred by Landlord in
reletting; and, third, Base Rent, Operating Expenses, Tax Expenses,
Administrative Expenses, Common Area Utility Costs, Utility Expenses, and all
other sums due under this Lease. Any and all of the Reletting Costs shall be
fully chargeable to Tenant and shall not be prorated or otherwise amortized in
relation to any new lease for the Premises or any portion thereof. After
deducting the payments referred to above, any sum remaining from the rental
Landlord receives from reletting shall be held by Landlord and applied in
payment of future Rent as Rent becomes due under this Lease. In no event shall
Tenant be entitled to any excess rent received by Landlord. Reletting may be for
a period shorter or longer than the remaining term of this Lease. No act by
Landlord other than giving written notice to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. So
long as this Lease is not terminated, Landlord shall have the right to remedy
any default of Tenant, to maintain or improve the Premises, to cause a receiver
to be appointed to administer the Premises and new or existing subleases and to
add to the Rent payable hereunder all of Landlord's reasonable costs in so
doing, with interest at the maximum rate permitted by law from the date of such
expenditure.
21.2 Damages Recoverable: If Tenant breaches this Lease and abandons the
Premises before the end of the Term, or if Tenant's right to possession is
terminated by Landlord because of a breach or default under this Lease, then in
either such case, Landlord may recover from Tenant all damages suffered by
Landlord as a result of Tenant's failure to perform its obligations hereunder,
including, but not limited to, the cost of any Tenant Improvements constructed
by or on behalf of Tenant pursuant to Exhibit B hereto, the portion of any
broker's or leasing agent's commission incurred with respect to the leasing of
the Premises to Tenant for the balance of the Term of the Lease remaining after
the date on which Tenant is in default of its obligations hereunder, and all
Reletting Costs, and the worth at the time of the award (computed in accordance
with paragraph (3) of Subdivision (a) of Section 1951.2 of the California Civil
Code) of the amount by which the Rent then unpaid hereunder for the balance of
the Lease Term exceeds the amount of such loss of Rent for the same period which
Tenant proves could be reasonably avoided by Landlord and in such case, Landlord
prior to the award, may relet the Premises for the purpose of mitigating damages
suffered by Landlord because of Tenant's failure to perform its obligations
hereunder; provided, however, that even though Tenant has abandoned the Premises
following such breach, this Lease shall nevertheless continue in full force and
effect for as long as Landlord does not terminate Tenant's right of possession,
and until such termination, Landlord shall have the remedy described in Section
1951.4 of the California Civil Code (Landlord may continue this Lease in effect
after Tenant's breach and abandonment and recover Rent as it becomes due, if
Tenant has the right to sublet or assign, subject only to reasonable
limitations) and may enforce all its rights and remedies under this Lease,
including the right to recover the Rent from Tenant as it becomes due hereunder.
The "worth at the time of the award" within the meaning of Subparagraphs (a)(1)
and (a)(2) of Section 1951.2 of the California Civil Code shall be computed by
allowing interest at the rate of ten percent (10%) per annum. Tenant waives
redemption or relief from forfeiture under California Code of Civil Procedure
Sections 1174 and 1179, or under any other present or future law, in the event
Tenant is evicted or Landlord takes possession of the Premises by reason of any
default of Tenant hereunder.
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21.3 Rights and Remedies Cumulative: The foregoing rights and remedies of
Landlord are not exclusive; they are cumulative in addition to any rights and
remedies now or hereafter existing at law, in equity by statute or otherwise, or
to any equitable remedies Landlord may have, and to any remedies Landlord may
have under bankruptcy laws or laws affecting creditor's rights generally. In
addition to all remedies set forth above, if Tenant materially defaults under
this Lease, any and all Base Rent waived by Landlord under Section 3 above shall
be immediately due and payable to Landlord and all options granted to Tenant
hereunder shall automatically terminate, unless otherwise expressly agreed to in
writing by Landlord.
21.4 Waiver of a Default: The waiver by Landlord of any default of any
provision of this Lease shall not be deemed or construed a waiver of any other
default by Tenant hereunder or of any subsequent default of this Lease, except
for the default specified in the waiver.
22. Holding Over
If Tenant holds possession of the Premises after the expiration of the Term
of this Lease with Landlord's consent, Tenant shall become a tenant from month-
to-month upon the terms and provisions of this Lease, provided the monthly Base
Rent during such hold over period shall be 150% of the Base Rent due on the last
month of the Lease Term, payable in advance on or before the first day of each
month. Acceptance by Landlord of the monthly Base Rent without the additional
fifty percent (50%) increase of Base Rent shall not be deemed or construed as a
waiver by Landlord of any of its rights to collect the increased amount of the
Base Rent as provided herein at any time. Such month-to-month tenancy shall not
constitute a renewal or extension for any further term. All options, if any,
granted under the terms of this Lease shall be deemed automatically terminated
and be of no force or effect during said month-to-month tenancy. Tenant shall
continue in possession until such tenancy shall be terminated by either Landlord
or Tenant giving written notice of termination to the other party at least
thirty (30) days prior to the effective date of termination. This paragraph
shall not be construed as Landlord's permission for Tenant to hold over.
Acceptance of Base Rent by Landlord following expiration or termination of this
Lease shall not constitute a renewal of this Lease.
23. Landlord's Default
Landlord shall not be deemed in breach or default of this Lease unless
Landlord fails within a reasonable time to perform an obligation required to be
performed by Landlord hereunder. For purposes of this provision, a reasonable
time shall not be less than thirty (30) days after receipt by Landlord of
written notice specifying the nature of the obligation Landlord has not
performed; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days, after receipt of written notice, is
reasonably necessary for its performance, then Landlord shall not be in breach
or default of this Lease if performance of such obligation is commenced within
such thirty (30) day period and thereafter diligently pursued to completion.
24. Parking
Tenant shall have a license to use the number of parking spaces specified
in the Basic Lease Information. Landlord shall exercise reasonable efforts to
insure that such spaces are
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available to Tenant for its use, but Landlord shall not be required to enforce
Tenant's right to use the same.
25. Sale of Premises
In the event of any sale of the Premises by Landlord or the cessation
otherwise of Landlord's interest therein, Landlord shall be and is hereby
entirely released from any and all of its obligations to perform or further
perform under this Lease and from all liability hereunder accruing from or after
the date of such sale; and the purchaser, at such sale or any subsequent sale of
the Premises shall be deemed, without any further agreement between the parties
or their successors in interest or between the parties and any such purchaser,
to have assumed and agreed to carry out any and all of the covenants and
obligations of the Landlord under this Lease. For purposes of this Section 25,
the term "Landlord" means only the owner and/or agent of the owner as such
parties exist as of the date on which Tenant executes this Lease. A ground lease
or similar long term lease by Landlord of the entire Building, of which the
Premises are a part, shall be deemed a sale within the meaning of this Section
25. Tenant agrees to attorn to such new owner provided such new owner does not
disturb Tenant's use, occupancy or quiet enjoyment of the Premises so long as
Tenant is not in default of any of the provisions of this Lease.
26. Waiver
No delay or omission in the exercise of any right or remedy of Landlord on
any default by Tenant shall impair such a right or remedy or be construed as a
waiver. The subsequent acceptance of Rent by Landlord after default by Tenant of
any covenant or term of this Lease shall not be deemed a waiver of such default,
other than a waiver of timely payment for the particular Rent payment involved,
and shall not prevent Landlord from maintaining an unlawful detainer or other
action based on such breach. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly Rent and other sums due hereunder shall be deemed
to be other than on account of the earliest Rent or other sums due, nor shall
any endorsement or statement on any check or accompanying any check or payment
be deemed an accord and satisfaction; and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
Rent or other sum or pursue any other remedy provided in this Lease. No failure,
partial exercise or delay on the part of the Landlord in exercising any right,
power or privilege hereunder shall operate as a waiver thereof.
27. Casualty Damage
27.1 Casualty. If the Premises or any part thereof (excluding any
alterations or improvements installed by or for the benefit of Tenant, including
without limitation, the Tenant Improvements) shall be damaged or destroyed by
fire or other casualty, Tenant shall give immediate written notice thereof to
Landlord. Within sixty (60) days after receipt by Landlord of such notice,
Landlord shall notify Tenant, in writing, whether the necessary repairs can
reasonably be made, as reasonably determined by Landlord: (a) within ninety (90)
days; (b) in more than ninety (90) days but in less than one hundred eighty
(180) days; or (c) in more than one hundred eighty (180) days, from the date of
such notice.
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27.1.1 Minor Insured Damage. If the Premises are damaged only to
such extent that repairs, rebuilding and/or restoration can be reasonably
completed within ninety (90) days, this Lease shall not terminate and, provided
that insurance proceeds are available to fully repair the damage and/or Tenant
otherwise contributes any shortfall thereof to Landlord, Landlord shall repair
the Premises to substantially the same condition that existed prior to the
occurrence of such casualty, except Landlord shall not be required to rebuild,
repair, or replace any alterations or improvements installed by or for the
benefit of Tenant (other than the Tenant Improvements) or any part of Tenant's
Property, including without limitation, Tenant's furniture, furnishings, trade
fixtures and/or equipment removable by Tenant. The Rent payable hereunder shall
be abated proportionately from the date of the occurrence of such insured damage
until any and all repairs are substantially completed to the extent of the
portion of the Premises which are rendered unusable and unfit for occupancy.
27.1.2 Insured Damage Requiring More Than 90 Days To Repair. If the
Premises are damaged only to such extent that repairs, rebuilding and/or
restoration can be reasonably completed in more than ninety (90) days but in
less than one hundred eighty (180) days, then Landlord shall have the option of:
(a) terminating the Lease effective upon the occurrence of such damage, in which
event the Rent shall be abated from the date of the occurrence of such damage,
provided Tenant diligently proceeds to vacate the Premises; or (b) electing to
repair the Premises to substantially the same condition that existed prior to
the occurrence of such casualty, provided insurance proceeds are available to
fully repair the damage (except that Landlord shall not be required to rebuild,
repair, or replace any alterations or improvements installed by or for the
benefit of Tenant (other than the Tenant Improvements) or any part of Tenant's
Property, including without limitation, Tenant's furniture, furnishings, trade
fixtures and/or equipment removable by Tenant). The Rent payable hereunder shall
be abated proportionately from the date of the occurrence of such insured damage
until any and all repairs are substantially completed, to the extent of the
portion of the Premises which are rendered unusable and unfit for occupancy. If
Landlord should fail to substantially complete such repairs within one hundred
eighty (180) days after the date on which Landlord is notified by Tenant of the
occurrence of such casualty (such 180-day period to be extended for delays
caused by Tenant or any force majeure events, which events shall include, but
not be limited to, acts or events beyond Landlord's and/or its contractors'
control, acts of God, earthquakes, strikes, lockouts, riots, boycotts,
casualties not caused by Landlord or Tenant, discontinuance of any utility or
other service required for performance of the work, moratoriums, governmental
agencies and weather, and the lack of availability or shortage of materials),
Tenant may within thirty (30) days after expiration of such one hundred eighty
(180) day period (as same may be extended), terminate this Lease by delivering
written notice to Landlord as Tenant's exclusive remedy, whereupon all rights of
Tenant hereunder shall cease and terminate thirty (30) days after Landlord's
receipt of such notice.
27.1.3 Major Insured Damage. If the Premises are damaged to such
extent that repairs, rebuilding and/or restoration cannot be reasonably
completed within one hundred eighty (180) days, then either Landlord or Tenant
may terminate this Lease by giving written notice within twenty (20) days after
notice from Landlord regarding the time period of repair. If either party
notifies the other of its intention to so terminate the Lease, then this Lease
shall terminate
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and the Rent shall be abated from the date of the occurrence of such damage,
provided Tenant diligently proceeds to vacate the Premises. If neither party
elects to terminate this Lease, Landlord shall promptly commence and diligently
prosecute to completion the repairs to the Premises, provided insurance proceeds
are available to fully repair the damage and/or Tenant contributes any shortfall
thereof to Landlord (except that Landlord shall not be required to rebuild,
repair, or replace any alterations or improvements installed by or for the
benefit of Tenant (other than the Tenant Improvements) or any part of Tenant's
property, including without limitation, Tenant's furniture, furnishings, trade
fixtures and/or equipment removable by Tenant). During the time when Landlord is
prosecuting such repairs to completion, the Rent payable hereunder shall be
abated proportionately from the date of the occurrence of such insured damage
until any and all repairs are substantially completed, to the extent of the
portion of the Premises which are rendered unusable and are unfit for occupancy.
Notwithstanding anything to the contrary contained herein, if the holder of any
indebtedness secured by the Premises requires that the insurance proceeds be
applied to such indebtedness, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within thirty
(30) days after the date of notice to Tenant of any such event, whereupon all
rights and obligations shall cease and terminate hereunder, except for those
obligations expressly provided for in this Lease to survive such termination of
the Lease.
27.1.4 Damage Near End of Term. Notwithstanding anything to the
contrary contained in this Lease except for the provisions of Section 27.2
below, if the Premises are substantially damaged or destroyed during the last
year of then applicable term of this Lease, Landlord or Tenant may, at their
option, cancel and terminate this Lease by giving written notice to the other
party of its election to do so within thirty (30) days after receipt by Landlord
of notice from Tenant of the occurrence of such casualty. If either party so
elects to terminate this Lease, all rights of Tenant hereunder shall cease and
terminate ten (10) days after Tenant's receipt or delivery of such notice, as
applicable.
27.2 Tenant's or Tenant's Representative's Fault. If any portion of the
Premises is damaged or destroyed due to the fault, negligence (active or
passive) or breach of this Lease by Tenant or any of Tenant's Representatives,
Rent shall not be diminished during the repair of such damage to the extent
Landlord does not receive rental abatement insurance proceeds, and Tenant shall
be liable to Landlord for the cost of the repair caused thereby to the extent
such cost is not covered by insurance proceeds.
27.3 Uninsured Casualty. Tenant shall be responsible for, and shall pay
to Landlord, as Additional Rent and as part of Operating Expenses, Tenant's
share of any deductible amounts under the property insurance carried by Landlord
for the Premises and/or the Building. Tenant shall be solely responsible for the
payment of all deductibles under the insurance carried by Tenant pursuant to the
provisions of Section 12 above. If any portion of the Premises is damaged and is
not fully covered by insurance proceeds received by Landlord (and Tenant elects
not to pay any such difference) or if the holder of any indebtedness secured by
the Premises requires that the insurance proceeds be applied to such
indebtedness, then either party shall have the right to terminate this Lease by
delivering written notice of termination to the other party within thirty (30)
days after the date of notice to Tenant of any such event, whereupon all rights
and
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obligations shall cease and terminate hereunder except for those obligations
expressly intended to survive any such termination of this Lease. Except as
otherwise provided in this Section 27, Tenant hereby waives the provisions of
Sections 1932(2.), 1933(4.), 1941 and 1942 of the California Civil Code.
27.4 Tenant's Waiver. Landlord shall not be liable for any inconvenience
or annoyance to Tenant, injury to the business of Tenant, loss of use of any
part of the Premises by Tenant or loss of Tenant's personal property, resulting
in any way from such damage, destruction or the repair thereof, except that,
Landlord shall allow Tenant a fair diminution of Rent during the time and to the
extent the Premises are unusable and unfit for occupancy as specifically
provided above in this Section 27. With respect to any damage or destruction
which Landlord is obligated to repair or may elect to repair, except as
expressly set forth herein, Tenant hereby waives all rights to terminate this
Lease or offset any amounts against Rent pursuant to rights accorded Tenant by
any law currently existing or hereafter enacted, including but not limited to,
all rights pursuant to the provisions of Sections 1932(2.), 1933(4.), 1941 and
1942 of the California Civil Code, as the same may be amended or supplemented
from time to time.
28. Condemnation
If twenty-five percent (25%) or more of the Premises is condemned by
eminent domain, inversely condemned or sold in lieu of condemnation for any
public or quasi-public use or purpose ("Condemned"), then Tenant or Landlord may
terminate this Lease as of the date when physical possession of the Premises is
taken and title vests in such condemning authority, and Rent shall be adjusted
to the date of termination. Tenant shall not because of such condemnation assert
any claim against Landlord or the condemning authority for any compensation
because of such condemnation, and Landlord shall be entitled to receive the
entire amount of any award without deduction for any estate of interest or other
interest of Tenant. If neither party elects to terminate this Lease, Landlord
shall, if necessary, promptly proceed to restore the Premises or the Building to
substantially its same condition prior to such partial condemnation, allowing
for the reasonable effects of such partial condemnation, and a proportionate
allowance shall be made to Tenant, as solely determined by Landlord, for the
Rent corresponding to the time during which, and to the part of the Premises of
which, Tenant is deprived on account of such partial condemnation and
restoration. Landlord shall not be required to spend funds for restoration in
excess of the amount received by Landlord as compensation awarded.
29. Environmental Matters/Hazardous Materials
29.1 Hazardous Materials Disclosure Certificate: Prior to executing this
Lease, Tenant has completed, executed and delivered to Landlord Tenant's initial
Hazardous Materials Disclosure Certificate (the "Initial HazMat Certificate"), a
copy of which is attached hereto as Exhibit G and incorporated herein by this
reference. Tenant covenants, represents and warrants to Landlord that the
information on the Initial HazMat Certificate is true and correct and accurately
describes the use(s) of Hazardous Materials which will be made and/or used on
the Premises by Tenant. Tenant shall commencing with the date which is one year
from the Commencement Date and continuing every year thereafter, complete,
execute, and deliver to Landlord, a Hazardous
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Materials Disclosure Certificate ("the "HazMat Certificate") describing Tenant's
present use of Hazardous Materials on the Premises, and any other reasonably
necessary documents as requested by Landlord. The HazMat Certificate required
hereunder shall be in substantially the form as that which is attached hereto as
Exhibit E.
29.2 Definition of Hazardous Materials: As used in this Lease, the term
Hazardous Materials shall mean and include (a) any hazardous or toxic wastes,
materials or substances, and other pollutants or contaminants, which are or
become regulated by any Environmental Laws; (b) petroleum, petroleum by
products, gasoline, diesel fuel, crude oil or any fraction thereof (c) asbestos
and, asbestos containing material, in any form, whether friable or non-friable;
(d) polychlorinated biphenyls; (e) radioactive materials; (1) lead and lead-
containing materials; (g) any other material, waste or substance displaying
toxic, reactive, ignitable or corrosive characteristics, as all such terms are
used in their broadest sense, and are defined or become defined by any
Environmental Law (defined below); or (h) any materials which cause or threatens
to cause a nuisance upon or waste to any portion of the Premises, the Building,
the Lot, the Park or any surrounding property; or poses or threatens to pose a
hazard to the health and safety of persons on the Premises or any surrounding
property.
29.3 Prohibition; Environmental Laws: Tenant shall not be entitled to use
nor store any Hazardous Materials on, in, or about the Premises, the Building,
the Lot and the Park, or any portion of the foregoing, without, in each
instance, obtaining Landlord's prior written consent thereto. If Landlord
consents to any such usage or storage, then Tenant shall be permitted to use
and/or store only those Hazardous Materials that are necessary for Tenant's
business and to the extent disclosed in the HazMat Certificate and as expressly
approved by Landlord in writing, provided that such usage and storage is only to
the extent of the quantities of Hazardous Materials as specified in the then
applicable HazMat Certificate as expressly approved by Landlord and provided
further that such usage and storage is in full compliance with any and all
local, state and federal environmental, health and/or safety-related laws,
statutes, orders, standards, courts' decisions, ordinances, rules and
regulations (as interpreted by judicial and administrative decisions), decrees,
directives, guidelines, permits or permit conditions, currently existing and as
amended, enacted, issued or adopted in the future which are or become applicable
to Tenant or all or any portion of the Premises (collectively, the
"Environmental Laws"). Tenant agrees that any changes to the type and/or
quantities of Hazardous Materials specified in the most recent HazMat
Certificate may be implemented only with the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion. Tenant
shall not be entitled nor permitted to install any tanks under, on or about the
Premises for the storage of Hazardous Materials without the express written
consent of Landlord, which may be given or withheld in Landlord's sole
discretion. Landlord shall have the right at all times during the Term of this
Lease to (i) inspect the Premises, (ii) conduct tests and investigations to
determine whether Tenant is in compliance with the provisions of this Section
29, and (iii) request lists of all Hazardous Materials used, stored or otherwise
located on, under or about any portion of the Premises and/or the Common Areas.
The cost of all such inspections, tests and investigations shall be borne solely
by Tenant, if Landlord reasonably determines that Tenant or any of Tenant's
Representatives are directly or indirectly responsible in any manner for any
contamination revealed by such inspections, tests and investigations. The
aforementioned rights
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granted herein to Landlord and its representatives shall not create (a) a duty
on Landlord's part to inspect, test, investigate, monitor or otherwise observe
the Premises or the activities of Tenant and Tenant's Representatives with
respect to Hazardous Materials, including without limitation, Tenant's
operation, use and any remediation related thereto, or (b) liability on the part
of Landlord and its representatives for Tenant's use, storage, disposal or
remediation of Hazardous Materials, it being understood that Tenant shall be
solely responsible for all liability in connection therewith.
29.4 Tenant's Environmental Obligations: Tenant shall give to Landlord
immediate verbal and follow-up written notice of any spills, releases,
discharges, disposals, emissions, migrations, removals or transportation of
Hazardous Materials on, under or about any portion of the Premises or in any
Common Areas. Tenant, at its sole cost and expense, covenants and warrants to
promptly investigate, clean up, remove, restore and otherwise remediate
(including, without limitation, preparation of any feasibility studies or
reports and the performance of any and all closures) any spill, release,
discharge, disposal, emission, migration or transportation of Hazardous
Materials arising from or related to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives such that the affected portions
of the Park and any adjacent property are returned to the condition existing
prior to the appearance of such Hazardous Materials. Any such investigation,
clean up, removal, restoration and other remediation shall only be performed
after Tenant has obtained Landlord's prior written consent, which consent shall
not be unreasonably withheld so long as such actions would not potentially have
a material adverse long-term or short-term effect on any portion of the
Premises, the Building, the Lot or the Park. Notwithstanding the foregoing,
Tenant shall be entitled to respond immediately to an emergency without first
obtaining Landlord's prior written consent. Tenant, at its sole cost and
expense, shall conduct and perform, or cause to be conducted and performed, all
closures as required by any Environmental Laws or any agencies or other
governmental authorities having jurisdiction thereof. If Tenant fails to so
promptly investigate, clean up, remove, restore, provide closure or otherwise so
remediate, Landlord may, but without obligation to do so, take any and all steps
necessary to rectify the same and Tenant shall promptly reimburse Landlord, upon
demand, for all costs and expenses to Landlord of performing investigation,
clean up, removal, restoration, closure and remediation work. All such work
undertaken by Tenant, as required herein, shall be performed in such a manner so
as to enable Landlord to make full economic use of the Premises, the Building,
the Lot and the Park after the satisfactory completion of such work.
29.5 Environmental Indemnity: In addition to Tenant's obligations as set
forth hereinabove, Tenant and Tenant's officers and directors agree to, and
shall, protect, indemnify, defend (with counsel acceptable to Landlord) and hold
Landlord and the other Indemnitees harmless from and against any and all claims,
judgments, damages, penalties, fines, liabilities, losses (including, without
limitation, diminution in value of any portion of the Premises, the Building,
the Lot or the Park, damages for the loss of or restriction on the use of
rentable or usable space, and from any adverse impact of Landlord's marketing of
any space within the Building and/or Park), suits, administrative proceedings
and costs (including, but not limited to, attorneys' and consultant fees and
court costs) arising at any time during or after the Term of this Lease in
connection with or related to, directly or indirectly, the use, presence,
transportation,
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storage, disposal, migration, removal, spill, release or discharge of Hazardous
Materials on, in or about any portion of the Premises, the Common Areas, the
Building, the Lot or the Park as a result (directly or indirectly) of the
intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives. Neither the written consent of Landlord to the presence, use or
storage of Hazardous Materials in, on, under or about any portion of the
Premises, the Building, the Lot and/or the Park, nor the strict compliance by
Tenant with all Environmental Laws shall excuse Tenant and Tenant's officers and
directors from its obligations of indemnification pursuant hereto. Tenant shall
not be relieved of its indemnification obligations under the provisions of this
Section 29.5 due to Landlord's status as either an "owner" or "operator" under
any Environmental Laws.
29.6 Survival: Tenant's obligations and liabilities pursuant to the
provisions of this Section 29 shall survive the expiration or earlier
termination of this Lease. If it is determined by Landlord that the condition of
all or any portion of the Premises, the Building, the Lot and/or the Park is not
in compliance with the provisions of this Lease with respect to Hazardous
Materials, including without limitation all Environmental Laws at the expiration
or earlier termination of this Lease, then in Landlord's sole discretion,
Landlord may require Tenant to hold over possession of the Premises until Tenant
can surrender the Premises to Landlord in the condition in which the Premises
existed as of the Commencement Date and prior to the appearance of such
Hazardous Materials except for reasonable wear and tear, including without
limitation, the conduct or performance of any closures as required by any
Environmental Laws. The burden of proof hereunder shall be upon Tenant. For
purposes hereof, the term "reasonable wear and tear" shall not include any
deterioration in the condition or diminution of the value of any portion of the
Premises, the Building, the Lot and/or the Park in any manner whatsoever related
to directly, or indirectly, Hazardous Materials. Any such holdover by Tenant
will be with Landlord's consent, will not be terminable by Tenant in any event
or circumstance and will otherwise be subject to the provisions of Section 22 of
this Lease.
29.7 Tenant's Exculpation: Tenant shall not be liable for nor otherwise
obligated to Landlord under any provision of the Lease with respect to (i) any
claim, remediation obligation, investigation obligation, liability, cause of
action, attorney's fees, consultants' cost, expense or damage resulting from any
Hazardous Material present in, on or about the Premises or any of the Buildings
in the Park to the extent not caused nor otherwise permitted, directly or
indirectly, by Tenant or Tenant's Representatives; or (ii) the removal,
investigation, monitoring or remediation of any Hazardous Material present in,
on or about the Premises, the Building or the Park caused by any source,
including third parties other than Tenant and Tenant's Representatives, as a
result of or in connection with the acts or omissions of persons other than
Tenant or Tenant's Representatives; provided, however, Tenant shall be fully
liable for and otherwise obligated to Landlord under the provisions of this
Lease for all liabilities, costs, damages, penalties, claims, judgments,
expenses (including without limitation, attorneys' and experts' fees and costs)
and losses to the extent (a) Tenant or any of Tenant's Representatives
contributes to the presence of such Hazardous Materials or Tenant and/or any of
Tenant's Representatives exacerbates the conditions caused by such Hazardous
Materials, or (b) Tenant and/or Tenant's Representatives allows or permits
persons over which Tenant or any of Tenant's Representatives has control and/or
for which Tenant or any of Tenant's Representatives are legally responsible for,
to cause
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such Hazardous Materials to be present in, on, under, through or about any
portion of the Premises, the Building or the Park, or does not take all
reasonably appropriate actions to prevent such persons over which Tenant or any
of Tenant's Representatives has control and/or for which Tenant or any of
Tenant's Representatives are legally responsible from causing the presence of
Hazardous Materials in, on, under, through or about any portion of the Premises,
the Building or the Park.
29.8 Disclosure: Pursuant to the provisions of California Health & Safety
Code 25359.7, Landlord hereby discloses to Tenant that as of the Lease Date the
Lot contains certain Hazardous Materials as such Hazardous Materials are more
particularly described and set forth in those certain reports prepared by
Kleinfelder, Inc., entitled Environmental Site Assessment, dated May 29, 1998
and Phase II Environmental Site Assessment dated June 8, 1998 (collectively the
"Environmental Report"). Landlord acknowledges and agrees that none of the
environmental conditions or presence of Hazardous Materials on, in or under the
Lot as described in the Environmental Report have been in any way caused by
Tenant or any of Tenant's Representatives. Tenant hereby acknowledges and agrees
that Landlord has delivered to Tenant a copy of the Environmental Report prior
to Tenant entering into this Lease.
30. Financial Statements
Tenant, for the reliance of Landlord, any lender holding or anticipated to
acquire a lien upon the Premises, the Building or the Park or any portion
thereof, or any prospective purchaser of the Building or the Park or any portion
thereof, within ten (10) days after Landlord's request therefor, but not more
often than once annually so long as Tenant is not in default of this Lease,
shall deliver to Landlord the then current audited financial statements of
Tenant (including interim periods following the end of the last fiscal year for
which annual statements are available) which statements shall be prepared or
compiled by a certified public accountant and shall present fairly the financial
condition of Tenant at such dates and the result of its operations and changes
in its financial positions for the periods ended on such dates. If an audited
financial statement has not been prepared, Tenant shall provide Landlord with an
unaudited financial statement and/or such other information, the type and form
of which are acceptable to Landlord in Landlord's reasonable discretion, which
reflects the financial condition of Tenant. If Landlord so requests, Tenant
shall deliver to Landlord an opinion of a certified public accountant, including
a balance sheet and profit and loss statement for the most recent prior year,
all prepared in accordance with generally accepted accounting principles
consistently applied. Any and all options granted to Tenant hereunder shall be
subject to and conditioned upon Landlord's reasonable approval of Tenant's
financial condition at the time of Tenant's exercise of any such option.
31. General Provisions
31.1 Time. Time is of the essence in this Lease and with respect to each
and all of its provisions in which performance is a factor.
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31.2 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
31.3 Recordation. Tenant shall not record this Lease or a short form
memorandum hereof without the prior written consent of the Landlord.
31.4 Landlord's Personal Liability. The liability of Landlord (which, for
purposes of this Lease, shall include Landlord and the owner of the Building if
other than Landlord) to Tenant for any default by Landlord under the terms of
this Lease shall be limited to the actual interest of Landlord and its present
or future partners or members in the Premises or the Building, and Tenant agrees
to look solely to the Premises for satisfaction of any liability and shall not
look to other assets of Landlord nor seek any recourse against the assets of
time individual partners, members, directors, officers, shareholders, agents or
employees of Landlord (including without limitation, any property management
company of Landlord); it being intended that Landlord and the individual
partners, members, directors, officers, shareholders, agents and employees of
Landlord (including without limitation, any property management company of
Landlord) shall not be personally liable in any manner whatsoever for any
judgment or deficiency. The liability of Landlord under this Lease is limited to
its actual period of ownership of title to the Building, and Landlord shall be
automatically released from further performance under this Lease upon transfer
of Landlord's interest in the Premises or the Building.
31.5 Separability. Any provisions of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provisions hereof and such other provision shall remain in full force and
effect.
31.6 Choice of Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
31.7 Attorneys' Fees. In the event any dispute between the parties results
in litigation or other proceeding, the prevailing party shall be reimbursed by
the party not prevailing for all reasonable costs and expenses, including,
without limitation, reasonable attorneys' and experts' fees and costs incurred
by the prevailing party in connection with such litigation or other proceeding,
and any appeal thereof. Such costs, expenses and fees shall be included in and
made a part of the judgment recovered by the prevailing party, if any.
31.8 Entire Agreement. This Lease supersedes any prior agreements,
representations, negotiations or correspondence between the parties, and
contains the entire agreement of the parties on matters covered. No other
agreement, statement or promise made by any party, that is not in writing and
signed by all parties to this Lease, shall be binding.
31.9 Warranty of Authority. On the date that Tenant executes this Lease,
Tenant shall deliver to Landlord an original certificate of status for Tenant
issued by the California Secretary of State or statement of partnership for
Tenant recorded in the county in which the Premises are located, as applicable,
and such other documents as Landlord may reasonably request with regard to the
lawful existence of Tenant. Each person executing this Lease on behalf
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of a party represents and warrants that (1) such person is duly and validly
authorized to do so on behalf of the entity it purports to so bind, and (2) if
such party is a partnership, corporation or trustee, that such partnership,
corporation or trustee has full right and authority to enter into this Lease and
perform all of its obligations hereunder. Tenant hereby warrants that this Lease
is valid and binding upon Tenant and enforceable against Tenant in accordance
with its terms.
31.10 Notices. Any and all notices and demands required or permitted to be
given hereunder to Landlord shall be in writing and shall be sent: (a) by United
States mail, certified and postage prepaid; or (b) by personal delivery; or (c)
by overnight courier, addressed to Landlord at 30 Executive Park, Suite 100,
Irvine, California 92614. Any and all notices and demands required or permitted
to be given hereunder to Tenant shall be in writing and shall be sent: (1) by
United States mail, certified and postage prepaid; or (ii) by personal delivery
to any employee or agent of Tenant over the age of eighteen (18) years of age;
or (iii) by overnight courier, all of which shall be addressed to Tenant at the
Premises. Notice and/or demand shall be deemed given upon the earlier of actual
receipt or the third day following deposit in the United States mail. Any notice
or requirement of service required by any statute or law now or hereafter in
effect, including, but not limited to, California Code of Civil Procedure
Sections 1161, 1161.1, and 1162 (including any amendments, supplements or
substitutions thereof), is hereby waived by Tenant.
31.11 Joint and Several. If Tenant consists of more than one person
or entity, the obligations of all such persons or entities shall be joint and
several.
31.12 Covenants and Conditions. Each provision to be performed by
Tenant hereunder shall be deemed to be both a covenant and a condition.
31.13 Waiver of Jury Trial. The parties hereto shall and they
hereby do waive trial by jury in any action, proceeding or counterclaim brought
by either of the parties hereto against the other on any matters whatsoever
arising out of or in any way related to this Lease, the relationship of Landlord
and Tenant, Tenant's use or occupancy of the Premises, the Building or the Park,
and/or any claim of injury, loss or damage.
31.14 Counterclaims. In the event Landlord commences any
proceedings for nonpayment of Rent, Additional Rent, or any other sums or
amounts due hereunder, Tenant shall not interpose any counterclaim of whatever
nature or description in any such proceedings, provided, however, nothing
contained herein shall be deemed or construed as a waiver of the Tenant's right
to assert such claims in any separate action brought by Tenant or the right to
offset the amount of any final judgment owed by Landlord to Tenant.
31.15 Underlining. The use of underlining within the Lease is for
Landlord's reference purposes only and no other meaning or emphasis is intended
by this use, nor should any be inferred.
31.16 Merger. The voluntary or other surrender of this Lease by
Tenant, the mutual termination or cancellation hereof by Landlord and Tenant, or
a termination of this Lease by Landlord for a material default by Tenant
hereunder, shall not work a merger, and, at the sole
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option of Landlord, (i) shall terminate all or any existing subleases or
subtenancies, or (ii) may operate as an assignment to Landlord of any or all of
such subleases or subtenancies. Landlord's election of either or both of the
foregoing options shall be exercised by delivery by Landlord of written notice
thereof to Tenant and all known subtenants under any sublease.
32. Signs
All signs and graphics of every kind visible in or from public view or
corridors or the exterior of the Premises shall be subject to Landlord's prior
written approval and shall be subject to any applicable governmental laws,
ordinances, and regulations and in compliance with Landlord's sign criteria as
same may exist from time to time or as set forth in Exhibit H hereto and made a
part hereof. Tenant shall remove all such signs and graphics prior to the
termination of this Lease. Such installations and removals shall be made in a
manner as to avoid damage or defacement of the Premises; and Tenant shall repair
any damage or defacement, including without limitation, discoloration caused by
such installation or removal. Landlord shall have the right, at its option, to
deduct from the Security Deposit such sums as are reasonably necessary to remove
such signs, including, but not limited to, the costs and expenses associated
with any repairs necessitated by such removal. Notwithstanding the foregoing, in
no event shall any: (a) neon, flashing or moving sign(s) or (b) sign(s) which
shall interfere with the visibility of any sign, awning, canopy, advertising
matter, or decoration of any kind of any other business or occupant of the
Building or the Park be permitted hereunder. Tenant further agrees to maintain
any such sign, awning, canopy, advertising matter, lettering, decoration or
other thing as may be approved in good condition and repair at all times.
33. Mortgagee Protection
Upon any default on the part of Landlord, Tenant will give written notice
by registered or certified mail to any beneficiary of a deed of trust or
mortgagee of a mortgage covering the Premises who has provided Tenant with
notice of their interest together with an address for receiving notice, and
shall offer such beneficiary or mortgagee a reasonable opportunity to cure the
default (which, in no event shall be less than ninety (90) days), including time
to obtain possession of the Premises by power of sale or a judicial foreclosure,
if such should prove necessary to effect a cure. If such default cannot be cured
within such time period, then such additional time as may be necessary will be
given to such beneficiary or mortgagee to effect such cure so long as such
beneficiary or mortgagee has commenced the cure within the original time period
and thereafter diligently pursues such cure to completion, in which event this
Lease shall not be terminated while such cure is being diligently pursued.
Tenant agrees that each lender to whom this Lease has been assigned by Landlord
is an express third party beneficiary hereof. Tenant shall not make any
prepayment of Rent more than one (1) month in advance without the prior written
consent of each such lender, except if Tenant is required to make quarterly
payments of Rent in advance pursuant to the provisions of Section 8 above.
Tenant waives the collection of any deposit from such lender(s) or any purchaser
at a foreclosure sale of such lender(s)' deed of trust unless the lender(s) or
such purchaser shall have actually received and not refunded the deposit. Tenant
agrees to make all payments under this Lease to the lender with the most senior
encumbrance upon receiving a direction, in writing, to pay said amounts to such
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lender. Tenant shall comply with such written direction to pay without
determining whether an event of default exists under such lender's loan to
Landlord.
34. Quitclaim
Upon any termination of this Lease, Tenant shall, at Landlord's request,
execute, have acknowledged and deliver to Landlord a quitclaim deed of Tenant's
interest in and to the Premises. If Tenant fails to so deliver to Landlord such
a quitclaim deed, Tenant hereby agrees that Landlord shall have the full
authority and right to record such a quitclaim deed signed only by Landlord and
such quitclaim deed shall be deemed conclusive and binding upon Tenant.
35. Modifications for Lender
If, in connection with obtaining financing for the Premises or any portion
thereof, Landlord's lender shall request reasonable modification(s) to this
Lease as a condition to such financing, Tenant shall not unreasonably withhold,
delay or defer its consent thereto, provided such modifications do not
materially adversely affect Tenant's rights hereunder or the use, occupancy or
quiet enjoyment of Tenant hereunder.
36. Warranties of Tenant
Tenant hereby warrants and represents to Landlord, for the express benefit
of Landlord, that Tenant has undertaken a complete and independent evaluation of
the risks inherent in the execution of this Lease and the operation of the
Premises for the use permitted hereby, and that, based upon said independent
evaluation, Tenant has elected to enter into this Lease and hereby assumes all
risks with respect thereto. Tenant hereby further warrants and represents to
Landlord, for the express benefit of Landlord, that in entering into this Lease,
Tenant has not relied upon any statement, fact, promise or representation
(whether express or implied, written or oral) not specifically set forth herein
in writing and that any statement, fact, promise or representation (whether
express or implied, written or oral) made at any time to Tenant, which is not
expressly incorporated herein in writing, is hereby waived by Tenant.
37. Compliance with Americans with Disabilities Act
Landlord and Tenant hereby agree and acknowledge that the Premises, the
Building and/or the Park may be subject to the requirements of the Americans
with Disabilities Act, a federal law codified at 42 U.S.C. 12101 et seq.,
including, but not limited to Title III thereof, all regulations and guidelines
related thereto, together with any and all laws, rules, regulations, ordinances,
codes and statutes now or hereafter enacted by local or state agencies having
jurisdiction thereof, including all requirements of Title 24 of the State of
California, as the same may be in effect on the date of this Lease and may be
hereafter modified, amended or supplemented (collectively, the "ADA"). Any
Tenant Improvements to be constructed hereunder shall be in compliance with the
requirements of the ADA, and all costs incurred for purposes of compliance
therewith shall be a part of and included in the costs of the Tenant
Improvements. Tenant shall be solely responsible for conducting its own
independent investigation of this matter and for ensuring that the design of all
Tenant Improvements strictly comply with all
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requirements of the ADA. Subject to reimbursement pursuant to Section 6 of the
Lease, if any barrier removal work or other work is required to the Building,
the Common Areas or the Park under the ADA, then such work shall be the
responsibility of Landlord; provided, if such work is required under the ADA as
a result of Tenant's use of the Premises or any work or alteration made to the
Premises by or on behalf of Tenant, then such work shall be performed by
Landlord at the sole cost and expense of Tenant. Except as otherwise expressly
provided in this provision, Tenant shall be responsible at its sole cost and
expense for fully and faithfully complying with all applicable requirements of
the ADA, including without limitation, not discriminating against any disabled
persons in the operation of Tenant's business in or about the Premises, and
offering or otherwise providing auxiliary aids and services as, and when,
required by the ADA. Within ten (10) days after receipt, Landlord and Tenant
shall advise the other party in writing, and provide the other with copies of
(as applicable), any notices alleging violation of the ADA relating to any
portion of the Premises or the Building; any claims made or threatened in
writing regarding noncompliance with the ADA and relating to any portion of the
Premises or the Building; or any governmental or regulatory actions or
investigations instituted or threatened regarding noncompliance with the ADA and
relating to any portion of the Premises or the Building. Tenant shall and hereby
agrees to protect, defend (with counsel acceptable to Landlord) and hold
Landlord and the other Indemnitees harmless and indemnify the Indemnitees from
and against all liabilities, damages, claims, losses, penalties, judgments,
charges and expenses (including reasonable attorneys' fees, costs of court and
expenses necessary in the prosecution or defense of any litigation including the
enforcement of this provision) arising from or in any way related to, directly
or indirectly, Tenant's or Tenant's Representatives' violation or alleged
violation of the ADA. Tenant agrees that the obligations of Tenant herein shall
survive the expiration or earlier termination of this Lease.
