SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission File No.0-8358
MICRO GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2621545
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14711 Bentley Circle
Tustin, California 92780
(Address of principal executive offices)(Zip Code)
Registrant's Telephone Number, Including Area Code: (714) 731-0557
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
As of December 31, 1996, the aggregate market value of the
voting stock held by non-affiliates of the registrant was
$1,555,498.
As of December 31, 1996, the registrant had 1,949,166 shares
of common stock, $.05 par value outstanding.
The information required by Part III (items 10,11,12 and 13)
is incorporated by reference to portions of the registrant's
definitive proxy statement for the 1997 annual meeting of
shareholders which will be filed with the Securities and Exchange
Commission within 120 days after the close of the 1996 fiscal year.
<PAGE>
PART I
Item 1. BUSINESS
Introduction
Micro General Corporation (the "Company") designs, markets and
sells parcel shipping systems and electronic postal scales for use
in shipping departments and office mailrooms. The Company earns
revenues both from the initial sale of shipping systems and scales
and from subsequent rate updates resulting from rate changes by the
United States Postal Service ("USPS"), United Parcel Service
("UPS") and other parcel carriers (see the following "Rate Change
Modifications" discussion). The Company's products reduce labor
costs in shipping parcels and letters and, by consistent use of
accurate weight and corresponding shipping or postage rates, can
significantly reduce shipping and postage rate errors.
The Company's products are programmed with the current
shipping rates of USPS or UPS. The high-end models of the
Company's parcel shipping systems and each of the Company's postal
scale models also permit the customer to choose additional
carriers' rates from the Company's rate library. The Company's
ability to customize a shipping system or postal scale to include
additional carriers' rates in accordance with each customer's
shipping or mailing preferences permits the customer to choose the
optimum carrier and class of service for a particular parcel or
letter by quickly "rate shopping" between the standard shipping or
postal rate of different carriers.
Development of the Company's Business
In March 1981, the Company acquired all of the outstanding
stock of Coda Enterprises, Inc., a California corporation ("CODA").
Since its 1978 inception, CODA had designed and manufactured an
electronic postal scale and a piece-count scale and had sold those
products under a private label contract with a distributor of
mailroom equipment. In December 1981, CODA merged with the Company
and the Company changed its name to Micro General Corporation. The
Company has since redirected its resources to the development of
its microprocessor-based parcel shipping systems and postal scales.
In 1988, the Company reincorporated in Delaware.
Industry Overview
Prior to 1956, the USPS provided the sole means of letter or
parcel delivery throughout the United States. Currently many other
companies such as UPS, FedEx and others, provide nationwide
coverage in the package delivery business. There are currently
more than 30 letter and parcel delivery companies which compete
directly with the USPS. Additionally, deregulation of the airline
and trucking industries has lessened certain prior barriers to
reducing the cost of delivering letters and parcels by these
particular modes of transportation.
In order to provide reliable delivery information regarding
the location of en-route parcels, parcels must be uniquely tagged
so that package origin, destination, class of service and other
data can be quickly read and input into the carrier's information
system. The ability to produce this tag has created a significant
potential opportunity for the Company within the mailing and
shipping industry. Although carriers are currently investing in
plant and equipment to automate the handling of parcels and
letters, many of their customers still use hand ledgers, manual
zip-to-zone charts, spring scales and other conventional mechanical
equipment which lack the accurate weight/cost precision of the
Company's family of microprocessor-based and computer-based
products. These products also make data entry less difficult.
The Company believes that the number of UPS and other parcel
carrier users who might have a need for the Company's products
represents a significant market.
Products and Markets
The Company's family of microprocessor-based, computer-based
parcel shipping systems and postal scales are as follows:
Parcel Shipping Systems The Company believes its parcel
shipping systems offer cost and productivity advantages over manual
methods of parcel shipping recording for businesses which
consistently use UPS, the USPS or other parcel carriers. First,
the Company's parcel shipping systems automate transaction
recording and label identification on a package-by-package basis.
For example, a system's "manifest" printout, by itself, adequately
documents parcel shipments for pickup, delivery and accurate
billing by a carrier. Additionally, these systems allow the user
to determine the most economically acceptable method of shipment,
to determine and apply the correct shipping charge, and to record
data relevant to the transaction for use both by the shipper and
the parcel carrier.
The user places the parcel on the system's electronic scale
platform (which has a maximum rating of 150 pounds), then enters
the desired carrier and class of service and the parcel's
destination zip code. Each entry is accomplished by pushing a
single, clearly identified button. The user can instantly display
the rates for alternative carriers and classes of service by
depressing a single key for each such inquiry. When a carrier and
class of service have been selected, the user enters a package
identification number and, with a single keystroke, prints the
shipping label. Simultaneously, the transaction is automatically
entered into a computerized memory which both the carrier and the
shipper's accounting department can access.
The suggested retail prices for the Company's parcel shipping
systems range from $795 to $3,000, excluding options.
Computer-based Shipping Systems The Company currently offers
computer software and "turn-key" systems for shipping and warehouse
automation. The software programs include many of the standard
features already found in the Company's parcel shipping systems.
The software programs have the ability to take advantage of all of
the carriers now offered with the Company's other products. The
suggested retail prices for the Company's software programs, which
can be sold with or without equipment, range from $1,195 to $5,000,
excluding options.
Mailing Scales The Company currently offers both digital
electronic scales as well as mechanical spring scales. The
Company's digital display electronic postal scales are primarily
designed for office mailroom use. Relying upon Company-designed
microprocessor-based circuitry, parcel or letter weight is
instantly displayed in digital format. When a class of service is
selected on the membrane switch keyboard, the precise postage is
computed and displayed. Sophisticated features, such as the
ability to connect directly to a printer to provide instantaneous
accounting for transactions or to an electronic postage meter for
automatic setting and dispensing of postage, are possible because
of the microprocessor-based design. Use of the Company's scales
enables businesses to decrease postage costs by eliminating the
inefficiencies and errors which commonly occur when mechanical
scales and manual rate tables are used. The Company's postal
scales are available in maximum weight capacity ratings of 1 to 150
pounds. The suggested retail prices for the Company's postal
scales range from approximately $10 to $1,295, excluding options.
Tape Dispensing Systems The Company currently offers a manual
gummed tape dispensing system. This system is used for securing
boxes for shipment. The suggested retail price for the Company's
tape dispensing system is $279, excluding options.
Rate Change Modifications Currently, the Company maintains a
rate library containing rate information for most national and
regional parcel carriers. The Company updates this library
whenever a carrier's rate change occurs.
Modifying the Company's units in the field to reflect rate
changes by the USPS, UPS or other carriers in the Company's rate
library is done by inserting programmable read-only memory chips
("PROMS") into designated slots in the Company's parcel shipping
systems and postal scales or via floppy disk updates for computer-
based systems. The Company generally charges a fee for each new
PROM or disk it provides. Alternatively, the Company will, for a
one-time fee, provide updated rate PROMS as required for a
specified period of time. As the Company's installed unit base
grows, potential revenues associated with rate changes represent a
significant source of revenue and profit for the Company. PROMS
related to rate changes are sold both to dealers and directly by
the Company for its installed customer base. For each rate PROM
sold to an end-user customer, a percentage of the purchase price is
generally credited to the dealer that originally sold the system to
the customer, provided that the dealer is still an authorized
Company dealer. No such allowances are paid where sales of the
underlying equipment were not through dealers.
Marketing, Sales, Warranties and Customers
Marketing and Sales The Company's strategy is to select
market niches in which its technology provides price and/or
performance advantages over products offered by the market leaders.
The Company's position is primarily in software, but the unique
appearance, functionality and built in "ease of use" of its
products are also considered to be significant competitive
advantages. With the increase of UPS owned equipment and free
software available to the customers, the Company seeks new products
to replace the customers lost to UPS equipment.
The Company sells its dealer products through a network of
more than 140 dealers located throughout the United States and
Canada, although approximately 30 dealers account for the majority
of the Company's sales. The Company believes the loss of any
particular dealer would not have a material adverse effect on the
Company's operating results. All dealer orders accepted by the
Company are shipped and invoiced to dealers at discounts from the
Company's suggested retail list price. The Company's normal sales
terms to its qualified dealers are net 30 days from invoice date.
Company sales are generally final and are supported by a Company-
issued order entry acknowledgment which specifies all terms and
conditions of the contracted sales transaction. However, in
addition to any product returns resulting from product defects, the
Company is obligated under some of its dealer agreements to accept
the return of unopened inventory from terminated dealers (subject
to a restocking fee). The Company, at its discretion, periodically
permits dealers to return products for credit or exchange (subject
to a restocking fee in most cases) due to dealers' lost sales or
dealers' errors in ordering or evaluating end-user customer needs.
Returns as a percentage of product sales for 1996, 1995, and 1994,
were 19%, 16%, and 12%, respectively. The Company believes that
the allowance for sales returns at December 31, 1996 and December
31, 1995, is adequate in light of historical experience.
The Company typically experiences significantly higher
revenues in the first quarter of each year, which is attributable
to the sales of carrier rate changes. When a USPS or UPS rate
change occurs many product users update their machines with new
rates which provides significant rate change revenues to the
Company.
A comparison of first quarter sales in the last 3 years in
relation to annual sales is as follows:
1st Quarter Annual Sales %
1996 $1,470,389 $2,155,378 68%
1995 $2,173,689 $4,041,921 54%
1994 $1,844,557 $4,768,548 39%
Even though history has shown that the carrier rate changes
traditionally have occurred in the first quarter, the Company
believes this should not be included as a seasonal impact. There
can be no assurance as to the timing of future rate changes.
In 1990, the Company established a network of manufacturer's
representatives to sell the retail products to stationary stores,
direct mail houses, wholesalers and office product resellers. This
portion of the business in 1996, 1995 and 1994 represents 20%, 29%
and 24% of the Company's total product sales, respectively.
Warranties Individual dealers have responsibility for
installation and service of the Company's products. The Company's
distributed products are sold with a 90-day warranty on material
and labor. The Company bears the costs incurred in providing such
in-warranty repairs. The Company invoices the dealers on a time
and materials basis for out-of-warranty repairs performed by the
Company. In 1996, 1995, and 1994 the Company's costs to perform
both in-warranty and out-of-warranty repairs, in the aggregates
were 8%, 13%, and 11%, respectively, of total product sales.
Customers As of December 31, 1996, the Company estimates it
had an aggregate installed base of approximately 20,000 parcel
shipping systems, postal scales and piece count scales. Moreover,
no individual dealer accounted for more than 10% of the Company's
1996 total net revenues.
Backlog The Company typically enters facsimile orders from
its dealers, considers these orders part of backlog, and schedules
delivery for a date within 10 days from receipt of the order.
Subsequent confirmation through a written purchase order is
normally obtained. On a monthly basis, the Company generates a
listing of scheduled and confirmed backlog. Backlog cancellations
have historically been nominal. The backlog at December 31, 1996,
is not material.
Competition
The Company competes in an industry characterized by intense
and increasing competition. To the Company's knowledge, there are
approximately 20 competitors engaged in either the sale or lease of
electronic shipping systems or postal scales. Among these, Pitney
Bowes, Inc. has a dominant position in the postage meter market,
and UPS has a dominant position in the parcel shipping systems
market.
The Company sells principally to shippers having moderate
volumes of daily shipments. Various firms have recently begun
selling parcel shipping software that customers use with their
existing in-house computer systems. Also, various air express and
other shipping firms are now providing free computerized parcel
shipping systems and offering volume discounts to end-user
customers that maintain specified minimum shipping volumes.
The Company believes that the price/performance features of
its products continue to compare favorably with their various
competitors. Nevertheless, many of the Company's competitors have
far greater financial and personnel resources than those of the
Company, including direct sales branches and substantial marketing
and product development programs. Consequently, there can be no
assurance that future competition from such competitors will not
have a material adverse effect on the Company's business.
Distribution
In recent years, the Company has increased the purchasing of
completed units manufactured outside the United States. The
foreign manufacturers take advantage of the tooling put in place by
the Company, in order to provide the Company with parts for its
specialized needs. In the fourth quarter of 1995, the Company
resumed manufacturing in its California facility to improve quality
and reduce costs on its larger model scales.
Finished product quality inspection and final testing is
performed prior to shipment by Company personnel at the Company's
Tustin, California facility.
Engineering and Development
For the years ended December 31, 1996, 1995, and 1994, the
Company's expenditures for engineering, research and development
approximated $556,000, $638,000, and $415,000, respectively. In
May 1995, the engineering department was moved to the Company's
facility in Oxford, Connecticut. The Company's 1996 engineering,
research and development activities included the UPS rate changes
in the first quarter of 1996. A new multi-carrier computer-based
product, The Eagle Best Rate Shipper, was designed in 1995 and was
released in May 1996. The postage meter development project,
started in 1995, is continuing and is designed to comply with
changing U.S. Postal regulations is scheduled for submission to the
United States Postal service for approval during the second fiscal
quarter of 1997. Product release of the Company's postage meter is
targeted for the end of 1997. It has been reported, in various
publications, that the U.S. Postal Service has announced the
decertification of all mechanical postage meters in the U.S. with
the phase-out period to be completed by March 1999. It is
estimated that 774,000 meters are affected by this anticipated
ruling. This ruling provides the Company with an opportunity to
enter a major new market. Submission for approval to the U.S.
Postal Service of the Company's first postage meter is expected by
mid-1997.
Patents and Licenses
The Company has federally registered the trademarks "CODA",
"MAILMATE ", "PC SHIPMATE ", "SMART METER ", "SMART LABEL , "SHIP
SAVER ", "SHIPMATE ", "SHIP MASTER ", "SHIP-EASY", "SHIP
COMMANDER ", and "Eagle Best Rate Shipper". During 1996 the Company
has applied for several patents which pertain to the postage meter
project.
Employees
As of December 31, 1996, the Company employed 28 people. The
Company's employees are not represented by a labor union and it has
experienced no work stoppages. The Company believes that its
employee relations are good. The Company augments its work force
with temporary staff during periods of rate change shipments.
Item 2. PROPERTIES
During 1996, the Company's executive office, distribution and
service facility consisted of a 18,550 square feet in a building
located in Santa Ana, California. The Company has leased this
facility until the year 1999. In January 1997, the Company sub-
leased its Santa Ana facility and relocated to a new site in
Tustin, California. The Tustin facility consists of 7,711 square
feet. This facility has been leased until the year 2000. In April
1995, the Company entered into a three-year lease for a 5,000
square foot research and development office in Oxford, Connecticut,
which currently houses engineering, research and development,
technical service and customer service.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have
a material adverse effect on the Company's consolidated financial
position, results of operations or liquidity.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
Executive Officers of the Registrant
The following sets forth the name, age and offices presently
held by the Company's executive officers:
Thomas E. Pistilli . . . . 54 President, Chief Executive Officer,
Chief Financial Officer and Director
John J. Horbal . . . . . . .59 Vice President - Engineering
Linda I. Morton. . . . . . .44 Corporate Secretary and Controller
Robert F. Baker. . . . . . .49 Vice President - Sales
THOMAS E. PISTILLI
Mr. Pistilli has served as the President, Chief Executive
Officer, Chief Financial Officer, and Director since November 1994.
Prior to joining the Company, Mr. Pistilli served as a management
consultant to the Company for approximately two years. Mr.
Pistilli is the former President and Chief Executive Officer of
International Mailing Systems, Inc.(ASCOM/HASLER), Shelton,
Connecticut, where he served in that capacity for 11 years and
overall with that Company for 18 years. Mr. Pistilli, a Certified
Public Accountant, was previously employed by KPMG Peat Marwick
LLP, for a period of seven years. Mr. Pistilli is a member of the
Board of Directors, serving since November 1994.
JOHN J. HORBAL
Mr. Horbal joined the Company as Vice President-Research and
Development in January 1995. Prior to joining the Company, Mr.
Horbal was with ASCOM/HASLER and Better Packages, Shelton,
Connecticut, for 25 years serving as Director of Engineering,
Director of Research and Development, and Chief Engineer. He was
named Vice President of Engineering in June 1995.
LINDA I. MORTON
Ms. Morton joined the Company in September 1983 serving in
various management accounting positions. She was appointed
Controller in August 1988 and Corporate Secretary in June 1991.
ROBERT F. BAKER
Mr. Baker joined the Company as Vice President - Sales in
January 1997. Prior to joining the Company, Mr. Baker was a Vice-
President with Better Homes and Gardens Real Estate since 1989.
Mr. Baker also served in various senior sales management positions
with ASCOM/HASLER, Scriptomatic and Pitney Bowes.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Principal Market and Prices
During 1996, the Company's common stock was traded on the
over-the-counter market on NASDAQ under the symbol MGEN. On
January 10, 1997, the Company elected to have its common stock
delisted form the Nasdaq SmallCap Market . The stock is now
listed on the OTC Bulletin Board . The following table sets forth
the range of high and low closing bid quotations per share of the
Company's common stock for the fiscal quarters indicated as
reported by the NASD on its monthly statistical reports. Such
prices represent interdealer quotations without adjustment for
retail markup, markdown, or commission and do not necessarily
represent actual transactions.
Fiscal Quarters Bid Price
High Low
Year Ended December 31, 1996
First Quarter . . . . . . $ 3.50 1.50
Second Quarter . . . . . . 3.25 2.00
Third Quarter. . . . . . . 3.38 2.00
Fourth Quarter . . . . . . 2.63 1.63
Year Ended December 31, 1995
First Quarter . . . . . . $ 2.50 2.00
Second Quarter . . . . . . 2.63 2.25
Third Quarter. . . . . . . 2.38 1.75
Fourth Quarter . . . . . . 1.75 1.50
Number of Common Shareholders
The number of shareholders of record of the Company's common
stock at December 31, 1996 was 602.
Dividends
The Company intends to continue its policy of retaining all
earnings for reinvestment in the business operations of the
Company. Under Delaware law, the Company's Board of Directors may
declare and pay dividends on its outstanding shares in cash or
property only out of the unreserved and unrestricted earned
surplus. The Company has an accumulated deficit of $3,882,314, as
of December 31, 1996 and accordingly, Delaware law prohibits the
Company from paying cash dividends except to the extent that the
Company has net profits in any fiscal year or the preceding fiscal
year. There were no accumulated dividends as of December 31, 1996.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data. This
data is derived from and qualified in its entirety by the more
detailed financial statements included elsewhere herein.
Year Ended
(in thousands, except per share
data)
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
Net Product Sales $ 834 $ 1,743 $ 2,710 $ 3,104 $ 2,525
Service and
Rate Change Revenue 1,321 2,299 2,059 1,950 1,944
-------- -------- -------- ------- -------
Total Revenues 2,155 4,042 4,769 5,054 4,469
Cost of Sales 1,399 1,937 2,863 2,864 2,579
-------- -------- -------- ------- -------
Gross Profit 756 2,105 1,906 2,190 1,890
-------- -------- -------- ------- -------
Net Earnings (Loss)$ (1,182) $ (230) $ (297) $ 375 $ .5
-------- -------- -------- ------- -------
Net Earnings (Loss)
Per Share $ (0.61) $ (0.12) $ (0.16) $ 0.20 $ 0.00
-------- -------- -------- ------- -------
Weighted Average Number
of Shares Used in
Computation* 1,948,541 1,940,666 1,883,876 1,882,240 1,882,240
___________________________
*Per share computations are based on the weighted average number
of shares outstanding. The shares issuable upon exercise of stock
options and other common stock equivalents have not been included
in the computations of net earnings (loss) per share during any of
the periods because the effect would have been antidilutive. All
share and per share data for 1992 has been restated for the 1 for
5 reverse stock split which became effective December 31, 1992.
Year Ended
(in thousands)
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
Working Capital $ 1,363 $ 1,340 $ 1,512 $ 1,778 $ 1,338
Total Assets 2,190 2,084 2,420 2,575 2,052
Shareholders' Equity 391 1,572 1,736 2,027 1,652
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
A. Comparison of Fiscal 1996 and Fiscal 1995
Total revenue for the Company in 1996 decreased $1,886,543 or
47% compared to the same period in 1995. The overall decrease is a
combination of a decrease in product sales of $561,572 or 46% in
the dealer channel and $346,762 or 68% in the retail channel, a
decrease in service revenue of $75,025 or 45%, and a decrease in
rate change revenue of $903,184 or 42%. The decline of sales in
the retail channel is a result of a consolidation of various
superstores and catalogue houses who have exclusive arrangements
with one large-scale supplier. The decrease in the dealer channel
is primarily the result of continued pressure on the manifest
industry by United Parcel Service and other carriers who provide
free software and equipment to customers. The decrease in the rate
change revenue is a result of only a single UPS rate change in
February 1996 versus both a UPS and USPS rate change in both
January and August 1995. The Company is continuing to develop new
products for the dealer channel. The introduction in May 1996 of a
low priced computer-based software program "The Eagle-Best Rate
Shipper" along with the retail version, "The Eagle Parcel Center
2000" in early 1997 is expected to increase sales volume as the
dealers become more acclimated and better trained to market this
product.
Cost of sales for product sales decreased 341,099 or 25%. The
service and rate change revenue costs decreased $197,769 or 34% as
compared to the same period in 1995. The decrease is due to lower
sales and a reduction in other product costs.
Gross margin overall decreased 64% for the year ended December
31,1996 as compared to the prior year. The primary reason was
attributable to lower product sales with a 43% decrease in gross
margin compared to 1995.
Operating expenses for the Company in 1996 decreased $458,195
or 20% as compared to the prior year. The decrease is a result of
a number of factors including the reduction in the sales, marketing
and general and administrative expense of $215,097 or 13% and a
decrease in engineering and development expense of $81,336 and the
capitalization of $146,198 of research and development expense
relating to the postage meter project. The provision for doubtful
receivables decreased $15,564 as compared to 1995.
Interest expense for the Company in 1996 increased $54,538 as
compared to the prior year. This increase is due to the interest
associated with convertible notes signed August 1, 1996(see note
7).
The net loss of $1,182,166 is $952,514 or 415% higher than the
prior year. The loss is primarily attributable to lower rate
change revenue for 1996 due to only one rate change versus two in
1995. The decline in profit, due to lower sales revenue, was
partially offset by lower operating expenses and capitalized
research and development. The profit associated with one rate
change is approximately $700,000.
B. Comparison of Fiscal 1995 and Fiscal 1994.
Total revenue for the Company in 1995 decreased $726,627 or
15% compared to the same period in 1994. The overall decrease is a
combination of a decrease in product sales of $825,210 or 40% in
the dealer channel and $141,236 or 22% in the retail channel, a
decrease in service revenue of $155,802 or 48%, and an increase in
rate change revenue of $395,621 or 23%. The increase in the rate
change revenue is a result of both a UPS rate change in February
1995 and USPS rate change's in both January and August 1995. A
portion of the January 1995 USPS rate change revenue, totaling
$384,262, was recognized in December 1994. The combination of
decreased unit sales and lower average sale prices, primarily due
to a shift in product mix, resulted in lower overall revenue. The
Company reduced expenses by reducing advertising expense and
improved profit margins through price adjustments in the retail
channel, which resulted in lower volume in this channel. The
Company is continuing to develop new products for the dealer
channel.
Cost of sales for product sales decreased $927,027 or 41%.
The decrease is due to a decrease in sales and the improved profit
margins in the retail channel and a reduction in other product
costs. The service and rate change revenue costs increased $1,714
or 0.3% as compared to the same period in 1994.
Gross margin increased 12% for the year ended December 31,
1995 compared to the prior year. The primary reason was
attributable to product sales with a 7% increase in gross margin
compared to 1994. This is a result of cost reductions in the
retail channel and the increase in product mix towards lower
priced, higher margin products in the dealer channel. The increase
in service and rate change revenue gross margin of 5% is a result
of two rate changes in the first quarter of 1995.
