<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________to ______________
Commission File Number: 0-9628
------
ANCHOR PACIFIC UNDERWRITERS, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE 94-1687187
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1800 SUTTER STREET, SUITE 400 (510) 682-7707
CONCORD, CALIFORNIA 94520 (Registrant's telephone number,
(Address of principal executive offices) including area code)
(Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of June 30, 1995
Common Stock, par value $.02 per share 3,923,263 shares
This document is comprised of 61 pages.
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS,
JUNE 30, 1995 (UNAUDITED) AND
DECEMBER 31, 1994. . . . . . . . . . . . . . . . . . 1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX
MONTHS AND QUARTERS ENDED JUNE 30, 1995 AND
1994(UNAUDITED). . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR
THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED)
AND YEAR ENDED DECEMBER 31, 1994. . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 1995 AND 1994 (UNAUDITED). . . 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . 18
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . 18
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K . . . . . . . . . . . 18
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
------------ -----------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents-corporate funds $ 425,110 $ 384,102
Cash and cash equivalents-brokerage
fiduciary funds 1,405,322 1,323,372
Cash and cash equivalents-third party
administration fiduciary funds 3,865,664 4,349,629
Accounts receivable (less allowances of
$32,146 and $33,700 in 1995 and 1994
respectively) 1,261,109 1,306,627
Prepaid expenses and other current assets 1,004,412 949,710
Current portion of deferred tax asset 48,402 48,402
----------- -----------
Total current assets 8,010,019 8,361,842
Property and equipment 2,597,043 2,498,171
Less accumulated depreciation and amortization (1,645,626) (1,540,120)
----------- -----------
951,417 958,051
Other assets:
Goodwill, net 2,529,516 2,525,591
Intangible assets, net 1,245,092 1,144,091
Other 142,230 144,808
------------ ------------
3,916,838 3,814,490
------------ ------------
Total assets $ 12,878,274 $ 13,134,383
------------ ------------
</TABLE>
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<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1995 1994
---------- -----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Cash and cash equivalents-third party
administration fiduciary funds $ 3,865,664 $ 4,349,629
Net premiums payable-insurance companies 2,426,564 2,256,313
Accounts payable and accrued expenses 424,410 365,089
Capital lease obligations - 46,610
Short-term debt 1,125,000 850,000
Other liabilities 1,115,784 894,832
------------ -------------
Total current liabilities 8,957,422 8,762,473
Long-term liabilities, less current portion 1,378,857 1,471,723
Deferred tax liability 164,859 159,724
Shareholders' equity:
Common stock-$.02 par value;
8,000,000 authorized;
3,923,263 and 3,923,258 shares issued
as of 6/30/95 and 12/31/94, respectively 78,480 78,465
Additional paid-in capital 3,294,702 3,294,702
Retained earnings (deficit) (996,046) (632,704)
------------ -------------
Total shareholders' equity 2,377,136 2,740,463
------------ -------------
Total liabilities and shareholders' equity $ 12,878,274 $ 13,134,383
------------ -------------
------------ -------------
</TABLE>
See accompanying notes
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<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Quarter
Ended June 30 Ended June 30
---------------------- --------------------------
1995 1994 1995 1994
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Commissions, fees and other income $ 4,438,332 $ 2,396,990 $ 2,196,401 $ 1,204,645
Interest income 61,737 41,021 38,265 19,053
------------ ----------- ----------- ------------
Total revenue 4,500,069 2,438,011 2,234,666 1,223,698
Operating expenses:
Salaries, commissions and employee
benefits 3,013,603 1,447,289 1,470,902 664,060
Selling, general and administrative
expenses 1,522,164 913,123 773,943 509,124
------------ ----------- ----------- ------------
Total operating expenses 4,535,767 2,360,412 2,244,845 1,173,184
------------ ----------- ----------- ------------
(35,698) 77,599 (10,179) 50,514
Other income (expense):
Amortization of goodwill and
intangible assets (203,379) (69,984) (98,880) (32,370)
Interest (73,801) (5,672) (45,687) (3,405)
Other 158,545 1,291 119,383 442
Nonrecurring merger expenses (204,209) - - -
------------ ----------- ----------- ------------
Total other income (expense) (322,844) (74,365) (25,184) (35,333)
------------ ----------- ----------- ------------
Income (loss) before income taxes (358,542) 3,234 (35,363) 15,181
Income tax expense 4,800 8,575 - 4,750
------------ ----------- ----------- ------------
Net (loss) Income $ (363,342) $ (5,341) $ (35,363) $ 10,431
------------ ----------- ----------- ------------
Net earnings per common and common
equivalent share $ (.09) $ (.01) $ (.01) $ .01
------------ ----------- ----------- ------------
Weighted average number of common and
common equivalent shares outstanding 3,923,263 2,722,488 3,923,263 2,722,488
------------ ----------- ----------- ------------
</TABLE>
See accompanying notes
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<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
12/31/93 2,722,488 $ 54,450 $ 1,817,752 $ 17,785 $ 1,889,987
(restated)
Stock issued for
acquisitions 1,200,770 24,015 1,476,950 - 1,500,965
Net loss - - - (650,489) (650,489)
----------------------------------------------------------------
Balance at
12/31/94 3,923,258 78,465 3,294,702 (632,704) 2,740,463
Stock issued for
Warrants 5 15 - - 15
Net loss - - - (363,342) (363,342)
-----------------------------------------------------------------
Balance at
6/30/95
(unaudited) 3,923,263 $ 78,480 $ 3,294,702 $(996,046) $ 2,377,136
-----------------------------------------------------------------
</TABLE>
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ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Ended June 30
------------------
1995 1994
-------------- -----------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (363,342) $ (5,341)
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation and amortization 105,506 80,671
Amortization of goodwill, other intangibles
and organization expenses 203,379 69,984
Deferred tax asset - 27,344
Deferred tax liability 5,135 (27,344)
Changes in operating assets and liabilities,
net of effect of purchases of subsidiaries:
Cash and cash equivalents-brokerage
fiduciary funds (81,950) 16,202
Accounts receivable 45,518 94,689
Prepaid expenses and other current assets 92,441 1,238
Other assets 2,578 (130,131)
Net premiums payable-insurance companies 170,251 85,176
Accounts payable and accrued expenses 59,321 75,308
Other liabilities (10,072) (6,794)
----------- ---------
Net cash provided by operating activities 228,765 281,002
INVESTING ACTIVITIES
Notes receivable, net (147,143) (186,361)
Purchases of property and equipment (98,872) (126,150)
Purchases of customer list (203,763) -
---------- ---------
Net cash used in investing activities (449,778) (312,511)
</TABLE>
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<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Six Months
Ended June 30
------------------
1995 1994
----------- ----------
(unaudited) (unaudited)
<S> <C> <C>
FINANCING ACTIVITIES
Debt:
Borrowings 635,000 -
Repayment (281,470) (75,676)
Capital leases payments (46,610) -
Issuance of Common Stock 15 -
Net payments on amounts due on acquisitions (44,914) 15,629
---------- ----------
Net cash provided by(used in)financing activities 366,563 (60,047)
---------- ----------
Net increase (decrease) in cash 41,008 (91,556)
Cash and cash equivalents-corporate funds
at beginning of period 384,102 943,130
---------- ----------
Cash and cash equivalents-corporate funds
at end of period $ 425,110 $ 851,574
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 73,801 $ 5,672
---------- ---------
Income taxes $ 5,600 $ 10,000
---------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Increase in goodwill related to adjustment
in sublease liability $ 104,542 $ -
---------- ---------
</TABLE>
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<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1995
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Anchor Pacific
Underwriters, Inc. and its subsidiaries ("Anchor") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the six-month period ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in Anchor's
Annual Report on Form 10-K for the year ended December 31, 1994.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with the current
year presentation.
NOTE 2 - ACQUISITIONS
On January 6, 1995, Anchor merged with System Industries, Inc. ("System"). For
accounting purposes, the merger has been treated as a recapitalization of Anchor
with Anchor as the acquirer (reverse acquisition). The historical financial
statements prior to January 6, 1995 are those of Anchor. These historical
financial statements have been restated to give effect to this recapitalization.
Upon consummation of this merger, shareholders of System received one share of
Anchor Common Stock and one Warrant to purchase one share of Anchor Common Stock
for every 42.3291 shares of issued and outstanding System Common Stock. As a
result of the merger, Anchor became a public company. In February 1995, Anchor
acquired certain third party administration accounts from a company located in
Stockton, California at a preliminary purchase price of approximately $204,000
(which reflects a $50,000 cash payment and a discounted future income stream)
with an additional $55,000 of stock consideration to be determined during the
third quarter.
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<PAGE>
The results of operations from these accounts are included in Anchor's
consolidated financial statements from the date of purchase.
Although Anchor is engaged in discussions with third parties regarding potential
acquisitions, as of August 1995, it did not have any binding agreements with
respect to acquisitions. No assurances can be given with respect to the
likelihood, or financial or business effect, of any
possible future acquisition.
NOTE 3 - CONTINGENCIES
Anchor is subject to certain legal proceedings and claims arising in connection
with its business. It is management's opinion that the resolution of these
claims will not have a material effect on Anchor's consolidated financial
position, except as follows. Putnam, Knudsen & Wieking, Insurance Brokers
("PKW"), a property and casualty insurance brokerage company that was acquired
by Anchor on October 1, 1994, and several other entities not affiliated with
Anchor or PKW, were named as defendants in a lawsuit in 1993 that alleges
damages in the amount of $1.5 million plus expenses relating to insurance placed
with an Arizona-domiciled carrier that has since become insolvent. The ultimate
outcome and the individual responsibilities of the defendants of this suit
cannot presently be determined; however, a settlement of the lawsuit for
the full amount of the claim could have a material impact on Anchor's financial
position. Management intends to continue to contest the claim vigorously.
- 8 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Anchor was organized in 1986 as a California general partnership for the
specific purpose of acquiring Harden & Company Insurance Services ("Harden"), a
third party employee benefits administrator. Anchor was reorganized as a
private California corporation in March 1987, and became a public reporting
Delaware corporation on January 6, 1995 when it merged with System Industries,
Inc. ("System").
Since its inception, Anchor has expanded its insurance and financial
service capabilities through internal growth and a series of acquisitions. In
August 1994, Anchor acquired Benefit Resources, Inc. ("BRI"), a third party
administrator located in Scottsdale, Arizona. In October 1994, Anchor acquired
Putnam, Knudsen & Wieking, Insurance Brokers ("PKW"), a property and casualty
insurance brokerage company located in Concord, California. The acquisitions of
these entities were accounted for under the purchase method of accounting.
Anchor expects to continue to expand its insurance brokerage and administration
product lines and to explore other complementary expansion opportunities.
Historically, Anchor derived a majority of its revenues from third party
administration services. In light of its acquisition of PKW, Anchor expects to
significantly increase the percentage of its revenues that are derived from
insurance brokerage activities.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1995 AND 1994
GENERAL
Anchor derives a substantial portion of its revenues from commissions,
which generally are based on a percentage of premiums produced by Anchor,
contingent commissions, which generally are based on underwriting profits
derived over a given period of time by the insurance carrier, and fees for
claims administration (including underwriting and risk analysis) services,
which generally are based on a percentage of premiums collected, or on a per
capita basis. Anchor does not assume any underwriting risk in connection
with its business.
Fluctuations in premiums charged by insurance companies materially affect
commission revenues. During the last five years, the property and casualty
insurance industry has experienced a "soft market" where the underwriting
capacity of insurance companies expanded, stimulating an increase in competition
and a decrease in premium rates, thereby reducing related commissions and fees.
Although the Company has seen modest premium increases during the first six
months of 1995, the prospect of continued rate increases remains uncertain. In
addition to the soft market, recent workers' compensation reform in California
has had the effect of reducing
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<PAGE>
workers' compensation insurance premiums and, consequently, reducing commissions
generated by the sale of related insurance products. Anchor believes that
revenues generated from anticipated future growth and continued diversification
of its business will substantially offset any loss of revenues that results from
workers' compensation reform.
Historically, inflation has also affected commission revenues by, among
other things, increasing property replacement costs and workers' compensation
and liability claims, thereby causing some clients to seek higher levels of
insurance coverage and pay higher premiums. During the past several years, the
United States has experienced very low rates of inflation along with business
downsizing, reduced sales and lower payrolls; these events have resulted in
lower levels of exposure to insure. Although the United States has recently
experienced limited inflationary pressures, prices have not yet increased
significantly.
Other factors, such as client uncertainty about the ultimate impact of
health care reform, could also affect Anchor's business. Anchor believes,
however, that its expertise in two major elements of recent health care reform
proposals (managed care and managed competition), combined with its strategy of
serving middle market clients, makes it well positioned to operate effectively
in a managed care and managed competition environment. Anchor also believes
that in light of the recent political changes in the United States Congress, the
United States will experience incremental, rather than comprehensive, changes in
health care regulations. It is not possible at this time to predict the effect
that any health care legislation will have on Anchor's business condition or
operations.
Anchor is unaware of any current regulatory proposals, except for health
care reform, that could have a material effect on its liquidity, capital
resources or operations.
REVENUES
TOTAL REVENUES. Total revenues for the six months ended June 30, 1995
were $4,500,069, an increase of $2,062,058, or 84.6%, over 1994 second quarter
revenues. The increase resulted primarily from the inclusion of the operations
of PKW and BRI for the six month period ended June 30, 1995. Anchor's revenues
vary from quarter to quarter as a result of the timing of policy renewals and
net new/lost business production, whereas expenses are fairly uniform throughout
the year.
Commissions and fees make up substantially all of Anchor's revenues. The
following table sets forth the percentages of Anchor's revenues attributable to
insurance brokerage services (for which commissions are generated), and third
party administration and underwriting and risk analysis services (for which fees
are generated), for the six months ended June 30, 1995 and 1994. Also included
is the percentage of revenues generated from premium finance activities.