38. Brokerage Commission
Landlord and Tenant each represents and warrants for the benefit of the
other that it has had no dealings with any real estate broker, agent or finder
in connection with the Premises and/or the negotiation of this Lease, except for
the Broker(s) (as set forth on Page 1), and that it knows of no other real
estate broker, agent or finder who is or might be entitled to a real estate
brokerage commission or finder's fee in connection with this Lease or otherwise
based upon contacts between the claimant and Tenant. Each party shall indemnify
and hold harmless the other from and against any and all liabilities or expenses
arising out of claims made for a fee or commission by any real estate broker,
agent or finder in connection with the Premises and this Lease other than
Broker(s), if any, resulting from the actions of the indemnifying party. Any
real estate brokerage commission or finder's fee payable to the Broker(s) in
connection with this Lease shall only be payable and applicable to the extent of
the initial Term of the Lease and to the extent of the Premises as same exist as
of the date on which Tenant executes this Lease. Unless expressly agreed to in
writing by Landlord and Broker(s), no real estate brokerage commission or
finder's fee shall be owed to, or otherwise payable to, the Broker(s) for any
renewals or other extensions of the initial Term of this Lease or for any
additional space leased by Tenant other than the Premises as same exists as of
the date on which Tenant executes this Lease. Tenant further represents and
warrants to Landlord that Tenant will not receive (i) any portion of any
brokerage commission or finder's fee payable to the Broker(s) in connection with
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this Lease or (ii) any other form of compensation or incentive from the
Broker(s) with respect to this Lease.
39. Quiet Enjoyment
Landlord covenants with Tenant, upon the paying of Rent and observing and
keeping the covenants, agreements and conditions of this Lease on its part to be
kept, and during the periods that Tenant is not otherwise in default of any of
the terms or provisions of this Lease, and subject to the rights of any of
Landlord's lenders, (i) that Tenant shall and may peaceably and quietly hold,
occupy and enjoy the Premises and the Common Areas during the Term of this
Lease, and (ii) neither Landlord, nor any successor or assign of Landlord, shall
disturb Tenant's occupancy or enjoyment of the Premises and the Common Areas.
40. Landlord's Ability to Perform Tenant's Unperformed Obligations
Notwithstanding anything to the contrary contained in this Lease, if Tenant
shall fail to perform any of the terms, provisions, covenants or conditions to
be performed or complied with by Tenant pursuant to this Lease, and/or if the
failure of Tenant relates to a matter which in Landlord's judgment reasonably
exercised is of an emergency nature and such failure shall remain uncured for a
period of time commensurate with such emergency, then Landlord may, at
Landlord's option without any obligation to do so, and in its sole discretion as
to the necessity therefor, perform any such term, provision, covenant, or
condition, or make any such payment and Landlord by reason of so doing shall not
be liable or responsible for any loss or damage thereby sustained by Tenant or
anyone holding under or through Tenant. If Landlord so performs any of Tenant's
obligations hereunder, the full amount of the cost and expense entailed or the
payment so made or the amount of the loss so sustained shall immediately be
owing by Tenant to Landlord, and Tenant shall promptly pay to Landlord upon
demand, as Additional Rent, the full amount thereof with interest thereon from
the date of payment at the greater of (i) ten percent (10%) per annum, or (ii)
the highest rate permitted by applicable law and Enforcement Expenses.
41. Options to Extend
Grant of Extension Options: Subject to the provisions, limitations and
conditions set forth in Section 41.4 below, Tenant shall have an Option
(individually, an "Option" and collectively, the "Options") to extend the term
of the Lease for two (2) successive five (5) year terms (individually, an
"Extended Term" and collectively, the "Extended Terms").
41.1 Tenant's Option Notice. If Landlord does not receive written notice
from Tenant of its exercise of this Option on a date which is not more than
three hundred sixty-five (365) days nor less than one hundred eighty (180) days
prior to the end of, with respect to the initial Extended Term, the initial term
of the Lease or, with respect to future Extended Terms, the previous Extended
Term (the "Option Notice"), all rights under this Section 41 shall automatically
terminate and shall be of no further force or effect.
41.2 Establishing the Initial Monthly Base Rent for the Extended Terms.
The initial monthly Base Rent for an Extended Term shall be the then current
market rent for similar
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space within the competitive market area of the Premises (the "Fair Rental
Value"). "Fair Rental Value" of the Premises means the fair market rental value
of the Premises as of the commencement of an Extended Term, taking into
consideration all relevant factors, including length of term, the uses permitted
under the Lease, the quality, size, location of the Premises, including the
condition and value of existing tenant improvements, and the monthly base rent
paid by tenants for premises comparable to the Premises, and located within the
competitive market area of the Premises.
If Landlord and Tenant are unable to agree on the Fair Rental Value for an
Extended Term within ten (10) days of receipt by Landlord of the Option Notice
for an Extended Term, Landlord and Tenant each, at its cost and by giving to the
other party, shall appoint a competent and impartial commercial real estate
broker (hereinafter "broker") with at least ten (10) years' full-time commercial
real estate brokerage experience in the geographical area of the Premises to set
the Fair Rental Value for an Extended Term. If either Landlord or Tenant does
not appoint a broker within ten (10) days after the other party has given notice
of the name of its broker, the single broker appointed shall be the sole broker
and shall set the Fair Rental Value for an Extended Term. If two (2) brokers are
appointed by Landlord and Tenant as stated in this paragraph, they shall meet
promptly and attempt to set the Fair Rental Value. If the two (2) brokers are
unable to agree within ten (10) days after the second broker has been appointed,
they shall attempt to select a third broker, meeting the qualifications stated
in this paragraph within ten (10) days after the last day the two (2) brokers
are given to set the Fair Rental Value. If the two (2) brokers are unable to
agree on the third broker, either Landlord or Tenant by giving ten (10) days'
notice to the other party, can apply to the Presiding Judge of the Superior
Court of the county in which the Premises is located for the selection of a
third broker who meets the qualifications stated in this paragraph. Landlord and
Tenant each shall bear one half (1/2) of the cost of appointing the third broker
and of paying the third broker's fee. The third broker, however selected, shall
be a person who has not previously acted in any capacity for either Landlord or
Tenant. Within fifteen (15) days after the selection of the third broker, the
third broker shall select one of the two Fair Rental Values submitted by the
first two brokers as the Fair Rental Value for an Extended Term. If either of
the first two brokers fails to submit their opinion of the Fair Rental Value
within the time frames set forth above, then the single Fair Rental Value
submitted shall automatically be the initial monthly Base Rent for an Extended
Term.
Upon determination of the initial monthly Base Rent for an Extended Term in
accordance with the terms outlined above, Landlord and Tenant shall immediately
execute an amendment to this Lease. Such document shall set forth among other
things, the initial monthly Base Rent for an Extended Term and the actual
commencement date and expiration date of an Extended Term. Tenant shall have no
other right to extend the term of the Lease under this Section 41 unless
Landlord and Tenant otherwise agree in writing.
41.3 Condition of Premises for the Extended Terms. If Tenant timely and
properly exercises these Options, Tenant shall accept the Premises in its then
"As-Is" condition.
41.4 Limitations On, and Conditions To, Extension Options. These Options
are personal to Tenant and may not be assigned, voluntarily or involuntarily,
separate from or as part
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of the Lease. At Landlord's option, all rights of Tenant under these Options
shall terminate and be of no force or effect if any of the following individual
events occur or any combination thereof occur: (1) Tenant has been in material
default of the provisions of this Lease more than two (2) times in any twelve
(12) month period (a "Chronic Default") at any time during the initial term of
the Lease, or at the time of exercise of this Option is then currently in
default of any provision of the Lease beyond applicable cure periods; and/or (2)
other than to a Related Entity in accordance with the provisions of Section 15
hereof, Tenant has assigned its rights and obligations under all or part of the
Lease or Tenant has subleased all or part of the Premises; and/or (3) Tenant's
or the Related Entity's (as applicable) net worth or net income is less than
five hundred percent (500%) of Tenant's net worth or net income as of the Lease
Date at the time the Option Notice is delivered to Landlord; and or (4) Tenant
has failed to properly exercise this Option in a timely manner in strict
accordance with the provisions of this Section 41; and/or (5) Tenant or a
Related Entity, as the case may be, no longer has possession of all or any part
of the Premises under the Lease or if the Lease has been terminated earlier,
pursuant to the terms of the Lease.
41.5 Time is of the Essence. Time is of the essence with respect to each
and every time period described in this Section 41.
42. Letter of Credit
Simultaneously with Tenant's delivery to Landlord of this Lease, the first
month's Base Rent and Security Deposit in accordance with the provisions of
Section 3 above, Tenant shall deliver to Landlord, as collateral for the full
and faithful performance by Tenant of all of its obligations under this Lease
and for all losses and damages Landlord may suffer as a result of any default by
Tenant under this Lease, an irrevocable and unconditional negotiable letter of
credit, in the form and containing the terms required herein, payable in the
City of Irvine, California running in favor of Landlord issued by a solvent bank
under the supervision of the Superintendent of Banks of the State of California,
or a National Banking Association (the "Issuer"), in the amount of Five Hundred
Fifty Thousand Dollars ($550,000.00), (the "Letter of Credit"). The Letter of
Credit shall be (a) at sight, irrevocable and unconditional, (b) maintained in
effect, whether through replacement, renewal or extension, until one (1) month
after the entire Lease Term or until such time as Tenant achieves three (3)
successive quarters of positive earnings before interest, taxes, depreciation
and amortization as reported in Tenant's audited 10Q (the "Letter of Credit
Expiration Date") and Tenant shall deliver a new Letter of Credit or certificate
of renewal or extension to Landlord at least thirty (30) days prior to the
expiration of the Letter of Credit, without any action whatsoever on the part of
Landlord, (c) subject to the Uniform Customs and Practices for Documentary
Credits (1993-Rev) International Chamber of Commerce Publication #500, (d)
acceptable to Landlord in its reasonable discretion, and (e) fully assignable by
Landlord by amendment thereto in accordance with customary letter of credit
practice and shall permit partial draws. In addition to the foregoing, the form
and terms of the Letter of Credit (and the bank issuing the same) shall be
acceptable to Landlord, in Landlord's reasonable discretion, and shall provide,
among other things, in effect that: (1) Landlord, or its then managing agent,
shall have the right to draw down an amount up to the face amount of the Letter
of Credit upon the presentation to the issuing bank of Landlord's (or Landlord's
then
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managing agent's) statement that such (A) amount is due to Landlord under the
terms and conditions of this Lease, it being understood that if Landlord or its
managing agent be a limited liability company, corporation, partnership or other
entity, then such statement shall be signed by a managing member (if a limited
liability company), an officer (if a corporation), a general partner (if a
partnership), or any authorized party (if another entity), and (b) an event of
default has occurred under this Lease and, all applicable notice and cure
periods have elapsed; (2) the Letter of Credit will be honored by the issuing
bank without inquiry as to the accuracy thereof and regardless of whether the
Tenant disputes the content of such statement; and (3) in the event of a
transfer of Landlord's interest in the Premises, Landlord shall transfer the
Letter of Credit, in whole or in part (or cause at Tenant's expense a substitute
letter of credit to be delivered, as applicable), to the transferee and
thereupon the Landlord shall, without any further agreement between the parties,
be released by Tenant from all liability therefor, and it is agreed that the
provisions hereof shall apply to every transfer or assignment of the whole or
any portion of said Letter of Credit to a new Landlord. Tenant hereby
acknowledges and agrees that Landlord is entering into this Lease in material
reliance upon the ability of Landlord to draw upon the Letter of Credit upon the
occurrence of any default on the part of Tenant hereunder which continues beyond
any applicable notice and cure periods. Tenant further acknowledges and agrees
that if Landlord cannot draw upon the Letter of Credit within the times and in
the manner as anticipated by Landlord herein, Landlord shall suffer irreparable
damage, harm and injury. From time to time during the Term of this Lease,
including, but not limited to, the event whereby Tenant meets certain financial
condition criterion as set forth in this Section 42, it is anticipated by the
parties that the Letter of Credit will need to be amended, modified and,
possibly reissued. Landlord and Tenant hereby covenant and agree to cooperate
with one another to promptly effectuate any such amendments, modifications and
new issuance's, including without limitation, executing and submitting to the
Issuer any and all documents or instruments as may be reasonably required to
effectuate same. Each and every time during the Term of this Lease there is a
change in the identity or address of the parties, including without limitation,
any change in the identity of Landlord due to the sale, transfer or other
conveyance by Landlord of its rights and interest in, to and under this Lease to
any other party, person or entity, the Letter of Credit shall immediately be
amended or reissued to reflect such changes and the parties hereby agree to
execute and submit to the Issuer such further applications, documents and
instruments as may be necessary to effectuate same. It is the intention of the
parties that each and every successor and assign of both Landlord and Tenant be
bound by and subject to the terms and provisions of this Section 42. Landlord
may, at any time and without notice to Tenant and without first obtaining
Tenant's consent thereto, assign all or any portion of its interest in and to
the Letter of Credit to another party, person or entity, in connection with the
assignment by Landlord of its rights and interests in and to this Lease. If, as
a result of any such application of all or any part of the Letter of Credit, the
amount of the Letter of Credit shall be less than Five Hundred Fifty Thousand
dollars ($550,000.00), Tenant shall within five (5) business days thereafter
provide Landlord with additional letter(s) of credit in an amount equal to the
deficiency (or a replacement letter of credit in the total amount of Five
Hundred Fifty Thousand Dollars ($550,000.00) and each such additional (or
replacement) letter of credit shall comply with all of the provisions of this
Section 42, and if Tenant fails to do so, notwithstanding anything to the
contrary contained in Section 20 hereof, the same shall constitute an incurable
default by Tenant. Tenant further covenants and warrants that it will neither
assign nor encumber the Letter of Credit or any part thereof and that
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neither Landlord nor its successors or assigns will be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance. Without
limiting the generality of the foregoing, if the Letter of Credit expires
earlier than the Letter of Credit Expiration Date, Landlord will accept a
renewal thereof or substitute letter of credit (such renewal or substitute
letter of credit to be in effect not later than thirty (30) days prior to the
expiration thereof), which shall be irrevocable and automatically renewable as
above provided through the Letter of Credit Expiration Date upon the same terms
as the expiring letter of credit or such other terms as may be acceptable to
Landlord in its reasonable discretion. However, if the Letter of Credit is not
timely renewed or a substitute letter of credit is not timely received, or if
Tenant fails to maintain the Letter of Credit in the amount and terms set forth
in this Section 42, Landlord shall have the right to present such Letter of
Credit to the bank in accordance with the terms of this Section 42, and the
entire sum evidenced thereby shall be paid to and held by Landlord as collateral
for performance of all of Tenant's obligations under this Lease and for all
losses and damages Landlord may suffer as a result of any default by Tenant
under this Lease. If there shall occur a default under this Lease as set forth
in Section 20 of this Lease, Landlord may, but without obligation to do so, draw
upon the Letter of Credit, in part or in whole, to cure any default of Tenant
and/or to compensate Landlord for any and all damages of any kind or nature
sustained or which may be sustained by Landlord resulting from Tenant's default.
Tenant agrees not to interfere in any way with payment to Landlord of the
proceeds of the Letter of Credit, either prior to or following a "draw" by
Landlord of any portion of the Letter of Credit, regardless of whether any
dispute exists between Tenant and Landlord as to Landlord's right to draw from
the Letter of Credit. No condition or term of this Lease shall be deemed to
render the Letter of Credit conditional to justify the issuer of the Letter of
Credit in failing to honor a drawing upon such Letter of Credit in a timely
manner. Landlord and Tenant acknowledge and agree that in no event or
circumstance shall the Letter of Credit or any renewal thereof or substitute
therefor be (i) deemed to be or treated as a "security deposit" within the
meaning of California Civil Code Section 1950.7 (as supplemented, amended,
replaced and substituted from time to time), (ii) subject to the terms of such
Section 1950.7 (as supplemented, amended, replaced and substituted from time to
time), or (iii) intended to serve as a "security deposit" within the meaning of
such Section 1950.7 (as supplemented, amended, replaced and substituted from
time to time). The parties hereto recite that, with respect to the Letter of
Credit, (x) the Letter of Credit is not intended to serve as a security deposit
and such Section 1950.7 (as supplemented, amended, replaced and substituted from
time to time) and any and all other laws, rules and regulations applicable to
security deposits in the commercial context ("Security Deposit Laws") shall have
no applicability or relevancy to the Letter of Credit and (y) Tenant waives any
and all rights, duties and obligations either party may now or, in the future,
will have relating to or arising from the Security Deposit Laws.
IN WITNESS WHEREOF, this Lease is executed by the parties as of the Lease
Date referenced on Page 1 of this Lease.
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<PAGE>
LANDLORD:
RECP-FULLERTON OPCO, LLC, a Delaware limited liability company
Legacy Partners Commercial, Inc., as manager for LINCOLN
By: /s/ [ILLEGIBLE]
------------------------------------
____________________________________
____________________________________
TENANT:
HOMEGROCER.COM, a Delaware corporation
By: /s/ Terry Drayton
------------------------------------
Name: Terry Drayton
------------------------------------
Title: President
-----------------------------------
Date: 7-12-99
-----------------------------------
By: /s/ Daryl L. Stromswold
------------------------------------
Name: Daryl L. Stromswold
------------------------------------
Title: President
-----------------------------------
Date: 7-12-99
------------------------------------
If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president and the secretary or assistant
secretary, unless the bylaws or a resolution of the board of directors shall
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.
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<PAGE>
EXHIBIT 10.20
STANDARD INDUSTRIAL LEASE
(Single Tenant)
1. BASIC LEASE PROVISIONS.
<TABLE>
<S> <C>
1.1 DATE: August 10, 1999
1.2 LANDLORD: Realty Associates Iowa Corporation, a Delaware corporation
1.3 TENANT: HomeGrocer.com, Inc., a Delaware corporation
1.4 PREMISES ADDRESS: 1344 West Foothill Boulevard, Azusa, California
1.5 APPROXIMATE LEASABLE AREA
0F PREMISES: 114,114
(in square feet)
1.6 USE: Warehousing, distribution and associated office uses (including the
distribution of items to retail customers, provided that such
customers do not receive such items at the Premises)
1.7 TERM: Ten (10) years
1.8 COMMENCEMENT DATE: September 1, 1999
1.9 MONTHLY BASE RENT: Commencement Date through the end of the 24th full calendar
month: $42,222.18;
25th through 48th full calendar month: $44,504.46;
49th through 72nd full calendar month: $47,927.88;
73rd through 96th full calendar month: $51,351.30;
97th through 120th full calendar month: $53,633.58
(See section 1 of Addendum for additional Base Rent)
1.10 BASE RENT PAID UPON EXECUTION: $ 42,222.18
APPLIED TO: First full calendar month of Lease term
(insert month(s))
1.11 SECURITY DEPOSIT: $ 42,222.18
1.12 REAL ESTATE BROKER:
LANDLORD: CB Richard Ellis
TENANT: CB Richard Ellis
1 .13 EXHIBITS ATTACHED TO LEASE: Exhibit A -- "Premises;" Exhibit B -- "Verification Letter;"
Exhibit C -- "Work Letter Agreement;" Exhibit D - "Addendum to Lease";
1.14 ADDRESSES FOR NOTICES:
LANDLORD: Realty Associates Iowa Corporation
4100 Newport Place, Suite 830
Newport Beach, California 92660
Attn: Asset Manager
WITH A COPY TO: Davis Partners, Incorporated
2115 West Crescent Avenue, Suite 201
Anaheim, California 92801
Attn: Property Manager
TENANT: HomeGrocer.com, Inc.
10230 NE Points Drive
Kirkland, Washington 98033
</TABLE>
2. PREMISES.
2.1 ACCEPTANCE. In consideration of the obligation of Tenant to pay rent
as herein provided and in consideration of the other terms, covenants, and
conditions hereof, Landlord leases to Tenant, and Tenant leases from Landlord,
the Premises, to have and to hold for the term of this Lease, subject to the
terms, covenants and conditions of this Lease. The Premises is depicted on
Exhibit "A" attached hereto and contains one or more buildings (collectively,
the "Building") and the other areas depicted on Exhibit "A" as being part of the
Premises. Tenant accepts the Premises in its condition as of the Commencement
Date, subject to all applicable laws, ordinances, and regulations, and except as
may be otherwise expressly provided herein, Landlord shall not be obligated to
make any repairs or alterations to the Premises. Tenant acknowledges that
Landlord has made no representation or warranty as to the suitability of the
Premises for the conduct of Tenant's business, and Tenant waives any implied
warranty that the Premises are suitable for Tenant's intended purposes. Except
as provided in the next sentence, Landlord makes no representation or warranty
to Tenant that the electrical, plumbing, sprinkler or other systems in the
Premises comply with applicable laws, and Landlord shall have no obligation to
bring such systems into compliance with applicable laws. To the actual knowledge
of Landlord, without duty of investigation, as of the date of this Lease, (a)
Landlord has received no written notice from a governmental agency that the
electrical, plumbing,
<PAGE>
sprinkler and other systems, in the condition on the date of this Lease, do not
comply with applicable laws or regulations and (b) no agreement, covenant or
restriction affecting the Premises prevents Tenant from using the Premises for
the purposes described in section 1.6. For purposes of the foregoing, the actual
knowledge of Landlord shall be limited to the actual knowledge of James O.
Buckingham. In addition, Landlord makes no representation or warranty to Tenant
that the floors, foundations, walls or roof of the Premises will accommodate the
improvements Tenant desires to make to the Premises or that the Premises now
complies, or will comply after Tenant completes its improvements, with any
earthquake or seismic code.
3. TERM.
3.1 TERM AND COMMENCEMENT DATE. The term and Commencement Date of this
Lease are as specified in sections 1.7 and 1.8. The Commencement Date set forth
in section 1.8 is an estimated Commencement Date. The actual Commencement Date
shall be the date possession of the Premises is tendered to Tenant in accordance
with section 3.4 below; provided, however, that the term of this Lease shall be
computed from the first day of the calendar month following the Commencement
Date. When the actual Commencement Date is established by Landlord, Tenant
shall, within thirty (30) days after Landlord's request, complete and execute
the letter attached hereto as Exhibit "B" and deliver it to Landlord. Tenant's
failure to execute the letter attached hereto as Exhibit "B" within said thirty
(30) day period shall be a material default hereunder and shall constitute
Tenant's acknowledgment of the truth of the facts contained in the letter
delivered by Landlord to Tenant.
3.2 DELAY IN POSSESSION. Notwithstanding the estimated Commencement Date
specified in section 1.8, if for any reason Landlord cannot deliver possession
of the Premises to Tenant on said date, Landlord shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Tenant hereunder; provided, however, in such a case, Tenant
shall not be obligated to pay rent or perform any other obligation of Tenant
under this Lease, except as may be otherwise provided in this Lease, until
possession of the Premises is tendered to Tenant, as defined in section 3.4. If
Landlord shall not have tendered possession of the Premises to Tenant within
sixty (60) days following the estimated Commencement Date specified in section
1.8, Tenant may, at Tenant's option, by notice in writing to Landlord within ten
(10) days after the expiration of the sixty (60) day period, terminate this
Lease. If Tenant terminates this Lease as provided in the preceding sentence,
the parties shall be discharged from all obligations hereunder, except that
Landlord shall return any money previously deposited with Landlord by Tenant;
and provided further, that if such written notice by Tenant is not received by
Landlord within said ten (10) day period, Tenant shall not have the right to
terminate this Lease as provided above unless Landlord fails to tender
possession of the Premises to Tenant within one hundred twenty (120) days
following the estimated Commencement Date specified in section 1.8. If Landlord
is unable to deliver possession of the Premises to Tenant on the Commencement
Date due to a "Force Majeure Event," the Commencement Date shall be extended by
the period of the delay caused by the Force Majeure Event, not to exceed sixty
(60) days. A Force Majeure Event shall mean fire, earthquake, weather delays or
other acts of God, strikes, boycotts, war, riot, insurrection, embargoes,
shortages of equipment, labor or materials, delays in issuance of governmental
permits or approvals, or any other cause beyond the reasonable control of
Landlord.
3.3 DELAYS CAUSED BY TENANT. Intentionally deleted.
3.4 TENDER OF POSSESSION. Except as provided below, Tenant accepts the
Premises in its "as is" condition, and Landlord shall not be obligated to make
any modifications or improvements to the Premises. Landlord shall use
commercially reasonable efforts to complete within thirty (30) days after the
Commencement Date, the following items: (a) ensure that all dock doors and dock
levelers are in working order, (b) remove all debris in the Premises that is
located in the Premises prior to the date Tenant enters the Premises or which is
created by Landlord in completing the repairs described in this sentence or in
completing the Seismic Retrofit (as defined below), (c) replace the roof
membrane of the Premises and (d) remove the existing refrigeration unit from the
Premises. In addition, Landlord shall have the right, but not the obligation, -
to perform a seismic retrofit of the Premises (the "Seismic Retrofit"). If
Landlord elects to complete the Seismic Retrofit, Landlord shall use
commercially reasonable efforts to complete the seismic retrofit within thirty
(30) days after the Commencement Date. The scope of the Seismic Retrofit and the
alterations made to the Premises to complete the Seismic Retrofit shall be
determined by Landlord, in Landlord's sole discretion. The work to be completed
by Landlord pursuant to this section shall be completed by Landlord, at
Landlord's sole cost and expense, and the cost of completing such items shall
not be deducted from the Improvement Allowance (as that term is defined in the
Work Letter Agreement attached to this Lease).
3.5 EARLY POSSESSION. Provided that Tenant does not interfere with or
delay the completion by Landlord or its agents or contractors of the work
described in section 3.4, Tenant shall have the right to enter the Premises
prior to the Commencement Date for the purpose of installing its trade fixtures
and equipment. Tenant shall be liable for any damages caused by Tenant's
activities at the Premises. Tenant acknowledges that it may not be able to
install trade fixtures and equipment while Landlord is completing the work
described in section 3.4. Provided that Tenant has not begun operating its
business from the Premises, and subject to all of the terms and conditions of
the Lease, the foregoing activity shall not constitute the delivery of
possession of the Premises to Tenant and the Lease term shall not commence as a
result of said activities. Prior to entering the Premises Tenant shall obtain
all insurance it is required to obtain by the Lease and shall provide
certificates of said insurance to Landlord. Tenant shall coordinate such entry
with Landlord's manager, and such entry shall be made in compliance with all
terms and conditions of this Lease.
4. USE.
4.1 PERMITTED USE. The Premises shall be used only for the purpose
described in section 1.6 and for no other purpose. Landlord makes no
representation or warranty that Tenant's use is permitted by applicable zoning
laws or other laws and regulations. In no event shall retail sales to customers
be made from the Premises: provided, however, Tenant shall be entitled to
deliver full cases of liquor, beer, wine and other alcoholic beverages to
customers from the Premises if, and only if, such deliveries are required in
order for Tenant to maintain a liquor license or permit. No on-site consumption
of alcoholic beverages shall be permitted. Landlord makes no representation or
warranty to Tenant that retail sales of alcoholic beverages will be permitted
from the Premises, and Tenant's obligations under the Lease are not conditioned
upon such sales being permitted. Landlord will not enter into any agreement,
covenant or restriction affecting the Premises during the term of the Lease
which will prevent Tenant from using the Premises for the uses described in
section 1.6.
4.2 COMPLIANCE WITH LAWS. Tenant shall, at Tenant's sole expense, promptly
comply with all applicable laws, ordinances, rules, regulations, orders,
certificates of occupancy, conditional use or other permits, variances,
covenants and restrictions of record, the recommendations of Landlord's
engineers or other consultants, and requirements of any fire insurance
underwriters, rating bureaus or government agencies, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of (he term hereof, relating in
any manner to the Premises or the occupation and use by Tenant of the Premises.
Tenant shall, at Tenant's sole expense, comply with all requirements of the
Americans With Disabilities Act that relate to the Premises, and all federal,
state and local
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<PAGE>
laws and regulations governing occupational safety and health. Tenant shall not
permit any objectionable or unpleasant odors, smoke, dust, gas, noise or
vibrations to emanate from the Premises, or take any other action that would
constitute a nuisance or would disturb, unreasonably interfere with or endanger
Landlord or persons or property within the vicinity of the Premises. Tenant
shall obtain, at its sole expense, any permit or other governmental
authorization required to operate its business from the Premises.
5. BASE RENT. Tenant shall pay Base Rent in the amount set forth on the first
page of this Lease. The first month's Base Rent and the Security Deposit shall
be due and payable on the date this Lease is executed by Tenant, and Tenant
promises to pay to Landlord in advance, without demand, deduction or set-off,
monthly installments of Base Rent on or before the first day of each calendar
month succeeding the Commencement Date. Payments of Base Rent for any fractional
calendar month shall be prorated. All payments required to be made by Tenant to
Landlord hereunder shall be payable at such address as Landlord may specify from
time to time by written notice delivered in accordance herewith. Tenant shall
have no right at any time to abate, reduce, or set-off any rent due hereunder
except where expressly provided in this Lease.
6. SECURITY DEPOSIT. Tenant shall deliver to Landlord at the time it executes
this Lease the security deposit set forth in section 1.11 as security for
Tenant's faithful performance of Tenant's obligations hereunder. If Tenant fails
to pay Base Rent or other charges due hereunder, or otherwise defaults with
respect to any provision of this Lease, Landlord may use all or any portion of
said deposit for the payment of any Base Rent or other charge due hereunder, to
pay any other sum to which Landlord may become obligated by reason of Tenant's
default, or to compensate Landlord for any loss or damage which Landlord may
suffer thereby. If Landlord so uses or applies all or any portion of said
deposit, Tenant shall within ten (10) days after written demand therefor deposit
cash with Landlord in an amount sufficient to restore said deposit to its full
amount. Landlord shall not be required to keep said security deposit separate
from its general accounts. If Tenant performs all of Tenant's obligations
hereunder, said deposit, or so much thereof as has not heretofore been applied
by Landlord, shall be returned, without payment of interest or other amount for
its use, to Tenant (or, at Landlord's option, to the last assignee, if any, of
Tenant's interest hereunder) at the expiration of the term hereof, and after
Tenant has vacated the Premises. No trust relationship is created herein between
Landlord and Tenant with respect to said security deposit. Tenant acknowledges
that the security deposit is not an advance payment of any kind or a measure of
Landlord's damages in the event of Tenant's default. Tenant hereby waives the
provisions of any law which is inconsistent with this section.
7. UTILITIES.
7.1 PAYMENT. Tenant shall pay for all water, gas, electricity, telephone,
sewer, sprinkler services, refuse and trash collection, and other utilities and
services used at the Premises (collectively "Services"), together with any
taxes, penalties, surcharges or the like pertaining thereto. Tenant shall
contract directly with all providers of Services.
7.2 INTERRUPTIONS. Tenant shall be solely responsible for obtaining all
Services, and Landlord shall have no liability to Tenant if Tenant is unable to
obtain Services for any reason including, but not limited to, repairs,
replacements or improvements, by any strike, lockout or other labor trouble, by
inability to secure electricity, gas, water, telephone service or other utility
at the Premises, by any accident, casualty or event arising from any cause
whatsoever, including the negligence of Landlord, its employees, agents and
contractors, by act, negligence or default of Tenant or any other person or
entity, or by any other cause, and such failures shall never be deemed to
constitute an eviction or disturbance of Tenant's use and possession of the
Premises or relieve Tenant from the obligation of paying rent or performing any
of its obligations under this Lease. Furthermore, Landlord shall not be liable
under any circumstances for loss of property or for injury to, or interference
with, Tenant's business, including, without limitation, loss of profits, however
occurring, through or in connection with or incidental to Tenant's inability to
obtain Services. Tenant shall comply with all mandatory controls or guidelines
promulgated by any governmental entity relating to the use or conservation of
energy, water, gas, light or electricity or the reduction of automobile or other
emissions to the extent such regulations apply to Tenant's use of the Premises.
7.3 RAILROAD SPURS. If the Premises is served by a railroad spur, Tenant
shall execute any agreement required by the railroad company serving the
railroad spur, and such agreement shall be satisfactory to Landlord, in
Landlord's sole discretion. Tenant shall pay the cost of maintaining the
railroad spur, at Tenant's sole cost and expense.
8. REAL AND PERSONAL PROPERTY TAXES.
8.1 PAYMENT OF TAXES. Tenant shall pay to Landlord during the term of this
Lease, in addition to Base Rent all "Real Property Taxes" (as defined below).
Real Property Taxes shall be payable by Tenant within ten (10) days after a
reasonably detailed statement of actual expenses is presented to Tenant by
Landlord. At Landlord's option, however, Landlord may, from time to time,
estimate what Real Property Taxes will be, and the same shall be payable by
Tenant monthly during each calendar year of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Tenant pays Landlord's
estimate of Real Property Taxes, Landlord shall use its best efforts to deliver
to Tenant within one hundred eighty (180) days after the expiration of each
calendar year a reasonably detailed statement (the "Statement") showing the Real
Property Taxes incurred during such year. Landlord's failure to deliver the
Statement to Tenant within said period shall not constitute Landlord's waiver of
its right to collect said amounts or otherwise prejudice Landlord's rights
hereunder, If Tenant's payments under this section during said calendar year
exceed the Real Property Taxes as indicated on the Statement, Tenant shall be
entitled to credit the amount of such overpayment against the Base Rent next
falling due. If Tenant's payments under this section during said calendar year
were less than Real Property Taxes as indicated on the Statement, Tenant shall
pay to Landlord the amount of the deficiency within thirty (30) days after
delivery by Landlord to Tenant of the Statement. Landlord and Tenant shall
forthwith adjust between them by cash payment any balance determined to exist
with respect to that portion of the last calendar year for which Tenant is
responsible for Real Property Taxes, notwithstanding that the Lease term may
have terminated before the end of such calendar year; and this provision shall
survive the expiration or earlier termination of the Lease. If during the term
of this Lease a special assessment for street, water or sewer improvements or
similar items is approved, and Landlord has the right to pay such special
assessment in a lump sum or in installments, Landlord shall not pass through to
Tenant as part of Real Property Taxes each year an amount greater than the
amount that would be due from time to time had Landlord elected to pay such
special assessment in installments. Provided that Tenant pays all Real Property
Taxes as and when due pursuant to this section, Tenant shall have the right to
appeal any Real Property Tax assessment with the Los Angeles County Tax
Assessor, all at Tenant's sole cost and expense. Landlord shall have the right
to approve, in advance, in Landlord's reasonable discretion, any letters,
applications or other written materials Tenant desires to file with the
Assessor.
8.2 DEFINITION OF REAL PROPERTY TAX. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, improvement bond or bonds imposed
on the Premises or any portion thereof by any authority having the direct or
indirect power to tax, including any city, county, state or federal government,
or any school, agricultural, sanitary, fire, street, drainage or other
improvement district thereof, as against any legal or equitable interest of
Landlord in the Premises or in any portion thereof. Real Property Taxes shall
not include income, inheritance and gift taxes.
-3-
<PAGE>
8.3 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Tenant contained in the Premises or related
to Tenant's use of the Premises. If any of Tenant's personal property shall be
assessed with Landlord's real or personal property, Tenant shall pay to Landlord
the taxes attributable to Tenant within ten (10) days after receipt of a written
statement from Landlord setting forth the taxes applicable to Tenant's property.
9. INSURANCE.
9.1 INSURANCE-TENANT.
(a) Tenant shall obtain and keep in force during the term of this
Lease a commercial general liability policy of insurance with coverages
acceptable to Landlord, in Landlord's reasonable discretion, which, by way of
example and not limitation, protects Tenant and Landlord (as an additional
insured) against claims for bodily injury, personal injury and property damage
based upon, involving or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $2,000,000 per occurrence with an "Additional Insured-Managers and
Landlords of Premises Endorsement" and contain the "Amendment of the Pollution
Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The
policy shall not contain any intra-insured exclusions as between insured persons
or organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Tenant's indemnity
obligations under this Lease.
(b) Tenant shall obtain and keep in force during the term of this
Lease "all-risk-extended coverage property insurance with coverages acceptable
to Landlord, in Landlord's reasonable discretion. Said insurance shall be
written on a one hundred percent (100%) replacement cost basis on Tenant's
personal property, all tenant improvements installed at the Premises by Landlord
or Tenant, Tenant's trade fixtures and other property. By way of example, and
not limitation, such policies shall provide protection against any peril
included within the classification "fire and extended coverage," against
vandalism and malicious mischief, theft, sprinkler leakage, earthquake damage
and flood damage.
(c) Tenant shall, at all times during the term hereof, maintain in
effect workers' compensation insurance as required by applicable law and
business interruption and extra expense insurance reasonably satisfactory to
Landlord.
9.2 INSURANCE-LANDLORD.
(a) Landlord shall obtain and keep in force a policy of general
liability insurance with coverage against such risks and in such amounts as
Landlord deems advisable insuring Landlord against liability arising out of the
ownership, operation and management of the Premises.
(b) Landlord shall also obtain and keep in force during the term of
this Lease a policy or policies of insurance covering loss or damage to the
Premises in the amount of not less than eighty percent (80%) of the full
replacement cost thereof, as determined by Landlord from time to time. The terms
and conditions of said policies and the perils and risks covered thereby shall
be determined by Landlord, from time to time, in Landlord's sole discretion. In
addition, at Landlord's option, Landlord shall obtain and keep in force, during
the term of this Lease, a policy of rental interruption insurance, with loss
payable to Landlord, which insurance shall, at Landlord's option, also cover all
Real Property Taxes. Tenant will not be named as an additional insured in any
insurance policies carried by Landlord and shall have no right to any proceeds
therefrom. The policies purchased by Landlord shall contain such deductibles as
Landlord may determine. Tenant shall pay at Tenant's sole expense any increase
in the property insurance premiums for the Premises over what was payable
immediately prior to the increase to the extent the increase is specified by
Landlord's insurance carrier as being caused by the nature of Tenant's occupancy
or any act or omission of Tenant.
(c) Tenant shall pay for all insurance purchased by Landlord pursuant
to this section 9.2 in the same manner as Tenant pays Real Property Taxes (i.e.,
ten (10) days after delivery of a statement or monthly estimates).
9.3 INSURANCE POLICIES. Tenant shall deliver to Landlord certificates of
the insurance policies required under section 9.1 within fifteen (15) days prior
to the Commencement Date of this Lease, and Landlord shall have the right to
approve the terms and conditions of said certificates. Tenant's insurance
policies shall not be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord.
Tenant shall, at least thirty (30) days prior to the expiration of such
policies, furnish Landlord with renewals thereof. Tenant's insurance policies
shall be issued by insurance companies authorized to do business in the state in
which the Premises is located, and said companies shall maintain during the
policy term a "General Policyholder's Rating" of at least A and a financial
rating of at least "Class X" (or such other rating as may be required by any
lender having a lien on the Premises) as set forth in the most recent edition of
"Best Insurance Reports." All insurance obtained by Tenant shall be primary to
and not contributory with any similar insurance carried by Landlord, whose
insurance shall be considered excess insurance only. Landlord, and at Landlord's
option, the holder of any mortgage or deed of trust encumbering the Premises and
any person or entity managing the Premises on behalf of Landlord, shall be named
as an additional insured on all insurance policies Tenant is obligated to obtain
by section 9.1 above. Tenant's insurance policies shall not include deductibles
in excess of Ten Thousand Dollars ($10,000).
9.4 WAIVER OF SUBROGATION. Landlord and Tenant hereby release each other
from any claims and demands of whatever nature for damage, loss or injury to the
Premises or to the other's property in, on or about the Premises, that are
caused by or result from risks or perils insured against under any property
insurance policies required by this Lease to be carried by Landlord and/or
Tenant whether or not in force at the time of any such damage, loss or injury.
Landlord and Tenant shall cause each such insurance policy obtained by them to
provide that the insurance company waives all right of recovery by way of
subrogation against either Landlord or Tenant in Connection with any damage
covered by any such policy or policies.