Operating expenses for the Company in 1995 increased $134,134
or 6% as compared to the prior year. This was a result of a
combination of increased expenses in engineering and research and
development and a decrease in the sales, marketing, general and
administrative expenses as compared to the prior year. The
decrease in sales, marketing and general and administrative expense
is due to a decrease in promotion and advertising expense for the
period in an effort to control costs. The increase in engineering
and development expenses of $222,867 or 54% over the prior year is
due to the final development of the computer-based system
introduced in March 1996 and the continuing development of the
Company's postage meter products.
The net loss of $229,652 is $67,132 or 23% lower than the
prior year. The loss is attributable to lower product sales and an
increase in engineering and development expenses.
C. Financial Condition, Liquidity and Capital Resources
The Company's ability to generate cash depends on rate change
revenue, long term debt, the sale of inventory and collection of
accounts receivable. The Company's 1996 cash balance increased
$378,311 or 1074% from December 31, 1995. The increase compared to
December 31, 1995 is primarily attributable to cash generated from
amounts borrowed from the convertible notes signed August 1, 1996.
At December 31, 1996, the Company had borrowed $1,500,000 from the
convertible notes (see note 7). The Company's 1996 net accounts
receivable balance decreased $246,517 or 70% from December 31, 1995
levels. This decrease is due to improved accounts receivable
collections and reduced sales.
Working capital has ranged from $1,340,255 in 1995 to
$1,362,595 in 1996. The Company's current ratio at December 31,
1996 was 5.6 compared to 3.6 at December 31, 1995.
The Company's total inventories decreased 284,137 or 22% at
December 31, 1996 as compared to the prior year end. The decrease
in inventory is related to the sale of products and reduced
purchasing throughout the year.
The Company has available liquidity through the two financing
agreements entered into on August 1, 1996, to provide additional
funding primarily for the retirement of bank debt, operations, and
to fund the Company's ongoing development of a series of high-level
security postage meters designed to comply with the new United
States Postal Service proposed regulations(see note 7). At
December 31, 1996, the Company was in compliance with all financial
covenants associated with the convertible notes.
The Company is currently operating without a revolving line of
credit agreement to fund working capital requirements. Current
liquidity is being funded through the aforementioned product sales,
service and rate change revenues and a portion (15% pursuant to the
governing loan agreement) of periodic drawdowns on its note
payable.
Based upon the Company's current cash projections which
demonstrate a cash shortfall using these sources of liquidity, its
lack of a revolving credit agreement and the uncertainty regarding
its ability to access other sources of liquidity, substantial doubt
exists regarding its ability to continue as a going concern.
Management's plans with respect to these matters includes the
on-going negotiations with its current lenders to modify the terms
of its loan agreements. The proposed modifications would include
the waiver of the current requirement which restricts the Company's
use of any loan proceeds to 15% for working capital purposes and
85% of such drawdown for the Company's "Meter Project." If
management is successful in obtaining such waivers up to $1,500,000
in additional cash would be come available for working capital
purposes (presuming advances under the note were approved by the
noteholders). If such waivers or similar renegotiations are
ultimately negotiated to the Company's satisfaction, the Company
believes it will have adequate liquidity available through the
remainder of 1997.
If the noteholders were to approve such a waiver, the Company
would require additional funding to complete its ongoing "Meter
Project." It is anticipated that the "Meter Project" will require
additional funding of approximately $1,000,000 in 1997. Such
funding will be utilized for license agreements.
The Company's investment in capital expenditures for 1996 has
increased slightly over 1995. There were no material commitments
for capital expenditures as of December 31, 1996. The Company does
not anticipate any significant domestic capital expenditures in the
near future.
The Company does not engage in any material off balance sheet
financing.
Inflation
The effect of inflation on operating results has, historically,
been insignificant.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein
by reference to the financial statements and supplementary data
listed in Item 14 of Part IV of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information required
by this Item in the Company's definitive proxy statement for the
1997 annual meeting of shareholders which will be filed with the
Securities and Exchange Commission no later than 120 days after the
close of the Company's fiscal year ended December 31, 1996.
Item 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information required
by this Item in the Company's definitive proxy statement for the
1997 annual meeting of shareholders which will be filed with the
Securities and Exchange Commission no later than 120 days after the
close of the Company's fiscal year ended December 31, 1996.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
Incorporated herein by reference is the information required
by this Item in the Company's definitive proxy statement for the
1997 annual meeting of shareholders which will be filed with the
Securities and Exchange Commission no later than 120 days after the
close of the Company's fiscal year ended December 31, 1996.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information required
by this Item in the Company's definitive proxy statement for the
1997 annual meeting of shareholders which will be filed with the
Securities and Exchange Commission no later than 120 days after the
close of the Company's fiscal year ended December 31, 1996.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
Documents filed with Report
Financial Statements
The financial statements listed on the accompanying Index
to Financial Statements and Schedule are filed as part of this
report.
Financial Statement Schedule
The financial statement schedule listed on the
accompanying Index to Financial Statements and Schedule are filed
as part of this report.
Exhibits
The exhibits listed on the accompanying Index to Exhibits
are filed as part of this report.
Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
last quarter of the fiscal year ended December 31, 1996.
<PAGE>
MICRO GENERAL CORPORATION
Annual Report - Form 10-K
Items 8, 14(a)(1) and 14(a)(2)
Financial Statements and Schedule
December 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
MICRO GENERAL CORPORATION
SEC FORM 10-K
Items 8, 14(a)(1) and 14(a)(2)
Index to Financial Statements and Schedules
Financial Statements
Balance Sheets - December 31, 1996 and 1995
Statements of Operations - Years ended December 31, 1996, 1995 and 1994
Statements of Shareholders' Equity - Years ended December 31,
1996, 1995 and 1994
Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Schedule
Valuation and Qualifying Accounts - Schedule II
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial
statements or notes thereto.
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Micro General Corporation:
We have audited the financial statements of Micro General
Corporation as listed in the accompanying index. In connection
with our audits of the financial statements, we also have audited
the financial statement schedule as listed in the accompanying
index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Micro
General Corporation as of December 31, 1996 and 1995 and the
results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1996 in conformity
with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in note 2 to the financial statements, the Company has suffered
recurring losses from operations and has limited working capital
resources that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to
these matters are also described in note 2. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
Orange County, California
March 6, 1997
<PAGE>
Micro General Corporation
Balance Sheets
December 31, 1996 and 1995
Assets (Note 7) 1996 1995
Current assets:
Cash $ 413,533 35,222
Accounts and notes receivable,
less allowance for doubtful
receivables and sales returns
of $35,333 in 1996 and
$46,594 in 1995 103,474 349,991
Inventories (note 3) 1,039,972 1,324,109
Prepaid expenses 104,993 143,433
---------- ---------
Total current assets 1,661,972 1,852,755
Equipment and improvements,
net (note 4) 207,659 193,691
Other assets, net (note 5) 320,598 37,822
---------- ---------
$ 2,190,229 2,084,268
========== =========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable to bank (note 7) $ - 275,000
Accounts payable 65,480 51,278
Accrued expenses 173,040 164,545
Deferred revenue 60,857 21,677
---------- ---------
Total current liabilities 299,377 512,500
Long-term debt (note 7) 1,500,000 -
---------- ---------
Shareholders' equity (note 8):
Preferred stock, $.05 par value.
Authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, $.05 par value.
Authorized 10,000,000 shares;
issued and outstanding 1,949,166
and 1,948,166 shares in 1996
and 1995, respectively 97,458 97,408
Additional paid-in capital 4,175,708 4,174,508
Accumulated deficit (3,882,314) (2,700,148)
---------- ---------
Total shareholders' equity 390,852 1,571,768
Commitments and contingencies (note 10)
Subsequent event (note 11)
---------- ---------
$ 2,190,229 2,084,268
========== =========
See accompanying notes to financial statements.
<PAGE>
Micro General Corporation
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Product sales, net of returns of
$158,435 in 1996, $278,839 in 1995
and $329,235 in 1994 $ 834,609 1,742,943 2,709,389
Service and rate change revenues
(note 10) 1,320,769 2,298,978 2,059,159
---------- --------- ---------
Total revenues 2,155,378 4,041,921 4,768,548
Cost of sales:
Products 1,008,918 1,350,017 2,277,044
Service and rate changes 389,598 587,367 585,653
---------- --------- ---------
Total cost of sales 1,398,516 1,937,384 2,862,697
---------- --------- ---------
Gross profit 756,862 2,104,537 1,905,851
Operating expenses:
Selling, general and
administrative 1,459,225 1,674,322 1,713,511
Engineering and development 410,362 637,896 415,029
Provision for doubtful receivables 16,285 31,849 81,393
---------- --------- ---------
Operating loss (1,129,010) (239,530) (304,082)
Interest and other income
(expense), net (52,356) 10,678 8,098
---------- --------- ---------
Loss before income
tax expense (1,181,366) (228,852) (295,984)
Income tax expense (note 6) 800 800 800
---------- --------- ---------
Net loss $(1,182,166) (229,652) (296,784)
========== ========= =========
Net loss per common share $ (.61) (.12) (.16)
========== ========= =========
Weighted average number of
common shares outstanding 1,948,541 1,940,666 1,883,876
========== ========= =========
See accompanying notes to financial statements.
<PAGE>
MICRO GENERAL CORPORATION
Statements of Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Preferred Common Additional Total
Stock Stock paid-in Accumulated shareholder's
Shares Amount Shares Amount capital deficit equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 - $ - 1,882,240 $94,112 4,107,492 (2,173,712) 2,027,892
Repurchase of
common stock - - (4,075) (204) (8,965) - (9,169)
Stock options
exercised - - 10,001 500 13,356 - 13,856
Net loss - - - - - (296,784) (296,784)
------ ------ --------- ------ --------- ---------- ---------
Balance at
December 31, 1994 - - 1,888,166 94,408 4,111,883 (2,470,496) 1,735,795
Stock options
exercised - - 60,000 3,000 62,625 - 65,625
Net loss - - - - - (229,652) (229,652)
------ ------ --------- ------ --------- ---------- ---------
Balance at
December 31, 1995 - - 1,948,166 97,408 4,174,508 (2,700,148) 1,571,768
Stock options
exercised - - 1,000 50 1,200 - 1,250
Net loss - - - - - (1,182,166) (1,182,166)
------ ------ --------- ------ --------- ---------- ---------
Balance at
December 31, 1996 - $ - 1,949,166 $97,458 4,175,708 (3,882,314) 390,852
====== ====== ========= ======= ========= ========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Micro General Corporation
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net loss $(1,182,166) (229,652) (296,784)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 111,223 108,281 103,825
Provision for doubtful
receivables 16,285 31,849 81,393
Provision for sales returns 158,435 62,739 53,336
Decrease (increase) in assets:
Accounts and notes receivable 71,797 173,855 85,496
Income tax receivable - 7,000 (2,000)
Inventories 284,137 (183,926) (48,633)
Prepaid expenses 34,440 133,999 27,434
Other assets (308,558) (15,000) -
Increase (decrease) in liabilities:
Accounts payable 14,202 (244,793) 120,846
Accrued expenses 8,495 (63,527) 8,311
Deferred revenue 39,180 (138,176) 107,488
---------- ---------- ---------
Net cash provided by (used
in) operating activities (752,530) (357,351) 240,712
Cash flows used in investing
activities - capital expenditures (95,409) (100,900) (78,063)
---------- ---------- ---------
Cash flows from financing
activities:
Proceeds from note payable 1,500,000 - -
Net proceeds (repayment) of notes
payable to bank (275,000) 275,000 (100,000)
Repurchase of common stock - - (9,169)
Issuance of common stock 1,250 65,625 13,856
---------- ---------- ---------
Net cash provided by (used
in) financing activities 1,226,250 340,625 (95,313)
---------- ---------- ---------
Net increase (decrease)
in cash 378,311 (117,626) 67,336
Cash at beginning of year 35,222 152,848 85,512
---------- ---------- ---------
Cash at end of year $ 413,533 35,222 152,848
========== ========== =========
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 54,539 2,000 1,230
Income taxes 800 800 2,800
=========== ========== =========
See accompanying notes to financial statements.
<PAGE>
MICRO GENERAL CORPORATION
Notes To Financial Statements
December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
General
The operations of Micro General Corporation (the Company)
consist of the design, purchase, distribution and
manufacturing of computerized parcel shipping systems, postal
scales and piece-count scales. Product sales are achieved
through the use of authorized company dealers and through
dealers in the office products and superstore channels
throughout the United States.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand
deposits and investments with original maturities of three
months or less.
Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market (net realizable value).
Equipment and Improvements
Equipment and improvements are stated at cost. Depreciation
and amortization are provided using the straight-line method
over the estimated useful lives of the respective equipment
and improvements.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial
Accounting Standard No. 121 (Statement No. 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, on January 1, 1996. This Statement
requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of this Statement did not have
a material impact on the Company's financial position, results
of operations or liquidity.
Net Loss per Common Share
Net loss per common share is computed based on the weighted
average number of common shares outstanding. The potential
exercise of stock options or warrants are not included in the
computation of net loss per common share since the effect
would be antidilutive for all years presented.
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
Warranties
The Company's products are sold with a 90-day warranty on
materials and workmanship. Estimated warranty costs based on
historical experience are accrued as an expense at the time
products are sold.
Intangible Assets
Intangible assets are classified under other assets and are
amortized on a straight-line basis over periods ranging from
10 to 15 years.
Capitalized Research and Development Costs
Research and development costs incurred after the
establishment of technological feasibility are capitalized and
amortized using the straight-line method over the estimated
economic life of the product.
Revenue Recognition
Product sales are recorded by the Company when products are
shipped to dealers and customers. Rate change revenues are
recorded by the Company at the time memory chips are
reprogrammed with new tariffs and shipped to the customer.
The Company collects fees from some customers in anticipation
of future rate changes. Customers prepaying future rate
changes receive memory chips with the new tariffs, upon notice
of a rate change, without paying an additional charge. These
prepaid rate change fees are recorded as revenue on a pro rata
basis over the prepaid period.
Sales Returns
The majority of the Company's product sales are to its
authorized dealers who resell the Company's products. The
Company's policy is that all sales are final, but dealers may,
at the Company's sole discretion and subject to a restocking
fee, return certain out-of-warranty products in exchange for
products of comparable sales value. Additionally, dealers
may, at the Company's sole discretion, be permitted to return
their unopened inventory in the event they or the Company
terminate their dealership agreement, again subject to a
restocking fee. Upon acceptance of returned goods, the
Company reconditions the goods, at a nominal cost, and
restocks them in inventory to be sold at a later date. The
Company provides an allowance for such returns equal to the
estimated gross profit on the portion of sales estimated to
be returned. This specific allowance is a component of the
Company's allowance for doubtful receivables and sales
returns.
Financial Instruments
The carrying amount of cash, accounts and notes receivable,
prepaid expenses, other assets, accounts payable, accrued
expenses, notes payable to bank, long-term debt and deferred
revenue are measured at cost which approximates their fair
value due to the short maturity of these instruments.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company
adopted Statement of Financial Accounting Standard No. 123
(SFAS No. 123), "Accounting for Stock-Based Compensation"
which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income (loss) and pro forma
earnings (loss) per share disclosures for employee stock
option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123 (note 8).
(2) Liquidity and Going Concern
The Company has suffered losses from operations for each of
the years in the three years ended December 31, 1996. In
addition, the Company is currently operating without a
revolving line of credit agreement to fund working capital
requirements. Current liquidity is being funded through
product sales, service and rate change revenues and a portion
(15% pursuant to the governing loan agreement) of periodic
drawdowns on its note payable arrangement (see note 7).
Based upon the recurring losses from operations, the Company's
current cash projections which demonstrate a cash shortfall
using the above-mentioned sources of liquidity, its lack of
a revolving credit agreement and the uncertainty regarding its
ability to access other sources of liquidity, substantial
doubt exists regarding its ability to continue as a going
concern.
Management's plan with respect to these matters includes the
ongoing negotiations with its current lenders to modify the
terms of its loan agreements. The proposed modifications
would include the waiver of the current requirement which
restricts the Company's use of any loan proceeds to 15% for
working capital purposes and 85% of such drawdown for the
Company's "Meter Project. If management is successful in
obtaining such waivers, up to $1,500,000 in additional cash
would become available for working capital purposes (presuming
advances under the note were approved by the noteholders).
If such waivers or similar renegotiations are ultimately
negotiated to the Company's satisfaction, the Company believes
it will have adequate liquidity available through the
remainder of 1997.
(3) Inventories
Inventories are comprised of the following at December 31,
1996 and 1995:
1996 1995
Parts and supplies $ 683,936 919,459
Purchased finished goods 333,376 372,763
Consigned inventory 22,660 31,887
--------- ---------
$1,039,972 1,324,109
========== =========
(4) Equipment and Improvements
Equipment and improvements consist of the following at
December 31, 1996 and 1995:
Useful life 1996 1995
Production equipment,
including tooling 5 years $ 446,232 432,902
Office furniture and
equipment 5 years 617,480 563,557
Leasehold improvements 5 years 39,347 30,606
--------- ---------
1,103,059 1,027,065
Less accumulated
depreciation and amortization 895,400 833,374
--------- ---------
$ 207,659 193,691
========= =========
(5) Other Assets
Other assets consist of the following at December 31, 1996 and 1995:
Estimated
useful
life 1996 1995
Capitalized research
and development costs 3 to 5 years $ 262,558 -
Excess cost of assets
purchased over fair
market value 15 years 232,531 232,531
Deferred loan fees 5 years 50,000 -
License rights 10 years 41,382 41,382
Other intangible assets 15 years 23,388 23,388
---------- ---------
609,859 297,301
Less accumulated amortization 289,261 259,479
---------- ---------
$ 320,598 37,822
========== =========
During July 1996, the Company reached the technological
feasibility stage of development of a research and development
project (the Meter Project), which in accordance with
Statement of Financial Accounting Standard No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed" is the point at which qualified research
and development costs may be capitalized. The amount
capitalized at December 31, 1996 is mainly comprised of salary
expense, departmental overhead and an allocation of other
indirect costs. All such capitalized costs were incurred
subsequent to the achievement of technological feasibility.
(6) Income Taxes
Income tax expense for the three years ended December 31, 1996
represents the state minimum tax.
The expected income tax benefit computed by multiplying loss
before income tax expense by the statutory Federal income tax
rate of 34% differs from the actual income tax expense as
follows:
1996 1995 1994
Expected tax benefit $(402,000) (78,000) (101,000)
Effect of net operating loss
carryforward not recognized for
financial statement purposes until
utilization is more likely than not 395,000 71,000 94,000
Nondeductible amortization of the excess
cost of assets purchased over fair
market value 7,000 7,000 7,000
State income tax expense 800 800 800
--------- -------- --------
$ 800 800 800
========= ======== ========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets
and liabilities as of December 31, 1996 and 1995 are as follows:
1996 1995
Deferred tax assets:
Net operating loss carryforwards $1,118,000 652,000
Reserves and accruals not recognized
for income tax purposes 56,000 89,000
Tax credit carryforwards 80,000 85,000
Accelerated depreciation for financial
statement purposes in excess of
income tax depreciation 8,000 -
--------- ---------
Total deferred tax assets 1,262,000 826,000
Less valuation allowance (1,262,000) (822,000)
--------- ---------
Net deferred tax assets - 4,000
Deferred tax liabilities - accelerated
depreciation for income tax purposes
in excess of financial statement
depreciation - (4,000)
--------- ---------
Deferred taxes recognized on the
accompanying balance sheets $ - -
========= =========
Deferred income tax assets include the tax impact of net
operating loss carryforwards. Realization of these assets is
contingent on future taxable income. The net change in the
total valuation allowance during 1996 was an increase of
$440,000. At December 31, 1996, the Company had net operating
loss carryforwards of approximately $3,031,000 and $974,000 for
Federal and state income tax purposes, respectively. If not used
to offset future taxable income, the net operating loss
carryforwards will expire at various years through 2011. The
Company also has investment tax credit and research and
experimentation credit carryforwards aggregating approximately
$80,000 which expire during the period 1997 to 2002.
(7) Notes Payable/Long-Term Debt
On August 1, 1996, the Company entered into a $3 million
financing agreement to provide additional funding primarily
for the retirement of bank debt, operations, and to fund the
Company's ongoing development of a series of high-level
security postage meters designed to comply with the new
United States Postal Service proposed regulations. Two
9.5%, five-year convertible notes were made available,
one in the amount of $1 million and one in the amount
of $2 million, and are held by Fidelity National Financial,
Inc., a Delaware corporation and 38% holder of Micro General
common stock and Dito Caree L.P. Holding, a Nevada
cooperation which owns 5% of the common stock of Micro
General, respectively. As stipulated in the note agreements,
a maximum of 85% of these borrowings must be used to fund the
Meter Project and the remaining 15% may be used for operations.
Amendment to the 85%/15% split is at the sole discretion of
the note holders. At December 31, 1996, there was $1,500,000
outstanding on these notes.
The Company can draw against the notes in aggregate amounts up
to $750,000 per quarter over the twelve months commencing
August 1, 1996, if in compliance with certain restrictive
covenants. The debt, secured by the assets of the Company,
can be converted into 1,344,438 shares of the Company's
common stock at prices ranging from $2.00 to $2.50 per share.
Repayment of the notes is on an interest-only basis for the
first two years, with principal and interest payments for
the remaining three years of the term. Principal maturities of
the notes payable are as follow:
1997 $ -
1998 -
1999 500,000
2000 500,000
2001 500,000
----------
Total $1,500,000
==========
At December 31, 1996, the Company was in compliance with all
restrictive debt covenants. In conjunction with the $3 million
financing agreement, the Company paid a 1% commitment fee
to the noteholders. This fee amounted to $20,000 and $10,000
to Dito Caree L.P. Holdings and Fidelity National Financial, Inc.,
respectively. The Company had a line of credit which was secured
by substantially all of the Company's assets and could not exceed
70% of qualifying accounts receivable plus 40% of qualifying
inventory up to a maximum credit line of $600,000. The interest
rate on the line of credit was at the bank's prime rate plus 2.0%.
On August 1, 1996, the Company repaid the outstanding amount due
on the line of credit in full.
(8) Stock Option Plans
Under terms of the Company's Incentive Stock Option Plan (the Plan),
the exercise price of options granted is to be equal to the stock's
fair market value at the date of grant. Common stock initially
available for option under the Plan was 220,000 shares. Options
are exercisable no later than 5 years from the date of grant.
Options which are not exercised or canceled revert back to the Plan
and are subject to subsequent reissuance. This Plan expired on
October 7, 1991 and was renewed at the 1993 annual shareholders'
meeting. There are 3,999 remaining shares available for grant under
this Plan as of December 31, 1996. In 1995, the Company's Board of
Directors approved a new stock option plan (the 1995 Plan). Company
common stock available for option under the 1995 Plan is 200,000
shares and all shares were available for grant as of December 31, 1996.
The per share weighted-average fair value of stock options granted
during 1996 and 1995 was $1.02 and $1.05 on the date of grant using the
Black-Scholes option pricing model with the following
weighted-average assumptions: 1996 - expected dividend yield 0%, risk-
free interest rate ranging from 5.91% to 6.48%, volatility factor of
46.49%, and an expected life of four years: 1995 - expected dividend
yield 0%, risk-free interest rate ranging from 5.96% to 7.47%, volatility
factor of 46.49%, and an expected life of four years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for
its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
1996 1995
Net loss:
As reported $(1,182,166) (229,652)
Pro forma (1,281,513) (306,000)
=========== =========
Net loss per share:
As reported $ (.61) (.12)
Pro forma (.66) (.16)
========== =========
Pro forma net loss reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma
net loss amounts presented above because compensation cost is reflected
over the options' vesting period of three years and compensation cost
for options granted prior to January 1, 1995 is not considered.
