<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-11532
INLAND ENTERTAINMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 33-0618806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16868 Via Del Campo Court, Suite 200, San Diego, California 92127
(Address of principal executive offices)
Issuer's telephone number: (858) 716-2100
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: as of November 5, 1999,
4,760,786 shares of common stock, $.001 par value per share, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ]No [X]
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INLAND ENTERTAINMENT CORPORATION
FORM 10-QSB
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
Consolidated Balance Sheets -
September 30, 1999 and June 30, 1999.......................... 3
Consolidated Statements of Operations -
Three months ended September 30, 1999 and 1998................ 4
Consolidated Statements of Cash Flows -
Three months ended September 30, 1999 and 1998................ 5
Notes to Interim Consolidated Financial Statements............ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION............................ 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 21
SIGNATURES 23
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INLAND ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................................. $ 8,043,958 $ 9,285,928
Accounts receivable, net ............................................................... 555,170 344,059
Prepaid expenses and other current assets .............................................. 235,457 127,935
Due from Barona Casino - expansion project ............................................. 4,300,146 3,190,146
------------ ------------
Total current assets ........................................................... 13,134,731 12,948,068
NON-CURRENT ASSETS:
Restricted cash and other investments .................................................. 2,152,393 2,144,393
Employee and other receivables (net of allowance of $165,279) .......................... 260,399 265,134
Property, plant and equipment, net ..................................................... 1,028,808 1,073,111
Deferred contract costs, net ........................................................... 3,017,287 3,184,915
Available-for-sale securities, net ..................................................... 100,000 --
Deferred taxes ......................................................................... 189,834 171,070
Goodwill and other intangibles, net of amortization .................................... 3,402,394 3,424,179
Deposits and other assets .............................................................. 401,973 422,984
------------ ------------
Total non-current assets........................................................ 10,553,088 10,685,785
------------ ------------
Total assets ................................................................... $ 23,687,819 $ 23,633,853
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances of future consulting fees-- Barona Casino ..................................... $ 2,729,041 $ 2,603,457
Current portion of long-term debt ...................................................... 400,000 400,000
Deferred revenues ...................................................................... 101,117 125,072
Accounts payable and accrued expenses .................................................. 800,135 1,440,349
Income taxes payable ................................................................... 453,509 386,745
------------ ------------
Total current liabilities ...................................................... 4,483,802 4,955,623
LONG-TERM DEBT, LESS CURRENT PORTION ..................................................... 9,900,000 9,900,000
------------ ------------
Total liabilities .............................................................. 14,383,802 14,855,623
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 100,000,000 shares
authorized and 4,753,786 shares issued and outstanding ................................. 4,754 4,754
Additional paid in capital ............................................................. 1,312,808 1,297,808
Retained earnings ...................................................................... 7,995,455 7,475,668
Deferred compensation .................................................................. (9,000)
------------ ------------
Total shareholders' equity ..................................................... 9,304,017 8,778,230
------------ ------------
Total liabilities and shareholders' equity ..................................... $ 23,687,819 $ 23,633,853
============ ============
</TABLE>
3
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INLAND ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUE:
Indian gaming consulting .............. $ 3,184,000 $ 3,097,099
Web-site development .................. 822,996 163,108
Other ................................. 141,053 69,554
----------- -----------
4,148,049 3,329,761
----------- -----------
OPERATING EXPENSES:
Compensation and benefits ............. 1,459,069 1,164,213
General and administrative expenses ... 1,524,616 1,865,862
Amortization of deferred contract costs 167,628 167,628
----------- -----------
3,151,313 3,197,703
----------- -----------
Operating profit ........................... 996,736 132,058
OTHER INCOME AND (EXPENSE):
Interest income ........................ 143,884 170,411
Interest expense ....................... (195,833) (145,833)
----------- -----------
(51,949) 24,578
----------- -----------
Income before income taxes ................. 944,787 156,636
Income tax provision ....................... 425,000 67,000
----------- -----------
Net income ................................. $ 519,787 $ 89,636
=========== ===========
Net income per share - basic ............... $ .11 $ .02
=========== ===========
Net income per share - diluted ............. $ .11 $ .02
=========== ===========
Shares used in the computation of net income
per share - basic ...................... 4,753,786 4,217,045
=========== ===========
Shares used in the computation of net income
per share - diluted .................... 4,828,724 4,798,904
=========== ===========
</TABLE>
4
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INLAND ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net cash generated by (used in) operating activities:
Net income .................................................. $ 519,787 $ 89,636
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................... 356,370 265,792
Provision for bad debts ................................. 10,000 --
Deferred taxes .......................................... (18,764) --
Compensation for granting of non-employee stock options . 6,000 15,000
Due from Barona Casino - expansion project .............. (1,110,000) --
Changes in operating assets and liabilities ............. (787,444) (537,737)
------------ ------------
Net cash used in operating activities ........................... (1,024,051) (167,309)
------------ ------------
Cash flows (used in) provided by investing activities:
Purchase of Cyberworks, Inc. ................................ (671,513)
Purchase of available-for-sale securities ................... (100,000)
Purchase of other intangible assets ......................... (77,191)
Maturity of short-term investments .......................... 1,876,667
Purchase of furniture and equipment ......................... (45,463) (103,780)
Payments of loans ........................................... 4,735 7,197
------------ ------------
Net cash (used in) provided by investing activities ............. (217,919) 1,108,571
------------ ------------
Cash flows provided by financing activities:
Proceeds from exercise of stock options ..................... 87,500
------------
Net cash provided by financing activities ....................... 87,500
------------
(Decrease) / increase in cash ................................... (1,241,970) 1,028,762
Cash, beginning of period ....................................... 9,285,928 9,205,502
------------ ------------
Cash, end of period ............................................. $ 8,043,958 $ 10,234,264
============ ============
Supplemental disclosures of cash flow information:
Interest expense paid ...................................... $ 712,686 $ 532,655
============ ============
Income taxes paid .......................................... $ 377,000 $ 300,000
============ ============
Non-cash investing and financing activities:
Acquisition of Cyberworks, Inc. ............................
Fair value of tangible assets ............................. $ 244,226
Goodwill .................................................. 3,661,077
Liabilities assumed ....................................... (188,790)
Stock issued (750,000 shares) ............................. (3,045,000)
------------
Cash paid ................................................. $ 671,513
============
</TABLE>
5
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. DESCRIPTION OF BUSINESS.
Inland Entertainment Corporation, a Utah corporation formerly known as Inland
Casino Corporation ("Inland Entertainment" or the "Company"), provides
consulting and other professional services for gaming operations with Native
American tribes. A majority of its revenue is earned from a consulting agreement
with the Barona Group of Capitan Grande Band of Mission Indians (the "Barona
Tribe") in connection with the Barona Tribe's operation of a gaming facility
located north of Lakeside, California, in eastern San Diego County.
Since fiscal 1998, in addition to Indian gaming, the Company has pursued, and
continues to pursue, Internet related opportunities including, web-site
development, on-line marketing, electronic commerce applications and Internet
business related consulting.
In March 1998, the Company established a wholly-owned foreign subsidiary,
Worldwide Media Holdings N.V., a Curacao, Netherland Antilles corporation
("WMH"). WMH was formed to provide comprehensive marketing, advertising,
technical and distribution services for Internet related businesses. WMH
currently provides these services to four Internet casinos. WMH is responsible
for all marketing costs and is paid a fee for its services.
On August 27, 1998, the Company acquired all of the outstanding shares of
capital stock of Cyberworks Inc. ("Cyberworks"), a web-site development and
Internet marketing company. Cyberworks provides its services to clients in the
entertainment, technology, and business-to-business industries, and to various
professional associations and non-profit organizations. Cyberworks operates as a
wholly-owned subsidiary of the Company.
In July 1999, the Company formed an Internet business and investor relations
consulting division, which is operating under the name "Venture-Catalyst.com."
Through the Venture-Catalyst.com division, the Company offers to public and
private companies a wide array of Internet business services, including
financial public relations, venture capital sourcing and on-line business
strategy. The Division may, under certain circumstances, make equity investments
in, or take all or a portion of its consulting fees in, equity of its clients.
2. PRESENTATION OF INTERIM CONSOLIDATED FINANCIAL INFORMATION.
The accompanying interim unaudited consolidated financial statements have been
prepared by Inland Entertainment Corporation and its subsidiaries Cyberworks,
Inc. and Worldwide Media Holdings, N.V., (collectively the "Company" or
"Inland"), in conformity with generally accepted accounting principles for
interim financial information and with the rules and regulations of the U.S.
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
regulations. The interim unaudited consolidated financial statements reflect all
normal, recurring adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. The interim unaudited
consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999.
Current and future financial statements may not be directly comparable to the
Company's historical financial statements. The results of operations for the
interim period are not necessarily indicative of the results to be expected for
the full year.
6
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
3. BARONA CONSULTING AGREEMENT.
The Company has provided services to the Barona Tribe since 1991. The Company
provides consulting services in accordance with the terms and conditions of an
Amended and Restated Consulting Agreement (the "Amended and Restated Consulting
Agreement"). During February 1998, the Company and the Barona Tribe executed
Modification #1 to the Amended and Restated Consulting Agreement (the
"Modification") which extended the term for providing consulting services by an
additional 60 months. Unless otherwise stated herein, the Amended and Restated
Consulting Agreement, as amended by the Modification, shall be referred to
herein as the "Barona Consulting Agreement." The Barona Consulting Agreement
expires in March 2004.
In March 1996, the Barona Tribe submitted the Initial Consulting Agreement (a
predecessor agreement to the Amended and Restated Consulting Agreement) to the
National Indian Gaming Commission (the "NIGC"). In May 1996, the NIGC determined
that the Initial Consulting Agreement was not a management agreement and,
therefore, not subject to NIGC approval, and forwarded such agreement to the
Bureau of Indian Affairs (the "BIA"). In July 1997, the BIA reviewed the Initial
Consulting Agreement and determined that no further action by it with respect to
such agreement was required. The NIGC conducted an investigation of the past
relationship between the Barona Tribe and the Company that resulted in a January
1997 settlement agreement.
In January 1997, the Company submitted the Amended and Restated Consulting
Agreement to the NIGC. In April 1997, the Company received a letter from the
NIGC questioning whether the Amended and Restated Consulting Agreement was in
fact a management contract. The letter stated that additional review would be
necessary to make such a determination. In March 1999, the NIGC started a
preliminary review of the relationship between the Barona Tribe and the Company,
which will include a review of the Barona Consulting Agreement. In September
1999, the Company submitted the Modification to the NIGC. This review is
currently pending.
The Company believes that the Amended and Restated Consulting Agreement, as
amended by the Modification, is not a management contract, based on (a) the May
1996 and July 1997 determinations of the NIGC and BIA, respectively, with
respect to the Initial Consulting Agreement, (b) the NIGC's findings in the
January 1997 settlement agreement and (c) the nature of the relationship between
the Barona Casino and the Company. However, there is no assurance that the NIGC
will determine that the Barona Consulting Agreement is not a management
contract. The failure of the NIGC to determine that the Barona Consulting
Agreement is not a management contract could have a material adverse effect on
the business and financial condition of the Company and its subsidiaries. If the
NIGC concludes that the Barona Consulting Agreement is not a management
agreement, the NIGC will forward such Agreement to the BIA for its review. If
the BIA determines that its approval is required, there can be no assurance that
the BIA will approve the Barona Consulting Agreement, and such failure to
approve such Agreement may have a material adverse effect on the business and
financial condition of the Company and its subsidiaries.
4. TRIBAL-STATE COMPACTS.
BARONA COMPACT. In August 1998, a Tribal-State Compact was signed between the
State of California and the Barona Tribe (the "Barona Compact"). The U.S.
Secretary of the Interior approved the Barona Compact, effective October 22,
1998.
The initial term of the Barona Compact will end on January 1, 2009. The Barona
Tribe has been given the option to renew the Barona Compact for two additional
five (5) year terms upon written notice of renewal to
7
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
the Governor prior to the termination date. Such options may be denied if the
Barona Tribe has been found to have engaged in unauthorized Class III gaming on
two or more occasions or to have committed violations of the terms of the Barona
Compact on five or more occasions.
Rather than the electronic machines currently in play at the Barona Casino, the
Barona Compact permits the following two varieties of Indian Lottery Games: (a)
Indian Video Lottery Match Game and (b) Indian Video Lottery Scratcher Game. The
Barona Tribe is allowed to operate 1,057 machines, but has been allocated only
199 machines. The balance of machines must be licensed from other Federally
recognized tribes for an annual fee of $5,000 per machine.
Pursuant to an informal agreement with the California Division of Gaming Control
(the "Gaming Control Division"), the Barona Tribe has been permitted to continue
to operate its current 1,057 electronic gaming devices at the Barona Casino for
an indefinite period of time. With the consent of the Gaming Control Division,
of the 1,057 electronic gaming devices being operated at the Barona Casino, 8
are prototypes of the Indian Gaming Machines prescribed by the Barona Compact.
At the present time, there are no such Indian Lottery devices available to any
compacted Indian tribe in California other than for testing purposes.
The Indian Lottery Games are not similar in functional capability to any
existing electronic gaming device or conventional slot machine, have not yet
been commercially produced and are currently being tested in a public
environment. Based upon the limited testing, there is insufficient data to
determine whether these compact-defined devices will produce an income stream
comparable to those machines currently in play at the Barona Casino. In the
event the lottery-based devices do not produce an income stream consistent with
that being earned by the machines currently in play at the Barona Casino, the
resulting decline in revenue from Barona operations may have a materially
adverse impact on the fees paid to the Company under the Consulting Agreement.
In August 1998, the California Legislature passed legislation ("AB489")
specifically authorizing the Governor of the State of California to execute the
various compacts which had been negotiated between the State of California and
Indian tribes, including, the Barona Tribe. As a non-urgency measure, AB489 was
scheduled to go into effect on January 1, 1999; however, a referendum petition
to overturn AB489 qualified for the March 2000 general election ballot. The
effect of qualifying such referendum provision is that AB489 did not become
effective and will not become effective until the voters of California vote to
uphold AB489. Accordingly, there is a legal question as to whether the
Governor's signature on the Compact between the Barona Tribe and the State of
California is sufficient.
On September 10, 1999, the California legislature approved State Constitution
amendment 11, ("SCA 11"), a proposed amendment to the California Constitution
which would significantly expand the scope of Indian gaming in the State of
California. SCA 11 addresses the deficiencies of Proposition 5. Proposition 5,
the Tribal Government Gaming and Economic Self Sufficiency Act of 1998, was
approved by the California Voters in the November 1998 General Election. In
August 1999, the California Supreme Court ruled that those provisions of
Proposition 5 which attempted to amend the California constitutional prohibition
against gaming was unconstitutional. If approved by the people of California on
the March 2000 General Election Ballot, SCA 11 would authorize the Governor to
negotiate and conclude tribal-state gaming compacts for the operation of slot
machines and for the conduct of lottery games and banking and percentage card
games by Federally recognized Indian tribes on Indian lands in California. SCA
11 further provides that any such compact would be subject to ratification by
the California legislature.
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
BARONA COMPACT II. On September 10, 1999, the Governor of the State of
California entered into new Tribal-State Compacts with over 50 Federally
recognized Indian tribes, including the Barona Tribe. The compacts are subject
to ratification by the California legislature, approval by the U.S. Secretary of
the Interior and passage of California State Constitutional Amendment 11. On
September 10, 1999, the California Legislature voted to ratify each of the
above-referenced compacts including the Barona Compact II. There is no assurance
that the remaining conditions will be satisfied. The new Tribal-State Compacts
significantly expand the permissible scope of Indian Gaming beyond that
permitted by the Barona Compact. Until the above-referenced conditions are
satisfied, the Barona Compact shall remain in effect.
5. DUE FROM BARONA CASINO - EXPANSION PROJECT.
The Barona Tribe is in the planning stages of an approximately $150 million
expansion project. The Company is assisting the Barona Casino in obtaining
outside financing for the project. Prior to the time that the Barona Casino
obtains such financing, the Company is sharing in funding the expansion costs
incurred with the Barona Tribe. The Company expects to commit approximately
$8,300,000 as an unsecured, non-interest-bearing advance to the Barona Casino.
As of September 30, 1999, the Company has advanced $4,300,146; these advances
have been, and will be, accounted for as a receivable from the Barona Casino to
the Company. Payment of the receivable is expected to occur when the Barona
Tribe obtains outside financing which is expected to be sometime in early
calendar year 2000.
6. ACQUISITIONS.
On August 27, 1998, the Company acquired all of the outstanding shares of
capital stock of Cyberworks in exchange for 750,000 shares of its common stock
and $500,000 in cash, in a transaction valued, exclusive of acquisition costs,
at $3,560,000. Cyberworks is being operated as a wholly-owned subsidiary of the
Company. The acquisition was accounted for as a purchase and the accounts of
Cyberworks have been included in the accompanying financial statements since
August 27, 1998. The excess of the total acquisition cost over the fair value of
net assets acquired ("goodwill") was approximately $3,732,000 and is being
amortized on a straight-line basis over 10 years.
In July 1999, the Company purchased $100,000 in assets from Typhoon Capital
Consulting, LLC, an investor relations and Internet strategy consulting firm,
consisting of three domain names, including "Venture-Catalyst.com", computer
equipment, office equipment and furniture. The excess of the acquisition cost
over the fair value of net assets acquired ("other intangible assets") was
approximately $77,000 and is being amortized on a straight-line basis over 3
years.
Goodwill and other intangible assets net of amortization as of September 30,
1999 is $3,402,394 and amortization expense of $98,976 has been recorded for
Fiscal 2000 through September 30, 1999. On an ongoing basis, the Company will
review the valuation and recoverability of the unamortized goodwill costs and
other intangible assets and will expense all or any portion of the unamortized
amounts determined necessary for fair statement.
7. RESTRICTED CASH AND OTHER INVESTMENTS.
From June 1996 to May 1997, the Company provided consulting services to the
Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians (collectively,
the "Klamath Tribes"). The Klamath Tribes constructed the Kla-Mo-Ya Casino near
Chiloquin, in south central Oregon, a gaming facility funded by revenue bonds
issued by the Klamath Tribes. In connection with such bond financing, the
Company has a
9
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
net investment of $493,393 in revenue bonds with a principal face amount of
$500,000. In addition, as a condition of the bond financing, the Company agreed
to hold the bonds for a five-year period. Pre-opening costs and expenses of
approximately $1.5 million were financed by loans made pursuant to a third-party
bank credit agreement with the Klamath Tribes. The Company pledged to such bank
a certificate of deposit for $1,518,000 as collateral for such loans. If the
Klamath Tribes are unable to pay its obligations, the Company may lose all or a
portion of its investment in the revenue bonds it purchased and its certificate
of deposit pledged as collateral for bank loans to the Klamath Tribes. The
Klamath Tribes have made all required interest payments during Fiscal 1999 on
the bonds held by the Company.