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<PAGE>
<TABLE>
<S> <C> <C>
SIX MONTHS ENDED JUNE 30, 1995 1994
INSURANCE BROKERAGE 40% 22%
THIRD PARTY ADMINISTRATION 59 77
PREMIUM FINANCING 1 1
TOTAL 100% 100%
</TABLE>
COMMISSIONS. Commissions are reported net of sub-broker commissions and
generally are recognized as of the effective date of the insurance policy except
for commissions on installment premiums which are recognized periodically as
billed. Commissions for the first six months of 1995 were $1,797,352, an
increase of $1,259,997, or 234.5%, over $537,355 of commissions for the first
six months of 1994. The acquisition of PKW accounted for substantially all of
the increase.
FEES. Fees from Anchor's third party administration (including
underwriting and risk analysis) services for the six months ended June 30, 1995
were $2,633,829, an increase of $786,972, or 42.6%, over $1,846,857 in fees for
the same period in 1994. The acquisition of BRI accounted for all of the
increase.
Fee revenues generated by Anchor in the first six months of 1995 from third
party administration services included revenues generated by Harden and BRI. A
significant portion of BRI's fee revenues related to an insurance product
underwritten by one insurance carrier, which currently is an A++ (superior)
rated insurance carrier.
Harden's third party administration revenues substantially relate to: (a)
an insurance product underwritten by an insurance carrier, which currently is an
A (excellent) rated insurance carrier; and (b) the administration of insurance
programs underwritten by various insurance carriers for a number of self-insured
employers. The insurance product referred to in subparagraph (a) above
accounted for approximately 62.8% of Harden's revenues (or approximately 25.0%
of Anchor's total revenues) in the six months ended June 30, 1995, and revenues
related to the administration of self-insured programs accounted for 35.8% of
Harden's revenues in such period. Self-insurance is a program in which a client
assumes a manageable portion of its insurance risks, usually (although not
always) placing the less predictable and larger loss exposure with an excess
insurance carrier.
The insurance company which offered the product that accounted for 62.8% of
Harden's third party administration revenues in the first six months of 1995
informed Harden that as a result of changes in its business strategy, it will
discontinue offering such an insurance product by the end of 1995. On July 20,
1995, Harden obtained a binding commitment from an A++ (Superior) rated
insurance carrier to underwrite the risk and provide a replacement product as of
October 1, 1995. Management anticipates an orderly transition to the new
carrier.
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<PAGE>
INTEREST INCOME. Interest income consists of interest earned on insurance
premiums and other funds held in fiduciary accounts and interest earned on
investments. Interest income was $61,737 and $41,021 for the six months ended
June 30, 1995 and 1994, respectively. The increase in interest income in the
first six months of 1995, as compared to 1994, resulted primarily from higher
interest rates and a larger amount of insurance premiums and other funds held in
fiduciary accounts.
EXPENSES
TOTAL EXPENSES. Total operating expenses for the six months ended June 30,
1995 were $4,535,767, an increase of $2,175,355, or 92.2%, over the operating
expenses for the same period in 1994. The increase resulted primarily from the
inclusion of the first six months operating expenses of PKW, totaling
approximately $1,323,266, and BRI, totaling $818,823, in Anchor's consolidated
financial statements.
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits for
the six months ended June 30, 1995 were $3,013,603, an increase of $1,566,314 or
108.2%, over the same period in 1994. The acquisitions of PKW and BRI had the
effect of increasing employee compensation and benefits by approximately
$1,427,541. The remaining increase related primarily to expansion of existing
operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1,522,164 and $913,123 for the six months ended
June 30, 1995 and 1994, respectively. The $609,041, or 66.7%, increase in the
first six months of 1995, as compared to the same period in 1994, resulted
primarily from the acquisitions of PKW and BRI. Other operating expenses include
rent, travel, insurance, postage, telephone, supplies and other miscellaneous
expenses.
INTEREST EXPENSE. Interest expense was $73,801 and $5,672 for the six
months ended June 30, 1995 and 1994, respectively. The increase in interest
expense in 1995, as compared to 1994, resulted primarily from the assumption of
existing debt in connection with the acquisition of PKW and an increase in
outstanding borrowings on Anchor's existing line of credit.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill represents the
excess of the cost of acquisitions over the fair value of net assets acquired.
Other intangibles include covenants not to compete, customer lists and other
contractual rights. Amortization of goodwill and other intangibles was $203,379
and $69,984 for the six months ended June 30, 1995 and 1994, respectively. As a
result of Anchor's acquisitions of PKW and BRI, amortization of goodwill and
other intangibles increased significantly in 1995 over 1994.
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<PAGE>
NONRECURRING EXPENSES
During the first quarter of 1995, Anchor incurred nonrecurring expenses of
$204,209 for costs related to professional services associated with merger and
acquisition activities. The transaction with System did not generate any new
proceeds from which the professional fees could be deducted.
INCOME TAXES
Anchor's expense for income taxes was $4,800 and $8,575 for the six months
ended June 30, 1995 and 1994, respectively. This $4,800 expense represents the
minimum annual required tax payment due.
RESULTS OF OPERATIONS - QUARTERS ENDED JUNE 30, 1995 AND 1994
REVENUES
TOTAL REVENUES. Total revenues for the three months ended June 30, 1995
were $2,234,666, an increase of $1,010,968, or 82.6%, over 1994 second quarter
revenues. The increase resulted primarily from the inclusion of the operations
of PKW and BRI for the three month period ended June 30, 1995.
COMMISSIONS. Commissions for the second quarter of 1995 were $879,385, an
increase of $589,323, or 203.2%, over $290,062 of commissions for the second
quarter of 1994. The acquisition of PKW accounted for substantially all of the
increase.
FEES. Fees from Anchor's third party administration (including underwriting
and analysis) services for the three months ended June 30, 1995 were $1,314,192,
an increase of $406,636, or 44.8%, over $907,556 in fees for the same period in
1994. The acquisition of BRI accounted for all of the increase.
INTEREST INCOME. Interest income was $38,265 and $19,053 for the three
months ended June 30, 1995 and 1994, respectively. The increase in interest
income in the second quarter of 1995, as compared to 1994, resulted primarily
from a larger amount of insurance premiums and other funds held in fiduciary
accounts and higher interest rates.
EXPENSES
TOTAL EXPENSES. Total operating expenses for the three months ended June
30, 1995 were $2,244,845, an increase of $1,071,661, or 91.3%, over the
operating expenses for the same period in 1994. The increase resulted primarily
from the inclusion of the second quarter operating expenses of PKW, totaling
approximately $626,924, and BRI, totaling $407,877, in Anchor's consolidated
financial statements.
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<PAGE>
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits for
the three months ended June 30, 1995 were $1,470,902, an increase of $806,842,
or 121.5%, over the same period in 1994. The acquisitions of PKW and BRI had the
effect of increasing employee compensation and benefits by approximately
$675,573. The remaining increase related primarily to expansion of existing
operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $773,943 and $509,124 for the three months ended
June 30, 1995 and 1994, respectively. The $264,819, or 52.0%, increase in the
second quarter of 1995, as compared to the same period in 1994, resulted
primarily from the acquisitions of PKW and BRI.
INTEREST EXPENSE. Interest expense was $45,687 and $3,405 for the three
months ended June 30, 1995 and 1994, respectively. The increase in interest
expense in 1995, as compared to 1994, resulted primarily from the assumption of
existing debt in connection with the acquisition of PKW and an increase in
outstanding borrowings on Anchor's existing line of credit.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill represents the
excess of the cost of acquisitions over the fair value of net assets acquired.
Other intangibles include covenants not to compete, customer lists and other
contractual rights. Amortization of goodwill and other intangibles was $98,880
and $32,370, for the three months ended June 30, 1995 and 1994, respectively. As
a result of Anchor's acquisitions of PKW and BRI, amortization of goodwill and
other intangibles will increase significantly in 1995 over 1994.
INCOME TAXES
Anchor's expense for income taxes was $-0- and $4,750 for the three months
ended June 30, 1995 and 1994, respectively. The minimum annual required tax
payment due was reported during the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Anchor's business is not capital intensive and Anchor historically has had
sufficient capital to meet its operating needs. Anchor reported net cash flows
provided by operations of $228,765 for the six months ended June 30, 1995,
compared to $281,002 for the six months ended June 30, 1994. Anchor anticipates
that cash flow from operations and borrowing under its existing credit
agreements will be sufficient to fund its current operating and capital
expenditure requirements.
Anchor, however, is seeking to raise up to $750,000 in short-term financing
to supplement its working capital by selling 10% Convertible Subordinated
Debentures (the "Debentures") to
- 14 -
<PAGE>
members of its Board of Directors and a limited number of other sophisticated
investors. The basic terms of the Debentures are: (a) 10% interest per annum;
(b) two year maturity; (c) conversion price of $1.35 in the first year and $1.65
in the second year; (d) "piggyback" registration rights for three years; (e)
subordination provisions that subordinate the Debentures to Anchor's "Senior
Debt" (as defined in the Debenture); and (f) provisions that permit Anchor to
redeem the Debentures at par at any time. As of August 10, 1995, Anchor has
raised $140,000 from the sale of Debentures to five members of the Board of
Directors of Anchor and a limited number of other sophisticated investors, and
has received commitments for the purchase of an additional $70,000 principal
amount of Debentures from three members of the Board of Directors.
Anchor is also seeking to raise additional capital of up to approximately
$10 million for debt consolidation, working capital and to fund future
acquisitions. Anchor has had preliminary discussions with various parties, but
has not yet obtained any commitments with respect to such financing. There can
be no assurance as to when or whether Anchor will raise additional capital or
what the terms and conditions would be for such capital.
Capital and certain acquisition related expenditures (not including
expenditures related to the acquisition of BRI and PKW, or the System Merger)
were $302,635 and $126,150 for the six months ended June 30, 1995 and 1994,
respectively. The increase in such expenditures in the first six months of 1995,
as compared to 1994, related primarily to the acquisition of certain third party
administration accounts from a company located in Stockton, California. In
addition to such expenditures, Anchor made several significant expenditures in
the first quarter of 1995 related primarily to professional services associated
with the System Merger and the PKW and BRI acquisitions.
Short-term debt and other liabilities at June 30, 1995, totaling in the
aggregate $2,240,784 (as compared to $1,744,832 at December 31, 1994) consisted
of: (a) $925,000 outstanding under a $1,000,000 revolving line of credit
maintained by Anchor with a regional San Francisco Bay Area bank; (b) $200,000
outstanding under a $200,000 line of credit maintained by PKW with a regional
San Francisco Bay Area bank; (c) approximately $300,000 of future fixed payments
under a consulting agreement entered into with a company affiliated with the
former shareholders of BRI; (d) $300,000 representing the current portion of
obligations with regard to certain real property leased by PKW prior to its
acquisition by Anchor and relocation to Anchor's executive offices; and (e)
$516,000 for certain other current liabilities.
The $1,000,000 line of credit, which expires on October 25, 1995, requires
Anchor to maintain shareholders' equity of a least $800,000. Anchor's
shareholders' equity at June 30, 1995 was $2,377,136. The $200,000 line of
credit, which is secured by the net commission portion of PKW's accounts
receivable and equipment and general intangibles, which was to have expired on
May 5, 1995, has been extended until November 5, 1995. The interest rate on the
$1,000,000 line of credit is equal to the lending bank's prime rate, and on the
$200,000 line of credit is equal to the lending bank's prime rate plus 1%.
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<PAGE>
In early 1995, the bank that provided Anchor with the $1,000,000 line of
credit provided Anchor with $125,000 of equipment financing. The proceeds from
such equipment financing were used to reduce the outstanding balance on such
line. Also, in early 1995, Anchor borrowed an additional $450,000 on its
$1,000,000 line of credit, such that the outstanding balance on that line at
August 10, 1995 was $925,000. Anchor's borrowings in 1994 and early 1995 under
its $1,000,000 line of credit related primarily to payment of: (a) the purchase
price for BRI; (b) a portion of the nonrecurring expenditure with respect to the
System Merger; and (c) a portion of Anchor's contribution of approximately
$895,000 to PKW and BRI as working capital.
Long-term liabilities, less the current portion discussed above, totaling
$1,378,857 at June 30, 1995 (as compared to $1,471,723 at December 31, 1994),
primarily consisted of: (a) approximately $453,000 of future fixed payments
under the consulting agreement mentioned above with a company affiliated with
the former shareholders of BRI; (b) approximately $312,000 representing the
long-term portion of obligations with regard to certain real property leased by
PKW prior to its acquisition by Anchor and relocation to Anchor's executive
offices; and (c) approximately $613,900 for certain other long-term liabilities.
In May 1995, PKW entered into a sublease with respect to 82% of PKW's prior
office space. The sublease expires on September 30, 1997 (unless extended by the
subtenant through November 30, 1999, the date on which the term of the master
lease expires) and requires PKW to provide a multi-year rent subsidy. The
amounts classified as short and long-term liability with respect to the PKW
lease reflect such subsidy and are based upon the assumptions that: (a) the
subtenant will exercise its option to extend the lease through 1999; and (b) the
remaining 18% of such office space will not be subleased. Management believes,
however, that it will sublease the remaining space, in which case the related
liability may be reduced.
Anchor has not paid cash dividends in the past and does not expect to pay
cash dividends in the foreseeable future.
POSSIBLE ADJUSTMENT OF PKW PURCHASE PRICE
In October 1994, Anchor acquired PKW. In connection with that acquisition,
Anchor issued 120,077 shares of its common stock at a value determined to be
$12.50 per share (which were converted into 1,200,770 shares, having a value of
$1.25 per share, upon consummation of the System Merger) to the former
shareholders of PKW. Two of the former shareholders of PKW are members of the
Board of Directors of Anchor. Certain events have recently been discovered
regarding PKW's operations which have caused the Board of Directors of Anchor to
evaluate whether the Company should seek an adjustment to the purchase price
paid for PKW. The Board of Directors is presently analyzing this matter and
discussing alternatives with the former shareholders of PKW. The expected result
is that PKW shareholders will return to the Company a certain number of shares
of Anchor's common stock that were issued in connection with the PKW
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<PAGE>
acquisition. The return of shares would result in a reduction of : (a)
shareholders' equity; (b) the number of outstanding shares of Anchor's common
stock; and (c) future amortization expenses related to the PKW acquisition.