A summary of all stock option transactions for the three-year period
ended December 31, 1996 follows:
Weighted average
Shares exercise price
Options granted and outstanding:
At December 31, 1993 212,000 $ 2.14
Granted 42,000 2.13
Exercised (10,001) 1.39
Canceled (54,499) 1.82
--------- ------
At December 31, 1994 189,500 1.46
Granted 110,000 2.31
Exercised (60,000) 1.09
Canceled (100,000) 1.52
-------- ------
At December 31, 1995 139,500 2.25
Granted 26,500 2.26
Exercised (1,000) 1.25
Canceled (20,000) 2.22
-------- ------
At December 31, 1996 145,000 $ 2.26
======== ======
The aggregate value of options granted and outstanding at
December 31, 1996 and 1995 was $327,398 and $313,188,
respectively. At December 31, 1996, options for 53,334 shares
of common stock were vested and exercisable at prices ranging
from $1.375 to $2.50 per share.
(9) 401(k) Plan
The Company maintains a 401(k) plan whereby all employees who have
completed three months of service may elect to make pretax
contributions of 1% to 20% of their annual pay not to exceed
contributions of $9,500 per year. The Company has a 25% employer
matching program contingent upon Company earnings of at least
$100,000. As the Company did not meet the minimum earnings
requirement for employer matching in 1996, 1995 and 1994,
no Company contributions were made to the plan for those years.
(10) Commitments and Contingencies
Noncancelable operating lease commitments consist principally of the
lease for the Company's distribution and administrative facility.
In February 1994, the Company extended this facility lease through
1999. In December 1996, the Company entered into a four-year lease
agreement for a new distribution and administration facility and in
turn entered into an agreement to sublease the old distribution
and administration facility for the same lease term and same lease
payments. Sublease income is shown below as a reduction to total
future lease payments. At December 31, 1996, the Company was
committed to the following noncancelable operating lease payments:
Year ending December:
1997 $ 194,000
1998 183,000
1999 89,000
2000 60,000
--------
526,000
Less sublease income 250,000
--------
Net minimum lease payments $ 276,000
========
Rental expense was approximately $150,000 in 1996, $130,400 in 1995
and $118,000 in 1994. The Company has a license agreement with
Pitney Bowes which enables the Company to manufacture and sell
certain products. The license agreement expires in 2004. Annual
expenses for the license agreement are minor.
From time to time, the United States Postal Service (USPS) or
United Parcel Service (UPS) change their rates. For a fee, the Company
provides its customers with programmable memory chips with the new
tariffs which can be inserted into the Company's products. In some
instances, customers prepay a fee to the Company which assures they
will receive new programmable memory chips for all rate changes which
occur within a predetermined period. In other instances, customers
incur a fee for each time they decide to procure a new programmable
memory chip. The Company has experienced UPS rate changes in 1996,
1995 and 1994 and a USPS rate change in 1995. During 1996, 1995 and
1994, the Company recorded revenues from rate changes totaling
approximately $1,229,000, $2,132,000 and $1,736,000, respectively.
Gross profits related to rate changes in 1996, 1995 and 1994 totaled
approximately $1,068,000, $1,805,000 and $1,396,000, respectively.
A UPS rate change also occurred in February 1997. However, there can
be no assurance that future rate changes by UPS or USPS will occur.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's financial position, results of operations or
liquidity.
(11) Subsequent Event
On January 10, 1997, the Company elected to delist its common stock
from the Nasdaq SmallCap Market as the Nasdaq's capital and surplus
requirements would be onerous for the Company during 1997. The Company
may apply for re-listing at a future date.
<PAGE>
Schedule II
MICRO GENERAL CORPORATION
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
Additions
Balance at charged to
beginning of costs and Balance at
Description period expenses Deductions end of Period
Allowance for doubtful receivables:
Year ended
December 31, 1996 $ 39,594 16,285 27,546 28,333
======== ======== ======== ========
Year ended
December 31, 1995 $ 74,749 31,849 67,004 39,594
======== ======== ======== ========
Year ended
December 31, 1994 $ 66,085 81,393 72,729 74,749
======== ======== ======== ========
Allowance for sales returns:
Year ended
December 31, 1996 $ 7,000 158,435 158,435* 7,000
======== ======== ======== ========
Year ended
December 31, 1995 $ 7,000 62,739 62,739* 7,000
======== ======== ======== ========
Year ended
December 31, 1994 $ 7,000 53,336 53,336* 7,000
======== ======== ======== ========
* Represents gross profit on sales returns of $278,839 and $329,235
for the years ended December 31, 1995 and 1994, respectively.
For the year ended December 31, 1996, balance represents the full
amount of sales returns given the negative gross profit position.
<PAGE> SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
MICRO GENERAL CORPORATION
Dated: March 31, 1997 By: /s/ Thomas E. Pistilli
Thomas E. Pistilli
President
Chief Executive Officer
Chief Financial Officer
By: /s/ Linda I. Morton
Linda I. Morton
Controller
Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates so
indicated.
Signature Title Date
/s/ Thomas E. Pistilli President and Director March 31, 1997
Thomas E. Pistilli
/s/ John J. Cahill Director March 31, 1997
John J. Cahill
/s/ William P. Foley ,II Director March 31, 1997
William P. Foley, II
/s/ George E. Olenik Director March 31, 1997
George E. Olenik
/s/ Richard H. Pickup Director March 31, 1997
Richard H. Pickup
/s/ Carl A. Strunk Director March 31, 1997
Carl A. Strunk
<PAGE>
Exhibit Sequentially
Number Description of Exhibit Numbered Page
3.1 Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3 to the
Company's Annual Report on Form 10-K for the year
ended December 25, 1988 (the "1988 Form 10-K
Amendment 1"))
3.11 Restated Articles of Incorporation of the Company
(filed herewith)
3.2 Bylaws of the Company (incoporated by reference to
Exhibit 3.2 to the "1988 Form 10-K Amendment 1"
10.1 Incentive Stock Option Plan and form of Incentive Stock Option
Agreement in use prior to 1987 (incorporated by reference to
Exhibit 10.1 to the 1984 Form 10-K) Option Plan and form
of Incentive Stock Option Agreement in use commencing in
1987 (incorporated by reference to Exhibit 10. to the
Company's Annual Report for the year ended December 28,
1986 (the "1986 Form 10-K"))
10.2 Nonqualified Stock Option Plan and form of Nonqualified
Stock Option Agreement (incorporated by reference to
Exhibit 10.2 to the 1984 Form 10-K)
10.3 Lease of 1740 E. Wilshire Ave., Santa Ana, California,
92705, facilities between Shaw Investment and the Company
(incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended December 25, 1988
(the "1988 Form 10-K Amendment 1"))
10.4 Lease of 115 Hurley Road., Oxford, Connecticut,
06478, facilities between Hurley Farms Business Park
and the Company dated March 20, 1995. (Filed herewith)
10.5 Sub-lease of 1740 E. Wilshire Ave., Santa Ana,
California, 92705 facilities between Micro General
Corporation and Secure Communications dated
October 29, 1996. (Filed herewith)
10.6 Leases of 14711 Bentley Circle, Tustin, California, 92780
facilities between Andrew S. Friedman and the Company
dated November 6, 1996. (Filed herewith)
10.16.1 Loan Agreement between the Company and Silicon Valley Bank
dated September 12, 1991. (Incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991)
10.16.2 Amendment to Loan Agreement between the Company and
Silicon Valley Bank dated December 2, 1992. (Incorporated
by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992)
10.16.3 Amendment to Loan Agreement betweenthe Company and
Silicon Valley Bank dated December 10, 1993. (Incorporated
by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993)
10.16.4 Amendment to Loan Agreement between the Company and
Silicon Valley Bank dated January 27, 1994. (Incorporated
by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994)
10.17 Loan Agreement between the Company and First Bank
and Trust dated November 15, 1995. (Incorporated by
Reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995)
10.18 Convertible Note Purchase Agreement between Micro General
Corporation and Cal West Service Corporation dated
August 1, 1996. (Filed herewith)
10.19 Convertible Note Purchase Agreement between Micro General
Corporation and Dito Caree L.P. dated August 1, 1996.
(Filed herewith)
23.1 Consent of KPMG Peat Marwick LLP (filed herewith)
The Board of Directors of the Corporation adopted and approved the following
resolution amending Article Fourth of the Certificate of Incorporation:
"NOW, THEREFORE, BE IT RESOLVED, that Article Fourth of the Certificate
of Incorporation is hereby amended by deleting the first paragraph of Article
Fourth in its entirety and replacing it with the following:
'The total number of shares of the stock which the Corporation shall have
authority to issue is Eleven Million(11,000,000), consisting of Ten Million
(10,000,000) shares of common stock, $.05 par value per share (the Common
Stock), and One Million (1,000,000) shares of preferred stock, $.05 par value
per share (the Preferred Stock). Upon November 18, 1992, each five
outstanding shares of Common Stock are combined, reconstituted and converted
into one share of Common Stock.'"
STANDARD SUBLEASE
American Industrial Real Estate Association
1.Parties. This Sublease, dated, for reference purposes only, October 29,
1996
is made by and between Micro General Corporation(herein called "Sublessor")
and Secure Communication Systems, Inc. (herein called "Sublessee").
2.Premises. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the
County
of 0range State of California, commonly known as 1740 E. Wilshire Avenue,
Santa Ana, California and describes approximately 18,550 square feet
industrial facility which is part of a larger approximately 36,000 square
foot
building. Said real property, including the land and all improvements
thereon,
is hereinafter called the "Premises".
3. Term.
3.1Term. The term of this Sublease shall be for twenty-seven (27) months
commencing on January 1, 1997 and ending on March 31, 1999 unless sooner
terminated pursuant to any provision hereof.
3.2Delay in Commencement. Notwithstanding said commencement date, if for any
reason Sublessor cannot deliver possession of the Premises to Sublessee on
said date, Sublessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee
shall not be obligated to pay rent until possession of the Premises is
tendered to Sublessee: provided. however, that if Sublessor shall not have
delivered possession of the Premises within sixty (60) days from said
commencement date. Sublessee may, at Sublessee's option. by notice in writing
to Sublessor within ten (10) days thereafter, cancel this Sublease, in which
event the parties shall be discharged from all obligations thereunder. If
Sublessee occupies the Premises prior to said commencement date, such
occupancy shall be Subject to all provisions hereof, such occupancy shall not
advance the termination date and Sublessee shall pay rent for such period at
the initial monthly rates set forth below.
4.Rent. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $ 8,533, in advance, on the 1st day of each month of the
term hereof. Sublessee shall pay Sublessor upon the execution hereof $18,
179 as rent for January 1997 and a security deposit for the premises.
Rent for any period during the term hereof which is for less than one month
shall be a prorata portion of the monthly installment Rent shall be payable
in
lawful money of the United States to Sublessor at the address stated herein
or
to such other persons or at such other places as Sublessor may designate in
writing.
5.Security Deposit. Sublessee shall deposit with Sublessor upon execution
hereof $9.646 as Security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Sublease, Sublessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Sublessor may become obligated by reason of
Sublessee's default, or to compensate Sublessor for any loss or damage which
Sublessor may suffer thereby. If Sublessor so uses or applies all or an','
portion of said deposit. Sublessee shall within ten (10) days after written
demand therefore deposit cash with Sublessor in an amount sufficient to
restore Said deposit to the full amount here in above stated and Sublessee's
failure to do so shall be a material breach of this Sublease. Sublessor shall
not be required to keep said deposit separate from its general accounts. If
Sublessee performs all of Sublessee's obligations hereunder, said deposit, or
so much thereof as has not theretofore been applied by Sublessor, shall be
returned. without payment of interest or other increment for its use to
Sublessee (Or at Sublessor~s option, to the last assignee. if any, of
Sublessee's interest hereunder) at the expiration of the term hereof, and
after Sublessee has vacated the Premises. No trust relationship is created
herein between Sublessor and Sublessee with respect to said Security Deposit.
6. Use.
6.1Use. The Premises shall be used and occupied only for administrative
offices, manufacturing assembly, warehousing and distribution of rugged
computer systems and for no other purpose.
6.2Compliance with Law.
(a)Sublessor warrants to Sublessee that the Premises. in its existing
slate. but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or
ordinance at the time that this Sublease is executed. In the event that it is
determimed that this warranty has been violated, then it shall be the
obligation of the Sublessor, after written notice from Sublessee. to
promptly.
at Sublessor's sole cost and expense, rectify any such violation. In the
event
that Sublessee does not give to Sublessor written notice of the violation of
this warranty within 1 year from the commencement of the term of this
Sublease, it shall be conclusively deemed that such violation did not exist
and the correction of the same shall be the obligation of the Sublessee.
(b)Except as provided in paragraph 6.2(a). Sublessee shall. at
Sublessee's expense, comply promptly with all applicable statutes.
ordinances.
rules. regulations, orders, restrictions of record, and requirements in
effect
during the term or any part of the term hereof regulating the use by
Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall
tend
to disturb such other tenants
6.3Condition of Premises. Except as provided in paragraph 6.2(a) Sublessee
hereby accepts the Premises in their condition existing as on the date of the
execution hereof. subject to all applicable zoning, municipal. county and
state laws, ordinances, and regulations governing and regulating the use of
the Premises, and accepts this Sublease subject thereto and to all matters
disclosed thereby and by any exhibits attached hereto. Sublessee
acknowledges
that neither Sublessor or Sublessor's agents have made any representation or
warranty as to the suitability of the Premises for the conduct of Sublessee's
business.
7.Master Lease
7.1Sublessor is the lessee of the premises by virtue of a lease, hereinafter
referred to as the "master Lease", a copy of which is attached hereto marked
Exhibit 1, dated November 8, 1988(and amended February 16, 1994) wherein Shaw
Investment Company (whose interest was subsequently transferred to the
Principal Mutual Life Insurance Company) is the lessor, hereinafter referred
to as the "Master Lease".
7.2This Sublease is and shall be at all times subject and subordinate to the
Master Lease.
7.3The terms, conditions and respective obligations of Sublessor and
Sublessee
to each other under this Sublease shall be the terms and conditions of the
Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this
Sublease document shall control over the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word "Lessee" is
used it shall be deemed to mean the Sublessee herein.
7.4During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease.
Sublessee does hereby expressly assume and agree to perform and comply with,
for the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which
are
excluded therefrom: N/A.
7.5The Obligations that Sublessee has assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6Sublessee shall hold Sublessor free and harmless of and from all
liability,
judgements, costs, damages, claims or demands, including reasonable attorneys
fees, arising out of Sublessee's failure to comply with or perform
Sublessee's
Assumed Obligations.
7.7Sublessor agrees to maintain the Master Lease during the entire term of
this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of
and from all liability, judgments, costs, damages, claims or demands arising
Out of Sublessor's failure to comply with or perform Sublessor's Remaining
Obligations.
7.8Sublessor represents to Sublessee that the Master Lease is in full force
and effect and that no default exists on the part of any party to the Master
Lease.
8. Assignment of Sublease and Default.
8.1Sublessor hereby assigns and transfers to Master Lessor the Sublessor's
interest in this Sublease and all rentals and income arising therefrom,
subject however to terms of Paragraph 8.2 hereof,
8.2Master Lessor, by executing this document, agrees that until a default
shall occur in the performance of Sublessor's Obligations under the Master
Lease, that Sublessor may receive, collect and enjoy the rents accruing under
this Sublease, However, if Sublessor shall default in the performance of its
obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rent owing and to be owed under
this
Sublease. Master Lessor shall not, by reason of this assignment of the
Sublease nor by reason of the collection of the rents from the Sublessee, be
deemed liable to Sublessee for any failure of the Sublessor to perform and
comply with Sublessor's Remaining Obligations.
8.3Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt
of any written notice from the Master Lessor stating that a default exists in
the performance of Sublessor's obligations under the Master Lease, to pay to
Master Lessor the rents due and to become due under the Sublease, Sublessor
agrees that Sublessee shall have the right to rely upon any such statement
and
request from Master Lessor. and that Sublessee shall pay such rents to Master
Lessor without any obligation or right to inquire as to whether such default
exists and notwithstanding any notice from or claim from Sublessor to the
contrary and Sublessor shall have no right or claim against Sublessee for any
such rents so paid by Sublessee.
8.4No changes or modifications shall be made to this Sublease without the
consent of Master Lessor.
9. Consent of Master Lessor.
9.1In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master
Lessor signs this Sublease thereby giving its consent to this Subletting.
9.2In the event that the obligations of the Sublessor under the Master Lease
have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantors consent
to this Sublease and the terms thereof.
9.3 In the event that Master Lessor does give such consent then:
(a)Such consent will not release Sublessor of its obligations or alter
the primary liability of Sublessor to pay the rent and perform and comply
with
alt of the obligations of Sublessor to be performed under the Master Lease.
(b)The acceptance of rent by Master Lessor from Sublessee or any one
else
liable under the Master Lease shall not be deemed a waiver by Master Lessor
of
any provisions of the Master Lease.
(c)The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d)In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any
one else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor,
(e)Master Lessor may consent to subsequent sublettings and assignments
of
the Master Lease or this Sublease or any amendments or modifications thereto
without notifying Sublessor nor any one else liable under the Master Lease
and
without obtaining their consent and such action(n shall not relieve such
persons from liability.
(f)In the event that Sublessor shall default in its obligations under
the
Master Lease, then Master Lessor, at its option and without being obligated
to
do so, may require Sublessee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from
the time of the exercise of said option to termination of this Sublease but
Master Lessor shall not be liable for any prepaid rents nor any security
deposit paid by Sublessee, nor shall Master Lessor be liable for any other
defaults of the Sublessor under the Sublease.
9.4The signatures of the Master Lessor and any Guarantors of Sublessor at the
end of this document shall constitute their consent' to the terms of this
Sublease,
9.5Master Lessor acknowledges that, to the best of Master Lessor's knowledge,
no default presently exists under the Master Lease of obligations to be
performed by Sublessor and that the Master Lease is in full force and effect,
9.6In the event that Sublessor defaults under its obligations to be performed
under the Master Lease by Sublessor, Master Lessor agrees to deliver to
Sublessee a copy of any such notice of default. Sublessee shall have the
right
to cure any default of Sublessor described in any notice of default within
ten
days after service of such notice of default on Sublessee. If such default is
cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. Brokers Fee.
10.1Upon execution hereof by all parties, Sublessor shall pay to Lee &
Associates a licensed real estate broker, (herein called "Broker"), a fee as
set forth in a separate agreement between Sublessor and Broker, or in the
event there is no separate agreement between Sublessor and Broker, the sum of
$ as per agreement for brokerage services rendered by Broker to Sublessor in
this transaction.
10.2Sublessor agrees that if Sublessee exercises any option or right of first
refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker
is
the procuring, cause of any lease, sublease, or sale pertaining to the
Premises or any adjacent property which Sublessor may own or in which
Sublessor has an interest, then as to any of said transactions Sublessor
shall
pay to Broker a fee, in cash, in accordance with the schedule of Broker in
effect at the time of the execution of this Sublease. Notwithstanding the
foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a
transaction in which Sublessor is acting as a sublessor, lessor or setter
10.3Master Lessor agrees, by its consent to this Sublease, that if Sublessee
shalt exercise any option or right of first refusal granted to Sublessee by
Master Lessor in connection with this Sublease, or any option or right
substantially similar thereto, either to extend the Master Lease, to purchase
the Premises or any part thereof, or to lease or purchase adjacent property
which Master Lessor may ow or in which Master Lessor has an interest, or if
Broker is the procuring cause of any other lease or sale entered into between
Sublessee and Master Lessor pertaining to the Premises, any part thereof, or
any adjacent property which Master Lessor owns or in which it has an
interest,
then as to any of said transactions Master Lessor shall pay to broker a fee,
in cash, in accordance with the schedule of Broker in effect at the time of
its consent to this Sublease.
10.4Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any
extension or renewal; upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease; or at the
close of escrow, as tot he exercise of any option to purchase or other sales
transaction.
10.5Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof,
shall be deemed to have assumed the respective obligations of Sublessor or
Master Lessor under this Paragraph 10. Broker shall be deemed to be a third
party beneficiary of this paragraph 10.
11.Attorney's fees. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing
party in any such action, on trial and appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
Court. The provision of this paragraph shall inure to the benefit of the
Broker named herein who seeks to enforce a right hereunder.
12.Additional Provisions. [if there are no additional provisions draw a line
from this point to the next printed word after the space left here If there
are additional provisions place the same here.
A.Base Rent Increase. Base monthly rent shall increase on the following
schedule:
April 1, 1997 to March 31,1998 - $9,089.00 NNN
April 1, 1998 to March 31,1999 - $9,646.00 NNN
As per the triple net (NNN) lease, Tenant is responsible for prorata
share of operating costs of taxes, insurance and maintenance.
B.Rental Abatement. Sublessor shall grant Sublessee forty-five (45) days
of rent free occupancy. The period from February 1, 1997 to March 14, 1997
shall be free from basic rent.
C.Condition of Premises. Sublessor shall deliver the Premises clean and
free of debris/personal property at the commencement of the lease. Sublessor
shall warranty that as of the commencement date, the electrical, heating, air
conditioning and plumbing are In working condition. Prior to commencement,
Sublessor shall have the carpets steam cleaned. Additionally, Sublessor shall
leave the chain link fence in the warehouse for Sublessee's use.
If this Sublease has been filled in it has been prepared for submission to
your attorney for his approval. No representation or recommendation Is made
by
the real estate broker or its agents or employee as to the legal sufficiency,
legal effect, or tax consequences of this Sublease or the transaction
relating
thereto.
Executed at Santa Ana CaMicro General Corporation
on November 7, 1996By /s/ Thomas E. Pistilli
address1740 E. Wilshire Ave.
Santa Ana, CA 92705 .
"Sublessor (Corporate Seal)
Executed at Santa Ana, Ca Secure Communication Systems, Inc.
On October 30, 1996By. /s/ Allen B. Ronk
Address:1507 E. Mc Fadden Ave.
Santa Ana, CA 92705
"Sublessee"
Principal Mutual Life Insurance Co.
By: /s/ John N. Urban
Assistant Director
Commercial Real Estate
STANDARD INDUSTRIAL/COMMERCIAL MULTI -TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1Parties: This lease("Lease"),dated for reference purposes November 6,
1996 is made by and between Andrew S. Friedman ("Lessor")and Micro General
Corporation("Lessee")(collectively the "Parties," or individually a "Party").
1.2(a)Premises: That certain of the building, including all improvements
therein or to be provided by Lessor under the terms of this Lease, commonly
known by the street address of 14711 Bentley Circle, located in the City of
Tustin, County of Orange, State of California with zip code 92680 as
outlined on Exhibit B attached hereto ("Premises") The "Building" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): approximately 7,435 square feet (right or
North end of Building) in addition to Lessees rights to use and occupy the
Premises as hereinafter specified, Lessee shall have nonexclusive rights to
the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified,
but shall not have any rights to the roof, exterior walls or utility raceways
of the Building or to any other buildings in the "Industrial Center". The
Premises, the Building, the Common Areas, the land upon which they are
located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "Industrial Center." (Also see Paragraph 2)
1.2(b) Parking: 0 unreserved vehicle parking spaces ("Unmarked Parking
Spaces"); and 15 reserved vehicle parking spaces ("Reserved Parking
Spaces")(Also see Paragraph 2.6.)
1.3Term: three months (:Original Term") commencing February 1,
1997("Commencement Date") and ending April 30, 1997("Expiration Date"). (Also
see Paragraph 3.)
1.4Early Possession: December 20, 1996 ("Early Possession Date"). (Also
see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $3,000.00 per month ("Base Rent"), payable on the first
day of each month commencing March 1, 1997 also see Paragraph 4.)
[X]If this box s checked, this Lease provides for the Base Rent to be
adjusted per Addendum 49-1 attached hereto
1.6(a)Base Rent paid upon execution $3,000 as Base Rent for the period
Rent due February 1, 1997.
1.6(b) Lessee's Share of Common Area Operating Expenses: fifty nine &
three tenths(59.3%) percent ("Lessee's Share") as determined by prorata square
footage of the Premises as marked to the total square footage of the Building
or other criteria as described in Addendum___
1.7Security Deposit: $ .00("Security Deposit") (Also see Paragraph 5.)
1.8Permitted use:executive offices, storage and assembly/distribution
mailing devices("Permitted use") (Also see Paragraph 6.)