Additionally, the Company issued an irrevocable letter of credit for $133,000 to
satisfy the terms of its corporate office lease agreement. Such letter of credit
will automatically renew on an annual basis until October 31, 2002 unless
canceled by the lessor.
8. EQUITY INVESTMENTS.
During the three months ended September 30, 1999, the Company, through its
Venture-Catalyst.com division, acquired a minority equity position in
MediaCycle, Inc., the owner and operator of "spun.com". The investment is
classified as available-for-sale securities.
9. SEGMENT REPORTING.
The Company has four business segments: Indian Gaming Consulting, Web-Site
Development Services, Internet Gaming Consulting, and Internet Business and
Investor Relations Consulting (operating under the name "Venture-Catalyst.com".)
Information on segments and reconciliation to income, before income taxes, for
the three months ending September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
INDIAN INTERNET WEB-SITE VENTURE- ADJUSTMENTS & CONSOLIDATED
GAMING GAMING DEVELOPMENT CATALYST.COM ELIMINATIONS TOTALS
---------------- --------------- ---------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
For the three months ended
September 30, 1999:
Revenues (external) ............ $ 3,184,000 $ 110,053 $ 822,996 $ 31,000 -- $ 4,148,049
Revenues (intersegment) ........ -- -- $ 13,225 -- $ (13,225) $ --
Segment operating profit/(loss) $ 1,054,925 $ (56,730) $ 59,315 $ (112,723) -- $ 944,787
For the three months ended
September 30, 1998:
Revenues (external) ............ $ 3,097,099 $ 69,554 $ 163,108 -- $ 3,329,761
Revenues (intersegment) ........ -- -- $ 121,485 -- $ (121,485)
Segment operating profit/(loss) $ 1,159,032 $(1,045,609) $ 43,213 -- -- $ 156,636
</TABLE>
10
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
10. NET INCOME PER SHARE.
Below is the reconciliation of the components of the calculation of basic and
diluted net income per share for the time periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
1999 1998
---------- ----------
<S> <C> <C>
Net income available to common shareholders $ 519,787 $ 89,636
========== ==========
Weighted average shares outstanding-- basic 4,753,786 4,217,045
Effect of stock options 74,938 581,859
---------- ----------
Weighted average shares outstanding-- diluted 4,828,724 4,798,904
========== ==========
</TABLE>
For the three months ended September 30, 1999, options to purchase 4,342,101
shares of the Company's common stock, at prices ranging from $2.75 to $4.13 per
share, were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the common shares.
The options, which expire on various future dates through June 2009, were still
outstanding at September 30, 1999.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
Inland Entertainment Corporation operates in four business segments: (a) Indian
Gaming Consulting; (b) Web-site Development services; (c) Internet Gaming
Consulting, and (d) Internet Business and Investor Relations Consulting. During
the quarter ended September 30, 1999, approximately 77% of the revenue earned
was attributable to Indian Gaming Consulting. Unless otherwise specified in this
Item 2, "Inland Entertainment Corporation" or the "Company" refers to the
Company and its subsidiaries.
INDIAN GAMING CONSULTING
The Company has provided services to the Barona Group of Capitan Grande Band of
Mission Indians (the "Barona Tribe") since 1991. The Company is currently
providing consulting services to the Barona Tribe at the Barona Casino under the
terms of the Amended and Restated Consulting Agreement, as amended by
Modification #1 to such agreement (hereinafter referred to as the "Barona
Consulting Agreement" or the "Consulting Agreement") which expires in March
2004. The total consulting fees paid to the Company under the Consulting
Agreement are based upon a net profits formula which includes the Barona
Casino's income and expenses. Accordingly, although gross revenues of the Barona
Casino may increase, the Company's consulting revenue may not correspondingly
increase because expenses at the Barona Casino also may have increased.
From February 1992 through March 1996, the Company provided casino management
services at the Barona Casino pursuant to a management agreement with the Barona
Tribe. During that same period, funds to purchase or construct all fixed assets
such as buildings, equipment and capital improvements, were contributed to the
Barona Casino by the Company. In the aggregate, the Company contributed
approximately $13,000,000 over the period. Neither the Barona Tribe nor the
Barona Casino paid for any of the fixed assets at the Barona Casino during such
period. Due to the "investment" made by the Company to the Barona Casino, the
value of the Barona Casino has increased, thereby enhancing the potential fees
which may be earned by the Company over the life of its contractual relationship
with the Barona Tribe. These monies contributed to the Barona Casino which have
been used to purchase or construct fixed assets have been viewed by the Company
as intangible assets and referred to as "deferred contract costs" and are being
amortized to expense over the remaining life of the Consulting Agreement through
March 2004. However, given the nature of the asset, if the recoverability is
determined not to be probable, the Company will charge to expense the
unamortized portion.
In 1996, the Barona Casino had become financially self-sufficient and the
Company's relationship with the Barona Tribe had evolved from that of manager of
the Barona Casino to consultant to the Barona Tribe which was now acting as the
manager of the Barona Casino. Since the Company has transitioned from manager to
consultant, there have been only two categories of investments by the Company in
the Barona Casino. The first category related to project commitments made to the
Barona Tribe by the Company when the Company was acting as "manager" pursuant to
the management agreement. Funds attributable to this category have equaled in
the aggregate approximately $550,000. The second category related to a
$2,000,000 NIGC settlement. Commencing in November 1996, the Company committed
to contribute $2,000,000 to the Barona Tribe to be used to construct a new road
and entrance to the Barona Casino. As of September 30, 1999, the Company has
paid $1,200,000 of the $2,000,000 commitment.
At this time, the Company has no plans to contribute additional funds to the
Barona Casino or the Barona Tribe in the form of deferred contract costs.
However, the Company will assist the Barona Casino from time to time in
obtaining third party outside financing, if internal funding from the Barona
Casino is not adequate to meet the Barona Casino's project needs. See the
discussion herein under the caption "Liquidity and Capital Resources" relating
to the Company's advance of funds to the Barona Casino in connection with the
Casino's current expansion project.
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In August 1998, a Tribal-State Compact was entered into between the State of
California and the Barona Tribe (the "Barona Compact"). The Barona Compact was
signed by the Governor of California and the Chairman of the Barona Tribe on
August 12, 1998; thereafter, the Barona Tribal Council voted to submit the
Barona Compact to the U.S. Secretary of the Interior (the "Secretary"). The
Secretary's approval of the Barona Compact was published in the Federal Register
on October 22, 1998.
In August 1998, the California Legislature passed legislation ("AB489")
specifically authorizing the Governor of the State of California to execute the
various compacts which had been negotiated between the State of California and
certain Indian tribes, including the Barona Tribe. AB489 was scheduled to go
into effect on January 1, 1999; however, a referendum petition to overturn AB489
qualified for the March 2000 general election ballot. The effect of qualifying
such referendum provision is that AB489 did not become effective and will not
become effective until the voters of California vote to uphold AB489.
Accordingly, there is a legal question as to whether the Governor's signature on
the Barona Compact is sufficient.
On September 10, 1999, the California legislature approved State Constitutional
Amendment 11 ("SCA 11"), a proposed amendment to the California Constitution
which would significantly expand the scope of Indian gaming in the State of
California. If approved by the California voters on the March 2000 General
Election Ballot, SCA 11 would authorize the Governor to negotiate and conclude
tribal-state gaming compacts for the operation of slot machines and for the
conduct of lottery games and banking percentage card games by Federally
recognized Indian tribes on Indian lands in California.
On September 10, 1999 the Governor of the State of California entered into new
Tribal-State Compacts with over 50 Federally recognized Indian tribes, including
the Barona Tribe (the "Barona Compact II"). The compacts are subject to
ratification by the California Legislature, approval by the U.S. Secretary of
the Interior and passage of SCA 11. On September 10, 1999, the California
legislature voted to ratify these compacts, including the Barona Compact II.
There is no assurance that the remaining conditions will be satisfied. The new
Tribal-State Compacts significantly expand the permissible scope of Indian
gaming beyond that permitted by the Barona Compact. Until the above-referenced
conditions are satisfied, the Barona Compact shall remain in effect. Management
believes the Barona Compact and the Barona Compact II ended a significant amount
of uncertainty and concern about the future of gaming activities at the Barona
Casino.
WEB-SITE DEVELOPMENT BUSINESS
On August 27, 1998, the Company acquired Cyberworks, Inc. ("Cyberworks"), a
web-site development and Internet marketing company. Cyberworks operates as a
wholly-owned subsidiary of the Company. Cyberworks' services include full
service web-site development, strategic consulting for interactive and on-line
business development and custom Internet application. Cyberworks provides its
services to clients in the entertainment, technology, and business-to-business
industries, and to various professional associations and non-profit
organizations.
INTERNET GAMING CONSULTING
In March 1998, the Company established a wholly-owned foreign subsidiary,
Worldwide Media Holdings, N.V. ("WMH"), a Curacao, Netherland Antilles
corporation. WMH provides consulting services related to Internet casinos,
including the development of casino-style games and marketing and promoting of
Internet casinos through web-site development, Internet advertising and
conventional advertising. Currently, WMH is providing consulting and marketing
services to four international Internet casinos; Casino Australia, the Kenny
Rogers Casino, The Good Luck Club and Las Vegas At Home Casino. WMH does not
operate any of these casinos and none of the casinos accept wagers from the
United States or its territories. WMH earns fees to promote and market such
casinos based on a percentage of the net profits of the on-line casinos.
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In July, 1999, the Company launched the "Vegas At Home" portal web-site, which
is designed to provide both the gaming industry and its patrons with an on-line,
central location containing a variety of gaming related products, merchandise,
information and links to most significant traditional casinos, as well as links
to the four above-referenced Internet-based casino web-sites.
INTERNET BUSINESS AND INVESTOR RELATIONS CONSULTING
In July, 1999, the Company formed an Internet business and investor relations
consulting division, which is operating under the name "Venture-Catalyst.com."
Through the Venture-Catalyst.com division, the Company offers to public and
private companies a wide array of Internet business services, including
financial public relations, venture capital sourcing and on-line business
strategy. The Division's objective is to serve as a consultant to and/or
"incubate" Internet entrepreneurial ventures during every stage of their
financial growth. The Division may, under certain circumstances, make equity
investments in, or take all or a portion of its consulting fees in equity of its
clients.
The Company has made, and expects to continue to make, investments in personnel
to allow the Venture-Catalyst.com division to grow. During the three month
period ended September 30, 1999, the Company hired five employees to lead in the
development and expansion of the new venture catalyst division. The Company is
now better positioned to leverage its financial resources, management consulting
expertise, knowledge of the Internet and existing web-development platform.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1998.
REVENUE. Consolidated revenues increased 24.6% to $4,148,049 for the three
months ended September 30, 1999 from $3,329,761 for the three months ended
September 30, 1998. Revenues from Indian gaming consulting increased 2.8% to
$3,184,000 from $3,097,099 earned during the same quarter last year, primarily
as a result of higher revenues at the Barona Casino, partially off-set by
increased expenses at the facility.
Revenues earned by Cyberworks from web-site development and on-line marketing in
fiscal 2000 were $822,996, an increase of 404.6% from the $163,108 earned during
the same quarter in fiscal 1999. The increase was due to (a) three months of
fees earned during fiscal 2000, as opposed to approximately one month of fees
earned during the same period in fiscal 1999, and (b) increased services
performed for external clients.
Revenues earned by WMH for marketing and consulting related to Internet gaming
increased 58.2% to $110,053 for the three months ended September 30, 1999 from
$69,554 during the same period in fiscal 1999 as a result of (a) increased
activity in the casinos marketed by WMH, and (b) providing consulting services
to an additional casino.
During the three month period ended September 30, 1999, the Company had one
other source of revenue not present during the same quarter last year. Since
July 16, 1999, $31,000 was earned by Venture-Catalyst.com for Internet business
and investor relations consulting services performed.
COMPENSATION AND BENEFITS. Compensation and benefits expenses increased 25.3% to
$1,459,069 for the three months ended September 30, 1999, from $1,164,213 during
the same quarter last year. The increase was primarily a result of (a) the
addition of Cyberworks employees for the entire quarter in the current year, as
opposed to only approximately one month during the same period last year, and
(b) the addition of five Venture-Catalyst.com employees during the current
quarter.
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<PAGE> 15
OPERATING EXPENSES. General and administrative expenses decreased 18.3% to
$1,524,616 for the three months ended September 30, 1999 from $1,865,862 for the
three months ended September 30, 1998, resulting primarily from decreases in (a)
start-up costs, advertising, marketing, and promotion of the on-line casinos and
(b) third-party consulting fees incurred by the Company in connection with
web-site development and consulting services provided to Internet casinos. These
decreases were partially offset by increases in (a) third-party consulting fees
incurred by the Company in connection with its performance of consulting
services to the Barona Casino; (b) third-party consulting fees incurred by the
Company in connection with its performance of web-site development and on-line
marketing services; (c) amortization of goodwill related to the acquisition of
Cyberworks; and (d) client relation expenses, which included a contribution for
the design and construction of a Native American museum on the Barona
Reservation.
Amortization of deferred contract costs were flat at $167,628 for the three
months ended September 30, 1999 and 1998, as a result of the total deferred
contract costs and amortization period for these costs remaining unchanged
during these periods.
OTHER INCOME AND EXPENSE. For the three months ended September 30, 1999,
interest income was approximately $144,000 compared to approximately $170,000
for the three months ended September 30, 1998. The decrease was due to the
decrease in the Company's investments and cash equivalent balances during the
current quarter.
Interest expense increased to approximately $196,000 for the three months ended
September 30, 1999 from approximately $146,000 for the three months ended
September 30, 1998, as a result of an increase in notes payable to two
shareholders, including a former director of the Company, in connection with the
repurchase of shares of the Company's common stock held by them.
INCOME TAX PROVISION. The income tax provision increased to $425,000 for the
three months ended September 30, 1999 from $67,000 for the three months ended
September 30, 1998, based on increased operating profits for the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity at September 30, 1999 consisted of
unrestricted cash of $8,043,958 and future revenues generated from operations.
The Company believes that these sources of liquidity will be sufficient to meet
the Company's operating and capital requirements for the foreseeable future.
During the three months ended September 30, 1999, the Company's cash position
decreased by $1,241,970 to $8,043,958, from the June 30, 1999 balance of
$9,285,928. The decrease was a result of cash flows used in operating activities
of approximately $1,024,000 and cash flows used in investing activities of
approximately $218,000 during the period.
Cash flows used in operating activities include: (a) $1,110,000 in short-term
advances to the Barona Casino for the Barona Casino expansion project discussed
above; (b) increases in accounts receivable of approximately $221,000 primarily
due to Cyberworks' billings for services performed; (c) decreases in accounts
payable and accrued expenses of approximately $640,000; and (d) an increase in
prepaid assets of approximately $108,000 primarily due to prepayments of
insurance premiums during the quarter.
Cash flows provided by operating activities include: (a) net income of $519,787;
(b) amortization of deferred contract costs of approximately $168,000; (c)
depreciation on property and equipment of approximately $90,000; (d) goodwill
amortization of approximately $99,000 primarily related to the acquisition of
Cyberworks; (e) an increase in income taxes payable of approximately $67,000;
and (f) an increase in the Advances of Future Consulting fees of approximately
$126,000 primarily due to timing differences between consulting revenues earned
and recognized but not yet paid.
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Cash flows used in investing activities include: (a) a $100,000 minority equity
investment in MediaCycle, Inc. and (b) net investments in fixed assets of
approximately $45,000. Additionally, the Company purchased $100,000 of assets
from Typhoon Capital Consulting, LLC, an investor relations and Internet
strategy consulting firm, consisting of three domain names, including
"Venture-Catalyst.com", computer equipment, office equipment, and furniture.
Approximately $23,000 of equipment and furniture is included in the $45,000 of
fixed asset purchases noted above. The excess of the acquisition cost over the
fair value of net assets acquired ("other intangible assets") was approximately
$77,000 and is being amortized on a straight-line basis over 3 years.
With respect to the current project to expand the Barona Casino discussed above,
the Company and the Barona Tribe will share in funding the expansion costs
incurred prior to obtaining outside financing. The Company expects to commit
approximately $8,300,000 as an unsecured, non-interest-bearing advance to the
Barona Casino. As of September 30, 1999, the Company had advanced $4,300,146.
These advances have been, and such future advances will be, accounted for as a
receivable from the Barona Casino to the Company. Payment of the receivable is
expected to occur when the Barona Tribe obtains outside financing which is
expected to be sometime in early calendar year 2000.
In 1992, there was a one-time advance of future fees under the Consulting
Agreement with the Barona Tribe of approximately $2,500,000. At the beginning of
the management relationship in 1992 between the Barona Tribe and the Company,
the Barona Tribe was not in a financial position to make required investments in
the Barona Casino. The Company invested approximately $2,500,000 into the Casino
that was accounted for as revenue to the Barona Casino and expensed by the
Company due to the uncertainty of recovery. The amount was not accounted for as
a deferred contract cost (similar to those investments discussed in the Overview
above). As the Barona Casino became profitable between 1992 and 1994, $2,500,000
of the initial profits of the Barona Casino were distributed to the Company and
were recorded on its books as an obligation called "Advances of Future
Consulting Fees." The Barona Casino established a corresponding receivable. When
the consulting relationship ends, the Company and the Barona Tribe will discuss
how to handle this balance. Depending on the outcome, if the obligation is
forgiven by the Barona Tribe, the Company may have an additional source of
liquidity in the sense that a debt may not need to be repaid; however, if the
balance reverts back to the Barona Casino or the Barona Tribe, the Company may
have a debt to repay. There is no indication how this issue will ultimately be
resolved. All other transactions between the two parties are being treated
independently. The remaining difference of the September 30, 1999 balance in
Advances of Future Consulting fees of $2,729,041 and the $2,500,000 is due
primarily to timing differences between consulting revenues earned and
recognized but not yet paid and the actual payment of the consulting revenues.
Consulting fees have typically been paid in the month subsequent to the month in
which services were performed.