9.5 COVERAGE. Landlord makes no representation to Tenant that the limits
or forms of coverage specified above or approved by Landlord are adequate to
insure Tenant's property or Tenant's obligations under this Lease, and the
limits of any insurance carried by Tenant shall not limit Tenant's obligations
or liability under any indemnity provision included in this Lease or under any
other provision of this Lease.
10. LANDLORD'S REPAIRS. Landlord shall maintain, at Landlord's expense, only
the structural elements of the roof (excluding the roof membrane) of the
Building and the structural soundness of the foundation and exterior walls of
the Building. Tenant shall reimburse Landlord for the cost of any maintenance,
repair or replacement of the foregoing necessitated by Tenant's misuse,
negligence, alterations to the Premises or any breach of its obligations under
this Lease. The term "walls" as used in this section shall not include windows,
glass or plate glass, doors or overhead doors, special store fronts, dock
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bumpers, dock plates or levelers, or office entries. Tenant shall immediately
give Landlord written notice of any repair required by Landlord pursuant to this
section, after which Landlord shall have a reasonable time in which to complete
the repair. Nothing contained in this section shall be construed to obligate
Landlord to make nonstructural repairs, to paint any walls or to seal or
otherwise maintain the surface of any foundation, floor or slab. Landlord shall
have the right upon written notice to Tenant, in Landlord's sole discretion, to
maintain, repair and repaint the exterior walls, overhead doors, canopies,
entries, handrails, gutters and other exposed parts of the Building as necessary
to maintain its existing appearance in good condition (hereinafter the
"Aesthetic Maintenance"). If Landlord elects to perform the Aesthetic
Maintenance, Tenant shall reimburse Landlord for the cost of the Aesthetic
Maintenance as additional rent, and said additional rent shall be payable by
Tenant within ten (10) days after demand by Landlord. Tenant expressly waives
the benefits of any statute now or hereafter in effect which would otherwise
afford Tenant the right to make repairs at Landlord's expense or to terminate
this Lease because of Landlord's failure to keep the Premises in good order,
condition and repair.
11. TENANT'S REPAIRS. Tenant shall, at its sole cost and expense, keep and
maintain all parts of the Premises (except those listed as Landlord's
responsibility in section 10 above) in good and sanitary condition, promptly
making all necessary repairs and replacements, including but not limited to,
windows, glass and plate glass, doors, skylights, any special store front or
office entry, interior walls and finish work, floors and floor coverings, roofs,
sidewalks, roadways, parking areas, exterior lighting, fences, retaining or
similar walls, landscaping, sprinkler systems, gutters, curbs, trash enclosures,
signs, gates, parking lot striping, heating and air conditioning systems, dock
boards, truck doors, dock bumpers, plumbing work and fixtures, electrical
systems, lighting facilities and bulbs, sprinkler systems, fire detection
systems, termite and pest extermination, and regular removal of trash and
debris. Unless Landlord has elected in writing to be responsible for the
Aesthetic Maintenance, Tenant shall, at Tenant's sole expense, be responsible
for the Aesthetic Maintenance. Tenant shall notify Landlord in writing prior to
making any repair or performing any maintenance pursuant to this section, and
Landlord shall have the right to designate the contractor Tenant shall use to
make any repair or to perform any maintenance on the roof, heating, ventilation
and air conditioning systems ("HVAC"), plumbing systems, electrical systems or
fire detection systems located at the Premises; provided, however, in the case
of an emergency, Tenant may make a repair without notifying Landlord if Tenant
notifies Landlord as soon as is reasonably possible after making the repair and
otherwise complies with the terms and conditions of this Lease. Tenant shall, at
its own cost and expense, enter into a regularly scheduled preventative
maintenance/service contract with a maintenance contractor for all hot water,
HVAC systems and the roof of the Premises and all equipment within the Premises.
The maintenance contractor and the contract must be approved by Landlord and, at
Landlord's election, Landlord may designate the maintenance contractor, provided
the charges of Landlord's maintenance contractor are commercially reasonable and
Landlord's maintenance contractor provides competent and timely service. The
service contract must include all services suggested by the equipment
manufacturer within the operation/maintenance manual and must become effective
(and a copy thereof delivered to Landlord) within thirty (30) days after the
date Tenant takes possession of the Premises. If Tenant fails to keep the
Premises in good condition and repair, Landlord may, but shall not be obligated
to, make any necessary repairs. upon ten (10) days' advance written notice to
Tenant. If Landlord makes such repairs, Landlord may bill Tenant for the cost of
the repairs as additional rent, and said additional rent shall be payable by
Tenant within ten (10) days after demand by Landlord. Landlord shall have the
right, but not the obligation, to assume responsibility for maintaining any
landscaping or maintenance contracts (including, but not limited to, the
maintenance of the HVAC and roof of the Premises), in which event Tenant shall
reimburse Landlord for the cost of such maintenance within ten (10) days after
written demand by Landlord.
12. ALTERATIONS AND SURRENDER.
12.1 CONSENT OF LANDLORD. Tenant shall not make any alterations,
improvements, additions, utility installations or repairs (hereinafter
collectively referred to as "Alterations") in, on or about the Premises without
Landlord's prior written consent which shall not be unreasonably withheld,
conditioned or delayed. Alterations shall include, but shall not be limited to,
the installation or alteration of security or fire protection systems,
communication systems, millwork, shelving, retrieval or storage systems,
carpeting or other floor covering, window and wall coverings, electrical
distribution systems, lighting fixtures, telephone or computer system wiring,
HVAC and plumbing. At the expiration of the term, Landlord may require the
removal of any Alterations installed by Tenant and the restoration of the
Premises to its prior condition, at Tenant's expense. Should Landlord permit
Tenant to make its own Alterations, Tenant shall use only such contractor as has
been reasonably approved by Landlord, and Landlord may require Tenant to provide
to Landlord, at Tenant's sole cost and expense, a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alterations,
to insure Landlord against any liability for mechanic's and materialmen's liens
and to insure completion of the work. In addition, Tenant shall pay to Landlord
a fee equal to three percent (3%) of the cost of the Alterations to compensate
Landlord for the overhead and other costs it incurs in reviewing the plans for
the Alterations and in monitoring the construction of the Alterations; provided,
however, this fee shall not apply to the construction of the Tenant Improvements
described in the Work Letter Agreement attached hereto. Should Tenant make any
Alterations without the prior approval of Landlord, or use a contractor not
expressly approved by Landlord, Landlord may, at any time during the term of
this Lease, require that Tenant remove all or part of the Alterations and return
the Premises to the condition it was in prior to the making of the Alternations.
In the event Tenant makes any Alterations, Tenant agrees to obtain or cause its
contractor to obtain, prior to the commencement of any work, "builders all-risk"
insurance in an amount approved by Landlord and workers compensation insurance.
12.2 PERMITS. Any Alterations in or about the Premises that Tenant shall
desire to make shall be presented to Landlord in written form, with plans and
specifications which are sufficiently detailed to obtain a building permit. If
Landlord consents to an Alteration, the consent shall be deemed conditioned upon
Tenant acquiring a building permit from the applicable governmental agencies,
furnishing a copy thereof to Landlord prior to the commencement of the work, and
compliance by Tenant with all conditions of said permit in a prompt and
expeditious manner. Tenant shall provide Landlord with as-built plans and
specifications for any Alterations made to the Premises.
12.3 MECHANICS LIENS. Tenant shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Tenant at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or any interest therein. If Tenant
shall, in good faith, contest the validity of any such lien, Tenant shall
furnish to Landlord a surety bond satisfactory to Landlord in an amount equal to
not less than one and one half times the amount of such contested lien claim
indemnifying Landlord against liability arising out of such lien or claim. Such
bond shall be sufficient in form and amount to free the Premises from the effect
of such lien. In addition, Landlord may require Tenant to pay Landlord's
reasonable attorneys' fees and costs in participating in such action.
12.4 NOTICE. Tenant shall give Landlord not less than ten (10) days'
advance written notice prior to the commencement of any work in the Premises by
Tenant, and Landlord shall have the right to post notices of non-responsibility
in or on the Premises.
12.5 SURRENDER. Subject to Landlord's right to require removal or to elect
ownership as hereinafter provided, all Alterations (Alterations do not include
trade fixtures and equipment) made by Tenant to the Premises shall be the
property
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of Tenant, but shall be considered to be a part of the Premises. At Landlord's
option, the Alterations shall become the property of Landlord at the end of the
term of this Lease; provided, however, Tenant shall be entitled to remove the
HVAC system it installs at the Premises ("Tenant's HVAC System"). If Tenant
removes Tenant's HVAC System, it shall reinstall at the Premises prior to the
end of the term of this Lease, a HVAC system that is comparable to the HVAC
system at the Premises on the Commencement Date of this Lease and such HVAC
system shall be in good working order and condition. Landlord may require on
notice to Tenant, that some or all Alterations be removed prior to the end of
the term of this Lease and that any damages caused by such removal be repaired
at Tenant's sole expense. On the last day of the term hereof, or on any sooner
termination, Tenant shall surrender the Premises (including, but not limited to,
all doors, windows, floors and floor coverings, skylights, heating and air
conditioning systems, dock boards, truck doors, dock bumpers, plumbing work and
fixtures, electrical systems, lighting facilities, sprinkler systems, fire
detection systems and nonstructural elements of the exterior walls, foundation
and roof (collectively the "Elements of the Premises")) to Landlord in the same
condition as received, ordinary wear and tear and casualty damage excepted,
clean and free of debris and Tenant's personal property, trade fixtures and
equipment. Provided, however, if Landlord has not elected to have Tenant remove
the Alterations, Tenant shall leave the Alterations at the Premises in good
condition and repair, ordinary wear and tear excepted. Tenant shall repair any
damage to the Premises occasioned by the installation or removal of Tenant's
trade fixtures, furnishings, equipment and Alterations. Damage to or
deterioration of any Element of the Premises or any other item Tenant is
required to repair or maintain at the Premises shall not be deemed ordinary wear
and tear if the same could have been prevented by good maintenance practices.
12.6 FAILURE OF TENANT TO REMOVE PROPERTY. If this Lease is terminated due
to the expiration of its term or otherwise, and Tenant fails to remove its
property, in addition to any other remedies available to Landlord under this
Lease, and subject to any other right or remedy Landlord may have under
applicable law, Landlord may remove any property of Tenant from the Premises and
store the same elsewhere at the expense and risk of Tenant.
13. DAMAGE AND DESTRUCTION.
13.1 EFFECT OF DAMAGE OR DESTRUCTION. If all or part of the Premises is
damaged by fire, earthquake, flood, explosion, the elements, riot, the release
or existence of Hazardous Substances (as defined below) or by any other cause
whatsoever (hereinafter collectively referred to as "damages"), but the damages
are not material (as defined in section 13.2 below), Landlord shall repair the
damages to the Premises as soon as is reasonably possible, and this Lease shall
remain in full force and effect. If all or part of the Premises is destroyed or
materially damaged (as defined in section 13.2 below), Landlord shall have the
right, in its sole and complete discretion, to repair or to rebuild the Premises
or to terminate this Lease. Landlord shall within ninety (90) days after the
discovery of such material damage or destruction notify Tenant in writing of
Landlord's intention to repair or to rebuild or to terminate this Lease. Tenant
shall in no event be entitled to compensation or damages on account of annoyance
or inconvenience in making any repairs, or on account of construction, or on
account of Landlord's election to terminate this Lease. Notwithstanding the
foregoing, if Landlord shall elect to rebuild or repair the Premises after
material damage or destruction, but in good faith determines that the Premises
cannot be substantially repaired within three hundred sixty (360) days after the
date of the discovery of the material damage or destruction, without payment of
overtime or other premiums, and the damage to the Premises will render the
entire Premises unusable during said three hundred sixty (360) day period,
Landlord shall notify Tenant thereof in writing at the time of Landlord's
election to rebuild or repair, and Tenant shall thereafter have a period of
thirty (30) days within which Tenant may elect to terminate this Lease, upon
thirty (30) days' advance written notice to Landlord. Tenant's termination right
described in the preceding sentence shall not apply if the damage was caused by
the negligent or intentional acts of Tenant or its employees, agents,
contractors or invitees. Failure of Tenant to exercise said election within said
thirty (30) day period shall constitute Tenant's agreement to accept delivery of
the Premises under this Lease whenever tendered by Landlord, provided Landlord
thereafter pursues reconstruction or restoration diligently to completion,
subject to delays caused by Force Majeure Events. Subject to section 13.3 below,
if Landlord or Tenant terminates this Lease in accordance with this section
13.1, Tenant shall continue to pay all Base Rent and other amounts due hereunder
which arise prior to the date of termination.
13.2 DEFINITION OF MATERIAL DAMAGE. Damage to the Premises shall be deemed
material if, in Landlord's reasonable judgment, the uninsured cost of repairing
the damage will exceed One Hundred Thousand Dollars ($100,000). If insurance
proceeds are available to Landlord in an amount which is sufficient to pay the
entire cost of repairing all of the damage to the Premises the damage shall be
deemed material if the cost of repairing the damage exceeds Three Hundred
Thousand Dollars ($300,000). Damage to the Premises shall also be deemed
material if (a) the Premises cannot be rebuilt or repaired to substantially the
same condition it was in prior to the damage due to laws or regulations in
effect at the time the repairs will be made, (b) the holder of any mortgage or
deed of trust encumbering the Premises requires that insurance proceeds
available to repair the damage in excess of One Hundred Thousand Dollars
($100,000) be applied to the repayment of the indebtedness secured by the
mortgage or the deed of trust, or (c) the damage occurs during the last twelve
(12) months of the Lease term.
13.3 ABATEMENT OF RENT. If Landlord elects to repair damage to the
Premises and all or part of the Premises will be unusable or inaccessible to
Tenant in the ordinary conduct of its business until the damage is repaired, and
the damage was not caused by the negligence or intentional acts of Tenant or its
employees, agents, contractors or invitees, Tenant's Base Rent shall be abated
until the repairs are completed in proportion to the amount of the Premises
which is unusable or inaccessible to Tenant in the ordinary conduct of its
business. Notwithstanding the foregoing, there shall be no abatement of Base
Rent by reason of any portion of the Premises being unusable or inaccessible for
a period equal to five (5) consecutive business days or less.
13.4 TENANT'S ACTS. If such damage or destruction occurs as a result of
the negligence or the intentional acts of Tenant or Tenant's employees, agents,
contractors or invitees, and the proceeds of insurance which are actually
received by Landlord are not sufficient to pay for the repair of all, of the
damage, Tenant shall pay, at Tenant's sole cost and expense, to Landlord upon
demand, the difference between the cost of repairing the damage and the
insurance proceeds received by Landlord.
13.5 TENANT'S PROPERTY. Landlord shall not be liable to Tenant or its
employees, agents, contractors, invitees or customers for loss or damage to
merchandise, tenant improvements, fixtures, automobiles, furniture, equipment,
computers, files or other property (hereinafter collectively "Tenant's
property") located at the Premises. Tenant shall repair or replace all of
Tenant's property at Tenant's sole cost and expense. Tenant acknowledges that it
is Tenant's sole responsibility to obtain adequate insurance coverage to
compensate Tenant for damage to Tenant's property.
13.6 WAIVER. Landlord and Tenant hereby waive the provisions of any
present or future statutes which relate to the termination of leases when leased
property is damaged or destroyed and agree that such event shall be governed by
the terms of this Lease.
14. CONDEMNATION. If any portion of the Premises is taken under the power of
eminent domain, or sold under the threat of the exercise of said power (all of
which are herein called "condemnation"), this Lease shall terminate as to the
part so taken
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as of the date the condemning authority takes title or possession, whichever
first occurs; provided that if so much of the Premises is taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Tenant's business conducted from the Premises, and said taking
lasts for ninety (90) days or more, Tenant shall have the option, to be
exercised only in writing within thirty (30) days after Landlord shall have
given Tenant written notice of such taking (or in the absence of such notice,
within thirty (30) days after the condemning authority shall have taken
possession), to terminate this Lease as of the date the condemning authority
takes such possession. If a taking lasts for less than ninety (90) days.
Tenant's rent shall be abated during said period but Tenant shall not have the
right to terminate this Lease, If Tenant 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 all rent shall be
reduced in the proportion that the usable floor area of the Premises taken bears
to the total usable floor area of the Premises. Landlord shall have the option
in its sole discretion to terminate this Lease as of the taking of possession by
the condemning authority, by giving written notice to Tenant of such election
within thirty (30) days after receipt of notice of a taking by condemnation of
any part of the Premises, provided that the fair market value of the property
taken exceeds Three Hundred Thousand Dollars ($300,000). Any award for the
taking of all or any part of the Premises under the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Landlord, whether such award shall be made as compensation for
diminution in value of the leasehold, for good will, for the taking of the fee,
as severance damages, or as damages for tenant improvements; provided, however,
that Tenant shall be entitled to any separate award for loss of or damage to
Tenant's removable personal property and for moving expenses. In the event that
this Lease is not terminated by reason of such condemnation, and subject to the
requirements of any lender that has made a loan to Landlord encumbering the
Premises, Landlord shall to the extent of severance damages received by Landlord
in connection with such condemnation, repair any damage to the Premises caused
by such condemnation except to the extent that Tenant has been reimbursed
therefor by the condemning authority. This section, not general principles of
law or California Code of Civil Procedure sections 1230.010 et ~ shall govern
the rights and obligations of Landlord and Tenant with respect to the
condemnation of all or any portion of the Premises.
15. ASSIGNMENT AND SUBLETTING.
15.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law assign, transfer, hypothecate, mortgage, sublet, or otherwise
transfer or encumber all or any part of Tenant's interest in this Lease or in
the Premises (hereinafter collectively a "Transfer"), without Landlord's prior
written consent, which shall not be unreasonably withheld, Landlord shall
respond to Tenant's written request for consent hereunder within thirty (30)
days after Landlord's receipt of the written request from Tenant. Any attempted
Transfer without such consent shall be void and shall constitute a material
default and breach of this Lease. Tenant's written request for Landlord's
consent shall include, and Landlord's thirty (30) day response period referred
to above shall not commence, unless and until Landlord has received from Tenant,
all of the following information: (a) financial statements for the proposed
assignee or subtenant for the past three (3) years prepared in accordance with
generally accepted accounting principles, (b) federal tax returns for the
proposed assignee or subtenant for the past three (3) years, (c) a TRW credit
report or similar report on the proposed assignee or subtenant, (d) a detailed
description of the business the assignee or subtenant intends to operate at the
Premises, (e) the proposed effective date of the assignment or sublease, (f) a
copy of the proposed sublease or assignment agreement which includes all of the
terms and conditions of the proposed assignment or sublease, (g) a detailed
description of any ownership or commercial relationship between Tenant and the
proposed assignee or subtenant and (h) a detailed description of any Alterations
the proposed assignee or subtenant desires to make to the Premises. If the
obligations of the proposed assignee or subtenant will be guaranteed by any
person or entity, Tenant's written request shall not be considered complete
until the information described in (a), (b) and (c) of the previous sentence has
been provided with respect to each proposed guarantor. "Transfer" shall also
include the transfer (a) if Tenant is a corporation, and Tenant's stock is not
publicly traded over a recognized securities exchange, of more than fifty
percent (50%) of the voting stock of such corporation during the term of this
Lease (whether or not in one or more transfers) or the dissolution, merger or
liquidation of the corporation, or (b) if Tenant is a partnership, limited
liability company, limited liability partnership or other `entity, of more than
twenty five percent (25%) of the profit and loss participation in such
partnership or entity during the term of this Lease (whether or not in one or
more transfers) or the dissolution, merger or liquidation of the partnership,
limited liability company, limited liability partnership or other entity. If
Tenant is a limited or general partnership (or is comprised of two or more
persons, individually or as co-partners), Tenant shall not be entitled to change
or convert to (i) a limited liability company, (ii) a limited liability
partnership or (iii) any other entity which possesses the characteristics of
limited liability without the prior written consent of Landlord, which consent
may be given or withheld in Landlord's sole discretion. Tenant's sole remedy in
the event that Landlord shall wrongfully withhold consent to or disapprove any
assignment or sublease shall be to obtain an order by a court of competent
jurisdiction that Landlord grant such consent; in no event shall Landlord be
liable for damages with respect to its granting or withholding consent to any
proposed assignment or sublease. If Landlord shall exercise any option to
recapture the Premises, or shall deny a request for consent to a proposed
assignment or sublease, Tenant shall indemnify, defend and hold Landlord
harmless from and against any and all losses, liabilities, damages, costs and
claims that may be made against Landlord by the proposed assignee or subtenant,
or by any brokers or other persons claiming a commission or similar compensation
in connection with the proposed assignment or sublease.
15.2 LEVERAGED BUY-OUT. The involvement by Tenant or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, sale of company stock, refinancing, transfer, leveraged buy-out or
otherwise) whether or not a formal assignment or hypothecation of this Lease or
Tenant's assets occurs, which results or will result in a reduction of the "Net
Worth" of Tenant, as hereinafter defined, by an amount equal to or greater than
twenty-five percent (25%) of such Net Worth of Tenant as it exists immediately
prior to said transaction or transactions constituting such reduction shall be
considered to be an assignment of this Lease by Tenant to which Landlord may
reasonably withhold its consent (a "Leveraged Buy-out Event"). A Leveraged Buy-
out Event in which the Net Worth of Tenant is reduced by less than twenty-five
percent (25%) shall not be considered an assignment of this Lease for purposes
of this section 15.2. "Net Worth" of Tenant for purposes of this section shall
be the net worth of Tenant established under generally accepted accounting
principles consistently applied.
15.3 STANDARD FOR APPROVAL. Landlord shall not unreasonably withhold its
consent to a Transfer provided that Tenant has complied with each and every
requirement, term and condition of this section 15. Tenant acknowledges and
agrees that each requirement, term and condition in this section 15 is a
reasonable requirement, term or condition. It shall be deemed reasonable for
Landlord to withhold its consent to a Transfer if any requirement, term or
condition of this section 15 is not complied with or: (a) the Transfer would
cause Landlord to be in violation of its obligations under another lease or
agreement to which Landlord is a party; (b) in Landlord's reasonable judgment, a
proposed assignee or subtenant has a smaller net worth than Tenant had on the
date this Lease was entered into with Tenant or is less able financially to pay
the rents due under this Lease as and when they are due and payable; (c) a
proposed assignee's or subtenant's business will impose a burden on the
Premises' parking facilities or utilities that is greater than the burden
imposed by Tenant, in Landlord's reasonable judgment; (d) the terms of a
proposed assignment or subletting will allow the proposed assignee or subtenant
to exercise a right of renewal, right of expansion, right of first offer, right
of first refusal or similar right held by Tenant; (e) a proposed assignee or
subtenant refuses to enter into a written assignment agreement or sublease,
reasonably satisfactory to Landlord, which provides that It will abide by and
assume all of the terms and conditions of this Lease for the term of any
assignment or
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sublease and containing such other terms and conditions as Landlord reasonably
deems necessary; (f) the use of the Premises by the proposed assignee or
subtenant will not be a use permitted by this Lease; (g) Tenant is in default as
defined in section 16 at the time of the request; (h) if requested by Landlord,
the assignee or subtenant refuses to sign a nondisturbance and attornment
agreement in favor of Landlord's lender; (i) Landlord has sued or been sued by
the proposed assignee or subtenant or has otherwise been involved in a legal
dispute with the proposed assignee or subtenant; (j) the assignment or sublease
will result in there being more than one subtenant of the Premises; or (k) the
assignee or subtenant is a governmental or quasi-governmental entity or an
agency, department or instrumentality of a governmental or quasi-governmental
agency.
15.4 ADDITIONAL TERMS AND CONDITIONS. The following terms and conditions
shall be applicable to any Transfer:
(a) Regardless of Landlord's consent, no Transfer shall release
Tenant from Tenant's obligations hereunder or alter the primary liability of
Tenant to pay the rent and other sums due Landlord hereunder and to perform all
other obligations to be performed by Tenant hereunder or release any guarantor
from its obligations under its guaranty.
(b) Landlord may accept rent from any person other than Tenant
pending approval or disapproval of an assignment or subletting.
(c) Neither a delay in the approval or disapproval of a Transfer, nor
the acceptance of rent, shall constitute a waiver or estoppel of Landlord's
right to exercise its rights and remedies for the breach of any of the terms or
conditions of this section.
(d) The consent by Landlord to any Transfer shall not constitute a
consent to any subsequent Transfer by Tenant or to any subsequent or successive
Transfer by an assignee or subtenant.
(e) In the event of any default under this Lease, Landlord may
proceed directly against Tenant, any guarantors or anyone else responsible for
the performance of this Lease, including any subtenant or assignee, without
first exhausting Landlord's remedies against any other person or entity
responsible therefor to Landlord, or any security held by Landlord.
(f) Landlord's written consent to any Transfer by Tenant shall not
constitute an acknowledgment that no default then exists under this Lease nor
shall such consent be deemed a waiver of any then existing default.
(g) The discovery of the fact that any financial statement relied
upon by Landlord in giving its consent to an assignment or subletting was
materially false shall, at Landlord's election, render Landlord's consent null
and void.
(h) Landlord shall not be liable under this Lease or under any
sublease to any subtenant.
(i) No assignment or sublease may be modified or amended without
Landlord's prior written consent.
(j) The occurrence of a transaction described in section 15.2 shall
give Landlord the right (but not the obligation) to require that Tenant
immediately provide Landlord with an additional security deposit equal to two
(2) times the monthly Base Rent payable under the Lease, and Landlord may make
its receipt of such amount a condition to Landlord's consent to such
transaction.
(k) Any assignee of, or subtenant under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Landlord, 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 Tenant during the term of said assignment or sublease, other than
such obligations as are contrary or inconsistent with provisions of an
assignment or sublease to which Landlord has specifically consented in writing.
15.5 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Tenant 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) Tenant hereby absolutely and unconditionally assigns and
transfers to Landlord all of Tenant's interest in all rentals and income arising
from any sublease entered into by Tenant, and Landlord may collect such rent and
income and apply same toward Tenant's obligations under this Lease; provided,
however, that until a default shall occur in the performance of Tenant's
obligations under this Lease, Tenant may receive, collect and enjoy the rents
accruing under such sublease. Landlord shall not, by reason of this or any other
assignment of such rents to Landlord nor by reason of the collection of the
rents from a subtenant, be deemed to have assumed or recognized any sublease or
to be liable to the subtenant for any failure of Tenant to perform and comply
with any of Tenant's obligations to such subtenant under such sublease,
including, but not limited to, `Tenant's obligation to return any security
deposit. Tenant hereby irrevocably authorizes and directs any such subtenant,
upon receipt of a written notice from Landlord stating that a default exists in
the performance of Tenant's obligations under this Lease, to pay to Landlord the
rents due as they become due under the sublease. Tenant agrees that such
subtenant shall have the right to rely upon any such statement and request from
Landlord, and that such subtenant shall pay such rents to Landlord without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Tenant to the contrary.
(b) In the event Tenant shall default in the performance of its
obligations under this Lease, Landlord at its option and without any obligation
to do so, may require any subtenant to attorn to Landlord, in which event
Landlord shall undertake the obligations of Tenant under such sublease from the
time of the exercise of said option to the termination of such sublease;
provided, however, Landlord shall not be liable for any prepaid rents or
security deposit paid by such subtenant to Tenant or for any other prior
defaults of Tenant under such sublease.
15.6 TRANSFER PREMIUM FROM ASSIGNMENT OR SUBLETTING. Landlord shall be
entitled to receive from Tenant (as and when received by Tenant) as an item of
additional rent the following amounts (hereinafter the "Transfer Premium"): (a)
if a sublease is for less than fifty percent (50%) of the usable square feet in
the Premises, one-half of all amounts received by Tenant from the subtenant in
excess of the amounts payable by Tenant to Landlord hereunder or (b) if a
sublease is for fifty percent (50%) or more of the usable square feet in the
Premises or Tenant assigns the Lease, all amounts received by Tenant from the
subtenant or assignee in excess of the amounts payable by Tenant to Landlord
hereunder. The Transfer Premium shall be reduced by the reasonable brokerage
commissions and legal fees actually paid by Tenant in order to assign the Lease
or to sublet a portion of the Premises, "Transfer Premium" shall mean all Base
Rent, additional rent or other consideration of any type whatsoever payable by
the assignee or subtenant in excess of the Base Rent and additional rent
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payable by Tenant under this Lease. If less than all of the Premises is
transferred, the Base Rent and the additional rent shall be determined on a per
rentable square foot basis. "Transfer Premium" shall also include, but not be
limited to, key money and bonus money paid by the assignee or subtenant to
Tenant in connection with such Transfer, and any payment in excess of fair
market value for services rendered by Tenant to the assignee or subtenant or for
assets, fixtures, inventory, equipment, or furniture transferred by Tenant to
the assignee or subtenant in connection with such Transfer.
15.7 LANDLORD'S OPTION TO RECAPTURE SPACE. Notwithstanding anything to the
contrary contained in this section 15, Landlord shall have the option, by giving
written notice to Tenant within thirty (30) days after receipt of any request by
Tenant to assign this Lease or to sublease space in the Premises, to terminate
this Lease with respect to said space as of the date thirty (30) days after
Landlord's election. In the event of a recapture by Landlord, if this Lease
shall be canceled with respect to less than the entire Premises, the Base Rent
and the number of parking spaces Tenant may use shall be adjusted on the basis
of the number of rentable square feet retained by Tenant in proportion to the
number of rentable square feet contained in the original Premises, and this
Lease as so amended shall continue thereafter in full force and effect, and upon
request of either party, the parties shall execute written confirmation of same.
If Landlord recaptures only a portion of the Premises, it shall construct and
erect at its sole cost such partitions as may be required to sever the space to
be retained by Tenant from the space recaptured by Landlord. Landlord may, at
its option, lease any recaptured portion of the Premises to the proposed
subtenant or assignee or to any other person or entity without liability to
Tenant. Tenant shall not be entitled to any portion of the profit, if any,
Landlord may realize on account of such termination and reletting. Tenant
acknowledges that the purpose of this section is to enable Landlord to receive
profit in the form of higher rent or other consideration to be received from an
assignee or subtenant and to permit Landlord to control the leasing of space in
the Premises. Tenant acknowledges and agrees that the requirements of this
section are commercially reasonable and are consistent with the intentions of
Landlord and Tenant.
15.8 LANDLORD'S EXPENSES. In the event Tenant shall assign this Lease or
sublet the Premises or request the consent of Landlord to any Transfer, then
Tenant shall pay Landlord's reasonable costs and expenses, not to exceed Three
Thousand Dollars ($3,000) per transaction incurred in connection therewith,
including, but not limited to, attorneys', architects', accountants', engineers'
or other consultants' fees.
16. DEFAULT REMEDIES.
16.1 DEFAULT BY TENANT. Landlord and Tenant hereby agree that the
occurrence of any one or more of the following events is a material default by
Tenant under this Lease and that said default shall give Landlord the rights
described in section 16.2. Landlord or Landlord's authorized agent shall have
the right to execute and to deliver any notice of default, notice to pay rent or
quit or any other notice Landlord gives Tenant.
(a) Tenant's failure to make any payment of Base Rent, Real Property
Taxes or any other payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of three (3) days after
written notice thereof from Landlord to Tenant. In the event that Landlord
serves Tenant with a notice to pay rent or quit pursuant to applicable unlawful
detainer statutes, such notice shall also constitute the notice required by this
section 16.1(a).
(b) Intentionally deleted.
(c) The failure of Tenant to comply with any of its obligations under
sections 4, 9, 11, 12, 15. 18, 23, 25 and 26 where Tenant fails to comply with
its obligations or fails to cure any earlier breach of such obligation within
ten (10) days following written notice from Landlord to Tenant. In the event
Landlord serves Tenant with a notice to quit or any other notice pursuant to
applicable unlawful detainer statutes, said notice shall also constitute the
notice required by this section 16.1(c).
(d) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant
(other than those referenced in sections 16.1(a), (b) and (c), above), where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's non-performance is such that more than thirty (30) days are reasonably
required for its cure, then Tenant shall not be deemed to be in default if
Tenant commences such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. In the event that Landlord serves
Tenant with a notice to quit or any other notice. pursuant to applicable
unlawful detainer statutes, said notice shall also constitute the notice
required by this section 16.1(d).
(e) (i) The making by Tenant or any guarantor of Tenant's.
obligations hereunder of any general arrangement or general assignment for the
benefit of creditors; (ii)Tenant or any guarantor becoming a "debtor" as defined
in 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a
petition filed against Tenant or guarantor. the same is dismissed within sixty
(60) days): (iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days; or (v) the insolvency of Tenant. In the event that any provision of this
section 16.1(e) is unenforceable under applicable law, such provision shall be
of no force or effect.
(f) The discovery by Landlord that any financial statement,
representation or warranty given to Landlord by Tenant, or by any guarantor of
Tenant's obligations hereunder, was materially false at the time given. Tenant
acknowledges that Landlord has entered into this Lease in material reliance on
such information.
(g) If Tenant is a corporation, partnership, limited liability
company or similar entity, the dissolution or liquidation of Tenant.
16.2 REMEDIES.
(a) In the event of any material default or breach of this Lease by
Tenant, Landlord may, at any time thereafter, with or without notice or demand,
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have by reason of such default:
(i) terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. If
Landlord terminates this Lease, Landlord may recover from Tenant (A) the worth
at the time of award of the unpaid rent which had been earned at the time of
termination; (B) the worth at the time of award of the amount by which the
unpaid rent
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which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; (C) 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 Tenant proves could be reasonably avoided; and (D) any
other amount necessary to compensate Landlord for all detriment proximately
caused by Tenant's failure to perform its obligations under the 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 releasing, including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, any real estate commissions actually paid by
Landlord and the unamortized value of any free rent, reduced rent, tenant
improvement allowance or other economic concessions provided by Landlord. The
"worth at time of award" of the amounts referred to in section 16.2(a)(i)(A) and
(B) shall be computed by allowing interest at the lesser of ten percent (10%)
per annum or the maximum interest rate permitted by applicable law. The worth at
the time of award of the amount referred to in section 16.2(a)(i)(C) shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%). For purposes
of this section 16.2(a)(i), "rent" shall be deemed to be all monetary
obligations required to be paid by Tenant pursuant to the terms of this Lease.
(ii) maintain Tenant's right of possession in which event
Landlord shall have the remedy described in California Civil Code section 1951.4
which permits Landlord to continue this Lease in effect after Tenant's breach
and abandonment and recover rent as it becomes due. In the event Landlord elects
to continue this Lease in effect, Tenant shall have the right to sublet the
Premises or assign Tenant's interest in the Lease subject to the reasonable
requirements contained in section 15 of this Lease and provided further that
Landlord shall not require compliance with any standard or condition contained
in section 15 that has become unreasonable at the time Tenant seeks to sublet or
assign the Premises pursuant to this section 16.2(a)(ii).
(iii) collect sublease rents (or appoint a receiver to collect
such rent) and otherwise perform Tenant's obligations at the Premises, it being
agreed, however, that the appointment of a receiver for Tenant shall not
constitute an election by Landlord to terminate this Lease.
(iv) pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which the Premises
are located.
(b) No remedy or election hereunder shall be deemed exclusive, but
shall, wherever possible, be cumulative with all other remedies at law or in
equity. The expiration or termination of this Lease and/or the termination of
Tenant's right to possession of the Premises shall not relieve Tenant of
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term of the Lease or by reason of Tenant's occupancy of
the Premises.
(c) If Tenant abandons or vacates the Premises, Landlord may re-enter
the Premises and such re-entry shall not be deemed to constitute Landlord's
election to accept a surrender of the Premises or to otherwise relieve Tenant
from liability for its breach of this Lease. No surrender of the Premises shall
be effective against Landlord unless Landlord has entered into a written
agreement with Tenant in which Landlord expressly agrees to (i) accept a
surrender of the Premises and (ii) relieve Tenant of liability under the Lease.
The delivery by Tenant to Landlord of possession of the Premises shall not
constitute the termination of the Lease or the surrender of the Premises.
16.3 DEFAULT BY LANDLORD, Landlord shall not be in default under this
Lease unless Landlord fails to perform obligations required of Landlord within
thirty (30) days after written notice by Tenant to Landlord and to the holder of
any mortgage or deed of trust encumbering the Premises whose name and address
shall have theretofore been furnished to Tenant in writing, specifying wherein
Landlord has failed to perform such obligation; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
required for its cure, then Landlord shall not be in default if Landlord
commences performance within such thirty (30) day period and thereafter
diligently pursues the same to completion. In no event shall Tenant have the
right to terminate this Lease as a result of Landlord's default, and Tenant's
remedies shall be limited to damages and/or an injunction. Tenant hereby waives
its right to recover lost profits or punitive damages arising out of a Landlord
default. This Lease and the obligations of Tenant hereunder shall not be
affected or impaired because Landlord is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay is
caused by reason of a Force Majeure Event, and the time for Landlord's
performance shall be extended for the period of any such delay. Any claim,
demand, right or defense by Tenant that arises out of this Lease or the
negotiations which preceded this Lease shall be barred unless Tenant commences
an action thereon, or interposes a defense by reason thereof, within twelve (12)
months after the date of the inaction, omission, event or action that gave rise
to such claim, demand, right or defense.
16.4 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of Base Rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed encumbering the Premises.
Accordingly, if any installment of Base Rent or any other sum due from Tenant
shall not be received by Landlord when such amount shall be due, then, without
any requirement for notice or demand to Tenant, Tenant shall immediately pay to
Landlord a late charge equal to six percent (6%) of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder including
the assessment of interest under section 16.5.
16.5 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Landlord that is not paid when due shall bear
interest at the lesser of ten percent (10%) per annum or the maximum rate
permitted by applicable law. Payment of such interest shall not excuse or cure
any default by Tenant under this Lease; provided, however, that interest shall
not be payable on late charges incurred by Tenant nor on any amounts upon which
late charges are paid by Tenant.
16.6 PAYMENT OF RENT AND SECURITY DEPOSIT AFTER DEFAULT. If Tenant fails
to pay Base Rent or any other monetary obligation due hereunder on the date it
is due, after Tenant's third failure to pay any monetary obligation on the date
it is due, at Landlord's option, all monetary obligations of Tenant hereunder
shall thereafter be paid by cashiers check, and Tenant shall, upon demand,
provide Landlord with an additional security deposit equal to three (3) months'
Base Rent. If Landlord has required Tenant to make said payments by cashiers
check or to provide an additional security deposit, Tenant's failure to make a
payment by cashiers check or to provide the additional security deposit shall be
a material default hereunder.
17. LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT. All covenants and
agreements to be kept or performed by Tenant under this Lease shall be performed
by Tenant at Tenant's sole cost and expense and without any reduction of rent.
If Tenant shall fail to perform any of its obligations under this Lease,
Landlord may but shall not be
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obligated to, after three (3) days prior written notice to Tenant, make any such
payment or perform any such act on Tenant's behalf without waiving its rights
based upon any default of Tenant and without releasing Tenant from any
obligations hereunder. Tenant shall pay to Landlord, within ten (10) days after
delivery by Landlord to Tenant of statements therefore, an amount equal to the
expenditures reasonably made by Landlord in connection with the remedying by
Landlord of Tenant's defaults pursuant to the provisions of this section.
18. INDEMNITY. Tenant hereby agrees to indemnify, defend and hold harmless
Landlord and its employees, partners, agents, contractors, lenders and ground
lessors (said persons and entities are hereinafter collectively referred to as
the "Indemnified Parties") from and against any and all liability, loss, cost,
damage, claims, loss of rents, liens, judgments, penalties, fines, settlement
costs, investigation costs, the cost of consultants and experts, attorneys fees,
court costs and other legal expenses, the effects of environmental
contamination, the cost of environmental testing, the removal, remediation
and/or abatement of Hazardous Substances (as said term are defined below),
insurance policy deductibles and other expenses (hereinafter collectively
referred to as "Damages") arising out of or related to an "Indemnified Matter"
(as defined below). For purposes of this section, an "Indemnified Matter" shall
mean any matter for which one or more of the Indemnified Parties incurs
liability or Damages if the liability or Damages arise out of or involve,
directly or indirectly, (a) Tenant's or its employees, agents, contractors or
invitees (all of said persons or entities are hereinafter collectively referred
to as "Tenant Parties") use or occupancy of the Premises, (b) any act, omission
or neglect of a Tenant Party, (c) Tenant's failure to perform any of its
obligations under the Lease, (d) the existence, use or disposal of any Hazardous
Substance (as defined below) brought on to the Premises by a Tenant Party, or
(e) any other matters for which Tenant has agreed to indemnify Landlord pursuant
to any other provision of this Lease. Tenant's obligations hereunder shall
include, but shall not be limited to (f) compensating the Indemnified Parties
for Damages arising out of Indemnified Matters within ten (10) days after
written demand from an indemnified Party and (g) providing a defense, with
counsel reasonably satisfactory to the Indemnified Party, at Tenant's sole
expense, within ten (10) days after written demand from the Indemnified Party,
of any claims, action or proceeding arising out of or relating to an Indemnified
Matter whether or not litigated or reduced to judgment and whether or not well
founded. If Tenant is obligated to compensate an Indemnified Party for Damages
arising out of an Indemnified Matter, Landlord shall have the immediate and
unconditional right, but not the obligation, without notice or demand to Tenant,
to pay the damages and Tenant shall, upon ten (10) days advance written notice
from Landlord, reimburse Landlord for the costs incurred by Landlord. The
Indemnified Parties need not first pay any Damages to be indemnified hereunder.