1.9Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
2.Premises, Parking and Common
2.1Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon ail of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental
and Lessee's Share (as defined in Paragraph 1 .6(b)) based thereon is not
subject to revision whether or not the actual square footage is more or less.
2.2Condition Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical Systems, fire sprinkler system, lighting, air
conditioning and heating Systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition
on the Commencement Date. If a noncompliance with said warranty exists as of
the Commencement Date, Lessor shall, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee 0005 not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction shall comply with ail applicable covenants or restrictions
of record and applicable building codes, regulations and ordinances in effect
on the Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations or
ordinances exist with regard to the Premises as of the Commencement date.
Said warranties not apply to any Alterations or Utility Installations (defined
in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not
comply with said warranties. Lessor shall, except as otherwise provided in
this Lease, promptly after receipt of written notice from Lessee given within
six(6), months following the Commencement Date and setting forth with
specificity the nature and extent of such non~compliance, take such action, at
Lessor's expense, as may be reasonable or appropriate to rectify the
non~compliance. Lessor makes no warranty that the Permitted Use in Paragraph 1
.8 is permitted for the Premises under Applicable Laws (as defined in
Paragraph 2.4).
2.4Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions record (collectively,"Applicable
Laws") and the present and future suitability of the Premises for Lessee's
intended use; (b) that Lessee has made such investigation as it deems
necessary with reference to such matters, is satisfied with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee'~
occupancy of the Premises and/or the terms of this Lease; and (C) that neither
Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease.
2.5Lessee as Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event. Lessee shall, at Lessee's sole cost and expense. correct any
non~compliance of the Premises with said warranties.
2.6Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called Permitted
Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked
and loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a)Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b)If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c)Lessor shall at the Commencement Date of this Lease. provide the
parking facilities required by Applicable Law.
2.7Common Areas-Definition. The term Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the
Premises that are provided and designated by the Lessor from time to time for
the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8Common Areas~Lessee's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, or
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked
at any time. In the event that any unauthorized storage shall occur then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that if may have, to remove the property and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
2.9Common Area Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish,
modify. amend and enforce reasonable Rules and Regulations with respect
thereto in accordance with Paragraph 40. Lessee agrees to abide by and conform
to all such Rules and Regulations, and to cause its employees, suppliers,
shippers, customers, contractors and invitees to so abide and conform. Lessor
shall not be responsible to Lessee for the noncompliance with said rules and
regulations by other lessees of the Industrial Center.
2.10Common Area Changes. Lessor shall have the right, in Lessor's sole
discretion. from time to time:
(a)To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas, walkways and utility
raceways;
(b)To dose temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c)To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d)To add additional buildings and improvements to the Common Areas;
(e)To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f)To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation
to pay Base Rent shall be abated for the period of such early occupancy. All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area operating Expenses and to
carry the insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3Delay In Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations
of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall
not, except as otherwise provided herein, be obligated to pay rent or perform
any other obligation of Lessee under the terms of this Lease until Lessor
delivers possession of the Premises to Lessee. If possession of the Premises
is not delivered to Lessee within sixty (60) days after the Commencement Date,
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
after the end of said sixty (60) day period, cancel this Lease, in which event
the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect. Except as may
be otherwise provided, and regardless of when the Original Term actually
commences, it possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to the period during which the Lessee would have otherwise enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. Rent.
4.1Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduct~on, on or before the day on which it
is due under the terms of this Lease. Base Rent and all other rent and charges
for any period during the term hereof which is for less than one full month
shall be prorated based upon the actual number of days of the month involved.
Payment of Base Rent and other charges shall be made to Lessor at its address
stated herein or to such other persons or at such other addresses as Lessor
may from time to time designate in writing to Lessee.
4.2Common Arm Operating Expenses. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter
defined, during each calendar year of the term of this Lease, in accordance
with the following provisions:
(a) Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:
i)The operation, repair and maintenance, in neat, clean, good order and
condition, of the following:
aa)The Common Areas, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, drive ways,
landscaped areas, striping, bumpers, Irrigation systems, Common Area lighting
facilities, fences and gates, elevators and roof.
bb)Exterior signs and any tenant directories.
cc)Fire detection and sprinkler systems.
(ii)The cost of water, gas, electricity and telephone to service the
Common Areas.
(iii)Trash disposal, property management and security services and the
costs of any environmental inspections.(iv) Reserves set aside for maintenance
and repair of Common Areas.
(v)Any increase above the Base Real Property Taxes (as defined in
Paragraph 10.2(b)) for the Building and the Common Areas.
(vi)Any Insurance Cost Increase (as defined in Paragraph 8.1).
(vii)The cost of insurance carried by Lessor with respect to the Common
Area.
(viii)Any deductible portion of an insured loss concerning the Building or
the Common Area
(ix)Any other services to be provided by lessor that are stated elsewhere
in this lease to be a Common Area Operating Expense.
b.Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are note
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Industrial Center.
c.The inclusion of the improvements, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services
unless the Industrial Center already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
d.Lessee's share of Common Area Operating Expenses shall be payable by Lessee
with ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's Option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Common Area
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each 12-month period of the Lease term, on the same day as
the Base Rent is due hereunder. Lessor shall deliver to Lessee within sixty
(60) days after the expiration of each calendar year a reasonably detailed
statement showing Lessee's Share of the actual Common Area Operating Expenses
incurred during the preceding year. If Lessee's payments under Paragraph
4.2(d) during said preceding year exceed Lessee's Share as indicated on said
statement, Lessor shall be credited the amount of such overpayment against
Lessee's Share of Common Area Operating Expenses next becoming due. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year were
less than Lessee's Share as indicated on said statement, Lessee shall pay to
Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5.Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1 .7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 1 3. 1 ), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefore deposit monies with Lessor sufficient to restore
said Security Deposit to the full amount required by this Lease. Any time the
Base Rent increases during the term of this Lease, Lessee shall, upon written
request from Lessor, deposit additional monies with Lessor as an addition to
the Security Deposit so that the total amount of the Security Deposit shall at
all times bear the same proportion to the then current Base Rent as the
initial Security Deposit bears to the initial Base Rent set forth in Paragraph
1 .5. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee~s interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a)Lessee shall use and occupy the Premises only for the Permitted Use set
forth in Paragraph 1 .8, or any other legal use which is reasonably comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that is unlawful, creates waste or a nuisance, or
that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b)Lessor hereby agrees to not unreasonably withhold or delay its consent to
any written request by Lessee, Lessee's assignees or subtenants, and by
prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the
Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the
Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a)Reportable Uses Require Consent. The term "Hazardous Substance" as used in
this Lease shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (I) potentially injurious to the public health, safety or welfare,
the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance
in a timely manner (at Lessee's sole cost and expense) with ail Applicable
Requirements (as defined in Paragraph 6.3). "Reportable Use" shall mean (I)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority, and (iii) the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Laws
require that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but upon notice to Lessor and in compliance with all
Applicable Requirements, use any ordinary and customary materials reasonably
required to be used by Lessee in the normal course of the Permitted Use, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to any Reportable Use of any
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited
to the installation (and, at Lessor's option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the
deposit of an Additional Security Deposit under Paragraph 5 hereof.
(b)Duty to Inform Lesser. If Lessee knows, or has reasonable cause to believe,
that a Hazardous Substance has come to be located in, on, under or about the
Premises or the Building, other than as previously consented to by Lessor,
Lessee shall immediately give Lessor written notice thereof, together with a
copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received
from, any governmental authority or private party concerning the presence,
spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to ail such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary
sewer system).
(c)Indemnification. Lessee shall indemnify, protect, defend and hold Lessor,
its agents, employees, lenders and ground lessor, if any, and the Premises,
harmless from and against any and all damages, liabilities, judgments, costs,
claims, liens, expenses. penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control.
Lessee's obligations under this Paragraph 6.2(c) shall include, but not be
limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor
in writing at the time of such agreement.
6.3Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole cost
and expense, fully, diligently and in a timely manner, comply with ail
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises
(including but not limited to matters pertaining to (I) industrial hygiene,
(ii) environmental conditions on, in, under or about the Premises, including
soil and groundwater conditions, and (iii) the use, generation, manufacture,
production. installation, maintenance, removal, transportation, storage,
spill, or release of any Hazardous Substance), now in effect or which may
hereafter come into effect. Lessee shall, within five (5) days after receipt
of Lessor's written request, provide Lessor with copies of all documents and
information, including but not limited to permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with
any Applicable Requirements.
6.4Inspection Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the
right to enter the Premises at any time in the case of an emergency, and
other-wise at reasonable times, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to
advise Lessor with respect to Lessee's activities, including but not limited
to Lessee's installation, operation, use, monitoring, maintenance, or removal
of any Hazardous Substance on or from the Premises. The costs and expenses of
any such inspections shall be paid by the party requesting same, unless a
Default or Breach of this Lease by Lessee or a violation of Applicable
Requirements or a contamination, caused or materially contributed to by
Lessee, is found to exist or to be imminent, or unless the inspection is
requested or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In such case, Lessee shall
upon request reimburse Lessor or Lessor's Lender, as the case may be, for the
costs and expenses of such inspections.
7.Maintenance, Repair, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a)Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance
with Covenants, Restrictions and Building Code), 7.2 (Lessors Obligations), 9
(Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole
cost and expense and at all times, keep the Premises and every part thereof in
good order, condition and repair (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of
the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, tired or unfired pressure vessels, fire hose connections
if within the Premises, fixtures, interior walls, interior surfaces of
exterior walls, ceilings, floors, windows, doors, plate glass, and skylights,
but excluding any items which are the responsibility of Lessor pursuant to
Paragraph 7.2 below. Lessee, in keeping the Premises in good order, condition
and repair, shall exercise and perform good maintenance practices. Lessee's
obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof
in good order, condition and state of repair.
(b)Lessee shall, at Lessee's sole cost and expense, procure and maintain a
contract, with copies to Lessor, in customary form and substance for and with
a contractor specializing and experienced in the inspection, maintenance and
service of the heating, air conditioning and ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c)If Lessee fails to perform Lessee's obligations under this Paragraph 7.1 ,
Lessor may enter upon the Premises after ten (1 0) days' prior written notice
to Lessee (except in the case of an emergency, in which case no notice shall
be required), perform such obligations on Lessee's behalf, and put the
Premises in good order, condition and repair, in accordance with Paragraph 1
3.2 below.
7.2Lesser's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation). Lessor, subject to
reimbursement pursuant to Paragraph 4~2, shall keep in good order, condition
and repair the foundations, exterior walls, structural condition of interior
bearing walls, exterior roof, tire sprinkler and~or standpipe and hose (if
located in the Common Areas) or other automatic fire extinguishing system
including fire alarm and/or smoke detection systems and equipment fire
hydrants, parking lots, walkways, parkways, driveways, landscaping, fences,
signs and utility systems serving the Common Areas and ail parts thereof, as
well as providing the services for which there is a Common Area Operating
Expense pursuant to Paragraph 4.2 Lessor shall not be obligated to paint the
exterior or Interior surfaces of exterior walls nor shall Lessor be obligated
to maintain, repair or replace windows, doors or plate glass of the Premises.
Lessee expressly waives the benefit of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and
repair.
7.3Utility Installation:, Trade Fixtures, Alterations.
(a)Definitions; Consent Required. The term "Utility Installations" is used in
this Lease to refer to all air lines, power panels, electrical distribution,
security, fire protection systems, communications systems, lighting fixtures,
heating, ventilating and air conditioning equipment, plumbing, and fencing in,
on or about the Premises. The term "Trade Fixtures" shall mean Lessee's
machinery and equipment which can be removed without doing material damage to
the Premises. The term Alterations" shall mean any modification of the
improvements on the Premises which are provided by Lessor under the terms of
this Lease, other than Utility Installations or Trade Fixtures. Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor pursuant
to Paragraph 7.4(a). Lessee shall not make nor cause to be made any
Alterations or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make
non~structural Utility Installations to the interior of the Premises
(excluding the root) without Lessor's consent but upon notice to Lessor, so
long as they are not visible from the outside of the Premises, do not involve
puncturing, relocating or removing the roof or any existing walls, or changing
or interfering with the fire sprinkler or tire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(b)Consent. Any Alterations or Utility Installations that Lessee shall desire
to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon; and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may, (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $2,500.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation.
(c)Lien Protection. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's
or materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor
in an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys' fees and costs in participating in such action if Lessor shall
decide it is to its best interest to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a)Ownership. Subject to Lessor's right to require their removal and to cause
Lessee to become the owner thereof as hereinafter provided in this Paragraph
7~4, all Alterations and Utility Installations made to the Premises by Lessee
shall be the property of and owned by Lessee, but considered a part of the
Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b)Removal Unless otherwise agreed in writing, Lessor may require that any or
all Lessee-Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c)Surrender/Restoration. Lessee shall surrender the Premises by the end of
the last day of the Lease term or any earlier termination date, clean and free
of de~is and in good operating order, condition and state of repair, ordinary'
wear and tear excepted. Ordinary wear and tear shall not include any damage or
deterioration that would have been prevented by good maintenance practice or
by Lessee performing all of its obligations under this Lease. Except as
otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation, maintenan
ce or removal of Lessee's Trade Fixtures, furnishings, equipment, and Lessee
Owned Alterations and Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Requirements an/or good practice.
Lessee's Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee subject to its obligation to repair and restore the Premises
per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a)As used herein, the term "Insurance Cost Increase" is defined as any
increase in the actual cost of the insurance applicable to the Building and
required to be carried by Lessor pursuant to Paragraphs 5.2(b), 8.3(a) and
8.3(b), ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. Insurance Cost Increase
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term Insurance Cost Increase shall
not, however, include any premium increases resulting from the nature of the
occupancy of any other lessee of the Building. If the parties insert a dollar
amount in Paragraph 1 .9, such amount shall be considered the "Base Premium."
If a doll& amount has not been inserted in Paragraph 1 .9 and if the Building
has been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the Base Premium shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the Base Premium shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of
the Commencement Date, assuming the most nominal use possible of the Building.
In no event, however, shall Lessee be responsible for any portion of the
premium cost attributable to liability insurance coverage in excess of $1
,000,000 procured under Paragraph 8.2(b).
(b)Lessee shall pay any Insurance Cost Increase to Lessor pursuant to
Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a)Carried by Lessee. Lessee shall obtain and keep in force during the term of
this Lease a Commercial General Liability policy of insurance protect-mg
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1 ,000,000 per occurrence
with an Additional Insured-Managers or Lessors of Premises endorsement and
contain the "Amendment of the Pollution Exclusion" endorsement for damage
caused by heat, smoke or fumes from a hostile fire The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "Insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
come by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b)Carried by Lessor. Lessor shall also maintain liability insurance described
in Paragraph 8.2(a) above, in addition to and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein
8.3 Property Insurance-Building, Improvements and Rental Value.
(a)Building and Improvements. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and to any Lender(s), insuring against loss or damage to the
Premises. Such insurance shall be for full replacement cost, as the same shall
exist from time to time, or the amount required by any Lender(s), but in no
event more than then commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any
ordinance or law regulating the reconstruction or replacement of any undamaged
sections of the Building required to be demolished or removed by reason of the
enforcement of any building, zoning, safety or land use laws as the result of
a covered loss, but not including plate glass insurance. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index
for All Urban Consumers for the city nearest to where the Premises are
located.
(b)Rental Value. Lessor shall also obtain and keep in force during the term of
this Lease a policy or policies in the name of Lessor, with loss payable to
Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that
in the event the Lease is terminated by reason of an insured loss, the period
of indemnity for such coverage shall be extended beyond the date of the
completion of repairs or replacement of the Premises, to provide for one full
year's loss of rental revenues from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any co-insurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, Real Property Taxes, insurance premium costs and
other expenses, if any, otherwise payable, for the next 1 2-month period.
Common Area Operating Expenses shall include any deductible amount in the
event of such loss.
(c)Adjacent Premises. Lessee shall pay for any increase in the premiums for
the property insurance of the Building and for the Common Areas or other
buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d)Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall
not be required to insure Lessee-Owned Alterations and Utility Installations
unless the item In question has become the property of Lessor under the terms
of this Lease.
8.4Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5, Le
ssee at its cost shall either by separate policy or, at Lessor's option, by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to
that carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such
insurance shall be full replacement cost coverage with a deductible not to
exceed $1 000 per occurrence. The proceeds from any such insurance shall be
used by Lessee for the replacement of personal property and the restoration of
Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon
request from Lessor, Lessee shall provide Lessor with written evidence that
such insurance is in force.
8.5Insurance Policies. Insurance required hereunder shall be in companies duly
licensed to transact business in the state where the Premises are located, and
maintaining during the policy term a -General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of Best's Insurance Guide. Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, cent-fled copies of, or certificates evidencing the
existence and amounts of, the insurance required under Paragraph 8.2(a) and
8~4. No such policy shall be cancelable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or insurance binders evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand.
8.6Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
penis required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by
the amount of insurance carded or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage Insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as
the insurance is not invalidated thereby.
8.7Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, loss of permits, attorneys' and
consultants' fees, expenses an/or liabilities arising Out of, involving, or in
connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The fore-going shall include, but not be limited
to, the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be brough
t against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8Exemption of Lesser from Liability. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether said injury or damage results from conditions arising
upon the Premises or upon other portions of the Building of which the Premises
are a part, from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee of Lessor nor from the failure by Lessor to
enforce the provisions of any other lease in the Industrial Center.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall
under no circumstances be liable for injury to Lessee's business or for any
loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a)"Premises Partial Damage" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations, the repair cost
of which damage or destruction is less than fifty percent (50%) of the then
Replacement Cost (as defined in Paragraph 9.1 (d)) of the Premises (excluding
Lessee owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction.
(b)Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c)"Insured Loss" shall mean damage or destruction to the Premises, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits
involved
(d)"Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances
or laws, and without deduction for depreciation.
(e)Hazardous Substance Condition' shall mean the occurrence or discovery of a
condition involving the presence of, or a contamination by, a hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2Premises Partial Damage insured Loss. If Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage {but net Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in
insurance proceeds or to fully restore the unique aspects of the Premises
unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten ( 1 0) days following receipt of written notice
of such shortage and request therefor. if Lessor receives said funds or
adequate assurance thereof within said ten (10) day period, Lessor shall
complete them as soon as reasonably possible and this Lease shall remain in
full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten ( 1 0) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. if Lessor does not
receive such funds or assurance within such ten (10) day period, and if Lessor
does not so elect to restore and repair, then this Lease shall terminate sixty
(60) days following the occurrence of the damage or destruction. Unless
otherwise agreed, Lessee shall in no event have any right to reimbursement
from Lessor for any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earth-quake shall be
subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there
may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3Partial Damage-Uninsured Loss. If Premises Partial Damage that is not an
Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option,
either (I) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give writ-ten notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following such commitment from Lessee. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible after the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof with-in
the times specified above, this Lease shall terminate as of the date specified
in Lessor's notice of termination.
9.4Total Destruction. Notwithstanding any other provision hereof, if Premises
Total Destruction occurs (including any destruction required by any authorized
public authority), this Lease shall terminate sixty (60) days following the
date of such Premises Total Destruction, whether or not the damage or
destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5Damage Near End of Term. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any
shortage in insurance proceeds (or adequate assurance thereof) needed to make
the repairs on or before the earlier of (I) the date which is ten (10) days
after Lessee's receipt of Lessor's written notice purporting to terminate this
Lease, or (ii) the day prior to the date upon which such option expires. If
Lessee duly exercises such option during such period and provides Lessor with
funds (or adequate assurance thereof) to cover any shortage in insurance
proceeds, Lessor shall, at Lessor's expense repair such damage as soon as
reasonably possible and this Lease shall continue in full force and effect. If
Lessee fails to exercise such option and provide such funds or assurance
during such period, then this Lease shall terminate as of the date set forth
in the first sentence of this Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a)In the event of (I) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is not legally responsible, the Base Rent, Common
Area Operating Expenses and other charges, if any, payable by Lessee hereunder
for the period during which such damage or condition, its repair, remediation
or restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess of proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement
of Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b)If Lessor shall be obligated to repair or restore the Premises under the
provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and
to any Lenders of which Lessee has actual notice of Lessee~s election to
terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration Is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified In
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of
the required plans, or the beginning of the actual work on the Premises,
whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 1 3), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) if the estimated cost to investigate and remediate such condition exceeds
twelve (12) times the then monthly Base Rent or $100,000 whichever is greater,
give written notice to Lessee within thirty (30) days after receipt by Lessor
of knowledge of the occurrence of such Hazardous Substance Condition of
Lessor's desire to terminate this Lease as of the date sixty (60) days
following the date of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessees commitment to pay for the excess costs of (a)
investigation and remediation of such Hazardous Substance Condition to the
extent required by Applicable Requirements, over (b) an amount equal to twelve
( 1 2) times the then monthly Base Rent or $1 00,000, whichever is greater.
Lessee shalt provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following said commitment by Lessee.
In such event this Lease shalt continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the time
period specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
9.8 Termination~Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or
is not then required to be, used by Lessor under the terms of this Lease.
9.9 waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby
waive the provisions of any present or future statute to the extent it is
inconsistent herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except
as otherwise provided in Paragraph 1 0.3, any increases in such amounts over
the Base Real Property Taxes shall be included in the calculation of Common
Area Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax definitions.
(a) As used herein, the term "Real Property Taxes" shall include any form
of real estate tax or assessment, general, special, ordinary or extraordinary,
and any license fee, commercial rental tax, improvement bond or bonds, levy or
tax (other than inheritance, personal income or estate taxes) imposed upon the
Industrial Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage, or other improvement district thereof,
levied against any legal or equitable interest of Lessor in the industrial
Center or any portion thereof, Lessor's right to rent or other income
therefrom, and/or Lessor's business of leasing the Premises. The term "Real
Property Taxes" shall also include any tax, fee, levy, assessment or charge,
or any increase therein, imposed by reason of events occurring, or changes in
Applicable Law taking effect, during the term of this Lease, including but not
limited to a change in the ownership of the Industrial Center or in the
improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
(b) As used herein, the term Base Real Property Taxes" shall be the amount
of Real Property Taxes, which are assessed against the Premises, Building or
Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
1 0.3 additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of
the Reef Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 tosses's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or stored within the Industrial
Center. When possible. Lessee shall cause its Lessee-Owned Alterations and
Utility Installations, Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and bailed separately from the real property
of Lessor. If any of Lessee's said property shall be assessed with Lessor's
real property, Lessee shall pay Lessor the taxes attributable to Lessee's
property within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. utilities. Lessee shalt pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon.
If any such utilities or services are not separately metered to the Premises
or separately billed to the
Premises, Lessee shall pay to Lessor a reasonable proportion to be determined
by Lessor of all such charges jointly metered or billed with other premises in
the
Building, in the manner and within the time periods set forth in Paragraph
4.2(d).
12. Assignment and Subletting.
1 2.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assign") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five per-cent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy~out or otherwise), whether or not a formal assignment
or hypothecation of this Lease or Lessee's assets occurs, which results or
will result in a reduction of the Net Worth of Lessee, as hereinafter defined,
by an amount equal to or greater than twenty-five percent (25%) of such Net
Worth of Lessee as it was represented to Lessor at the time of full execution
and delivery of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment
of this Lease by Lessee to which Lessor may reasonably withhold its consent.
"Net Worth of Lessee" for purposes of this Lease shall be the net worth of
Lessee (excluding any Guarantors) established under generally accepted
accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 1 3.1 , or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a non-curable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days' written notice ("Lessor's Notice"), increase the monthly
Base Rent for the Premises to the greater of the then fair market rental value
of the Premises, as reasonably deter-mined by Lessor, or one hundred ten
percent (110%) of the Base Rent then in effect. Pending determination of the
new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with any overpayment credited against the
next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and rental adjustment, (i) the purchase price of any option to
purchase .':~ ,"remises held by Lessee shall be subject to similar adjustment
to the then fair market value as reasonably determined by Lessor (without the
Lease being considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises at its highest and best use and in
good condition) or one hundred ten percent (110%) of the price previously in
effect, (ii) any index~oriented rental or price adjustment formulas contained
in this Lease shall be adjusted to require that the base index be determined
with reference to the index applicable to the time of such adjustment, and
(iii) any fixed rental adjustments scheduled during the remainder of the Lease
term shall be increased in the same ratio as the new rental bears to the Base
Rent in effect immediately prior to the adjustment specified in Lessor's
Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions applicable to assignment and subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall not
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, nor (iii) alter the primary liability of Lessee
for the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this
Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent for performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the Default or Breach by Lessee
of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such
persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any-one else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor, or
any security held by Lessor.