In September 1996, the Company entered into a Stock Purchase and Settlement and
Release Agreement with two shareholders, including a former director (the "Stock
Purchase Agreement"). The terms of the Stock Purchase Agreement included (a) an
aggregate cash payment of $200,000 to such shareholders upon closing, (b) the
issuance of two unsecured promissory notes in the aggregate principal amount of
$3,500,000, with interest at the rate of 10% per annum, payments of interest
only for the first three years, followed by three equal annual installments of
principal repayment, with interest on the remaining balance commencing September
30, 1997, (c) a contingent obligation (the "Initial Contingent Obligations") to
issue an aggregate principal amount of $9,856,488 in unsecured promissory notes
to such shareholders including $2,000,000 in principal amount of notes each year
for four years and $1,856,488 in principal amount of notes to be issued in a
fifth year, each note with interest at 10%, payment of interest only for three
years, followed by three equal annual installments of principal plus interest on
the remaining principal balance, and (d) another contingent obligation (the
"Second Contingent Obligation") to issue an additional aggregate principal
amount of $3,000,000 in unsecured promissory notes (or cash, if Company has
closed a firm commitment underwritten public offering of securities of not less
than $35 million prior to the contingencies being met).
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The Initial Contingent Obligations are contingent upon the Company's retained
earnings balance, with certain adjustments, being at least $4,000,000 for the
fiscal year ending immediately prior to the date the notes are to be issued. The
test is to be made each year for eight successive years that commenced with the
fiscal year ended June 30, 1997. The Second Contingent Obligation is subject to
the following conditions: (a) the Barona Tribe enters into a Class III Gaming
Compact (the "Compact") with the State of California which permits the operation
of video gaming machines at the Barona Casino in San Diego County; (b) at the
time that the Barona Tribe enters into the Compact, the Company has a consulting
agreement or similar contractual arrangement with the Barona Tribe; and (c)
consulting fees paid to the Company by the Barona Tribe relating to the Barona
Casino for any consecutive 12-month period within five years after the Barona
Tribe has entered into the Compact, equals or exceeds one and one-half times the
consulting fees for the fiscal year ended June 30, 1996. The Company intends to
record as the additional cost of the repurchase of its common stock, each
contingent obligation as each contingency or condition is met. All payments
pursuant to the Stock Purchase Agreement are further subject to compliance with
certain state law provisions and the Company's Articles of Incorporation
concerning repurchase transactions. The Initial Contingent Obligation has been
met for the first three test periods.
The Company's long-term debt in connection with this stock repurchase is
$9,500,000 as of September 30, 1999. In addition, if all contingent obligations
are met, a maximum of $6,856,488 of aggregate additional consideration may still
have to be repaid under the Stock Purchase Agreement. Management believes that
future revenues generated from operations and unrestricted cash will be
sufficient to service and repay the aggregate amount of this long-term debt.
Restricted cash and other investments of approximately $2,152,000 include; (a)
an irrevocable letter of credit for $133,000 to satisfy the terms of the
corporate lease agreement that will automatically renew on an annual basis until
October 31, 2002, unless canceled by the lessor; and (b) funds in the amount of
$2,011,393 which have been invested or pledged as security for amounts borrowed
by third parties in connection with the construction of the Kla-Mo-Ya Casino, a
gaming facility near Chiloquin, in south central Oregon. From June 1996 to May
1997, the Company provided consulting services to the Klamath and Modoc Tribes
and the Yahooskin Band of Snake Indians (collectively, the "Klamath Tribes").
The Klamath Tribes issued revenue bonds to fund the construction of the
Kla-Mo-Ya Casino. In connection with such bond financing, the Company has a net
investment of $493,393 in revenue bonds with a principal face amount of
$500,000. In addition, as a condition of the bond financing, the Company agreed
to hold the bonds for a five-year period. Pre-opening costs and expenses of
approximately $1.5 million were financed by loans made pursuant to a third-party
bank credit agreement with the Klamath Tribes. The Company pledged a certificate
of deposit for $1,518,000 as collateral for such loans. If the Klamath Tribes
are unable to pay its obligations, the Company may lose all or a portion of its
investment in the revenue bonds it purchased and its certificate of deposit
pledged as collateral for bank loans to the Klamath Tribes. The Klamath Tribes
have made all required interest payments during the fiscal year on the bonds
held by the company. (See Notes to Interim Consolidated Financial Statements,
Note 7. Restricted cash and other investments.)
WMH has entered into a long-term contract that obligates it to spend $120,000 a
year for marketing services related to the promotion of on-line casinos.
The Company has a commitment of approximately $220,000 towards the design and
construction of a Native American museum on the Barona Reservation. As of
November 5, 1999, the Company has paid approximately $65,000 towards this
commitment.
FORWARD-LOOKING STATEMENTS AND CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Included in this Item 2, and in the Notes to the Interim Consolidated Financial
Statements are certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 reflecting the Company's
current expectations. Although the Company believes that its expectations are
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based on reasonable assumptions, there can be no assurance that the Company's
financial goals or expectations will be realized. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Numerous
factors may affect the Company's actual results and may cause results to differ
materially from those expressed in forward-looking statements made by or on
behalf of the Company. The Company assumes no obligation to update or revise any
such forward-looking statements or the factors listed below to reflect events or
circumstances that may arise after this Report is filed, and that may have an
effect on the Company's overall performance.
o DEPENDENCY ON REVENUES FROM THE BARONA CASINO
The Company historically has derived substantially all of its income, and
currently derives the majority of its income, from services provided to the
Barona Tribe. While the Company is taking steps to diversify its business
activities and resulting revenues, those activities are producing revenues
significantly lower than revenues provided from the Company's services to
the Barona Casino. Accordingly, any material reduction in fees payable to
the Company in connection with its consulting relationship with the Barona
Tribe could have a material adverse affect on the business and financial
condition of the Company, if the Company could not either reduce expenses or
increase revenues from other sources.
o THE BARONA CONSULTING AGREEMENT
Appropriate regulatory authorities have not yet approved the Consulting
Agreement. If the Consulting Agreement is not approved or is significantly
modified from the standpoint of consulting revenue, such action would have a
material adverse effect on the business and financial condition of the
Company. (See Notes to Consolidated Financial Statements, Note 3. -- Barona
Consulting Agreement.)
o UNCERTAINTIES CONCERNING INTERNET GAMING
Many of the laws and regulations concerning the regulation of the business
of Internet gaming in the United States and in other countries are currently
being developed. The evolution of the laws and statutes regarding Internet
gaming will have a significant impact on the Company's Internet gaming
business. It is not known at what rate or direction the evolution of such
gaming regulations and statutes will take place. The Company is competing
with other entities, some of which have been in the market longer than the
Company. In addition, certain current competitors and potential future
competitors have, or may have greater resources than the Company to devote
further technologies and new product developments to the development of
Internet gaming. There can be no assurance that existing or future
competitors will not develop or offer technologies that provide significant
economic, technological, creative or strategic advantages over those offered
by the Company. The Company's future success in the Internet Gaming
Consulting field is dependent on the evolving regulatory and competitive
environment. There is no assurance that the Company's present and
contemplated services provided to "Internet gaming casinos" will achieve or
maintain sufficient commercial acceptance, or if they do, that regulatory
developments will not diminish the full economic potential of such virtual
gaming sites.
o VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been, and will likely
continue to be, subject to wide fluctuations because of Indian gaming
regulatory developments, quarterly variations in the Company's operating
results, announcements of new products or business activities by the Company
or its competitors, general market fluctuations, and other events and
factors. These factors, coupled with the small public float, have in the
past, and could in the future, result in wide fluctuations in the market
trading price.
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o YEAR 2000 READINESS DISCLOSURE
Many of the world's computer systems currently record years in a two-digit
format. Such computer systems will be unable to properly interpret dates
beyond the year 1999 that could lead to business disruptions in the U.S.
and internationally (the "Year 2000 issue"). The potential costs and
uncertainties associated with the Year 2000 issue will depend on a number
of factors, including software, hardware and the nature of the industries
in which the Company and its subsidiaries operate. Additionally, companies
must coordinate with other entities with which they electronically
interact, such as customers and creditors.
The Company has addressed the critical systems and related software used in
the Cyberworks business as well as Inland's internal financial and
administrative systems and has determined that they are Year 2000 compliant
or are not adversely impacted by the Year 2000 issue. No significant costs
were incurred to perform the evaluation and testing of these systems, and
all costs have been expensed as incurred. The Company will continue to
evaluate all system upgrades, new hardware and software purchases through
the Year 2000.
The Company is addressing the impact to their most significant customer,
the Barona Casino, and the impact to WMH's on-line gaming computer software
vendor.
The Barona Casino has formed a committee to address the Year 2000 issue. It
has a strategy that includes an analysis phase, project plan, testing
phase, implementation phase and a risk contingency plan. The Company is in
the process of reviewing their strategic plan and has made formal inquiries
as to their progress during the first quarter of Fiscal 2000. According to
representations made by Barona Casino management, they have (a) sent
letters to critical vendors requesting Year 2000 compliance and contingency
plan information; (b) identified problem systems; (c) implemented and
tested software patches and/or upgrades to various systems, including
inventory, accounting, human resources, and payroll; (d) substantially
completed the replacement of all personal computers to Year 2000 compliant
hardware; (e) replaced network servers; and (f) purchased Year 2000
diagnostic software that has been, and will continue to be in use
throughout the year to test PC's, servers and software. None of the vendor
responses received to date indicate that a material Year 2000 related
disruption to systems or operations will adversely impact the Barona
Casino. Additionally, the Barona Casino has evaluated the potential impact
of the Year 2000 issues on it's equipment and machines that contain
software or microchips that have date logic dependencies. Based on
inquiries to vendors, bench tests, and other diagnostic procedures, the
Barona Casino believes that there will be no material adverse impact or
failures caused by Year 2000 issues related to it's equipment or machines.
The on-line gaming casinos marketed and promoted by WMH are dependent on a
third-party foreign computer software supplier (the "supplier"). The
supplier provides both the gaming casino software as well as the electronic
commerce system that handles all wagers. The Company has requested Year
2000 compliance and contingency plan information from this supplier.
According to representations made by the management of the supplier, they
have undertaken an evaluation of the potential impact of the transition to
the Year 2000 on their products and they are not aware of any material
issues relating to Year 2000 compliance in respect to their products.
However, the Year 2000 compliance of the supplier's products may be
affected to the extent that the supplier's electronic commerce and gaming
software incorporates or operates in conjunction with the software of other
developers which may not be Year 2000 compliant. If the systems of the
financial institutions, credit card processors, or others involved in
electronic commerce transactions are not Year 2000 compliant, there can be
no assurance that the supplier's software, in connection with these
products, will operate consistently in the Year 2000. The supplier is still
in the process of assessing the extent to which they are vulnerable to the
failure of their significant customers and suppliers to remediate their own
Year 2000 issues, and is making an attempt to obtain assurance from the
credit card processors and other suppliers of their Year 2000 readiness. In
the event of inconsistent operation of the supplier's casino software and
electronic commerce system in the
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Year 2000, there could be a material adverse impact on the operations of
WMH's on-line gaming operations.
The Company has requested and obtained Year 2000 compliance and contingency
plan information from other major suppliers and customers of the Company
and its subsidiaries to assess the potential risks of non-compliance and
the resulting impact on the Company. At this time, the Company has not
identified any major supplier or customer that is non-compliant or that
poses a risk to the Company. The Company has completed the process for all
identified existing suppliers and customers, and will continue this process
throughout 1999 for new suppliers and customers. The Company, however, will
not be able to independently verify that such external suppliers and
customers are, in fact, Year 2000 compliant.
The Company's plan to evaluate the status of suppliers' and customers'
efforts is a means of managing risk but cannot eliminate the potential for
disruption due to third party failure. If it is determined that any of the
Company's or its subsidiaries' vendors, major suppliers, customers or other
parties with which the Company or its subsidiaries conduct business, has an
issue with Year 2000 compliance, the Company will pursue alternative
business relationships (with the exception of the Barona Casino) to
minimize the impact, if any, that such a relationship(s), will have on the
Company's and its subsidiaries' operations. If it is determined that the
Barona Casino has a Year 2000 compliance problem, the Company would
actively support their efforts to gain compliance in a timely manner to
mitigate system failures causing disruptions in their operations. The cost
or the likelihood of this event occurring is not known at this time.
As of September 30, 1999, total costs relating to the Company's compliance
efforts, based upon management's best estimates, were 45 man-hours of the
Company's personnel and $3,400. Costs for Year 2000 compliance evaluation
will continue to be expensed as incurred and are not expected to have a
material impact on the Company's consolidated results of operations.
The information set forth above under this caption "Year 2000 Readiness
Disclosure" relates to the Company's efforts to address the Year 2000
concerns regarding the Company's (a) operations; (b) services, products and
technologies sold to third parties; and (c) major suppliers and customers.
Such statements are intended as Year 2000 Statements and Year 2000 Readiness
Disclosures and are subject to the Year 2000 Information Readiness Act.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The Exhibits listed below are hereby filed with the U.S.
Securities and Exchange Commission (the "Commission") as part of this Quarterly
Report on Form 10-QSB.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2.1 Asset Purchase Agreement dated as of July 16, 1999
by and among the Company, Typhoon Capital
Consultants, LLC, Sanjay Sabnani and Manisha
Sabnani, previously filed as Exhibit 2.4 to the
Company's Annual Report on Form 10-KSB for the
Fiscal Year ended June 30, 1999, dated September
27, 1999 and filed with the Commission on
September 28, 1999 (File No. 0-11532) (the "Fiscal
1999 Annual Report"), is hereby incorporated
herein by reference.
10.1 Employment Agreement by and between the Company
and Sanjay Sabnani, dated July 16, 1999,
previously filed as Exhibit 10.8 to the Fiscal
1999 Annual Report, is hereby incorporated herein
by reference.
10.2 Assignment, Assumption and Consent dated September
28, 1999 by and between Typhoon Capital
Consultants, LLC, dba: Venture-Catalyst.com,
Inland Entertainment Corporation and Spieker
Properties, L.P. relating to the March 22, 1999
Santa Monica, California Office Lease.
10.3 Lease Agreement dated March 22, 1999, by and
between Typhoon Capital Consultants, LLC, dba:
Venture-Catalyst.com, and Spieker Properties, L.P.
10.4 Assignment and Assumption Agreement dated as of
July 16, 1999, by and among the Company, Typhoon
Capital Consultants, LLC, Sanjay Sabnani and
Manisha Sabnani.
10.5 Negotiable Secured Promissory Note, dated August
5, 1999, of Christopher Wm. Voisin, in favor of
the Company in the principal amount of $49,462,
previously filed as Exhibit 10.37 to the Fiscal
1999 Annual Report (specifically included in
Amendment No. 1 to the 1999 Annual Report dated
and filed with the Commission on Form 10-KSB/A on
October 27, 1999), is hereby incorporated herein
by reference
27 Financial Data Schedule.
</TABLE>
21
<PAGE> 22
(b) Reports on Form 8-K. During the Company's first quarter ended September 30,
1999 the Company filed two Current Reports on Form 8-K; one dated July 28, 1999,
and the other dated September 13, 1999. Each such Current Report reported under
"Item 5. Other Events" an updated Beneficial Ownership Table for the Company.
22
<PAGE> 23
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INLAND ENTERTAINMENT CORPORATION,
a Utah Corporation
Date: November 12, 1999 By: /S/ ANDREW B. LAUB
--------------------
Andrew B. Laub
Executive Vice President,
Chief Financial Officer and
Treasurer
(Authorized Signatory, Principal
Financial Officer)
Date: November 12, 1999 By: /S/ KEVIN MCINTOSH
--------------------
Kevin McIntosh
Controller
(Principal Accounting Officer)
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
2.1 Asset Purchase Agreement dated as of July 16, 1999
by and among the Company, Typhoon Capital
Consultants, LLC, Sanjay Sabnani and Manisha
Sabnani, previously filed as Exhibit 2.4 to the
Company's Annual Report on Form 10-KSB for the
Fiscal Year ended June 30, 1999, dated September
27, 1999 and filed with the Commission on
September 28, 1999 (File No. 0-11532) (the "Fiscal
1999 Annual Report"), is hereby incorporated
herein by reference.
10.1 Employment Agreement by and between the Company
and Sanjay Sabnani, dated July 16, 1999,
previously filed as Exhibit 10.8 to the Fiscal
1999 Annual Report, is hereby incorporated herein
by reference.
10.2 Assignment, Assumption and Consent dated September
28, 1999 by and between Typhoon Capital
Consultants, LLC, dba: Venture-Catalyst.com,
Inland Entertainment Corporation and Spieker
Properties, L.P. relating to the March 22, 1999
Santa Monica, California Office Lease.
10.3 Lease Agreement dated March 22, 1999, by and
between Typhoon Capital Consultants, LLC, dba:
Venture-Catalyst.com, and Spieker Properties, L.P.
10.4 Assignment and Assumption Agreement dated as of
July 16, 1999, by and among the Company, Typhoon
Capital Consultants, LLC, Sanjay Sabnani and
Manisha Sabnani.
10.5 Negotiable Secured Promissory Note, dated August
5, 1999, of Christopher Wm. Voisin, in favor of
the Company in the principal amount of $49,462,
previously filed as Exhibit 10.37 to the Fiscal
1999 Annual Report (specifically included in
Amendment No. 1 to the 1999 Annual Report dated
and filed with the Commission on Form 10-KSB/A on
October 27, 1999), is hereby incorporated herein
by reference
27 Financial Data Schedule.
</TABLE>
24
<PAGE> 1
EXHIBIT 10.2
[LOGO]
ASSIGNMENT, ASSUMPTION AND CONSENT
ASSIGNMENT OF LEASE
For valuable consideration, the receipt of which is hereby acknowledged, the
undersigned Typhoon Capital Consultants, LLC, d.b.a.: Venture-Catalyst.com
("ASSIGNOR"), hereby assigns and transfers to Inland Entertainment Corporation,
a Utah corporation ("ASSIGNEE"), all of its right, title and interest in and to
that certain Lease dated March 22, 1999, (the "LEASE") by and between SPIEKER
PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP ("LANDLORD"), as Landlord,
and Assignor, as Tenant, leasing those certain premises described as
approximately 852 rentable square feet located at 3420 Ocean Park Boulevard,
Suite 3020, Santa Monica, CA 90405. Assignor and Sanjay Sabnani ("GUARANTOR")
hereby agree that this assignment shall not relieve Assignor of any liability or
obligation under the Lease, or such guarantor of any liability or obligation
under its guaranty of the Lease, and that Assignor shall continue to remain
liable under the Lease as a principal obligor and not as a surety, and such
guarantor shall continue to remain liable under its guaranty of the Lease, in
each case notwithstanding such assignment. Assignor further agrees that a
subsequent modification or extension of the Lease shall not relieve Assignor or
any guarantor of the Lease of any liability or obligation under the Lease or any
guaranty of the Lease.
This assignment is effective as of September 7, 1999.