Anchor expects that if any shares are returned to Anchor, no more than 250,000
shares will be so returned. There can be no assurance, however, as to when or
whether a portion of the purchase price will be returned to Anchor.
STRATEGY
Anchor's strategy is to strengthen its core health insurance and property
and casualty (including workers' compensation) insurance businesses by: (a)
continuing to target selected insurance industry markets defined by industry
type, geographic location and consumer demographics; (b) establishing new
products and services; and (c) seeking to acquire and integrate compatible
insurance brokerage and administration businesses in the Western United States.
In connection with this strategy, Anchor regularly considers acquisition
opportunities. To date, acquisitions by Anchor have ranged from relatively small
acquisitions of insurance brokerage and administration accounts to larger
acquisitions of insurance brokerage companies, such as PKW, and third party
administrators, such as BRI. Anchor expects to continue to pursue appropriate
acquisition opportunities, and believes that its recent merger with System
greatly enhances its ability to make acquisitions and continue its expansion
strategy. Although Anchor is engaged in discussions with third parties regarding
potential acquisitions, as of August 10, 1995, it did not have any binding
agreements with respect to acquisitions. No assurances can be given with respect
to the likelihood, or financial or business effect, of any possible future
acquisition.
- 17 -
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Anchor and its subsidiaries are parties from time to time to various lawsuits
that have arisen in the normal course of business. Management is not aware of
any lawsuits to which Anchor or its subsidiaries is currently a party or to
which any property of Anchor or any of its subsidiaries is subject, which might
materially adversely affect the financial condition or results of operations of
Anchor, except as follows.
PKW, together with several other entities, has been named as a defendant in a
lawsuit filed in 1993 entitled CARE CONVALESCENT AMBULANCE, INC., A CALIFORNIA
CORPORATION V. PUTNAM, KNUDSEN & WIEKING, INC., A CALIFORNIA CORPORATION, ET AL.
Reference is made to Anchor's Annual Report on Form 10-K for the year ended
December 31, 1994 for additional information regarding such lawsuit.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Asset Purchase Agreement dated May 17, 1995 between Putnam, Knudsen &
Wieking Inc. Insurance Brokers and Crestview Leasing
10.2 Sublease dated May 26, 1995 between Putnam, Knudsen & Wieking
(Sublessor) and Martin, Ryan & Andrada, Inc. (Sublessee)
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<PAGE>
27 Financial Data Schedule
B. Reports on Form 8-K
None.
- 19 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Anchor has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ANCHOR PACIFIC UNDERWRITERS, INC.
Date: August 10, 1995 /s/ JAMES R. DUNATHAN
------------------------ ---------------------------------------
James R. Dunathan,
President and Chief Executive Officer
Date:August 10, 1995 /s/ EARL WIKLUND
------------------------- -------------------------------------
Earl Wiklund,
Senior Vice President and
Chief Financial Officer
- 20 -
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of May 17,
1995, by and between PUTNAM, KNUDSEN & WIEKING INC. INSURANCE BROKERS, a
California corporation ("PKW"), and CRESTVIEW LEASING, a California general
partnership ("Crestview").
RECITALS
A. Prior to September 19, 1994, the date on which Anchor Pacific
Underwriters, Inc. ("Anchor") acquired all of the outstanding shares of Common
Stock of PKW, PKW was owned by six shareholders, including Donald B. Putnam
("Putnam") and James P. Wieking ("Wieking"), both of whom are currently
directors of Anchor.
B. The general partners of Crestview are Putnam, Wieking and Donald
Hernbroth.
C. PKW has been leasing from Crestview certain Assets (as such term is
defined below).
D. PKW and Crestview desire to enter into this agreement pursuant to
which PKW will purchase the Assets from Crestview on the terms, and subject to
the conditions, described below.
NOW, THEREFORE, in consideration of the warranties, representations,
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. PURCHASE OF ASSETS. Crestview hereby sells, transfers and assigns
to PKW, and PKW hereby purchases, acquires and accepts from Crestview, all of
the furniture, fixtures, improvements, equipment, and other property owned by
Crestview and in the possession of PKW or its affiliates, including, without
limitation, the property described in Exhibit "A" attached hereto (the
"Assets"), free and clear of any and all liens, claims, encumbrances and adverse
interests of any nature whatsoever.
2. PURCHASE PRICE AND RELEASE.
a. PURCHASE PRICE. The purchase price (the "Purchase Price")
for the Assets shall be Fourteen Thousand Three Hundred Fifty Five Dollars
and Eighty One Cents ($14,355.81).
<PAGE>
b. PAYMENT. The Purchase Price shall be paid by check in three
consecutive monthly installments of $5,000, $5,000 and $4,355.81,
beginning 30 days after the date of execution of this Agreement.
c. FULL SATISFACTION. The Purchase Price represents a full and
complete satisfaction of all obligations and liabilities between PKW and
any of its affiliates and Crestview and any of its affiliates with respect
to the Assets and any prior or contemporaneous written or oral agreements,
understandings and communications related thereto (collectively, the
"Prior Agreements"). Consequently, upon payment of the Purchase Price to
Crestview, neither PKW nor any of its affiliates shall have any further
obligations or liabilities with respect to the Assets, and all Prior
Agreements shall thereupon be canceled and of no further force or effect.
3. REPRESENTATIONS AND WARRANTIES OF CRESTVIEW. Crestview hereby
represents and warrants to PKW as follows:
a. ORGANIZATION AND AUTHORIZATION. Crestview is a general
partnership duly organized and validly existing under the laws of the
State of California. The execution, delivery and performance of this
Agreement and all other agreements and documents contemplated hereby by
Crestview have been duly and validly authorized by all requisite action.
b. TITLE TO ASSETS. Crestview has good and marketable title to
the Assets free and clear of all liens, encumbrances and claims of others.
c. CONFLICTING AGREEMENTS. Neither the execution and delivery
of this Agreement by Crestview, nor the consummation of the transactions
contemplated hereby, does or would after the giving of notice or the lapse
of time or otherwise: (i) conflict with or result in a breach of, or
constitute a default under, any agreement, contract or commitment to which
Crestview is a party; or (ii) result in the creation of, or give any party
the right to create, any lien, charge, encumbrance, security interest or
other rights or adverse interests upon any of the Assets.
4. REPRESENTATIONS AND WARRANTIES OF PKW. PKW represents and
warrants to Crestview that PKW is a corporation duly organized, validly existing
and in good standing as a corporation under the laws of the State of California.
The execution, delivery and performance of this Agreement and all other
agreements and documents contemplated hereby by PKW have been duly and validly
authorized by all requisite corporate action.
2
<PAGE>
5. MISCELLANEOUS.
a. ATTORNEYS' FEES. If this Agreement gives rise to a lawsuit
or other legal proceeding between the parties hereto, the prevailing party
shall be entitled to recover actual court costs and reasonable attorneys'
fees in addition to any other relief to which such party may be entitled.
b. FURTHER ASSURANCES. Each of the parties shall execute and
deliver such further documents as may be necessary or appropriate to
consummate the transactions provided for herein and otherwise to
effectuate the purposes of this Agreement.
c. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof, and
may not be modified, amended or otherwise changed in any manner except by
a writing executed by the party to be charged.
d. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
e. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all or
which together shall constitute one and the same document.
f. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of California.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the day and year first above written.
PUTNAM, KNUDSEN & WIEKING INC. INSURANCE
BROKERS, a California corporation
By: /s/ James R. Dunathan
----------------------------------
Name: James R. Dunathan
Title: President
CRESTVIEW LEASING, a California general
partnership
By: /s/ Donald B. Putnam
-----------------------------------
Name: Donald B. Putnam
Its: General Partner
By: /s/ James P. Wieking
-----------------------------------
Name: James P. Wieking
Its: General Partner
By: /s/ Donald Hernbroth
-----------------------------------
Name: Donald Hernbroth
Its: General Partner
4
<PAGE>
Exhibit A
A. The following property related to the PKW 1990 Office Move and Remodeling
Furniture Acquisitions
Date of Acquisition Description
------------------- -----------
12-11-90 Reception Reupholster
10-09-90 Lunch Room Counter Table
09-11-90 Misc. Workstation Items
10-10-90 Lunch Room Table Tops
12-06-90 Telephone Cabinet
12-07-90 Workstation Worksurface
11-14-90 Fabric for Partition Walls
11-14-90 Glide Housings
11-09-90 Fabric for Partition Walls
11-20-90 Executive Desk Chair
11-15-90 Glass Tops
11-15-90 Misc. Workstation Items
11-09-90 Draperies
11-09-90 File Cabinets
11-07-90 Misc. Workstation Items
10-24-90 Misc. Workstation Items
10-30-90 File Cabinets
10-30-90 Carpet Padding
10-30-90 Coat Hooks
10-16-90 Telephone System Equipment
10-26-90 Plants
10-15-90 Fabric
10-10-90 File Cabinets
10-09-90 Misc. Office Furniture
10-09-90 Misc. Workstation Furniture
10-09-90 Counter Height Chairs
9-11-90 Chairs
B. The following additional property:
IBM PC
Voice Mail System
Various VT-102 Terminals
Various Dec VT-220 CRTs
Mailroom equipment
5
<PAGE>
SUBLEASE
[CB COMMERCIAL LOGO] CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
EXHIBIT 10.2
1. PARTIES.
This Sublease, dated MAY 26, 1995, is made between PUTNAM, KNUDSEN &
WIEKING, INC. ("Sublessor"), and MARTIN, RYAN & ANDRADA, INC., A
PROFESSIONAL CORPORATION ("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated MAY 29, 1990, wherein
KAISER ALUMINUM & CHEMICAL CORPORATION ("Lessor") leased to Sublessor the
real property located in the City of OAKLAND County of ALAMEDA, State of
CALIFORNIA, described as CERTAIN PORTIONS OF THE TWENTY-FIFTH (25TH) FLOOR
IN THE 28-STORY OFFICE TOWER LOCATED ON THE CITY BLOCK BOUNDED BY WEBSTER,
20TH, 21ST, AND HARRISON STREETS. ("Master Premises"). Said lease has been
amended by the following amendments FIRST AMENDMENT TO LEASE DATED DECEMBER
1, 1992, PROVIDING FOR THE RELOCATION OF THE LEASED PREMISES TO THE 10TH
(10TH) FLOOR; said lease and amendments are herein collectively referred to
as the "Master Lease" and are attached hereto as Exhibit "A."
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): AN APPROXIMATE 10,736 RENTABLE SQUARE FOOT PORTION AS
"HATCH" MARKED ON EXHIBIT "B" ATTACHED HERETO.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that 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 15, 1995 ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is
required under the Master Lease), whichever shall last occur, and end on
SEPTEMBER 30, 1997 ("Termination Date"), unless otherwise sooner terminated
in accordance with the provisions of this 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. Notwithstanding the foregoing, if Sublessor has not delivered
Possession to Sublessee within thirty (30) days after the Commencement Date,
then at any time thereafter and before delivery of Possession, Sublessee may
give written notice to Sublessor of Sublessee's intention to cancel this
Sublease. Said notice shall set forth an effective date for such
cancellation which shall be at least ten (10) days after delivery of said
notice to Sublessor. If Sublessor delivers Possession to Sublessee on or
before such effective date, this Sublease shall remain in full force and
effect. If Sublessor fails to deliver Possession to Sublessee on or before
such effective date, this Sublease shall be cancelled, in which case all
consideration previously paid by Sublessee to Sublessor on account of this
Sublease shall be returned to Sublessee, this Sublease shall thereafter be
of no further force or effect, and Sublessor shall have no further liability
to Sublessee on account of such delay or cancellation. If Sublessor permits
Sublessee to take Possession prior to the commencement of the Term, such
early Possession shall not advance the Termination Date and shall be subject
to the provisions of this Sublease, including without limitation the payment
of rent.
6. RENT.
6.1 MINIMUM RENT. Sublessee shall pay to Sublessor as minimum rent, without
deduction, setoff, notice, or demand, at 1800 SUTTER STREET #400,
CONCORD, CA 94520 or at such other place as Sublessor shall designate
from time to time by notice to Sublessee, the sum of FOURTEEN THOUSAND &
NO/100--------------------Dollars($14,000.00*) per month, in advance on
the first day of each month of the Term. Sublessee shall pay to
Sublessor upon execution of this Sublease the sum of FOURTEEN THOUSAND &
NO/100--------------------Dollars($14,000.00 ) as rent for SEPTEMBER
1995. If the Term begins or ends on a day other than the first or last
day of a month, the rent for the partial months shall be prorated on a
per diem basis. Additional provisions: * RENT WAIVED FOR THE PERIODS
JULY 15, 1995- AUGUST 31, 1995 AND JANUARY 1, 1996 - JANUARY 31, 1996;
RENT INCREASES TO $14,500 PER MONTH EFFECTIVE SEPTEMBER 1, 1996.
1
<PAGE>
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of FOURTEEN THOUSAND FIVE HUNDRED & NO/100------------------ Dollars
($14,500.00) 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 the payment of any other sum for which
Sublessor may become obligated by reason of Sublessee's default or breach,
or for 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 Sublessor assigns its
interest in this Sublease, Sublessor shall deliver to its assignee so much
of the Security Deposit as is then held by Sublessor. Within ten (l0) days
after the Term has expired, or Sublessee has vacated the Premises, or any
final adjustment pursuant to Subsection 6.2 hereof has been made, whichever
shall last occur, and provided Sublessee is not then in default of any of
its obligations hereunder, the Security Deposit, or so much thereof as had
not theretofore been applied by Sublessor, shall be returned to Sublessee or
to the last assignee, if any, of Sublessee's interest hereunder. THE ABOVE
SECURITY DEPOSIT SHALL BE APPLIED AS RENT FOR THE MONTH OF SEPTEMBER 1997.