(e) Each request tor consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1 000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent Lessee agrees to
provide Lessor with such other or additional information and/or documentation
as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
per-formed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased by an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the Security Deposit
increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted,
as determined by Lessor.
1 2.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such Sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee to
the contrary. Lessee shall have no right or claim against such sublessee, or,
until the Breach has been cured, against Lessor, for any such rents and other
charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sub-lessee to such sublessor or for any other
prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further assign
or sublet all or any part of the Premises without Lessors prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default. A "Default" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the terms, covenants, conditions or rules applicable to Lessee under
this Lease. A '~Breach" by Lessee is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by~Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements
per Paragraph 6~3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1 (b), (iii) the rescission of an unauthorized
assignment or subletting per Paragraph 12.1 , (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations
under this Lease if required under Paragraphs 1 .11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed. complied with or performed by Lessee, other than
those described in Subparagraphs 13.1 (a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure with-in said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a debtor as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially alt of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided.
however, in the event that any provision of this Subparagraph 13.1(e) is
contrary to any applicable law, such provision shall be of no force or effect,
and shall not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or of
any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60)days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurances of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of Reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of any leasing commission paid by Lessor in connection
with this Lease applicable to the unexpired term of this Lease. The worth at
the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco or the Federal
Reserve Bank District in which the Premises are located at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph 13.2. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, lessor shall
have the right to recover in such proceeding the unpaid rent and damages as
are recoverable therein, or Lessor may reserve the right to recover all or any
part thereof in a separate suit for such rent and/or damages. If a notice and
grace period required under Subparagraph 1 3.1 (b), (c) or (d) was, not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b),(c) or (d). In such
case, the applicable grace period under the unlawful detainer statue shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951~4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor~s interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "Inducement provisions" shall
be deemed conditioned upon Lessee's full and faithful performance of all of
the terms, covenants and conditions of this Lease to be performed or observed
by Lessee during the term hereof as the same may be extended. Upon the
occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee,
any such Inducement Provision shall automatically be deemed deleted from this
Lease and of no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an Inducement Provision shall be immediately due and payable by Lessee to
Lessor, and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions
of this Paragraph 1 3.3 unless specifically so stated in writing by Lessor at
the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 1 3.5, a reasonable
time shall in no event be less t~an thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall not
be in breach of this Lease if performance is commenced within such thirty (30)
day period and thereafter dill-gently pursued to completion.
14. condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the portion of the Common Areas designated for Lessee's parking, is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the same proportion
as The rentable floor area of the Premises taken bears to the total rentable
floor area of the Premises. No reduction of Base Rent shall occur if the
condemnation does not apply to any portion of the Premises. Any award for the
taking of all or any part of the Premises un~er the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution of value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1 .10 is/are
the~procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined
in Paragraph 39.1) granted under this Lease or any Option subsequently
granted, or (b) if Lessee acquires any rights to the Premises or other
premises in which Lessor has an interest, or (c) it Lessee remains in
possession of the Premises with the consent of Lessor after the expiration of
the term of this Lease after having failed to exercise an Option, or (d) if
said Brokers are the procuring cause of any other lease or sale entered into
between the Parties pertaining to the Premises and~or any adjacent property in
which Lessor has an interest, or (e) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Broker(s) a fee in accordance with the
schedule of said Broker(s) in eject at the time of the execution of this
Lease.
15.3 assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation
of law, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Each Broker shall be an intended third party beneficiary of the
provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its
interest in any commission arising from this Lease and may enforce that right
directly against Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1 . 1 0(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said trans-action. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "responding Party") shall within
ten (10) days after Written notice from the other Party (the "requesting
Parry") execute, acknowledge and deliver to the Requesting Party a statement
in writing in a form similar to the then most current Tenancy Statement" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably
required by such lender or purchaser, including but not limited to Lessee's
financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
herein above defined.
18. severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the date
due at the prime rate charged by the largest state chartered bank in the state
in which the Premises are located plus four percent (4%) per annum, but not
exceeding the maximum rate allowed by law, in addition to the potential late
charge provided for in Paragraph 13.4.
20. time of Essence. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties
under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding shall
be effective. Lessor and Lessee each represents and warrants to the Brokers
that it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. notices.
23.1 notice requirements All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or
U~S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses
noted adjacent to a Party's signature on this Lease s~all be that Party's
address for delivery or mailing of notice purposes. Either Party may by
Written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises
shall constitute Lessee's address for the purpose of mail-mg or delivering
notices to Lessee. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by written
notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail, the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight courier
that guarantees next day delivery shall be deemed given twenty-tour (24) hours
after delivery of the same to the United States Postal Service or courier. It
any notice is transmitted by facsimile transmission or similar means, the same
shall be deemed served or delivered upon telephone or facsimile confirmation
of receipt of the transmission there-of, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shalt be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shalt not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of
no force or effect whatsoever unless specifically agreed to in writing by
Lessor at or before the time of deposit of such payment.
25. recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recondition shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
In the event that Lessee holds over in violation of this Paragraph 26 then the
Base Rent payable from and after the time of the expiration or earlier
termination of
this Lease shall be increased to two hundred percent (200%) of the Base Rent
applicable during the month immediately preceding such expiration or earlier
fermi-
nation. Nothing contained herein shall be construed as a consent by Lessor to
any holding over by Lessee.
27. cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. Covenants and conditions. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. binding Effect; choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be initiated
in the county in which the Premises are located.
30. subordination; Attornment; Non-disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or securtiy device (collectively, "security device~'), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 1 3.5. If any Lender shall elect to have this Lease
and/or any Option granted hereby superior to the lien of its Securtiy Device
and shall give written notice thereof to Lessee, this Lease and such Options
shall be deemed prior to such Security Device, notwithstanding the relative
dates of the documentation or recondition thereof.
30.2 Adamant. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires owner-ship
of the Premises by reason of a foreclosure of a Securtiy Device, and that in
the event of such foreclosure, such new owner shall not: (i) be liable for any
act or omission of any prior lessor or with respect to events occurring prior
to acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment of
more than one month's rent.
30.3 Non-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a non-disturbance agreement~) from
the Lender that Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 Salt-executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, adamant and/or non-disturbance
agreement as is provided for herein.
31 . Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
here-after defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the
same suit or recovered in a separate Suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach. Broker(s) shall be intended third party beneficiaries of this
Paragraph 31.
32. Lessor's Access; Showing premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or Building any ordinary ~For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the
term hereof place on or about the Premises any ordinary -For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. signs. Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required
to advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures
and Alterations). Unless otherwise expressly agreed herein, Lessor reserves
all rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. termination; Merger. Unless specifically stated otherwise in writing
by Lessor, the voluntary or other surrender of this Lease by Lessee, the
mutual termination or cancellation hereof, or a termination hereof by Lessor
for Breach by Lessee, shall automatically terminate any sublease or lesser
estate in the Premises; provided, however, Lessor shall, in the event of any
such surrender, termination or cancellation, have the option to continue any
one or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering
and responding to Lessee's request. Any unused portion of said deposit shall
be refunded to Lessee without interest. Lessor's consent to any act,
assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may re otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reason-able with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1 .11 , the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the
same obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligation of Guarantor. It shall constitute a Default of
the Lessee under this Lease f any such Guarantor fails or refuses upon
reason-able request by Lessor to give: (a) evidence of the due execution of
the guaranty called for by this Lease, including the autnonty of the Guarantor
(and of the party signing on Guarantor's behalf) to obligate such Guarantor on
said guaranty and resolution of FTZ board of directors authorizing the making
of such guaranty, together with a certificate of incumbency showing the
signatures of the persons authorized to sign on its behalf, (b) current
financial statements of Guarantor as may from time to time be requested by
Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty
is still in effect
38, Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease
39. Options.
39.1 definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease 0 to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the night of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (C) the night to purchase the Premises. or the night of ¶first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the night of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 Options Personal to original Lese. Each Option granted to Lessee in this
Lease is personal to the original Lessee named in Paragraph 1 .1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, f any, herein granted to Lessee are not
assignable either as
a part OF an assignment of this Lease or separately or apart therefrom and no
Option may be separated from this Lease in any manner by reservation or
otherwise.
39.3Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the
prior options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option. notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the Period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee is
in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee
three (3) or more notices of separate Defaults und~ Paragraph 13~1 during the
twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The Period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39~4(a)
(c) All rights of Lessee udder the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13~1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if' Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep
and observe all reasonable~e rules and regulations (~Rules and Refutations~
which Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees
41 . Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third part~s.
42.Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways. and dedications that Lessor deems necessary, and to cause
the recordation of parcel ii:~~ and restrictions, so long as such easements,
rights of way, utility race-ways, dedications, maps and restrictions do not
reasonably interfere with the use of the Premises by Lessee. Lessee agrees
to sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, maps or restrictions.
43. Performance under Protest. If at anytime a dispute shall arise as to
any amount or sum of money to be ~ by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum if it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority Party hereto is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duty authorized to execute and
deliver this Lease on its behalf. if Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor satisfactory to Lessor of such authority
45. Conflict Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or
Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor
shall not be ~ed an offer to lease. This Lease is not intended to be binding
until executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this from time to time to reflect any adjustments that are made to the Base
Rent or other rent payable under the lease. As long as they do not materially
change Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional insurance company or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
48.Multiple Parties. Except as otherwise expressly provided herein if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be joint and several responsibility
of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED this LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY the EXECUTION OF This LEASE SHOW their
INFORMED AND VOLUNTARY CONSENT THERETO The PARTIES HEREBY AGREE that, AT THE
~ME This LEASE IS EXECUTED, The TERMS OF This LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE The INTENT AND PURPOSE OF LESSOR AND LESSEE with
RESPECT TO The PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND
STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY
THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY. LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT
PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this lease at the place and on the dates
specified above their respective signatures.
Executed at Santa Ana, Calif.
On: 11/11/96
Lessor:
/s/ Andrew S. Friedman
owner
Lessee:
Micro General Corporation
/s/ Thomas E. Pistilli
President
/s/ Linda Morton
Corporate Secretary
<PAGE>
November 6, 1996
ITEM #49
ADDENDUM TO LEASE BY AND BETWEEN ANDREW S. FRIEDMAN, LESSOR, AND MICRO GENERAL
CORPORATION, LESSEE.
Wherever a conflict exists between the lease and this addendum, items as
outlined in this addendum shall supersede the lease.
1. Monthly Base Rent:
December 20, 1996--January 31, 1997: $0.00
February 1, 1997--April 30, 1997: $3,000.00
2. Additional Rent due monthly:
A. Water, electric, gas: 59.3% of total monthly cost (other tenant pays
40.3%) . Lessor shall pay these charges when due. Lessee shall reimburse
lessor for said charges with the proceeding month's rent. In addition to the
months commencing February 1997, the utilities are payable during the early
occupancy period from December 20, 1996--January 31, 1997.
The following monthly fees (items B-E) commence January 1, 1997. They are also
paid by lessor who is reimbursed by lessee each month in the following
amounts.
B. Gardening and parking lot sweeping: $104.00
C. Trash: $46.00
This covers pickup once per week. The dumpster is located on the building's
Northend and is shared with the tenant next door. Any additional pickups are
lessee 5 responsibility.
D. Air Conditioning in offices\Preventive Maintenance Program:
$20.00
E. Automatic Fire Alarm: $25.00
3. COLLECTION OF RENT:
All rent is due the first of each month. Lessor, at lessor 5 option and with
notification to lessee, may pick up the monthly rent check at the premises. If
lessor does not contact lessee, rent will be mailed by the first to:
Andrew S. Friedman Phone: 714-557-8988
3001 Redhill Avenue #2-203 FAX: 714-557-7667
Costa Mesa, CA 92626
There is a 6% late fee if rent is not postmarked by the third day of each
month.
4. Parking: Building's Southend only. Lessor to restripe parking lot to 15
total stalls prior to December 20, 1996.
5. LEASED PREMISES: see attached ~ A. lessee shall have access to
all unmarked areas. Lessor and lessee to initial same.
6. Locks and Keys: It is lessee's responsibility to change or rekey all
locks on premises and provide lessor with a copy of each key.
7. Liability Insurance: Lessee to name lessor as additionally
insured and furnish proof of insurance to lessor prior to December 20, 1996.
(section 8.2 of lease).
8. Negotiated Transaction: The provisions of this Lease were
negotiated by all the parties hereto, upon advice of their legal counsel, and
the Lease shall be deemed to have been drafted by all the parties thereto.
9. DISCLOSURE: The Owner of this property is Andrew S. Friedman. He
is a licensed Real Estate Broker in California.
AGREED AND ACCEPTED:
Andrew Friedman DATE: 11/7/96
LESSOR /s/ Andrew Friedman
MICRO GENERAL CORPORATION DATE: 11/6/96
LESSEE /s/ Thomas E. Pistilli
President
/s/ Linda Morton
Corporate Secretary
STANDARD INDUSTRIAL/COMMERCIAL MULTI -TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1Parties: This lease("Lease"),dated for reference purposes November 6,
1996 is made by and between Andrew S. Friedman ("Lessor")and Micro General
Corporation("Lessee")(collectively the "Parties," or individually a "Party").
1.2(a)Premises: That certain of the building, including all improvements
therein or to be provided by Lessor under the terms of this Lease, commonly
known by the street address of 14711 Bentley Circle, located in the City of
Tustin, County of Orange, State of California with zip code 92680 as
outlined on Exhibit B attached hereto ("Premises") The "Building" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): approximately 7,111 square feet (right or
North end of Building) in addition to Lessees rights to use and occupy the
Premises as hereinafter specified, Lessee shall have nonexclusive rights to
the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified,
but shall not have any rights to the roof, exterior walls or utility raceways
of the Building or to any other buildings in the "Industrial Center". The
Premises, the Building, the Common Areas, the land upon which they are
located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "Industrial Center." (Also see Paragraph 2)
1.2(b) Parking: 0 unreserved vehicle parking spaces ("Unmarked Parking
Spaces"); and 15 reserved vehicle parking spaces ("Reserved Parking
Spaces")(Also see Paragraph 2.6.)
1.3Term: three years and eight months (:Original Term") commencing May 1,
1997("Commencement Date") and ending December 31, 2000("Expiration Date").
(Also see Paragraph 3.)
1.4Early Possession: none ("Early Possession Date"). (Also see Paragraphs
3.2 and 3.3.)
1.5 Base Rent: $4,977.00 per month ("Base Rent"), payable on the first
day of each month commencing May 1, 1997 also see Paragraph 4.)
[X]If this box s checked, this Lease provides for the Base Rent to be
adjusted per Addendum 49-1 attached hereto
1.6(a)Base Rent paid upon execution $-0- as Base Rent for the period Rent
due May 1, 1997.
1.6(b) Lessee's Share of Common Area Operating Expenses: fifty six &
seven tenths(56.7%) percent ("Lessee's Share") as determined by prorata square
footage of the Premises as marked to the total square footage of the Building
or other criteria as described in Addendum___
1.7Security Deposit: $ 5,711.00("Security Deposit") (Also see Paragraph
5.)
1.8Permitted use:executive offices, storage and assembly/distribution
mailing devices("Permitted use") (Also see Paragraph 6.)
1.9Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
2.Premises, Parking and Common
2.1Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon ail of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental
and Lessee's Share (as defined in Paragraph 1 .6(b)) based thereon is not
subject to revision whether or not the actual square footage is more or less.
2.2Condition Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical Systems, fire sprinkler system, lighting, air
conditioning and heating Systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition
on the Commencement Date. If a noncompliance with said warranty exists as of
the Commencement Date, Lessor shall, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee 0005 not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction shall comply with ail applicable covenants or restrictions
of record and applicable building codes, regulations and ordinances in effect
on the Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations or
ordinances exist with regard to the Premises as of the Commencement date.
Said warranties not apply to any Alterations or Utility Installations (defined
in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not
comply with said warranties. Lessor shall, except as otherwise provided in
this Lease, promptly after receipt of written notice from Lessee given within
six(6), months following the Commencement Date and setting forth with
specificity the nature and extent of such non~compliance, take such action, at
Lessor's expense, as may be reasonable or appropriate to rectify the
non~compliance. Lessor makes no warranty that the Permitted Use in Paragraph 1
.8 is permitted for the Premises under Applicable Laws (as defined in
Paragraph 2.4).
2.4Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any covenants or restrictions record (collectively,"Applicable
Laws") and the present and future suitability of the Premises for Lessee's
intended use; (b) that Lessee has made such investigation as it deems
necessary with reference to such matters, is satisfied with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee'~
occupancy of the Premises and/or the terms of this Lease; and (C) that neither
Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease.
2.5Lessee as Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises.
In such event. Lessee shall, at Lessee's sole cost and expense. correct any
non~compliance of the Premises with said warranties.
2.6Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called Permitted
Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked
and loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a)Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b)If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c)Lessor shall at the Commencement Date of this Lease. provide the
parking facilities required by Applicable Law.
2.7Common Areas-Definition. The term Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the
Premises that are provided and designated by the Lessor from time to time for
the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8Common Areas~Lessee's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, or
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include
the right to store any property, temporarily or permanently, in the Common
Areas Any such storage shall be permitted only by the prior written consent of
Lessor or Lessor's designated agent, which consent may be revoked at any time.
In the event that any unauthorized storage shall occur then Lessor shall have
the right, without notice, in addition to such other rights and remedies that
if may have, to remove the property and charge the cost to Lessee, which cost
shall be immediately payable upon demand by Lessor.
2.9Common Area Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish,
modify. amend and enforce reasonable Rules and Regulations with respect
thereto in accordance with Paragraph 40. Lessee agrees to abide by and conform
to all such Rules and Regulations, and to cause its employees, suppliers,
shippers, customers, contractors and invitees to so abide and conform. Lessor
shall not be responsible to Lessee for the noncompliance with said rules and
regulations by other lessees of the Industrial Center.
2.10Common Area Changes. Lessor shall have the right, in Lessor's sole
discretion. from time to time:
(a)To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas, walkways and utility
raceways;
(b)To dose temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c)To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d)To add additional buildings and improvements to the Common Areas;
(e)To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f)To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation
to pay Base Rent shall be abated for the period of such early occupancy. All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area operating Expenses and to
carry the insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3Delay In Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations
of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall
not, except as otherwise provided herein, be obligated to pay rent or perform
any other obligation of Lessee under the terms of this Lease until Lessor
delivers possession of the Premises to Lessee. If possession of the Premises
is not delivered to Lessee within sixty (60) days after the Commencement Date,
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
after the end of said sixty (60) day period, cancel this Lease, in which event
the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect. Except as may
be otherwise provided, and regardless of when the Original Term actually
commences, it possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to the period during which the Lessee would have otherwise enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. Rent.
4.1Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduct~on, on or before the day on which it
is due under the terms of this Lease. Base Rent and all other rent and charges
for any period during the term hereof which is for less than one full month
shall be prorated based upon the actual number of days of the month involved.
Payment of Base Rent and other charges shall be made to Lessor at its address
stated herein or to such other persons or at such other addresses as Lessor
may from time to time designate in writing to Lessee.
4.2Common Arm Operating Expenses. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter
defined, during each calendar year of the term of this Lease, in accordance
with the following provisions:
(a) Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:
i)The operation, repair and maintenance, in neat, clean, good order and
condition, of the following:
aa)The Common Areas, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, drive ways,
landscaped areas, striping, bumpers, Irrigation systems, Common Area lighting
facilities, fences and gates, elevators and roof.
bb)Exterior signs and any tenant directories.
cc)Fire detection and sprinkler systems.
(ii)The cost of water, gas, electricity and telephone to service the
Common Areas.
(iii)Trash disposal, property management and security services and the
costs of any environmental inspections.(iv) Reserves set aside for maintenance
and repair of Common Areas.
(v)Any increase above the Base Real Property Taxes (as defined in
Paragraph 10.2(b)) for the Building and the Common Areas.
(vi)Any Insurance Cost Increase (as defined in Paragraph 8.1).
(vii)The cost of insurance carried by Lessor with respect to the Common
Area.
(viii)Any deductible portion of an insured loss concerning the Building or
the Common Area
(ix)Any other services to be provided by lessor that are stated elsewhere
in this lease to be a Common Area Operating Expense.
b.Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are note
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Industrial Center.
c.The inclusion of the improvements, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services
unless the Industrial Center already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
d.Lessee's share of Common Area Operating Expenses shall be payable by Lessee
with ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's Option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Common Area
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each 12-month period of the Lease term, on the same day as
the Base Rent is due hereunder. Lessor shall deliver to Lessee within sixty
(60) days after the expiration of each calendar year a reasonably detailed
statement showing Lessee's Share of the actual Common Area Operating Expenses
incurred during the preceding year. If Lessee's payments under Paragraph
4.2(d) during said preceding year exceed Lessee's Share as indicated on said
statement, Lessor shall be credited the amount of such overpayment against
Lessee's Share of Common Area Operating Expenses next becoming due. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year were
less than Lessee's Share as indicated on said statement, Lessee shall pay to
Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5.Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1 .7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 1 3. 1 ), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefore deposit monies with Lessor sufficient to restore
said Security Deposit to the full amount required by this Lease. Any time the
Base Rent increases during the term of this Lease, Lessee shall, upon written
request from Lessor, deposit additional monies with Lessor as an addition to
the Security Deposit so that the total amount of the Security Deposit shall at
all times bear the same proportion to the then current Base Rent as the
initial Security Deposit bears to the initial Base Rent set forth in Paragraph
1 .5. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee~s interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a)Lessee shall use and occupy the Premises only for the Permitted Use set
forth in Paragraph 1 .8, or any other legal use which is reasonably comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that is unlawful, creates waste or a nuisance, or
that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b)Lessor hereby agrees to not unreasonably withhold or delay its consent to
any written request by Lessee, Lessee's assignees or subtenants, and by
prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the
Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the
Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a)Reportable Uses Require Consent. The term "Hazardous Substance" as used in
this Lease shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (I) potentially injurious to the public health, safety or welfare,
the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance
in a timely manner (at Lessee's sole cost and expense) with ail Applicable
Requirements (as defined in Paragraph 6.3). "Reportable Use" shall mean (I)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority, and (iii) the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Laws
require that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but upon notice to Lessor and in compliance with all
Applicable Requirements, use any ordinary and customary materials reasonably
required to be used by Lessee in the normal course of the Permitted Use, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to any Reportable Use of any
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited
to the installation (and, at Lessor's option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the
deposit of an Additional Security Deposit under Paragraph 5 hereof.
(b)Duty to Inform Lesser. If Lessee knows, or has reasonable cause to believe,
that a Hazardous Substance has come to be located in, on, under or about the
Premises or the Building, other than as previously consented to by Lessor,
Lessee shall immediately give Lessor written notice thereof, together with a
copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received
from, any governmental authority or private party concerning the presence,
spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to ail such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary
sewer system).
(c)Indemnification. Lessee shall indemnify, protect, defend and hold Lessor,
its agents, employees, lenders and ground lessor, if any, and the Premises,
harmless from and against any and all damages, liabilities, judgments, costs,
claims, liens, expenses. penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control.
Lessee's obligations under this Paragraph 6.2(c) shall include, but not be
limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor
in writing at the time of such agreement.