Dated: 9/28/99 ASSIGNOR: /s/ Sanjay Sabnani
--------------------------------------
a Typhoon Capital Consultants, LLC,
DBA / Venture-Catalyst.com
By: Sanjay Sabnani
Title: President
[GUARANTOR: /s/ Sanjay Sabnani
-------------------------------------
a
------------------------------
By: Sanjay Sabnani
Title: President ]
ASSUMPTION OF LEASE
Assignee hereby accepts the foregoing assignment effective September 7, 1999,
and in consideration of Landlord's consent thereto, Assignee agrees to be bound
by and to faithfully, timely and fully perform all of the terms and conditions
and agreements contained in the Lease, and to pay promptly all rental and other
payments thereunder of whatever nature. Assignee warrants that it has read the
Lease which is made a part hereof by this reference.
Assignee further understands and agrees that Landlord's consent to this
assignment is not a consent to any subsequent assignments. Assignee agrees that
if, at any time during the remaining term of the Lease, it seeks a future
assignment, Assignee shall pay to Landlord a sum equal to Two Hundred Fifty
Dollars ($250.00) for Landlord's review of the proposed assignment, whether or
not Landlord consents to the proposed assignment. Assignee will pay Landlord's
actual attorneys' fees incurred for reviewing,
<PAGE> 2
[LOGO]
investigating, processing and/or documenting any requested assignment, whether
or not Landlord's consent is granted.
Dated: September 30, 1999 ASSIGNEE: Inland Entertainment Corporation
a Utah Corporation
By: /s/ ANDREW B. LAUB
-------------------------------------------
Title: Chief Financial Officer and
Executive V.P.
CONSENT
Landlord hereby consents to the foregoing assignment by Assignor to Assignee of
the Lease, on the condition that (a) Assignee will promptly pay all rents and
other monies required under the Lease and this assignment, and will perform all
terms, covenants and conditions therein to be performed by Tenant and (b)
Assignor agrees to continue to remain liable under the Lease as principal
obligor and not as surety, and any guarantor of the Lease agrees to continue to
remain liable under its guaranty of the Lease, in each case notwithstanding such
assignment.
Dated: 10/11/99 LANDLORD: SPIEKER PROPERTIES, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation
Its: general partner
By: /s/ John Davenport
-----------------------------------
John Davenport
Its: Regional Senior Vice President
10/5/99
/s/ TAH
----------
Initials
<PAGE> 1
EXHIBIT 10.3
BASIC LEASE INFORMATION
OFFICE GROSS
<TABLE>
<S> <C>
LEASE DATE: March 22, 1999
(same as date in first paragraph of Lease)
TENANT: Typhoon Capital Consultants, LLC
dba: Venture-Catalyst.com
TENANT'S NOTICE ADDRESS: 3420 Ocean Park Blvd., Suite 3020
Santa Monica, CA 90405
TENANT'S BILLING ADDRESS: 3420 Ocean Park Blvd., Suite 3020
Santa Monica, CA 90405
TENANT CONTACT: PHONE NUMBER: (to be given at a later date)
FAX NUMBER:
LANDLORD: Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS: 3250 Ocean Park Blvd., Suite 150
Santa Monica, CA 90405
LANDLORD'S REMITTANCE ADDRESS: P.O. Box 60077
Department 12351
Los Angeles, CA 90060-0077
PROJECT DESCRIPTION: A project commonly known as Santa Monica Business Park
consisting of approximately 19 buildings as further shown on
Exhibit B and attached hereto.
BUILDING DESCRIPTION: A three (3) story office building, located at 3420 Ocean Park Blvd.,
Santa Monica, CA 90405, as further shown on Exhibit B and attached hereto.
PREMISES: Approximately 852 rentable square feet in Suite 3020 located
in the above described building as shown on Exhibit B and
attached hereto.
PERMITTED USE: General office use.
OCCUPANCY DENSITY: Four (4) individuals/1,000 rentable square feet.
PARKING DENSITY: Four (4)/1,000 rentable square feet
PARKING AND PARKING CHARGE: Four (4) unreserved spaces at $60.00 per space / per month, plus
applicable municipal city tax per space. (This rate is market adjusted
and may vary). One (1) additional parking space at current rates on a
month-to-month basis subject to availability.
SCHEDULED TERM COMMENCEMENT DATE: March 26, 1999
SCHEDULED LENGTH OF TERM: Thirty-six (36) months
SCHEDULED TERM EXPIRATION DATE: March 31, 2002
RENT:
BASE RENT: 3/26/99-3/31/00: $1,746.60/month
4/1/00-3/31/01: $1,816.46/month
4/1/00-3/31/02: $1,889.12/month
BASE YEAR FOR OPERATING EXPENSES: 1999
SECURITY DEPOSIT: $3,778.24
TENANT'S PROPORTIONATE SHARE:
OF BUILDING: 0.75%
Lease Guaranteed by: Sanjay Sabnani
</TABLE>
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
<PAGE> 2
LANDLORD TENANT
Spieker Properties, L.P., Typhoon Capital Consultants, LLC
a California limited partnership dba: Venture-Catalyst.com
By: Spieker Properties, Inc., By: /s/ Sanjay Sabnani
a Maryland corporation, --------------------------
its general partner Sanjay Sabnani
Its: President
By: /s/ Jeffrey K. Nickell Date: March 23, 1999
-----------------------------
Jeffrey K. Nickell
Its: Vice President
Date: 3/24/99
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Basic Lease Information.................................................................................. 1
Table of Contents........................................................................................ 2
1. Premises................................................................................................. 4
2. Possession and Lease Commencement........................................................................ 4
3. Term..................................................................................................... 4
4. Use...................................................................................................... 4
5. Rules and Regulations.................................................................................... 5
6. Rent..................................................................................................... 5
7. Operating Expenses....................................................................................... 5
8. Insurance and Indemnification............................................................................ 7
9. Waiver of Subrogation.................................................................................... 8
10. Landlord's Repairs and Maintenance....................................................................... 8
11. Tenant's Repairs and Maintenance......................................................................... 8
12. Alterations.............................................................................................. 9
13. Signs.................................................................................................... 9
14. Inspection/Posting Notices............................................................................... 9
15. Services and Utilities................................................................................... 9
16. Subordination............................................................................................ 10
17. Financial Statements..................................................................................... 10
18. Estoppel Certificate..................................................................................... 11
19. Security Deposit......................................................................................... 11
20. Limitation of Tenant's Remedies.......................................................................... 11
21. Assignment and Subletting................................................................................ 11
22. Authority of Tenant...................................................................................... 12
23. Condemnation............................................................................................. 12
24. Casualty Damage.......................................................................................... 12
25. Holding Over............................................................................................. 13
26. Default.................................................................................................. 13
27. Liens.................................................................................................... 14
28. Substitution............................................................................................. 14
29. Transfers by Landlord.................................................................................... 14
30. Right of Landlord to Perform Tenant's Covenants.......................................................... 15
31. Waiver................................................................................................... 15
32. Notices.................................................................................................. 15
33. Attorney's Fees.......................................................................................... 15
34. Successors and Assigns................................................................................... 15
35. Force Majeure............................................................................................ 15
36. Surrender of Premises.................................................................................... 15
37. Parking.................................................................................................. 16
38. Miscellaneous............................................................................................ 16
39. Additional Provisions.................................................................................... 17
40. Jury Trial Waiver........................................................................................ 17
Signatures............................................................................................... 17
</TABLE>
Exhibits:
<TABLE>
<S> <C>
Exhibit A................................................................................Rules and Regulations
Exhibit B......................................................................Site Plan, Property Description
Exhibit C...............................................................Tenant Improvements and Specifications
Additional Exhibits as Required
</TABLE>
3
<PAGE> 4
LEASE
THIS LEASE is made as of the 22nd day of March, 1999, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"LANDLORD"), and Typhoon Capital Consultants, LLC, dba:
Venture-Catalyst.com (hereinafter called "TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises (the "PREMISES") outlined
in red on EXHIBIT B and described in the Basic Lease Information. The Premises
shall be all or part of a building (the "BUILDING") and of a project (the
"PROJECT"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are outlined in blue and green respectively on EXHIBIT B. Landlord and
Tenant acknowledge that physical changes may occur from time to time in the
Premises, Building or Project, and that the number of buildings and additional
facilities which constitute the Project may change from time to time, which may
result in an adjustment in Tenant's Proportionate Share, as defined in the Basic
Lease Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A. EXISTING IMPROVEMENTS. If this Lease pertains to a Premises in which the
interior improvements have already been constructed ("EXISTING IMPROVEMENTS"),
the provisions of this Paragraph 2.A. shall apply and the term commencement date
("TERM COMMENCEMENT DATE") shall be the earlier of the date on which: (1) Tenant
takes possession of some or all of the Premises; or (2) Landlord notifies Tenant
that Tenant may occupy the Premises. If for any reason Landlord cannot deliver
possession of the Premises to Tenant on the scheduled Term Commencement Date,
Landlord shall not be subject to any liability therefor, nor shall Landlord be
in default hereunder nor shall such failure affect the validity of this Lease,
and Tenant agrees to accept possession of the Premises at such time as Landlord
is able to deliver the same, which date shall then be deemed the Term
Commencement Date. Tenant shall not be liable for any Rent (defined below) for
any period prior to the Term Commencement Date. Tenant acknowledges that Tenant
has inspected and accepts the Premises in their present condition, "as is," and
as suitable for, the Permitted Use (as defined below), and for Tenant's intended
operations in the Premises. Tenant agrees that the Premises and other
improvements are in good and satisfactory condition as of when possession was
taken. Tenant further acknowledges that no representations as to the condition
or repair of the Premises nor promises to alter, remodel or improve the Premises
have been made by Landlord or any agents of Landlord unless such are expressly
set forth in this Lease. Upon Landlord's request, Tenant shall promptly execute
and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among
other things, to acceptance of the Premises and to the determination of the Term
Commencement Date, in accordance with the terms of this Lease, but Tenant's
failure or refusal to do so shall not negate Tenant's acceptance of the Premises
or affect determination of the Term Commencement Date.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the provisions
of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A.
above and the term commencement date ("TERM COMMENCEMENT DATE") shall be the
earlier of the date on which: (1) Tenant takes possession of some or all of the
Premises; or (2) the improvements to be constructed or performed in the Premises
by Landlord (if any) shall have been substantially completed in accordance with
the plans and specifications, if any, described on EXHIBIT C and Tenant's taking
of possession of the Premises or any part thereof shall constitute Tenant's
confirmation of substantial completion for all purposes hereof, whether or not
substantial completion of the Building or Project shall have occurred. If for
any reason Landlord cannot deliver possession of the Premises to Tenant on the
scheduled Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder nor shall such failure
affect the validity of this Lease, and Tenant agrees to accept possession of the
Premises at such time as such improvements have been substantially completed,
which date shall then be deemed the Term Commencement Date. Tenant shall not be
liable for any Rent for any period prior to the Term Commencement Date (but
without affecting any obligations of Tenant under any improvement agreement
appended to this Lease). In the event of any dispute as to substantial
completion of work performed or required to be performed by Landlord, the
certificate of Landlord's architect or general contractor shall be conclusive.
Substantial completion shall have occurred notwithstanding Tenant's submission
of a punchlist to Landlord, which Tenant shall submit, if at all, within three
(3) business days after the Term Commencement Date or otherwise in accordance
with any improvement agreement appended to this Lease. Upon Landlord's request,
Tenant shall promptly execute and return to Landlord a "Start-Up Letter" in
which Tenant shall agree, among other things, to acceptance of the Premises and
to the determination of the Term Commencement Date, in accordance with the terms
of this Lease, but Tenant's failure or refusal to do so shall not negate
Tenant's acceptance of the Premises or affect determination of the Term
Commencement Date.
3. TERM
The term of this Lease (the "TERM") shall commence on the Term Commencement
Date and continue in full force and effect for the number of months specified as
the Length of Term in the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a date
other than the first day of the calendar month, the Term shall be the number of
months of the Length of Term in addition to the remainder of the calendar month
following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in the
Basic Lease Information ("PERMITTED USE") and for no other use or purpose.
Tenant shall control Tenant's employees, agents, customers, visitors, invitees,
licensees, contractors, assignees and subtenants (collectively, "TENANT'S
PARTIES") in such a manner that Tenant and Tenant's Parties cumulatively do not
exceed the occupant density (the "OCCUPANCY DENSITY") or the parking density
(the "PARKING DENSITY") specified in the Basic Lease Information at any time.
Tenant shall pay the Parking Charge specified in the Basic Lease Information as
Additional Rent (as hereinafter defined) hereunder. So long as Tenant is
occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive
right to use, in common with other parties occupying the Building or Project,
the parking areas, driveways and other common areas of the Building and Project,
subject to the terms of this Lease and such rules and regulations as Landlord
may from time to time prescribe. Landlord reserves the right, without notice or
liability to Tenant, and without the same constituting an actual or constructive
eviction, to alter or modify the common areas from time to time, including the
location and configuration thereof, and the amenities and facilities which
Landlord may determine to provide from time to time.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas, substances,
noise or vibrations to emanate from the Premises or from any portion of the
common areas as a result of Tenant's or any Tenant's Party's use thereof, nor
take any action which would constitute a nuisance or would disturb, obstruct or
endanger any other tenants or occupants of the Building or Project or elsewhere,
or interfere with their use of their respective premises or common areas.
Storage outside the Premises of materials, vehicles or any other items is
prohibited. Tenant shall not use or allow the Premises to be used for any
immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer the commission of any waste in, on or about the Premises. Tenant shall
not allow any sale by auction upon the Premises, or place any loads upon the
floors, walls or
4
<PAGE> 5
ceilings which could endanger the structure, or place any harmful substances in
the drainage system of the Building or Project. No waste, materials or refuse
shall be dumped upon or permitted to remain outside the Premises. Landlord shall
not be responsible to Tenant for the non-compliance by any other tenant or
occupant of the Building or Project with any of the above-referenced rules or
any other terms or provisions of such tenant's or occupant's lease or other
contract.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the
Premises in the condition existing as of the date of such entry. Tenant shall at
its sole cost and expense strictly comply with all existing or future applicable
municipal, state and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, easements and restrictions of record governing and
relating to the use, occupancy or possession of the Premises, to Tenant's use of
the common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) (collectively "REGULATIONS"). Tenant shall at
its sole cost and expense obtain any and all licenses or permits necessary for
Tenant's use of the Premises. Tenant shall at its sole cost and expense promptly
comply with the requirements of any board of fire underwriters or other similar
body now or hereafter constituted. Tenant shall not do or permit anything to be
done in, on, under or about the Project or bring or keep anything which will in
any way increase the rate of any insurance upon the Premises, Building or
Project or upon any contents therein or cause a cancellation of said insurance
or otherwise affect said insurance in any manner. Tenant shall indemnify, defend
(by counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any loss, cost, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply with any Regulation.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause,
any Hazardous Materials to be handled, used, generated, stored, released or
disposed of in, on, under or about the Premises, the Building or the Project or
surrounding land or environment in violation of any Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials onto the Project. Notwithstanding the foregoing, Tenant may handle,
store, use and dispose of products containing small quantities of Hazardous
Materials for "general office purposes" (such as toner for copiers) to the
extent customary and necessary for the Permitted Use of the Premises; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which Tenant
becomes aware, whether or not caused by Tenant. Landlord shall have the right at
all reasonable times to inspect the Premises and to conduct tests and
investigations to determine whether Tenant is in compliance with the foregoing
provisions, the costs of all such inspections, tests and investigations to be
borne by Tenant. Tenant shall indemnify, defend (by counsel reasonably
acceptable to Landlord), protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses (including attorneys' and consultants' fees and court
costs), demands, causes of action, or judgments directly or indirectly arising
out of or related to the use, generation, storage, release, or disposal of
Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or about
the Premises, the Building or the Project or surrounding land or environment,
which indemnity shall include, without limitation, damages for personal or
bodily injury, property damage, damage to the environment or natural resources
occurring on or off the Premises, losses attributable to diminution in value or
adverse effects on marketability, the cost of any investigation, monitoring,
government oversight, repair, removal, remediation, restoration, abatement, and
disposal, and the preparation of any closure or other required plans, whether
such action is required or necessary prior to or following the expiration or
earlier termination of this Lease. Neither the consent by Landlord to the use,
generation, storage, release or disposal of Hazardous Materials nor the strict
compliance by Tenant with all laws pertaining to Hazardous Materials shall
excuse Tenant from Tenant's obligation of indemnification pursuant to this
Paragraph 4.D. Tenant's obligations pursuant to the foregoing indemnity shall
survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as EXHIBIT A and any other rules and regulations and
any modifications or additions thereto which Landlord may from time to time
prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant's Parties to comply with such
rules and regulations. Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project with
any of such rules and regulations, any other tenant's or occupant's lease or any
Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the first
day of each calendar month, in lawful money of the United States, without
deduction or offset whatsoever, at the Remittance Address specified in the Basic
Lease Information or to such other place as Landlord may from time to time
designate in writing. Base Rent for the first full month of the Term shall be
paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base Rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
elsewhere in this Lease, as applicable. As used herein, the term "Base Rent"
shall mean the Base Rent specified in the Basic Lease Information as it may be
so adjusted from time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of
Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under Paragraph 15, the interest and late charge described in
Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph
30, shall be considered additional rent ("ADDITIONAL RENT"). "RENT" shall mean
Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, beginning with the expiration of the Base Year specified in the Basic
Lease Information (the "BASE YEAR"), Tenant shall pay as Additional Rent,
Tenant's Proportionate Share of the Building and/or Project (as applicable), as
defined in the Basic Lease Information, of increases in Operating Expenses
(defined below) over the Operating Expenses incurred by Landlord during the Base
Year (the "BASE YEAR OPERATING EXPENSES"), in the manner set forth below. Tenant
shall pay the applicable Tenant's Proportionate Share of each such Operating
Expenses. Landlord and Tenant acknowledge that if the number of buildings which
constitute the Project increases or decreases, or if physical changes are made
to the Premises, Building or Project or the configuration of any thereof,
Landlord may at its discretion reasonably adjust Tenant's Proportionate Share of
the Building or Project to reflect the change. Landlord's determination of
Tenant's Proportionate Share of the Building and of the Project shall be
conclusive so long as it is reasonably and consistently applied. "OPERATING
EXPENSES" shall mean all expenses and costs of every kind and nature which
Landlord shall pay or become obligated to pay, because of or in connection with
the ownership, management, maintenance, repair, preservation, replacement and
operation of the Building or Project and its supporting facilities and such
additional facilities now and in subsequent years as may be determined by
Landlord to be necessary or desirable to the Building and/or Project (as
determined in a reasonable manner) other than those expenses and costs which are
specifically attributable to Tenant or which
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are expressly made the financial responsibility of Landlord or specific tenants
of the Building or Project pursuant to this Lease. Operating Expenses shall
include, but are not limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes
or fees, gross receipts taxes, service payments in lieu of such taxes
or fees, annual or periodic license or use fees, excises, transit
charges, and other impositions, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind (including
fees "in-lieu" of any such tax or assessment) which are now or
hereafter assessed, levied, charged, confirmed, or imposed by any
public authority upon the Building or Project, its operations or the
Rent (or any portion or component thereof), or any tax, assessment or
fee imposed in substitution, partially or totally, of any of the above.