8. USE OF PREMISES.
The Premises shall be used and occupied only for OFFICE PURPOSES, and for no
other use or purpose.
9. 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).
10. 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:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
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, this Sublease shall terminate and the
parties shall be 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
nondefaulting 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.
11. ATTORNEYS' 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.
12. AGENCY DISCLOSURE:
Sublessor and Sublessee each warrant that they have dealt with no other real
estate broker in connection with this transaction except: CB COMMERCIAL REAL
ESTATE GROUP, INC., who represents BOTH PARTIES TO THIS TRANSACTION. In the
event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents both Sublessor
and Sublessee, Sublessor and Sublessee hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and
that they do not expect said broker to disclose to either of them the
confidential information of the other party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with Sublessor's
contract with Broker for the subleasing of the Premises, if any, and
otherwise in the amount of_______________________________________________
_______________________________________________Dollars($_________________ ),
for services rendered in effecting this Sublease. Broker is hereby made a
third party beneficiary of this Sublease for the purpose of enforcing its
right to said commission.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be sent by United
States Mail, postage prepaid, addressed to the Sublessee at the Premises,
and to the address hereinbelow, or to such other place as Sublessee may
from
2
<PAGE>
time to time designate in a notice to the Sublessor. All notices and demands
by the Sublessee to Sublessor shall be sent by United States Mail, postage
prepaid, addressed to the Sublessor at the address set forth herein, and to
such other person or place as the Sublessor may from time to time designate
in a notice to the Sublessee.
To Sublessor: 1800 SUTTER STREET, SUITE 400, CONCORD, CA 94520
To Sublessee: "THE LEASED PREMISES"
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER
THE TERMS OF THE MASTER LEASE.
16. 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 Americans With Disabilities Act.
PUTNAM, KNUDSEN & MARTIN, RYAN & ANDRADA, INC.,
Sublessor: WIEKING, INC. Sublessee: A PROFESSIONAL CORPORATION
------------------------- -------------------------------
By: By:
-------------------------------- --------------------------------------
Joseph D Ryan
Title: President / C.E.O. Title: Pres.
----------------------------- -----------------------------------
By: By:
-------------------------------- --------------------------------------
Title: Title:
----------------------------- -----------------------------------
Date: Date: 5-26-95
------------------------------ ------------------------------------
on the basis of the Sublessee,
LESSOR'S CONSENT TO SUBLEASE without reviewing the Sublease
and
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease without waiver of any restriction in the Master Lease
concerning further assignment or subletting. Lessor certifies that, as of the
date of Lessor's execution hereof, Sublessor is not in default or breach of any
of the provisions of the Master Lease, and that the Master Lease has not been
amended or modified in any way by the terms set forth in the foregoing Sublease.
Lessor:
----------------------------
By:
--------------------------------
Title:
-----------------------------
By:
--------------------------------
Title:
-----------------------------
Date: 6-2-95
------------------------------
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the legal
sufficiency or tax consequences of this document or the transaction to which it
relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
17. Sublessor grants to Sublessee the right and option to extend this Sublease
through November 30, 1999 upon the same terms and conditions as contained
herein except the rent payable shall increase to $15,500.00 per month
effective October 1, 1997 and $16,000.00 per month effective November 1,
1998. Sublessee must give Sublessor written notice of exercise of this
option no later than April 1, 1997.
18. Sublessee agrees to allow Sublessor's other subtenants reasonable access
to the restrooms located within the Leased Premises during the normal
business hours that Sublessee is open for business.
19. Prior to July 15, 1995, Sublessor, at Sublessor's sole cost and expense,
shall make the following improvements to the Leased Premises:
A. Paint most all painted walls within the Leased Premises one coat
same color, except the accent (blue) columns shall be painted out to
match the balance of the walls which will require 2 and possibly 3
coats.
B. Sand, stain, and refinish the cherry hardwood flooring in the
reception area and one private office in a tone similar to the
existing.
C. Clean all carpeting.
D. Provide double lock on door to adjacent space.
E. Repair falling ceiling tiles.
F. Provide the first $2,500.00 towards electrical changes within the
suite at the direction of Sublessee.
INITIALS: INITIALS:
--------------- ---------------
Sublessor Sublessee
3
<PAGE>
FIRST AMENDMENT TO LEASE
KAISER CENTER, INC., a corporation, as agent for KAISER ALUMINUM &
CHEMICAL CORPORATION (Lessor) and PUTNAM, KNUDSEN & WIEKING, INC. (Lessee),
entered a lease (the Lease) dated May 29, 1990 for certain space in the Kaiser
Building. For valuable consideration, mutually exchanged, Lessor and Lessee
hereby agree to amend and modify the Lease as follows:
1. Section 1 (b) is eliminated in its entirety and replaced by the
following new 1 (b):
"(b) Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor, subject to the agreements, conditions and provisions set forth
in this Lease, certain portions of the 10th floor ("Leased Premises")
in the 28-story office tower located on the city block bounded by
Webster, 20th, 21st and Harrison streets in Oakland, California, known
as the Kaiser Building, but excluding the separate mall and garage
structures ("Building"). The parties shall attach hereto Exhibit A-3
which represents the 10th floor on which the Leased Premises are
outlined in red."
2. Section 2 (a) is eliminated in its entirety and replaced by the
following new 2 (a):
"(a) The term of this Lease is seven (7) years commencing on
December 1, 1992 through November 30, 1999. If for any reason
occupancy is delayed, the commencement of the term would be extended
one day for each day of delay."
3. Section 3 (a) is deleted in its entirety and replaced by the following
new 3 (a):
"(a) During the period of December 1, 1992 through June 30, 1995,
unless amended sooner, the annual rent for the premise outlined on
Exhibit A-3 shall be Two Hundred Seventy-Five Thousand Six Hundred
Eighty-Eight and no/100 Dollars ($275,688.00) annually, payable in
advance in twelve equal installments of Twenty Two Thousand Nine
Hundred Seventy-Four and no/100 Dollars($22,974.00). No later than
July 1, 1995 through November 30, 1999, rent will be increased to
Three Hundred Fifteen Thousand Seventy-Two and no/100 Dollars
($315,072.00) annually, payable in advance in twelve equal
installments of Twenty Six Thousand Two Hundred Fifty-Six and no/100
Dollars ($26,256.00)."
4. Section 3 (d) (1) is modified as follows:
"January 1, 1990" is replaced by "January 1, 1993".
5. Section 5 and Exhibit B-1 are deleted in their entirety and replaced
by the following Section 5 and new Exhibit B-2.
"If Lessee elects to accept this Lease, and Lessor does not have
to pay a real
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<PAGE>
estate commission therefor, Lessor shall, at Lessor's expense,
provide the improvements as contained in Exhibit B-2."
6. Lessee's portion of Section 19 is modified as follows:
"25th Floor" is deleted and replaced by "10th Floor".
7. Section 24 is modified as follows:
"November 1, 1994" is deleted and replaced by "June 1, 1999".
On Page 18 of the Lease, the phrase "12-month period commencing
January 1, 1995" is modified to "12-month period commencing January
1, 1999". In the last sentence of this paragraph, "January 1, 1995" is
deleted and replaced by "June 1, 1999".
8. Section 24 (4) is modified as follows:
"June 30, 1995" is deleted and replaced by "November 30, 1999" and
"July 1, 1995" is deleted and replaced by "December 1, 1999".
9. Section 25 is deleted in its entirety and replaced by the following:
"25. RIGHTS TO LEASE ALL OR PORTIONS OF THE 10TH FLOOR.
Lessee may at any time during the term of this Lease or any
extension hereof, so long as Lessee has materially complied with and
performed all its covenants, terms and conditions hereunder, lease
form Lessor all or any portion of the remainder of the 10th Floor
which is not already leased to a third party, such areas to be
mutually agreed upon so as to avoid unleasable areas being left on the
portions of the 10th Floor not occupied by Lessee. Lessee shall also,
during the term or any renewal hereof, have a right of first refusal
for any space on the 10th Floor which Lessor intends to lease to a
third party, provided that Lessee gives notice of acceptance within,
and payment of rent for such space at the rate specified hereafter is
commenced within, 30 days after Lessor gives notice of availability to
Lessee and said space is vacated by its prior tenant. If such space is
to be made available to a third party ion substantially different
economic terms than the economic terms upon which that space was
previously made available to Lessee, Lessor must give Lessee thirty
(30) days notice of availability of such space on such revised
economic terms before renting such space to a third party. Any
additional space leased by Lessee pursuant to the provisions of this
Paragraph 25 shall be at a rental rate equal to 95% of the rate which
Lessor and Lessee agree is the then current fair market rental rate
for a full-service, first-class office building in the Oakland
high-rise office building market in the Oakland/Lake Merritt financial
district. (No real estate commission shall be payable by Lessor on
account of this Lease.) If Lessor and Lessee are unable to agree upon
said rate within ten (10) days of offering, the parties shall
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<PAGE>
appoint and share the costs of a mutually agreeable MAI appraiser to
determine the then current market rate. If Lessor and Lessee are
unable to select a mutually acceptable appraiser within thirty (30)
days of said offering, said rate shall be determined by a board of
three MAI real estate appraisers which shall be selected as follows:
Within fifteen (15) days after the time set for selecting the
appraiser referred to above, Lessor and Lessee shall each select one
appraiser and the third appraiser shall be selected by the two
appraisers so appointed by Lessor and Lessee within fifteen (15) days
thereafter. The appraisal made by the appraiser referred to above, or
concurred in by all or any two members of the board of appraisers
referred to above, as the case may be, shall be final. The fees and
expenses of all appraisers exclusive appointed by each party hereto
shall be borne by the party making such appointment, and the fees and
expenses for all other appraisers shall be borne and paid equally by
Lessor and Lessee. If Lessee is not willing to accept a rental equal
to 95% of the fair market rate as established by said appraisal,
Lessee may, within ten (10) days of learning said rate, give to Lessor
notice of termination of negotiation and Lessor may lease the space to
others. In no event shall Lessor lease any space on the 10th Floor to
any party engaged in the business of insurance without the prior
written consent of Lessee."
This First Amendment to Lease is effective December 1, 1992, and for
subsequent periods only.
In all other respects, the conditions and provisions of the Lease remain in
full force and effect and are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Lease as of December 1, 1992.
KAISER CENTER, INC., AS AGENT FOR
KAISER ALUMINUM & CHEMICAL CORPORATION
LESSOR
BY /s/
------------------------------------------
Title /s/
---------------------------------------
PUTNAM, KNUDSEN & WIEKING, INC. - LESSEE
By /s/
------------------------------------------
Title President
---------------------------------------
By
------------------------------------------
Title
---------------------------------------
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<PAGE>
EXHIBIT B-2
Kaiser Center, Inc. to provide build-out of tenant improvements in the new
west wing in accordance with Interior Architect's drawings.
In the elevator lobby, Kaiser Center, Inc. to overlay walls with
gyp board, abate asbestos, if any, and respray ceiling, install wall
and floor finishes.
<PAGE>
LEASE
KAISER CENTER, INC., as agent for KAISER ALUMINUM & CHEMICAL CORPORATION,
hereinafter called "Lessor", and PUTMAN, KNUDSEN & WIEKING, INC. INSURANCE
BROKERS, hereinafter called "Lessee", mutually agree as follows:
1. LEASED PREMISES
(a) This Lease constitutes a sublease of the premises by landlord to
tenant.
(b) Lessor hereby leases to Lessee and Lessee hereby leases from Lessor,
subject to the agreements, conditions and provisions set forth in this lease,
certain portions of the 25th floor in the 28-story office tower located on the
city block bounded by Webster, 20th, 21st and Harrison streets in Oakland,
California, known as the Kaiser Building, but excluding the separate mall and
garage structures ("Building"), together with additional space on the 25th floor
as provided herein. Lessee's notice given pursuant to Paragraph 1 (a) above
shall specify that portion of the 25th floor which will be leased hereunder (the
"Leased Premises"). The parties shall attach hereto Exhibits A-1 and A-2 which
represent the 25th floor on which the Leased Premises are outlined in red.
(c) Lessor hereby leases and demises to Lessee and Lessee hereby hires from
Lessor the Leased Premises at the rentals and upon the covenants, terms and
conditions hereinafter set forth.
(d) Lessee, its customers and business invitees shall have the right to use
and enjoy, throughout the term of this Lease, the "common areas" of the
Building; namely, the elevator lobbies, the public areas of the Building, and
the sidewalks, pedestrian bridge, elevators and stairways serving the Leased
Premises.
(e) The common areas shall be subject to the exclusive control and
management of Lessor and may be changed or abandoned by Lessor at any time.
Lessor shall have the right to establish, modify, change and enforce reasonable
and uniform rules and regulations with respect to such areas and Lessee shall
abide by and comply with such reasonable rules and regulations. Lessor shall
have the right to close, block off, or interfere with the use of any part of the
common areas for such time as may, in the opinion of Lessor's counsel, be
necessary to prevent a dedication thereof, or the accrual of any rights in any
person, or as may, in Lessor's opinion, be necessary to permit repairs or
improvements of the common areas or to any other portion of Kaiser Center.
Lessor shall not unreasonably impair or limit access to the Leased Premises.
2. TERM
(a) The term of this Lease is five (5) years commencing July 1, 1990
through June 30, 1995.
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<PAGE>
(b) If, with the express consent of Lessor, Lessee holds possession of the
Leased Premises after the expiration of the initial term or any renewal of this
Lease, then such possession by Lessee shall be construed as a tenancy from month
to month upon the terms herein specified but at a monthly rental equivalent to
the then prevailing rental paid by Lessee at the expiration of the term of this
Lease pursuant to all of the Provisions in Paragraph 3 hereof, payable in
advance on or before the first day of each month. Any such tenancy from month to
month shall continue until terminated by the Lessor or Lessee by the giving of
at least thirty (30) days' prior written notice of such termination to the other
party.