6.3Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole cost
and expense, fully, diligently and in a timely manner, comply with ail
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises
(including but not limited to matters pertaining to (I) industrial hygiene,
(ii) environmental conditions on, in, under or about the Premises, including
soil and groundwater conditions, and (iii) the use, generation, manufacture,
production. installation, maintenance, removal, transportation, storage,
spill, or release of any Hazardous Substance), now in effect or which may
hereafter come into effect. Lessee shall, within five (5) days after receipt
of Lessor's written request, provide Lessor with copies of all documents and
information, including but not limited to permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with
any Applicable Requirements.
6.4Inspection Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the
right to enter the Premises at any time in the case of an emergency, and
other-wise at reasonable times, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to
advise Lessor with respect to Lessee's activities, including but not limited
to Lessee's installation, operation, use, monitoring, maintenance, or removal
of any Hazardous Substance on or from the Premises. The costs and expenses of
any such inspections shall be paid by the party requesting same, unless a
Default or Breach of this Lease by Lessee or a violation of Applicable
Requirements or a contamination, caused or materially contributed to by
Lessee, is found to exist or to be imminent, or unless the inspection is
requested or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In such case, Lessee shall
upon request reimburse Lessor or Lessor's Lender, as the case may be, for the
costs and expenses of such inspections.
7.Maintenance, Repair, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a)Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance
with Covenants, Restrictions and Building Code), 7.2 (Lessors Obligations), 9
(Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole
cost and expense and at all times, keep the Premises and every part thereof in
good order, condition and repair (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of
the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, tired or unfired pressure vessels, fire hose connections
if within the Premises, fixtures, interior walls, interior surfaces of
exterior walls, ceilings, floors, windows, doors, plate glass, and skylights,
but excluding any items which are the responsibility of Lessor pursuant to
Paragraph 7.2 below. Lessee, in keeping the Premises in good order, condition
and repair, shall exercise and perform good maintenance practices. Lessee's
obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all improvements thereon or a part thereof
in good order, condition and state of repair.
(b)Lessee shall, at Lessee's sole cost and expense, procure and maintain a
contract, with copies to Lessor, in customary form and substance for and with
a contractor specializing and experienced in the inspection, maintenance and
service of the heating, air conditioning and ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c)If Lessee fails to perform Lessee's obligations under this Paragraph 7.1 ,
Lessor may enter upon the Premises after ten (1 0) days' prior written notice
to Lessee (except in the case of an emergency, in which case no notice shall
be required), perform such obligations on Lessee's behalf, and put the
Premises in good order, condition and repair, in accordance with Paragraph 1
3.2 below.
7.2Lesser's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation). Lessor, subject to
reimbursement pursuant to Paragraph 4~2, shall keep in good order, condition
and repair the foundations, exterior walls, structural condition of interior
bearing walls, exterior roof, tire sprinkler and~or standpipe and hose (if
located in the Common Areas) or other automatic fire extinguishing system
including fire alarm and/or smoke detection systems and equipment fire
hydrants, parking lots, walkways, parkways, driveways, landscaping, fences,
signs and utility systems serving the Common Areas and ail parts thereof, as
well as providing the services for which there is a Common Area Operating
Expense pursuant to Paragraph 4.2 Lessor shall not be obligated to paint the
exterior or Interior surfaces of exterior walls nor shall Lessor be obligated
to maintain, repair or replace windows, doors or plate glass of the Premises.
Lessee expressly waives the benefit of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and
repair.
7.3Utility Installation:, Trade Fixtures, Alterations.
(a)Definitions; Consent Required. The term "Utility Installations" is used in
this Lease to refer to all air lines, power panels, electrical distribution,
security, fire protection systems, communications systems, lighting fixtures,
heating, ventilating and air conditioning equipment, plumbing, and fencing in,
on or about the Premises. The term "Trade Fixtures" shall mean Lessee's
machinery and equipment which can be removed without doing material damage to
the Premises. The term Alterations" shall mean any modification of the
improvements on the Premises which are provided by Lessor under the terms of
this Lease, other than Utility Installations or Trade Fixtures. Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor pursuant
to Paragraph 7.4(a). Lessee shall not make nor cause to be made any
Alterations or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make
non~structural Utility Installations to the interior of the Premises
(excluding the root) without Lessor's consent but upon notice to Lessor, so
long as they are not visible from the outside of the Premises, do not involve
puncturing, relocating or removing the roof or any existing walls, or changing
or interfering with the fire sprinkler or tire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(b)Consent. Any Alterations or Utility Installations that Lessee shall desire
to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon; and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may, (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $2,500.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation.
(c)Lien Protection. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's
or materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor
in an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys' fees and costs in participating in such action if Lessor shall
decide it is to its best interest to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a)Ownership. Subject to Lessor's right to require their removal and to cause
Lessee to become the owner thereof as hereinafter provided in this Paragraph
7~4, all Alterations and Utility Installations made to the Premises by Lessee
shall be the property of and owned by Lessee, but considered a part of the
Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b)Removal Unless otherwise agreed in writing, Lessor may require that any or
all Lessee-Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c)Surrender/Restoration. Lessee shall surrender the Premises by the end of
the last day of the Lease term or any earlier termination date, clean and free
of de~is and in good operating order, condition and state of repair, ordinary'
wear and tear excepted. Ordinary wear and tear shall not include any damage or
deterioration that would have been prevented by good maintenance practice or
by Lessee performing all of its obligations under this Lease. Except as
otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation, maintenan
ce or removal of Lessee's Trade Fixtures, furnishings, equipment, and Lessee
Owned Alterations and Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all
as may then be required by Applicable Requirements an/or good practice.
Lessee's Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee subject to its obligation to repair and restore the Premises
per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a)As used herein, the term "Insurance Cost Increase" is defined as any
increase in the actual cost of the insurance applicable to the Building and
required to be carried by Lessor pursuant to Paragraphs 5.2(b), 8.3(a) and
8.3(b), ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. Insurance Cost Increase
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term Insurance Cost Increase shall
not, however, include any premium increases resulting from the nature of the
occupancy of any other lessee of the Building. If the parties insert a dollar
amount in Paragraph 1 .9, such amount shall be considered the "Base Premium."
If a doll& amount has not been inserted in Paragraph 1 .9 and if the Building
has been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the Base Premium shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the Base Premium shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of
the Commencement Date, assuming the most nominal use possible of the Building.
In no event, however, shall Lessee be responsible for any portion of the
premium cost attributable to liability insurance coverage in excess of $1
,000,000 procured under Paragraph 8.2(b).
(b)Lessee shall pay any Insurance Cost Increase to Lessor pursuant to
Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a)Carried by Lessee. Lessee shall obtain and keep in force during the term of
this Lease a Commercial General Liability policy of insurance protect-mg
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1 ,000,000 per occurrence
with an Additional Insured-Managers or Lessors of Premises endorsement and
contain the "Amendment of the Pollution Exclusion" endorsement for damage
caused by heat, smoke or fumes from a hostile fire The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "Insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or as carried by Lessee shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
come by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b)Carried by Lessor. Lessor shall also maintain liability insurance described
in Paragraph 8.2(a) above, in addition to and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein
8.3 Property Insurance-Building, Improvements and Rental Value.
(a)Building and Improvements. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and to any Lender(s), insuring against loss or damage to the
Premises. Such insurance shall be for full replacement cost, as the same shall
exist from time to time, or the amount required by any Lender(s), but in no
event more than then commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any
ordinance or law regulating the reconstruction or replacement of any undamaged
sections of the Building required to be demolished or removed by reason of the
enforcement of any building, zoning, safety or land use laws as the result of
a covered loss, but not including plate glass insurance. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
co-insurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index
for All Urban Consumers for the city nearest to where the Premises are
located.
(b)Rental Value. Lessor shall also obtain and keep in force during the term of
this Lease a policy or policies in the name of Lessor, with loss payable to
Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that
in the event the Lease is terminated by reason of an insured loss, the period
of indemnity for such coverage shall be extended beyond the date of the
completion of repairs or replacement of the Premises, to provide for one full
year's loss of rental revenues from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any co-insurance
clause, and the amount of coverage shall be adjusted annually to reflect the
projected rental income, Real Property Taxes, insurance premium costs and
other expenses, if any, otherwise payable, for the next 1 2-month period.
Common Area Operating Expenses shall include any deductible amount in the
event of such loss.
(c)Adjacent Premises. Lessee shall pay for any increase in the premiums for
the property insurance of the Building and for the Common Areas or other
buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d)Lessee's Improvements. Since Lessor is the Insuring Party, Lessor shall
not be required to insure Lessee-Owned Alterations and Utility Installations
unless the item In question has become the property of Lessor under the terms
of this Lease.
8.4Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5, Le
ssee at its cost shall either by separate policy or, at Lessor's option, by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to
that carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such
insurance shall be full replacement cost coverage with a deductible not to
exceed $1 000 per occurrence. The proceeds from any such insurance shall be
used by Lessee for the replacement of personal property and the restoration of
Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon
request from Lessor, Lessee shall provide Lessor with written evidence that
such insurance is in force.
8.5Insurance Policies. Insurance required hereunder shall be in companies duly
licensed to transact business in the state where the Premises are located, and
maintaining during the policy term a -General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of Best's Insurance Guide. Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, cent-fled copies of, or certificates evidencing the
existence and amounts of, the insurance required under Paragraph 8.2(a) and
8~4. No such policy shall be cancelable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or insurance binders evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand.
8.6Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
penis required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by
the amount of insurance carded or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage Insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as
the insurance is not invalidated thereby.
8.7Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, loss of permits, attorneys' and
consultants' fees, expenses an/or liabilities arising Out of, involving, or in
connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The fore-going shall include, but not be limited
to, the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be brough
t against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8Exemption of Lesser from Liability. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether said injury or damage results from conditions arising
upon the Premises or upon other portions of the Building of which the Premises
are a part, from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee of Lessor nor from the failure by Lessor to
enforce the provisions of any other lease in the Industrial Center.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall
under no circumstances be liable for injury to Lessee's business or for any
loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a)"Premises Partial Damage" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations, the repair cost
of which damage or destruction is less than fifty percent (50%) of the then
Replacement Cost (as defined in Paragraph 9.1 (d)) of the Premises (excluding
Lessee owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction.
(b)Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c)"Insured Loss" shall mean damage or destruction to the Premises, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits
involved
(d)"Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances
or laws, and without deduction for depreciation.
(e)Hazardous Substance Condition' shall mean the occurrence or discovery of a
condition involving the presence of, or a contamination by, a hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2Premises Partial Damage insured Loss. If Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage {but net Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in
insurance proceeds or to fully restore the unique aspects of the Premises
unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten ( 1 0) days following receipt of written notice
of such shortage and request therefor. if Lessor receives said funds or
adequate assurance thereof within said ten (10) day period, Lessor shall
complete them as soon as reasonably possible and this Lease shall remain in
full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten ( 1 0) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. if Lessor does not
receive such funds or assurance within such ten (10) day period, and if Lessor
does not so elect to restore and repair, then this Lease shall terminate sixty
(60) days following the occurrence of the damage or destruction. Unless
otherwise agreed, Lessee shall in no event have any right to reimbursement
from Lessor for any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earth-quake shall be
subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there
may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3Partial Damage-Uninsured Loss. If Premises Partial Damage that is not an
Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option,
either (I) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give writ-ten notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following such commitment from Lessee. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible after the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof with-in
the times specified above, this Lease shall terminate as of the date specified
in Lessor's notice of termination.
9.4Total Destruction. Notwithstanding any other provision hereof, if Premises
Total Destruction occurs (including any destruction required by any authorized
public authority), this Lease shall terminate sixty (60) days following the
date of such Premises Total Destruction, whether or not the damage or
destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5Damage Near End of Term. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any
shortage in insurance proceeds (or adequate assurance thereof) needed to make
the repairs on or before the earlier of (I) the date which is ten (10) days
after Lessee's receipt of Lessor's written notice purporting to terminate this
Lease, or (ii) the day prior to the date upon which such option expires. If
Lessee duly exercises such option during such period and provides Lessor with
funds (or adequate assurance thereof) to cover any shortage in insurance
proceeds, Lessor shall, at Lessor's expense repair such damage as soon as
reasonably possible and this Lease shall continue in full force and effect. If
Lessee fails to exercise such option and provide such funds or assurance
during such period, then this Lease shall terminate as of the date set forth
in the first sentence of this Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a)In the event of (I) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is not legally responsible, the Base Rent, Common
Area Operating Expenses and other charges, if any, payable by Lessee hereunder
for the period during which such damage or condition, its repair, remediation
or restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess of proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement
of Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b)If Lessor shall be obligated to repair or restore the Premises under the
provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and
to any Lenders of which Lessee has actual notice of Lessee~s election to
terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration Is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified In
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of
the required plans, or the beginning of the actual work on the Premises,
whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 1 3), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) if the estimated cost to investigate and remediate such condition exceeds
twelve (12) times the then monthly Base Rent or $100,000 whichever is greater,
give written notice to Lessee within thirty (30) days after receipt by Lessor
of knowledge of the occurrence of such Hazardous Substance Condition of
Lessor's desire to terminate this Lease as of the date sixty (60) days
following the date of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessees commitment to pay for the excess costs of (a)
investigation and remediation of such Hazardous Substance Condition to the
extent required by Applicable Requirements, over (b) an amount equal to twelve
( 1 2) times the then monthly Base Rent or $1 00,000, whichever is greater.
Lessee shalt provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following said commitment by Lessee.
In such event this Lease shalt continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the time
period specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
9.8 Termination~Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or
is not then required to be, used by Lessor under the terms of this Lease.
9.9 waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby
waive the provisions of any present or future statute to the extent it is
inconsistent herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except
as otherwise provided in Paragraph 1 0.3, any increases in such amounts over
the Base Real Property Taxes shall be included in the calculation of Common
Area Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax definitions.
(a) As used herein, the term "Real Property Taxes" shall include any form
of real estate tax or assessment, general, special, ordinary or extraordinary,
and any license fee, commercial rental tax, improvement bond or bonds, levy or
tax (other than inheritance, personal income or estate taxes) imposed upon the
Industrial Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage, or other improvement district thereof,
levied against any legal or equitable interest of Lessor in the industrial
Center or any portion thereof, Lessor's right to rent or other income
therefrom, and/or Lessor's business of leasing the Premises. The term "Real
Property Taxes" shall also include any tax, fee, levy, assessment or charge,
or any increase therein, imposed by reason of events occurring, or changes in
Applicable Law taking effect, during the term of this Lease, including but not
limited to a change in the ownership of the Industrial Center or in the
improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
(b) As used herein, the term Base Real Property Taxes" shall be the amount
of Real Property Taxes, which are assessed against the Premises, Building or
Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
1 0.3 additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of
the Reef Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 tosses's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or stored within the Industrial
Center. When possible. Lessee shall cause its Lessee-Owned Alterations and
Utility Installations, Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and bailed separately from the real property
of Lessor. If any of Lessee's said property shall be assessed with Lessor's
real property, Lessee shall pay Lessor the taxes attributable to Lessee's
property within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. utilities. Lessee shalt pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon.
If any such utilities or services are not separately metered to the Premises
or separately billed to the
Premises, Lessee shall pay to Lessor a reasonable proportion to be determined
by Lessor of all such charges jointly metered or billed with other premises in
the
Building, in the manner and within the time periods set forth in Paragraph
4.2(d).
12. Assignment and Subletting.
1 2.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assign") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five per-cent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy~out or otherwise), whether or not a formal assignment
or hypothecation of this Lease or Lessee's assets occurs, which results or
will result in a reduction of the Net Worth of Lessee, as hereinafter defined,
by an amount equal to or greater than twenty-five percent (25%) of such Net
Worth of Lessee as it was represented to Lessor at the time of full execution
and delivery of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment
of this Lease by Lessee to which Lessor may reasonably withhold its consent.
"Net Worth of Lessee" for purposes of this Lease shall be the net worth of
Lessee (excluding any Guarantors) established under generally accepted
accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 1 3.1 , or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a non-curable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days' written notice ("Lessor's Notice"), increase the monthly
Base Rent for the Premises to the greater of the then fair market rental value
of the Premises, as reasonably deter-mined by Lessor, or one hundred ten
percent (110%) of the Base Rent then in effect. Pending determination of the
new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with any overpayment credited against the
next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and rental adjustment, (i) the purchase price of any option to
purchase .':~ ,"remises held by Lessee shall be subject to similar adjustment
to the then fair market value as reasonably determined by Lessor (without the
Lease being considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises at its highest and best use and in
good condition) or one hundred ten percent (110%) of the price previously in
effect, (ii) any index~oriented rental or price adjustment formulas contained
in this Lease shall be adjusted to require that the base index be determined
with reference to the index applicable to the time of such adjustment, and
(iii) any fixed rental adjustments scheduled during the remainder of the Lease
term shall be increased in the same ratio as the new rental bears to the Base
Rent in effect immediately prior to the adjustment specified in Lessor's
Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions applicable to assignment and subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall not
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, nor (iii) alter the primary liability of Lessee
for the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this
Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent for performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the Default or Breach by Lessee
of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such
persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any-one else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor, or
any security held by Lessor.
(e) Each request tor consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1 000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent Lessee agrees to
provide Lessor with such other or additional information and/or documentation
as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
per-formed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased by an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the Security Deposit
increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted,
as determined by Lessor.
1 2.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such Sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee to
the contrary. Lessee shall have no right or claim against such sublessee, or,
until the Breach has been cured, against Lessor, for any such rents and other
charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sub-lessee to such sublessor or for any other
prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further assign
or sublet all or any part of the Premises without Lessors prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default. A "Default" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the terms, covenants, conditions or rules applicable to Lessee under
this Lease. A '~Breach" by Lessee is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by~Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) days following written notice thereof by or on behalf of
Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements
per Paragraph 6~3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1 (b), (iii) the rescission of an unauthorized
assignment or subletting per Paragraph 12.1 , (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations
under this Lease if required under Paragraphs 1 .11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed. complied with or performed by Lessee, other than
those described in Subparagraphs 13.1 (a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure with-in said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a debtor as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially alt of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided.
however, in the event that any provision of this Subparagraph 13.1(e) is
contrary to any applicable law, such provision shall be of no force or effect,
and shall not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or of
any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60)days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurances of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of Reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of any leasing commission paid by Lessor in connection
with this Lease applicable to the unexpired term of this Lease. The worth at
the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco or the Federal
Reserve Bank District in which the Premises are located at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph 13.2. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, lessor shall
have the right to recover in such proceeding the unpaid rent and damages as
are recoverable therein, or Lessor may reserve the right to recover all or any
part thereof in a separate suit for such rent and/or damages. If a notice and
grace period required under Subparagraph 1 3.1 (b), (c) or (d) was, not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b),(c) or (d). In such
case, the applicable grace period under the unlawful detainer statue shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951~4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor~s interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "Inducement provisions" shall
be deemed conditioned upon Lessee's full and faithful performance of all of
the terms, covenants and conditions of this Lease to be performed or observed
by Lessee during the term hereof as the same may be extended. Upon the
occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee,
any such Inducement Provision shall automatically be deemed deleted from this
Lease and of no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an Inducement Provision shall be immediately due and payable by Lessee to
Lessor, and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions
of this Paragraph 1 3.3 unless specifically so stated in writing by Lessor at
the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 1 3.5, a reasonable
time shall in no event be less t~an thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall not
be in breach of this Lease if performance is commenced within such thirty (30)
day period and thereafter dill-gently pursued to completion.
14. condemnation. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the portion of the Common Areas designated for Lessee's parking, is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the same proportion
as The rentable floor area of the Premises taken bears to the total rentable
floor area of the Premises. No reduction of Base Rent shall occur if the
condemnation does not apply to any portion of the Premises. Any award for the
taking of all or any part of the Premises un~er the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution of value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1 .10 is/are
the~procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined
in Paragraph 39.1) granted under this Lease or any Option subsequently
granted, or (b) if Lessee acquires any rights to the Premises or other
premises in which Lessor has an interest, or (c) it Lessee remains in
possession of the Premises with the consent of Lessor after the expiration of
the term of this Lease after having failed to exercise an Option, or (d) if
said Brokers are the procuring cause of any other lease or sale entered into
between the Parties pertaining to the Premises and~or any adjacent property in
which Lessor has an interest, or (e) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Broker(s) a fee in accordance with the
schedule of said Broker(s) in eject at the time of the execution of this
Lease.
15.3 assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation
of law, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Each Broker shall be an intended third party beneficiary of the
provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its
interest in any commission arising from this Lease and may enforce that right
directly against Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1 . 1 0(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said trans-action. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "responding Party") shall within
ten (10) days after Written notice from the other Party (the "requesting
Parry") execute, acknowledge and deliver to the Requesting Party a statement
in writing in a form similar to the then most current Tenancy Statement" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably
required by such lender or purchaser, including but not limited to Lessee's
financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
herein above defined.
18. severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the date
due at the prime rate charged by the largest state chartered bank in the state
in which the Premises are located plus four percent (4%) per annum, but not
exceeding the maximum rate allowed by law, in addition to the potential late
charge provided for in Paragraph 13.4.
20. time of Essence. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties
under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding shall
be effective. Lessor and Lessee each represents and warrants to the Brokers
that it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. notices.
23.1 notice requirements All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or
U~S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses
noted adjacent to a Party's signature on this Lease s~all be that Party's
address for delivery or mailing of notice purposes. Either Party may by
Written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises
shall constitute Lessee's address for the purpose of mail-mg or delivering
notices to Lessee. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by written
notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail, the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight courier
that guarantees next day delivery shall be deemed given twenty-tour (24) hours
after delivery of the same to the United States Postal Service or courier. It
any notice is transmitted by facsimile transmission or similar means, the same
shall be deemed served or delivered upon telephone or facsimile confirmation
of receipt of the transmission there-of, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shalt be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shalt not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of
no force or effect whatsoever unless specifically agreed to in writing by
Lessor at or before the time of deposit of such payment.
25. recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recondition shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
In the event that Lessee holds over in violation of this Paragraph 26 then the
Base Rent payable from and after the time of the expiration or earlier
termination of
this Lease shall be increased to two hundred percent (200%) of the Base Rent
applicable during the month immediately preceding such expiration or earlier
fermi-
nation. Nothing contained herein shall be construed as a consent by Lessor to
any holding over by Lessee.
27. cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. Covenants and conditions. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. binding Effect; choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be initiated
in the county in which the Premises are located.
30. subordination; Attornment; Non-disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or securtiy device (collectively, "security device~'), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 1 3.5. If any Lender shall elect to have this Lease
and/or any Option granted hereby superior to the lien of its Securtiy Device
and shall give written notice thereof to Lessee, this Lease and such Options
shall be deemed prior to such Security Device, notwithstanding the relative
dates of the documentation or recondition thereof.
30.2 Adamant. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires owner-ship
of the Premises by reason of a foreclosure of a Securtiy Device, and that in
the event of such foreclosure, such new owner shall not: (i) be liable for any
act or omission of any prior lessor or with respect to events occurring prior
to acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment of
more than one month's rent.
30.3 Non-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a non-disturbance agreement~) from
the Lender that Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 Salt-executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, adamant and/or non-disturbance
agreement as is provided for herein.
31 . Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
here-after defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the
same suit or recovered in a separate Suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach. Broker(s) shall be intended third party beneficiaries of this
Paragraph 31.