Operating Expenses shall also include any taxes, assessments,
reassessments, or other fees or impositions with respect to the
development, leasing, management, maintenance, alteration, repair, use
or occupancy of the Premises, Building or Project or any portion
thereof, including, without limitation, by or for Tenant, and all
increases therein or reassessments thereof whether the increases or
reassessments result from increased rate and/or valuation (whether upon
a transfer of the Building or Project or any portion thereof or any
interest therein or for any other reason). Operating Expenses shall not
include inheritance or estate taxes imposed upon or assessed against
the interest of any person in the Project, or taxes computed upon the
basis of the net income of any owners of any interest in the Project.
If it shall not be lawful for Tenant to reimburse Landlord for all or
any part of such taxes, the monthly rental payable to Landlord under
this Lease shall be revised to net Landlord the same net rental after
imposition of any such taxes by Landlord as would have been payable to
Landlord prior to the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of
insurance incurred by Landlord, including for the insurance coverage
set forth in Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and for
the Building and Project and public and common areas and
facilities of and comprising the Building and Project,
including, but not limited to, the roof and roof membrane,
windows, elevators, restrooms, conference rooms, health club
facilities, lobbies, mezzanines, balconies, mechanical rooms,
building exteriors, alarm systems, pest extermination,
landscaped areas, parking and service areas, driveways,
sidewalks, loading areas, fire sprinkler systems, sanitary and
storm sewer lines, utility services, heating/ventilation/air
conditioning systems, electrical, mechanical or other systems,
telephone equipment and wiring servicing, plumbing, lighting,
and any other items or areas which affect the operation or
appearance of the Building or Project, which determination
shall be at Landlord's discretion, except for: those items
expressly made the financial responsibility of Landlord
pursuant to Paragraph 10 hereof; those items to the extent
paid for by the proceeds of insurance; and those items
attributable solely or jointly to specific tenants of the
Building or Project.
(b) Repairs, replacements, and general maintenance shall
include the cost of any capital improvements made to or
capital assets acquired for the Project or Building that in
Landlord's discretion may reduce any other Operating Expenses,
including present or future repair work, are reasonably
necessary for the health and safety of the occupants of the
Building or Project, or are required to comply with any
Regulation, such costs or allocable portions thereof to be
amortized over such reasonable period as Landlord shall
determine, together with interest on the unamortized balance
at the publicly announced "prime rate" charged by Wells Fargo
Bank, N.A. (San Francisco) or its successor at the time such
improvements or capital assets are constructed or acquired,
plus two (2) percentage points, or in the absence of such
prime rate, then at the U.S. Treasury six-month market note
(or bond, if so designated) rate as published by any national
financial publication selected by Landlord, plus four (4)
percentage points, but in no event more than the maximum rate
permitted by law, plus reasonable financing charges.
(c) Payment under or for any easement, license, permit,
operating agreement, declaration, restrictive covenant or
instrument relating to the Building or Project.
(d) All expenses and rental related to services and costs of
supplies, materials and equipment used in operating, managing
and maintaining the Premises, Building and Project, the
equipment therein and the adjacent sidewalks, driveways,
parking and service areas, including, without limitation,
expenses related to service agreements regarding security,
fire and other alarm systems, janitorial services, window
cleaning, elevator maintenance, Building exterior maintenance,
landscaping and expenses related to the administration,
management and operation of the Project, including without
limitation salaries, wages and benefits and management office
rent.
(e) The cost of supplying any services and utilities which
benefit all or a portion of the Premises, Building or Project,
including without limitation services and utilities provided
pursuant to Paragraph 15 hereof.
(f) Legal expenses and the cost of audits by certified public
accountants; provided, however, that legal expenses chargeable
as Operating Expenses shall not include the cost of
negotiating leases, collecting rents, evicting tenants nor
shall it include costs incurred in legal proceedings with or
against any tenant or to enforce the provisions of any lease.
(g) A management and accounting cost recovery fee equal to
five percent (5%) of the sum of the Project's base rents and
Operating Expenses to the extent not included in such base
rents (other than such management and accounting fee).
If the rentable area of the Building and/or Project is not fully occupied during
any fiscal year of the Term as determined by Landlord, an adjustment may be made
in Landlord's discretion in computing the Operating Expenses for such year so
that Tenant pays an equitable portion of all variable items (e.g., utilities,
janitorial services and other component expenses that are affected by variations
in occupancy levels) of Operating Expenses, as reasonably determined by
Landlord; provided, however, that in no event shall Landlord be entitled to
collect in excess of one hundred percent (100%) of the total Operating Expenses
from all of the tenants in the Building or Project, as the case may be.
Operating Expenses shall not include the cost of providing tenant improvements
or other specific costs incurred for the account of, separately billed to and
paid by specific tenants of the Building or Project, the initial construction
cost of the Building, or debt service on any mortgage or deed of trust recorded
with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above.
Notwithstanding anything herein to the contrary, in any instance wherein
Landlord, in Landlord's sole discretion, deems Tenant to be responsible for any
amounts greater than Tenant's Proportionate Share, Landlord shall have the right
to allocate costs in any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed to impose
an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that it
shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
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B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING EXPENSES" for
any particular year shall mean Landlord's estimate of the Operating Expenses for
such fiscal year made with respect to such fiscal year as hereinafter provided.
Landlord shall have the right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so revised are reconciled
with prior periods in a reasonable manner. During the last month of each fiscal
year during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the difference between
Estimated Operating Expenses and Base Year Operating Expenses with installments
of Base Rent for the fiscal year to which the Estimated Operating Expenses
applies in monthly installments on the first day of each calendar month during
such year, in advance. Such payment shall be construed to be Additional Rent for
all purposes hereunder. If at any time during the course of the fiscal year,
Landlord determines that Operating Expenses are projected to vary from the then
Estimated Operating Expenses by more than five percent (5%), Landlord may, by
written notice to Tenant, revise the Estimated Operating Expenses for the
balance of such fiscal year, and Tenant's monthly installments for the remainder
of such year shall be adjusted so that by the end of such fiscal year Tenant has
paid to Landlord Tenant's Proportionate Share of the revised difference between
Estimated Operating Expenses and Base Year Operating Expenses for such year,
such revised installment amounts to be Additional Rent for all purposes
hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE ADJUSTMENT"
shall mean the difference between Estimated Operating Expenses and actual
Operating Expenses for any fiscal year, over Base Year Operating Expenses,
determined as hereinafter provided. Within one hundred twenty (120) days after
the end of each fiscal year, or as soon thereafter as practicable, Landlord
shall deliver to Tenant a statement of actual Operating Expenses for the fiscal
year just ended, accompanied by a computation of Operating Expense Adjustment.
If such statement shows that Tenant's payment based upon Estimated Operating
Expenses is less than Tenant's Proportionate Share of actual increases in
Operating Expenses over the Base Year Operating Expenses, then Tenant shall pay
to Landlord the difference within twenty (20) days after receipt of such
statement, such payment to constitute Additional Rent for all purposes
hereunder. If such statement shows that Tenant's payments of Estimated Operating
Expenses exceed Tenant's Proportionate Share of actual increases in Operating
Expenses over the Base Year Operating Expenses, then (provided that Tenant is
not in default under this Lease) Landlord shall pay to Tenant the difference
within twenty (20) days after delivery of such statement to Tenant. If this
Lease has been terminated or the Term hereof has expired prior to the date of
such statement, then the Operating Expense Adjustment shall be paid by the
appropriate party within twenty (20) days after the date of delivery of the
statement. Tenant's obligation to pay increases in Operating Expenses over the
Base Year Operating Expenses shall commence on January 1 of the year succeeding
the Base Year. Should this Lease terminate at any time other than the last day
of the fiscal year, Tenant's Proportionate Share of the Operating Expense
Adjustment shall be prorated based on a month of 30 days and the number of
calendar months during such fiscal year that this Lease is in effect. Tenant
shall in no event be entitled to any credit if Operating Expenses in any year
are less than Base Year Operating Expenses. Notwithstanding anything to the
contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any
notices or statements within the time periods specified in those paragraphs
shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate
Share of increases in Operating Expenses.
D. GROSS LEASE. This shall be a gross Lease; however, it is intended that Base
Rent shall be paid to Landlord absolutely net of all costs and expenses other
than Operating Expenses each year equal to Tenant's Proportionate Share of Base
Year Operating Expenses, except as otherwise specifically provided to the
contrary in this Lease. The provisions for payment of increases in Operating
Expenses and the Operating Expense Adjustment are intended to pass on to Tenant
and reimburse Landlord for all costs and expenses of the nature described in
Paragraph 7.A. incurred in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Building
and/or Project and its supporting facilities and such additional facilities, in
excess of the Base Year Operating Expenses, now and in subsequent years as may
be determined by Landlord to be necessary or desirable to the Building and/or
Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement
provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the
right, not later than twenty (20) days following receipt of such statement and
upon the condition that Tenant shall first deposit with Landlord the full amount
in dispute, to cause Landlord's books and records with respect to Operating
Expenses for such fiscal year to be audited by certified public accountants
selected by Tenant and subject to Landlord's reasonable right of approval. The
Operating Expense Adjustment shall be appropriately adjusted on the basis of
such audit. If such audit discloses a liability for a refund in excess of ten
percent (10%) of Tenant's Proportionate Share of the Operating Expenses
previously reported, the cost of such audit shall be borne by Landlord;
otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not
request an audit in accordance with the provisions of this Paragraph 7.E. within
twenty (20) days after receipt of Landlord's statement provided pursuant to
Paragraph 7.B. or 7.C., such statement shall be final and binding for all
purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the
sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Building against damage or destruction due to risk
including fire, vandalism, and malicious mischief in an amount not less
than the replacement cost thereof, in the form and with deductibles and
endorsements as selected by Landlord. At its election, Landlord may
instead (but shall have no obligation to) obtain "All Risk" coverage,
and may also obtain earthquake, pollution, and/or flood insurance in
amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but
shall have no obligation to) carry insurance against loss of rent, in
an amount equal to the amount of Base Rent and Additional Rent that
Landlord could be required to abate to all Building tenants in the
event of condemnation or casualty damage for a period of twelve (12)
months. Landlord may also (but shall have no obligation to) carry such
other insurance as Landlord may deem prudent or advisable, including,
without limitation, liability insurance in such amounts and on such
terms as Landlord shall determine. Landlord shall not be obligated to
insure, and shall have no responsibility whatsoever for any damage to,
any furniture, machinery, goods, inventory or supplies, or other
personal property or fixtures which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or alterations
within the Premises.
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property and
fixtures of Tenant and all improvements, additions or alterations made
by or for Tenant to the Premises on an "All Risk" basis, insuring such
property for the full replacement value of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance
covering bodily injury and property damage liability occurring in or
about the Premises or arising out of the use and occupancy of the
Premises and the Project, and any part of either, and any areas
adjacent thereto, and the business operated by Tenant or by any other
occupant of the Premises. Such insurance shall include contractual
liability insurance coverage insuring all of Tenant's indemnity
obligations under this Lease. Such coverage shall have a minimum
combined single limit of liability of at least Two Million Dollars
($2,000,000.00), and a minimum general aggregate limit of Three Million
Dollars ($3,000,000.00), with an "Additional Insured - Managers or
Lessors of Premises Endorsement." All such policies shall be written to
apply to all bodily injury (including death), property
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damage or loss, personal and advertising injury and other covered loss,
however occasioned, occurring during the policy term, shall be endorsed
to add Landlord and any party holding an interest to which this Lease
may be subordinated as an additional insured, and shall provide that
such coverage shall be "PRIMARY" and non-contributing with any
insurance maintained by Landlord, which shall be excess insurance only.
Such coverage shall also contain endorsements including employees as
additional insureds if not covered by Tenant's Commercial General
Liability Insurance. All such insurance shall provide for the
severability of interests of insureds; and shall be written on an
"OCCURRENCE" basis, which shall afford coverage for all claims based on
acts, omissions, injury and damage, which occurred or arose (or the
onset of which occurred or arose) in whole or in part during the policy
period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant
shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit for
bodily injury by disease; and One Million Dollars ($1,000,000) each
employee for bodily injury by disease, throughout the Term at Tenant's
sole cost and expense.
(4) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty
(30) days' notice of cancellation or change in terms; and (ii) waive
all rights of subrogation by the insurance carrier against Landlord. If
at any time during the Term the amount or coverage of insurance which
Tenant is required to carry under this Paragraph 8.B. is, in Landlord's
reasonable judgment, materially less than the amount or type of
insurance coverage typically carried by owners or tenants of properties
located in the general area in which the Premises are located which are
similar to and operated for similar purposes as the Premises or if
Tenant's use of the Premises should change with or without Landlord's
consent, Landlord shall have the right to require Tenant to increase
the amount or change the types of insurance coverage required under
this Paragraph 8.B. All insurance policies required to be carried by
Tenant under this Lease shall be written by companies rated A X or
better in "Best's Insurance Guide" and authorized to do business in the
State of California. In any event deductible amounts under all
insurance policies required to be carried by Tenant under this Lease
shall not exceed Five Thousand Dollars ($5,000.00) per occurrence.
Tenant shall deliver to Landlord on or before the Term Commencement
Date, and thereafter at least thirty (30) days before the expiration
dates of the expired policies, certified copies of Tenant's insurance
policies, or a certificate evidencing the same issued by the insurer
thereunder; and, if Tenant shall fail to procure such insurance, or to
deliver such policies or certificates, Landlord may, at Landlord's
option and in addition to Landlord's other remedies in the event of a
default by Tenant hereunder, procure the same for the account of
Tenant, and the cost thereof shall be paid to Landlord as Additional
Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, losses, costs, loss of rents, liens, damages,
injuries or expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or indirectly
arising out of or related to: (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the use or
occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or
from activities or failures to act of Tenant or Tenant's Parties; (2) claims
arising from work or labor performed, or for materials or supplies furnished to
or at the request or for the account of Tenant in connection with performance of
any work done for the account of Tenant within the Premises or Project; (3)
claims arising from any breach or default on the part of Tenant in the
performance of any covenant contained in this Lease; and (4) claims arising from
the negligence or intentional acts or omissions of Tenant or Tenant's Parties.
The foregoing indemnity by Tenant shall not be applicable to claims to the
extent arising from the gross negligence or willful misconduct of Landlord.
Landlord shall not be liable to Tenant and Tenant hereby waives all claims
against Landlord for any injury or damage to any person or property in or about
the Premises, Building or Project by or from any cause whatsoever (other than
Landlord's gross negligence or willful misconduct) and, without limiting the
generality of the foregoing, whether caused by water leakage of any character
from the roof, walls, basement or other portion of the Premises, Building or
Project, or caused by gas, fire, oil or electricity in, on or about the
Premises, Building or Project. The provisions of this Paragraph shall survive
the expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage provided
by insurance to be maintained hereunder or any other rights or remedies,
Landlord and Tenant each waive any right to recover against the other for: (a)
damages for injury to or death of persons; (b) damages to property, including
personal property; (c) damages to the Premises or any part thereof; and (d)
claims arising by reason of the foregoing due to hazards covered by insurance
maintained or required to be maintained pursuant to this Lease to the extent of
proceeds recovered therefrom, or proceeds which would have been recoverable
therefrom in the case of the failure of any party to maintain any insurance
coverage required to be maintained by such party pursuant to this Lease. This
provision is intended to waive fully, any rights and/or claims arising by reason
of the foregoing, but only to the extent that any of the foregoing damages
and/or claims referred to above are covered or would be covered, and only to the
extent of such coverage, by insurance actually carried or required to be
maintained pursuant to this Lease by either Landlord or Tenant. This provision
is also intended to waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of subrogation on any insurance
carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its
rights as specified in this Paragraph 9 with respect to any subtenant that it
has approved pursuant to Paragraph 21 but only in exchange for the written
waiver of such rights to be given by such subtenant to Landlord upon such
subtenant taking possession of the Premises or a portion thereof. Each party
shall cause each insurance policy obtained by it to provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair, reasonable
wear and tear excepted, the structural soundness of the roof, foundations, and
exterior walls of the Building. The term "exterior walls" as used herein shall
not include windows, glass or plate glass, doors, special store fronts or office
entries. Any damage caused by or repairs necessitated by any negligence or act
of Tenant or Tenant's Parties may be repaired by Landlord at Landlord's option
and Tenant's expense. Tenant shall immediately give Landlord written notice of
any defect or need of repairs in such components of the Building for which
Landlord is responsible, after which Landlord shall have a reasonable
opportunity and the right to enter the Premises at all reasonable times to
repair same. Landlord's liability with respect to any defects, repairs, or
maintenance for which Landlord is responsible under any of the provisions of
this Lease shall be limited to the cost of such repairs or maintenance, and
there shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from the making of
repairs, alterations or improvements in or to any portion of the Premises, the
Building or the Project or to fixtures, appurtenances or equipment in the
Building, except as provided in Paragraph 24. By taking possession of the
Premises, Tenant accepts them "as is," as being in good order, condition and
repair and the condition in which Landlord is obligated to deliver them and
suitable for the Permitted Use and Tenant's intended operations in the Premises,
whether or not any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all
parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a first-class, good, clean and secure condition
and promptly make all necessary repairs and replacements, as determined by
Landlord, with materials and workmanship of the same character, kind and quality
as the original.
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Notwithstanding anything to the contrary contained herein, Tenant shall, at its
expense, promptly repair any damage to the Premises or the Building or Project
resulting from or caused by any negligence or act of Tenant or Tenant's Parties.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, compatible with the Building or the Project and its mechanical,
plumbing, electrical, heating/ventilation/air conditioning systems, and will not
cause the Building or Project or such systems to be required to be modified to
comply with any Regulations (including, without limitation, the Americans With
Disabilities Act); and (c) will not interfere with the use and occupancy of any
other portion of the Building or Project by any other tenant or its invitees.