3. RENT
(a) During the period of July 1, 1990 through June 30, 1992, unless amended
sooner, the annual rent for the premise outlined on Exhibit A-1 shall be Four
Hundred Eighteen Thousand Four Hundred Fifty Six and 80/100 Dollars
($418,456.80) annually, payable in advance in twelve equal installments of
Thirty Four Thousand Eight Hundred Seventy One and 40/100 Dollars ($34,871.40).
No later than July 1, 1992 through June 30, 1995, rent will be increased to
reflect the premise in Exhibit A-2 to Four Hundred Ninety Thousand One Hundred
Sixty Eight and 80/100 Dollars ($490,168.80) annually, payable in advance in
twelve equal installments of Forty Thousand Eight Hundred Forty Seven and 40/100
Dollars ($40,847.40).
(b) Such rent shall be paid as and when due to Kaiser Center, Inc. at 300
Lakeside Drive, Oakland, CA 94643, or to such other payee or at such other
address as Lessor hereafter may designate by written notice to Lessee. Payment
of rent to any payee so designated by Lessor shall acquit Lessee from all
responsibility therefore or for the proper distribution thereof.
(c) If Lessor should assign this Lease or the rents hereunder, or if Lessor
should convey the Leased Premises hereunder, the assignor and assignee or the
grantor and grantee, as the case may be, shall give Lessee written notice of
such assignment or conveyance. Written instructions for payment of rent
thereafter payable hereunder shall also be given by such assignee or grantee.
Payment of rent in accordance with Paragraph 3 (b) hereof shall acquit Lessee
from all responsibility for the payment of rent or for the proper distribution
thereof prior to receipt by Lessee of such written notice and instructions.
(d) It is understood that the rent specified in Paragraph 3 (a) hereof,
does not anticipate any increase or decrease in the amount of taxes on the
Building and the real property thereof or in the cost of operations and
maintenance thereof. Therefore, in order that the rental payable throughout the
term of this Lease shall reflect any such increase or decrease the parties agree
as hereinafter in this section set forth. Certain terms are defined as follows:
(1) The Base Expense Year shall be the twelve (12) month period commencing
January 1, 1990.
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<PAGE>
(2) Subsequent Expense Year. Each twelve (12) month period commencing (i)
on the anniversary of the commencement of the Base Expense Year and
(ii) within the term of this Lease.
(3) Expenses for the Base Expense Year. All expenses incurred by Lessor
and properly charged to those management, operational and maintenance
functions allocated to the Building and parcel of land upon which the
Building is located, as determined in accordance with generally
accepted accounting principles applied on a consistent basis. Said
expenses shall include, but not be limited to: real estate taxes,
special and ordinary assessments and other governmental real property
levies imposed upon the Building and the parcel of land on which the
Building is located, or either of them, together with any other tax
imposed in substitution for or in lieu of such real estate taxes (but
excluding any increases resulting from improvements to other tenants'
premises); insurance premiums; legal, auditing and other
administrative services; gas, electrical power, water and other
utilities; janitorial services and garbage disposal; repair,
maintenance and operational contracts; supplies, fuel, materials,
equipment and tools; and the salaries, wages and other labor costs of
personnel engaged in the management, operation and maintenance of the
Building and the parcel of land upon which the Building is located.
Such expenses shall not include: interest and financial expense;
depreciation on the Building or the furnishings and equipment located
therein; real estate brokers' commissions; taxes on income; or capital
expenditures.
(4) Expenses For Such Subsequent Expense Year. The expenses incurred by
Lessor properly chargeable to Such Subsequent Expense Year in
accordance with the same principles and subject to the same
adjustments as are provided in Subparagraph (3) above with respect to
the Expenses For The Base expense Year.
(e) The determination of those expenses to be included in the Expenses For
The Base Expense Year and the Expenses for Such Subsequent Expense Year shall be
made according to such generally accepted accounting principles as determined by
Lessor's independent certified public accountants.
(f) The rental payable each Subsequent Expense Year or portion thereof of
the term hereof shall be increased or decreased, as the case may be, pursuant to
Paragraph 3 (g) by a percentage (being that percentage which equals the rentable
square footage of the Leased Premises currently occupied divided by the 756,224
rentable square footage of any increase or decrease of the Expenses For Such
Subsequent Expense Year above or below the Expenses For The Base Expense Year,
as provided in Paragraph 3 (d) (3) and Paragraph 3 (d) (4); provided, however,
that in no event shall such rental be decreased below the annual rental provided
for in Paragraph 3 (a) above. In the event of sale of the Building, annual
rental as provided for in Paragraph 3 (a)
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<PAGE>
will increase no more than 50 cents ($0.50) per rentable square foot as a result
of the incremental tax increases of property tax increases.
(g) Lessee's Share of the increase, if any, in estimated Expenses for such
Subsequent Expense Year over the Expenses for the Base Expense Year shall be
paid by Lessee to Lessor as rent in twelve (12) equal monthly installments in
advance on the first day of each calendar month without notice or demand. For
each year Subsequent Expense Year, Lessor shall provide Lessee with a written
estimate of the Expenses for such Subsequent Expense Year which Lessor
reasonably anticipates for the following calendar year. In addition, Lessor may
adjust said estimate during the year if Lessor concludes that it underestimated
actual expenses. Lessee shall continue to pay one-twelfth (1/12) of Lessor's
last estimate of Lessee's Share of the increase, if any, over Expenses for the
Base Expense Year on the first day of each calendar month until notified of a
new estimate.
Within a reasonable period after the end of each Subsequent Expense
Year, Lessor shall give Lessee a statement, certified by Lessor's controller,
showing actual expenses for such Subsequent Expense Year, the actual increase,
if any, of such expenses over the actual expenses for the Base Expense Year,
Lessee's Share of any such increase, and the total payments made by Lessee on
the basis of any previous estimate. If Lessee's share of the actual increase
exceeds the monthly installments paid by Lessee during the year, Lessee shall
pay the deficiency to Lessor within thirty (30) days of delivery of such
statement. If Lessee's monthly installments exceed Lessee's Share of the actual
increase, Lessor shall give Lessee a credit in the amount of the excess against
the next installments of rent due from Lessee. Lessee's Share of the increase in
expenses for the calendar year in which this lease terminates shall be prorated
on the basis of a 365-day year. Expiration of the term of this lease shall not
affect the obligations of Lessor or Lessee to adjust the payment of Lessee's
Share of increases pursuant to this Section 3 (g).
(h) Any dispute between the parties concerning the proper determination of
any increases in rent shall be referred to Lessor's certified public accountants
and the determination of any dispute by such firm shall be binding and
conclusive on the parties. Any charges made or expenses incurred by the
certified public accountants in connection with any such determination shall be
borne and paid for by Lessor if the amount set forth in Lessor's statement is
revised, and by Lessee if it is not revised.
4. USE
(a) Lessee shall use the Leased Premises for office purposes only.
(b) Lessee shall not: (i) load or unload its merchandise, equipment and
supplies or remove its rubbish in areas other than those located within the
Leased Premises or as otherwise reasonably directed by Lessor; (ii) permit any
act or practice which may unreasonably risk injury to the Leased Premises, or
any part thereof or any property therein, or tend to be a nuisance to other
tenants of the Building;
-4-
<PAGE>
(iii) keep on or obstruct with merchandise, equipment or supplies the loading
dock, sidewalks, walkways or other areas outside the Leased Premises; (iv) burn
any rubbish in or about the Leased Premises; (v) otherwise in any manner
whatsoever conduct itself and its business except in a manner consistent with
the appearance and character of the Building.
(c) Lessee shall not, without obtaining the prior written consent of
Lessor, use the words "Kaiser," "Kaiser Center," or any combination or
simulation thereof, for any purpose whatsoever, including (but not limited to)
as or for corporate, firm or trade names, trademarks or designation or
description of merchandise or services; provided, however, that Lessee shall not
hereby be prevented from using, in a conventional manner and without emphasis or
display, the words "Kaiser" or "Kaiser Center" as part of Lessee's branch name,
if any, or business address, or both. Lessee shall not do or permit any act or
thing in connection with Lessee's business in the Leased premises which, in the
reasonable judgment of Lessor, might harm or tend to HARM the business or
reputation of Lessor or tend to reflect unfavorably on the Building, Kaiser
Center, Lessor, or other tenants, or which might confuse or mislead or tend to
confuse or mislead the public as to any apparent connection or relationship
between Lessor and Lessee other than that created by this Lease, or between
Lessee and any other tenant, or otherwise.
(d) Lessee shall not maintain or display any sign, lettering or lights on
the exterior or interior (including windows) of the Leased Premises unless
approved by Lessor in writing.
(e) Lessee shall timely pay all property taxes on its safes, trade
fixtures, furniture, office and store equipment, machines, and all other
property belonging to Lessee located in the Leased Premises or anywhere else in
the Building, except for telecommunications equipment furnished in the ordinary
course of Lessee's business to other occupants of the Building.
(f) Lessor reserves the right to prescribe the weight and position in the
Leased Premises of all vaults, safes and other heavy equipment, which must be
placed so as to properly distribute weight. Lessee shall not place a load upon
any portion of the floor of the Leased Premises which exceeds 80 pounds live
floor load per square foot without the prior written consent of Lessor.
5. RENOVATION
If Lessee elects to accept this Lease, and Lessor does not have to pay a
real estate commission there for, Lessor shall at Lessor's expense, provide the
improvements as contained in Exhibit B-1. In the event additional space shall be
leased to Lessee on the 25th floor during the term of this Lease or any renewal
hereof, the rental rate and improvements for such additional space shall be as
set forth in Paragraph 25.
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<PAGE>
6. ALTERATIONS
(a) Except as expressly provided in this Paragraph 6 (a), Lessee shall
make no structural changes and no changes to the air-conditioning, electrical
distribution system, plumbing, exterior walls and doors, and floor covering in
the Leased Premises, and no changes to the exterior of the Leased Premises
without the written consent of Lessor. Work performed by Kaiser Center, Inc.
shall be deemed to have received Lessor's prior written consent, whether
requested and/or approved in writing or not. Lessee may have modifications to
the premises, the cost of which does not exceed $10,000, performed by its own
contractors without Lessor's prior written consent, but Lessee shall immediately
notify Lessor of such modifications. Lessee, upon Lessor's consent, which
consent shall not be unreasonably withheld, shall also be entitled to make
alterations, additions or improvements to the interior of the Leased Premises
the cost of which does exceed $10,000 and employ contractors to make such
alterations, additions or improvements. Plans describing the proposed tenant
improvements and the identity of contractors who will make such improvements
shall be submitted to Lessor for approval at least fifteen (15) days prior to
commencement of work. If Lessor does not object by written notice to Lessee
within ten (10) days after receipt of such plans, the alterations, additions or
improvements described therein and the contractors designated to make such
alterations, additions or improvements shall be deemed approved. All work shall
be in accordance with the laws, rules, regulations and orders of all
governmental authorities having jurisdiction thereof and in compliance with all
reasonable rules which Lessor and its contractors may make. Lessor shall have no
responsibility for any loss of or damage to any fixtures, equipment or other
property installed or left in the Leased Premises from any cause whatsoever
except the intentional or negligent acts of Lessor. To the extent construction
or Installation of the alterations, additions or improvements being made by
Lessee will not interfere with construction or installation of the alterations,
additions or improvements being made by Lessor pursuant to this Lease, Lessor
shall permit Lessee to commence such construction or installation prior to
commencement of the term of this Lease. Lessee's entry prior to the commencement
of the term shall be subject to all of the provisions of this Lease. Lessee
shall furnish Lessor with copies of all certificates and approvals relating to
any work or installation done by Lessee which may be issued or required by any
governmental authorities. Lessee shall diligently prosecute such work to
completion and with all due diligence shall open the Leased Premises for the
conduct of its business.
(b) All property in the Leased Premises changed or altered by Lessor or
Lessee, and all additions or improvements (including carpets) of or upon the
Leased Premises, made by either party, other than trade fixtures or other
personal property (except carpets) owned or leased by Lessee, shall become the
property of Lessor, and shall remain upon and be surrendered with the Leased
Premises as a part thereof at the expiration or earlier termination of this
Lease. If Lessor so elects by notice in writing to Lessee at least thirty (30)
days prior to the expiration or earlier termination of this Lease, then Lessee
shall remove from the Leased Premises all non-standard property changes,
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<PAGE>
alterations, and all decorations, installations, additions or improvements
(except carpets or fixtures) resulting from Lessee's changes, alterations,
decorations, installations, additions and improvements upon the Leased Premises
as lessor shall select. Lessee shall repair at Lessee's own cost and expense and
to Lessor's satisfaction all damage caused by any removal of property permitted
or required to be removed under this Paragraph, and all such removals and
repairs shall be completed by the date of expiration or other termination of
this Lease.
(c) Lessee shall pay and discharge all claims and liens asserted or filed
against the Leased Premises or the Building for work claimed to have been done
or for materials claimed to have been furnished to Lessee and Lessee shall hold
Lessor and the Leased Premises free and harmless from any and all loss,
liability or damage for or on account of any such claims or liens.
7. SERVICES AND FACILITIES
LESSOR shall furnish to the premises during the periods from 7:00 a.m. To
6:00 p.m., Monday through Friday, excluding holidays, and subject to rules and
regulations from time to time established by Lessor, heating, air-conditioning
and ventilation in amounts required, in Lessor's reasonable judgment, for the
use and occupancy of the premises. Lessor shall provide the following services
seven days a week on a twenty-four (24) hour basis: (a) passenger elevator
service, (b) 110 volt and 220 volt electric currents in amounts required for
normal lighting by standard overhead fluorescent fixtures and for normal modern
office machines, (c) water for lavatory and drinking purposes, and (d) security
for the Building. Lessor shall provide janitorial service on a five-day week
basis, excluding Saturdays, Sundays and holidays.