Tenant's obligations under this section shall not be released, reduced or
otherwise limited because one or more of the Indemnified Parties are or may be
actively or passively negligent with respect to an Indemnified Matter or because
an Indemnified Party is or was, partially responsible for the Damages incurred.
This indemnity is intended to apply to the fullest extent permitted by
applicable law. Tenant's obligations under this section shall survive the
expiration or termination of this Lease unless specifically waived in writing by
Landlord after said expiration or termination.
19. EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that Landlord
shall not be liable for injury to Tenant's business or any loss of income
therefrom or for loss of or damage to the merchandise, tenant improvements,
fixtures, furniture, equipment, computers, files, automobiles, or other property
of Tenant, Tenant's employees, agents, contractors or invitees, or any other
person in or about the Premises, nor shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents, contractors or invitees, whether
such damage or injury is caused by or results from any cause whatsoever
including, but not limited to, theft, criminal activity at the Premises,
negligent security measures, bombings or bomb scares, Hazardous Substances,
fire, steam, electricity, gas, water or rain, flooding, breakage of pipes,
sprinklers, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said damage or injury results from conditions arising upon the
Premises, or from other sources or places, or from new construction or the
repair, alteration or improvement of any part of the Premises, and regardless of
whether the cause of the damage or injury arises out of Landlord's or its
employees, agents or contractors negligent or intentional acts. Landlord shall
not be liable for any damages arising from any act or neglect of any employees,
agents, contractors or invitees of any other tenant, occupant or user of the
Premises. Tenant, as a material part of the consideration to Landlord hereunder,
hereby assumes all risk of damage to Tenant's property or business or injury to
persons, in, upon or about the Premises arising from any cause, including
Landlord's negligence or the negligence of its employees, agents or contractors,
and Tenant hereby waives all claims in respect thereof against Landlord, its
employees, agents and contractors.
20. LANDLORD'S LIABILITY. Tenant acknowledges that Landlord shall have the
right to transfer all or any portion of its interest in the Premises and to
assign this Lease to the transferee. Tenant agrees that in the event of such a
transfer Landlord shall automatically be released from all liability under this
Lease if the transferee assumes Landlord's obligations under this Lease; and
Tenant hereby agrees to look solely to Landlord's transferee for the performance
of Landlord's obligations hereunder after the date of the transfer. Upon such a
transfer, Landlord shall, at its option, return Tenant's security deposit to
Tenant or transfer Tenant's security deposit to Landlord's transferee and, in
either event, Landlord shall have no further liability to Tenant for the return
of its security deposit. Subject to the rights of any lender holding a mortgage
or deed of trust encumbering all or part of the Premises, Tenant agrees to look
solely to Landlord's equity interest in the Premises for the collection of any
judgment requiring the payment of money by Landlord arising out of (a)
Landlord's failure to perform its obligations under this Lease or (b) the
negligence or willful misconduct of Landlord, its partners, employees and
agents. No other property or assets of Landlord shall be subject to levy,
execution or other enforcement procedure for the satisfaction of any judgment or
writ obtained by Tenant against Landlord. No partner, employee or agent of
Landlord shall be personally liable for the performance of Landlord's
obligations hereunder or be named as a party in any lawsuit arising out of or
related to, directly or indirectly, this Lease and the obligations of Landlord
hereunder. The obligations under this Lease do not constitute personal
obligations of the individual partners of Landlord, if any, and Tenant shall not
seek recourse against the individual partners of Landlord or their assets.
21. SIGNS. Tenant shall not make any changes to the exterior of the Premises,
install any exterior lights, decorations, balloons, flags, pennants, banners, or
painting, or erect or install any signs, windows or door lettering, placards,
decorations, or advertising media or any type which can be viewed from the
exterior of the Premises, without Landlord's prior written consent, which may be
given or withheld in Landlord's reasonable discretion. Upon vacation of the
Premises, Tenant shall remove all signs and repair, paint, and/or replace the
building facia surface to which its signs are attached. Tenant shall obtain all
applicable governmental permits and approvals for signs and exterior treatments.
22. BROKER'S FEE. Tenant and Landlord each represent and warrant to the other
that neither has had any dealings or entered into any agreements with any
person, entity, broker or finder other than the persons, if any, listed in
section 1.12, in connection with the negotiation of this Lease, and no other
broker, person, or entity is entitled to any commission or finder's fee in
connection with the negotiation of this Lease, and Tenant and Landlord each
agree to indemnify, defend and hold the other harmless from and against any
claims, damages, costs, expenses, attorneys' fees or liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealings, actions or agreements of the
indemnifying party. The commission payable to Landlord's broker with respect to
this Lease shall be pursuant to the terms of the separate commission agreement
in effect between Landlord and Landlord's broker. Landlord's broker shall pay a
portion of its commission to Tenant's broker, if so provided in any agreement
between Landlord's broker and Tenant's broker. Nothing in this Lease shall
impose any obligation on Landlord to pay a commission or fee to any party
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other than Landlord's broker. Landlord shall pay the commission due to CB
Richard Ellis.
23. ESTOPPEL CERTIFICATE.
23.1 DELIVERY OF CERTIFICATE. Tenant shall from time to time upon not less
than ten (10) days' prior written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing certifying such information as
Landlord may reasonably request including, but not limited to, the following:
(a) that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) (b) the date to which the Base Rent and
other charges are paid in advance and the amounts so payable, (c) that there are
not, to Tenant's knowledge, any uncured defaults or unfulfilled obligations on
the part of Landlord, or specifying such defaults or unfulfilled obligations, if
any are claimed, (d) that all tenant improvements to be constructed by Landlord,
if any, have been completed in accordance with Landlord's obligations and (e)
that Tenant has taken possession of the Premises. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises.
23.2 FAILURE TO DELIVER CERTIFICATE. At Landlord's option, the failure of
Tenant to deliver such statement within such time shall constitute a material
default of Tenant hereunder.
24. FINANCIAL INFORMATION. From time to time, at Landlord's request, Tenant
shall cause the following financial information to be delivered to Landlord, at
Tenant's sole cost and expense, upon not less than ten (10) days' advance
written notice from Landlord a current quarterly financial statement for Tenant
and Tenant's financial statements for the previous two accounting years. All
financial statements shall be prepared in accordance with generally accepted
accounting principals consistently applied and, if such is the normal practice
of Tenant, shall be audited by an independent certified public accountant. Prior
to receiving confidential financial information from Tenant, Landlord shall
execute a confidentiality agreement prepared by Tenant and including reasonable
terms and conditions relating to the dissemination of confidential financial
information. There shall be no limitations on the dissemination by Landlord of
financial information that is publicly available or is otherwise not
confidential.
25. HAZARDOUS SUBSTANCES.
25.1 USE. Notwithstanding anything contained in this Lease to the
contrary, Tenant has not caused or permitted, and shall not cause or permit any
Hazardous Substances (as defined below) to be brought upon, kept, stored,
discharged, released or used in, under or about the Premises by Tenant, its
agents, employees, contractors, subcontractors, licensees or invitees, unless(a)
such Hazardous Substances are reasonably necessary to Tenant's business and will
be handled, used, kept, stored and disposed of in a manner which complies with
all Hazardous Substances Laws (as defined below); (b) Tenant will comply with
such other rules or requirements as Landlord may from time to time impose,
including without limitation that (i) such materials are in small quantities,
properly labeled and contained, (ii) such materials are handled and disposed of
in accordance with the highest accepted industry standards for safety, storage,
use and disposal, and (iii) such materials are for use in the ordinary course of
business (i.e., as with office or cleaning supplies), (c) notice of and a copy
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of the current material safety data sheet is provided to Landlord for each such
Hazardous Substances, and (d) Landlord shall have granted its prior written
consent to the use of such Hazardous Substances, which consent may be given or
withheld in Landlord's sole discretion. Notwithstanding anything to the contrary
contained in this Lease, Tenant shall not install storage tanks or electrical
generators of any size or shape in or around the Premises, above or below
ground, without the consent of the Landlord which may be given or withheld in
Landlord's sole discretion.
25.2 DEFINITION. As used herein, the term "Hazardous Substances" means any
(a) oil, petroleum, petroleum products, flammable substances, explosives,
radioactive materials, hazardous wastes or substances, toxic wastes or
substances or any other wastes, materials or pollutants which (I) pose a hazard
to the Premises or to persons on or about the Premises or (ii) cause the
Premises to be in violation of any Hazardous Substances Laws (as hereinafter
defined); (b)asbestos in any form, urea formaldehyde foam insulation,
transformers or other equipment which contain dielectric fluid containing levels
of polychlorinated biphenyls, or radon gas; (c) chemical, material or substance
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous waste," "restricted
hazardous waste," or "toxic substances" or words of similar import under any
applicable local, state or federal law or under the regulations adopted or
publications promulgated pursuant thereto, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. (S) 9601, et sea. the Resources Conservation Recovery Act, 42
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U.S.C. (S) 6901, et seq. the Hazardous Materials Transportation Act, as amended,
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49 U.S.C. (S) 1801, et sea. the Federal Water Pollution Control Act,, as
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amended, 33 U.S.C. (S) 1251, et see. Sections 25115, 25117, 25122.7, 25140,
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25249.8, 25281, 25316 and 25501 of the California Health and Safety Code; and
Title 22 of the California Code of Regulations, Division 4.5, Chapter 11;(d)
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority or may or could pose a hazard to the
health and safety of the occupants of the Premises or the owners and/or
occupants of property adjacent to or surrounding the Premises, or any other
person coming upon the Premises or adjacent property; and (e) other chemical,
materials or substance which may or could pose a hazard to the environment. As
used here the term "Hazardous Substances Laws" means any federal, state or local
laws, ordinances, regulations or policies relating to the environment, health
and safety, and Hazardous Substances (including, without limitation, the use,
handling, transportation, production, disposal, discharge or storage thereof) or
to industrial hygiene or the environmental conditions on, under or about the
Premises, including, without limitation, soil, groundwater and indoor and
ambient air conditions. Tenant shall at all times and in all respects comply
with all Hazardous Substances Laws.
25.3 REMEDIATION. Upon expiration or earlier termination of this Lease,
Tenant shall, at Tenant's sole cost and expense, cause all Hazardous Substances
brought on the Premises by Tenant to be removed from the Premises in compliance
with all applicable Hazardous Substances Laws, If Tenant or its employees,
agents, or contractors violates the provisions of this section, or if Tenant's
acts, negligence, or business operations contaminate, or expand the scope of
contamination of, the Premises from such Hazardous Substances, then Tenant shall
promptly, at Tenant's expense, take all investigatory and/or remedial action
(collectively, the "Remediation") that is necessary in order to clean up, remove
and dispose of such Hazardous Substances causing the violation on the Premises
or the underlying groundwater or the properties adjacent to the Premises to the
extent such contamination was caused by Tenant, in compliance with all
applicable Hazardous Substances Laws. Tenant shall further repair any damage to
the Premises caused by the Hazardous Substances contamination. Tenant shall
provide prior written notice to Landlord of such Remediation, and Tenant shall
commence such Remediation no later than thirty (30) days after such notice to
Landlord and diligently and continuously complete such Remediation. Such written
notice shall also include Tenant's method, time and procedure for such
Remediation and Landlord shall have the right to require reasonable changes in
such method, time or procedure of the Remediation. Tenant shall not take any
Remediation in response to the presence of any Hazardous Substances in or about
the Premises or enter into any settlement agreement, consent decree or other
compromise in respect to any claims relating to any Hazardous Substances in any
way connected with the Premises, without first notifying Landlord of Tenant's
intention to do so and affording Landlord ample opportunity to appear, intervene
or otherwise appropriately assert and protect Landlord's interests with respect
thereto.
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25.4 NOTIFICATION. Tenant shall immediately notify Landlord in writing of:
(a) any enforcement, cleanup. removal or other governmental or regulatory action
threatened, instituted, or completed pursuant to any Hazardous Substances Laws
with respect to the Premises; (b) any claim, demand, or complaint made or
threatened by any person against Tenant or the Premises relating to damage,
contribution, cost recovery compensation, loss or injury resulting from any
Hazardous Substances; and (c) any reports made to any governmental authority
arising out of any Hazardous Substances on or removed from the Premises.
Landlord shall have the right (but not the obligation) to join and participate,
as a party, in any legal proceedings or actions affecting the Premises initiated
in connection with any Hazardous Substances Laws.
25.5 No RELEASE. Tenant's obligations under this section and under section
18 shall survive the expiration or earlier termination of this Lease and shall
continue to be binding on Tenant notwithstanding such expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Landlord and Tenant shall release Tenant of its obligations
under this section or section 18 unless specifically so agreed by Landlord in
writing at the time such agreement is entered into.
25.6 Violation of Laws. To the actual knowledge of Landlord, without duty
of investigation, as of the date of this Lease, Landlord has received no written
notice that the Premises contains Hazardous Substances that are in violation of
any state or Federal law or regulation. For purposes of the forgoing, the actual
knowledge of Landlord shall be limited to the actual knowledge of James 0.
Buckingham.
26. SUBORDINATION.
26.1 EFFECT OF SUBORDINATION. This Lease, and any Option (as defined
below) granted hereby, upon Landlord's written election, shall be subject and
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Premises and to any
and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Tenant's right to quiet possession of the
Premises shall not be disturbed if Tenant is not in default and so long as
Tenant shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. At the
request of any mortgagee, trustee or ground lessor, Tenant shall attorn to such
person or entity. If any mortgagee, trustee or ground lessor shall elect to have
this Lease and any Options granted hereby prior to the lien of its mortgage,
deed of trust or ground lease, and shall give written notice thereof to Tenant,
this Lease and such Options shall be deemed prior to such mortgage, deed of
trust or ground lease, whether this Lease or such Options are dated prior or
subsequent to the date of said mortgage, deed of trust or ground lease or the
date of recording thereof. In the event of the foreclosure of a security device,
the new owner shall not (a) be liable for any act or omission of any prior
landlord or with respect to events occurring prior to its acquisition of title,
(b) be liable for the breach of this Lease by any prior landlord, (c) be subject
to any offsets or defenses which Tenant may have against the prior landlord or
(d) be liable to Tenant for the return of its security deposit.
25.2 EXECUTION OF DOCUMENTS. Tenant agrees to execute and acknowledge any
documents Landlord reasonably requests that Tenant execute to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Tenant's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Tenant hereunder.
27. OPTIONS.
27.1 DEFINITION. As used in this Lease, the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease, (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises and (3) the right or
option to terminate this Lease prior to its expiration date or to reduce the
size of the Premises. Any Option granted to Tenant by Landlord must be evidenced
by a written option agreement attached to this Lease as a rider or addendum or
said option shall be of no force or effect.
27.2 OPTIONS PERSONAL. Each Option granted to Tenant in this Lease, if
any, is personal to the original Tenant and may be exercised only by the
original Tenant while occupying the entire Premises and may not be exercised or
be assigned, voluntarily or involuntarily, by or to any person or entity other
than Tenant, including, without limitation, any transferee approved by Landlord
in accordance with section 15. The Options, if any, herein granted to Tenant are
not assignable separate and apart from this Lease, nor may any Option be
separated from this Lease in any manner, either by reservation or otherwise. If
at any time an Option is exercisable by Tenant, the Lease has been assigned, or
a sublease exists as to any portion of the Premises, the Option shall be deemed
null and void and neither Tenant nor any assignee or subtenant shall have the
right to exercise the Option.
27.3 MULTIPLE OPTIONS. In the event that Tenant has multiple Options to
extend or renew this Lease a later Option cannot be exercised unless the prior
Option to extend or renew this Lease has been so exercised.
27.4 EFFECT OF DEFAULT ON OPTIONS. Tenant shall have no right to exercise
an Option (i) during the time commencing from the date Landlord gives to Tenant
a notice of default pursuant to section 16.1 and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) if Tenant is
in default of any of the terms, covenants or conditions of this Lease. The
period of time within which an Option may be exercised shall not be extended or
enlarged by reason of Tenant's inability to exercise an Option because of the
provisions of this section.
27.5 LIMITATIONS ON OPTIONS. Notwithstanding anything to the contrary
contained in any rider or addendum to this Lease, any options, rights of first
refusal or rights of first offer granted hereunder shall be subject and
secondary to Landlord's right to first offer and lease any such space to any
tenant who is then occupying or leasing such space at the time the space
becomes available for leasing and shall be subject and subordinated to any other
options, rights of first refusal or rights of first offer previously given to
any other person or entity.
28. LANDLORD RESERVATIONS. Landlord shall have the right: (a) to change the
name and address of the Building upon not less than ninety (90) days prior
written notice and (b) to place signs, notices or displays upon the roof,
interior, exterior of the Building. Landlord reserves the right to use the
exterior walls of the Premises, and the area beneath, adjacent to and above the
Premises together with the right to install, use, maintain and replace
equipment, machinery, pipes, conduits and wiring through the Premises, which
serve other real property provided that Landlord's use does not unreasonably
interfere with Tenant's use of the Premises. Landlord will provide reasonable
advance notice to Tenant of its intention to take actions pursuant to this
section, and Landlord shall use commercially reasonable efforts to minimize
interference with Tenant's use of the Premises when taking such actions.
Landlord shall not place signage on the building except for "for sale" signs at
any time and "for lease" signs during the last twelve (12) months of a lease
term.
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29. HOLDING OVER, If Tenant remains in possession of the Premises or any part
thereof after the expiration or earlier termination of the term hereof with
Landlord's consent, such occupancy shall be a tenancy from month to month upon
all the terms and conditions of this Lease pertaining to the obligations of
Tenant, except that the Base Rent payable shall be the greater of two hundred
percent (200%) of the Base Rent payable immediately preceding the termination
date of this Lease or one hundred twenty-five percent (125%) of the fair market
Base Rent for the Premises as of the date Tenant holds over, and all Options, if
any, shall be deemed terminated and be of no further effect. If Tenant remains
in possession of the Premises or any part thereof after the expiration of the
term hereof without Landlord's consent, Tenant shall, at Landlord's option, be
treated as a tenant at sufferance or a trespasser. Nothing contained herein
shall be construed to constitute Landlord's consent to Tenant holding over at
the expiration or earlier termination of the Lease term or to give Tenant the
right to hold over after the expiration or earlier termination of the Lease
term. Tenant hereby agrees to indemnify, hold harmless and defend Landlord from
any cost, loss, claim or liability (including attorneys' fees) Landlord may
incur as a result of Tenant's failure to surrender possession of the Premises to
Landlord upon the termination of this Lease.
30. LANDLORD'S ACCESS. Landlord and Landlord's agents, contractors and
employees shall have the right to enter the Premises at reasonable times upon
reasonable advance notice for the purpose of inspecting the Premises, performing
any services required of Landlord, showing the Premises to prospective
purchasers, lenders, or tenants, undertaking safety measures and making
alterations, repairs, improvements or additions to the Premises. In the event of
an emergency, Landlord may gain access to the Premises by any reasonable means,
and Landlord shall not be liable to Tenant for damage to the Premises or to
Tenant's property resulting from such access.
31. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises, and Landlord shall have no liability to Tenant due
to its failure to provide such services. Tenant assumes all responsibility for
the protection of Tenant, its agents, employees, contractors and invitees and
the property of Tenant and of Tenant's agents, employees, contractors and
invitees from acts of third parties.
32. EASEMENTS. Landlord reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not interfere
with the use of the Premises by Tenant. Tenant shall sign any of the
aforementioned documents within thirty (30) days after Landlord's request and
Tenant's failure to do so shall constitute a material default by Tenant. The
obstruction of Tenant's view, air, or light by any structure erected in the
vicinity of the Premises, whether by Landlord or third parties, shall in no way
affect this Lease or impose any liability upon Landlord.
33. TRANSPORTATION MANAGEMENT. Tenant shall fully comply at its sole expense
with all present or future programs implemented or required by any governmental
or quasi-governmental entity or Landlord to manage parking, transportation, air
pollution, or traffic in and around the Premises or the metropolitan area in
which the Premises is located.
34. 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.
35. TIME OF ESSENCE. Time is of the essence with respect to each of the
obligations to be performed by Tenant and Landlord under this Lease.
36. DEFINITION OF ADDITIONAL RENT. All monetary obligations of Tenant to
Landlord under the terms of this Lease, including, hut not limited to, Base Rent
and late charges shall be deemed to be rent.
37. INCORPORATION OF PRIOR AGREEMENTS. This Lease and the attachments listed in
section 1.13 contain all agreements of the parties with respect to the lease of
the Premises and any other matter mentioned herein. No prior or contemporaneous
agreement or understanding pertaining to any such matter shall be effective.
Except as otherwise stated in this Lease, Tenant hereby acknowledges that no
real estate broker nor Landlord or any employee or agents of any of said persons
has made any oral or written warranties or representations to Tenant concerning
the condition or use by Tenant of the Premises or concerning any other matter
addressed by this Lease.
38. AMENDMENTS. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification.
39. NOTICES. All notices required or permitted by this Lease shall be in
writing and may be delivered (a) in person (by hand, by messenger or by courier
service), (b) by U.S. Postal Service regular mail, (c) by U.S. Postal Service
certified mail, return receipt requested, (d) by US, Postal Service Express
Mail, Federal Express or other overnight courier, or (e) by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this section. Any notice permitted or required hereunder, and any
notice to pay rent or quit or similar notice, shall be deemed personally
delivered to Tenant on the date the notice is personally delivered to any
employee of Tenant at the address set forth in section 1.14. The addresses set
forth in section 1.14 of this Lease shall be the address of each party for
notice purposes. Landlord or Tenant may by written notice to the other specify a
different address for notice purposes. A copy of all notices required or
permitted to be given to Landlord hereunder shall be concurrently transmitted to
such party or parties at such addresses as Landlord may from time to time
hereinafter designate by written notice to Tenant. Any notice sent by regular
mail or by certified mail, return receipt requested, shall be deemed given three
(3) days after deposited with the U.S. Postal Service. Notices delivered by U.S.
Express Mail, Federal Express or other courier shall be deemed given on the date
delivered by the carrier to the appropriate party's address for notice purposes.
If any notice is transmitted by facsimile transmission, the notice shall be
deemed delivered upon telephone confirmation of receipt of the transmission
thereof at the appropriate party's address for notice purposes. A copy of all
notices delivered to a party by facsimile transmission shall also be mailed to
the party on the date the facsimile transmission is completed. If notice is
received on Saturday, Sunday or a legal holiday, it shall be deemed received on
the next business day. Nothing contained herein shall be construed to limit
Landlord's right to serve any notice to pay rent or quit or similar notice by
any method permitted by applicable law, and any such notice shall be effective
if served in accordance with any method permitted by applicable law whether or
not the requirements of this section have been met.
40. WAIVERS. No waiver by Landlord or Tenant of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Landlord or Tenant of the same or any other provision. Landlord's consent to, or
approval of, any act shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act by Tenant. The
acceptance of rent hereunder by Landlord shall not be a waiver of any preceding
breach by Tenant of any provision hereof, other than the failure of Tenant to
pay the particular rent so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent. No acceptance by
Landlord of partial payment of any sum due from Tenant shall be deemed a waiver
by Landlord of its right to receive the full amount due, nor shall any
endorsement or statement on any check or accompanying letter from Tenant be
deemed an accord and satisfaction.
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41. COVENANTS. This Lease shall be construed as though Landlord's covenants
contained herein are independent and not dependent and Tenant hereby waives the
benefit of any statute to the contrary. All provisions of this Lease to be
observed or performed by Tenant are both covenants and conditions.
42. BINDING EFFECT; CHOICE OF LAW. Subject to any provision hereof restricting
assignment or subletting by Tenant, this Lease shall bind the parties, their
heirs, personal representatives, successors and assigns. This Lease shall be
governed by the laws of the state in which the Premises is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Premises is located.
43. ATTORNEYS' FEES. If Landlord or Tenant brings an action to enforce the
terms hereof or declare rights hereunder, the prevailing party in any such
action, or appeal thereon, shall be entitled to its reasonable attorneys' fees
and court costs to be paid by the losing party as fixed by the court in the same
or separate suit, and whether or not such action is pursued to decision or
judgment. The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
and court costs reasonably incurred in good faith. Landlord shall be entitled to
reasonable attorneys' fees and all other 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. Landlord and Tenant agree that attorneys' fees incurred with
respect to defaults and bankruptcy are actual pecuniary losses within the
meaning of section 365(b)(1)(B) of the Bankruptcy Code or any successor
statute.
44. AUCTIONS. Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction or going-out-of-business sale upon the
Premises.
45. MERGER. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord, shall not result in
the merger of Landlord's and Tenant's estates, and shall, at the option of
Landlord, terminate all or any existing subtenancies or may, at the option of
Landlord, operate as an assignment to Landlord of any or all of such
subtenancies.
46. QUIET POSSESSION. Subject to the other terms and conditions of this Lease,
and provided Tenant is not in default hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
47. AUTHORITY. If Tenant is a corporation, trust, limited liability company,
limited liability partnership or general or limited partnership, Tenant, and
each Individual executing this Lease on behalf of such entity, represents and
warrants that such individual is duly authorized to execute and deliver this
Lease on behalf of said entity, that said entity is duly authorized to enter
into this Lease, and that this Lease is enforceable against said entity in
accordance with its terms. If Tenant is a corporation, trust, limited liability
company, limited liability partnership or other partnership, Tenant shall
deliver to Landlord upon demand evidence of such authority satisfactory to
Landlord.
48. CONFLICT. Except as otherwise provided herein to the contrary, any conflict
between the printed provisions, exhibits, addenda or riders of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
49. MULTIPLE PARTIES. If more than one person or entity is named as Tenant
herein, the obligations of Tenant shall be the joint and several responsibility
of all persons or entities named herein as Tenant. Service of a notice in
accordance with section 39 on one Tenant shall be deemed service of notice on
all Tenants.
50. INTERPRETATION. This Lease shall be interpreted as if it was prepared by
both parties and ambiguities shall not be resolved in favor of Tenant because
all or a portion of this Lease was prepared by Landlord. The captions contained
in this Lease are for convenience only and shall not be deemed to limit or alter
the meaning of this Lease. As used in this Lease the words tenant and landlord
include the plural as well as the singular. Words used in the neuter gender
include the masculine and feminine gender.
51. PROHIBITION AGAINST RECORDING. Neither this Lease, nor any memorandum,
affidavit or other writing with respect thereto, shall be recorded by Tenant or
by anyone acting through, under or on behalf of Tenant. Landlord shall have the
right to record a memorandum of this Lease, and Tenant shall execute,
acknowledge and deliver to Landlord for recording any memorandum prepared by
Landlord.
52. RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third party to create the relationship
of principal and agent, partnership, joint venturer or any association between
Landlord and Tenant.
53. CONFIDENTIALITY. Tenant acknowledges and agrees that the terms of this
Lease are confidential and constitute proprietary information of Landlord.
Disclosure of the terms hereof could adversely affect the ability of Landlord to
negotiate other leases. Tenant agrees that it and its partners, officers,
directors, employees, brokers, and attorneys, if any, shall not disclose the
terms and conditions of this Lease to any other person or entity without the
prior written consent of Landlord which may be given or withheld by Landlord, in
Landlord's sole discretion. It is understood and agreed that damages alone would
be an inadequate remedy for the breach of this provision by Tenant, and Landlord
shall also have the right to seek specific performance of' this provision and to
seek injunctive relief to prevent its breach or continued breach.
54. WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE
RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR CROSS-
COMPLAINT IN ANY ACTION, PROCEEDING AND/OR HEARING BROUGHT BY EITHER LANDLORD
AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT
OF, OR IN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND
TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR
DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE OR REGULATION,
EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT.
LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND REVIEWED THIS
LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS
LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY
AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND
TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN
THE OPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS
EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR
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LANDLORD'S AGENT AND SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER
BY LANDLORD TO LEASE THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT
TO LEASE THE PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD ONLY WHEN
FULLY EXECUTED BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED
ORIGINAL OF THIS LEASE TO TENANT.
LANDLORD TENANT
REALTY ASSOCIATES IOWA CORPORATION, HOMEGROCER.COM, INC., a Delaware
a Delaware corporation corporation
By: /s/ Henry Brauer By:__________________________________
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_________________________________ _____________________________________
(print name) (print name)
Its:_____________________________ Its:_________________________________
(print title) (print title)
By: /s/ Terry Drayton
---------------------------------
(print name)
Its:________________________________
(print title)
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<PAGE>
Addendum to Standard Industrial Lease (the "Lease")
dated the 10th day of August, 1999 Between
Realty Associates Iowa Corporation ("Landlord") and
HomeGrocer.com, Inc. ("Tenant")
It is hereby agreed by Landlord and Tenant that the provisions of this
Addendum are a part of the Lease. If there is a conflict between the terms and
conditions of this Addendum and the terms and conditions of the Lease, the terms
and conditions of this Addendum shall control. Capitalized terms in this
Addendum shall have the same meaning as capitalized terms in the Lease, and, if
a Work Letter Agreement is attached to this Lease, as those terms have been
defined in the Work Letter Agreement.
1. Base Rent Increase. The Work Letter Agreement attached to the Lease as
------------------
Exhibit "C" provides Tenant with a "Tenant Improvement Allowance" of up to Five
Hundred Thousand Dollars ($500,000.00). Any portion of the Tenant Improvement
Allowance paid by Landlord pursuant to the Work Letter Agreement shall be repaid
to Landlord by Tenant in equal monthly installments by amortizing the amount of
the Tenant Improvement Allowance paid by Landlord over the months of the initial
Lease term remaining after Landlord makes a disbursement of the Tenant
Improvement Allowance with an interest factor from the date of such disbursement
of eleven percent (11%) per annum. The additional amount payable by Tenant each
month shall be added to the Base Rent described in section 1.9 of the Lease and
shall be treated as additional Base Rent for all purposes. For example, if
Landlord disburses the $250,000 of the Tenant Improvement Allowance to Tenant in
the sixth month of the initial lease term, and Landlord makes a final
disbursement of the Tenant Improvement Allowance in the amount of $250,000 in
the twelfth month of the initial Lease term, the. Base Rent would be increased
on the first day of the seventh month of the initial term by $3,544.02 per month
and would be increased on the first day of the thirteenth month of the initial
lease term by an additional $3,656.47 per month (i.e., the total Base Rent
beginning on the first day of the seventh month would be $45,766.20, and the
total Base Rent on the first day of the thirteenth month would be $49,422.67).
2. Abatement of Rent. Landlord hereby agrees to conditionally waive the
-----------------
Base Rent due between the Commencement Date and the first to occur of (a) the
date which is sixty (60) days after the Commencement Date and (b) the date
Tenant commences business operations from the Premises. No amounts due to
Landlord under the Lease other than the Base Rent referred to above shall be
conditionally waived. In the event Tenant commits a default as defined in
section 16 of the Lease, Base Rent coming due thereafter shall not be waived,
and all Base Rent that Landlord conditionally waived in the past shall be
immediately due and payable by Tenant to Landlord without notice or demand from
Landlord. If the Lease expires in accordance with its terms, and does not
terminate as a result of a default by Tenant, Landlord agrees to permanently
waive the Base Rent it has conditionally waived.
3. Option to Extend. Landlord hereby grants to Tenant the option to extend
----------------
the term of the Lease for two (2) consecutive five (5)-year periods (the
"Extension Options") commencing when the initial lease term expires and when the
first option term expires upon each and all of the following terms and
conditions:
(a) Tenant shall give to Landlord on a date which is prior to the date that
the applicable option period would commence (if exercised) by at least three
hundred sixty (360) days and not more than four hundred fifty (450) days, a
written notice of the exercise of the option to extend the Lease for said
additional term, time being of the essence. Such notice shall be given in
accordance with the requirements of section 39 of the Lease. If notification of
the exercise of an option is not so given and received, all options granted
hereunder shall automatically expire.
(b) The provisions of section 27 of the Lease apply to the option granted
hereunder.
(c) All of the terms and conditions of the Lease except where specifically
modified by this Addendum shall apply to each option term.
(d) The Base Rent payable during each option term shall be the Market Rate
on the date the option term commences.
(e) The term "Market Rate" shall mean the annual amount per rentable square
foot that a willing, comparable renewal tenant would pay and a willing,
comparable landlord of a similar industrial building would accept at arm's
length for similar space, giving appropriate consideration to the following
matters: (i) annual rental rates per rentable square foot; (ii) the type of
escalation clauses (including, but without limitation, operating expense, real
estate taxes, and CPI) and the extent of liability under the escalation clauses
(i.e., whether determined on a "net lease" basis or by increases over a
particular base year or base dollar amount); (iii) rent abatement provisions
reflecting free rent and/or no rent during the lease term; (iv) length of lease
term; (v) size and location of premises being leased; and (vi) other generally
applicable terms and conditions of tenancy for similar space; provided, however,
Tenant shall not be entitled to any tenant improvement or refurbishment
allowance. The Market Rate may also designate periodic rental increases, a new
Base Year and similar economic adjustments. The Market Rate shall be the Market
Rate in effect as of the beginning of the applicable option period, even though
the determination may be made in advance of that date, and the parties may use
recent trends in rental rates in determining the proper Market Rate as of the
beginning of the option period.
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<PAGE>
(f) If Tenant exercises the Extension Option, Landlord shall determine the
Market Rate by using its good faith judgment. Landlord shall provide Tenant with
written notice of such amount not less than one hundred eighty (180) days prior
to the day the option term will commence. Tenant shall have fifteen (15) days
("Tenant's Review Period") after receipt of Landlord's notice of the new rental
within which to accept such rental. In the event Tenant fails to accept in
writing such rental proposal by Landlord, then such proposal shall be deemed
rejected, and Landlord and Tenant shall attempt to agree upon such Market Rate,
using their best good faith efforts. If Landlord and Tenant fail to reach
agreement within fifteen (15) days following Tenant's Review Period ("Outside
Agreement Date"), then each party shall place in a separate sealed envelope
their final proposal as to the Market Rate, and such determination shall be
submitted to arbitration in accordance with subsections (i) through (v) below.
In the event that Landlord fails to timely generate the initial notice of
Landlord's opinion of the Market Rate on or before the day that is one hundred
eighty (180) days prior to the date the option term will commence, then Tenant
may commence such negotiations by providing the initial notice, in which event
Landlord shall have fifteen (15) days ("Landlord's Review Period") after receipt
of Tenant's notice of the new rental within which to accept such rental. In the
event Landlord fails to accept in writing such rental proposed by Tenant, then
such proposal shall be deemed rejected, and Landlord and Tenant shall attempt in
good faith to agree upon such Market Rate, using their best good faith efforts.
If Landlord and Tenant fail to reach agreement within fifteen (15) days
following Landlord's Review Period (which shall be, in such event, the "Outside
Agreement Date" in lieu of the above definition of such date), then each party
shall place in a separate sealed envelope their final proposal as to Market
Rate, and such determination shall be submitted to arbitration in accordance
with subsections (i) through (v) below.
ARBITRATION OF DISPUTES
-----------------------
(i) LANDLORD AND TENANT SHALL MEET WITH EACH OTHER WITHIN FIVE (5)
BUSINESS DAYS AFTER THE OUTSIDE AGREEMENT DATE AND EXCHANGE THEIR SEALED
ENVELOPES AND THEN OPEN SUCH ENVELOPES IN EACH OTHER'S PRESENCE. IF LANDLORD AND
TENANT DO NOT MUTUALLY AGREE UPON THE MARKET RATE WITHIN ONE (1) BUSINESS DAY OF
THE EXCHANGE AND OPENING OF ENVELOPES, THEN, WITHIN TEN (10) BUSINESS DAYS OF
THE EXCHANGE AND OPENING OF ENVELOPES, LANDLORD AND TENANT SHALL AGREE UPON AND
JOINTLY APPOINT A SINGLE ARBITRATOR WHO SHALL BY PROFESSION BE A REAL ESTATE
BROKER OR AGENT WHO SHALL HAVE BEEN ACTIVE OVER THE FIVE (5) YEAR PERIOD ENDING
ON THE DATE OF SUCH APPOINTMENT IN THE LEASING OF INDUSTRIAL BUILDINGS SIMILAR
TO THE PREMISES IN THE GEOGRAPHICAL AREA OF THE PREMISES. NEITHER LANDLORD NOR
TENANT SHALL CONSULT WITH SUCH BROKER OR AGENT AS TO HIS OR HER OPINION AS TO
THE MARKET RATE PRIOR TO THE APPOINTMENT. THE DETERMINATION OF THE ARBITRATOR
SHALL BE LIMITED SOLELY TO THE ISSUE OF WHETHER LANDLORD'S OR TENANT'S SUBMITTED
MARKET RATE FOR THE PREMISES IS THE CLOSEST TO THE ACTUAL MARKET RATE FOR THE
PREMISES AS DETERMINED BY THE ARBITRATOR, TAKING INTO ACCOUNT THE REQUIREMENTS
FOR DETERMINING MARKET RATE SET FORTH HEREIN. SUCH ARBITRATOR MAY HOLD SUCH
HEARINGS AND REQUIRE SUCH BRIEFS AS THE ARBITRATOR, IN HIS OR HER SOLE
DISCRETION, DETERMINES IS NECESSARY. IN ADDITION, LANDLORD OR TENANT MAY SUBMIT
TO THE ARBITRATOR WITH A COPY TO THE OTHER PARTY WITHIN FIVE (5) BUSINESS DAYS
AFTER THE APPOINTMENT OF THE ARBITRATOR ANY MARKET DATA AND ADDITIONAL
INFORMATION SUCH PARTY DEEMS RELEVANT TO THE DETERMINATION OF THE MARKET RATE
("RR DATA"), AND THE OTHER PARTY MAY SUBMIT A REPLY IN WRITING WITHIN FIVE (5)
BUSINESS DAYS AFTER RECEIPT OF SUCH RR DATA.
(ii) THE ARBITRATOR SHALL, WITHIN THIRTY (30) DAYS OF HIS OR HER
APPOINTMENT, REACH A DECISION AS TO WHETHER THE PARTIES SHALL USE LANDLORD'S OR
TENANT'S SUBMITTED MARKET RATE AND SHALL NOTIFY LANDLORD AND TENANT OF SUCH
DETERMINATION.
(iii) THE DECISION OF THE ARBITRATOR SHALL BE FINAL AND BINDING UPON
LANDLORD AND TENANT.
(iv) IF LANDLORD AND TENANT FAIL TO AGREE UPON AND APPOINT AN
ARBITRATOR, THEN THE APPOINTMENT OF THE ARBITRATOR SHALL BE MADE BY THE
PRESIDING JUDGE OF THE LOS ANGELES COUNTY SUPERIOR COURT, OR, IF HE OR SHE
REFUSES TO ACT, BY ANY JUDGE HAVING JURISDICTION OVER THE PARTIES.
(v) THE COST OF THE ARBITRATION SHALL BE PAID BY LANDLORD AND TENANT
EQUALLY.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
DECIDED BY NEUTRAL ARBITRATION AS. PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY
TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
"ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
-18-
<PAGE>
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
(Landlord initials) (Tenant initials)
---------------
4. Assignment and Subleasing. Notwithstanding anything to the contrary
-------------------------
contained in section 15 of the Lease, Tenant shall have the right, without
Landlord's consent, upon fifteen (15) days advance written notice to Landlord,
to assign the Lease to any entity which acquires substantially all of Tenant's
stock or assets: provided. that such assignment is subject to the satisfaction
of the following conditions:
(a) The entity that assumes the Lease shall have a net worth equal to
or greater than Tenant's as of the date of the assignment;
(b) In addition to the requirements of this Addendum section, any
such assignment shall be subject to all of the terms, covenants and conditions
of the Lease;
(c) The use of the Premises by the assignee must be permitted by the
Lease;
(d) Prior to the date an assignment will take effect, the assignee
and Tenant shall enter into a commercially reasonable consent to assignment
agreement; and
(e) Prior to the date an assignment will take effect, Tenant shall
pay the reasonable costs and expenses not to exceed Five Thousand Dollars
($5,000) (including legal fees) incurred by Landlord in confirming that the
assignment meets the requirements of this Addendum section and in preparing and
negotiating the consent to assignment agreement.