Specifically, but without limiting the generality of the foregoing, Landlord
shall have the right of written consent for all plans and specifications for the
proposed Alterations, construction means and methods, all appropriate permits
and licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose rules and
regulations for contractors and subcontractors performing such work. Tenant
shall also supply to Landlord any documents and information reasonably requested
by Landlord in connection with Landlord's consideration of a request for
approval hereunder. Tenant shall cause all Alterations to be accomplished in a
first-class, good and workmanlike manner, and to comply with all applicable
Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense,
perform any additional work required under applicable Regulations due to the
Alterations hereunder. No review or consent by Landlord of or to any proposed
Alteration or additional work shall constitute a waiver of Tenant's obligations
under this Paragraph 12, nor constitute any warranty or representation that the
same complies with all applicable Regulations, for which Tenant shall at all
times be solely responsible. Tenant shall reimburse Landlord for all costs which
Landlord may incur in connection with granting approval to Tenant for any such
Alterations, including any costs or expenses which Landlord may incur in
electing to have outside architects and engineers review said plans and
specifications, and shall pay Landlord an administration fee of fifteen percent
(15%) of the cost of the Alterations as Additional Rent hereunder. All such
Alterations shall remain the property of Tenant until the expiration or earlier
termination of this Lease, at which time they shall be and become the property
of Landlord; provided, however, that Landlord may, at Landlord's option, require
that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant
and restore the Premises by the expiration or earlier termination of this Lease,
to their condition existing prior to the construction of any such Alterations.
All such removals and restoration shall be accomplished in a first-class and
good and workmanlike manner so as not to cause any damage to the Premises or
Project whatsoever. If Tenant fails to remove such Alterations or Tenant's trade
fixtures or furniture or other personal property, Landlord may keep and use them
or remove any of them and cause them to be stored or sold in accordance with
applicable law, at Tenant's sole expense. In addition to and wholly apart from
Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses,
Tenant shall be responsible for and shall pay prior to delinquency any taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed against its fixtures or personal property, on the value
of Alterations within the Premises, and on Tenant's interest pursuant to this
Lease, or any increase in any of the foregoing based on such Alterations. To the
extent that any such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
Notwithstanding the foregoing, at Landlord's option (but without obligation),
all or any portion of the Alterations shall be performed by Landlord for
Tenant's account and Tenant shall pay Landlord's estimate of the cost thereof
(including a reasonable charge for Landlord's overhead and profit) prior to
commencement of the work. In addition, at Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of
removing any such Alterations and restoring the Premises to their original
condition such cost to include a reasonable charge for Landlord's overhead and
profit as provided above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord under this Lease.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices,
graphics or banners whatsoever or any window decor which is visible in or from
public view or corridors, the common areas or the exterior of the Premises or
the Building, in or on any exterior window or window fronting upon any common
areas or service area without Landlord's prior written approval which Landlord
shall have the right to withhold in its absolute and sole discretion; provided
that Tenant's name shall be included in any Building-standard door and directory
signage, if any, in accordance with Landlord's Building signage program,
including without limitation, payment by Tenant of any fee charged by Landlord
for maintaining such signage, which fee shall constitute Additional Rent
hereunder. Any installation of signs, notices, graphics or banners on or about
the Premises or Project approved by Landlord shall be subject to any Regulations
and to any other requirements imposed by Landlord. Tenant shall remove all such
signs or graphics by the expiration or any earlier termination of this Lease.
Such installations and removals shall be made in such manner as to avoid injury
to or defacement of the Premises, Building or Project and any other improvements
contained therein, and Tenant shall repair any injury or defacement including
without limitation discoloration caused by such installation or removal.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be
required, Landlord and Landlord's agents and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs, improvements or
alterations to the Premises, Building or Project or to other tenant spaces
therein, to deal with emergencies, to post such notices as may be permitted or
required by law to prevent the perfection of liens against Landlord's interest
in the Project or to exhibit the Premises to prospective tenants, purchasers,
encumbrancers or to others, or for any other purpose as Landlord may deem
necessary or desirable; provided, however, that Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's business operations. Tenant
shall not be entitled to any abatement of Rent by reason of the exercise of any
such right of entry. Tenant waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby.
Landlord shall at all times have and retain a key with which to unlock all of
the doors in, upon and about the Premises, excluding Tenant's vaults and safes
or special security areas (designated in advance), and Landlord shall have the
right to use any and all means which Landlord may deem necessary or proper to
open said doors in an emergency, in order to obtain entry to any portion of the
Premises, and any entry to the Premises or portions thereof obtained by Landlord
by any of said means, or otherwise, shall not be construed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an eviction, actual or
constructive, of Tenant from the Premises or any portions thereof. At any time
within six (6) months prior to the expiration of the Term or following any
earlier termination of this Lease or agreement to terminate this Lease, Landlord
shall have the right to erect on the Premises, Building and/or Project a
suitable sign indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord shall furnish to the Premises during ordinary business hours
of generally recognized business days,
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to be determined by Landlord (but exclusive, in any event, of Saturdays, Sundays
and legal holidays), water for lavatory and drinking purposes and electricity,
heat and air conditioning as usually furnished or supplied for use of the
Premises for reasonable and normal office use as of the date Tenant takes
possession of the Premises as determined by Landlord (but not including
above-standard or continuous cooling for excessive heat-generating machines,
excess lighting or equipment), janitorial services during the times and in the
manner that such services are, in Landlord's judgment, customarily furnished in
comparable office buildings in the immediate market area, and elevator service,
which shall mean service either by nonattended automatic elevators or elevators
with attendants, or both, at the option of Landlord. Tenant acknowledges that
Tenant has inspected and accepts the water, electricity, heat and air
conditioning and other utilities and services being supplied or furnished to the
Premises as of the date Tenant takes possession of the Premises, as being
sufficient for use of the Premises for reasonable and normal office use in their
present condition, "as is," and suitable for the Permitted Use, and for Tenant's
intended operations in the Premises. Landlord shall have no obligation to
provide additional or after-hours electricity, heating or air conditioning, but
if Landlord elects to provide such services at Tenant's request, Tenant shall
pay to Landlord a reasonable charge for such services as determined by Landlord.
Tenant agrees to keep and cause to be kept closed all window covering when
necessary because of the sun's position, and Tenant also agrees at all times to
cooperate fully with Landlord and to abide by all of the regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of electrical, heating, ventilating and air conditioning systems.
Wherever heat-generating machines, excess lighting or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation and the cost of operation and maintenance thereof, shall be paid by
Tenant to Landlord upon demand by Landlord.
B. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines, using
excess lighting or using electric current, water, or any other resource in
excess of or which will in any way increase the amount of electricity, water, or
any other resource being furnished or supplied for the use of the Premises for
reasonable and normal office use, in each case as of the date Tenant takes
possession of the Premises as determined by Landlord, or which will require
additions or alterations to or interfere with the Building power distribution
systems; nor connect with electric current, except through existing electrical
outlets in the Premises or water pipes, any apparatus, equipment or device for
the purpose of using electrical current, water, or any other resource. If Tenant
shall require water or electric current or any other resource in excess of that
being furnished or supplied for the use of the Premises as of the date Tenant
takes possession of the Premises as determined by Landlord, Tenant shall first
procure the written consent of Landlord which Landlord may refuse, to the use
thereof, and Landlord may cause a special meter to be installed in the Premises
so as to measure the amount of water, electric current or other resource
consumed for any such other use. Tenant shall pay directly to Landlord as an
addition to and separate from payment of Operating Expenses the cost of all such
additional resources, energy, utility service and meters (and of installation,
maintenance and repair thereof and of any additional circuits or other equipment
necessary to furnish such additional resources, energy, utility or service).
Landlord may add to the separate or metered charge a recovery of additional
expense incurred in keeping account of the excess water, electric current or
other resource so consumed. Landlord shall not be liable for any damages
directly or indirectly resulting from nor shall the Rent or any monies owed
Landlord under this Lease herein reserved be abated by reason of: (a) the
installation, use or interruption of use of any equipment used in connection
with the furnishing of any such utilities or services, or any change in the
character or means of supplying or providing any such utilities or services or
any supplier thereof; (b) the failure to furnish or delay in furnishing any such
utilities or services when such failure or delay is caused by acts of God or the
elements, labor disturbances of any character, or any other accidents or other
conditions beyond the reasonable control of Landlord or because of any
interruption of service due to Tenant's use of water, electric current or other
resource in excess of that being supplied or furnished for the use of the
Premises as of the date Tenant takes possession of the Premises; (c) the
inadequacy, limitation, curtailment, rationing or restriction on use of water,
electricity, gas or any other form of energy or any other service or utility
whatsoever serving the Premises or Project, whether by Regulation or otherwise;
or (d) the partial or total unavailability of any such utilities or services to
the Premises or the Building, whether by Regulation or otherwise; nor shall any
such occurrence constitute an actual or constructive eviction of Tenant.
Landlord shall further have no obligation to protect or preserve any apparatus,
equipment or device installed by Tenant in the Premises, including without
limitation by providing additional or after-hours heating or air conditioning.
Landlord shall be entitled to cooperate voluntarily and in a reasonable manner
with the efforts of national, state or local governmental agencies or utility
suppliers in reducing energy or other resource consumption. The obligation to
make services available hereunder shall be subject to the limitations of any
such voluntary, reasonable program. In addition, Landlord reserves the right to
change the supplier or provider of any such utility or service from time to
time. Tenant shall have no right to contract with or otherwise obtain any
electrical or other such service for or with respect to the Premises or Tenant's
operations therein from any supplier or provider of any such service. Tenant
shall cooperate with Landlord and any supplier or provider of such services
designated by Landlord from time to time to facilitate the delivery of such
services to Tenant at the Premises and to the Building and Project, including
without limitation allowing Landlord and Landlord's suppliers or providers, and
their respective agents and contractors, reasonable access to the Premises for
the purpose of installing, maintaining, repairing, replacing or upgrading such
service or any equipment or machinery associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the Premises,
or if not separately billed to or metered to Tenant, Tenant's Proportionate
Share of all charges jointly serving the Project in accordance with Paragraph 7.
All sums payable under this Paragraph 15 shall constitute Additional Rent
hereunder.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, the Project and/or the land upon which the Premises or the
Project are situated, or said ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. If any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease. Within ten (10) days after request by Landlord, Tenant shall
execute and deliver any additional documents evidencing Tenant's attornment or
the subordination of this Lease with respect to any such ground leases or
underlying leases or any such mortgage or deed of trust, in the form requested
by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of
trust, subject to such nondisturbance requirement. If requested in writing by
Tenant, Landlord shall use commercially reasonable efforts to obtain a
subordination, nondisturbance and attornment agreement for the benefit of Tenant
reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at
Tenant's expense, subject to such other terms and conditions as the ground
landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to Landlord
Tenant's and any guarantor's current financial statements or other information
discussing financial worth of Tenant and any guarantor, which Landlord shall use
solely for purposes of this Lease and in connection with the ownership,
management, financing and disposition of the Project.
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18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of Landlord,
to deliver to Landlord, or Landlord's designee, an estoppel certificate stating
that this Lease is in full force and effect, that this Lease has not been
modified (or stating all modifications, written or oral, to this Lease), the
date to which Rent has been paid, the unexpired portion of this Lease, that
there are no current defaults by Landlord or Tenant under this Lease (or
specifying any such defaults), that the leasehold estate granted by this Lease
is the sole interest of Tenant in the Premises and/or the land at which the
Premises are situated, and such other matters pertaining to this Lease as may be
reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or Project or any interest therein.
Failure by Tenant to execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgment by Tenant that the statements
included are true and correct without exception. Tenant agrees that if Tenant
fails to execute and deliver such certificate within such ten (10) day period,
Landlord may execute and deliver such certificate on Tenant's behalf and that
such certificate shall be binding on Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this Paragraph may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
Project or any interest therein. The parties agree that Tenant's obligation to
furnish such estoppel certificates in a timely fashion is a material inducement
for Landlord's execution of this Lease, and shall be an event of default
(without any cure period that might be provided under Paragraph 26.A(3) of this
Lease) if Tenant fails to fully comply or makes any material misstatement in any
such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a security
deposit as stated in the Basic Lease Information (the "SECURITY DEPOSIT"), which
sum shall be held and owned by Landlord, without obligation to pay interest, as
security for the performance of Tenant's covenants and obligations under this
Lease. The Security Deposit is not an advance rental deposit or a measure of
damages incurred by Landlord in case of Tenant's default. Upon the occurrence of
any event of default by Tenant, Landlord may from time to time, without
prejudice to any other remedy provided herein or by law, use such fund as a
credit to the extent necessary to credit against any arrears of Rent or other
payments due to Landlord hereunder, and any other damage, injury, expense or
liability caused by such event of default, and Tenant shall pay to Landlord, on
demand, the amount so applied in order to restore the Security Deposit to its
original amount. Although the Security Deposit shall be deemed the property of
Landlord, any remaining balance of such deposit shall be returned by Landlord to
Tenant at such time after termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled, reduced by such amounts as may
be required by Landlord to remedy defaults on the part of Tenant in the payment
of Rent or other obligations of Tenant under this Lease, to repair damage to the
Premises, Building or Project caused by Tenant or any Tenant's Parties and to
clean the Premises. Landlord may use and commingle the Security Deposit with
other funds of Landlord.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease are not personal obligations of Landlord or of the
individual or other partners of Landlord or its or their partners, directors,
officers, or shareholders, and Tenant agrees to look solely to Landlord's
interest in the Project for the recovery of any amount from Landlord, and shall
not look to other assets of Landlord nor seek recourse against the assets of the
individual or other partners of Landlord or its or their partners, directors,
officers or shareholders. Any lien obtained to enforce any such judgment and any
levy of execution thereon shall be subject and subordinate to any lien, mortgage
or deed of trust on the Project. Under no circumstances shall Tenant have the
right to offset against or recoup Rent or other payments due and to become due
to Landlord hereunder except as expressly provided in Paragraph 23.B. below,
which Rent and other payments shall be absolutely due and payable hereunder in
accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted as an
accommodation to Tenant. Accordingly, this Lease is personal to Tenant,
and Tenant's rights granted hereunder do not include the right to
assign this Lease or sublease the Premises, or to receive any excess,
either in installments or lump sum, over the Rent which is expressly
reserved by Landlord as hereinafter provided, except as otherwise
expressly hereinafter provided. Tenant shall not assign or pledge this
Lease or sublet the Premises or any part thereof, whether voluntarily
or by operation of law, or permit the use or occupancy of the Premises
or any part thereof by anyone other than Tenant, or suffer or permit
any such assignment, pledge, subleasing or occupancy, without
Landlord's prior written consent except as provided herein. If Tenant
desires to assign this Lease or sublet any or all of the Premises,
Tenant shall give Landlord written notice (the "TRANSFER NOTICE") at
least sixty (60) days prior to the anticipated effective date of the
proposed assignment or sublease, which shall contain all of the
information reasonably requested by Landlord to address Landlord's
decision criteria specified hereinafter. Landlord shall then have a
period of thirty (30) days following receipt of the Transfer Notice to
notify Tenant in writing that Landlord elects either: (i) to terminate
this Lease as to the space so affected as of the date so requested by
Tenant; or (ii) to consent to the proposed assignment or sublease,
subject, however, to Landlord's prior written consent of the proposed
assignee or subtenant and of any related documents or agreements
associated with the assignment or sublease. If Landlord should fail to
notify Tenant in writing of such election within said period, Landlord
shall be deemed to have waived option (i) above, but written consent by
Landlord of the proposed assignee or subtenant shall still be required.
If Landlord does not exercise option (i) above, Landlord's consent to a
proposed assignment or sublease shall not be unreasonably withheld.
Consent to any assignment or subletting shall not constitute consent to
any subsequent transaction to which this Paragraph 21 applies.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other instances
in which it may be reasonable for Landlord to withhold Landlord's
consent to an assignment or subletting, Landlord and Tenant acknowledge
that it shall be reasonable for Landlord to withhold Landlord's consent
in the following instances: if the proposed assignee does not agree to
be bound by and assume the obligations of Tenant under this Lease in
form and substance satisfactory to Landlord; the use of the Premises by
such proposed assignee or subtenant would not be a Permitted Use or
would violate any exclusivity or other arrangement which Landlord has
with any other tenant or occupant or any Regulation or would increase
the Occupancy Density or Parking Density of the Building or Project, or
would otherwise result in an undesirable tenant mix for the Project as
determined by Landlord; the proposed assignee or subtenant is not of
sound financial condition as determined by Landlord in Landlord's sole
discretion; the proposed assignee or subtenant is a governmental
agency; the proposed assignee or subtenant does not have a good
reputation as a tenant of property or a good business reputation; the
proposed assignee or subtenant is a person with whom Landlord is
negotiating to lease space in the Project or is a present tenant of the
Project; the assignment or subletting would entail any Alterations
which would lessen the value of the leasehold improvements in the
Premises or use of any Hazardous Materials or other noxious use or use
which may disturb other tenants of the Project; or Tenant is in default
of any obligation of Tenant under this Lease, or Tenant has defaulted
under this Lease on three (3) or more occasions during any twelve (12)
months preceding the date that Tenant shall request consent. Failure by
or refusal of Landlord to consent to a proposed assignee or subtenant
shall not cause a termination of this Lease. Upon a termination under
Paragraph 21.A.(1)(i), Landlord may lease the Premises to any party,
including parties with whom Tenant has negotiated an assignment or
sublease, without incurring any liability to Tenant. At the option of
Landlord, a surrender and termination of this Lease shall operate as an
assignment to Landlord of some or all subleases or subtenancies.
Landlord shall exercise this option by giving notice of that assignment
to such subtenants on or before the effective date of the surrender and
termination. In connection with each request for assignment or
subletting, Tenant shall pay to Landlord Landlord's standard fee for
approving such requests, as well as all costs incurred by Landlord or
any mortgagee or ground lessor in approving each such request and
effecting any such transfer, including, without limitation, reasonable
attorneys' fees.
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B. BONUS RENT. Any Rent or other consideration realized by Tenant under any such
sublease or assignment in excess of the Rent payable hereunder, after
amortization of a reasonable brokerage commission incurred by Tenant, shall be
divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to Landlord.
In any subletting or assignment undertaken by Tenant, Tenant shall diligently
seek to obtain the maximum rental amount available in the marketplace for
comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by
sale, assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings) resulting in a change in the
present control of such corporation or any of its parent corporations by the
person or persons owning a majority of said corporate shares, shall constitute
an assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests of
said entity and/or a change in the identity of the persons responsible for the
general credit obligations of said entity shall constitute an assignment for all
purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the primary
liability of the Tenant named herein for the payment of Rent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or subtenant.