32. Lessor's Access; Showing premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or Building any ordinary ~For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the
term hereof place on or about the Premises any ordinary -For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. signs. Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required
to advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures
and Alterations). Unless otherwise expressly agreed herein, Lessor reserves
all rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. termination; Merger. Unless specifically stated otherwise in writing
by Lessor, the voluntary or other surrender of this Lease by Lessee, the
mutual termination or cancellation hereof, or a termination hereof by Lessor
for Breach by Lessee, shall automatically terminate any sublease or lesser
estate in the Premises; provided, however, Lessor shall, in the event of any
such surrender, termination or cancellation, have the option to continue any
one or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering
and responding to Lessee's request. Any unused portion of said deposit shall
be refunded to Lessee without interest. Lessor's consent to any act,
assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may re otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reason-able with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1 .11 , the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the
same obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligation of Guarantor. It shall constitute a Default of
the Lessee under this Lease f any such Guarantor fails or refuses upon
reason-able request by Lessor to give: (a) evidence of the due execution of
the guaranty called for by this Lease, including the autnonty of the Guarantor
(and of the party signing on Guarantor's behalf) to obligate such Guarantor on
said guaranty and resolution of FTZ board of directors authorizing the making
of such guaranty, together with a certificate of incumbency showing the
signatures of the persons authorized to sign on its behalf, (b) current
financial statements of Guarantor as may from time to time be requested by
Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty
is still in effect
38, Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease
39. Options.
39.1 definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease 0 to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the night of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (C) the night to purchase the Premises. or the night of ¶first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the night of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 Options Personal to original Lese. Each Option granted to Lessee in this
Lease is personal to the original Lessee named in Paragraph 1 .1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, f any, herein granted to Lessee are not
assignable either as
a part OF an assignment of this Lease or separately or apart therefrom and no
Option may be separated from this Lease in any manner by reservation or
otherwise.
39.3Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the
prior options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option. notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the Period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee is
in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee
three (3) or more notices of separate Defaults und~ Paragraph 13~1 during the
twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The Period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39~4(a)
(c) All rights of Lessee udder the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13~1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if' Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep
and observe all reasonable~e rules and regulations (~Rules and Refutations~
which Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees
41 . Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third part~s.
42.Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways. and dedications that Lessor deems necessary, and to cause
the recordation of parcel ii:~~ and restrictions, so long as such easements,
rights of way, utility race-ways, dedications, maps and restrictions do not
reasonably interfere with the use of the Premises by Lessee. Lessee agrees
to sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, maps or restrictions.
43. Performance under Protest. If at anytime a dispute shall arise as to
any amount or sum of money to be ~ by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum if it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority Party hereto is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duty authorized to execute and
deliver this Lease on its behalf. if Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor satisfactory to Lessor of such authority
45. Conflict Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or
Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor
shall not be ~ed an offer to lease. This Lease is not intended to be binding
until executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this from time to time to reflect any adjustments that are made to the Base
Rent or other rent payable under the lease. As long as they do not materially
change Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional insurance company or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
48.Multiple Parties. Except as otherwise expressly provided herein if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be joint and several responsibility
of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED this LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY the EXECUTION OF This LEASE SHOW their
INFORMED AND VOLUNTARY CONSENT THERETO The PARTIES HEREBY AGREE that, AT THE
~ME This LEASE IS EXECUTED, The TERMS OF This LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE The INTENT AND PURPOSE OF LESSOR AND LESSEE with
RESPECT TO The PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND
STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY
THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY. LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT
PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this lease at the place and on the dates
specified above their respective signatures.
Executed at Santa Ana, Calif.
On: 11/11/96
Lessor:
/s/ Andrew S. Friedman
owner
Lessee:
Micro General Corporation
/s/ Thomas E. Pistilli
President
/s/ Linda Morton
Corporate Secretary
<PAGE>
ADDENDUM TO LEASE BY AND BETWEEN ANDREW S. FRIEDMAN, LESSOR, AND MICRO GENERAL
CORPORATION, LESSEE.
Wherever a conflict exists between the lease and this addendum, items as
outlined in this addendum shall supersede the lease.
1. Monthly Base Rent:
May 1, 1997---April 30, 1998: $4,977.00
May 1, 1998---April 30, 1999: $5,151.00
May 1, 1999---April 30, 2000: $5,331.00
May 1, 2000---December 31, 2000: $5,518.00
2. Additional Rent due monthly:
A. Water, electric, gas: 56.7% of total monthly cost (other tenant pays
43.3%) . Lessor shall pay these charges when due. Lessee shall reimburse
lessor for said charges with the proceeding month's rent.
The following monthly fees (items B-E) commence May 1, 1997. They are also
paid by lessor who is reimbursed by lessee
each month in the following amounts.
B. Gardening and parking lot sweeping: $99.23
C. Trash: $46.00
This covers pickup once per week. The dumpster is located on the building's
Northend and is shared with the tenant next door. Any additional pickups are
lessee I responsibility.
Air Conditioning in offices\Preventive Maintenance Program:
$20.00
E. Automatic Fire Alarm: $25.00
3. COLLECTION OF RENT:
All rent is due the first of each month. Lessor, at lessor I option and with
notification to lessee, may pick up the monthly rent check at the premises. If
lessor does not contact lessee, rent will be mailed by the first to:
Andrew S. Friedman Phone: 714-557-8988
3001 Redhill Avenue #2-203 FAX: 714-557-7667
Costa Mesa, CA 92626
ITEM #49 CONTINUED
There is a 6% late fee if rent is not postmarked by the third day of each
month.
4. Parking: Building's Northend only. Lessor to restripe parking lot to 15
total stalls prior to May 1, 1997. (12 compact, 2 regular, 1 Handicapped)
5. LEASED PREMISES: see attached Exhibit B. lessee shall have access to
all unmarked areas. Lessor and lessee to initial same.
Prior to May 1, 1997, lessor to remove raised storage area against rear
warehouse wall, paint warehouse walls, and steam clean warehouse floor.
6. Locks and Keys: It is lessee's responsibility to change or rekey all
locks on premises and provide lessor with a copy of each key.
7. Liability Insurance: Lessee to name lessor as additionally insured and
furnish proof of insurance to lessor prior to May 1, 1996 (section 8.2 of
lease).
8. Negotiated Transaction: The provisions of this Lease were negotiated
by all the parties hereto, upon advice of their legal counsel, and the Lease
shall be deemed to have been drafted by all the parties thereto.
9. DISCLOSURE: The Owner of this property is Andrew S. Friedman. He is a
licensed Real Estate Broker in California.
10. Lessor to notify lessee in writing upon lessor's receipt of all offers
to lease the adjacent 5,435 square feet.
AGREED AND ACCEPTED:
Andrew ~. Friedman DATE: 11/7/96
LESSOR /s/ Andrew Friedman
MICRO GENERAL CORPORATION DATE: 11/6/96
LESSEE /s/ Thomas E. Pistilli
President
/s/ Linda Morton
Corporate Secretary
CONVERTIBLE NOTE PURCHASE AGREEMENT
by and between
MICRO GENERAL CORPORATION,
a Delaware corporation,
and
CALWEST SERVICE CORPORATION,
a California corporation
Dated as of August 1, 1996
CONVERTIBLE NOTE
DUE JULY 31, 2001
<PAGE>
TABLE OF CONTENTS
Article I - Definitions and Other Provisions of General Application 2
Section 101. Definitions 2
Section 102. Effect of Headings and Table of Contents 4
Section 103. Successors and Assigns 4
Section 104. Severability Clause 4
Section 105. Benefits of Agreement 4
Section 106. Governing Law 5
Section 107. Legal Holidays 5
Section 108. Execution in Counterparts 5
Section 109. Attorneys' Fees 5
Section 110. Notices 5
Article II - The Note 6
Section 201. Form Generally 6
Section 202. Conversion Notice 6
Section 203. Designation, Amount and Issuance of the Note 6
Section 204. Execution of the Note 7
Section 205. Commitment Fee 7
Section 206. Security for the Note 7
Article III - Covenants of the Company 7
Section 301. Payment of Principal and Interest 7
Section 302. Corporate Existence 7
Section 303. Payment of Taxes and Other Claims 7
Section 304. Dividends/Compensation 8
Section 305. Corporate Existence; Foreign Qualification 8
Section 306. Books, Records and Inspections 8
Section 307. Compliance with Laws 8
Section 308. Maintenance of Permits 9
Section 309. Capital Expenditures/Debt 9
Article IV - Representations and Warranties 9
Section 401. Customer Contracts 9
Section 402. Board of Directors 9
Section 403. Organization, Etc 9
Section 404. Capital Stock; Stock Options 9
Section 405. Corporate Authority 10
Section 406. Notes and Accounts Receivable 10
Section 407. Actions, Suits, Etc 10
Section 408. Material Contracts 10
Section 409. Absence of Undisclosed Liabilities 11
Section 410. Accuracy of Information 11
Section 411. Real Estate Leases 12
Section 412. Personal Property Leases 12
Section 413. Intellectual Property 12
Section 414. Trade Secrets 13
Section 415. Software and Information Systems 13
Section 416. Insurance 13
Article V - Defaults; Remedies 13
Section 501. Events of Default 13
Section 502. Acceleration of Maturity, Rescission and Annulment;
Other Remedies 15
Section 503. Collection of Indebtedness and Suits for Enforcement 15
Section 504. Lender May File Proofs of Claim 16
Section 505. Application of Money Collected 16
Section 506. Rights and Remedies Cumulative 17
Section 507. Delay or Omission Not Waiver 17
Section 508. Waiver of Stay or Extension Laws 17
Article VI - Reports by Company 17
Section 601. Annual Statement 17
Section 602. Reports by Company 17
Section 603. Quarterly Financial Reports 18
Article VII - Consolidation, Merger, Conveyance, Transfer, Sale or
Lease 18
Section 701. Company May Consolidate. etc., on Certain Terms 18
Section 702. Right of First Refusal of Lenders 18
Article VIII - Redemption of Note by the Company 19
Section 801. Right to Redeem 19
Section 802. Notice of Redemption 19
Article IX - Right to Convert Note And/or Right to Purchase Stock 20
Section 901. Rights Granted 20
Section 902. Anti-Dilution Rights of Lender 20
Section 903. Manner of Exercise of Conversion Privilege 20
Section 904. Notice to Lender Prior to Certain Corporate Actions 21
Section 905. Reservation of Shares of Common Stock 21
Section 906. Taxes Upon Conversion 22
Section 907. Covenants as to Common Stock 22
Section 908. Piggyback Registration Rights 22
Article X - Conditions Precedent 23
Section 1001. Conditions Precedent 23
<PAGE>
CONVERTIBLE NOTE PURCHASE AGREEMENT
This CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is made and
effective as of August 1, 1996, by and between MICRO GENERAL CORPORATION, a
corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 1740
East Wilshire Boulevard, Santa Ana, California 92705, and CALWEST SERVICE
CORPORATION, a corporation duly organized and existing under the laws of the
State of California ("Lender").
RECITALS
WHEREAS, Lender has agreed to make a series of loans to the Company; and
WHEREAS, in order to evidence its agreement to repay said loans, the
Company has duly authorized the issuance of two (2) separate convertible
promissory notes, one in the principal amount of $1,000,000.00 and one in the
principal amount of $2,000,000.00, and each of which permits the Lender to
convert said note into a certain number of shares of the Company's common
capital stock or to purchase a certain number of shares of the Company's
common capital stock, and in connection therewith, the parties have authorized
the execution and delivery of two (2) separate purchase agreements
substantially in the form hereof, and
WHEREAS, as contemplated hereinabove, the Company has, contemporaneously
herewith, issued its convertible promissory note (the "Note") in the original
principal amount of $1,000,000.00, and the Lender has agreed to purchase said
Note; and
WHEREAS, in order to set forth the terms and conditions upon which the
Note is to be issued by the Company and purchased by the Lender, the Company
and Lender have duly authorized the execution and delivery of this Agreement;
and
WHEREAS, as an inducement to Lender to purchase the Note, whether or not
the Company borrows the full amount of the Note, the Company has agreed to
give Lender the right, but not the obligation, throughout the five (5) year
term of the Note, to either convert all or a portion of the principal of the
Note into, or to purchase directly from the Company, an aggregate of 448,146
shares of the Company's common stock five cent ($.05) par value common capital
stock (the "Common Stock"), the cost of which in either event shall be
calculated as follows: 166,666 shares of Common Stock at $2.00 per share;
148,147 shares of Common Stock at $2.25 per share; and 133,333 shares of
Common Stock at $2.50 per share;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, and intending to be legally bound hereby,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND
OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation; and
(3) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Administrative Agent" means CalWest Service Corporation, a California
corporation, which shall act as agent for the Lenders.
"Agreement" means this instrument as originally executed or, if amended
or supplemented as herein provided, as so amended or supplemented.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of the board of directors of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in the City of Los Angeles,
California are authorized or required to close.
"Commitment Fee" has the meaning set forth in Section 205 hereof.
"Common Stock" means the five cent ($.05) par value Common Stock of the
Company as the same exists at the date of the execution of this Agreement or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company and which are not
subject to redemption by the Company; provided, however, that if at any time
there shall be more than one such resulting class, the share of each such
class then so issuable shall be substantially in the proportion which the
total number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all
such reclassifications.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor corporation shall have become such
pursuant to applicable provisions of this Agreement, and thereafter "Company"
shall mean such successor corporation.
"Conversion Notice" has the meaning specified in Sections 202 and 903
hereof.
"Conversion Price" has the meaning specified in Section 901 hereof.
"Corporation" includes corporations, associations, companies and business
trusts.
"Dollars" and "$" means the lawful money of the United States of America.
"Event of Default" has the meaning specified in Section 501 hereof.
"Executive Employee" means any employee of the Company who holds the
title of Vice President or above.
"Indebtedness" means money borrowed.
"Lender," when used in the singular, means CalWest Service Corporation;
and "Lenders," when used in the plural, means collectively CalWest Service
Corporation and Dito Caree L.P.
"Interest Payment Date" has the meaning specified in Section 203 hereof.
"Note," when used in the singular, means the Note executed by the Company
and delivered to the Lender under this Agreement as specified in the recitals
hereof; and "Notes," when used in the plural, means collectively the two Notes
executed by the Company and delivered to the Lenders under this Agreement as
specified in the recitals hereof.
"Note Rate" has the meaning specified in Section 203 hereof.
"Notice of Redemption" has the meaning specified in Section 802 hereof.
"Officer's Certificate" means a certificate signed by the President of
the Company and delivered to Lender describing with particularity the use of
proceeds of an advance on the Note, representing that there are no defaults
under this Agreement, the Note or the Security Agreement, or relating to such
other matters as may be required hereunder.
"Payment Date" shall mean an Interest Payment Date or a Principal Payment
Date.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Postage Meter Project" means that certain long-term project of the
Company for the development of electronic postage meters, built to USPS
Service specifications as recently propounded by the USPS, with the ability to
interface to electronic scales at the low-to-mid-range market and with the
high range of the market geared to computerized postage, utilizing personal
computers or USPS manifesting; and, as a concurrent project, the Company will
develop the mailing machine bases.
"Principal Payment Date" means any date on which a payment of principal
and interest on the Note shall be due.
"Redemption Date" has the meaning specified in Section 802 hereof.
"Security Agreement" has the meaning specified in Section 206 hereof.
"Subsidiary" means any corporation more than fifty percent (50%) of the
outstanding voting stock of which is at the time owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries. For purposes of this definition,
the term "voting stock" means stock which ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
"USPS" means the United States Postal Service.
"Vice President," when used with respect to the Company, means any vice
president, whether or not designated by a number or a word or words added
before or after the title "vice president."
SECTION 102. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 103. Successors and Assigns. All covenants and agreements in this
Agreement by either party shall bind its successors and assigns, whether so
expressed or not. Any act or proceeding by any provision of this Agreement
authorized or required to be done or performed by any board, committee or
officer of either party shall and may be done and performed with like force
and effect by the board, committee or officer of any corporation that shall at
the time be the lawful sole successor of either party.
SECTION 104. Severability Clause. In case any provision in this Agreement
or in the Note shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
SECTION 105. Benefits of Agreement. Nothing in this Agreement or in the
Note, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder any benefit or any legal or equitable
right, remedy or claim under this Agreement.
SECTION 106. Governing Law. Each of this Agreement, the Note and the
Security Agreement shall be governed by and construed in accordance with the
laws of the State of California.
SECTION 107. Legal Holidays. In any case where the date of maturity of or
interest on or principal of the Note or the date fixed for redemption or for
purchase of the Note or the last day on which Lender has the right to convert
the Note shall not be a Business Day then (notwithstanding any other provision
of this Agreement or of the Note) payment of such interest, premium or
principal or conversion of the Note need not be made on such date but may be
made on the next succeeding Business Day with the same force and effect as if
made on the date of maturity or the date fixed for redemption or for purchase
or the last day for conversion, and interest shall accrue for the period from
and after such date of maturity or date fixed for redemption or for purchase
or last day for conversion to such next succeeding Business Day.
SECTION 108. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, including facsimile counterparts, each of which
shall be an original, but all of which counterparts shall together constitute
one and the same instrument.
SECTION 109. Attorneys' Fees. Should suit be filed seeking enforcement or
interpretation of this Agreement and/or the Note, the prevailing party in any
such action shall be entitled to receive in addition to any other sums awarded
to such party, attorneys' fees and all other costs of collection actually
incurred in such action.
SECTION 110. Notices. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, overnight courier, or by facsimile, addressed to the parties as set
forth herein. Any such notice shall be deemed received upon the earlier of (a)
if personally delivered, the date of delivery to the address of the person to
receive such notice, (b) if mailed, four (4) business days after the date of
posting by the United States post office, (c) if given by overnight courier,
upon receipt by the person to receive such notice, or (d) if sent by
facsimile, when sent.
To the Company: Micro General Corporation
1740 East Wilshire Boulevard
Santa Ana, California 92705
Attn: President
Facsimile: 714/667-5052
To Lender: CalWest Service Corporation
17911 Von Karman Avenue, Suite 500
Irvine, California 92614
Attn: President
Facsimile: 714/622-4590
Any notice, request, demand, direction or other communication sent by telecopy
must be confirmed within forty-eight (48) hours by letter mailed or delivered
in accordance with the foregoing. Notice of change of address shall be given
by written notice in the manner detailed in this Section 110. Rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was given shall be deemed to constitute receipt of the
notice, demand, request or communication sent.
ARTICLE II
THE NOTE
SECTION 201. Form Generally. The Note shall be in substantially the form
set forth on Exhibit "A" attached hereto, but with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Agreement, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with applicable securities laws.
SECTION 202. Conversion Notice. A Conversion Notice, substantially in the
form of Exhibit "B" attached hereto, shall be attached to the Note and shall
be used by Lender to exercise the right to convert the Note into Common Stock.
SECTION 203. Designation, Amount and Issuance of the Note.
(a) The Note shall be designated as a "convertible note" of the
Company, and shall be one of two (2) such "convertible notes," to-wit, the
Notes that are the subject of this Agreement, one in the face amount of One
Million Dollars ($1,000,000.00) and the other in the face amount of Two
Million Dollars ($2,000,000.00); provided, however, that disbursements of
principal under the Note shall be limited to no more than $250,000.00 per
quarter during the term of the Note, and Lender shall have no obligation to
make any disbursement under the Note until it shall have received an Officer's
Certificate with respect to each such disbursement in compliance with the
requirements of Section 1001(a) hereof.
(b) The Note shall be dated the date of its issue and shall bear
simple interest from the date thereof at the rate of nine and one-half percent
(9.5%) per annum (the "Note Rate"), and shall be payable as follows: Accrued
interest only on the principal amount of the Note shall be payable quarterly
in arrears during the first two (2) years of the term thereof commencing
August 1, 1996 (each, an "Interest Payment Date"). Thereafter, commencing
August 1, 1998, the Note shall be payable in equal quarterly installments of
principal and accrued interest thereon (each, a "Principal Payment Date")
until the principal balance and all accrued but unpaid interest thereon is
paid in full on or before July 31, 2001, at which time the entire unpaid
balance of the Note, including principal and accrued but unpaid interest,
shall be due and payable.
SECTION 204. Execution of the Note. The Note shall be executed on behalf
of the Company by its President or one of its Vice Presidents, under its
corporate seal reproduced thereon, and by its Secretary, one of its Assistant
Secretaries, its Chief Financial Officer, or any Assistant Treasurer.
SECTION 205. Commitment Fee. Contemporaneously with the execution and
delivery of this Agreement and the Note, the Company shall pay to the Lender a
commitment fee (the "Commitment Fee") in an amount equal to one percent (1%)
of the original principal balance of the Note.
SECTION 206. Security for the Note. In order to secure the prompt
repayment of principal and interest on the Note, the right of Lender to
convert the Note into Common Stock, and the full performance of the Company
under the Note and this Agreement, the Company shall grant Lender a security
interest in all of its inventory, accounts receivable, Intellectual Property
and any other of its significant assets, and agrees to execute a General
Assignment and Security Agreement (the "Security Agreement") in favor of
Lender in substantially the form attached hereto as Exhibit "C." The Company
agrees to execute such documents and to take any other actions reasonably
necessary to grant and perfect the security interest of Lender in the property
described above, including the execution of UCC financing statements and any
amendments to the Security Agreement, as shall be necessary to perfect
Lender's security interest. The Administrative Agent shall file a UCC
financing statement for each Note issued.
ARTICLE III
COVENANTS OF THE COMPANY
For so long as this Agreement shall remain in effect, the Company
covenants that
SECTION 301. Payment of Principal and Interest. It will duly and
punctually pay the principal of and interest on the Note at the place, at the
respective times and in the manner provided in the Note; and each installment
of principal and/or interest on the Note shall be paid by mailing checks or
wire transferring funds for the amount due to Lender in a manner reasonably
calculated to cause such funds to be received on or prior to a Payment Date.
SECTION 302. Corporate Existence. Subject to Article VII hereof, the
Company will do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence.
SECTION 303. Payment of Taxes and Other Claims. The Company has paid and
will in the future pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (a) all taxes, assessments and governmental
charges levied or imposed upon the Company or upon the income, profits or
property of the Company, and (b) all lawful claims against the Company for
labor, materials and supplies which in the case of either clause (a) or (b) of
this Section 303, if unpaid, might by law become a lien upon its property;
provided, however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 304. Dividends/Compensation. It shall not (a) declare, pay or
make any dividend or distribution (in cash, property or obligations) on any
shares of any class of its capital stock (now or hereafter outstanding) of the
Company or on any warrants, options or other rights with respect to any shares
of any class of capital stock (now or hereafter outstanding) of the Company,
or apply any of its funds, property or assets to the purchase, redemption,
sinking fund or other retirement of any shares of any class of capital stock
(now or hereafter outstanding) of the Company or any option, warrant or other
right to acquire shares of the Company's capital stock, or (b) make any
deposit for any of the foregoing purposes. No additional salary, bonus or
other cash or non-cash compensation shall be paid to any of the Company's
Executive Employees in an amount greater than the amount set forth in any
existing employment contracts with such individuals, or, in the case of
"at-will" Executive Employees, any increase in the compensation paid for such
Executive Employees shall require the prior written approval of the Company's
Board of Directors and the Administrative Agent, which approval will not be
unreasonably withheld. No non-cash compensation shall be paid to any employees
of the Company without the prior written approval of the Company's Board of
Directors and the Administrative Agent, which approval will not be
unreasonably withheld.
SECTION 305. Corporate Existence; Foreign Qualification. It will do and
cause to be done at all times all things necessary to (a) maintain and
preserve the corporate existence of the Company (b) be duly qualified to do
business and in good standing as foreign corporations in each jurisdiction
where the nature of its business makes such qualification necessary, and (c)
comply with all contractual obligations and requirements of law binding upon
it.
SECTION 306. Books, Records and Inspections. It shall:
(a) maintain, and cause each of its Subsidiaries, if any, to
maintain complete and accurate books and records;
(b) permit, and cause each of its Subsidiaries, if any, to
permit access at reasonable times by Lender to its books and records;
(c) permit, and cause each of its Subsidiaries, if any, to
permit Lender to inspect at reasonable times its properties and operations;
and
(d) permit, and cause each of its Subsidiaries, if any, to
permit Lender to discuss its business, operations and financial condition with
its officers and employees or with its outside auditors.
SECTION 307. Compliance with Laws. It shall comply with all federal,
state and local laws, rules and regulations related to its businesses;
SECTION 308. Maintenance of Permits. It shall maintain all permits,
licenses and consents as may be required for the conduct of its business by
any state, federal or local government agency or instrumentality.