5. Antennas. Tenant shall have the right to install and use one or more
--------
satellite dishes or other antennas on the roof of the Premises (collectively,
"Antennas"). Prior to the installation of an Antenna, Tenant shall submit plans
and specifications to Landlord for its review and approval, which approval shall
not be unreasonably withheld, conditioned or delayed. Tenant shall be solely
responsible for the cost of installation, operation, maintenance, insurance,
compliance with all laws and ordinances, and removal of the Antennas and
repairing any damage resulting from such removal. Tenant shall not install an
antenna in a way that may damage the roof of the Premises. Tenant will install
and operate the Antennas in accordance with all federal, state and local
rules, regulations, laws, statutes and ordinances. In addition, Tenant shall be
responsible to obtain any permits and licenses required to install and operate
the Antennas. Landlord makes no representation or warranty to Tenant that it
will be able to obtain the necessary permits or approvals to install the
Antennas.
6. Alterations. Notwithstanding anything to the contrary contained in
-----------
section 12(a) of the Lease, Tenant shall have the right, without Landlord's
consent, to make non-structural, cosmetic Alterations to the Premises (e.g.,
paint and carpet) that do not require a building permit or other governmental
permit or authorization provided that Tenant gives Landlord ten (10) days
advance written notice of its intention to make the Alterations (said written
notice shall include a detailed description of the Alterations) and the cost of
the Alterations does not exceed Fifteen Thousand Dollars ($15,000). Tenant's
right to make such Alterations is conditioned on Tenant complying with the
requirements of section 12 of the Lease and all rules and regulations of
Landlord then in effect relating to construction activities at the Premises. For
purposes of this Addendum section, the "cost of the Alteration" shall mean the
cost of the Alteration Tenant intends to make plus the cost of all other
Alterations Tenant has made to the Premises pursuant to this Addendum section
during the immediately preceding twelve (12) month period.
7. Indemnity. Notwithstanding the provisions of sections 7.2, 18 and 19
---------
of the Lease to the contrary, Tenant shall not be required to indemnify, defend
and hold Landlord harmless from any loss, cost, liability, damage or expense
(collectively "Claims"), to any person, property or entity resulting from the
gross negligence or willful misconduct of Landlord or its agents or employees,
in connection with Landlord's activities at the Premises, and Landlord hereby
indemnities, defends and saves Tenant harmless from any such Claims. Tenant's
agreement to indemnify, defend and hold Landlord harmless pursuant to section 18
of the Lease, the exclusion from Tenant's indemnity set forth above, and the
agreement by Landlord to indemnify, defend and hold Tenant harmless set forth
above are not intended to, and shall not relieve any insurance carrier of its
obligations under policies required to be carried by Landlord or Tenant pursuant
to the provisions of the Lease to the extent that such policies cover the
results of such acts or conduct.
8. Non-Disturbance Agreement. Notwithstanding anything to the contrary
-------------------------
contained in section 26.2 of the Lease, Tenant shall not be obligated to
subordinate its interest in the Lease to a mortgage or deed of trust obtained by
Landlord in the future unless the lender provides Tenant with a commercially
reasonable nondisturbance agreement.
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<PAGE>
9. Letter of Credit.
----------------
(a) Delivery of Letter of Credit. Concurrently with Tenant's execution
----------------------------
and delivery of this Lease, and as a condition to Landlord's obligations under
the Lease, Tenant covenants and agrees to deliver to Landlord an irrevocable
standby letter of credit (the "L/C") in the form of, and upon all of the terms
and conditions contained in, Exhibit "1" attached hereto and incorporated herein
by reference. The L/C shall be issued by an institutional lender of good
financial standing (which lender shall, in any event, have assets equal to or
exceeding $500,000,000 as of the date of issuance of the L/C), having a place of
business where the L/C can be presented for payment in Los Angeles, California.
The lender shall be subject to Landlord's prior written approval, not to be
unreasonably withheld or delayed. The L/C shall provide for one (1) or more
draws by Landlord or its transferee up to the aggregate amount of US Seven
Hundred Thousand Dollars ($700,000) (the "L/C Amount") on the terms and
conditions of Exhibit "1", which L/C shall secure the payment and performance of
Tenant's obligations under the Lease.
(b) Renewal of L/C. Tenant shall maintain the L/C in effect from the
--------------
date of Tenant's execution of this Lease until the date the initial ten (10)
year term of this Lease expires (said period is hereinafter referred to as the
"L/C Term"). If the expiration date of the L/C (or any renewal or replacement
L/C provided pursuant to this Addendum section) occurs prior to the end of the
L/C Term, then Tenant shall deliver to Landlord a renewal of the L/C or a
replacement L/C meeting all of the terms and conditions of this Addendum
section, not later than thirty (30) days prior to the then-applicable expiration
date. Each L/C provided pursuant to this Addendum section shall have an
expiration date which is at least one (1) year from such L/C's date of issue
except where the then-applicabIe expiration date of the L/C is less than one (1)
year from the end of the L/C Term, in which case the renewal or replacement L/C
shall be for such lesser period. The issuing bank's agreement to place an
automatic renewal provision in the L/C, as required pursuant to said Exhibit
"1", shall not relieve or release Tenant from its obligation to provide a
renewal or replacement L/C on the terms hereinabove stated, it being understood
that any such automatic renewal is an independent obligation of the issuing bank
which is intended for Landlord's sole benefit. If Tenant fails to provide the
renewal or replacement L/C not later than thirty (30) days prior to the then-
applicable, stated expiration date (excluding automatic renewal provisions),
then Landlord shall have the right to draw upon the entire remaining proceeds of
the L/C.
(c) Reduction in Amount of L/C. Provided Tenant has not committed a
--------------------------
default as defined in section 16 of the Lease, on each one (1) year anniversary
of the initial ten (10) year Lease term, Tenant shall have the right to reduce
the L/C Amount by Seventy Thousand Dollars ($70,000). For example, one year
after the Commencement Date of the Lease, Tenant would have the right to reduce
the L/C Amount to Six Hundred Thirty Thousand Dollars ($630,000) and two years
after the Commencement Date, Tenant would have the right to reduce the L/C
Amount to Five Hundred Sixty Thousand Dollars ($560,000). The documents
evidencing the reduction of the L/C Amount shall be satisfactory to Landlord, in
Landlord's sole discretion.
(d) Breach of Lease. If Tenant commits a default as defined in section
---------------
16 of the Lease, Landlord may draw upon the entire remaining proceeds of the
L/C.
(e) Application of L/C Proceeds. All amounts drawn under the L/C shall
---------------------------
be applied to amounts then due and owing to Landlord pursuant to the Lease and
then to the Base Rent and other amounts coming due (although not presently due
and owing) to Landlord during the remainder of the term of the Lease, and such
application shall be deemed a prepayment of such amounts; and the remainder of
the L/C proceeds drawn, if any, shall be refunded to Tenant.
(f) Enforcement. Tenant's obligation to furnish the L/C shall not be
-----------
released, modified or affected by any failure or delay on the part of Landlord
to enforce or assert any of its rights or remedies under the Lease, whether
pursuant to the terms thereof or at law or in equity. Landlord's right to draw
upon the L/C shall be without prejudice or limitation to Landlord's right to
draw upon the security deposit provided by Tenant to Landlord or to avail itself
of any other rights or remedies under the Lease.
(g) Event of Default. Tenant's failure to perform its obligations
----------------
under subsections (a), (b), (c) or (d) above within the time limits prescribed
therein (time being of the essence) shall constitute an event of default
pursuant to section 16 of the Lease, and shall entitle Landlord to exercise all
of its remedies under the Lease or at law or in equity.
IN WITNESS WHEREOF, the parties hereto have respectively executed this Addendum.
LANDLORD: TENANT:
REALTY ASSOCIATES IOWA CORPORATION, HOMEGROCER.COM, INC., a Delaware
a Delaware corporation corporation
By: /s/ Henry Brauer By:____________________________________
----------------------------------
Its:_________________________________ Its:___________________________________
By: /s/ Terry Drayton
------------------------------------
Its:___________________________________
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<PAGE>
EXHIBIT 10.22
AMENDMENT NO. 1 TO LEASE AGREEMENT
THIS AMENDMENT NO. 1 TO LEASE is made and entered into as of June 21, 1999,
by and between THE CONCOURSE JOINT VENTURE, a California general partnership
("Lessor"), and HOMEGROCER.COM, a Delaware corporation ("Lessee"), with respect
to the following facts:
RECITALS
A. Lessor and Lessee have heretofore made and entered into that certain
Standard Industrial/Commercial Multi-Tenant Lease - Net (the "Lease"), dated
June ____,1999, with respect to those certain Premises located at 10 Whatney,
Irvine, California.
B. In connection with the Lease, Lessor, Lessee, and The Irvine Company
have made and entered into a tri-party agreement (the "Tri-Party Agreement") on
the terms and conditions set forth in that certain Agreement, a true and correct
copy of which is attached hereto as Exhibit "A". The purpose of the Tri-Party
Agreement is to obtain the consent required from The Irvine Company for Lessee
to operate a "retail business" on the premises as more particularly described in
said Tri-Party Agreement. In consideration of said Tri-Party Agreement, Lessor
has agreed to pay to The Irvine Company the sum of $0.02 per square foot of
Premises occupied by Lessee per month during the term of the Lease (the "Lease
Term Payment"), and during any extended term of the Lease an adjusted monthly
amount to be determined in the manner set forth in said Tri-Party Agreement (the
"Extended Term Payment").
C. Lessor and Lessee desire by this Agreement to provide for monthly
additional rent payable by Lessee to Lessor under the Lease in order to
reimburse Lessor for the sums Lessor is required to pay The Irvine Company under
the Tri-Party Agreement, and to provide additional security to Lessor in the
form an additional letter of credit in respect of said payment obligation.
TERMS AND CONDITIONS
NOW THEREFORE, in consideration of the foregoing recitals, the mutual
covenants contained herein, and other good and valuable consideration, receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Tri-Party Agreement. Lessor and Lessee hereby acknowledge and agree
-------------------
that the Tri-Party Agreement, and their respective rights and obligations
thereunder, are hereby incorporated into and are a part of the Lease. Lessee
hereby covenants and agrees to reimburse Lessor, as provided for at Paragraph 2,
below, for all sums payable by Lessor to The Irvine Company under or pursuant to
the Tri-Party Agreement.
2. Additional Rent. Notwithstanding anything to the contrary set forth at
---------------
paragraph 1.5 of the Lease, paragraph 58 of the Lease Addendum, on elsewhere in
the Lease, Lessor and Lessee hereby acknowledge and agree that in addition to
the Monthly Base Rent payable by Lessee during the Lease Term, Lessee shall pay
to Lesson throughout the Lease Term, as additional rent, the sum of $2,106.00
per month, payable at the same time as Base Rent is payable. In addition, said
$2,106.00 monthly additional rent amount shall be adjusted (i) during the Lease
Term at the same time, and to the same extent, as the payment
<PAGE>
that is required to be made by Lessor to The Irvine Company under the Tri-Party
Agreement is adjusted as provided therein, and (ii) during any extended term of
the Lease so that it is identical to the Extended Term Payment required to be
paid to The Irvine Company under the terms of the Tri-Party Agreement.
3. Letter of Credit. Notwithstanding anything to the contrary set forth at
----------------
Paragraph 75 of the Lease Addendum, prior to the Commencement Date of the Lease,
Lessee shall deliver to Lessor, as additional security for Lessee's obligations
under the Lease, including without limitation Lessee's obligation to pay to
Lesson the additional rent set forth at paragraph 2, above, a letter of credit
(the "Letter of Credit"), from a financial institution and in a form reasonably
satisfactory to Lessor, in the principal amount of $425,000. The Letter of
Credit shall be in full force and effect for the entire Lease Term; provided,
however, in the event that Lessee is not at the time in material breach of its
Lease obligations, which breach is uncured and ongoing, the principal amount of
the Letter of Credit may be reduced to $325,000 after the expiration of the
first three (3) years of the Lease Term, and to $225,000 after the first four
(4) years of the Lease Term, after which time the Letter of Credit shall remain
at $225,000 for the remainder of the Lease Term. The Letter of Credit shall
provide that Lessor may from time to time draw upon the Letter of Credit by
written demand to the issuer thereof, executed by an officer of Lessor, stating
that Lessee is in breach of the Lease and identifying the amount to be drawn
thereon in order to compensate Lessor for damages it has sustained as a result
of said breach. In the event Lessor shall at any time sell or otherwise transfer
the Premises, Lessee shall be obligated to obtain a replacement Letter of Credit
in the name of the transferee within thirty (30) days written demand therefor by
Lessor. Lessee acknowledges and agrees that Lessor shall have the right to draw
upon said letter of credit in full in the event Lessee has not provided to
Lessor a substitute Letter of Credit in the form required hereby at least thirty
(30) days prior to the expiration of the then-effective Letter of Credit.
4. Miscellaneous Provisions.
------------------------
3.1 Captions. Any titles or captions contained in this Agreement are
for convenience only and shall not be deemed to qualify the meaning of any
provision herein.
3.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their heirs, executors, administrators,
successors and assigns.
3.3 Entire Agreement. This Agreement, together with any exhibits and
any other documents necessary to effectuate the terms of this Agreement, contain
the entire agreement among the parties hereto with respect to the transactions
contemplated hereby and contains all of the terms and conditions thereof and
supersedes all prior agreements and understandings relating to the subject
matter hereof. No changes or modification of or additions to this Agreement
shall be valid unless the same shall be in writing and signed by all parties
hereto.
3.4 Severability. The provisions of this Agreement shall be deemed
severable arid the invalidity and unenforceability of any one or more of the
provisions hereof shall not affect the validity and enforceability of the other
provisions hereof.
3.5 Waiver. The failure of any party hereto to insist, in any one or
more instances, upon performance of the terms or conditions of this Agreement
shall not be construed as a waiver of future performance of any such term,
covenant or condition and the obligations of each party with respect thereto
shall continue in full force and effect.
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<PAGE>
3.6 Fees and Expenses. The parties hereto shall each pay their own
respective costs, fees and expenses, including, but not limited to, fees and
expenses of counsel, accountants and other professionals, incurred in connection
with the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby.
3.7 Attorneys' Fees. If any party hereto commences an action against
any other party hereto to enforce any of the terms hereof or because of the
breach by any party hereto of any of the terms hereof, the losing or defaulting
party shall pay the prevailing party reasonable attorneys' fees, costs and
expenses incurred in connection with the prosecution or defense of such action
(whether by arbitration or in court of law), and in connection with any action
to collect any judgment rendered thereunder.
3.8 Construction. This Agreement has been reviewed by all parties
hereto and their respective attorneys, and all parties have had a full
opportunity to negotiate the contents hereof. The parties expressly waive any
common law or statutory rule of construction that ambiguities be construed
against the drafter of this Agreement.
3.9 Assignment. Except as otherwise expressly permitted hereunder,
the rights and obligations of each party hereunder shall not be assignable
without the prior written consent of the other parties hereto.
3.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
3.11 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original without production of
the others and all of which shall constitute one and the same instrument.
(Signatures Appear on Next Page)
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been entered into by the parties as
of the date first above written.
THE CONSOURSE JOINT VENTURE, a California general
partnership
By: The Northwestern Mutual Life Insurance
Company, a Wisconsin corporation, general partner
By: Northwestern Investment Management
Company, its wholly owned subsidiary and
authorized representative
By: /s/:Donald L. O'Dell
--------------------
Name: Donald L. O'Dell
----------------
Its: Managing Director
-----------------
By: Olive, Inc., a Delaware corporation
By: /s/: James G. Loduha
--------------------
Name: James G. Loduha
---------------
Its: Vice President
--------------
HOMEGROCER.COM., a Delaware corporation
By: /s/: Daryl L. Stromswold
------------------------
Printed Name: Daryl L. Stromswold
-------------------
Its: Assistant Secretary
-------------------
By: /s/: Ken Deering
----------------
Printed Name: Ken Deering
-----------
Its: Vice President
--------------
-4-
<PAGE>
EXHIBIT 10.23
SUBLEASE
--------
This Sublease (the "Sublease") is dated as of Nov 15th, 1999, and is by and
between Thyssen Dover Elevator, a Delaware corporation ("Tenant") and
HomeGrocer.com, a Delaware corporation ("Subtenant"). Tenant, as Dover Elevator
Company, entered into a lease (the "Lease") with Yarrow Bay Office I Limited
Partnership, as landlord ("Landlord"), dated January 7th, 1998, regarding
premises known as Suite 200 & Suite 202, (the "Premises") located at The Plaza
at Yarrow Bay (Building I) (the "Building"). A copy of the Lease is attached
hereto as Exhibit A and incorporated herein by this reference.
---------
The parties hereto have agreed that Tenant shall sublet the Premises to
Subtenant. The parties agree as follows:
1. Premises. Tenant hereby subleases to Subtenant the entire Premises,
--------
consisting of 9157 rentable square feet, more or less, of the space on the 2nd
floor of the Building, as delineated on the floor plan attached hereto as
Exhibit B. Neither Subtenant nor Tenant shall commit, or permit to be committed,
any occurrence, act or event which would violate any term or condition of the
Lease.
2. Term. This Sublease shall be for a term of eight years and three
----
months, beginning on November 15, 1999 (the "Commencement Date") and ending on
February 14, 2008, unless sooner terminated pursuant to the terms of this
Sublease or pursuant to the Lease. Notwithstanding the Commencement Date, if for
any reason Tenant cannot deliver possession of the Premises to Subtenant on the
Commencement Date, Tenant shall not be subject to liability therefor, nor shall
such failure affect the validity of this Sublease or obligations of the
Subtenant hereunder or extend the term hereof, but in such case Subtenant shall
not be obligated to pay rent until possession of the Premises is tendered to
Subtenant. Notwithstanding the foregoing, if Tenant has not delivered possession
of the Premises to Subtenant within ninety (90) days after the Commencement
Date, then Subtenant may, at Subtenant's option, by notice in writing to Tenant
within ten (10) days thereafter, terminate this Sublease. If this Sublease is so
terminated, all parties shall be discharged from all obligations hereunder, and
Tenant shall refund to Subtenant any prepaid rent or security deposit paid by
Subtenant. If Tenant permits Subtenant to occupy the Premises prior to the
Commencement Date, such occupancy shall be subject to all the provisions of this
Sublease. Early possession shall not advance the termination date of this
Sublease.
3. Rent. Subtenant shall pay direct to Landlord, with a copy of such
----
payment to Tenant, rent at the triple net (NNN) rates set forth for the
following periods:
Month 01 - 03 (11/15/99 -02/14/00) $ 17,169.38
Month 04 - 15 (02/15/00 -02/14/01) $ 17,932.46
Month 16 - 27 (02/15/01 -02/14/02) $ 18,695.54
Month 28 - 39 (02/14/02 -02/14/03) $ 19,458.63
<PAGE>
per month, in advance on the first day of every month during the term hereof,
without deduction or offset. Tenant has already paid the rent for the period
11/1/99 through 11/30/99, and Subtenant shall reimburse Tenant for that portion
of the rent for the period 11/16/99 through 11/30/99.
Rent for the period of months forty (40) through ninety-nine (99) shall be the
then fair market rent mutually agreed upon by Tenant and landlord, but in no
event shall be less than $20,221.71 per month. Landlord's acceptance of rent
from Subtenant shall not be deemed a waiver of any rights of the Landlord under
the Lease.
4. Use. The Premises shall be used for general office and related purposes
---
consistent with the operation of a first class office building and for no other
purpose.
5. Incorporation of Lease Terms. All the terms and conditions contained in
----------------------------
the Lease, except for Sections 3.1 of the Lease, are made terms and conditions
of this Sublease (with each reference in the Lease to Landlord and Tenant to be
deemed to refer in this Sublease to Tenant and Subtenant, respectively).
Subtenant shall not have any right to exercise any options provided to Tenant in
the Lease without Tenant's prior written consent, which consent may be withheld
in Tenant's sole discretion. Tenant hereby warrants that there is not uncured
breach or default of the Lease by Tenant, and Tenant covenants not to commit any
act or omission that is or may result in, a breach or default of the Lease.
6. Condition of Premises. Subtenant has inspected the Premises and accepts
---------------------
them in their present condition, AS IS, without warranty of any kind or nature,
express or implied. Subtenant hereby assumes all of Tenant's obligations under
the Lease (except as provided otherwise under Section 5 above, and except as
otherwise set forth in this Sublease), and agrees to perform all Tenant's
obligations under the Lease, as modified hereunder. In case of a conflict
between the Sublease and the Lease, the Sublease shall control.
7. Assignment. Subtenant shall not assign this Sublease nor sublet the
----------
Premises in whole or in part.
8. Additional Charges. Subtenant shall pay to Landlord, with copy of such
------------------
payment to Tenant, in advance on the first day of each month hereunder, without
deduction or offset, that portion of additional rent or other sums owed under
the Lease, including without limitation under Sections 3.3 and 5.1 thereof. Any
rent or other sums payable by Subtenant under this Section 8 shall be deemed
additional rent and shall be collectible as such. If Tenant shall receive any
refund under this Section 8, Subtenant shall be entitled to the return of so
much of the refund as shall be attributable to prior payments by Subtenant.
Landlord's acceptance of additional rent from Subtenant shall not be deemed a
waiver of any rights of the Landlord under the Lease.
9. Limitation. Notwithstanding anything contained herein to the contrary,
----------
the only services or rights to which Subtenant is entitled hereunder are those
to which Tenant is entitled under the Lease, and for all such services and
rights Subtenant shall look directly to Landlord under the Lease.
-2-
<PAGE>
10. Indemnity. Subtenant shall neither do nor permit anything to be done
---------
which would cause the Lease to be in default, or to be terminated or forfeited
by reason of any right of termination or forfeiture reserved or vested in
Landlord under the Lease. Subtenant shall indemnify and hold Tenant harmless
from and against all claims, liabilities, losses and expenses (including
attorneys fees) of any kind whatsoever by reason of any breach or default on the
part of Subtenant by reason of which the Lease may be terminated or forfeited.
11. Security Deposit. Subtenant has paid Tenant on the execution and
----------------
delivery of this Sublease the sum of twenty thousand dollars ($20,000.00) as
security for the full and faithful performance of the terms, covenants and
conditions of this Sublease on the part of Subtenant to be performed or
observed, including but not limited to payment of rent and additional rent in
default or for any other sum which Tenant may expend or be required to expend by
reason of Subtenant's default. If Subtenant shall fully and faithfully comply
with all the terms, covenants and conditions of this Sublease on the part of
Subtenant to be performed or observed, the security deposit, or any unapplied
balance thereof, shall be returned to Subtenant within thirty (30) days after
the time fixed as the expiration of the demised term and after the removal of
Subtenant and surrender of possession of the Premises to Tenant.
12. Entire Agreement. All prior understandings and agreements between the
----------------
parties are merged within this Sublease, which alone fully and completely sets
forth the understanding of the parties; and this Sublease may not be changed or
terminated orally or in any manner other than by an agreement in writing which
is signed by the party against whom enforcement of the change or termination is
sought.
13. Notices. Any notice or demand which either party may or must give to
-------
the other hereunder shall be in writing and delivered personally or sent by
registered mail, postage prepaid, or sent by facsimile, addressed, if to Tenant,
as follows:
Thyssen Dover Elevator
P.O. Box 2177
Memphis, TN 38101
Ph. No: 601-342-4300
Fax No.: 601-342-4346
and if to Subtenant, as follows:
HomeGrocer.com, Inc.
Attention: Facilities Manager
10230 NE Points Drive, Suite 200
Kirkland, WA 98033
Ph. No.: 425-201-7591
Fax No.: 425-201-7877
-3-
<PAGE>
HomeGrocer.com, Inc.
Attention: General Counsel
10230 NE Points Drive
Kirkland, WA 98033
Ph. No.: 425-201-7850
Fax No.: 425-201-7805
Either party may, by notice in writing, direct the future notices or demands be
sent to a different address. Subtenant agrees to immediately notify Tenant in
the manner set forth above of any notice that Subtenant receives from Landlord
concerning the Premises, the Building, the Lease, or this Sublease. Notices
delivered personally shall be deemed given when delivered; notices sent by
facsimile shall be deemed given upon electric confirmation of successful
transmission; and notices sent by mail shall be deemed given three (3) business
days after being placed in the mail.
14. Successors and Assigns. The covenants and agreements herein contained
----------------------
shall be binding upon and shall inure to the benefit of Tenant, Subtenant, and
their respective executors, administrators, successors and assigns.
15. Agency Disclosure and Commission. Tenant and Subtenant each represent
--------------------------------
and warrant to the other that neither has employed, retained or consulted any
broker, agent, or finder in carrying on the negotiations in connection with this
Agreement or the purchase and sale referred to herein. Tenant and Subtenant
shall each indemnify and hold the other harmless from and against any and all
claims, demands, causes of action, debts, liabilities, judgments and damages
(including costs and reasonable attorneys' fees incurred in connection with the
enforcement of this indemnity) which may be asserted or recovered against the
indemnified party on account of any brokerage fee, commission or other
compensation arising by reason of the indemnitor's breach of this representation
and warranty.
16. Personal Property. Subtenant has agreed to purchase certain tangible
-----------------
assets listed on Exhibit "C", and receipt of payment for these assets of
$233,700.00 is a condition precedent to the execution of this sublease. All
assets are sold in an AS-IS condition, and Subtenant has inspected and accepts
this condition. Tenant and Subtenant agree and covenant to sign any and all
additional documents and other instruments necessary to carry out the terms of
this Section 16.
17. Parking. Subtenant is entitled to all of the parking rights granted to
-------
Tenant under, and set forth in, the Lease.
-4-
<PAGE>
Dated this 15th day of November, 1999.
TENANT:
Thyssen Dover Elevator
By: /s/ John DeMartino
------------------
Name: John DeMartino
--------------
Title: President & COO
---------------
SUBTENANT:
HomeGrocer.com
By: /s/ Kristin Stred
-----------------
Name: Kristin Stred
-------------
Title: VP & Corporate Secretary
------------------------
-5-
<PAGE>
EXHIBIT 10.24
SINGLE TENANT INDUSTRIAL LEASE
THIS SINGLE TENANT INDUSTRIAL LEASE ("Lease") is made and entered into as
of November 15, 1999 by and between Watson Partners, L.P., a Delaware limited
partnership ("Landlord") and HomeGrocer.com, a Delaware corporation ("Tenant").
Landlord and Tenant mutually covenant and agree that Landlord, in
consideration of the rent payable by Tenant and the covenants and agreements to
be kept, observed and performed by Tenant, hereby rents and leases to Tenant,
and Tenant hereby takes and hires from Landlord, the "Premises" (as defined
herein), pursuant to the provisions of this Lease, subject to (i) all applicable
zoning, municipal, county, state and federal laws; (ii) covenants, conditions,
restrictions, reservations, easements, rights and rights-of-way of record; and
(iii) Performance Standards attached hereto as Exhibit A and incorporated herein
by reference. In the event of any conflict between the provisions of this Lease
and the provisions of the Performance Standards, the provisions of this Lease
shall govern.
ARTICLE I
---------
Basic Lease Provisions
----------------------
1.1 Description of Premises The Premises, as referred to herein, shall
-----------------------
consist of the parcel of land located in the County of Los Angeles, State of
California, as more particularly described in the attached Exhibit B (the
"Land"); the multi-purpose office, warehouse and industrial building located on
the Land (the "Building") together with the appurtenant improvements located on
the Land; and any other improvements or additions made by either Landlord or
Tenant which become a part of the Premises in accordance with the provisions of
this Lease.
1.2 Street Address of Premises: 18511 Broadwick Street, Carson,
--------------------------
California.
1.3 Approximate Building Square Footage: 116,488 square feet.
-----------------------------------
1.4 Lease Term: Ten (10) years beginning on January 15, 2000 or such other
----------
date as is determined pursuant to the provisions of this Lease (the
"Commencement Date") and ending on January 14, 2010 (the "Termination Date"),
subject to the provisions of Paragraph 3.2, below.
1.5 Extension Options: Two (2) consecutive periods of five (5) years each.
-----------------
(See Paragraphs 1 and 2 of the attached Lease Rider.)
<PAGE>
1.6 Initial Minimum Rent: Sixty-Nine Thousand Eight Hundred Ninety-Two and
--------------------
80/100ths Dollars ($69,892.80).
1.7 Periodic Rent Adjustments: See Paragraph 3 of the attached Lease
-------------------------
Rider.
1.8 Initial Security Deposit: One Million Eight Hundred Thousand Dollars
------------------------
($1,800,000). [See Article XXIV, below.]
1.9 Brokers: Bob Goodmanson, CB Richard Ellis.
-------
1.10 Initial Improvement Work: See Work Letter Agreement attached as
------------------------
Exhibit C.
1.11 Exhibits and Riders: The following Exhibits and Riders are attached to
-------------------
this Lease and made a part hereof:
Exhibit A - Performance Standards of Watson
Industrial Center
Exhibit B - Legal Description
Exhibit C - Work Letter Agreement
Exhibit D - Dominguez Technology Center
Exhibit E - Form of Lease Addendum
Exhibit F - Hazardous Material Certificate
Exhibit G - Form of Estoppel Certificate
Exhibit H - Improvement Allowance Items
Lease Rider Number 1
1.12 Mailing Addresses:
-----------------
Landlord: Watson Partners, L.P.
22010 Wilmington Avenue, Suite 400
Carson, California 90745
Tenant: HomeGrocer.com, Inc.
10230 Northeast Points Drive
Kirkland, Washington 98033
Attention: Legal Department
ARTICLE II
----------
Construction of Premises
------------------------
2.1 Landlord shall, at its sole cost and expense, construct certain "Base
Building Improvements" on the Land as described in Schedule C-1 of the
-2-
<PAGE>
attached Work Letter Agreement. Alterations to the Base Building Improvements
requested by Tenant, together with office improvements and other improvements
requested by Tenant (collectively, "Tenant Improvements") shall be constructed
by Tenant at Tenant's expense in accordance with the Work Letter Agreement.
Tenant acknowledges that promptly following written notice from Landlord of the
"Substantial Completion" (as defined in the Work Letter Agreement) of the Base
Building Improvements, Landlord and Tenant shall jointly inspect the Base
Building Improvements and shall prepare a single list of any defects or
deficiencies in the Base Building Improvements construction (the "Base Building
Punchlist"). Except for items noted on the Base Building Punchlist and latent
structural defects in the Base Building Improvements that could not have been
discovered by Tenant based upon a reasonable and diligent visual inspection of
the Premises as of the date of Substantial Completion, Tenant shall be deemed to
have accepted the Premises in its then existing condition and state of repair.
2.2 Tenant acknowledges that neither Landlord nor any real estate agent or
broker representing Landlord or Tenant has made any representation or warranty
as to the present or future suitability of the Premises for the conduct of
Tenant's business. Landlord represents to Tenant as of the Commencement Date,
the Base Building Improvements shall comply with laws, codes, ordinances, rules
and regulations ("collectively, Codes") applicable to the design and
construction of the Base Building Improvements at the time the Base Building
Improvements were constructed. Landlord agrees that upon the date on which
occupancy of the Premises is delivered to Tenant, the "Building Systems" (as
defined herein) shall be in good working order. As used herein the term
"Building Systems" shall mean the mechanical, plumbing, HVAC, and electrical
systems of the Base Building Improvements and all loading doors of the Building.
If, within sixty (60) days following the date on which Tenant commences
-3-
<PAGE>
business operations on the Premises, Tenant discovers and advises Landlord in
writing that any such item is not in good working order, then Landlord shall
repair such item at Landlord's sole cost and expense.
2.3 In the event that, as of the Commencement Date, the Base Building
Improvements are in violation of the requirements of Title III of the Americans
with Disabilities Act ("ADA") applicable to the Building with respect to the use
of the Building for general warehouse, manufacturing and related office purposes
(but not for any use constituting a "public accommodation" under the ADA), for
any reason other than as a result of Tenant's acts, specific use of the
Premises, or improvements or alterations made by or for Tenant, Landlord shall,
at its sole cost and expense, cause the same to be rectified at no cost to
Tenant to the extent required by applicable law.
2.4 The Premises and the Building are located within a complex of
properties commonly known as Dominguez Technology Center which currently
consists of the properties shown in the attached Exhibit D. The configuration
and boundaries of the Dominguez Technology Center and the "Dominguez Technology
Center Common Area" (as defined below) may be modified by Landlord from time to
time to add, withdraw or reconfigure properties or boundaries, as Landlord may
determine in its sole and absolute discretion. However, no such alteration to
the Dominguez Technology Center Common Area shall unreasonably interfere with
Tenant's use of the Premises, including, without limitation, ingress and egress
and parking.
2.5 The term "Dominguez Technology Center Common Area," as used in this
Lease, shall mean the thirty (30) foot perimeter setback landscaping, detention
basins, curvilinear sidewalks and monument signs within the exterior boundaries
of the Dominguez Technology Center. The manner in which the Dominguez
Technology Center Common Area shall be maintained shall be determined by
Landlord, in its sole discretion. The Dominguez Technology Center Common Areas
shall be repaired and maintained by Landlord subject to Tenant's contribution
toward "Dominguez Technology Center Common Area Expenses" (as defined below) as
provided in Paragraph 2.7.
2.6 The term "Dominguez Technology Center Common Area Expenses," as used
in this Lease, shall mean all costs and expenses incurred by Landlord in (a)
operating, insuring, repairing and maintaining the Dominguez Technology Center
Common Area. Dominguez Technology Center Common Area Expenses shall include,
without limitation, expenses for maintaining, landscaping, repairing, painting,
lighting, fencing and cleaning the Dominguez Technology Center Common Area,
nonrefundable contributions toward one or more reserves for replacements or
major repairs; expenses, charges, costs of compliance and other costs related to
the requirements of any Federal, state or local governmental agency; expenses
related to the Dominguez Technology Center Common Area; and public liability and
property damage insurance on the Dominguez Technology Center Common Area.
-4-
<PAGE>
2.7 From and after the Commencement Date, Tenant shall pay to Landlord, on
the first day of each calendar month "Tenant's Allocated Share" (as defined
herein) of the Dominguez Technology Center Common Area Expenses, together with
the Landlord's administrative fee . The total amount of Tenant's share of the
Dominguez Technology Center Common Area Expenses ("Tenant's Allocated Share")
and the Landlord's administrative fee shall be One Thousand Seven Hundred Forty-
Seven Dollars ($1,747.00) per month.
2.8 The Premises will be served by a fire pumphouse and related pipelines,
pumps, valves, gates, connections and other equipment located outside of the
Building (collectively referred to herein as the "Fire System") and necessary
for the operation of the ESFR fire suppression system for the Premises and the
adjacent Watson Legacy Series Building 658 (the "658 Property)". Landlord shall
inspect, maintain, repair and replace the Fire System and any components of the
Fire System to the extent necessary to keep the Fire System in good working
order. Tenant shall be responsible for paying its proportional share of the
costs and expenses of the inspection, maintenance, repair and replacement of the
Fire System and any components of the Fire System (the "System Costs"), subject
to the limitations set forth in Paragraph 4.2. Tenant's share of the System
Costs shall be determined by multiplying the total System Costs by a fraction,
the numerator of which shall be the building floor area (measured on a
"dripline" basis) of all buildings located on the Premises, and the denominator
of which shall be the total building floor area of all buildings located on the
Premises and the 658 Property. Landlord shall, from time to time, but not more
often than once each calendar quarter, and not less often than once each
calendar year, deliver to Tenant a written statement indicating the total System
Costs incurred by the Landlord since the date of the last such statement, and
setting forth Tenant's proportional share of such costs. Within thirty (30)
days after receipt of such statement, Tenant shall pay to Landlord, as
additional rent, Tenant's proportional share of the System Costs. Tenant's
proportional share of the System Costs shall be limited to the fair market value
of the goods and services involved, shall be reasonably incurred, and shall be
substantiated by documentary evidence available for inspection and review by
Tenant or its representative during normal business hours.
ARTICLE III
-----------
Term of Lease
-------------
3.1 The term of this Lease (the "Lease Term") shall be ten (10) years.
Subject to the terms and conditions of this Lease, the Lease Term shall commence
on the Commencement Date and shall terminate on the Termination Date, which
dates are specified in Item 1.4 of the Basic Lease Provisions.
3.2 If Landlord is unable to deliver possession of the Premises to Tenant
by the Commencement Date specified in Item 1.4 of the Basic Lease
-5-
<PAGE>
Provisions, for any reason (other than a delay which is attributable to any act
or omission of Tenant, in which event the Lease Term shall be deemed to have
commenced on the date specified in Item 1.4 of the Basic Lease Provisions), the
Lease Term shall not commence until possession of the Premises is delivered to
Tenant. For the purposes of this Paragraph 3.2, delivery of possession of the
Premises to Tenant shall be deemed to occur on January 15, 2000, so long as
construction of the Base Building Improvements has been "Substantially
Completed" (as defined in the Work Letter Agreement) as of such date. If
construction of the Base Building Improvements have not been Substantially
Completed by January 15, 2000, the delivery of possession of the Premises shall
occur on the date of "Substantial Completion" (as defined in the Work Letter
Agreement) of the Base Building Improvements. If Landlord or Tenant so desire,
Landlord and Tenant shall execute a Lease Addendum in the form attached to this
Lease as Exhibit E, confirming the actual Commencement Date and Termination Date
of the Lease Term. Landlord shall not be liable for any damage caused by any
delay in delivery of the Premises to Tenant. If Landlord does not deliver
possession of the Premises to Tenant by the date specified in Item 1.4 of the
Basic Lease Provisions (unless the delay in delivering possession by such date
is caused by "Tenant Delays", as defined herein and in the attached Work Letter
Agreement), Tenant shall not be liable for rent until Landlord delivers
possession of the Premises to Tenant, and the Lease Term shall be extended for a
period of time equal to the period of such delay; provided, however, that (i) if
the Base Building Improvements are not Substantially Completed within ninety
(90) days following the date specified in Item 1.4 of the Basic Lease Provisions
(such ninety (90) day period shall be extended day for day for any "Tenant
Delays", as defined herein and in the attached Work Letter Agreement), Tenant
shall have the right to terminate this Lease by giving written notice to
Landlord at any time after lapse of said ninety (90) day period, unless Landlord
has Substantially Completed the Base Building Improvements before Tenant gives
such notice to Landlord; and (ii) if the Base Building Improvements are not
Substantially Completed within thirty (30) days following the date specified in
Item 1.4 of the Basic Lease Provisions (such thirty (30) day period shall be
extended day for day for any "Tenant Delays", as defined herein and in the
attached Work Letter Agreement), then Landlord shall pay to Tenant, as
liquidated damages for such delay, the amount of One Thousand Dollars
($1,000.00) per day for each day following the end of such thirty (30) day
period until the Base Building Improvements are Substantially Completed. Tenant
shall not be liable for rent until Landlord delivers possession of the Premises
to Tenant, and the Lease Term shall be extended for a period of time equal to
the period of such delay. If the Lease Term commences on a day other than the
first day of a calendar month, the Lease Term shall end on the last day of the
calendar month in which said Lease Term would otherwise end.
3.3 Commencing on the date on which (a) this Lease is fully executed and
delivered; (b) the security deposit has been received by Landlord; and (c) the
Base Building Improvements have progressed to a point sufficient to permit
Tenant to enter onto the Premises without impeding or interfering with
Landlord's remaining work on the Building, and continuing until the Commencement
Date (the "Early Occupancy Period")
-6-
<PAGE>
Tenant and its agents, employees, contractors, and vendors shall be permitted to
enter such portion of the Premises for the purposes of installing Tenant's
furniture, fixtures, utilities, telecommunication systems, equipment and
machinery and for constructing the Tenant Improvements. Tenant agrees that
throughout the Early Occupancy Period, Tenant shall conduct its activities on
the Premises in such a way so as not to interfere with, disrupt or delay
Landlord's work or activities relating to the Base Building Improvements, and
any delay resulting from any such interference, disruption or delay shall be a
"Tenant Delay". Landlord shall have no responsibility for any damage, theft,
destruction or injury to Tenant or any of Tenant's property as a result of
Tenant's presence or activities on, or use of, the Premises during the Early
Occupancy Period. Landlord makes no representations as to whether Tenant's
occupancy of the Premises during the Early Occupancy Period will be in
compliance with applicable building, safety or fire codes, and Tenant shall be
responsible for, and assumes the risk of any non-compliance. Tenant shall
require that all of its contractors, vendors, consultants and design
professionals who will be present on the Premises during the Early Occupancy
Period maintain liability, property damage, workers compensation and other
insurance in the same form and amounts as Landlord customarily requires for such
persons performing work for Landlord on Landlord's properties and naming
Landlord and Tenant as additional insureds under such policies. During the Early
Occupancy Period, Tenant shall not be obligated to pay Minimum Rent, but any use
or occupancy of the Premises by Tenant pursuant to this Paragraph 3.3 shall be
subject to, and in accordance with, all other terms and conditions of this Lease
including, without limitation, the indemnification provisions of this Lease and
the provisions of this Lease requiring Tenant to pay for all utilities serving
the Premises.