Landlord may collect rent or other amounts or any portion thereof from any
assignee, subtenant, or other occupant of the Premises, permitted or otherwise,
and apply the net rent collected to the Rent payable hereunder, but no such
collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant under
this Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to enter
into this Lease and to perform all of Landlord's obligations hereunder and that
all persons signing this Lease on its behalf are authorized to do. Tenant and
the person or persons, if any, signing on behalf of Tenant, jointly and
severally represent and warrant that Tenant has full right and authority to
enter into this Lease, and to perform all of Tenant's obligations hereunder, and
that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part
of the Premises should be taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the Permitted
Use of the Premises, either party shall have the right to terminate this Lease
at its option. If any material portion of the Building or Project is taken or
condemned for any public use under any Regulation, or by right of eminent
domain, or by private purchase in lieu thereof, Landlord may terminate this
Lease at its option. In either of such events, the Rent shall be abated during
the unexpired portion of this Lease, effective when the physical taking of said
Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of
which the Premises are a part should be taken or condemned for any public use
under any Regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking prevents or materially interferes with the
Permitted Use of the Premises, and this Lease is not terminated as provided in
Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion
of this Lease shall be reduced, beginning on the date when the physical taking
shall have occurred, to such amount as may be fair and reasonable under all of
the circumstances, but only after giving Landlord credit for all sums received
or to be received by Tenant by the condemning authority. Notwithstanding
anything to the contrary contained in this Paragraph, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under power
of eminent domain during the Term, this Lease shall be and remain unaffected by
such taking or appropriation and Tenant shall continue to pay in full all Rent
payable hereunder by Tenant during the Term; in the event of any such temporary
appropriation or taking, Tenant shall be entitled to receive that portion of any
award which represents compensation for the use of or occupancy of the Premises
during the Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration of the Premises and the use and
occupancy of the Premises.
C. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord)
any and all payment, income, rent, award or any interest therein whatsoever
which may be paid or made in connection with such taking or conveyance and
Tenant shall have no claim against Landlord or otherwise for any sums paid by
virtue of such proceedings, whether or not attributable to the value of any
unexpired portion of this Lease, except as expressly provided in this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property and moving costs, shall be and
remain the property of Tenant.
D. WAIVER OF CCP SECTION 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by fire,
tornado, or other casualty (collectively, "CASUALTY"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's estimation material restoration of the Premises can reasonably be
made within one hundred eighty (180) days from the date of such notice and
receipt of required permits for such restoration. Landlord's determination shall
be binding on Tenant.
B. WITHIN 180 DAYS. If the Premises or Building should be damaged by Casualty to
such extent that material restoration can in Landlord's estimation be reasonably
completed within one hundred eighty (180) days after the date of such notice and
receipt of required permits for such restoration, this Lease shall not
terminate. Provided that insurance proceeds are received by Landlord to fully
repair the damage, Landlord shall proceed to rebuild and repair the Premises in
the manner determined by Landlord, except that Landlord shall not be required to
rebuild, repair or replace any part of the Alterations which may have been
placed on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately, but only
to the extent of rental abatement insurance proceeds received by Landlord during
the time and to the extent the Premises are unfit for occupancy.
C. GREATER THAN 180 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs cannot in Landlord's
estimation be reasonably completed within one hundred eighty (180) days after
the date of such notice and receipt of required permits for such rebuilding or
repair, then Landlord shall have the option of either: (1) terminating this
Lease effective upon the date of the occurrence of such damage, in which event
the Rent shall be abated during the unexpired portion of this Lease; or (2)
electing to rebuild or repair the Premises diligently and in the manner
determined by Landlord. Landlord shall notify Tenant of its election within
thirty (30) days after Landlord's receipt of notice of the damage or
destruction. Notwithstanding the above, Landlord shall not be required to
rebuild, repair or replace any part of any Alterations which may have been
placed, on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable
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shall be abated proportionately, but only to the extent of rental abatement
insurance proceeds received by Landlord during the time and to the extent the
Premises are unfit for occupancy.
D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty resulting
from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's
Parties, Base Rent and Additional Rent shall not be diminished during the repair
of such damage and Tenant shall be liable to Landlord for the cost and expense
of the repair and restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds.
E. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the
Premises or Building are damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or if the holder of any indebtedness
secured by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then in either case Landlord
shall have the right to terminate this Lease by delivering written notice of
termination to Tenant within thirty (30) days after the date of notice to
Landlord that said damage or destruction is not fully covered by insurance or
such requirement is made by any such holder, as the case may be, whereupon this
Lease shall terminate.
F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the
event of damage or destruction to the Premises or the Building. As a material
inducement to Landlord entering into this Lease, Tenant hereby waives any rights
it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of
California with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs, or under any similar law, statute or
ordinance now or hereafter in effect.
G. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the
Premises or the Building, under no circumstances shall Landlord be required to
repair any injury or damage to, or make any repairs to or replacements of,
Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over, Tenant
shall be unlawfully and illegally in possession of the Premises, whether or not
Landlord accepts any rent from Tenant or any other person while Tenant remains
in possession of the Premises without Landlord's written consent. If Tenant
shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such retention
triple the amount of daily rental as of the last month prior to the date of
expiration or earlier termination. Tenant shall also indemnify, defend, protect
and hold Landlord harmless from any loss, liability or cost, including
consequential and incidental damages and reasonable attorneys' fees, incurred by
Landlord resulting from delay by Tenant in surrendering the Premises, including,
without limitation, any claims made by the succeeding tenant founded on such
delay. Acceptance of Rent by Landlord following expiration or earlier
termination of this Lease, or following demand by Landlord for possession of the
Premises, shall not constitute a renewal of this Lease, and nothing contained in
this Paragraph 25 shall waive Landlord's right of reentry or any other right.
Additionally, if upon expiration or earlier termination of this Lease, or
following demand by Landlord for possession of the Premises, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of the Premises or
any other Tenant obligations as set forth in this Lease, then Landlord shall
have the right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of this
Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any
expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment or vacation of the Premises for a
continuous period in excess of five (5) days. Tenant waives any right
to notice Tenant may have under Section 1951.3 of the Civil Code of the
State of California, the terms of this Paragraph 26.A. being deemed
such notice to Tenant as required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount due and payable hereunder upon the date when said payment
is due, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure
continuing for fifteen (15) days after written notice of such failure,
as to which time is of the essence.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit
of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty
(30) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such
time period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder outstanding as of
the date of the affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such appointment remains undismissed or undischarged for a
period of fifteen (15) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of
the Premises, if such attachment or other seizure remains undismissed
or undischarged for a period of fifteen (15) days after the levy
thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of
default, Landlord shall have the right to give a written termination
notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate
unless on or before such date all Rent in arrears and all costs and
expenses incurred by or on behalf of Landlord hereunder shall have been
paid by Tenant and all other events of default of this Lease by Tenant
at the time existing shall have been fully remedied to the satisfaction
of Landlord. At any time after such termination, Landlord may recover
possession of the Premises or any part thereof and expel and remove
therefrom Tenant and any other person occupying the same, including any
subtenant or subtenants notwithstanding Landlord's consent to any
sublease, by any lawful means, and again repossess and enjoy the
Premises without prejudice to any of the remedies that Landlord may
have under this Lease, or at law or equity by any
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reason of Tenant's default or of such termination. Landlord hereby
reserves the right, but shall not have the obligation, to recognize the
continued possession of any subtenant. The delivery or surrender to
Landlord by or on behalf of Tenant of keys, entry codes, or other means
to bypass security at the Premises shall not terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may
have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under
Paragraph 26.B.(1) hereof, and Landlord may enforce all of Landlord's
rights and remedies under this Lease and at law or in equity, including
without limitation, the right to recover Rent as it becomes due, and
Landlord, without terminating this Lease, may exercise all of the
rights and remedies of a landlord under Section 1951.4 of the Civil
Code of the State of California or any successor code section. Acts of
maintenance, preservation or efforts to lease the Premises or the
appointment of a receiver under application of Landlord to protect
Landlord's interest under this Lease or other entry by Landlord upon
the Premises shall not constitute an election to terminate Tenant's
right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for ten (10) days
after such occurrence or such default occurs more than three times in
any twelve (12) month period, Landlord may require that Tenant increase
the Security Deposit to the amount of three times the current month's
Rent at the time of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right
without notice or demand to add to the amount of any payment required to be made
by Tenant hereunder, and which is not paid and received by Landlord on or before
the first day of each calendar month, an amount equal to ten percent (10%) of
the delinquency for each month or portion thereof that the delinquency remains
outstanding to compensate Landlord for the loss of the use of the amount not
paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the same shall not constitute a waiver of other late
charges or any other remedies available to Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at
the lesser of eighteen percent (18%) per annum or the maximum interest rate
allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the
parties are cumulative and not alternative, to the extent permitted by law and
except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens
arising out of or related to work or services performed, materials or supplies
furnished or obligations incurred by or on behalf of Tenant or in connection
with work made, suffered or done by or on behalf of Tenant in or on the Premises
or Project. If Tenant shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as Landlord shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord on behalf of
Tenant and all expenses incurred by Landlord in connection therefor shall be
payable to Landlord by Tenant on demand with interest at the Applicable Interest
Rate as Additional Rent. Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Project and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not less than ten (10)
business days prior written notice of the commencement of any work in the
Premises or Project which could lawfully give rise to a claim for mechanics' or
materialmen's liens to permit Landlord to post and record a timely notice of
non-responsibility, as Landlord may elect to proceed or as the law may from time
to time provide, for which purpose, if Landlord shall so determine, Landlord may
enter the Premises. Tenant shall not remove any such notice posted by Landlord
without Landlord's consent, and in any event not before completion of the work
which could lawfully give rise to a claim for mechanics' or materialmen's liens.
28. SUBSTITUTION
A. At any time after execution of this Lease, Landlord may substitute for the
Premises other premises in the Project or owned by Landlord in the vicinity of
the Project (the "NEW PREMISES") upon not less than sixty (60) days prior
written notice, in which event the New Premises shall be deemed to be the
Premises for all purposes hereunder and this Lease shall be deemed modified
accordingly to reflect the new location and shall remain in full force and
effect as so modified, provided that:
(1) The New Premises shall be similar in area and in function for
Tenant's purposes; and
(2) If Tenant is occupying the Premises at the time of such
substitution, Landlord shall pay the expense of physically moving
Tenant, Tenant's property and equipment to the New Premises and shall,
at Landlord's sole cost, improve the New Premises with improvements
substantially similar to those the Landlord has committed to provide or
has provided in the Premises.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of
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"Landlord" to be performed after the passing of title to Landlord's
successor-in-interest. This Lease shall not be affected by any such sale and
Tenant agrees to attorn to the purchaser or assignee. Landlord's
successor(s)-in-interest shall not have liability to Tenant with respect to the
failure to perform any of the obligations of "Landlord," to the extent required
to be performed prior to the date such successor(s)-in-interest became the owner
of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms of
this Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. If Tenant shall fail to pay any sum of money,
other than Base Rent, required to be paid by Tenant hereunder or shall fail to
perform any other act on Tenant's part to be performed hereunder, including
Tenant's obligations under Paragraph 11 hereof, and such failure shall continue
for fifteen (15) days after notice thereof by Landlord, in addition to the other
rights and remedies of Landlord, Landlord may make any such payment and perform
any such act on Tenant's part. In the case of an emergency, no prior
notification by Landlord shall be required. Landlord may take such actions
without any obligation and without releasing Tenant from any of Tenant's
obligations. All sums so paid by Landlord and all incidental costs incurred by
Landlord and interest thereon at the Applicable Interest Rate, from the date of
payment by Landlord, shall be paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws, ordinances,
regulations and other requirements with reference to sending, mailing, or
delivery of any notice or the making of any payment by Landlord or Tenant to the
other shall be deemed to be complied with when and if the following steps are
taken:
A. RENT. All Rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at Landlord's Remittance Address set
forth in the Basic Lease Information, or at such other address as Landlord may
specify from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay Rent and any other amounts to Landlord under the
terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are required
to be given by either party to the other hereunder shall be in writing and
either personally delivered, sent by commercial overnight courier, mailed,
certified or registered, postage prepaid or sent by facsimile with confirmed
receipt (and with an original sent by commercial overnight courier), and in each
case addressed to the party to be notified at the Notice Address for such party
as specified in the Basic Lease Information or to such other place as the party
to be notified may from time to time designate by at least fifteen (15) days
notice to the notifying party. Notices shall be deemed served upon receipt or
refusal to accept delivery. Tenant appoints as its agent to receive the service
of all default notices and notice of commencement of unlawful detainer
proceedings the person in charge of or apparently in charge of occupying the
Premises at the time, and, if there is no such person, then such service may be
made by attaching the same on the main entrance of the Premises.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of any
notice of a violation or a potential or alleged violation of any Regulation that
relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other action that is instituted or threatened by any governmental
or regulatory agency against Tenant or any other occupant of the Premises, or
any claim that is instituted or threatened by any third party that relates to
the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action which
Landlord or Tenant brings to enforce its respective rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party
including reasonable attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord as
provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible by any
prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts
of God, inability to obtain services, labor, or materials or reasonable
substitutes for those items, government actions, civil commotions, fire or other
casualty, or other causes beyond the reasonable control of the party obligated
to perform, performance by that party for a period equal to the period of that
prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent,
however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender the
Premises to Landlord in the same condition as existed on the date Tenant
originally took possession thereof, including, but not limited to, all interior
walls cleaned, all interior painted surfaces repainted in the original color,
all holes in walls repaired, all carpets shampooed and cleaned, and all floors
cleaned, waxed, and free of any Tenant-introduced marking or painting, all to
the reasonable satisfaction of Landlord. Tenant shall remove all of its debris
from the Project. At or before the time of surrender, Tenant shall comply with
the terms of Paragraph 12.A. hereof with respect to Alterations to the Premises
and all other matters addressed in such Paragraph. If the Premises are not so
surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating, but nothing
contained herein shall be construed as an extension of the Term or as a consent
by Landlord to any holding over by Tenant. In the event of Tenant's failure to
give such notice or participate in such joint inspection, Landlord's inspection
at or after Tenant's vacating the Premises shall conclusively be deemed correct
for purposes of determining Tenant's responsibility for repairs and restoration.
Any delay caused by
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Tenant's failure to carry out its obligations under this Paragraph 36 beyond the
term hereof, shall constitute unlawful and illegal possession of Premises under
Paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties
shall have the right to use up to the number of parking spaces, if any,
specified in the Basic Lease Information on an unreserved, nonexclusive, first
come, first served basis, for passenger-size automobiles, in the parking areas
in the Project designated from time to time by Landlord for use in common by
tenants of the Building.
Tenant may request additional parking spaces from time to time and if
Landlord in its sole discretion agrees to make such additional spaces available
for use by Tenant, such spaces shall be provided on a month-to-month unreserved
and nonexclusive basis (unless otherwise agreed in writing by Landlord), and
subject to such parking charges as Landlord shall determine, and shall otherwise
be subject to such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties and
visitors to comply with all Regulations and any rules and regulations
established from time to time by Landlord relating to parking at the Project,
including any keycard, sticker or other identification or entrance system, and
hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other items
located in the parking areas of the Project, nor for any personal injuries or
death arising out of the use of parking areas in the Project by Tenant or any
Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the
parking areas to be operated by an independent contractor not affiliated with
Landlord, Tenant acknowledges that Landlord shall have no liability for claims
arising through acts or omissions of such independent contractor. In all events,
Tenant agrees to look first to its insurance carrier and to require that
Tenant's Parties look first to their respective insurance carriers for payment
of any losses sustained in connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to park
in any such assigned or reserved spaces. Tenant may validate visitor parking by
such method as Landlord may approve, at the validation rate from time to time
generally applicable to visitor parking. Landlord also reserves the right to
alter, modify, relocate or close all or any portion of the parking areas in
order to make repairs or perform maintenance service, or to restripe or renovate
the parking areas, or if required by casualty, condemnation, act of God,
Regulations or for any other reason deemed reasonable by Landlord.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so
directed in writing by Landlord), as Additional Rent hereunder, the monthly
charges established from time to time by Landlord for parking in such parking
areas (which shall initially be the charge specified in the Basic Lease
Information, as applicable). Such parking charges shall be payable in advance
with Tenant's payment of Basic Rent. No deductions from the monthly parking
charge shall be made for days on which the Tenant does not use any of the
parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
E. MODIFICATION. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant accepts the area of the Premises as
specified in the Basic Lease Information as the approximate area of the Premises
for all purposes under this Lease, and acknowledges and agrees that no other
definition of the area (rentable, usable or otherwise) of the Premises shall
apply. Tenant shall in no event be entitled to a recalculation of the square
footage of the Premises, rentable, usable or otherwise, and no recalculation, if
made, irrespective of its purpose, shall reduce Tenant's obligations under this
Lease in any manner, including without limitation the amount of Base Rent
payable by Tenant or Tenant's Proportionate Share of the Building and of the
Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not constitute
an option or offer to lease and this Lease is not effective otherwise until
execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies. All offers by
or on behalf of Tenant of accord and satisfaction are hereby rejected in
advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plats necessary to
effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. Except as otherwise specifically set forth in this Lease, with respect to
any consent, determination or estimation of Landlord required or allowed in this
Lease or requested of Landlord, Landlord's consent, determination or estimation
shall be given or made solely by Landlord in Landlord's good faith opinion,
whether or not objectively reasonable. If Landlord fails to respond to any
request for its consent within the time period, if any, specified in this Lease,
Landlord shall be deemed to have disapproved such request.
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L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air
or view by any structure which may be erected on lands adjacent to or in the
vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant
and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance
and performance of all of the other covenants, terms and conditions on Tenant's
part to be observed and performed, Tenant shall peaceably and quietly hold and
enjoy the Premises for the term hereby demised without hindrance or interruption
by Landlord or any other person or persons lawfully or equitably claiming by,
through or under Landlord, subject, nevertheless, to all of the other terms and
conditions of this Lease. Landlord shall not be liable for any hindrance,
interruption, interference or disturbance by other tenants or third persons, nor
shall Tenant be released from any obligations under this Lease because of such
hindrance, interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts, each
of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant hereunder
for any fractional month shall be prorated based on a month of 30 days. As used
herein, the term "fiscal year" shall mean the calendar year or such other fiscal
year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
A. SECURITY DEPOSIT. If rental payments are received on or before the first of
each month for the first six months, Tenant may notice Landlord in writing
request for refund of $1,889.12.