8. REPAIRS AND MAINTENANCE
(a) Lessor shall repair and maintain in good order and serviceable
condition the exterior and structural portions of the Leased Premises, the
common areas of the Building and the basic electrical system, elevators, heating
and air-conditioning equipment and plumbing serving the Leased Premises,
provided that Lessor shall have no obligation to (i) repair damage caused by the
intentional acts or negligence of lessee, its employees, agents and contractors;
(ii) repaint or redecorate the interior of the Leased Premises (except as
specifically provided in other provisions hereof); or (iii) make repairs which
are required to be made by Lessee pursuant to the provisions of Paragraph 8 (b).
(b) Lessee shall, at its own cost and expense, repair and maintain (except
for ordinary wear and tear) the nonstructural interior portions of the Leased
Premises, including interior doors, partitions, and floor coverings. Regardless
of any other provisions of this Lease, Lessee shall, at its own cost and
expense, repair or restore any damage or destruction to any portion of the
Leased Premises or to the Building caused by the intentional acts or negligence
of Lessee, its employees, agents, contractors and licensees, except to the
extent such damage or
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destruction is covered by fire and extended coverage insurance obtained by
Lessor as provided in Paragraph 10 hereof.
(c) In the case of emergencies (as determined by Lessor or Lessee), or if
Lessee refuses or neglects to commence repairs which it is obligated to make
hereunder and complete the same with reasonable diligence, Lessor may make or
cause such repairs to be made and shall not be responsible to Lessee for any
loss or damage that may accrue to its property or business by reason thereof. If
Lessor makes such repairs, and if the same are repairs which Lessee is obligated
to make hereunder, Lessee shall pay Lessor, upon demand, the cost thereof. If
Lessee defaults in such payment, Lessor shall have the remedies provided in
Paragraph 13.
(d) In the case of emergencies (as determined by Lessor or Lessee), or if
Lessor refused or neglects to commence repairs which it is obligated to make
hereunder and complete the same with reasonable diligence, Lessee may make or
cause such repairs to be made and shall not be responsible to Lessor for any
loss or damage that may accrue to its property or business by reason thereof. If
Lessee makes such repairs, and if the same are repairs which Lessor is obligated
to make hereunder, Lessor shall pay to Lessee, upon demand, the cost thereof. If
Lessor defaults in such payment, Lessee may deduct the cost from rents due or to
become due, or make such other recovery as law may allow.
(e) Lessee shall permit Lessor and its agents to enter into and upon the
Leased Premises at all reasonable times for the purpose of inspecting the same,
or for the purpose of making repairs, alterations or additions to the Leased
Premises or any other portion of the Building, or for the purpose of posting
notices of nonresponsibility or for any other reasonable purpose. If Lessor
considers it necessary or desirable in connection with any such operations,
Lessor may erect scaffolding, props, obstructions or other necessary devices in
or about the Leased Premises or elsewhere in the Building without incurring
liability of any kind to Lessee on account thereof, except for the intentional
acts or sole negligence of Lessor, or unless same constitutes a constructive
eviction.
9. REQUIREMENTS OF LAW; USES PROHIBITED; INABILITY TO PERFORM.
(a) Lessee shall, at its sole cost and expense, comply with all
requirements of all municipal, state and federal authorities now in force, or
which may hereafter be in force, pertaining to the Leased Premises, occasioned
by or arising out of Lessee's particular use of the Leased Premises and shall
faithfully observe in the use of the Leased Premises.
(b) Lessee shall not use, or permit the Leased Premises, or any part
thereof, to be used, for any purpose other than the purpose for which the Leased
Premises are hereby leased; and no use shall be made or permitted to be made of
the Leased Premises, or acts done, which will increase the existing rate of
insurance upon the Building, or cause a cancellation of any insurance policy
covering the Building, or any part thereof. Lessee shall, at its sole cost and
expense, comply with any
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requirements of any insurance company necessary or desirable for the maintenance
of reasonable fire and public liability insurance covering the Leased Premises.
10. INSURANCE
(a) Lessor shall, at its sale expense, obtain and keep in force during the
term hereof or any earlier occupancy by Lessee such fire and extended coverage
insurance upon the Leased Premises as Lessor may in its discretion determine,
and Lessee shall, at its sole expense, obtain and keep in force during the term
hereof such fire and extended coverage insurance upon Lessee's fixtures, goods,
wares and merchandise and other personal property in and upon the Leased
Premises as Lessee may in its discretion determine, provided, however, that
Lessor hereby waives as against Lessee and Lessee hereby waives as against
Lessor any and all claims and demands, of whatsoever nature, for damages, loss
or injury to the Leased Premises or to Lessee's fixtures, goods, wares and
merchandise and other personal property in and upon the Leased Premises, as the
case may be, which shall be caused by or result from fire and other perils,
events or happenings which are the subject of fire and extended coverage
insurance.
(b) During the term of this Lease or any earlier occupancy by Lessee,
Lessee shall procure and maintain in full force and effect bodily injury
liability insurance with limits of not less than FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) per occurrence, and insurance against damage to property with a
limit of not less than ONE HUNDRED THOUSAND DOLLARS ($100,000.00), insuring
against any and all liability of Lessee with respect to the Leased Premises or
arising out of the maintenance, use or occupancy thereof. Lessee shall provide
to Lessor, prior to Lessee's occupancy of the Leased Premises, a certificate
issued by Lessee's insurance carrier evidencing the coverage herein required and
naming Lessor and any and all of its employees, agents, partners, directors,
officers and assigns as it may designate from time to time, as additional named
insureds. Such certificate shall also provide that the policy or policies shall
not be canceled or modified without thirty (30) days' prior written notice to
Lessor. The policy or policies evidenced by such certificate shall be subject to
Lessor's approval as to form and substance.
(c) Lessee may fulfill its obligations under Paragraph 10 (a) and (b)
hereof by self-insurance with respect to the coverage amounts set forth therein;
provided, however, in no event shall Lessee be deemed insurer of Lessor except
as set forth in Paragraph 10 (a) and (b) hereof and provided further that Lessee
shall purchase policies of insurance providing the coverage described in
Paragraph 10 (a) and (b) if Lessor determines, in good faith, that
self-insurance is inconsistent with the prudent risk management practice for
companies of similar size and financial conditions as Lessee.
(d) Lessor shall not at any time or to any extent whatsoever be liable,
responsible or in anywise accountable for any loss, injury, death or damage to
persons or property which at any time may be suffered or sustained by Lessee or
by any person whosoever may at any time be
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using or occupying or visiting the Leased Premises or be in, on or about the
same, caused by or in anywise resulting from or arising out of, any act,
omission or negligence of Lessee in the use of the Leased Premises, or from any
failure of Lessee to keep the Leased Premises in good order, condition and
repair, as herein provided, and Lessee shall forever indemnify, defend, hold and
save Lessor free and harmless of, from and against any and all claims,
liability, loss or damage whatsoever on account of any such loss, injury, death
or damage. Lessee hereby waives all claims against Lessor for damages to
fixtures, furniture and equipment, goods, wares and merchandise or any other
property, in or about the Leased Premises, and for injuries to or death of any
persons in or about the Leased Premises, from any cause except Lessor's
negligence or Lessor's intentional tortious acts. Lessor shall indemnify and
hold harmless Lessee from any liability for injury to or death of any person,
including any employee of Lessee, or damage to any property, including any
property of Lessee, occurring on the premises and caused by, arising out of or
in any way connected with the following: (i) Lessor's negligence or willful
misconduct, (ii) violation of law by Lessor or by Lessor's employees, agents or
contractors, (iii) breach of Lessor's duty to repair hereunder, (iv) structural
failure of the building of which the premises are a part, or (v) any condition
in the premises concerning which Lessee has no obligation to repair under
Paragraph 8 hereof.
11. DESTRUCTION
The term "Casualty" as used herein shall mean and be limited to (i) any
fire, (ii) any other occurrence or event covered by the usual form of extended
coverage endorsement on fire insurance policies, (iii) any earthquake, and (iv)
any other occurrence or event covered by insurance actually carried by Lessor
and in force at the time of the happening of any such occurrence or event. If,
during the term of this Lease the Building or any portion thereof shall be
damaged or destroyed as a result of any Casualty, then, anything contained in
Paragraph 8 (a) and (b) to the contrary notwithstanding, the following
provisions shall apply and govern:
(a) Except as hereinafter provided to the contrary, Lessor shall repair
or restore the Building as soon as reasonably practicable. Any damage to or
destruction of the Building or the Leased Premises and any delay in effecting
repairs or restoration shall not constitute an actual or constructive eviction
of Lessee, and this Lease shall continue in full force and effect except that to
the extend the Leased Premises are unusable by Lessee as a result of such damage
or destruction, Lessee shall be entitled to an appropriate abatement, from the
date of such damage or destruction until such time as the Leased Premises have
been repaired or restored, of the rental and other sums payable hereunder and
allocable to such period. If the work of rebuilding or repairing is not
completed within ninety (90) days following such destruction or casualty, Lessee
shall have the right, by giving written notice to Lessor at any time thereafter
until said work is in fact completed, to terminate this Lease or alternatively
abate rent until substantial completion of due repairs.
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(b) If by reason of a Casualty (other than earthquake) there is damage to
or destruction of the Building and if the cost of restoring the same as
estimated by Lessor would exceed 33-1/3% of the replacement cost of such
building or the proceeds recovered by Lessor on account of such damage or
destruction under any insurance policy respecting the Building, then Lessor may
elect not to restore the Building.
(c) If by reason of earthquake there is damage to or destruction of the
Building and if the cost of restoring the same as estimated by Lessor would
exceed $1,000,000, then Lessor may elect not to restore the Building.
(d) If Lessor elects not to restore such building as provided in Paragraph
11 (b) and (c), it shall notify Lessee of such election in writing, which notice
shall in no event be given later than 120 days after the date of such damage or
destruction. If Lessor delivers such notice within the time specified, Lessee
shall, to the extent that the Leased Premises are unusable by reason of such
damage or destruction, be entitled to an appropriate abatement of the rental and
other sums payable hereunder accruing from the date of such damage or
destruction, and if the entire Leased Premises are unusable by Lessee, Lessee
may, by delivery of written notice to Lessor at any time within thirty (30) days
after receipt of Lessor's notice, elect to terminate this Lease, and this Lease
shall so terminate as of the date Lessee's notice of such election is received
by Lessor.
12. CONDEMNATION
If any part of the Leased Premises, or if over one-half (1/2) of the
Building, shall be taken or condemned for a public or quasi-public use or shall
be sold by Lessor to any entity having the right of eminent domain after notice
of intent to exercise such right has been given to Lessor by such entity and a
part the Leased Premises remains which is susceptible of the reasonable conduct
of the business of Lessee hereunder, this Lease shall remain in full force and
effect as to the portion of the Leased Premises not so taken or sold, as the
case may be, but the rental and other sums payable hereunder shall be adjusted
so that Lessee shall be required to pay for the remainder of the term only such
portion of such rental as the area measured in square feet of the part remaining
after such taking or sale bears to the total area measured in square feet of the
Leased Premises at the date of taking or sale, but Lessor and Lessee shall each
have the option to terminate the balance of the term of this Lease in its
entirety as of the date when title to the part so taken or sold vests in the
condemnor or purchaser by giving written notice to the other of the election to
so terminate within not to exceed ten (10) days after learning of the taking or
sale, as the case may be. If the entire Leased Premises, or such substantial
part thereof be taken, condemned or sold so that there does not remain a portion
susceptible of the reasonable conduct of Lessee's business hereunder, this Lease
shall thereupon terminate and all advance paid rent allocable to periods
subsequent to the taking or sale shall be promptly refunded to Lessee. If a part
or all of the Leased Premises are taken, condemned or sold, all compensation
awarded upon such taking or condemnation or the payment made upon any such sale
(except any compensation
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specifically awarded for the taking of any of Lessee's trade fixtures or
personal property or both) shall go to Lessor and Lessee shall have no claim
thereto, and Lessee hereby irrevocably assigns and transfers to Lessor any right
to compensation or damages to which Lessee may become entitled during the term
hereof by reason of the condemnation or sale to the condemning authority of all,
or a part of the Leased Premises.
13. DEFAULT
(a) The term "default" as hereinafter used in this Paragraph 13 shall mean
and include any one or more of the following events or occurrences:
(i) The failure by Lessee to perform or observe any of the
covenants and agreements of this Lease, including specifically, but without
limitation, the Lessee's covenants for the payment of rent or additional
rents.
(ii) The issuance of any execution or attachment against Lessee or
any of Lessee's property, whereby the Leased Premises or any portion
thereof shall be taken or occupied, or attempted to be taken or occupied,
by someone other than Lessee.
(iii) The filing at any time after the date of execution of this
Lease and prior to the expiration or termination of this Lease, against
Lessee in any court pursuant to any statute, either of the United States or
of any state, of a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver or trustee of all or
any portion of Lessee's property, which petition is not dismissed or
discharged within sixty (60) days after the filing thereof.
(iv) The filing by Lessee of a petition in bankruptcy or insolvency
or for reorganization or for the appointment of a receiver or trustee, or
the making of an assignment for the benefit of creditors, or entering into
any arrangement for the relief of debtors.
(b) The term "abandonment" as hereinafter used in this Paragraph 13 shall
mean and include any one or more of the following events or occurrences:
(i) The relinquishment by Lessee of its right to possession of the
Leased Premises or any substantial portion thereof.
(ii) The cessation by Lessee of the conduct in the Leased Premises
of the business to be carried on by Lessee in the Leased Premises for a
period of more than ninety (90) business days, absent any preparation for
re-occupation, if accompanied by any failure to pay rent as it comes due.
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(iii) The removal by Lessee of all or a substantial portion of its
personal property and trade fixtures from the Leased Premises without
replacing the same, if accompanied by any failure to pay rent as it comes
due, where the effect of such removal and failure, in Lessor's reasonable
judgment, indicates that Lessee intends to cease the conduct in the Leased
Premises of the business to be carried on by Lessee in the Leased Premises.