ARTICLE IV
----------
Rent
----
4.1 Tenant agrees to pay to Landlord at the office of Landlord or at such
other place as may be designated by Landlord from time to time, without any
prior demand therefor and without any deduction, recoupment or setoff
whatsoever, as minimum monthly rent ("Minimum Rent"), the sum specified as the
Initial Minimum Rent in Item 1.6 of the Basic Lease Provisions. Minimum Rent
shall be payable in advance on the first day of each calendar month of the Lease
Term. If the Lease Term shall commence upon a day other than the first day of a
calendar month, then Tenant shall pay, upon the Commencement Date, a pro rata
portion of the Minimum Rent for the first fractional calendar month. Minimum
Rent payable by Tenant under this Lease is subject to adjustment in accordance
with the provisions of Item 1.7 of the Basic Lease Provisions. Unless
specifically designated otherwise in this Lease, all fees, charges, costs,
expenses or other payments to be paid by Tenant to Landlord pursuant to this
Lease shall be deemed to be additional rent.
-7-
<PAGE>
4.2 The Minimum Rent is to be a "net net net rental" as those terms are
used and understood in the real property leasing business. Accordingly, and as
additional rent hereunder, Tenant shall pay during the Lease Term, and prorated
to the Commencement Date and Termination Date of the Lease Term, all real estate
taxes (as defined in Paragraph 5.5) levied against the Premises, or any portion
thereof, public utility and related costs and expenses, premiums for insurance
described in Article VIII hereof, expenses of occupying, operating, altering,
maintaining and repairing the entire Premises as provided in this Lease, and any
other expenses or charges which shall be levied, assessed or imposed by any
governmental authority upon or with respect to, or incurred in connection with,
the possession, occupation, operation, alteration, maintenance, repair and use
of the Premises during, or with respect to, the Lease Term, it being intended
that this Lease shall result in a rent to be paid to Landlord, without
additional cost to Landlord or diminution or offset, in the amount specified
herein. Notwithstanding the foregoing, Tenant shall not be obligated to pay for
any maintenance, repair or replacement necessitated by: (i) a breach of the
warranty contained in Paragraph 2.2; (ii) any latent structural defect in the
design or construction of the Base Building Improvements; or (iii) the
negligence of Landlord, its agents, employees or contractors. The obligations of
Landlord and Tenant regarding Hazardous Materials are governed by Paragraphs 9.7
through 9.11, inclusive, and are not affected by the provisions of this
Paragraph 4.2.
ARTICLE V
---------
Taxes and Assessments
---------------------
5.1 Tenant covenants and agrees to pay and discharge, as additional rent
hereunder, all real estate taxes and assessments, and installments thereof which
may be taxed, charged, levied, assessed or imposed during the Lease Term and any
extensions or renewals thereof upon all or any portion of or in relation to the
Premises and the improvements at any time erected thereon and the appurtenances
thereof. At the same time as Tenant makes its payments of Minimum Rent as
provided in Article IV, above, Tenant shall pay to Landlord a monthly
installment payment of the annual real estate taxes which Tenant is obligated to
pay pursuant to this Article V. Such monthly installment payments of real
estate taxes shall be paid on an estimated basis, with subsequent annual
reconciliation, in accordance with the procedures set forth in this Article V.
5.2 During December of each calendar year during the Lease Term, or as
soon thereafter as practicable, Landlord shall give Tenant notice of its
estimate of the amount of the monthly installment payments of real estate taxes
for the next calendar year. On or before the first day of each month during the
ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of such
estimated real estate taxes, provided that if such notice is not given in
December, Tenant shall continue to pay on the basis of the prior year's estimate
until such revised estimate is delivered, from and after which time (commencing
with the first day of the next calendar month
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after such notice is given) Tenant shall pay such amount as is necessary to
bring Tenant current with respect to such revised estimate for such calendar
year, as if such revised estimate had been delivered in December, and thereafter
monthly payments shall be based on such revised estimate, unless and until
further revised in accordance herewith. If at any time or times it appears to
Landlord that the real estate taxes for the current calendar year will vary from
its estimate, Landlord may, by notice to Tenant, revise its estimate for such
year, and subsequent monthly payments by Tenant for such year shall be based
upon such revised estimate.
5.3 Within ninety (90) days after the close of each calendar year or as
soon after such ninety (90) day period as is practicable, Landlord shall deliver
to Tenant a statement of the actual real estate taxes for such calendar year,
supported by copies of property tax bills covering the year in question. If
Landlord's statement discloses that Tenant owes an amount that is less than the
estimated payments for such calendar year previously made by Tenant, Landlord
shall credit such excess first against any sums then owed by Tenant to Landlord
and then against the next payments of rent due hereunder. If Landlord's
statement discloses that Tenant owes an amount that is more than the estimated
payments for such calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery of the statement.
The failure of Landlord to timely furnish the statement for any calendar year
shall not prejudice Landlord from enforcing its rights hereunder. Tenant shall
have the right, at its sole cost and expense, to cause an audit of real estate
taxes subject to the following provisions. Such audit shall be made by an
independent nationally recognized certified public accounting firm upon at least
thirty (30) days prior written notice to Landlord and shall be made if at all,
within ninety (90) days following Tenant's receipt of Landlord's statement
described in this Paragraph 5.3. Any adjustment to real estate taxes resulting
from such audit shall be made in the same manner as provided above for the
annual reconciliation of real estate taxes. The amount of real estate taxes for
any partial calendar year in the Lease Term shall be appropriately prorated. The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Paragraph 5.2, above to be performed after such termination.
5.4 Tenant shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Premises or elsewhere. Whenever possible,
Tenant shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Landlord. If any of Tenant's said personal property shall be assessed with
Landlord's real property, Tenant shall pay to Landlord the taxes attributable to
Tenant's personal property in the same manner as the payment of real estate
taxes as provided herein.
5.5 As used herein, the term "real estate taxes" shall include any form of
real estate tax or assessment, general, special, ordinary or extraordinary, and
any license fee, commercial rental tax, rental excise tax, improvement bond or
bonds, levy or tax (other than income taxes) imposed on the Premises by any
authority having the
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direct or indirect power to tax, including any city, state or the federal
government, or any school, agricultural, sanitary, fire, street, drainage, water
or other improvement district thereof, as against any legal or equitable
interest of Landlord in the Premises or in the real property of which the
Premises are a part, as against Landlord's right to rent or other income
therefrom, and as against Landlord's business of leasing the Premises. The term
"real estate taxes" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge hereinabove included within the definition of "real estate tax"; or (ii)
the nature of which was hereinbefore included within the definition of "real
estate tax"; or (iii) which is imposed as a result of a transfer, either partial
or total, of Landlord's interest in the Premises or which is added to a tax or
charge previously included within the definition of real property tax by reason
of such transfer; or (iv) which is imposed by reasons of this transaction, any
modifications or changes hereto, or any transfers hereof; provided, however,
that the definition of "real estate taxes" shall not include any excess profits
taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, or federal and state income taxes.
5.6 Tenant shall have the right, in Tenant's or Landlord's name, but at
Tenant's sole cost and expense, to contest the validity of any tax or assessment
or assessed valuation of the Premises by appropriate proceedings timely
instituted; provided that: (a) Tenant gives Landlord written notice of Tenant's
intention to do so; (b) Tenant makes timely payment to Landlord of all taxes
payable by Tenant pursuant to this Article V; (c) Tenant requests Landlord, in
writing, to pay such taxes under protest; and (d) Tenant diligently prosecutes
any such contest. Landlord shall, if requested by Tenant, cooperate with Tenant
in any such proceedings, provided, however, that
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Landlord shall not be liable for any expenses whatsoever in connection
therewith, and Tenant shall protect, indemnify, and reimburse Landlord for all
claims loss, cost, liability expense, attorneys' fees or damages resulting
therefrom.
ARTICLE VI
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Utility Charges
---------------
6.1 Tenant shall contract for, in Tenant's name, and shall pay or cause to be
paid, all charges for gas, electricity, light, heat, air-conditioning, water,
power, telephone, sewer, trash collection and waste removal and/or disposal,
security or guard service, alarm systems, or other service, and any taxes,
levies or excises thereon, used, rendered or supplied to Tenant in connection
with the Premises; and for all connection and closing charges, and any tax or
excise thereon; and for any governmental service or service subject to
governmental regulation, however described, furnished to the Premises during the
Lease Term and during any other period in which Tenant uses or occupies the
Premises. Landlord shall not be liable to Tenant for any loss, injury, damage,
disruption of business or any other harm resulting from any interruption of
utility services to the Premises, except to the extent such interruption results
from the gross negligence or willful misconduct of Landlord.
ARTICLE VII
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Hold Harmless
-------------
7.1 Tenant covenants and agrees that Landlord shall not at any time or to any
extent whatsoever be liable, responsible, or in any way be accountable for any
loss, injury, death or damage to persons or property which at any time may be
suffered or sustained by Tenant or by any person whomsoever who may at any time
be using, occupying or visiting the Premises, or be in, on, or about the same,
whether such loss, injury, death or damage shall be caused by or in any way
result from or arise out of any act, omission or negligence of Tenant or of any
occupant, subtenant, visitor or user of any portion of the Premises or from
fire, steam, electricity, water, rain, act of God, or from breakage or leakage
or any defect in any pipes, sprinklers, or plumbing, electrical or heating and
air conditioning systems or fixtures, or from any other cause. Tenant hereby
releases Landlord and agrees to indemnify, defend, hold and save Landlord free
and harmless of, from, and against any and all claims, losses, costs,
liabilities, expenses or damages whatsoever arising out of or related to any use
or occupancy of the Premises by Tenant or any of Tenant's agents, employees,
invitees or contractors (collectively "Losses"), including attorneys' fees and
costs on account of any such Losses, except for any Losses resulting from the
gross negligence or willful misconduct of Landlord. Landlord hereby agrees to
indemnify, defend, hold and save Tenant harmless of, from and against any and
all claims, losses, costs, liabilities, expenses or damages (including
attorneys' fees and related costs) arising out of any injury to
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persons or damage to property resulting from the gross negligence or willful
misconduct of Landlord or Landlord's agents, employees or contractors.
ARTICLE VIII
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Insurance
---------
8.1 Landlord shall, throughout the Lease Term, at Tenant's cost and expense,
keep all buildings and improvements which may from time to time be upon or a
part of the Premises (but not Tenant's personal property, fixtures or equipment)
insured against all risks (as the term "all risk" is used in the insurance
industry), and against earthquake and flood risks, in such form and with such
policy limits as Landlord may determine from time to time, so as to provide
adequate protection of Landlord's ownership interests in the Premises at a
reasonable cost. Notwithstanding the foregoing, Landlord shall not be required
to maintain any insurance which becomes unavailable, or which becomes
commercially unreasonable for landlords to carry, in the Southern California
insurance marketplace. In the event of any insured loss, Tenant shall be liable
to Landlord for any deductible amount claimed by the insurance carrier, but
Tenant's responsibility for such deductible amount shall not exceed Two Hundred
Fifty Thousand Dollars ($250,000), measured in 1999 dollars. In the event the
premiums for the insurance carried by Landlord increase to an amount greater
than two hundred fifty percent (250%) of the amount of the premiums in effect as
of the Commencement Date (as adjusted for increases in the "CPI") and Tenant
determines that Tenant is able to provide acceptable equivalent insurance on the
Premises at a cost less than the cost of such insurance if provided by Landlord
as set forth herein, then Tenant may, upon written notice to Landlord and at
Tenant's sole cost, elect to obtain, Tenant's own insurance on the Premises in
lieu of Landlord's insurance pursuant to this Paragraph 8.1. Any such insurance
obtained by Tenant must: (i) have policy coverages, limits and deductibles in
the amounts specified by Landlord; and (ii) satisfy the requirements set forth
in this Paragraph 8.1 for coverage which would be carried by Landlord, and (iii)
satisfy the applicable requirements of Paragraph 8.6, below. If Tenant elects
to obtain such insurance, Tenant shall be responsible for any and all deductible
amounts under any insurance policies insuring the Premises, and Tenant shall be
responsible for any coinsurance amounts. Any election by Tenant to obtain its
own insurance for the Premises as provided herein shall be made by Tenant in
writing to Landlord at least thirty (30) days, but no earlier than sixty (60)
days, prior to the commencement of the next "Policy Year" (the "Election
Window"). For purposes of this Lease, the term "Policy Year" shall mean the
one-year period following the commencement date for coverage under Landlord's
then-effective insurance policy. As of the date of this Lease, the Policy Year
for Landlord's existing coverage commenced on July 22, 1999. However, the date
of commencement of subsequent Policy Years may change from time to time over the
Lease Term. Landlord agrees to provide Tenant with written notice of any change
in the commencement date of any Policy Year. If any change in the commencement
date of any Policy Year precludes Tenant from making the election to carry its
own insurance within the Election Window, Tenant shall have a
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period of thirty (30) days following Tenant's receipt of notice from Landlord of
the change in the commencement of the Policy Year during which Tenant may elect
to carry the insurance described herein. Any insurance carried by Tenant
pursuant to this Paragraph 8.1 shall have attached thereto such form of lender's
loss payable endorsement as Landlord's Lender may require. Tenant shall, upon
request of Landlord, provide Landlord with a copy of the insurance policy or
policies obtained by Tenant pursuant to this Paragraph 8.1, together with a
certificate of insurance for such policy or policies which shall confirm, among
other things, that such policy shall not be modified or cancelled without at
least thirty (30) days prior written notice to Landlord. Landlord shall also
obtain and maintain "rental value insurance" covering one year's rent (Minimum
Rent, real estate taxes, insurance premiums and landscape maintenance charges)
payable under this Lease. At the same time as Tenant makes its payments of
Minimum Rent as provided in Article IV, above, Tenant shall pay to Landlord a
monthly installment payment of the annual insurance premiums which Tenant is
obligated to pay pursuant to this Article VIII. Such monthly installment
payments of insurance premiums shall be paid on an estimated basis, with
subsequent annual reconciliation, in accordance with the procedures set forth in
this Article VIII.
8.2 During December of each calendar year during the Lease Term, or as soon
thereafter as practicable, Landlord shall give Tenant notice of its estimate of
the amount of the monthly installment payments of insurance premiums for the
next calendar year. On or before the first day of each month during the ensuing
calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of such
estimated insurance premiums, provided that if such notice is not given in
December, Tenant shall continue to pay on the basis of the prior year's estimate
until such revised estimate is delivered, from and after which time (commencing
with the first day of the next calendar month after such notice is given) Tenant
shall pay such amount as is necessary to bring Tenant current with respect to
such revised estimate for such calendar year, as if such revised estimate had
been delivered in December, and thereafter monthly payments shall be based on
such revised estimate, unless and until further revised in accordance herewith.
If at any time or times it appears to Landlord that the insurance premiums for
the current calendar year will vary from its estimate, Landlord may, by notice
to Tenant, revise its estimate for such year, and subsequent monthly payments by
Tenant for such year shall be based upon such revised estimate.
8.3 Within ninety (90) days after the close of each calendar year or as soon
after such ninety (90) day period as is practicable, Landlord shall deliver to
Tenant a statement of the actual insurance premiums for such calendar year,
supported by copies of property tax bills covering the year in question. If
Landlord's statement discloses that Tenant owes an amount that is less than the
estimated payments for such calendar year previously made by Tenant, Landlord
shall credit such excess first against any sums then owed by Tenant to Landlord
and then against the next payments of rent due hereunder. If Landlord's
statement discloses that Tenant owes an amount that is more than the estimated
payments for such calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery
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of the statement. The failure of Landlord to timely furnish the statement for
any calendar year shall not prejudice Landlord from enforcing its rights
hereunder. Tenant shall have the right, at its sole cost and expense, to cause
an audit of insurance premiums subject to the following provisions. Such audit
shall be made by an independent nationally recognized certified public
accounting firm upon at least thirty (30) days prior written notice to Landlord
and shall be made if at all, within ninety (90) days following Tenant's receipt
of Landlord's statement described in this Paragraph 8.3. Any adjustment to
insurance premiums resulting from such audit shall be made in the same manner as
provided above for the annual reconciliation of insurance premiums. The amount
of insurance premiums for any partial calendar year in the Lease Term shall be
appropriately prorated. The termination of this Lease shall not affect the
obligations of Landlord and Tenant pursuant to Paragraph 8.2, above to be
performed after such termination.
8.4 Landlord and Tenant agree that if the building and improvements at any
time forming a part of the Premises shall be damaged or destroyed by risks
insured against under Paragraph 8.1, or if any of Tenant's machinery, fixtures,
furniture, merchandise or other property, real or personal, are damaged or
destroyed from any cause covered by a property policy obtained by Tenant, then
and to the extent allowable and without invalidating such insurance, and whether
or not such damage or destruction was caused by the negligence of the other
party, neither party shall have any liability to the other nor to any insurer of
the other for or in respect of such damage or destruction. If obtainable, each
party shall require all policies of fire or other insurance carried by such
party during the Lease Term upon the Premises or contents therein to include a
provision whereby the insurer designated therein shall waive its right of
subrogation against the other party.
8.5 During the entire Lease Term, Tenant, at Tenant's sole cost and expense,
shall procure and maintain in full force and effect personal injury and property
damage liability insurance with a combined single limit of not less than Five
Million Dollars ($5,000,000). Such insurance may be evidenced by a Primary
Policy or a combination of a Primary Policy and an Umbrella Excess Policy.
Tenant's liability insurance shall be primary and any liability insurance
maintained by Landlord shall not be contributory. Landlord shall be named as an
additional insured in such policies, and a policy endorsement so naming Landlord
shall be furnished to Landlord. All such insurance shall insure the performance
by Tenant of the indemnity provisions of Article VII of this Lease. The limits
of said policies shall not limit the liability of Tenant under this Lease. In
the event that either party hereto shall at any time deem the limits of such
liability insurance then carried to be insufficient, the parties shall endeavor
to agree upon the proper and reasonable limits for such insurance then to be
carried. If the parties shall be unable to agree thereon, the proper and
reasonable limits for such insurance then to be carried shall be determined by
an impartial third person knowledgeable of insurance risk matters selected by
the parties, or should they be unable to agree upon a selection by an impartial
third person such third person shall be chosen by the Presiding Judge of the
Superior Court of Los Angeles County upon
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application by either party made after five (5) days written notice to the other
party of the time and place of application. The decision of such impartial third
person as to such limits then to be carried shall be binding upon the parties.
Such insurance shall be carried with the limits as agreed upon or determined
pursuant to this Paragraph until such limits shall again be changed pursuant to
the provisions of this Paragraph. The expenses of such determination shall be
borne equally between Landlord and Tenant.
8.6 All of the insurance provided by Tenant under this Article VIII and all
renewals thereof shall be issued by such good, responsible and standard
companies rated at least A:Class XII in the current edition of Best's Insurance
Guide, and authorized to do business in California. The policy or policies of
insurance provided for in Paragraph 8.1 hereof shall be payable to Landlord, or
jointly to Landlord and Landlord's Lender, and Tenant agrees to endorse any
check to the order of Landlord which might be made payable jointly to Landlord
and Tenant by the insurance company. Tenant agrees to immediately comply with
any request of the insurance carrier providing insurance described in Paragraph
8.1 if the failure to comply therewith will cause cancellation of such
insurance. All policies provided by Tenant shall expressly provide that the
policy shall not be canceled or altered without thirty (30) days' prior written
notice to Landlord. Neither Landlord nor Tenant shall do or permit to be done
anything which will invalidate the insurance policies provided for in this
Article VIII. Upon the issuance or renewal of the liability insurance policy
described in this Article VIII, or upon commencement of the Lease Term if such
policy is then in force or effect, Tenant shall have its insurance carrier
furnish Landlord with a Certificate of said insurance. If requested in writing
by Landlord or Tenant following the occurrence of an event for which insurance
coverage may be afforded under the insurance provided by Landlord or Tenant,
such party shall reproduce and forward to the requesting party a true copy of
any insurance policy described in this Lease and obtained by Landlord or Tenant
(or such relevant portions of such policy as are sufficient to enable the
requesting party to determine the coverage under such policy). Tenant shall
obtain such fire insurance and other insurance on Tenant's machinery, fixtures,
furniture and other property, real or personal, as Tenant deems appropriate, and
with which Landlord shall not otherwise be concerned.
ARTICLE IX
----------
Repairs and Maintenance
-----------------------
9.1 Landlord shall maintain and repair the foundation, structural components
and floor slab of the Building at its own cost and expense, provided, however,
that if any maintenance or repair work for the foundation, structural components
or floor slab of the Building is required as a result of any negligence or
willful misconduct of Tenant or any of Tenant's agents, employees, shippers,
customers, invitees or contractors, such work shall be at Tenant's sole cost and
expense. To the extent the foundation, structural components or floor slab of
the Building is damaged as a result of any modifications, alterations or
improvements made
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by Tenant or made at the request or direction of Tenant (including, without
limitation, the Tenant Improvements, the use or operation of the freezer unit or
cold storage areas), Tenant shall be responsible for the costs of repairing any
such items. Tenant shall keep all other portions and components of the Premises
(including all interior and exterior areas, portions, systems and equipment) and
including all plumbing, HVAC systems, electrical and lighting systems, ceilings,
exterior walls, plate glass, paved areas, concrete pads, roof structure, roof
membrane, gutters, downspouts, skylights and asphalt in good order, condition
and repair during the Lease Term and any Extended Term. Without limiting the
generality of the foregoing, Tenant shall perform all maintenance detailed in
Paragraphs I (exterior repainting), J (resurfacing paved areas) and K
(mechanical service controls) of the Performance Standards attached hereto as
Exhibit A. Except as otherwise provided in Article XII, in the event any
"Capital Improvement" is required to be made to the Premises, Landlord shall
cause such Capital Improvement to be performed and Tenant shall be responsible
for paying its "Monthly Prorata Share" (as defined herein) of the costs of any
such Capital Improvement. Tenant's "Monthly Prorata Share" of the costs of any
such Capital Improvement shall be determined by amortizing the costs of such
Capital Improvement (at the Lease Interest Rate) over the number of months of
the useful life such Capital Improvement, and Tenant shall pay the resulting
amount (referred to herein as Tenant's "Monthly Prorata Share") monthly, as
additional rent, for each month of the Lease Term (and any Extended Term)
remaining after the completion of such Capital Improvement (but not beyond the
useful life of such Capital Improvement). For the purposes of this Lease, the
term "Capital Improvement" shall mean and refer to any improvement, replacement,
modification, alteration or conversion of the Base Building Improvements or any
component or system of the Base Building Improvements: (i) which is required for
a reason other than the particular nature of Tenant's business or Tenant's
particular use or business operations at the Premises; (ii) which costs in
excess of Fifty Thousand Dollars ($50,000); and (iii) has a useful life in
excess of ten (10) years. At the expiration or sooner termination of the Lease
Term, Tenant shall pay to Landlord a prorata portion of the cost of the next
scheduled repainting, resurfacing and re-roofing of the building located on the
Premises, and Tenant's share of the costs of the next scheduled repainting,
resurfacing and re-roofing shall be determined as follows: (a) With respect to
repainting, the total estimated cost of repainting shall be multiplied by a
fraction, the numerator of which shall be the number of full calendar months
from the date of the last repainting to the expiration or termination date of
the Lease Term, and the denominator of which shall be sixty (60), and the
resulting amount shall be paid by Tenant; (b) With respect to resurfacing, the
total cost of resurfacing shall be multiplied by a fraction, the numerator of
which shall be the number of full calendar months from the date of the last
resurfacing to the expiration or termination date of the Lease Term, and the
denominator of which shall be thirty-six (36), and the resulting amount shall be
paid by Tenant; and (c) with respect to re-roofing, the total estimated cost of
re-roofing shall be multiplied by a fraction, the numerator of which shall be
the lesser of (i) number of full calendar months from the date of the last re-
roofing (or the completion of the original roof, as the case may be) or (ii) the
number of full calendar months from the Commencement Date to the date on which
this Lease expires or is terminated, and the
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denominator of which shall be the estimated full useful life (as determined by
Landlord) of the roof; provided, however, that if throughout the term of the
Lease, Tenant has continually repaired and maintained the Premises as required
under the terms of this Lease, the Performance Standards and the applicable
Exhibits, then the requirement that Tenant pay its prorata portion of such costs
shall be waived. Except to the extent of repairs or maintenance of the
foundation, structural components or floor slab of the Building which are the
responsibility of Landlord under this Paragraph 9.1 and except for Capital
Improvements as provided above, and subject to the provisions of Paragraph 4.2
and Articles XII and XIII, Tenant shall promptly make all necessary repairs and
perform such other required maintenance, interior or exterior, ordinary as well
as extraordinary, as may be required to maintain the Premises in a clean and
orderly condition. Tenant shall provide a regularly scheduled preventative
maintenance program to insure that the roof of the building is kept in good
repair, free of debris, in a watertight condition, and all roof drains shall be
kept fully open at all times to allow for maximum water drainage. Subject to
Paragraph 4.2, Tenant shall promptly replace any portion of the Premises or
system or equipment in the Premises which cannot be fully repaired, regardless
of whether the benefit of such replacement extends beyond the Lease Term or any
Extended Term. Tenant shall maintain the Premises in an orderly, first-class and
fully operative condition. Landlord shall maintain the exterior landscaping for
the Premises in accordance with Landlord's then-prevailing landscape maintenance
standards, and the cost of such landscape maintenance work shall be paid by
Tenant to Landlord as additional rent. Such payments shall be made by Tenant
within ten (10) days following Tenant's receipt of an invoice from Landlord.
Landlord shall have no obligation to repair or maintain the improvements or any
areas adjacent thereto. Tenant waives the provisions of any law permitting
Tenant to make repairs at Landlord's expense.
9.2 Subject to Paragraph 4.2, all of Tenant's obligations to maintain and
repair the Premises shall be accomplished at Tenant's sole expense. If Tenant
fails to maintain and repair the Premises, Landlord may, at its election, notify
Tenant of Tenant's obligation to undertake such repair and maintenance work. If
Tenant fails to commence such work within thirty (30) days of receipt of such
notice Landlord may enter the Premises and perform any such work on behalf of
Tenant. Notwithstanding the foregoing, no notice to Tenant shall be required in
case of emergency, and in the event of an emergency Landlord may enter the
Premises and perform such repair and maintenance on behalf of Tenant. In any
such case, Tenant shall reimburse Landlord for all costs so incurred immediately
upon demand, together with interest thereon at the "Lease Interest Rate" (as
defined in Paragraph 26.26, below). Landlord's right to perform maintenance and
repair work pursuant to this Paragraph 9.2 shall not be deemed to create any
obligation on the part of Landlord to do so, and shall not in any way limit
Landlord's remedies under this Lease. Any design or construction work
undertaken by or at the direction of Tenant which affects the Premises or any
improvements located on the Premises (including, without limitation, any repair
work, maintenance work, tenant improvement work or restoration work) shall be
performed by duly qualified and properly licensed and insured design
professionals or contractors (as
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the case may be) reasonably satisfactory to Landlord. Tenant shall submit the
names of any such design professionals and contractors to Landlord prior to the
commencement of any construction work on the Premises. If Landlord, acting
reasonably and in good faith, disapproves of any design professional or
contractor selected by Tenant, Tenant shall select a new design professional or
contractor reasonably satisfactory to Landlord.
9.3 Upon the expiration or sooner termination of this Lease, Tenant shall
surrender the Premises to Landlord, broom clean and in the same condition as
received: (a) except for ordinary wear and tear and fire, casualty and
condemnation losses which Tenant is not otherwise obligated to remedy under any
provision of this Lease; (b) except for repair and maintenance items which are
specifically identified as the obligation of Landlord pursuant to Paragraph 9.1,
above; and (c) except as otherwise specifically provided herein. Tenant shall
also be responsible for restoring to Landlord's standard building specifications
(as described in Schedule C-1 of the Work Letter Agreement), any alterations
made or requested by Tenant which cause the Building to deviate from such
standard building specifications, including, without limitation, restoring the
twenty-three (23) truck loading positions constructed at a 38 inch dock height
to Landlord's standard 48 inch dock height and Landlord's standard engineered
slope, removing additional floor drains requested by Tenant, restoring any
sawcut or trenched portions of the floor slab, restoring floor areas in
refrigerated areas and freezer locations, restoring screening wall, gate and
associated landscaping to Landlord's original design. Any damage to, or
deterioration of, the Premises shall be deemed not to be ordinary wear and tear
if the same could have been prevented by good maintenance practices. Upon the
expiration or sooner termination of this Lease, Landlord may require Tenant to
remove any alterations, additions or improvements made to the Premises by or at
the direction of Tenant (whether or not made with Landlord's consent) and to
restore the Premises to its original Landlord specification condition, or
Landlord may perform such removals and restorations itself, all at Tenant's
expense. All alterations, additions and improvements which Landlord has not
required Tenant to remove (or for which Tenant had the election to remove and
elected not to remove), shall become Landlord's property and shall be
surrendered to Landlord upon the expiration or sooner termination of the Lease.
If Tenant so desires, Tenant may, prior to making any additions, alterations,
changes or improvements to the Premises (regardless of whether Landlord's
consent to such additions, alterations, change or improvements is required),
request Landlord to notify Tenant as to whether Landlord will require the
removal of such items and restoration of the Premises to the condition which
existed prior to the performance of any such additions, alterations, changes or
improvements. Any such items for which Landlord so notifies Tenant, writing,
that Landlord will not require to be removed are referred to herein as "Exempt
Alterations." If Landlord has initially indicated to Tenant that Landlord will
require removal of an alteration, addition or improvement, but Landlord
subsequently determines that it will not require removal and so advises Tenant,
then Tenant shall not (unless it has already done so) remove such alteration,
addition or improvement. Except for building service equipment (as defined
below), Tenant may remove any of Tenant's machinery or
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equipment so long as Tenant repairs any damage resulting from the installation
or removal of such machinery or equipment to Landlord's satisfaction. If Tenant
fails to complete its removal and restoration obligations as provided herein as
of the expiration or sooner termination of this Lease, Tenant shall pay holdover
rent (as provided in Paragraph 25.1, below) and items designated in this Lease
as additional rent until such removal and restoration obligations have been
completed. If, whether in violation of this Lease or pursuant to Landlord's
permission (which may be granted or withheld in Landlord's sole and absolute
discretion), Tenant installs any "Underground Storage Tanks" (as defined herein)
on the Premises, Tenant shall, at its sole cost and expense, remove any such
Underground Storage Tanks immediately upon the request of Landlord, the
expiration or sooner termination of this Lease, or the order of any governmental
authority, whichever occurs first. Notwithstanding any provisions of this Lease
to the contrary, such Underground Storage Tanks shall at all times be and remain
the property of Tenant. As used herein, the term "Underground Storage Tank"
means any one or combination of tanks, including all pipes, sumps, valves and
other equipment connected thereto, which are used for the storage of petroleum
products, hydrocarbon substances or fractions thereof, or other Hazardous
Materials, and which are located wholly or partially beneath the surface of the
ground.
9.4 Tenant shall not, without the prior written approval of Landlord, make
any additions, alterations, changes or improvements to the Premises or any
portion thereof which (i) affect any structural component of the Building; (ii)
affect the roof of Building; (iii) affect the exterior appearance of the
Premises; or (iv) adversely affect the function or capacity of any plumbing,
electrical, HVAC, or life safety systems serving the Premises; (v) change the
number or location of any loading doors or man doors located on any exterior
wall of the Building; or (vi) cost in excess of Fifteen Thousand Dollars
($15,000) for any group of improvements being undertaken at one time or
undertaken as part of a related group of improvements. The items enumerated in
items (i) through (v), above, are referred to herein as the "Critical
Components". Any request for approval of any such additions, alterations,
changes or improvements for which Landlord's consent is required shall be
presented to Landlord in writing, accompanied by detailed drawings and
specifications. If Landlord's consent is required for an addition, alteration,
change or improvement to the Premises or any portion thereof and Landlord does
not notify Tenant in writing of Landlord's approval or disapproval within thirty
(30) days following Landlord's receipt of Tenant's request for approval (which
request shall be accompanied by detailed drawings and specifications as provided
herein), then Landlord shall be deemed to have approved the proposed addition,
alteration, change or improvement. Tenant shall not be required to obtain
Landlord's prior consent for any cosmetic alterations to the interior of the
Premises (e.g., wall coverings, floor coverings, and interior painting) with a
cost of less than Fifteen Thousand Dollars ($15,000), but Tenant shall provide
Landlord with at least ten (10) days prior written notice of any such
alterations in order to provide Landlord with an opportunity to post and record
appropriate notices of non-responsibility. All approved additions, alterations,
changes and improvements shall be made in workmanlike manner, in full compliance
with all laws and ordinances applicable thereto. All such
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additions, alterations, changes and improvements shall become a part of the
Premises, and become the property of Landlord when installed; and, unless
Landlord shall require removal thereof as required pursuant to Paragraph 16.2,
all such improvements, including all "building service equipment" improvements
shall remain in and be surrendered as a part of the Premises upon the expiration
or sooner termination of this Lease. If requested by Landlord with respect to
any alterations affecting Critical Components, Tenant shall furnish Landlord
with a set of "as built" drawings which accurately set forth the nature and
extent of improvements made by Tenant to the Premises. Tenant and any assignee
or sublessee of Tenant shall obtain Landlord's prior written consent (which
consent shall not be unreasonably withheld or delayed) before any signs are
installed on the Premises. Such signs shall remain the property of Tenant or any
assignee or sublessee who installs the same and they shall be removed from the
Premises at the expiration or sooner termination of the Lease Term. Any damage
arising out of or resulting from the installation, placement or removal of such
signs (other than discoloration of the Building exterior under such signs) shall
be repaired by Tenant at Tenant's sole cost and expense. The term "building
service equipment" shall include, heaters, air conditioners, solar panels, power
panels, transformers, light fixtures, sprinklers, suspended ceilings, plumbing
fixtures, walls, cabinets, shelving affixed to walls in office areas, doors,
floor coverings, fixtures, (other than Tenant's trade fixtures), fencing, paging
systems, emission or pollution control facilities, security and alarm system
wiring, dock levelers, and utility services such as gas, electricity, water,
steam, telephone, sewer and other similar services used in connection with the
foregoing items. Building service equipment shall also include any related power
installations, plumbing installations, pollution control installations,
sprinkler installations, energy conservation installations, and security
installations, including wiring, conduits, ducts, lines, pipes and meters for
the transportation, distribution, measuring and/or disposal thereof. Building
service equipment shall also include installations affixed to the Building which
serve machinery and equipment, including, without limitation, air lines,
conveyors, crane ways, dust collectors, paint booths, buss ducting, power panels
and related power installations. "Building service equipment" shall not include
any conveyor systems, Refrigeration Equipment, Communications Equipment, racking
systems and dock seals installed by Tenant and paid for with Tenant's funds.
9.5 Tenant shall have the right, without Landlord's prior approval, to
install within the Premises Tenant's equipment, trade fixtures, furniture and
furnishings (hereinafter collectively called "Tenant's Equipment"). Tenant
shall have the right to remove any Tenant's Equipment installed by Tenant and
paid for with Tenant's funds so long as Tenant repairs any damage to the
Premises resulting from the installation or removal of such Tenant's Equipment.
Under no circumstances, however, shall Underground Storage Tanks be installed on
the Premises. Tenant shall notify Landlord in writing and Tenant shall obtain
Landlord's prior written approval before the installation of heavy (greater than
1000 psi) equipment, or heavy trade fixtures in the Premises, and prior to
placing any load on the roof or attaching any load to the walls or the underside
of the roof of any building. Tenant shall not install any of Tenant's
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<PAGE>
Equipment in such manner to weaken the structural strength of the improvements
on the Premises, interfere with, or make inoperable any portion of the Premises
or the building service equipment. If Tenant makes any addition, alteration,
change, or improvement to the Premises described in Paragraph 9.4 without
Landlord's consent, or if Tenant installs any of Tenant's Equipment in violation
of this Paragraph 9.5, then Tenant shall, upon receipt of written notice from
Landlord, promptly remove, replace, or otherwise correct such installations in
such manner as Landlord shall reasonably require and direct, and Tenant shall
reimburse Landlord, on demand and as additional rent, for all architect's,
engineer's and legal fees incurred by Landlord in connection with such
installations. If Tenant or any person with whom Tenant is engaged in business
causes any damage to the Premises or the improvements, structural or otherwise,
Tenant assumes all risk of such damage to any improvements and Tenant shall,
upon demand, promptly repair all such damage to the reasonable satisfaction of
Landlord. Tenant shall promptly repair any damage to the Premises arising from
the installation, use, and removal of Tenant's Equipment; and Tenant shall
restore the Premises to a clean and orderly condition and appearance, state of
repair and operating order with all remaining improvements thereon in a good,
safe, fully operable condition and in full compliance with all federal, state
and local laws, rules, regulations and ordinances. If Tenant fails to perform
any act or obligation required of Tenant under this Paragraph 9.5, Landlord
shall have the right, but not the obligation, after ten (10) days' written
notice to Tenant specifying the action required by Tenant, to enter upon the
Premises and perform such act or obligation. In that event, Tenant agrees to pay
Landlord, as additional rent within ten (10) days of receipt of Landlord's
invoice, for all costs incurred by Landlord in performing Tenant's act or
obligation, plus an overhead allowance of fifteen percent (15%) of such cost.
9.6 Landlord shall not be obligated to maintain or to make any
repairs, replacements, or renewals of any kind, nature or description whatsoever
to the Premises or any buildings or improvements thereon, except as specifically
provided in Paragraphs 9.1, 12.1, 13.3 and Exhibit A of this Lease.
9.7 Tenant shall comply with and abide by all federal, state, county,
municipal and other governmental statutes, ordinances, laws, and regulations
affecting the Premises, the improvements thereon, the business to be conducted
therein and thereon by Tenant, or any activity or condition on or in the
Premises. Without limiting the generality of the foregoing, Tenant shall comply
with all environmental laws and laws relating to "Hazardous Materials" (as
defined herein) affecting the Premises, the improvements therein, the business
conducted thereon by Tenant, or any activity or condition on or in the Premises.
However, Tenant shall not be responsible for any costs or expenses for the
removal or remediation of any Hazardous Materials which were located on the
Premises prior to the Commencement Date or which migrate onto the Premises from
an offsite source which is not caused or contributed to by Tenant ("Pre-existing
Condition") and Landlord shall indemnify and hold Tenant harmless from any costs
or expenses for the removal or remediation of any Pre-existing Condition.
Landlord has advised Tenant that the Premises is located in an area which was
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previously used for oil and gas exploration and production. Any oil wells which
were located on the Premises have been abandoned in accordance with procedures
approved by the California Department of Conservation, Division of Oil and Gas.
Although detectable quantities of methane have been found in the subsurface of
the Land, methane has not been detected at the surface of the Land. The
Building has been designed and is being constructed to incorporate a passive
methane gas venting system in compliance with County of Los Angeles
requirements. Tenant shall not be responsible for any costs or liabilities
relating to the control, mitigation or remediation of methane gas or any other
Pre-existing Condition, and the presence of any methane gas on the Premises
shall be treated as a Pre-existing Condition. Any and all Hazardous Materials
and their containers which are brought upon the Premises by, at the direction
of, or with the consent or approval of Tenant shall, at all times, remain the
property of Tenant. Tenant warrants that Tenant's business and all activities
to be performed by Tenant in, on or about the Premises shall comply with such
statutes, ordinances, laws and regulations; and Tenant agrees to change any such
activity or install necessary equipment, safety devices, pollution control
systems, or other installations at any time during the Lease Term to so comply
therewith. Tenant agrees not to commit or permit waste upon the Premises.