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY
JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH
THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE
COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS
LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE
PROVISIONS OF THIS PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ Jeffrey K. Nickell
------------------------------------
Jeffrey K. Nickell
Its: Vice President
Date: 3/24/99
TENANT
Typhoon Capital Consultants, LLC
dba: Venture-Catalyst.com
By: /s/ Sanjay Sabnani
------------------------------------
Sanjay Sabnani
Its: President
Date: 3/23/99
17
<PAGE> 18
EXHIBIT A
RULES AND REGULATIONS
1. Driveways, sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall not be obstructed by tenants or used by
tenants for any purpose other than for ingress to and egress from their
respective premises. The driveways, sidewalks, halls, passages, exits,
entrances, elevators and stairways are not for the use of the general
public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence, in the judgment of
Landlord, shall be prejudicial to the safety, character, reputation and
interests of the Building, the Project and its tenants, provided that
nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of such
tenant's business unless such persons are engaged in illegal activities. No
tenant, and no employees or invitees of any tenant, shall go upon the roof
of any Building, except as authorized by Landlord. No tenant, and no
employees or invitees of any tenant shall move any common area furniture
without Landlord's consent.
2. No sign, placard, banner, picture, name, advertisement or notice, visible
from the exterior of the Premises or the Building or the common areas of
the Building shall be inscribed, painted, affixed, installed or otherwise
displayed by Tenant either on its Premises or any part of the Building or
Project without the prior written consent of Landlord in Landlord's sole
and absolute discretion. Landlord shall have the right to remove any such
sign, placard, banner, picture, name, advertisement, or notice without
notice to and at the expense of Tenant, which were installed or displayed
in violation of this rule. If Landlord shall have given such consent to
Tenant at any time, whether before or after the execution of Tenant's
Lease, such consent shall in no way operate as a waiver or release of any
of the provisions hereof or of the Lease, and shall be deemed to relate
only to the particular sign, placard, banner, picture, name, advertisement
or notice so consented to by Landlord and shall not be construed as
dispensing with the necessity of obtaining the specific written consent of
Landlord with respect to any other such sign, placard, banner, picture,
name, advertisement or notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person or
vendor approved by Landlord and shall be removed by Tenant at the time of
vacancy at Tenant's expense.
3. The directory of the Building or Project will be provided exclusively for
the display of the name and location of tenants only and Landlord reserves
the right to charge for the use thereof and to exclude any other names
therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on the Premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. All electrical ceiling fixtures hung in offices
or spaces along the perimeter of the Building must be fluorescent or of a
quality, type, design, and bulb color approved by Landlord. No articles
shall be placed or kept on the window sills so as to be visible from the
exterior of the Building. No articles shall be placed against glass
partitions or doors which Landlord considers unsightly from outside
Tenant's Premises.
5. Landlord reserves the right to exclude from the Building and the Project,
between the hours of 6 p.m. and 8 a.m. and at all hours on Saturdays,
Sundays and legal holidays, all persons who are not tenants or their
accompanied guests in the Building. Each tenant shall be responsible for
all persons for whom it allows to enter the Building or the Project and
shall be liable to Landlord for all acts of such persons.
Landlord and its agents shall not be liable for damages for any error
concerning the admission to, or exclusion from, the Building or the Project
of any person.
During the continuance of any invasion, mob, riot, public excitement or
other circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access
to the Building and the Project during the continuance of that event by any
means it considers appropriate for the safety of tenants and protection of
the Building, property in the Building and the Project.
6. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord. Except with the written
consent of Landlord, no person or persons other than those approved by
Landlord shall be permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by reason
of Tenant's carelessness or indifference in the preservation of good order
and cleanliness of its Premises. Landlord shall in no way be responsible to
Tenant for any loss of property on the Premises, however occurring, or for
any damage done to Tenant's property by the janitor or any other employee
or any other person.
7. Tenant shall see that all doors of its Premises are closed and securely
locked and must observe strict care and caution that all water faucets or
water apparatus, coffee pots or other heat-generating devices are entirely
shut off before Tenant or its employees leave the Premises, and that all
utilities shall likewise be carefully shut off, so as to prevent waste or
damage. Tenant shall be responsible for any damage or injuries sustained by
other tenants or occupants of the Building or Project or by Landlord for
noncompliance with this rule. On multiple-tenancy floors, all tenants shall
keep the door or doors to the Building corridors closed at all times except
for ingress and egress.
8. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord. As more specifically provided in Tenant's lease
of the Premises, Tenant shall not waste electricity, water or
air-conditioning and agrees to cooperate fully with Landlord to assure the
most effective operation of the Building's heating and air-conditioning,
and shall refrain from attempting to adjust any controls other than room
thermostats installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to each door in
the Premises. Landlord may make a reasonable charge for any additional
keys, and Tenant shall not make or have made additional keys. Tenant shall
not alter any lock or access device or install a new or additional lock or
access device or bolt on any door of its Premises, without the prior
written consent of Landlord. If Landlord shall give its consent, Tenant
shall in each case furnish Landlord with a key for any such lock. Tenant,
upon the termination of its tenancy, shall deliver to Landlord the keys for
all doors which have been furnished to Tenant, and in the event of loss of
any keys so furnished, shall pay Landlord therefor.
10. The restrooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown into them. The
expense of any breakage, stoppage, or damage resulting from violation of
this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused the breakage, stoppage, or damage.
Exhibit A - Page 1
<PAGE> 19
11. Tenant shall not use or keep in or on the Premises, the Building or the
Project any kerosene, gasoline, or inflammable or combustible fluid or
material.
12. Tenant shall not use, keep or permit to be used or kept in its Premises any
foul or noxious gas or substance. Tenant shall not allow the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors and/or vibrations
or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be brought or kept in or about the
Premises, the Building, or the Project.
13. No cooking shall be done or permitted by any tenant on the Premises, except
that use by the tenant of Underwriters' Laboratory (UL) approved equipment,
refrigerators and microwave ovens may be used in the Premises for the
preparation of coffee, tea, hot chocolate and similar beverages, storing
and heating food for tenants and their employees shall be permitted. All
uses must be in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations and the Lease.
14. Except with the prior written consent of Landlord, Tenant shall not sell,
or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises,
nor shall Tenant carry on, or permit or allow any employee or other person
to carry on, the business of stenography, typewriting or any similar
business in or from the Premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the Premises be
used for the storage of merchandise or for manufacturing of any kind, or
the business of a public barber shop, beauty parlor, nor shall the Premises
be used for any illegal, improper, immoral or objectionable purpose, or any
business or activity other than that specifically provided for in such
Tenant's Lease. Tenant shall not accept hairstyling, barbering, shoeshine,
nail, massage or similar services in the Premises or common areas except as
authorized by Landlord.
15. If Tenant requires telegraphic, telephonic, telecommunications, data
processing, burglar alarm or similar services, it shall first obtain, and
comply with, Landlord's instructions in their installation. The cost of
purchasing, installation and maintenance of such services shall be borne
solely by Tenant.
16. Landlord will direct electricians as to where and how telephone, telegraph
and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of
Landlord. The location of burglar alarms, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the prior
written approval of Landlord.
17. Tenant shall not install any radio or television antenna, satellite dish,
loudspeaker or any other device on the exterior walls or the roof of the
Building, without Landlord's consent. Tenant shall not interfere with radio
or television broadcasting or reception from or in the Building, the
Project or elsewhere.
18. Tenant shall not mark, or drive nails, screws or drill into the partitions,
woodwork or drywall or in any way deface the Premises or any part thereof
without Landlord's consent. Tenant may install nails and screws in areas of
the Premises that have been identified for those purposes to Landlord by
Tenant at the time those walls or partitions were installed in the
Premises. Tenant shall not lay linoleum, tile, carpet or any other floor
covering so that the same shall be affixed to the floor of its Premises in
any manner except as approved in writing by Landlord. The expense of
repairing any damage resulting from a violation of this rule or the removal
of any floor covering shall be borne by the tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
19. No furniture, freight, equipment, materials, supplies, packages,
merchandise or other property will be received in the Building or carried
up or down the elevators except between such hours and in such elevators as
shall be designated by Landlord.
Tenant shall not place a load upon any floor of its Premises which exceeds
the load per square foot which such floor was designed to carry or which is
allowed by law. Landlord shall have the right to prescribe the weight, size
and position of all safes, furniture or other heavy equipment brought into
the Building. Safes or other heavy objects shall, if considered necessary
by Landlord, stand on wood strips of such thickness as determined by
Landlord to be necessary to properly distribute the weight thereof.
Landlord will not be responsible for loss of or damage to any such safe,
equipment or property from any cause, and all damage done to the Building
by moving or maintaining any such safe, equipment or other property shall
be repaired at the expense of Tenant.
Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building
or to any space therein to such a degree as to be objectionable to Landlord
or to any tenants in the Building shall be placed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient
to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord.
20. Tenant shall not install, maintain or operate upon its Premises any vending
machine without the written consent of Landlord.
21. There shall not be used in any space, or in the public areas of the Project
either by Tenant or others, any hand trucks except those equipped with
rubber tires and side guards or such other material handling equipment as
Landlord may approve. Tenants using hand trucks shall be required to use
the freight elevator, or such elevator as Landlord shall designate. No
other vehicles of any kind shall be brought by Tenant into or kept in or
about its Premises.
22. Each tenant shall store all its trash and garbage within the interior of
the Premises. Tenant shall not place in the trash boxes or receptacles any
personal trash or any material that may not or cannot be disposed of in the
ordinary and customary manner of removing and disposing of trash and
garbage in the city, without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entry-ways and elevators provided for such purposes and at such
times as Landlord shall designate. If the Building has implemented a
building-wide recycling program for tenants, Tenant shall use good faith
efforts to participate in said program.
23. Canvassing, soliciting, distribution of handbills or any other written
material and peddling in the Building and the Project are prohibited and
each tenant shall cooperate to prevent the same. No tenant shall make
room-to-room solicitation of business from other tenants in the Building or
the Project, without the written consent of Landlord.
24. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and address of the Building and
the Project.
25. Landlord reserves the right to exclude or expel from the Project any person
who, in Landlord's judgment, is under the influence of alcohol or drugs or
who commits any act in violation of any of these Rules and Regulations.
Exhibit A - Page 2
<PAGE> 20
26. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building or the Project or any photograph or other likeness of
the Building or the Project in connection with, or in promoting or
advertising, Tenant's business except that Tenant may include the
Building's or Project's name in Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon appropriate
application at the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from Landlord, and
no employees of Landlord will admit any person (tenant or otherwise) to any
office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the parking spaces on
the Project. Tenant or Tenant's guests shall park between designated
parking lines only, and shall not occupy two parking spaces with one car.
Parking spaces shall be for passenger vehicles only; no boats, trucks,
trailers, recreational vehicles or other types of vehicles may be parked in
the parking areas (except that trucks may be loaded and unloaded in
designated loading areas). Vehicles in violation of the above shall be
subject to tow-away, at vehicle owner's expense. Vehicles parked on the
Project overnight without prior written consent of the Landlord shall be
deemed abandoned and shall be subject to tow-away at vehicle owner's
expense. No tenant of the Building shall park in visitor or reserved
parking areas. Any tenant found parking in such designated visitor or
reserved parking areas or unauthorized areas shall be subject to tow-away
at vehicle owner's expense. The parking areas shall not be used to provide
car wash, oil changes, detailing, automotive repair or other services
unless otherwise approved or furnished by Landlord. Tenant will from time
to time, upon the request of Landlord, supply Landlord with a list of
license plate numbers of vehicles owned or operated by its employees or
agents.
31. No smoking of any kind shall be permitted anywhere within the Building,
including, without limitation, the Premises and those areas immediately
adjacent to the entrances and exits to the Building, or any other area as
Landlord elects. Smoking in the Project is only permitted in smoking areas
identified by Landlord, which may be relocated from time to time.
32. If the Building furnishes common area conferences rooms for tenant usage,
Landlord shall have the right to control each tenant's usage of the
conference rooms, including limiting tenant usage so that the rooms are
equally available to all tenants in the Building. Any common area amenities
or facilities shall be provided from time to time at Landlord's discretion.
33. Tenant shall not swap or exchange building keys or cardkeys with other
employees or tenants in the Building or the Project.
34. Tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by Tenant's employees, agents, clients, customers,
invitees and guests.
35. 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,
covenants, agreements and conditions of any lease of any premises in the
Project.
36. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of
any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all tenants of the Building.
37. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and the Project and
for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations herein stated and any additional rules and
regulations which are adopted.
Exhibit A - Page 3
<PAGE> 21
EXHIBIT B
[MAP OF BUSINESS PARK AREA]
Site Plan - Santa Monica Business Park
3420 OCEAN PARK BLVD.
Santa Monica, California
Building A
SUITE 3020
RENTABLE SQ.FT. 852
[FLOOR PLAN]
<PAGE> 22
EXHIBIT C
TENANT IMPROVEMENTS
1. In consideration of the mutual covenants contained in the Lease of which this
EXHIBIT C is a part, Landlord agrees to perform the following initial tenant
improvement work in the Premises ("Tenant Improvements")
LANDLORD WILL PATCH AND PAINT THE WALLS IN SUITE 3020
2. All the Tenant Improvements described above shall be performed by Landlord at
its cost and expense using Building Standard materials and in the Building
Standard manner. As used herein, "Building Standard" shall mean the standards
for a particular item selected from time to time by Landlord for the Building or
such other standards as may be mutually agreed upon between Landlord and Tenant
in writing.
3. Without limiting the "as-is" provisions of the Lease, Tenant accepts the
Premises in its "as-is" condition and acknowledges that Landlord has no
obligation to make any changes or improvements to the Premises or to pay any
costs expended or to be expended in connection with any such changes or
improvements, other than the Tenant Improvements specified in Paragraph 1 of
this EXHIBIT C.
4. Tenant shall not perform any work in the Premises (including, without
limitation, cabling, wiring, fixturization, painting, carpeting, replacements or
repairs) except in accordance with Paragraphs 12 and 27 of the Lease.
<PAGE> 1
EXHIBIT 10.4
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is
made and entered into this 16th day of July, 1999, but effective as of the
Effective Date (as defined below) with respect to each Assumed Liability, by and
among INLAND ENTERTAINMENT CORPORATION, INC., a Utah corporation (the "Buyer"),
TYPHOON CAPITAL CONSULTANTS, LLC, a California limited liability company (the
"Seller"), SANJAY SABNANI and MANISHA SABNANI, the members of the Seller (each,
a "Member"; collectively, the "Members").
RECITALS
A. WHEREAS, pursuant to the terms of an Asset Purchase Agreement
dated as of July 16, 1999, by and among the Buyer, the Seller and the Members
(the "Purchase Agreement"), the Seller has agreed to transfer to the Buyer, and
the Buyer has agreed to assume, the Assumed Liabilities, as defined in the
Purchase Agreement; and
B. WHEREAS, the execution and delivery of this Assumption and
Assignment by the Buyer, the Seller and the Members are required to consummate
certain of the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. Assumption of Lease Obligations. The Seller and the Members
hereby transfer, assign, and sell to the Buyer, and the Buyer hereby agrees to
assume, all of the obligations of the Seller and/or the Members, as appropriate,
with respect to the equipment leases constituting part of the Assumed
Liabilities (the "Equipment Leases"), and more specifically described on Exhibit
"A" hereto arising from and after the Effective Date.
2. Assumption of Other Liabilities. The Seller and the Members
hereby transfer, assign, and sell to the Buyer, and the Buyer hereby agrees to
assume, the obligations and liabilities of the Seller and/or the Members, as
appropriate, other than the Equipment Leases (the "Remaining Liabilities"),
constituting part of the Assumed Liabilities, more specifically described on
Exhibit "B" hereto arising from and after the Effective Date.
<PAGE> 2
3. No Third Party Remedies. Nothing in this instrument, express or
implied, is intended or shall be construed to confer upon or give to any person,
firm or corporation, other than the Buyer, the Seller and the Members, and their
respective successors and assigns, any remedy or claim hereunder, and all of the
terms, covenants, conditions, promises and agreements contained herein shall be
for the sole and exclusive benefit of the Buyer, the Seller and the Members, and
their respective successors and assigns.
4. Enforceability; Effective Time. This instrument is being
executed by the Buyer, the Seller and the Members and shall be binding upon each
of them, and their respective successors and assigns, for the uses and for the
purposes above set forth and referred to. The assumption by the Buyer of each
obligation or liability pursuant to this instrument shall be effective with
respect to each obligation individually as of the latest date that the Sellers
and/or the Members receive all of the consents required to transfer such
obligation to the Buyer (each, an "Effective Date").
5. Representations of the Seller and the Members. The Seller and
the Members hereby represent and warrant to Buyer that they have fully performed
all obligations arising out of the Equipment Leases and the Remaining
Liabilities, and have not been delinquent in the performance of any Assumed
Liability for the period up to and including the respective Effective Dates of
each such obligation.
6. Governing Law. This instrument shall be governed by and
enforced in accordance with the laws of the State of California, without regard
to the conflict of laws principles hereof.
[signature page follows]
2
<PAGE> 3
IN WITNESS WHEREOF, this Assignment and Assumption Agreement is
executed and delivered as of the date first written above.
BUYER:
INLAND ENTERTAINMENT CORPORATION
By: /S/ L. DONALD SPEER, II
------------------------------
L. Donald Speer, II
Chairman of the Board and
Chief Executive Officer
SELLER:
TYPHOON CAPITAL CONSULTANTS, LLC:
By: /S/ SANJAY SABNANI
------------------------------
Sanjay Sabnani
President
MEMBERS:
/S/ SANJAY SABNANI
--------------------------
Sanjay Sabnani
/S/ MANISHA SABNANI
------------------------------
Manisha Sabnani
3
<PAGE> 4
EXHIBIT A
Equipment Leases
1. Equipment Lease Agreement between Konica Business Technologies,
Inc. and Typhoon Capital Consultants LLC, dated June 3, 1999.
2. Agreement between InterWorld Communications and
Venture-Catalyst.com [undated].
3. Service and Rental Agreement and License Application between
Pitney Bowes and Typhoon Capital Consultants, LLC, dated April 12,
1999.
4. Agreement between Arrowhead Mountain Spring Water and Typhoon
Capital Consultants, LLC, dated April 14, 1999.
4
<PAGE> 5
EXHIBIT B
Remaining Liabilities
NONE.
5
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,043,958
<SECURITIES> 100,000
<RECEIVABLES> 555,170
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,134,731
<PP&E> 1,653,707
<DEPRECIATION> 624,899
<TOTAL-ASSETS> 23,687,819
<CURRENT-LIABILITIES> 4,483,802
<BONDS> 9,900,000
0
0
<COMMON> 4,754
<OTHER-SE> 9,299,263
<TOTAL-LIABILITY-AND-EQUITY> 23,687,819
<SALES> 0
<TOTAL-REVENUES> 4,148,049
<CGS> 0
<TOTAL-COSTS> 3,151,313
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 195,833
<INCOME-PRETAX> 944,787
<INCOME-TAX> 425,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 519,787
<EPS-BASIC> .11
<EPS-DILUTED> .11
</TABLE>