(c) In the event of the occurrence of any one or more of the events of
default specified in Paragraph 13 (a) by Lessee which is preceded by, occurs
concurrently with, or is succeeded by an abandonment of the Leased Premises or
any substantial part thereof, Lessor may, at its election treat such default in
the manner provided in Paragraph 13 (d) below or, without notice to Lessee,
elect to allow this Lease to continue in full force and effect without
terminating Lessee's rights to possession of the Leased Premises and to enforce
all of Lessor's rights and remedies under this Lease, including without
limitation the right to recover rent as it becomes due.
(d) In the event of the occurrence of any one or more of the events of
default by Lessee specified in Paragraph 13 (a), and except as provided in
Paragraph 13 (e) below, Lessor may serve a ten (10) day written notice upon
Lessee in the case of default in the payment of the rental provided in Paragraph
3 hereof or a thirty (30) day written notice in the case of any other default,
in either case specifying the nature of such default. Upon the expiration of
said ten (10) or thirty (30) day period, as the case may be, if Lessee shall
have failed to remedy such default, or if such default complained of shall be
other than the payment of monies required to be paid under this Lease and shall
be of such a nature that the same cannot be completely cured or remedied within
said thirty (30) day period, and if Lessee shall not diligently commence curing
such default within said thirty (30) day period, and shall not thereafter with
reasonable diligence and in good faith continue to remedy or cure such default,
then Lessor may serve a written three (3) day notice to vacate the Leased
Premises upon Lessee, and upon the expiration of such three (3) days this Lease
shall terminate and Lessee shall peaceably quit, vacate and return the Leased
Premises to Lessor.
(e) Notwithstanding any notice provisions or any other provisions of this
Paragraph 13, this Lease, at the election of Lessor, shall terminate immediately
upon the occurrence of any event or events specified in Paragraph 13 (a) (iv).
(f) Upon the termination of this Lease for default as provided under
Paragraphs 13 (d) and 13 (e), Lessor may, without notice to Lessee, re-enter the
Leased Premises and dispossess Lessee or the legal representative of Lessee or
other occupant of the Leased Premises, and remove and store, at Lessee's cost,
their personal property, trade fixtures and other effects, and to hold the
Leased Premises as if this Lease had not been made, but Lessee shall remain
liable as hereinafter
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provided, and Lessee waives any and all rights of redemption or re-entry or
repossession or to restore the operation of this Lease. Immediately upon the
termination of this Lease under Paragraph 13 (d) or 13 (e), Lessee shall
immediately become liable to and shall pay to Lessor an amount equal to the
combined total of the following:
(i) Any and all amounts due to Lessor by reason of the breach of
any of the terms, covenants or conditions of this Lease other than the
payment of rent;
(ii) The unpaid rent earned to the date of termination of this
Lease, with interest thereon at the rate of fifteen percent (15%) per annum
or such lesser maximum rate as it is then permitted by law from the date
the same became due;
(iii) The unpaid rent which would have been due between the date of
termination and the date of payment by Lessee of all sums due under this
Paragraph 13 (f) or the date of an award of judgment, whichever occurs
earlier, with interest thereon at the rate of fifteen percent (15%) per
annum or such lesser maximum rate as it is then permitted by law from the
date the same became due;
(iv) The rent which would have been due between the date of payment
of all sums due under this Paragraph 13 (f) or the date of an award of
judgment, whichever occurs earlier, and the date upon which this Lease
would have expired in accordance with its terms, discounted at the discount
rate of the Federal Reserve Bank of San Francisco at the time of such
payment or judgment award or at such greater minimum discount rate as may
hereafter be provided by law;
(v) Any and all costs and expenses which Lessor may have reasonably
incurred as the result of Lessee's breach of this Lease, including costs
and expenses of attempting to relet or actually reletting the Leased
Premises or any portion thereof including, without limitation, legal
expenses, attorneys' fees, real estate brokerage fees and the reasonable
costs of alterations and repairs to the Leased Premises made in connection
with the reletting of the Leased Premises.
(vi) Provided, however, that the amounts specified in subparagraphs
(i) through (v) above shall be reduced to the extent Lessee can prove such
damages can be or could have been mitigated by Lessor.
(g) Upon the event of the termination of this Lease for default as
provided under Paragraph 13 (f), Lessor shall immediately have the right to
relet or attempt to relet the Leased Premises or any portion thereof for a term
or terms which may at Lessor's option be less than or exceed the period which
would otherwise have constituted the balance of the term of this Lease and may
grant concessions or free rent for a reasonable period or periods for the
purpose of inducing such reletting.
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If Lessor is successful in reletting the Leased Premises or any portion thereof
prior to the payment by Lessee to Lessor of the amounts set forth in Paragraph
13 (f) or prior to an award of judgment for such amounts, the amounts owing
under subsections (ii), (iii) and (iv) of Paragraph 13 (f), if not already
reduced by reason of section 13 (f) (vi), shall be reduced by the amount which
the rental under the new lease reduces Lessor's rental loss arising by virtue of
the termination of this Lease.
14. NUISANCE ON ADJOINING PROPERTY
Insofar as Lessor may have control of any premises in the Building
adjoining the Leased Premises, Lessor shall not use the same or permit the same
to be used for any purpose reasonably objectionable to Lessee or for any
unlawful purpose or permit the maintenance of a nuisance thereon.
15. PEACEABLE AND QUIET POSSESSION
Lessor hereby covenants that Lessor has good right to lease the Leased
Premises for the term of this Lease and that Lessee, upon paying the rent and
performing and observing the other covenants to be performed and kept by it as
provided in this Lease, shall have the peaceable and quiet possession of the
Leased Premises during the term.
16. TAXES AND ASSESSMENTS
(a) Subject to the provisions of Paragraph 3 (d), if the real property
taxes and assessments levied against the Leased Premises are assessed to Lessor,
they shall initially be paid by Lessor.
(b) If such taxes and assessments are initially assessed to Lessee, they
shall be paid by Lessee, and Lessor shall reimburse Lessee upon demand the full
amount thereof. If Lessor does not so reimburse Lessee, Lessee shall have the
right to recover from Lessor, by deduction from any rent due or to become due
pursuant to the provisions of Paragraph 3 (d), the full amount so paid by
Lessee.
(c) All taxes levied against personal property, trade fixtures and real
property improvements made by and assessed to Lessee shall be paid by Lessee. If
such taxes, or any of them, are assessed to Lessor they shall be paid by Lessor,
and Lessee shall reimburse Lessor upon receipt of a copy of Lessor's receipted
tax bill, the full amount so paid by Lessor.
17. SURRENDER OF PREMISES
Lessee, at the termination or expiration of its tenancy, shall surrender
the Leased Premises in as good order and condition as reasonable use shall
permit, deterioration, ordinary wear and tear and damage by the elements and
causes beyond Lessee's control excepted.
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Lessee shall remove all of its personal property (except carpets) and trade
fixtures in accordance with Paragraph 8 (b).
18. ASSIGNMENT AND SUBLETTING
Lessee shall not assign this Lease nor sublet the Leased Premises or any
part thereof, without the prior written consent of Lessor, which consent shall
not be unreasonably withheld; except Lessor's consent shall not be required in
the case of a general assignment of all or a substantial part of Lessee's
business or an assignment of this Lease or sublease of all or any portion of the
Leased Premises to any whollyowned subsidiary of Lessee or to any entity
controlled by or in common control with Lessee. Any assignment or subletting in
violation of the provisions of this Paragraph 18 shall be void and shall, at the
option of Lessor, terminate this Lease.
19. NOTICES OR DEMANDS
All notices or demands herein provided to be given or made, or which may be
given or made by either party to the other, shall be deemed to have been duly
given and made when made in writing and deposited in the United States Mail,
postage prepaid, and addressed as follows:
To Lessor: To Lessee:
Kaiser Center, Inc. Putnam, Knudsen & Wieking,Inc.
Attention: Vice President 300 Lakeside Drive
300 Lakeside Drive, Suite 2685 25th Floor
Oakland, CA 94643 Oakland, CA 94612
The addresses to which notices or demands may be given or made by either
party may be changed by written notice given by such party to the other pursuant
to this paragraph.
20. SUCCESSORS AND ASSIGNS
This Lease shall ensure to the benefit of and be binding upon the
respective successors and assigns of the parties hereto.
21. SUBORDINATION
This Lease shall at the option of Lessor be subject and subordinate to the
lien of any and all mortgages or deeds of trust now or that may at any time
hereafter be placed upon the Building, the land on which it is located or the
leasehold estate therein and to any agreements at any time made modifying or
supplementing any such mortgages or deeds of trust. Lessee shall, upon the
demand of Lessor, execute and deliver such further instruments evidencing the
subordination of this Lease to the lien of the aforesaid mortgages or deeds of
trust, as may be desired
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by any mortgagee or beneficiary. Provided, however, as notwithstanding such
subordination, so long as Lessee is not in default of any of its obligations
hereunder, Lessee shall be entitled to remain in possession of the Leased
Premises on the terms and conditions set forth in this Lease and any successor
to Lessor shall make no attempt to interfere with the rights and benefits
granted Lessee hereunder so long as Lessee is not in default of any of its
obligations hereunder.
22. RULES AND REGULATIONS
All reasonable rules and regulations which have heretofore been adopted or
which may hereafter be adopted by Lessor for the operation, safety, care and
cleanliness of the Leased Premises, the Building and the Kaiser Center, and the
preservation of good,order therein are, except to the extend they may be
inconsistent with or contrary to the terms of this Lease, hereby expressly made
a part hereof and shall be complied with by Lessee.
23. PARKING
During the term of this lease, Lessee shall have the option of entering
into month-to-month contracts, on Lessor's standard parking agreement form, for
any number of parking stalls in Kaiser Center parking facilities up to a maximum
of one (1) stall per 1,100 rentable square feet occupied by Lessee up to a
maximum of forty (40) stalls at the applicable monthly parking rates in effect
from time to time. Lessee may elect to have up to 40% of its parking stalls
provided in covered parking. Nothing herein contained shall preclude Lessee from
applying and contracting for the use of additional parking stalls in said
facilities on terms and conditions acceptable to the parties. Notwithstanding
anything herein contained to the contrary, the option herein granted to Lessee
may be terminated by Lessor with respect to any or all of the parking stalls
upon the failure of Lessee or any person to whom Lessee has assigned any of the
parking stalls to comply with any rules or regulations issued by Lessor for the
operation of the parking facilities or upon the failure of Lessee or any person
to whom Lessee has assigned any parking stall to perform the obligations under
the parking agreement.
24. RENEWAL
If this lease is still in force and Lessee has fully complied with and
performed all of its covenants, terms and conditions, Lessee may request, by
written notice given to Lessor before November 1, 1994, an extension of this
Lease through the tenth anniversary of the commencement of term, at such rents
(including improvement allowances) as may be agreed upon as being at market for
a full-service, first-class office building in the Oakland high-rise office
building market in the Oakland/Lake Merritt financial district, or as arrived at
by appraisal as provided herein, and otherwise on all the same applicable terms
and
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conditions stated herein, except that during the option term the definition of
Base Expense Year in Paragraph 3 (d) (1) shall be the 12-month period commencing
January 1, 1995. If the parties agree upon the rent for such extended term, they
shall thereupon enter into an extension of this Lease. Providing no broker's
commission is required, Lessee shall have a right to renew at a rate equal to no
more than 95% of the then market rate. If Lessee and Lessor shall not have
agreed upon the market rate by January 1, 1995, then the market rate shall be
determined by a real estate appraiser or board of real estate appraisers
selected as follows:
(1) Lessor and Lessee shall select a mutually acceptable real estate
appraiser in not more than fifteen (15) days.
(2) If Lessor and Lessee are unable to select said appraiser within said
time, then said market rate shall be determined by a board of three real estate
appraisers which shall be selected as follows: within fifteen (15) days after
the time set for selecting the appraiser referred to above, Lessor and Lessee
shall each select one appraiser and the third appraiser shall be selected by the
two appraisers so appointed by Lessor and Lessee within fifteen (15) days
thereafter.
(3) The appraisals made by the appraiser referred to above, or concurred
in by all or any two members of the board of appraisers referred to above, as
the case may be, shall be final and binding upon Lessor and Lessee. The fees and
expenses of all appraisers exclusively appointed by each party hereto shall be
borne by the party making such appointment, and the fees and expenses for all
other appraisers shall be borne and paid equally by Lessor and Lessee.
(4) If Lessee is not willing to accept a rental equal to the rate as
established by said appraisal, Lessee may, within sixty (60) days of learning
said rate, give to Lessor six months' written notice of the termination of this
Lease and upon the expiration of said six-month period following such notice
this Lease shall absolutely cease and terminate. If Lessee so elects not to
accept the rate determined by said appraisal and to terminate this Lease, Lessee
shall reimburse all of Lessor's out-of-pocket costs directly incurred in such
appraisal and Lessor shall have the right any time after June 30, 1995 to
terminate any hold-over tenancy of Lessee upon thirty (30) days' prior written
notice. Between July 1, 1995 and the effective date of termination, Lessee shall
pay rent for the Leased Premises equal to the rate as determined above.
25. RIGHTS TO REMAINDER OF 25TH FLOOR
Lessee may at any time during the term of this Lease or any extension
hereof, so long as Lessee has materially complied with and performed all its
covenants, terms and conditions hereunder, lease from Lessor all or any portion
of the remainder of the 25th Floor which is
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not already leased to a third party, such areas to be mutually agreed upon so as
to avoid unleasable areas being left on the portions of the 25th Floor not
occupied by Lessee. Lessee shall also, during the term or any renewal hereof,
have a right of first refusal for any space on the 25th Floor which Lessor
intends to lease to a third party, provided that Lessee gives notice of
acceptance within, and payment of rent for such space at the rate specified
hereafter is commenced within, 30 days after Lessor gives notice of availability
to Lessee and said space is vacated by its prior tenant. If such space is to be
made available to a third party on substantially different economic terms than
the economic terms upon which that space was previously made available to
Lessee, Lessor must give Lessee thirty (30) days notice of availability of such
space on such revised economic terms before renting such space to a third party.