9.8 Tenant shall not cause or permit any "Hazardous Material" (as
hereinafter defined) to be brought upon, kept, used, stored, discharged or
released (collectively "used") in or about the Premises during the Lease Term,
without the prior written consent of Landlord. Notwithstanding the foregoing, so
long as Tenant complies with all applicable legal and regulatory requirements
relating to the use, storage, handling and disposal of Hazardous Materials,
Tenant shall be permitted to use and store on the Premises: (i) reasonable
quantities of customary janitorial supplies reasonably necessary to clean and
maintain the Premises; and (ii) packaged products intended for resale to
consumers (e.g., hairspray, household cleaners, automotive products, antifreeze,
transmission fluid and similar automotive products). If Tenant breaches the
prohibitions stated above, or if any Hazardous Material used on the Premises
during the Lease Term results in contamination of the Premises or any adjacent
property, then Tenant shall indemnify, defend and hold Landlord harmless from
any and all claims, judgments, damages, penalties, fines, costs, liabilities or
losses (including, without limitation, diminution in value of the Premises
and/or adjacent property, damages for the loss or restriction on use of the
Premises and/or adjacent property, damages arising from any adverse impact on
marketing of the Premises and/or adjacent property, and sums paid in settlement
of claims, attorneys' fees, consultant fees and expert fees) which arise during
or after the Lease Term or any Extended Term as a result of Hazardous Material
so used. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal or restoration work required by any
federal, state or local governmental agency or political subdivision because of
Hazardous Material present in the soil or ground water on or under the Premises
and/or adjacent property. Without limiting the foregoing, if any Hazardous
Material is used on the Premises during the Lease Term and results in any
contamina-
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<PAGE>
tion of the Premises and/or adjacent property, Tenant shall promptly take all
actions at its sole expense as are necessary to return the Premises and/or
adjacent property to the condition existing prior to the use of any such
Hazardous Material on the Premises and/or adjacent property; provided that
Landlord's approval of such actions shall first be obtained, which approval
shall not be unreasonably withheld so long as such actions would not potentially
have any material adverse long-term or short-term effect on the Premises or
adjacent property. As used herein, the term "Hazardous Material" means any
petroleum products or other hydrocarbon substances (and fractions thereof) and
any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority, the State of California or the
United States Government. Upon expiration or earlier termination of this Lease,
Tenant shall duly execute and deliver to Landlord a certificate (the "Hazardous
Material Certificate") in the form of Exhibit F attached hereto. If, at any time
during the Lease Term or upon the termination or earlier expiration of the
Lease, Landlord reasonably believes that the Premises or any adjacent property
has been contaminated as a result of Hazardous Materials which were used on or
about the Premises during the Lease Term, Landlord may conduct an environmental
audit to evaluate the presence of any Hazardous Materials on the Premises. If
such an audit identifies any Hazardous Material contamination which is the
responsibility of Tenant under this Lease, then in addition to any other
obligations and liabilities of Tenant to Landlord under this Lease, Tenant shall
reimburse Landlord for the cost of such environmental audit. Nothing contained
herein shall be deemed or construed to limit the liability of Tenant to Landlord
hereunder for the breach of any covenant of Tenant under this Paragraph 9.8. The
provisions of this Paragraph 9.8 shall survive the expiration or earlier
termination of this Lease and Tenant's surrender of the Premises to Landlord.
9.9 On or before the fifteenth (15th) day of each calendar year
during the Lease Term (the "Disclosure Dates"), Tenant shall disclose to
Landlord in writing the common and chemical names and the quantities of all
Hazardous Materials which were stored, used or disposed of on the Premises
during the preceding calendar year. Tenant shall immediately notify Landlord of
Tenant's receipt of any notice, citation or other communication received by
Tenant relating to the presence, storage, use or release of any Hazardous
Materials in, on or about the Premises. With respect to the notice required by
this Paragraph 9.9, Tenant shall not be obligated to include in such notice any
customary janitorial supplies reasonably necessary to clean and maintain the
Premises; or (ii) packaged products intended for resale to consumers (e.g.,
hairspray, household cleaners, automotive products, antifreeze, transmission
fluid and similar automotive products), so long as such materials have not been
spilled or accidentally released on the Premises, provided, however, that on
each Disclosure Date Tenant shall provided to Landlord a list of all packaged
products brought upon and stored at the Premises during the preceding calendar
year.
9.10 Landlord shall have the right, but not the duty, to inspect the
Premises at any time to determine whether Tenant is complying with the
requirements of this Lease. If Tenant is not in compliance with the
requirements of the provisions of
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this Lease relating to Hazardous Materials, Landlord shall have the right, but
not the obligation, to immediately enter upon the Premises to remedy any
condition caused by Tenant's failure to comply with the requirements of this
Lease. Landlord shall use reasonable efforts to minimize interference with
Tenant's business as a result of any such entry by Landlord but shall not be
liable for any interference caused thereby.
9.11 Any failure of Tenant to comply with the provisions of Paragraphs
9.7, 9.8 and 9.9 of this Lease shall be a material default under this Lease,
enabling Landlord to exercise any of the remedies set forth in this Lease.
ARTICLE X
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Inspection of Premises by Landlord
----------------------------------
10.1 Tenant agrees that Landlord and the authorized representatives
of Landlord shall have the right to enter the Premises at all reasonable times
during usual business hours, after 24 hours notice, or at any time in the case
of an emergency, for the purpose of (a) inspecting same; and (b) making such
repairs or reconstruction to the Premises required by or permitted to be made by
Landlord, and (c) performing any work therein that may be necessary by reason of
Tenant's default under the provisions of this Lease. Landlord shall use
reasonable efforts to minimize disruption to Tenant's business and shall be
accompanied by a representative of Tenant. Nothing herein shall imply any duty
of Landlord to do any work which, under the provisions of this Lease, Tenant is
required to perform and the performance thereof by Landlord shall not constitute
a waiver of Tenant's default in failing to perform the same. Landlord may,
during the progress of any work on the Premises, keep and store upon the parking
area of or within the Premises, all necessary materials, tools and equipment.
Landlord shall not in any event be liable for any inconvenience, annoyance,
disturbance, loss of business, or other damage sustained by Tenant while making
such repairs or the performance of any such work on the Premises, or on account
of bringing materials, supplies and equipment into or through the Premises
during the course thereof. In the event Landlord makes any repairs or
maintenance which Tenant has failed to do or perform, the cost thereof plus an
overhead allowance of fifteen percent (15%) of such cost shall constitute
additional rent and shall be paid to Landlord within ten (10) days of receipt of
Landlord's invoice.
10.2 Landlord is hereby given the right during usual business hours
to enter the Premises and to exhibit the same for purposes of sale or mortgage,
and during the last six (6) months of the Lease Term to exhibit the same to any
prospective tenant.
ARTICLE XI
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Mechanics' Liens
----------------
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11.1 Tenant covenants and agrees to keep all of the Premises and
every part thereof and all buildings and other improvements thereon free and
clear of and from any and all mechanics', materialmen's and other liens for work
or labor done, services performed, materials, appliances, transportation or
power contributed, used or furnished or to be used in or about the Premises for
or in connection with any operations of Tenant, any alterations, improvements,
repairs or additions, which Tenant may make or permit or cause to be made, or
any work or construction by, for or permitted by Tenant on or about the
Premises; and at all times Tenant shall promptly and fully pay and discharge any
and all claims upon which any such lien may or could be based; and Tenant shall
save and hold Landlord and all of the Premises free and harmless of and from any
and all such liens and claims of liens and suits or other proceedings pertaining
thereto. Tenant, or any subtenant, assignee or other occupant of the Premises
covenants and agrees to give Landlord written notice not less than ten (10) days
in advance of the commencement of any construction, alteration, addition,
improvements or repair to the Premises in order that Landlord may post an
appropriate notice of Landlord's non-responsibility.
11.2 No mechanics' or materialmen's liens or mortgages, deeds of
trust, or other liens of any character whatsoever created or suffered by Tenant
shall in any way or to any extent affect the interest or rights of Landlord in
any buildings or other improvements on the Premises, or attach to or affect
Landlord's title to or rights in the Premises.
11.3 Tenant shall have the right to contest any mechanic's lien or
other lien claim filed against the Premises provided that Tenant gives Landlord
written notice of such contest, Tenant diligently prosecutes such contest, at
all times effectually stays or prevents any official or judicial sale of the
Premises under execution or otherwise, and pays or otherwise satisfies any final
judgment adjudging or enforcing such contested lien and thereafter procures
record satisfaction or release thereof. If requested in writing by Landlord,
Tenant shall furnish to Landlord a surety bond issued by a surety company
acceptable to Landlord in an amount not less than one and one-half times the
amount of any such mechanic's lien or other lien claim filed against the
Premises.
ARTICLE XII
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Damage or Destruction of Premises
---------------------------------
12.1 In the event the buildings or other structures on the Premises
are damaged or destroyed, then so long as the cost of repairing such damage or
destruction is fully covered by insurance policies carried by the Landlord
(except for deductible amounts, which shall be paid by Tenant), Landlord shall
promptly repair and restore the improvements then owned by Landlord (but not any
of Tenant's trade fixtures, furnishings or equipment) to their condition
existing prior to said damage or destruction, and this Lease shall continue in
full force and effect. Any damage or destruction of the type described above is
referred to herein as an "Insured Loss." The
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proceeds of insurance maintained pursuant to Paragraph 8.1 shall be used to pay
the cost and expense of repairing and rebuilding the Premises.
12.2 In the event the Building is damaged or destroyed, and the cost
of repairing such damage or destruction is not fully covered by insurance
policies carried by Landlord (an "Uninsured Loss"), then so long as the portion
of the cost of repairing such damage or destruction which is not covered by the
insurance policies carried by Landlord does not exceed Five Hundred Thousand
Dollars ($500,000) (the "Cap Amount"), then Landlord shall promptly repair such
damage or destruction to the Building and Landlord and Tenant shall each
contribute one-half of the portion of the cost of repairing such damage or
destruction which is not covered by the insurance policies carried by Landlord
(up to a maximum contribution amount of Two Hundred Fifty Thousand Dollars
($250,000) each for Landlord and Tenant). Landlord shall repair and restore the
improvements then owned by Landlord (but not any of Tenant's trade fixtures,
furnishings or equipment) to their condition existing prior to said damage or
destruction, and this Lease shall continue in full force and effect. In the
event of an Uninsured Loss in which the portion of the cost of repairing such
damage or destruction which is not covered by insurance policies carried by
Landlord exceeds the Cap Amount, Landlord and Tenant shall each have the right
to terminate this Lease upon thirty (30) days written notice to the other.
However, if a party has elected to terminate this Lease pursuant to this
Paragraph 12.2, the other party may prevent termination of the Lease pursuant to
this Paragraph 12.2 by paying (in addition to the non-terminating party's share
of the Cap Amount) the entire amount by which the cost of repairing such
Uninsured Loss exceeds the Cap Amount.
12.3 The Minimum Rent payable by Tenant pursuant to the provisions of
Paragraph 4.1 shall abate, in the proportion that the part of the Premises
rendered unusable to Tenant bears to the whole thereof, from the date of the
damage or destruction through the time required by Landlord to repair and
rebuild the Premises, but only to the extent to which Landlord receives
reimbursement for such abatement pursuant to the rental value insurance
maintained under Paragraph 8.1 of this Lease. Except for abatement of such
Minimum Rent, if any, Tenant shall have no claim against Landlord by reason of
any damage, destruction, repair or rebuilding of the Premises.
12.4 Upon the occurrence of any damage or destruction to the
Building, Landlord shall, within twenty (20) days following the date of
occurrence of such damage or destruction, provide to Tenant a written notice of
Landlord's reasonable and good faith estimate of the time required to complete
the repair and restoration ("Landlord's Time Estimate"). If Landlord reasonably
estimates that such repair and restoration will take more than two hundred
seventy (270) days to complete (measured from the date of issuance of necessary
building permits for the repair and restoration work) either Landlord or Tenant
may elect to terminate this Lease (effective as of the date of such damage or
destruction) upon written notice to the other, which notice shall be given, if
at all, within ten (10) days following the date of Tenant's receipt of
Landlord's Time Estimate. Landlord agrees that it shall use diligent efforts to
obtain the necessary
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<PAGE>
building permits at the earliest possible date. Once such notice has been
delivered and the ten (10) day response period has expired, neither party shall
have the right to terminate this Lease as a result of the occurrence of such
damage or destruction, regardless of the actual time necessary to complete such
repair and restoration work, but Landlord agrees that it shall use its
reasonable best efforts to complete the restoration work in a timely manner.
12.5 If the Premises are damaged or destroyed, either partially or
totally, during the last year of the Lease Term, Landlord may at Landlord's
option cancel and terminate this Lease as of the date of occurrence of such
damage by giving written notice to Tenant of Landlord's election to do so within
thirty (30) days after the date of occurrence of such damage. However, if Tenant
possesses an option to extend the Lease Term and the time within which Tenant
may exercise such option has not expired, and if Tenant validly exercises such
option within twenty (20) days after Tenant's receipt of the Damage Notice, then
Landlord's election to terminate this Lease pursuant to this Paragraph 12.5
shall be void and of no effect. In such event, the repair and restoration of the
Premises shall be governed by the other applicable provisions of this Article
XII.
12.6 Tenant waives the provisions of any statutes which relate to
termination of leases when the Premises are destroyed; and Tenant agrees that
such event shall be governed by the terms of this Lease and not by any such
statute.
ARTICLE XIII
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Condemnation
------------
13.1 If title to all or any portion of the Premises shall be taken by
any public or quasi-public use or authority under any statute or by right of
eminent domain, or by private purchase in lieu thereof, then the rights of the
parties to share in the condemnation award or purchase price thereby resulting
shall be governed by the provisions of this Article XIII.
13.2 Should all or such portion of the Premises be taken in such a
manner as to materially interfere with Tenant's use and occupancy thereof, then
this Lease shall terminate as of the date that possession of said Premises or
part thereof shall be taken. Landlord shall be entitled to (a) any amount paid
for the taking of Landlord's fee interest in the Premises, (b) any severance
damages included in the award, (c) any amount paid for the taking of the
Premises except that paid for any improvements made to the Premises by Tenant
which remain the property of Tenant, and (d) any amount which represents the
present worth of rent payments to be made in the future under the provisions of
this Lease; and none of Landlord's interests in the above shall be subject to
any diminution or apportionment whatsoever. Tenant shall be entitled to
compensation paid under condemnation for the taking of any improvements made to
the Premises by Tenant which remain the property of Tenant.
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<PAGE>
13.3 In the event of a partial taking of the Premises which does not
materially interfere with Tenant's continued use and occupancy of the Premises
and the parking and common areas serving the Premises, and there remains
sufficient of the Premises for the continued use of Tenant, then this Lease
shall terminate only as to the part so taken, as of the date that possession of
such part of the Premises is taken, and the Minimum Rent herein provided for
shall be reduced to reflect the same proportion as the fair market rental value
of the Premises after the taking bears to the fair market rental value before
the taking. In the event of a partial taking, Landlord agrees to replace or
repair the building facility constituting a portion of the Premises to its
condition as existed when the Lease Term commenced, and without regard to
improvements made by Tenant, by reinstalling plumbing, electrical, wiring, walls
and paving, if necessary, so that said building facility shall be completely
operable and an integral whole, but at a cost to Landlord not to exceed the
condemnation award received by Landlord. In the event of such partial taking,
Landlord shall be entitled to receive all amounts described in the second
sentence of Paragraph 13.2; and none of Landlord's interest in the above shall
be subject to any diminution or apportionment whatsoever. Tenant shall be
entitled to compensation paid under condemnation for the taking of any
improvements made to the Premises by Tenant which remain the property of Tenant.
13.4 Landlord and Tenant agree to execute all documents and
assignments necessary to carry out this Article XIII in the event of
condemnation or purchase in lieu thereof.
ARTICLE XIV
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Use Of Premises - Assignments
-----------------------------
14.1 Tenant shall have the right to use the Premises for home grocery
distribution, warehousing, general distribution, general office purposes and
similar uses so long as such similar uses are compatible with the uses of
buildings of comparable quality owned by Landlord which are located in Dominguez
Technology Center, so long as such uses (i) are in compliance with all
applicable laws and regulations, including, without limitation, environmental
laws and laws relating to Hazardous Materials; (ii) are permitted under the
recorded covenants, conditions and restrictions affecting Dominguez Technology
Center; and (iii) are consistent with the requirements of the Performance
Standards. Landlord agrees that, from and after the date of this Lease, and
continuing through the expiration or sooner termination of the Lease Term
(including any validly exercised Extended Term) Landlord shall not enter into
any agreements, covenants or restrictions affecting the Premises which would
prevent Tenant from using the Premises as provided above. Tenant shall not use
the Premises for on-site retail sale of property or for any other use not
permitted pursuant to this Paragraph 14.1; provided, however, that to the extent
legally necessary to enable Tenant to sell for off-site distribution alcoholic
beverages as part of its retail home
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grocery distribution business, Tenant may operate an on-site store for the
retail sale of alcoholic beverages, of a size and capacity not larger than the
minimum reasonably necessary to qualify for the license needed for the sale for
off-site delivery of alcoholic beverages as part of Tenant's home grocery retail
sale and distribution business. Tenant agrees that it shall not have any
displays, exterior signage, advertising or other promotional materials
identifying or promoting such on-site store for the sale of alcoholic beverages.
Tenant shall not conduct nor permit to be conducted any auction or auction sale
at the Premises. Tenant's use of the Premises is subject to limitations imposed
by the Performance Standards and the limitations contained in this Lease. Tenant
covenants and agrees that it shall not permit any of its employees, agents,
contractors, vendors or shippers to park trucks, automobiles, trailers or other
vehicles on any of the public streets in the general vicinity of the Premises or
elsewhere within Dominguez Technology Center. Any violation of this restriction
shall constitute a default under this Lease.
14.2 Tenant shall not assign, sublet or otherwise transfer this Lease,
or Tenant's interest in and to the Premises, nor enter into any license or
concession agreements with respect thereto, without first procuring the written
consent of Landlord. Any such attempted or purported assignment, subletting,
transfer, or license or concession agreement (collectively "Transfer") without
Landlord's prior written consent shall be void and of no force and effect, and
shall not confer any interest or estate in the purported transferee (the
"Transferee") and shall, at Landlord's option, constitute an incurable default
under this Lease. Tenant shall have no right to mortgage, hypothecate or
otherwise encumber its leasehold estate in the Premises or its rights under this
Lease, and Landlord and Tenant specifically agree that any such mortgage,
hypothecation or encumbrance by Tenant is strictly and absolutely prohibited. If
Tenant is a corporation, unincorporated association, trust or partnership, the
sale, assignment, transfer or hypothecation of any stock or other ownership
interest of such entity which from time to time in the aggregate exceeds twenty-
five percent (25%) shall be deemed an assignment subject to the provisions of
this Article XIV, but a public offering of Tenant's stock, or the sale of
Tenant's stock on a recognized stock exchange shall not be deemed a "Transfer"
requiring Landlord's consent. Landlord agrees that, in the event of a proposed
Transfer to an "Affiliate" (as defined herein), Landlord will not withhold its
consent to such Transfer so long as (i) such Affiliate's use of the Premises is
in conformance with Paragraph 14.1; (ii) such Affiliate's use of the Premises
will not result in any material increase in the potential risk to Landlord
arising out of or relating to Hazardous Materials; and (iii) such Transfer will
not cause any portion of the amounts received by Landlord pursuant to this Lease
or any sublease to fail to qualify as "rents from real property" within the
meaning of Section 856(d) of the Internal Revenue Code, or which could cause any
other income received by Landlord to fail to qualify as income described in
Section 856(c)(2) of the Internal Revenue Code. As used herein, the term
"Affiliate" shall mean (a) a subsidiary, affiliate, division or corporation
controlling, controlled by or under common control with Tenant; (b) a successor
corporation related to Tenant by merger, consolidation, nonbankruptcy
reorganization, or government action; or (c) a purchaser of substantially all of
Tenant's
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assets located in the Premises. The sale or transfer of Tenant's capital stock
shall not be deemed an assignment, subletting, or any other transfer of the
Lease or the Premises unless such sale or transfer of stock or other ownership
interest of Tenant which is made with the purpose or has the practical effect of
circumventing the Transfer restrictions imposed under this Article XIV. The
consent of Landlord required hereunder shall not be unreasonably withheld;
however, a condition precedent to any consent to a Transfer shall be Tenant's
agreement to pay to Landlord as rent any reasonable costs and expenses incurred
by Landlord for review and consultation by Landlord's legal counsel, securing
credit reports, administrative overhead and the like not to exceed $2,000.00 in
connection with any one assignment or subletting. Notwithstanding the foregoing,
Landlord and Tenant agree that, in determining whether to reasonably consent to
a proposed transfer, Landlord may consider, among other things, any or all of
the following factors:
14.2.1 The reputation of the Transferee (including any
principals, partners or shareholders of such assignee, subtenant to Transferee),
including, without limitation, the Transferee's reputation for dishonesty,
criminal conduct or unethical business practices;
14.2.2 The financial capacity of the proposed Transferee to
perform its obligations under the sublease or assignment in question;
14.2.3 The credit history of the proposed Transferee;
14.2.4 The intended use of the Premises by the proposed
Transferee, and Landlord's assessment of the impact of such use upon the
Premises and neighboring properties;
14.2.5 Whether the proposed Transferee's use of the Premises
will involve the generation, storage, use, treatment or disposal of any
Hazardous Materials in any manner which would increase any potential risk or
liability to Landlord arising out of or relating to Hazardous Materials over the
level of risk associated with Tenant's original use of the Premises.
14.3 Notwithstanding any permitted Transfer, Tenant shall at all times
remain directly, primarily and fully responsible and liable for the payment of
rent and for compliance with all obligations under the terms, provisions and
covenants of this Lease. All Transfer agreements shall expressly provide that,
in the event of a default by Tenant under this Lease, the Transferee covenants
and agrees with Landlord, contemporaneously with receipt of written notice from
Landlord that Tenant is in default of this Lease, and for so long as such
default continues, but not for a period of time in excess of the term of the
Transfer, to accept Landlord as Landlord of Transferee, to attorn to Landlord as
Landlord, to thereafter perform all duties and responsibilities under the
Transfer agreement directly to Landlord for Landlord's sole benefit, and to cure
any default of Tenant under this Lease. Upon the occurrence of any default by
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Tenant, if the Premises or any part thereof are then sublet, Landlord, in
addition to any other remedies herein provided or provided by law, may at its
option collect directly from such subtenant all rents becoming due to Tenant
under such sublease and apply such rent against any sums due to Landlord from
Tenant hereunder, and no such collection shall be construed to constitute a
novation or release of Tenant from the further performance of Tenant's
obligations under this Lease. Any sale, assignment, transfer or hypothecation of
Tenant's interest under this Lease, and any proposed subletting or occupancy of
the Premises not in compliance with this Article XIV shall be void and shall, at
the option of Landlord exercisable by notice to Tenant, terminate this Lease.
14.4 Should Tenant desire to make a Transfer of the Premises, Tenant
shall give not less than thirty (30) days' prior written notice thereof to
Landlord setting forth the name of the proposed Transferee, the term, use,
rental rate and other relevant particulars of the proposed Transfer, including,
without limitation, evidence satisfactory to Landlord that the proposed
Transferee will not use, store or dispose of any Hazardous Materials in or on
the Premises, and that the proposed Transferee will immediately occupy and
thereafter use the Premises for the entire term of the Lease or the sublease (as
the case may be). Such notice shall be accompanied, in the case of a sublease,
by a copy of the proposed sublease, and in the case of any Transfer, any
documents or financial information Landlord may require in order to make a
determination as to the suitability of the Transferee. If Landlord fails to
respond to Tenant's request to Transfer the Premises within thirty (30) days
following Landlord's receipt of Tenant's request and the information specified
above, Landlord shall be deemed to have consented to such Transfer of the
Premises.
14.5 Landlord shall have the right to condition its consent to any
subletting or assignment upon payment by Tenant to Landlord of fifty percent
(50%) of all "Transfer Consideration" (as defined herein) received or to be
received, directly or indirectly, by Tenant on account of such subletting or
assignment. For the mutual benefit of Landlord and Tenant, Tenant shall use
reasonable and good faith efforts to secure Transfer Consideration from any such
assignee, sublessee or transferee which would be generally equivalent to then-
current market rent, but in no event shall Tenant's monetary obligations to
Landlord, as set forth in this Lease, be reduced. Such Transfer Consideration
shall be paid to Landlord at the same time or times as the same is paid to or
used by Tenant. "Transfer Consideration" shall (i) in the case of a sublease of
all or substantially all of the Premises, the net amount (after deducting the
actual and reasonable amounts incurred by Tenant for attorneys' fees, brokerage
commissions, necessary tenant improvements and other third party costs necessary
to facilitate the sublease transaction) of any consideration paid or given,
directly or indirectly, by the sublessee to Tenant pursuant to the sublease for
the use of the Premises, or any portion thereof, over and above the rent,
however denominated, in this Lease, payable by Tenant to Landlord for the use of
the Premises (or portion thereof), prorating as appropriate the amount payable
by Tenant to Landlord under this Lease if less than all of the Premises is
sublet, and (ii) in the case of a sublease of less than all of
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substantially all of the Premises, or in the case of an assignment of this
Lease, the gross amount of any consideration paid or given, directly or
indirectly, by the assignee to Tenant in exchange for entering into the
assignment. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall not (i) sublet or assign the Premises or this Lease on any basis
such that the rent or other amounts to be paid by the sublessee or assignee
thereunder would be based, in the whole or in part, on the income or profits
derived by the business activities of the sublessee or assignee; or (ii) sublet
or assign the Premises or this Lease in any other manner which would cause any
portion of the amounts received by Landlord pursuant to this Lease or any
sublease to fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or which could cause any other income received by
Landlord to fail to qualify as income described in Section 856(c)(2) of the
Code.
14.6 If this Lease is assigned to any person or entity pursuant to
the provisions of the "Revised Bankruptcy Act" (Title 11 of the United States
Code; 11 U.S.C. (S)101 et seq.), any and all monies or other consideration
payable or otherwise to be delivered in connection with such assignment shall be
paid or delivered to Landlord, shall be and remain the exclusive property of
Landlord, and shall not constitute property of Tenant or of the estate of Tenant
within the meaning of the Revised Bankruptcy Act. Any and all monies or other
considerations constituting Landlord's property under this Article XIV not paid
or delivered to Landlord shall be held in trust for the benefit of Landlord and
shall be promptly paid or delivered to Landlord. Any person or entity to which
this Lease is assigned pursuant to the provisions of the Revised Bankruptcy Act
shall be deemed without further act or deed to have assumed all of the
obligations arising under this Lease on and after the date of such assignment.
14.7 Landlord shall have the right to sell, transfer, delegate or
assign any of its rights or obligations under this Lease.
ARTICLE XV
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Event of Default
----------------
15.1 Tenant shall be in default under this Lease if:
15.1.1 Tenant shall fail to make any payment of Minimum Rent,
any additional rent payable hereunder, or any other monetary obligation required
of Tenant under this Lease (including, without limitation, restoration of any
security deposit as required under this Lease) and such failure shall continue
for five (5) days after Tenant's receipt of written notice from Landlord that
said rent or monetary obligation is due and payable as provided in this Lease
(which notice shall be in lieu of, and not in addition to any notice required
pursuant to California Code of Civil Procedure Sections 1161 or 1161(a), as
amended); or
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15.1.2 Tenant shall neglect or fail to perform or observe any
of the covenants herein contained on Tenant's part to be performed or observed,
and Tenant shall fail to remedy the same within thirty (30) days after Landlord
shall have given to Tenant written notice specifying such neglect or failure
(provided, however, that if the performance or observance of any such covenant
reasonably requires more than thirty (30) days to perform, Tenant shall not be
in default under this Lease as a result of its failure to perform or observe any
such covenant within such thirty (30) day period, so long as Tenant has
commenced the actions necessary to perform or observe such covenant within such
thirty (30) day period, and is diligently pursuing such cure to completion); or
15.1.3 Tenant shall abandon the Premises and such abandonment
shall continue for a period of fourteen (14) consecutive days during which
Minimum Rent for the Premises has remained unpaid; or
15.1.4 Tenant repeatedly fails to comply with the restrictions
contained in Paragraph 14.1 of this Lease prohibiting on-street parking; or
15.1.5 Tenant is the subject of an involuntary bankruptcy
petition, the appointment of a receiver, the attachment of any interest in this
Lease or of Tenant's other assets or the exercise by any third party of any
other remedy with respect to Tenant, Tenant's interest in the Lease or Tenant's
other assets, and the petition, receiver, attachment or other remedy is not
discharged within sixty (60) days.
15.2 In the event of any default by Tenant, and without any further
notice or demand, Landlord shall have the right at Landlord's election, then or
at any time thereafter, to:
15.2.1 Terminate this Lease, which shall terminate Tenant's
right to the use, occupancy and possession of the Premises, and Tenant shall
immediately surrender possession of the Premises to Landlord; or
15.2.2 Re-enter and take possession of the Premises or any part
thereof as provided by law, in which event this Lease shall terminate effective
when Landlord takes possession; or
15.2.3 Continue this Lease in effect and enforce any or all
rights and remedies of Landlord under this Lease, including the right to recover
Minimum Rent, additional rent and charges equivalent to rent (sometimes
collectively referred to herein as "rent") as they become due under this Lease,
for so long as Landlord does not terminate Tenant's right to possession of the
Premises; or
15.2.4 Seek any legal or equitable relief permitted by law.
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15.3 If Landlord terminates this Lease as provided in subparagraphs
15.2.1 or 15.2.2 hereof, Landlord shall have the right to recover from Tenant:
15.3.1 The worth, at the time of the award, of the unpaid rent
that had been earned at the time of termination of this Lease; and
15.3.2 The worth, at the time of the award, of the amount by
which the unpaid rent that would have been earned after the date of termination
of this Lease until the time of award exceeds the amount of the loss of rent
that Tenant proves could have been reasonably avoided; and
15.3.3 The worth, at the time of the award, of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of the loss of rent that Tenant proves could have been
reasonably avoided; and
15.3.4 Any other amount necessary to compensate Landlord for
all detriment proximately caused by Tenant's breach or which in the ordinary
course of things would be likely to result therefrom; such as, the cost of
recovering possession of the Premises, expenses of reletting including
attorney's fees and any real estate commissions paid or payable, necessary
repair, restoration, renovation, or alteration of the Premises, and care and
safekeeping of the Premises.
"The worth, at the time of the award," as used in subparagraphs 15.3.1 and
15.3.2 of this paragraph, is to be computed by allowing interest at the Lease
Interest Rate in effect when each installment of rent referred to in said
subparagraphs became payable. "The worth, at the time of the award," as
referred to in subparagraph 15.3.3 of this paragraph, is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus one percent (1%).
15.4 If Tenant shall breach this Lease and abandon the Premises, this
Lease shall continue in full force and effect for so long as Landlord does not
terminate Tenant's right to possession of the Premises, and Landlord may enforce
all of its rights and remedies under this Lease, including but not limited to
the right to recover rent and charges equivalent to rent as they become due
under this Lease. For the purposes of this Paragraph 15.4 and Paragraph 15.2,
the following acts by Landlord shall not constitute a termination of Tenant's
right to possession of the Premises: (i) maintenance or preservation of the
Premises, (ii) efforts to relet the Premises, or (iii) the appointment of a
receiver upon initiative of Landlord to protect Landlord's interest under the
Lease.
15.5 In the event Landlord re-enters and takes possession of the
Premises, Landlord may at Landlord's option require Tenant to remove from the
Premises any of Tenant's property located therein. If Tenant fails to do so,
Landlord shall not be responsible for the care or safekeeping thereof and may
remove any of the
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same from the Premises and place the same in storage in a public warehouse at
the cost, expense and risk of Tenant with authority to the warehouseman to sell
the same in the event that Tenant shall fail to pay the costs of transportation
and storage, all in accordance with the rules and regulations applicable to the
operation of a public warehouseman's business. Any refusal by a public
warehouseman to accept personal property located in the Premises upon such
condition shall be conclusive evidence that the same is of no substantial value,
and shall be an unconditional warrant to Landlord for disposing of the same in
any manner Landlord may see fit, and without accountability for any alleged
value thereof. In addition, Landlord may, at Landlord's election, dispose of
said property pursuant to the provisions of Sections 1980 through 1991 of the
California Civil Code. In any and all such cases of re-entry, Landlord may make
any repairs in, to or upon the Premises which may be necessary, desirable or
convenient, and Tenant hereby waives any and all claims for damages which may be
caused or occasioned by such reentry or any of the aforesaid acts of Landlord or
by reason of any loss or destruction or damage to any property in or about the
Premises or any part thereof.
15.6 Tenant further covenants and agrees that if Landlord fails or
neglects for any reason to take advantage of any of the terms hereof provided
for the termination of this Lease or for the termination or forfeiture of the
estate hereby leased, or if Landlord, having the right to declare this Lease
terminated or the estate hereby leased terminated or forfeited, shall fail so to
do, any such failure or neglect of Landlord shall not be or be deemed or be
construed to be a waiver of any provisions for the termination of this Lease
continuing to exist or for the termination or forfeiture of the estate hereby
leased subsequently arising, or as a waiver of any of the covenants, terms or
conditions of this Lease or of the prompt performance thereof by Tenant. None of
the covenants, terms or conditions of this Lease can be waived by conduct of the
parties or by estoppel; any claim or waiver must be in writing and signed by the
party entitled to the benefit thereof.
ARTICLE XVI
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Surrender of Premises
---------------------
16.1 Upon any termination of this Lease, whether by lapse of time,
cancellation pursuant to an election provided for herein, forfeiture, or
otherwise, Tenant shall immediately surrender possession of the Premises and all
buildings and improvements on the same in a good, safe, fully operable
condition, and in full compliance with all Federal, State and local laws, rules,
regulations and ordinances (including, without limitation, any laws, rules,
regulations and ordinances relating to Hazardous Materials) and in compliance
with each applicable provision of this Lease, including without limitation the
provisions of Article IX hereof. If possession is not immediately surrendered,
Landlord may, with process of law, enter the Premises and repossess the same and
expel Tenant or any subtenant or occupant therefrom. Landlord shall hold the
Premises after any such re-entry free of any right, privilege or estate of
Tenant and
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without any duty or obligation to Tenant in respect of any subsequent reletting
or disposition of the Premises. If Tenant's business operations on the Premises
or uses of the Premises involve any generation, storage, use, treatment or
disposal of any Hazardous Material, Tenant shall be responsible for removing any
such Hazardous Materials from the Premises and for decontaminating the Premises
and any neighboring properties affected by such Hazardous Materials.
16.2 Upon the termination of this Lease, Tenant shall have the right
to remove, and if directed so to do by Landlord shall remove, from the Premises,
all of Tenant's machinery, equipment (excluding building service equipment),
trade fixtures, signs, furniture, furnishings, supplies and inventory then
installed or in place in, on or about the Premises. Except as hereinafter
expressly set forth, such removal shall be completed prior to the expiration or
earlier termination of this Lease. Tenant shall make all repairs to the Premises
required because of the installation or removal of such items and Tenant shall
restore the Premises to the condition required pursuant to Article IX and other
applicable provisions of this Lease. If this Lease shall terminate at any time
other than the time herein fixed as the expiration of the Lease Term, and
occurring not due to a default by Tenant, then Tenant, if not in default
hereunder at the time, shall have a reasonable time thereafter to effect the
removal of the foregoing items, not to exceed thirty (30) days. Tenant shall pay
Minimum Rent and items designated in this Lease as additional rent to Landlord
on a per diem basis during the time such removal is taking place.
16.3 If any of Tenant's machinery, equipment, trade fixtures, signs,
furniture, furnishings, supplies and inventory remain on the Premises after the
end of the term hereof or time allowed to remove the same, such property shall
be deemed abandoned by Tenant and it shall become the property of Landlord
without any claim therein of Tenant should Landlord so elect.
16.4 Upon termination of this Lease, Tenant shall surrender the
Premises in a "broom-clean" condition, with all refuse and debris removed
therefrom, and with all electrical, plumbing, heating and air conditioning
installations in a good, safe and fully operable condition, and prior to such
termination, Tenant shall fill or repair any holes or openings made by Tenant in
the walls, roof or floor of the building, remove any protuberance, and perform
any maintenance or repairs required of Tenant by this Lease. Nothing contained
in this Paragraph 16.4 shall be deemed to limit Tenant's repair and maintenance
obligations pursuant to Article IX of this Lease. If directed so to do by
Landlord, Tenant shall also remove any improvements, additions or alterations
made to the Premises by Tenant and thereafter restore the Premises to their
original condition, even though such improvements by the terms of this Lease
become a part of the Premises and the property of Landlord.
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ARTICLE XVII
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Delays - Extensions of Time
---------------------------
17.1 The time within which Landlord or Tenant is obligated herein to
construct, repair or rebuild any building, improvement or other structure shall
be extended and the performance excused when the delay is occasioned by the
other party (such as failure to promptly give required approvals, or
installation of machinery and equipment during construction which interferes
with or delays the contractor); or by strikes, threats of strikes or lockouts;
blackouts, war, threats of war, bombing, insurrection, riot or invasion; acts of
God, calamities, civil commotions, violent action of the elements or fire;
action, inaction or delayed action of any governmental agency; regulations or
laws of any national, state or local governmental authority; unavailability of
materials at reasonable prices, delays in delivery of materials by suppliers or
weather conditions which impair or delay construction; or other matters or
things, whether similar or dissimilar to the foregoing, beyond the reasonable
control of the obligated party. Delayed action by a governmental agency shall be
deemed to occur if a grading and foundation only permit is not issued within
twenty-one (21) days after drawings and specifications for such permit are filed
for plan check with the appropriate governmental agency, or if a building permit
is not issued within forty-five (45) days after drawings, specifications, and
engineering calculations for such permit are filed for plan check with such
governmental agency.
ARTICLE XVIII
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Attorneys' Fees
---------------
18.1 In the event that either Landlord or Tenant brings any action or
proceeding against the other for possession of the Premises or for the recovery
of any sum due hereunder, or because of the breach of any covenant, condition or
provision hereof, or for any other relief against the other, declaratory or
otherwise, including appeals therefrom, and whether being an action based upon a
tort or contract, then the prevailing party to this Lease in any such proceeding
shall be paid attorneys' fees and costs of such action or proceeding which shall
be enforceable whether or not such action or proceeding, is prosecuted to final
judgment, and including an allowance for attorneys' fees for appeals and
rehearings. In addition to the foregoing award of attorneys' fees to the
prevailing party, the prevailing party in any such lawsuit shall be entitled to
its attorneys' fees incurred in any post-judgment proceedings to collect or
enforce the judgment. This provision is separate and several and shall survive
the merger of this Lease into any judgment on this Lease. As used here, the
term "attorneys' fees" means the full costs of legal services performed in
connection with the matters involved, calculated on the basis of usual fees
charged by an attorney performing those services, and not limited to "reasonable
attorneys' fees" as defined in any statute or rule of the court.
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ARTICLE XIX
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Statement of Lease
------------------
19.1 Tenant shall, at any time and from time to time during the Lease
Term (or any Extended Term) upon not less than fifteen (15) days' prior written
notice from Landlord, execute, acknowledge and deliver to Landlord a written
certificate substantially in the form attached hereto as Exhibit E, certifying:
(i) that this Lease represents the entire agreement between Landlord and Tenant,
and is unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect); (ii) the dates to which Minimum Rent and other
charges or additional rent have been paid in advance, if any; (iii) the
Commencement Date and Termination Date of the Lease Term; (iv) whether Tenant
has assigned, subleased or otherwise transferred the Premises, this Lease or any
interest of Tenant therein; (v) the then-current amount of Minimum Rent and any
Security Deposit paid by Tenant to Landlord under this Lease; (vi) the date upon
which, and the amount or method by which, Minimum Rent, additional rent or other
charges payable under this Lease will next be adjusted or increased (if at all);
(vii) that there are no options to extend the term of this Lease, or if any such
options exist, describing any such options and stating the terms and conditions
upon which any such options may be exercised; (viii) that there are no rights of
first refusal to purchase the Premises or lease additional space contiguous to
the Premises, or if any such rights of first refusal exist, stating the terms
and conditions upon which the same may be exercised; (ix) that to the best
knowledge of Tenant, there are not any uncured defaults on the part of Landlord
under this Lease, and that Tenant has no right of offset, counterclaim or
deduction against Minimum Rent or other payment obligations of Tenant under this
Lease, or specifying such defaults if any are claimed together with the amount
of any offset, counterclaim or deduction alleged by Tenant; and (x) that to the
best of Tenant's knowledge, Landlord has fully performed each and all of its
construction, repair and maintenance obligations required to be performed as of
the date of such statement (if any), as required under this Lease, except as may
be specifically set forth in said statement (if applicable), and that Tenant,
subject to any such stated exception(s), accepts the Premises in their present
condition.
19.2 In addition to the certificate required pursuant to Paragraph
19.1, above, Landlord shall have the right to require Tenant to execute a
statement or certificate in a form reasonably requested by an existing or
potential purchaser, lender or other party which may acquire the Premises or
hold a security interest in the Premises (or the real property or Building of
which the Premises are a part), or any other certificate or form as may be
reasonably requested by Landlord, which statement or certificate certifies the
existence of factual matters (but does not change Tenant's rights or obligations
under this Lease).
19.3 Any such certificate or statement referred to in this Article
XIX may be relied upon by any such existing or potential purchaser, lender,
other secured party,
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and Tenant's failure or refusal to execute and deliver such statement within
such time shall, at the option of Landlord, constitute a material default under
this Lease, and in any event, shall be conclusive and binding upon Tenant that:
(a) this Lease is in full force and effect, without modification, except as may
be represented by Landlord; (b) there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counterclaim or deduction
against Minimum Rent or other payment obligations under this Lease; and (c) no
more than one (1) months' Minimum Rent or other payment obligations under this
Lease has been paid in advance.
19.4 If Landlord desires to finance, refinance, or sell all or any
portion of the real property of which the Building or the Premises are a part,
Tenant hereby agrees to deliver to any lender or purchaser designated by
Landlord such financial statements and other documents and instruments of Tenant
as may be reasonably required by any such lender or purchaser. Such statements
shall include the last three (3) years' financial statements of Tenant. All such
financial statements and other information shall be received by Landlord and any
such lender or purchaser in confidence (except for disclosures to auditors and
regulatory authorities, and except for other disclosures required by law), and
shall be used only for the purposes herein set forth.