Any additional space leased by Lessee pursuant to the provisions of this
Paragraph 25 shall be at a rental rate (including improvement allowances) equal
to 95% of the rate which Lessor and Lessee agree is the then current fair market
rental rate for a full-service, first-class office building in the Oakland
high-rise office building market in the Oakland/Lake Merritt financial district.
(No real estate commission shall be payable by Lessor on account of this Lease.)
If Lessor and Lessee are unable to agree upon said rate by January 1, 1990, the
parties shall appoint and share the costs of a mutually agreeable MAI appraiser
to determine the then current market rate. If Lessor and Lessee are unable to
select a mutually acceptable appraiser by January 15, 1990, said rate shall be
determined by a board of three MAI real estate appraisers which shall be
selected as follows: Within fifteen (15) days after the time set for selecting
the appraiser referred to above, Lessor and Lessee shall each select one
appraiser and the third appraiser shall be selected by the two appraisers so
appointed by Lessor and Lessee within 15 days thereafter. The appraisal made by
the appraiser referred to above, or concurred in by all or any two members of
the board of appraisers referred to above, as the case may be, shall be final.
The fees and expenses of all appraisers exclusive appointed by each party hereto
shall be borne by the party making such appointment, and the fees and expenses
for all other appraisers shall be borne and paid equally by Lessor and Lessee.
If Lessee is not willing to accept a rental equal to 95% of the fair market rate
as established by said appraisal, Lessee may, within sixty (60) days of learning
said rate, give to Lessor six months' written notice of the termination of this
Lease and upon the expiration of said six-month period following such notice
this Lease shall absolutely cease and terminate. If Lessee so elects not to
accept the rate determined by said appraisal and to terminate this Lease, Lessee
shall reimburse all of Lessor's out-of-pocket costs directly incurred in such
appraisal and Lessor shall have the right, any time after June 30, 1990, to
terminate any hold-over tenancy of Lessee upon thirty (30) days' prior written
notice. Between July 1, 1990 and the effective date of termination, Lessee shall
pay rent for the Leased Premises equal to 95% of the appraised market rate as
determined above. All other applicable terms and conditions of the Lease remain
in effect. So long as Lessee occupies at least 20,000 square feet of space on
the 25th Floor, Lessor shall not lease any remaining space on the 25th Floor to
third parties for a term exceeding
- 19 -
<PAGE>
five (5) years without the prior written consent of Lessee, which consent shall
not be unreasonably withheld. In no event shall Lessor lease any space on the
25th Floor to any party engaged in the business of insurance without the prior
written consent of Lessee, nor shall any portion of the 25th Floor be leased to
any party not conducting normally accepted administrative, professional and/or
clerical-type business activities.
26. MISCELLANEOUS
(a) TIME. Time is of the essence of this Lease.
(b) WAIVER. The waiver by Lessor of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Lessor shall not be deemed to be a waiver of any preceding breach
by Lessee of any term, covenant or condition of this Lease, other than the
failure of Lessee to pay the particular rental so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
(c) REMEDIES. The remedies herein given shall be cumulative and are given
without impairing any other rights or remedies of either party by any statute or
law now existing or hereinafter enacted and the exercise of any one remedy by
either party shall not exclude the exercise of any other remedy.
(d) INTERPRETATION, CAPTIONS. The language in all parts of this Lease
shall in all respects be construed as a whole, according to its fair meaning,
and not strictly for or against either Lessor or Lessee. The paragraph captions
in this Lease are for convenience only and are not to be construed as a part of
this Lease or in any way limiting or amplifying the provisions hereof.
(e) ATTORNMENT. If the prime lease referred to in Paragraph 1 (a) above
under which Lessor is the tenant is terminated by operation of law or otherwise,
Lessee shall attorn to the landlord under such prime lease or to such other
party or parties as have succeeded to the interest of said landlord in said
prime lease; and, in the event of such attornment, this Lease shall continue in
effect under the same conditions, covenants and terms as are contained herein,
provided, however, that no such attornment shall be required if Lessee is
physically evicted in the proceedings which terminate said prime lease.
(f) SEVERABILITY. If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each term
and provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
- 20 -
<PAGE>
(h) ENTIRE AGREEMENT. Lessor and Lessee each acknowledge and agree that
they have not relied upon any statement, representation agreement or warranty
except as may be expressly set forth in this Lease, and Lessor and Lessee agree
that no amendment or modification of this Lease shall be valid or binding unless
in writing and duly executed by Lessor and Lessee. No provision of this Lease
shall be altered, waived or amended except in writing duly executed by Lessor
and Lessee.
Dated: May 29, 1990
----------------------------------------
KAISER CENTER, INC., AS AGENT FOR
KAISER ALUMINUM & CHEMICAL CORPORATION - LESSOR
By /s/
---------------------------------------------
Title Vice President
------------------------------------------
By
---------------------------------------------
Title
------------------------------------------
PUTNAM, KNUDSEN & WIEKING, INC.
INSURANCE BROKERS - LESSEE
By /s/
---------------------------------------------
Title President
------------------------------------------
By
---------------------------------------------
Title
------------------------------------------
- 21 -
<PAGE>
RULES AND REGULATIONS OF THE KAISER BUILDING
ATTACHED TO AND MADE A PART OF THIS LEASE
1. Tenants, their agents, employees or patrons, shall not loiter in or in any
way obstruct the driveways, sidewalks, entrances, lobbies, corridors,
stairways, escalators and elevators of Kaiser Center, and shall use the
same only as a means of passage to and from their respective leased
premises.
2. Tenants, their agents, employees or patrons, shall not make or permit any
improper noises in the Kaiser Building, or interfere in any way with other
Tenants or those having business with such other Tenants.
3. Tenants, their agents, employees or patrons, shall not use any part of the
Kaiser Building for lodging or sleeping purposes, and cooking and eating of
meals is prohibited except in those parts of the Kaiser Building
specifically designated by Lessor for those functions.
4. If Tenant plans to have a gathering in the premises such as an open house,
holiday celebration, etc., Tenant must notify Kaiser Center, Inc. leasing
office at least one week prior to the event in order to confirm that such
usage is in conformance with its lease and to make proper arrangements for
security, heat and air-conditioning, parking and janitorial services. If
alcoholic beverages are to be served during the gathering, the caterer must
have a proper permit to dispense such beverages and Tenant's insurance must
adequately cover such event. if dignitaries or political figures are
invited, tenant must notify Kaiser Center, Inc.'s leasing/security office
accordingly
5. No trade, occupation, game or business shall be conducted in the Kaiser
Building which shall be unlawful or of a so-called "get-rich-quick"
character, nor shall the leased premises be used for gambling of any nature
or for any immoral purpose whatsoever.
6. Tenants, their agents and employees, shall not throw substances of any kind
out of the doors or down the passages of the Kaiser Building, or bring into
the Kaiser Building or keep therein any animal or animals.
7. Automobiles, trucks, motorcycles, scooters, bicycles, or other vehicles may
be brought into the Kaiser Garage and Parking Lots only in those areas
specifically designated for the driving and parking of such vehicles, where
the operators thereof shall comply with all traffic regulations in effect.
8. Windows, glass doors and store fronts shall not be covered or obstructed.
Curtains and drapes, other than those provided by Lessor, may be used only
upon specific approval of Lessor.
9. No sign, advertisement, or notice shall be inscribed, painted or fixed on
to any part of the outside or inside of any portion of the Kaiser Building
unless it be of such color, size and style and in such place upon or within
the premises, as may be designated by Lessor in writing.
- 1 -
<PAGE>
10. Toilets, urinals, lavatories and sinks shall not be used for any purposes
other than those for which they were constructed, and no rubbish,
newspapers or other substances of any kind shall be thrown into them. Waste
and excessive or unusual use of water shall not be allowed.
11. Tenants shall not in any way deface floors, ceilings, partitions, walls or
other surfaces, except they may drive nails, screw or drill into, to adhere
to any surface for the purpose of affixing articles of decoration and/or
equipment customarily used in business offices within a first-class
building.
12. Under the carpeting of each floor there are two metal pans which are about
six inches wide and four inches deep and run the length of the building.
One of these contains electrical wiring and is not to be disturbed by the
Tenant without the consent and under the direction of Lessor. The other is
to accommodate telephone and other communication equipment which is to be
provided and maintained by the Tenant at its expense. To gain access to
this pan it is necessary to lift the carpeting and remove the pan lid.
Lessor will provide this service to Tenant for a fee. In any event it is
the Tenant's responsibility to guard these pans when they are open and
prevent injury or damage to persons or property and Lessor is to be held
harmless by Tenant from any costs or liability resulting from the opening
of these pans.
13. The number, size, type and capacity of pieces of electrical equipment and
lighting of any kind used by the Tenants are subject to approval by Lessor.
Tenants receiving electrical power without additional charge as part of the
Lease may be charged separately for power used by pieces of office and
other electrical equipment, if warranted in the sole opinion of Lessor.
14. All freight shall be moved into, within and out of the Kaiser Building
according to such regulations as Lessor may reasonably prescribe. Lessor
shall not be responsible for loss or damage to any such freight from any
cause or causes whatsoever.
15. Lessor shall prescribe the times and methods of moving any item of Tenant's
property in or out of the Kaiser Building. Lessor shall not be responsible
for any loss or damage to any such property from any cause whatsoever,
except LESSOR's sole negligence or LESSOR's intentional tortious acts, and
all damage done to the Kaiser Building by moving or maintaining any
Tenant's property shall be repaired to Lessor's full satisfaction at the
sole expense of Tenant.
16. Lessor may, at its sole discretion, limit the weight or size, or may
prescribe the location of safes, file cabinets, machinery and other
property brought into the Kaiser Building.
17. Tenants shall not place any additional lock or locks on any door, hatchway
or other opening unless written consent of Lessor shall have first been
obtained. Initial keys shall be furnished by Lessor for the entrance to the
suite and two (2) keys for each private office within the suite; additional
keys will be at the expense of Tenant. All keys shall be surrendered to
Lessor upon expiration or other termination of this lease.
- 2 -
<PAGE>
18. At the end of each wing are located emergency exits. Fire codes require
that these remain closed at all times excepting when they are used for
ingress or egress. However, the stairways may be used for access to
adjacent floors by multifloor Tenants as long as Tenant holds Lessor free
from any liability from using these stairways.
19. Tenants shall not employ any person or persons other than those provided or
approved in advance by Lessor for the purpose of cleaning the premises
without the consent of Lessor. Lessor shall be in no way liable or
responsible to any Tenant for any loss of property located in or upon the
leased premises, however occurring, except as a result of LESSOR's sole
negligence or intentional tortious acts.
20. Tenants shall not employ any person or persons other than those provided or
approved in advance by Lessor for the purpose of maintaining, repairing,
revising, modifying or constructing within the leased premises without the
consent of Lessor.
21. Requirements of Tenants will be attended to only upon application to
lessor's designated representatives. Lessor's employees shall not perform
any work or do anything outside of their regular duties unless under
special instructions from said representatives.
22. Towels, laundry, florist service, bottled water and similar service shall
be furnished to Tenants only by such persons as may be satisfactory to
Lessor.
23. Lessor shall have sole control of directories in the lobbies and other
common areas of, the Kaiser Building, and only such names as have been
approved by Lessor will be placed thereon. Initial signage will be provided
by Lessor at no cost to Tenant. Any additional names added or removed from
existing directories will be at the expense of Tenant. Tenant shall request
any addition/deletion of names in writing.
24. At any time while the Kaiser Building is under security control, any person
entering or leaving may be required to display a pass, sign a building
register or otherwise satisfy the security watchman on duty as to his
business therein; anyone not satisfying the watchman as to his right to
enter the Kaiser Building may be excluded by him.
25. Lessor may require written authorization from a Tenant before permitting
anyone to remove Tenant's office equipment or other personal property from
the Kaiser Building.
26. Lessor reserves the right but shall not be held obligated to exclude or
reject from the building any or all solicitors, canvassers or peddlers, and
also any other class of persons and individuals who conduct themselves in
such a manner as, in the opinion of Lessor, to be any annoyance to any of
the Tenants of the Kaiser Building or to interfere with Lessor's operation
thereof or to be otherwise undesirable.
27. Lessor may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants of the Kaiser Building, but
- 3 -
<PAGE>
no such waiver by Lessor shall be construed as a waiver of such Rules and
Regulations in favor of any other Tenant or Tenants, nor prevent Lessor
from thereafter enforcing any such Rules and Regulations against any or all
of the Tenants of the Kaiser Building.
28. Lessor reserves the right to make such other and further Rules and
Regulations as in its judgment may from time to time be necessary for the
safety and cleanliness of, and for the preservation of good order in the
Kaiser Building.
29. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify, alter or amend, in whole or in part, the terms,
conditions and covenants of the Lease.
30. Tenant, its employees or patrons will obey the City of Oakland Smoking
Ordinance which, amongst other things, prohibits smoking in elevators,
building common areas and escalators.
31. Tenant has been informed that the interior blinds on the building window
wall are an integral part of the building heating, ventilation and air
conditioning system. If Tenant fails to close the blinds, Lessor cannot
guarantee the comfort level of the Premise.
- 4 -
<PAGE>
EXHIBIT B-1
Kaiser Center, Inc. to provide build-out of tenant improvements in the new
west wing in accordance with Interior Architects' drawings. Putnam, Knudsen &
Wieking to pay upcharge for over standard carpet and wall covering, non-building
standard window treatments, computer cabling beyond the $10,000 Kaiser Center,
Inc. contribution, computer connector work, all furniture and furniture moving,
and kitchen appliances.
In the elevator lobby, Kaiser Center, Inc. to overlay walls with gyp board,
abate asbestos and respray ceiling, install wall and floor finishes. Putnam,
Knudsen & Wieking to pay upcharge for upgraded carpet.
In the east wing, Kaiser Center, Inc. to paint walls and recarpet. Putnam,
Knudsen & Nieking to provide all furniture moving and pay upcharge for over
standard carpet.
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