19.5 Tenant acknowledges and agrees that Tenant's obligation to
provide such certificates or statements constitutes a material inducement to
Landlord to execute this Lease, and Tenant shall provide Landlord with such
certificates and statements within fifteen (15) days following Tenant's receipt
of Landlord's written request therefor. Tenant shall be responsible for and
shall indemnify and hold Landlord harmless from any and all liability, loss,
cost, damage and expense, including, without limitation, attorneys' fees, which
Landlord may incur in connection with Tenant's failure or delay in executing,
acknowledging and delivering such certificates or statements, or which may be
incurred as a result of Tenant's breach of any other covenant or agreement
embodied in this Lease that results in the delay, impairment, loss or
cancellation of any transaction, event or occurrence for which such certificates
or statements are requested.
ARTICLE XX
----------
Rights Reserved by Landlord
---------------------------
20.1 Landlord expressly reserves all rights in and with respect to
the land hereby leased not inconsistent with Tenant's use of the Premises as
provided in this Lease, including (without in any way limiting the generality of
the foregoing) all rights to the subsurface of the land more than five (5) feet
below ground level, except where building improvements extend more than five (5)
feet below ground level; and all rights to the airspace more than ten (10) feet
above the roof of any building; and the rights to enter upon the Premises for
itself or to give easements to others for the purpose of installing, using,
maintaining, renewing and replacing such overhead or
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underground water, oil, gas, sewer drainage, and other pipe lines, and
telephone, electric, power, television and other lines, cables and conduits as
Landlord may deem desirable in connection with the development or use of any
other property in the neighborhood of the Premises, whether owned by Landlord or
not, all of which pipelines, lines and conduits shall be buried to a sufficient
depth or raised to a sufficient height so as not to interfere with the use or
stability of the Premises. In exercising any such rights reserved to Landlord,
Landlord shall not unreasonably interfere with Tenant's business operations and
use of the Premises.
ARTICLE XXI
-----------
Covenant of Quiet Enjoyment
---------------------------
21.1 Landlord does hereby covenant, promise and agree to and with
Tenant that Tenant, for so long as it is not in default hereof and is in
compliance with all of the terms and conditions of this Lease, shall and may at
all times peaceable and quietly have, hold, use, occupy and possess the Premises
throughout the term of this Lease, subject to all of the terms and conditions of
this Lease, without any molestation or eviction by Landlord or any persons
claiming by or through Landlord.
ARTICLE XXII
------------
Recordation
-----------
22.1 Neither this Lease nor a short form of memorandum of this Lease
shall be recorded in the office of any county recorder without Landlord's
express written consent. In the event of any such recordation, Tenant shall be
solely responsible for any documentary transfer taxes or other taxes relating to
or arising out of any such recordation.
ARTICLE XXIII
-------------
Subordination
-------------
23.1 This Lease and Tenant's rights hereunder are and will remain
subject and subordinate to any ground lease, mortgage, deed of trust or any
other hypothecation for security now or hereafter placed upon the real property
of which the Premises are a part (the "Property"), and to all increases,
renewals, modifications, consolidations, replacements, and extensions thereof
(collectively referred to as the "Mortgage"). If the holder of a Mortgage
becomes the owner of the Property by reason of foreclosure or acceptance of a
deed in lieu of foreclosure, at such holder's election Tenant will be bound to
such holder or its successor-in-interest under all terms and conditions of this
Lease, and Tenant will be deemed to have attorned to and recognized such holder
or successor as Landlord's successor-in-interest for the remainder of the Lease
Term or any extension thereof. No indemnification obligation of Landlord under
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this Lease shall be assumed by or binding upon any such Mortgage holder. The
foregoing is self-operative and no further instrument of subordination and/or
attornment will be necessary unless required by Landlord or the holder of a
Mortgage, in which case Tenant will, within ten (10) days after written request,
execute and deliver without charge any documents reasonably required by Landlord
or such holder in order to confirm the subordination and attornment set forth
above. Should the holder of a Mortgage request that this Lease and Tenant's
rights hereunder be made superior, rather than subordinate, to the Mortgage,
then Tenant will, within ten (10) days after written request, execute and
deliver without charge such agreement as may be reasonably required by such
holder in order to effectuate and evidence such superiority of the Lease to the
Mortgage. If Landlord has made an assignment of rents and leases to the Mortgage
holder, Tenant agrees to be comply with any provisions of such assignment
requiring the payment of rents to the Mortgage holder.
23.2 If Tenant fails to execute and deliver any documents as and when
required above, such failure will constitute a default under this Lease,
entitling Landlord to the same rights and remedies as if such default were with
respect to non-payment of Minimum Rent. With respect to each Mortgage that may
encumber the Property at or after the commencement of the Lease Term, Landlord
agrees that it shall obtain from the holder of the Mortgage a "non-disturbance
agreement," in the usual form used by such holder, with such changes thereto as
are reasonably satisfactory to Tenant and the holder of any such Mortgage. The
term "non-disturbance agreement" as used herein means, in general, an agreement
that as long as Tenant is not in default under this Lease, this Lease will not
be terminated if such holder acquires title to the Property by reason of
foreclosure proceedings or acceptance of a deed in lieu of foreclosure, provided
that Tenant attorns to such holder in accordance with such holder's
requirements. The non-disturbance agreement shall include substantially the
following provisions:
(i) Tenant shall expressly recognize and agree that the holder
of any such Mortgage or any of their successors or assigns may sell the Premises
in the manner provided for by law or in such Mortgage, but such sale shall be
made subject to the tenancy created by this Lease;
(ii) In the event of the enforcement by the holder of any such
Mortgage of the remedies provided for by law or by such Mortgage, Tenant will,
as a result of such enforcement, automatically become the tenant of any person
succeeding to the interest of Landlord as the result of such enforcement
(collectively, the "Successor") without change in the terms or provisions of
this Lease and such Successor shall succeed to Landlord's interest in the
Premises subject to the terms of this Lease;
(iii) Upon request by Successor, Tenant shall execute and
deliver an instrument or instruments confirming the attornment provided for
herein in a form reasonably acceptable to Landlord, lender and Successor;
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(iv) So long as an Event of Default is not in existence, that
Tenant's use, possession, tenancy, rights, and occupancy hereunder shall remain
undisturbed and shall survive any action taken pursuant to the Mortgage to which
this Lease is subordinated.
(v) Each future mortgagee must and Landlord shall cause any
future mortgagee to enter into a Nondisturbance Agreement on substantially the
same terms set forth above, unless such terms are waived by Tenant.
ARTICLE XXIV
------------
Security Deposit
----------------
24.1 As security for the faithful performance of the terms,
covenants, conditions and provisions of this Lease, as well as to indemnify
Landlord from any damages, costs, expenses, real estate brokerage commissions or
attorneys' fees which Landlord may incur or suffer by reason of any default by
Tenant, Tenant hereby agrees to deposit with Landlord, upon execution of this
Lease, a security deposit in the amount of One Million Eight Hundred Thousand
Dollars ($1,800,000) in the form of either: (a) a cash deposit; or, (b) an
unconditional and irrevocable letter of credit in a form acceptable to Landlord
issued by Bank of America NT&SA (or by another major bank reasonably acceptable
to Landlord and confirmed by Bank of America NT&SA), which letter of credit
shall be renewed annually, at least thirty (30) days prior to the expiry date
thereof for additional one-year periods so that a valid letter of credit remains
in effect until the expiration of the Lease Term. If such letter of credit has
not been renewed at least thirty (30) days prior to the expiry date thereof,
Landlord may immediately draw on such letter of credit and hold the cash
proceeds thereof in lieu of such letter of credit. Any such cash deposit and any
such letter of credit shall constitute the "security deposit" under this Lease.
No interest shall be paid by Landlord to Tenant on the security deposit, and no
trust relationship is created between Landlord and Tenant with respect to the
security deposit. Landlord shall not be required to keep said deposit separate
from its general accounts.
24.2 In the event Tenant shall be in default hereof at any time prior
to the end of the term hereof, then Landlord may apply all or any portion of the
security deposit in payment of Landlord's costs, expenses, damages, real estate
broker's commissions, and attorneys' fees in enforcing the terms, covenants,
conditions and provisions hereof. Nothing herein contained shall be construed to
mean that the recovery of damages by Landlord against Tenant shall be limited to
the sum of the security deposit. In the event any portion or all of the security
deposit is applied by Landlord in accordance with the foregoing, then Tenant
shall immediately deposit with Landlord additional sums so that the security
deposit in the hands of Landlord shall be at all times not less than the sum of
the deposit herein provided for.
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24.3 Should the Lease Term and the occupancy of the Premises by
Tenant fail to commence through no fault of Tenant, then Landlord shall return
the security deposit and any prepaid rent then possessed by Landlord to Tenant
within thirty (30) days after such event occurs. If this Lease should terminate
for any reason other than the default of Tenant, Landlord shall return the
security deposit to Tenant promptly after Landlord's inspection of the Premises
and confirmation that the Premises are surrendered in the condition as required
under the terms of this Lease.
ARTICLE XXV
-----------
Holding Over
------------
25.1 If Tenant remains in possession of the Premises after the
expiration of the Lease Term or any extension or renewal hereof, such holding
over shall not operate to extend or renew this Lease but shall be construed as a
tenancy from month-to-month which may be terminated by Landlord upon three (3)
days' prior written notice if Tenant is then in default of this Lease, or by
either party upon at least thirty (30) days' prior written notice directed to
the end of a calendar month. Such month-to-month tenancy by Tenant shall be
subject to all the terms and provisions of this Lease, except that the Minimum
Rent payable during the period of holding over shall be the greater of: (a)
Minimum Rent set forth in Item 1.6 of the Basic Lease Provisions, plus a
percentage of such rent equal to the percentage change in the CPI between the
Commencement Date of this Lease and the period of holding over; or (b) one
hundred fifty percent (150%) of the average monthly Minimum Rent payable by
Tenant during the last twelve (12) months of the Lease Term or any extension or
renewal thereof. Any options, rights, or privileges granted to Tenant, if any,
to extend the Lease Term, to acquire the Premises, or re-lease the same, shall
not be applicable during said period of holding over.
ARTICLE XXVI
------------
General
-------
26.1 Remedies Cumulative. The specific remedies to which Landlord
-------------------
may resort under the terms of this Lease are cumulative and are not intended to
be exclusive of any other remedies or means of redress to which Landlord may be
lawfully entitled in case of any breach or threatened breach by Tenant of any
provision of this Lease.
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26.2 Successors and Assigns. The covenants and agreements herein
----------------------
contained shall bind and inure to the benefit of Landlord, its successors and
assigns, and Tenant, its successors and assigns, subject to the provisions of
this Lease.
26.3 Payments and Interest. Except as otherwise specifically provided
---------------------
in this Lease, each covenant, agreement or stipulation by a party hereto shall
be performed at such party's own cost and expense, and without cost or expense
to the other party. Any monetary obligations due from Tenant to Landlord which
are not paid when due shall bear interest from the due date until paid to
Landlord at the Lease Interest Rate. Such interest shall be paid at the time of
payment of the principal obligation as a condition of remedy of such principal
obligation. Any check tendered by Tenant which is dishonored by the drawee bank
shall not constitute payment of any obligation under this Lease. If any check
tendered by Tenant is dishonored by the drawee bank, then the checks for all
payment obligations of Tenant under this Lease for the next twelve months shall
be in the form of cashiers' checks drawn on a major bank with offices located
throughout the state of California.
26.4 Late Charge. Tenant acknowledges that late payment of Minimum
-----------
Rent and items designated in this Lease as additional rent will cause Landlord
to incur costs and suffer damages not contemplated by this Lease, the exact
amount of which will be impracticable to ascertain. Such costs and damages
include, but are not limited to, late charges which may be imposed on Landlord
by the terms of any trust deed covering the Premises; additional administrative
duties of Landlord's personnel in determining delinquent rents and attempts to
collect such rents by reasonable means other than litigation; additional
accounting and budgetary duties of Landlord's personnel; possible adverse
effects on Landlord's credit rating resulting from impairment of Landlord's cash
flow; and attorneys' fees resulting from consultations with counsel.
Accordingly, if any installment of Minimum Rent or items designated as
additional rent are not received by Landlord within ten (10) days after the same
are due, Tenant shall pay Landlord, as additional rent, a late charge equal to
five percent (5%) of such overdue amount. Landlord and Tenant agree that such
late charge represents a fair, equitable, and reasonable estimate of the costs
and damages Landlord will incur because of Tenant's late payment.
26.5 Late Payments and Impounds. In the event that a late charge is
--------------------------
payable pursuant to Paragraph 26.4, whether or not collected, for two (2)
consecutive installments of rent, then (i) rent shall automatically become due
and payable quarterly in advance, rather than monthly, notwithstanding Paragraph
4.1 or any other provision of this Lease to the contrary; (ii) if requested by
Landlord, Tenant shall furnish to Landlord Tenant's latest financial statements
covering at least the past two fiscal years and any interim statements covering
the current fiscal year; and (iii) Tenant shall pay to Landlord, if Landlord
shall so request, in addition to any other payments required under this Lease, a
quarterly advance installment payable at the same time as the quarterly rent, as
estimated by Landlord, for real property taxes and insurance expenses on the
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Premises which are payable by Tenant to Landlord under the terms of this Lease.
Such fund shall be established to insure payment when due, before delinquency,
of any or all such real property taxes and insurance premiums. If the amounts
paid to Landlord by Tenant under the provisions of this Paragraph are
insufficient to discharge the obligations of Tenant to pay such real property
taxes and insurance premiums as the same become due, Tenant shall pay to
Landlord, upon Landlord's demand, such additional sums necessary to pay such
obligations. All monies paid to Landlord under this Paragraph may be
intermingled with other monies of Landlord and shall not bear interest. In the
event of a default in the obligations of Tenant to perform under this Lease,
then any balance remaining from funds paid to Landlord under the provisions of
this Paragraph may, at the option of Landlord, be applied to the payment of any
monetary default of Tenant in lieu of being applied to the payment of real
property tax and insurance premiums. All advance payments provided for in this
Paragraph shall be deemed rent under this Lease.
26.6 Notices. Any notice or demand required or permitted by law or
-------
by any of the provisions of this Lease shall be in writing. All notices or
demands by either party shall be deemed to have been properly given upon
delivery when served personally; two (2) business days after being deposited
with the U.S. Postal Service when sent by registered or certified mail, postage
prepaid; or by noon on the business day following the day of deposit with an
overnight express carrier when sent by overnight express service, such as
Federal Express. Notices from Landlord to Tenant shall be given to Tenant at the
address set forth in Item 1.12 of the Basic Lease Provisions. Notices or demands
to Landlord shall be given to Landlord at 22010 Wilmington Avenue, Suite 400,
Carson, California 90745. Either party hereto may change the place to which
notices are to be given by advising the other party in writing.
26.7 Captions. The headings or captions of Articles in this Lease
--------
are for convenience and reference only, and they in no way define, limit or
describe the scope or intent of this Lease or the provisions of such Articles.
26.8 Pronouns and Singular/Plural. Feminine or neuter pronouns shall
----------------------------
be substituted for those masculine form or vice versa, and the plural shall be
substituted for the singular number of vice versa, in the place or places herein
where the context may require such substitution or substitutions.
26.9 Time of Essence. Time is hereby declared to be of the essence
---------------
of this Lease and of each and every covenant, term, condition or provision
hereof.
26.10 Reasonable Consent. Except as otherwise specifically provided
------------------
in this Lease, whenever the Lease requires an approval, consent, designation,
determination or judgment by either Landlord or Tenant, such approval, consent,
designation, determination or judgment (including, without limiting the
generality of the foregoing, those required in connection with assignment and
subletting) shall not be
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unreasonably withheld or delayed and in exercising any right or remedy
hereunder, each party shall at all times act reasonably and in good faith.
26.11 Fair Meaning. The language in all parts of this Lease shall be
------------
in all cases construed as a whole according to its fair meaning, and not
strictly for nor against either Landlord or Tenant.
26.12 Entire Agreement. This Lease contains all of the agreements of
----------------
the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreement or understanding pertaining to any such matter
shall be effective for any purpose. No provision of this Lease may be amended or
added to except by an agreement in writing signed by the parties hereto or their
respective successors in interest.
26.13 No Accord and Satisfaction. No payment by Tenant or receipt by
--------------------------
Landlord of a lesser amount than that stipulated herein for Minimum Rent,
additional rent or any other charge shall be deemed to be other than on account
of the earliest stipulated Minimum Rent, additional rent or other charge then
due, nor shall any endorsement or statement on a check or letter accompanying
any check or payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to rights to recover the balance
of such Minimum Rent, additional rent, or other charges or pursue any other
remedy in this Lease, at law or in equity.
26.14 Choice of Law. This Lease shall be governed by and construed
-------------
pursuant to the laws of the State of California.
26.15 [Intentionally deleted.]
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26.16 Counterparts. This Lease may be executed in several
------------
counterparts, each of which shall constitute an original.
26.17 Corporate Resolution. If Tenant is a corporation, Tenant shall
--------------------
deliver to Landlord, contemporaneously with delivery of this Lease executed by
Tenant, a certified copy of a resolution of Tenant's Board of Directors
authorizing the execution of this Lease and naming the representatives
authorized to execute this Lease on behalf of Tenant.
26.18 Reimbursements to Landlord. If Tenant, or any third party on
--------------------------
behalf of Tenant or with whom Tenant is engaged or contemplates engaging in
business, requests that Landlord review or approve any drawings, specifications
or engineering calculations respecting any improvements Tenant intends to
install in the Premises or execute any agreement or written instrument; and if
Landlord refers such matter to any architect, engineer, surveyor or other
professional or administrative personnel of Landlord or to legal counsel for
review and advice to Landlord, then Tenant agrees to reimburse Landlord as
additional rent for all professional fees and costs incurred by Landlord at the
actual cost thereof for persons not in the direct employ of Landlord, and at the
rate of Seventy-Five Dollars ($75.00) per hour for all time spent by
professional and administrative persons in the direct employ of Landlord. If
Tenant requests that Landlord consent to an assumption and/or assignment of this
Lease or a subletting of the Premises to a third party for which Landlord's
written consent is required, Tenant agrees to reimburse Landlord, as additional
rent, for all time spent by Landlord's administrative and professional
personnel, in reviewing the proposed form of all legal documents submitted by
Tenant and preparing necessary additional legal documents, in evaluating the
investigating the credit worthiness of the proposed assignee or subtenant, in
inspecting the Premises to determine if the same is in the condition and state
of repair as required by this Lease, in reviewing drawings and specifications
for any additional improvements to be made to the Premises, and for any other
action required in the reasonable judgment of Landlord. Landlord shall be
reimbursed at the rate of Seventy-Five Dollars ($75.00) per hour for the time
spent by its administrative and professional personnel, (or in the amount of One
Thousand Dollars ($1,000.00), whichever is greater), and at the actual cost of
professional fees and costs incurred by Landlord for persons not in the direct
employ of Landlord, for each such request made by Tenant. The hourly fee payable
to Landlord's administrative and professional personnel under this Paragraph
shall be increased by ten percent (10%) on each anniversary date of the
commencement of the term of this Lease.
26.19 No Guard Service. Tenant hereby acknowledges that the rent
----------------
payable to Landlord hereunder does not include the cost of guard service or
other security measures, and that Landlord shall have no obligation whatsoever
to provide any such service or measures. Tenant assumes all responsibility for
the protection of Tenant, its agents and invitees from acts of third parties.
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26.20 Brokers. Tenant represents and warrants to Landlord that
-------
Tenant has had no dealings with any real estate broker, finder or other person
with respect to this Lease in any manner, excepting only the brokers
specifically named in Item 1.9 of the Basic Lease Provisions. Tenant hereby
indemnifies and holds Landlord harmless from any liability or claim that may be
asserted against Landlord by any broker, finder or person with whom Tenant has
purportedly dealt whose name is not inserted in Item 1.9 of the Basic Lease
Provisions.
26.21 Brokerage Commission. Tenant acknowledges its understanding
--------------------
that Landlord has paid a real estate brokerage commission for securing Tenant's
tenancy at the Premises for the term of this Lease. If Tenant defaults under
this Lease and discontinues paying the rent specified herein, Tenant shall,
within thirty (30) days of such event, reimburse Landlord for the unamortized
portion of such brokerage commission pursuant to the following formula:
Total amount of Number of months of
brokerage commission x unexpired lease term.
-----------------------------------------------------
Number of months of lease term
Notwithstanding the foregoing, Landlord shall not be entitled to recover such
unamortized portions of the brokerage commission as provided in this Paragraph
26.21 if, following an uncured default under this Lease by Tenant, Landlord
elects to pursue its remedy against Tenant pursuant to California Civil Code
Section 1951.4, or if Landlord recovers the discounted present value of all rent
payable for the entire term of the Lease pursuant to California Civil Code
Section 1951.2. To the extent Landlord recovers the discounted present value of
some, but not all, of the rent payable following the termination of this Lease
resulting from Tenant's default, the number of months of such rent so recovered
by Landlord shall be subtracted from the "number of months of unexpired lease
term" in the formula set forth above.
26.22 Limitation of Liability. Tenant hereby agrees that, in the
-----------------------
event of any actual or alleged failure, breach or default hereunder by Landlord,
Tenant's sole and exclusive remedy shall be against and shall be satisfied from
the Landlord's equity interest in the Premises, Tenant's security deposit then
held by Landlord and the proceeds of any insurance or condemnation award paid or
payable to Landlord with respect to the Premises. Tenant agrees that the
obligations of Landlord under this Lease do not constitute personal obligations
of the individual directors, officers or shareholders of Landlord, and Tenant
shall not seek recourse against the individual directors, officers or
shareholders of Landlord or any of their personal assets for satisfaction of any
liability with respect to this Lease.
26.23 Parking. Tenant shall instruct and require that Tenant's
-------
employees, agents, visitors and business invitees park motor vehicles within the
parking areas included on the Premises; and such employees, agents, visitors and
invitees shall not park on the streets within the Watson Industrial Center. If
there is
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insufficient parking area included on the Premises for parking of such motor
vehicles, Tenant shall use its best efforts to obtain off-street parking
privileges on other properties in the vicinity of the Premises.
26.24 Lease Reviewed. Landlord and Tenant have carefully read and
--------------
reviewed this Lease and each term and provision contained herein, and each of
them has referred this Lease to its own legal counsel for review and advice as
to the legal consequences of this Lease. Landlord and Tenant acknowledge their
informed and voluntary consent thereto. Landlord and Tenant further agree that,
at the time this Lease is executed, the terms of this Lease are commercially
reasonable and effectuate the intent and purpose of Landlord and Tenant with
respect to the Premises.
26.25 Financial Statements. As a material inducement to Landlord's
--------------------
execution of this Lease, Tenant hereby represents and warrants that, to Tenant's
best knowledge, Tenant has furnished to Landlord true, complete, current and
unqualified financial statements of Tenant prepared in accordance with generally
accepted accounting principles in a manner consistently applied in each case.
Throughout the Lease Term, Tenant shall, within ten (10) days following
Landlord's request, provide Landlord with Tenant's then-current quarterly
financial statements. Landlord shall maintain such financial statements in
confidence, except for disclosure to prospective purchasers of the Premises and
prospective lenders whose loans would be secured in whole or in part by this
Lease or the Premises. Throughout the Lease Term, Tenant will furnish to
Landlord prompt notice of (i) any material obligation or material adverse
development with respect to the business, financial condition or results of
operations of Tenant; and (ii) any default under this Lease or any event, the
occurrence or nonoccurrence of which constitutes, or which with the giving of
notice or the passage of time or both would constitute, a default under Lease.
26.26 Lease Interest Rate. As used in this Lease, the "Lease Interest
-------------------
Rate" shall be a rate equal to two percent (2%) per year in excess of the
"Reference Rate" most recently announced by Bank of America, Los Angeles from
time to time, provided however that if Bank of America ceases to announce such
Reference Rate, then such rate shall be a rate comparable to such Reference
Rate; and provided further, however, that in no event shall the Lease Interest
Rate exceed the highest lawful rate of interest permissible by law.
26.27 Reasonable Expenditures: Except as otherwise provided in this
-----------------------
Lease, any expenditure by a party permitted or required under this Lease, for
which such party is entitled to demand and does demand reimbursement from the
other party, shall be limited to the fair market value of the goods and services
involved, shall be reasonably incurred, and shall be substantiated by
documentary evidence available for inspection and review by the other party or
its representative during normal business hours.
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IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and year first above written.
"LANDLORD" "TENANT"
Watson Partners, L.P., HomeGrocer.com,
a Delaware limited partnership a Delaware corporation
By: Watson Land Company By: /s/ C. Karaffa
----------------
Its: General Partner Its: V.P. Operations
----------------
By: /s/ illegible By: /s/ illegible
----------------- -----------------
Its: President/CEO Its: V.P. Merch.
---------------- -----------------
By: /s/ illegible
-----------------
Its: General Counsel/Corp. Secretary
--------------------------------
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EXHIBIT 10.25
HOMEGROCER.COM, INC. CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") dated as of _______ __,
---------
1999 is made by and between Homegrocer.com, Inc., a Washington corporation (the
"Company"), and ________________ ("Indemnitee").
------- ----------
RECITALS
A. Indemnitee is a director or officer of the Company and in such capacity
is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance and the significant cost of such
insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting directors and officers to expensive litigation risks at
the same time that such liability insurance has been severely limited.
D. The Company has adopted bylaws (the "Bylaws") providing for
------
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Business Corporation Act of Washington (the
"Statute").
-------
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and thereby contemplate that contracts may be entered into between
the Company and its directors and officers with respect to indemnification of
such directors and officers.
F. To induce Indemnitee to serve or continue to serve as a director or
officer of the Company, the Company desires to confirm the contract
indemnification rights provided in the Bylaws and agrees to provide the
Indemnitee with the benefits contemplated by this Agreement.
AGREEMENT
In consideration of the recitals above, the mutual covenants and agreements
herein contained, and Indemnitee's continued service as a director or officer,
as the case may be, of the Company after the date hereof, the parties to this
Agreement agree as follows:
1. Indemnification of Indemnitee.
-----------------------------
(a) Scope. The Company agrees to hold harmless and indemnify
-----
Indemnitee to the full extent provided under the provisions of the Company's
Amended and Restated Articles of Incorporation and the Bylaws, and to the full
extent permitted by law, notwithstanding that the basis for such indemnification
is not specifically enumerated in this Agreement, the Company's Amended and
Restated Articles of Incorporation, the Bylaws, any
<PAGE>
statute or otherwise. In the event of any change, after the date of this
Agreement, in any applicable law, statute or rule regarding the right of a
Washington corporation to indemnify a member of its board of directors or an
officer, such change, to the extent that it would expand Indemnitee's rights
hereunder, shall be included within Indemnitee's rights and the Company's
obligations hereunder, and, to the extent that it would narrow Indemnitee's
rights or the Company's obligations hereunder, shall not affect or limit the
scope of this Agreement; provided, however, that in no event shall any part of
this Agreement be construed so as to require indemnification when such
indemnification is not permitted by then applicable law.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Amended and Restated Articles of Incorporation, the Bylaws,
any agreement, any vote of shareholders or disinterested directors, the Statute,
or otherwise, whether as to action in Indemnitee's official capacity or
otherwise.
(c) Included Coverage. If Indemnitee was or is made a party, or is
-----------------
threatened to be made a party, to or is otherwise involved (including, without
limitation, as a witness) in any Proceeding (as defined below), the Company
shall hold harmless and indemnify Indemnitee from and against any and all
losses, claims, damages (compensatory, exemplary, punitive or otherwise),
liabilities or expenses, including, without limitation, attorneys' fees, costs,
judgments, fines, ERISA excise taxes or penalties, witness fees, amounts paid in
settlement and other expenses incurred in connection with the investigation,
defense, settlement or approval of such Proceeding (collectively, "Damages").
-------
(d) Definition of Proceeding. For purposes of this Agreement,
------------------------
"Proceeding" shall mean any completed, actual, pending or threatened action,
----------
suit, claim, hearing or proceeding, whether civil, criminal, arbitrative,
administrative, investigative or pursuant to any alternative dispute resolution
mechanism (including an action by or in the right of the Company) and whether
formal or informal, in which Indemnitee is, was or becomes involved by reason of
the fact that Indemnitee is or was a director, officer, employee or agent of the
Company or that, being or having been such a director, officer, employee or
agent, Indemnitee is or was serving at the request of the Company as a director,
officer, employee, trustee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise (collectively, a "Related Company"),
---------------
including service with respect to an employee benefit plan, whether the basis of
such proceeding is alleged action (or inaction) by Indemnitee in an official
capacity as a director, officer, employee, trustee or agent or in any other
capacity while serving as a director, officer, employee, trustee or agent;
provided, however, that, except with respect to an Enforcement Action (defined
in Section 3(a) below, an action challenging the Company's determination that
Indemnitee is not entitled to indemnification pursuant to Section 1(e), and any
other action to enforce the provisions of this Agreement, "Proceeding" shall not
----------
include any action, suit, claim or proceeding instituted by or at the direction
of Indemnitee unless such action, suit, claim or proceeding is or was authorized
by the Company's Board of Directors.
(e) Determination Of Entitlement. In the event that a determination
----------------------------
of Indemnitee's entitlement to indemnification is required pursuant to Section
23B.08.550 of the
-2-
<PAGE>
Statute or a successor statute or pursuant to other applicable law, the
appropriate decision- maker shall make such determination; provided, however,
that Indemnitee shall initially be presumed in all cases to be entitled to
indemnification, that Indemnitee may establish a conclusive presumption of any
fact necessary to such a determination by delivering to the Company a
declaration made under penalty of perjury that such fact is true and that,
unless the Company shall deliver to Indemnitee written notice of a determination
that Indemnitee is not entitled to indemnification within twenty (20) calendar
days after the Company's receipt of Indemnitee's initial written request for
indemnification, such determination shall conclusively be deemed to have been
made in favor of the Company's provision of indemnification, and that the
Company hereby agrees not to assert otherwise.
(f) Contribution. If the indemnification provided under Section 1(a)
------------
is unavailable by reason of a court decision, based on grounds other than any of
those set forth in paragraphs (ii) through (iv) of Section 4(a), then, in
respect of any Proceeding in which the Company is jointly liable with Indemnitee
(or would be if joined in such Proceeding), the Company shall contribute to the
amount of Damages (including attorneys' fees) actually and reasonably incurred
and paid or payable by Indemnitee in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
Indemnitee on the other from the transaction from which such Proceeding arose
and (ii) the relative fault of the Company on the one hand and of Indemnitee on
the other in connection with the events that resulted in such Damages as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such Damages. The Company agrees that it would not be just and equitable if
contribution pursuant to this Section 1(f) were determined by pro rata
allocation or any other method of allocation that does not take account of the
foregoing equitable considerations.
(g) Survival. The indemnification and contribution provided under
--------
this Agreement shall apply to any and all Proceedings, notwithstanding that
Indemnitee has ceased to serve the Company or a Related Company and shall
continue so long as Indemnitee shall be subject to any possible Proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was a director or officer of the Company or serving in any other capacity
referred to in Section 1(d) of this Agreement.
2. Expense Advances.
----------------
(a) Generally. The right to indemnification of Damages conferred by
---------
Section 1 shall include the right to have the Company pay Indemnitee's expenses
in any Proceeding as such expenses are incurred and in advance of such
Proceeding's final disposition (such right, an "Expense Advance").
---------------
(b) Conditions to Expense Advance. The Company's obligation to
-----------------------------
provide an Expense Advance is subject to the following conditions:
-3-
<PAGE>
(i) Undertaking. If the Proceeding arose in connection with
-----------
Indemnitee's service as a director or an officer of the Company (and not in any
other capacity in which Indemnitee rendered service, including service to any
Related Company), then Indemnitee or Indemnitee's representative shall have
executed and delivered to the Company an undertaking, which need not be secured
and shall be accepted without reference to Indemnitee's financial ability to
make repayment, by or on behalf of Indemnitee to repay all Expense Advances if
it shall ultimately be determined by a final, unappealable decision rendered by
a court having jurisdiction over the parties that Indemnitee is not entitled to
be indemnified under this Agreement or otherwise.
(ii) Cooperation. Indemnitee shall give the Company such
-----------
information and cooperation as it may reasonably request and as shall be within
Indemnitee's legal power to so provide.
(iii) Affirmation. Indemnitee shall furnish, upon request by the
-----------
Company and if required under applicable law, a written affirmation of
Indemnitee's good faith belief that any applicable standards of conduct have
been met by Indemnitee.
3. Procedures For Enforcement
--------------------------
(a) Enforcement. In the event that any claim for indemnification,
-----------
whether an Expense Advance or otherwise, is made hereunder and is not paid in
full within thirty (30) calendar days after written notice of such claim is
delivered to the Company, Indemnitee may, but need not, at any time thereafter
bring suit against the Company to recover the unpaid amount of the claim (an
"Enforcement Action").
- -------------------
(b) Presumptions in Enforcement Action. In any Enforcement Action,
----------------------------------
the following presumptions (and limitation on presumptions) shall apply:
(i) The Company expressly affirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereunder to
induce Indemnitee to continue as a director or officer, as the case may be, of
the Company;
(ii) Neither (1) the failure of the Company (including the
Company's Board of Directors, independent or special legal counsel or the
Company's shareholders) to have made a determination prior to the commencement
of the Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (2) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification shall create a presumption that Indemnitee is
not entitled to indemnification hereunder; and
(iii) If Indemnitee is or was serving as a director or officer of
a corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Company or as a partner, trustee or otherwise in
an executive or management capacity in a partnership, joint venture, trust or
other enterprise of which the Company or a wholly owned subsidiary of the
Company is a general partner or has a majority ownership, then
-4-
<PAGE>
such corporation, partnership, joint venture, trust or other enterprise shall
conclusively be deemed a Related Company and Indemnitee shall conclusively be
deemed to be serving such Related Company at the Company's request.
(c) Attorneys' Fees and Expenses for Enforcement Action. In the event
---------------------------------------------------
Indemnitee is required to bring an Enforcement Action, the Company shall pay all
of Indemnitee's fees and expenses in bringing and pursuing the Enforcement
Action (including attorneys' fees at any stage, including on appeal); provided,
however, that the Company shall not be required to provide such payment for such
attorneys' fees or expenses if a court of competent jurisdiction determines that
each of the material assertions made by Indemnitee in such Enforcement Action
was not made in good faith.
4. Limitations on Indemnity; Mutual Acknowledgment
-----------------------------------------------
(a) Limitation on Indemnity. No indemnity pursuant to this Agreement
-----------------------
shall be provided by the Company:
(i) On account of any suit in which a final, unappealable
judgment is rendered against Indemnitee for an accounting of profits made from
the purchase or sale by Indemnitee of securities of the Company in violation of
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended;
(ii) For Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of insurance maintained by the Company;
(iii) With respect to remuneration paid to Indemnitee if it shall
be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(iv) On account of Indemnitee's conduct which is finally adjudged
by a court having jurisdiction in the matter to have been intentional
misconduct, a knowing violation of law or the RCW 23B.08.310 or any successor
provision of the Statute, or a transaction from which Indemnitee derived an
improper personal benefit; or
(v) If a final decision by a court having jurisdiction in the
matter with no further right of appeal shall determine that such indemnification
is not lawful.
(b) Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any Damages in connection with a Proceeding, but not, however, for
the total amount thereof, the Company shall nevertheless indemnify Indemnitee
for the portion of such Damages to which Indemnitee is entitled.
(c) Mutual Acknowledgment. The Company and Indemnitee acknowledge
---------------------
that, in certain instances, federal law or public policy may override applicable
state law and prohibit the Company from indemnifying Indemnitee under this
Agreement or otherwise. For
-5-
<PAGE>
example, the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
---
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
5. Notification and Defense of Claim
---------------------------------
(a) Notification. Promptly after receipt by Indemnitee of notice of
------------
the commencement of any Proceeding, Indemnitee shall, if a claim in respect
thereof is to be made against the Company under this Agreement, notify the
Company of the commencement thereof; but the omission so to notify the Company
will not, however, relieve the Company from any liability which it may have to
Indemnitee under this Agreement unless and only to the extent that such omission
can be shown to have prejudiced the Company's ability to defend the Proceeding.
If, at the time of the receipt of a notice of a claim pursuant to
Section 5(a), the Company has director and officer liability insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall take all necessary or desirable action to
cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as
a result of such Proceeding in accordance with the terms of such policies.
(b) Defense of Claim. With respect to any such Proceeding as to which
----------------
Indemnitee notifies the Company of the commencement thereof:
(i) The Company may participate therein at its own expense;
(ii) The Company, jointly with any other indemnifying party
similarly notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company (or any other person or
persons included in the joint defense) and Indemnitee in the conduct of the
defense of such action, (iii) the Company shall not, in fact, have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the Company's expense, or (iv) the Company
is not financially or legally able to perform its indemnification obligations.
The Company shall not be entitled to assume the defense of any proceeding
brought by or on behalf of the Company or as to which Indemnitee shall have
reasonably made the conclusion provided for in (ii) or (iv) above;
-6-
<PAGE>
(iii) The Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any Proceeding
effected without its written consent;
(iv) The Company shall not settle any action or claim in any
manner that would impose any penalty or limitation on Indemnitee without
Indemnitee's written consent; and
(v) Neither the Company nor Indemnitee will unreasonably
withhold its, his or her consent to any proposed settlement.
6. Severability
------------
Nothing in this Agreement is intended to require or shall be construed
as requiring the Company to do or to fail to do any act in violation of
applicable law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify or make contribution to Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
7. Governing Law; Binding Effect; Amendment and Termination
--------------------------------------------------------
(a) This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Washington.
(b) This Agreement shall be binding on Indemnitee and on the Company
and its successors and assigns (including any transferee of all or substantially
all its assets and any successor by merger or otherwise by operation of law),
and shall inure to the benefit of Indemnitee and Indemnitee's heirs, personal
representatives and assigns and to the benefit of the Company and its successors
and assigns. The Company shall not effect any merger, consolidation, sale of all
or substantially all of its assets or other reorganization in which it is not
the surviving entity, unless the surviving entity agrees in writing to assure
all of the Company's obligations under this Agreement.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
8. Entire Agreement
----------------
This Agreement is the entire agreement of the parties regarding its
subject matter and supersedes all prior written or oral communications or
agreements.
9. Counterparts
------------
-7-
<PAGE>
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
10. Amendments; Waivers
-------------------
Neither this Agreement nor any provision may be amended except by
written agreement signed by the parties. No waiver of any breach or default
shall be considered valid unless in writing, and no such waiver shall be deemed
a waiver of any subsequent breach or default.
11. Notices
-------
All notices, claims and other communications hereunder shall be in
writing and made by hand delivery, registered or certified mail (postage
prepaid, return receipt requested), facsimile or overnight air courier
guaranteeing next-day delivery:
(a) If to the Company, to: with a copy to:
HomeGrocer.com, Inc. Venture Law Group
10230 N.E. Points Drive 4750 Carillon Point
Kirkland, WA 98033 Kirkland, WA 98033
c/o _______________ c/o William W. Ericson
(b) If to Indemnitee, to the address specified on the last page of
this Agreement or to such other address as either party may from time to time
furnish to the other party by a notice given in accordance with the provisions
of this Section 11. All such notices, claims and communications shall be deemed
to have been duly given if (i) personally delivered, at the time delivered, (ii)
mailed, five days after dispatched, (iii) sent by facsimile transmission, upon
confirmation of receipt, and (iv) sent by any other means, upon receipt.
12. Directors' and Officers' Insurance. The Company shall, from time
----------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among
other considerations, the Company will weigh the costs of obtaining such
insurance coverage against the protection afforded by such coverage. In all
policies of director and officer liability insurance, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, if Indemnitee is not an officer or director but is a
key employee. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if the Company determines in
good faith that such insurance is not reasonably available, if the premium costs
for such insurance are disproportionate to the amount of coverage provided, if
the coverage provided
-8-
<PAGE>
by such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
COMPANY: INDEMNITEE:
HOMEGROCER.COM, INC. _____________________________
By:__________________________ Print name:__________________
Name:________________________ Address:_____________
(print) _____________
Title:_______________________ _____________
-9-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF HOMEGROCER.COM, INC.
SUBSIDIARY LEGAL NAME JURISDICTION OF INCORPORATION
--------------------- -----------------------------
HomeGrocer Australia Pty Limited Australia
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 19,
1999, except for Note 9, as to which the date is December 14, 1999, in the
Registration Statement (Form S-1) and related Prospectus of HomeGrocer.com,
Inc. for the registration of shares of its common stock.
Ernst & Young LLP
Seattle, Washingtion
December 17, 1999
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