SECTION 309. Capital Expenditures/Debt. It shall not, without the express
prior written consent of Lender, (a) make any capital expenditures not made
with the proceeds of the sale of the Note, and the use of all proceeds for
capital expenditures shall be substantially as described in the Officer's
Certificate applicable thereto, or (b) other than the Note or any other
"convertible note" as referenced in Section 203(a) hereof, incur any new
Indebtedness, liability or obligation to any third party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows to Lender:
SECTION 401. Customer Contracts. The Company represents and warrants to
Lender that, as of the date hereof, to its knowledge all contracts and
agreements between it and purchasers of its goods and services (whether
payable in cash or in kind) are valid and in full force and effect, all
amounts due and owing to the Company thereunder have been paid, no default
exists either on the part of the Company or of any other party to any such
contract and that the list of such contracts appearing on Schedule 401
attached hereto is true, accurate and complete;
SECTION 402. Board of Directors. As of the date hereof, the list of
Directors making up its Board of Directors set forth on Schedule 402 attached
hereto is true, accurate and complete, and all such Directors have been duly
elected by valid shareholder action in the manner required by the Certificate
of Incorporation and/or the Bylaws of the Company;
SECTION 403. Organization, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has no active Subsidiaries at the date hereof. The company has
corporate power to own or lease its properties and to carry on its business as
and in the places where such properties are now owned, leased or operated, and
its business is now conducted, and the Company has complied in all material
respects with all material federal, state and local laws with respect to the
operation and the conduct of its business. Copies of the Certificate of
Incorporation and all amendments thereto, bylaws as amended and currently in
force, stock records and corporate minutes and records of the Company
heretofore made available to Lender are complete and correct at the date
hereof;
SECTION 404. Capital Stock; Stock Options.
(a) The Company has authorized capital stock consisting of
10,000,000 shares of Common Stock, five cent ($.05) par value, of which
1,948,166 shares are issued and outstanding, and 1,000,000 shares of Preferred
Stock, five cent ($.05) par value, none of which are issued or outstanding.
All of the issued and outstanding shares of Common Stock are duly authorized
and validly issued, fully-paid and nonassessable, were offered, issued and
sold in accordance with applicable federal and state securities laws, and
there are no preemptive rights in respect thereof. There are no other classes
of stock of the Company other than the Common Stock and Preferred Stock.
(b) There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, plans or other agreements or instruments of
any character providing for the purchase or other acquisition by the holders
thereof or issuance of any company securities of any description, except as
set forth on Schedule 404(b) attached hereto.
SECTION 405. Corporate Authority. The Company has full legal right and
corporate power and authority, without the consent of any other person, to
make, execute, deliver and perform this Agreement and the transactions
contemplated hereby, and the execution, delivery and performance of this
Agreement by the Company has been duly authorized by all necessary corporate
action of the Company.
SECTION 406. Notes and Accounts Receivable. To its knowledge, all notes
receivable and accounts receivable are valid obligations of the respective
makers thereof, are as set forth on Schedule 406 attached hereto; except as
disclosed in such Schedule 406, are not subject to any valid offset or
counterclaim; and are not subject to any assignment, claim, lien or security
interest.
SECTION 407. Actions, Suits, Etc. There are no actions, suits, claims,
complaints, charges, hearings, investigations, arbitrations (or other dispute
resolution proceedings) or other proceedings pending or, to its knowledge,
threatened against, by or affecting the Company in any court or panel or
before any arbitrator or governmental agency, domestic or foreign, other than
(a) actions related to garnishments of employee wages, or (b) routine matters
covered by insurance. The Company has not been charged with, and to its
knowledge is not under investigation with respect to, any charge concerning
any violation of any provision of any federal, state or other applicable law
or administrative regulation with respect to its business. There are no
judgments unsatisfied against the Company and no consent decrees to which the
Company is subject. The Company is not involved in or threatened with any
labor dispute which could have a material adverse effect on the business and
operations of the Company.
SECTION 408. Material Contracts. Schedule 408 attached hereto sets forth
an accurate, correct and complete list of all instruments, commitments,
agreements, arrangements and understandings related to its business to which
the Company is a party or bound, or pursuant to which the Company is a
beneficiary, meeting any of the descriptions set forth below (the "Material
Contracts"):
(a) Real estate leases, personal property leases, licenses of
intellectual property, technical information or software, employment contracts
and benefit plans;
(b) Any contract for capital expenditures or for the purchase of
goods or services in excess of $5,000;
(c) Any instrument evidencing indebtedness (other than routine
purchase orders), any liability for borrowed money, any obligation for the
deferred payment of the purchase price for property in excess of $5,000
(excluding normal trade payables), or any instrument guaranteeing any
indebtedness, obligation or liability;
(d) Any advertising contract not terminable without payment or
penalty on thirty (30) days (or less) notice;
(e) Any license or royalty agreement;
(f) Any contract for the purchase or sale of any assets in
excess of $5,000 other than in the ordinary course of business or granting an
option or preferential rights to purchase or sell any assets in excess of
$5,000;
(g) Any contract containing covenants not to compete in any line
of business or with any person in any geographical area;
(h) Any contract relating to the acquisition of a business or
the equity of any other person;
(i) Any other contract, commitment, agreement, arrangement or
understanding related to its business which provides for payment or
performance by any party thereto having an aggregate value of $5,000 or more,
and is not terminable without payment or penalty on thirty (30) days (or less)
notice.
Accurate, correct and complete copies of each such contract have been made
available to Lender. Each contract is in full force and effect and is valid, bin
ding and enforceable as to the Company in accordance with its terms. The
Company and, to the Company's knowledge, each other party has complied in all
material respects with all material commitments and obligations on its part to
be performed or observed under each such contract. The Company has not
received any written or, to its knowledge, other notice of a default, offset
or counterclaim under any contract, or any other written or, to its knowledge,
other communication calling upon the Company to comply with any provision of
any contract or asserting noncompliance by the Company.
SECTION 409. Absence of Undisclosed Liabilities. To its knowledge, the
Company does not have any indebtedness, liability or obligation of any nature,
whether absolute, accrued, contingent or otherwise, related to or arising from
the operation of its business or the ownership, possession or use of any
assets, except as set forth on Schedule 409 attached hereto.
SECTION 410. Accuracy of Information. None of the information furnished
by the Company to Lender in writing shall contain any untrue statement of a
material fact or shall omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
circumstances under which they were made, not misleading.
SECTION 411. Real Estate Leases. Schedule 411 attached hereto sets forth
an accurate, correct and complete list of all real estate which is leased or
subleased by the Company, including identification of the lease or sublease,
street address, and list of material contracts, agreements, leases, subleases,
options and commitments, oral or written, affecting such real estate or any
interest therein to which the Company is a party or by which the Company is
bound (the "Real Estate Leases"). The Company has made available to Lender
accurate, correct and complete copies of each Real Estate Lease and no default
exists under any Real Estate Lease.
SECTION 412. Personal Property Leases. Schedule 412 attached hereto
contains an accurate, correct and complete list of each lease of personal
property used in the business which provides for annual lease payments in
excess of $5,000 (the "Personal Property Leases"). The Company has made
available to Lender accurate, correct and complete copies of each Personal
Property Lease and no default exists under any Personal Property Lease.
SECTION 413. Intellectual Property. Schedule 413 attached hereto contains
an accurate, correct and complete list and summary description of all patents,
trademarks, trademark rights, trade names, trade styles, trade dress, service
marks, copyrights and applications for any of the foregoing utilized by the
business (the "Intellectual Property"). During the preceding five (5) years,
the Company has not been known by or done business under any name other than
Micro General Corporation. Schedule 413 contains an accurate, correct and
complete list and summary description of all licenses and other agreements
relating to any Intellectual Property. Except as set forth on Schedule 413,
with respect to the Intellectual Property, (a) the Company is the sole and
exclusive owner and, to the knowledge of the company, has the sole and
exclusive right to use the Intellectual Property; (b) no action, suit,
proceeding or investigation is pending or, to the Company's knowledge,
threatened; (c) to the knowledge of the Company, none of the Intellectual
Property interferes with, infringes upon, conflicts with or otherwise violates
the rights of others or is being interfered with or infringed upon by others,
and none is subject to any outstanding order, decree, judgment, stipulation or
charge; (d) there are no royalty, commission or similar arrangements, and no
licenses, sublicenses or agreements, pertaining to any of the Intellectual
Property; (e) the Company has not agreed to indemnify any person for or
against any infringement of or by the Intellectual Property; and (f) the
Intellectual Property constitutes all such assets, properties and rights which
are used in or necessary for the conduct of its business. To the knowledge of
the Company, the operation of its business by the Company after the date
hereof, in the manner and geographic areas in which its business is currently
conducted by the Company or is to be conducted as a result of its plans to
expand its business into other geographic areas, will not interfere with or
infringe upon any currently issued United States Letters Patent or trademarks
currently registered in the Primary Register of the United States Patent and
Trademark Office. The Company is not subject to any judgment, order, writ,
injunction or decree of any court or any federal, state, local or other
governmental agency or instrumentality, domestic or foreign, or any
arbitrator, and has not entered into or is not a party to any contract which
restricts or impairs the use of any Intellectual Property.
SECTION 414. Trade Secrets. Schedule 414 attached hereto contains an
accurate, correct and complete list and summary description of all information
in the nature of proprietary information, including databases, compilations of
information, copyrightable material and technical information, if any,
relating to its business "Technical Information"). The Company has the right
to use the Technical Information by virtue of ownership or by virtue of the
license agreements identified in Schedule 414. The Company has no knowledge of
any violation of any trade secret rights or copyrights with respect to such
Technical Information.
SECTION 415. Software and Information Systems. The Company has the right
to use all electronic data processing systems, information systems, hardware,
computer software programs, indexes, program specifications, charts,
procedures, source codes, input data, routines, data bases and report layouts
and formats, record file layouts, diagrams, functional specifications and
narrative descriptions, flow charts and other related material (if any) used
in and reasonably necessary for the conduct of its business (collectively the
"Software"). Schedule 415 attached hereto contains an accurate, correct and
complete summary description of all Software (other than non-proprietary
commercially available Software).
SECTION 416. Insurance. Set forth on Schedule 416 attached hereto is a
true, accurate and complete list of all policies of insurance currently in
force in which the Company is named as insured, loss payee, or additional
insured, premiums on all of such policies have been paid, and copies of all
policies have been delivered to Lender at the date hereof, and Lender has been
named as loss payee or additional insured on all such policies on which such
coverage is available.
ARTICLE V
DEFAULTS; REMEDIES
SECTION 501. Events of Default. "Event of Default," wherever used herein
with respect to the Note, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) By the Company.
(1) default in the payment of any installment of principal
and/or interest on the Note as and when it becomes due and payable, whether by
virtue of the terms of the Note as to payments of principal and/or interest,
at maturity, in connection with any redemption, or otherwise and the passage
of seven (7) days following written notice thereof to the Company; or
(2) default in the performance, or breach, of any material
covenant, representation or warranty of the Company in this Agreement and the
passage of thirty (30) days following written notice thereof to the Company,
or, if such default cannot be cured within such thirty (30) days, commencement
of the cure of such default within such thirty (30) days and diligent
prosecution of such cure to completion; or
(3) application of eighty-five percent (85%) of all
advances under the Note to any use other than the Postage Meter Project and in
a manner materially different from that set forth in the Officer's Certificate
to which such proceeds relate and the passage of seven (7) days following
written notice thereof to the Company; or
(4) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a decree or
order adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any applicable Federal or
state law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of all or
substantially all of its property, or ordering the winding up or liquidation
of its affairs, and-the continuance of any such decree or order for relief or
for any such other decree or order unstayed and in effect for a period of 45
consecutive days;
(5) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or the consent by it to the entry of a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law, other consent by it to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the company or of all or substantially all
of its property, or the making by it of a general assignment for the benefit
of creditors; or
(6) until all sums due under the Note have been repaid, or
any increase by the Company of the number of members of its Board of Directors
to a number greater than the number who hold office at the time of execution
of the Note, or any change in the actual members of the Company's Board of
Directors, without the prior written consent of the Lender; or
(7) the failure of the Company to provide any information
or report to Lender required to be provided pursuant to Article VI hereof and
the passage of thirty (30) days following written notice thereof to the
Company, or, if such default cannot be cured within such thirty (30) days,
commencement of the cure of such default within such thirty (30) days and
diligent prosecution of such cure to completion.
(b) By the Lender. The failure of the Lender to fund pursuant to
Section 203(a) hereof in the event that a proper Officer's Certificate
pursuant to Section 1001(a) is received and the Company is in compliance with
all covenants of this Agreement and the Note.
SECTION 502. Acceleration of Maturity, Rescission and Annulment; Other
Remedies.
(a) Lender's Remedies.
(i) Upon the occurrence of an Event of Default under any
event described in Section 501(a) (other than an Event of Default described in
Sections 501(a)(4) and 501(a)(5) hereof), then in every such case Lenders may
declare the principal amounts of the Notes to be due and payable immediately,
by a notice in writing to the Company and upon any such declaration such
principal amounts shall become immediately due and payable. The Company specific
ally acknowledges and agrees that the occurrence of any Event of Default under
any event described in Section 501(a) hereof will automatically cause all
existing Notes to be in default, and all Events of Default under all Notes
must be cured before any one Event of Default shall be deemed cured.
(ii) At any time after such a declaration of acceleration
with respect to the Note has been made and before a judgment or decree for
payment of the money due has been obtained by Lender as hereinafter in this
Article provided, Lender may, by written notice to the Company, rescind and
annul such declaration and its consequences if, (1) the Company has paid to
Lender a sum sufficient to pay (A) all overdue interest on the Note, (B) the
principal on the Note which has become due otherwise than by such declaration
of acceleration and interest thereon at the Note Rate, (C) to the extent that
payment of such interest is lawful, interest upon overdue interest at the Note
Rate, and (D) all sums paid or advanced by Lender hereunder and the actual
compensation, expenses, disbursements and advances of Lender, its agents and
counsel; and (2) all Events of Default with respect to the Note, other than
the nonpayment of the principal of the Note which has become due solely by
such declaration of acceleration, have been cured or waived by Lender. No such
rescission shall affect any subsequent default or impair any right consequent
thereon. In the case of any Event of Default described in Section 501(a)(4) or
501(a)(5), all unpaid principal of and accrued interest on the Note shall be
due and payable immediately without any declaration or other act on the part
of Lender.
(b) The Company's Remedies. Upon the occurrence of an Event of
Default as described in Section 501(b) hereof, then the option amount referred
to in Section 901 hereof shall be limited to a number equal in value to the
amount already funded.
SECTION 503. Collection of Indebtedness and Suits for Enforcement.
(a) The Company covenants that if default is made in the payment
of any principal and/or interest on the Note when such principal and/or
interest becomes due and payable, whether at a time specified in the Note, at
maturity of the Note or in connection with any redemption or otherwise, the
Company will, upon demand of Lender, pay to it the whole amount then due and
payable on the Note for principal and interest and, to the extent that payment
of such interest shall be legally enforceable, interest on any overdue
principal and-on any overdue interest, at the Note Rate, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of Lender, its agents and counsel, it being
understood that as to the Lenders, any payments will be applied on a pro rata
basis among the Lenders based on each Lender's respective Note amount. If the
Company fails to pay such amounts forthwith upon such demand, Lender may
prosecute a proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor on the Note and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or of any other obligor on the Note, wherever
situated, it being understood that any monies collected shall be applied on a
pro rata basis among the Lenders based on each Lender's respective Note. In
addition, Lender may give notice to customers of the Company that all payments
under contracts listed on Schedule 401 shall, until further notice, be paid
directly to Lender, and the Company consents to each such notice.
(b) If an Event of Default with respect to the Note occurs,
Lender may in its discretion proceed to protect and enforce its rights by such
appropriate judicial proceedings as it shall deem most effectual to protect
and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Agreement or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 504. Lender May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or of any other obligor on the Note or the property of the Company
or of such other obligor or their creditors, Lender (irrespective of whether
the principal of the Note shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether it shall have made
any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Note and to file such other
papers and documents as may be necessary or advisable in order to have the
claims of Lender (including any claim to the right to own Common Stock or for
the reasonable compensation, expenses, disbursements and advances of Lender,
its agents and counsel) allowed in such judicial proceeding, and
(b) to collect and receive any monies or other property payable
or deliverable on any such claims.
SECTION 505. Application of Money Collected. Any money collected by
Lender pursuant to this Article V shall be applied in the following order, at
the date or dates fixed by Lender and, in case of the distribution of such
money on account of principal or interest, upon presentation of the Note and
the notation thereon of the payment if only partially said and upon surrender
thereof if fully paid:
First: To the costs and expenses of Lender in collecting sums due
it hereunder;
Second: To the payment of the amounts then due and unpaid first for
interest on and then for principal of all outstanding Notes, applied on a pro
rata basis among the Lenders based on each Lender's respective Note; and
Third: To the payment of the remainder, if any, to the Company or
any other Person lawfully entitled thereto.
SECTION 506. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Lender is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 507. Delay or Omission Not Waiver. No delay or omission of Lender
to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default. Every right and remedy given by this Article V or by law may be
exercised from time to time, and as often as may be deemed expedient by
Lender.
SECTION 508. Waiver of Stay or Extension Laws. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Agreement; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to Lender, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE VI
REPORTS BY COMPANY
SECTION 601. Annual Statement. The Company will deliver to Lender, within
30 days after the end of each fiscal year of the Company, an Officer's
Certificate stating that to the best of such officer's knowledge, the Company
has fulfilled all its obligations under this Agreement throughout such year,
or, if there has been a default in the fulfillment of any such obligation and
such default is continuing, specifying each such default of which such officer
has knowledge, and the nature and status thereof.
SECTION 602. Reports by Company. The Company shall file with Lender, such
information, documents and other reports, and such summaries thereof, as
Lender shall request, immediately upon request, but without request the
Company shall deliver to Lender audited financial statements of the Company
prepared by independent certified public accountants ("Accountants") within
ninety (90) days of the end of each Company fiscal year.
SECTION 603. Quarterly Financial Reports. Throughout the term of this
Agreement and for so long as any amount remains unpaid under the Note, the
Company shall furnish Lender with copies of its quarterly financial reports no
later than forty-five (45) days following the end of the subject fiscal
quarter.
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, SALE OR LEASE
SECTION 701. Company May Consolidate. etc., on Certain Terms. The Company
shall not consolidate with or merge into any other corporation or convey,
transfer, sell or lease its properties and assets as, or substantially as, an
entirety to any Person, issue any capital stock (including Common Stock) of
the Company unless (a) prior to such transaction Lender has released in
writing its Right of First Refusal as required by Section 702 hereof, and (b)
upon any such consolidation, merger, sale, conveyance or exchange of or by the
Company, (i) the Company is the continuing corporation and the Company's
Common Stock outstanding immediately prior to the merger is not exchanged for
securities, cash or other property of another corporation, (ii) there is an
exchange of the Note for other securities in connection with such transaction,
or (iii) the due and punctual payment of the principal of and interest on, the
Note, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Agreement to be
performed by the Company, are expressly assumed by a note supplemental to the
Note by the corporation formed by such consolidation, or whose securities,
cash or other property will immediately after the merger be owned, by virtue
of the merger, by the holders of Common Stock of the Company immediately prior
to the merger, or by the corporation that shall have acquired such property or
securities. Furthermore, the Company shall not consolidate with or merge into
any other corporation or convey, transfer, sell or lease its properties and
assets as, or substantially as, an entirety to any Person, or enter into any
statutory exchange of securities with another corporation, unless the Right of
First Refusal has been released and unless immediately after giving effect to
such transaction no Event of Default shall have occurred and be continuing,
and the Company shall have delivered to Lender an Officer's Certificate
stating that such transaction and such supplemental agreement comply with this
Agreement.
SECTION 702. Right of First Refusal of Lenders. For so long as any
amounts due under the Note shall be outstanding, Lenders shall have and retain
the first option to purchase any and all assets of the Company and any and all
capital stock (including Common Stock) of the Company, upon the same terms and
subject to the same conditions as may be offered to the Company by a third
party for such assets or capital stock; provided, however, that any non-cash
consideration offered for any such assets or capital stock shall be given its
then current market value in cash and Lenders shall have the opportunity to
pay the amount of such cash in lieu of any non-cash consideration offered by a
prospective owner of any assets or capital stock on a pro rata basis as to the
Lenders' exercise of that right. Immediately upon receipt of any offer to
purchase any assets or capital stock, or upon determining that the Company
desires to sell any assets or capital stock, the Company shall immediately
notify Lenders of the assets and/or capital stock proposed to be bought and
sold, and of the terms of such proposed purchase and sale. Within twenty (20)
days of being so notified, Lenders shall notify either the Company and/or the
owner of the capital stock in question that they (or any one of them) will
exercise the right of first refusal granted herein ("Right of First Refusal"),
or, in the alternative, that they (or any one of them) thereby release such
Right of First Refusal and consents to the sale of the assets or capital stock
on the terms described. Any change in such terms shall give each Lender the
right to once again exercise or release its Right of First Refusal within an
additional time period identical to that specified above.
ARTICLE VIII
REDEMPTION OF NOTE BY THE COMPANY
SECTION 801. Right to Redeem. The Company may, at its option, redeem all
or, from time to time, any part of the Note, on any date prior to maturity, in
the manner specified in this Article VIII, at the original principal amount
thereof, plus accrued and unpaid interest, if any, to the date fixed for
redemption, but no such redemption shall in any way impair the right of Lender
to convert the Note into shares of Common Stock as specified in this Agreement
or in the Right of First Refusal granted hereunder.
SECTION 802. Notice of Redemption.
(a) In case the Company shall desire to exercise its right to
redeem all or any part of the Note pursuant to Section 801 hereof, it shall
fix a date for redemption (a "Redemption Date"), shall notify Lenders in
writing of such date, and shall mail or cause to be mailed a notice of such
redemption (a "Notice of Redemption") at least ten (10) and not more than
thirty (30) days prior to the date fixed for redemption to Lenders at their
principal executive offices. Such mailing shall be by first class mail. The
Company agrees to exercise said right of redemption on an equitable and pro
rata basis among the Lenders.
(b) The Notice of Redemption shall specify the principal amount
of the Note to be redeemed, the Redemption Date for the Note, and the
Redemption Price at which the Note is to be redeemed, and shall state that
payment of the Redemption Price of the Note or portions thereof to be redeemed
will be made on surrender of the Note to be redeemed, that interest accrued to
such Redemption Date will be paid as specified in such notice, and that from
and after such date interest thereon will cease to accrue. In the event of
full redemption of the Note, such Notice of Redemption shall also state that
the right to convert the Note or portion thereof into Common Stock will expire
at the close of business on July 31, 2001.
(c) On or prior to each Redemption Date specified in each Notice
of Redemption given as provided in this Section 802, the Company will pay to
Lender an amount of money sufficient to redeem on such Redemption Date the
Note or portion thereof so called for redemption at the appropriate Redemption
Price, together with accrued interest to the Redemption Date.
(d) If the Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear
interest from the date fixed for redemption at the Note Rate and the Note
shall remain convertible into Common Stock until July 31, 2001, or until all
amounts due under the Note have been repaid in full.
ARTICLE IX
RIGHT TO CONVERT NOTE AND/OR RIGHT TO PURCHASE STOCK
SECTION 901. Rights Granted. Subject to and upon compliance with the
provisions of this Article IX, and specifically Section 902 hereof, Lender
shall have the right, at its option, at any time or from time to time on or
prior to the close of business on July 31, 2001, to convert the principal
amount of the Note up to a value of $1,000,000.00 into, or to pay in cash in
an amount up to $1,000,000.00 for, an aggregate of 448,146 shares of Common
Stock, calculated as follows: 166,666 shares of Common Stock at a price of
$2.00 per share; 148,147 shares of Common Stock at a price of $2.25 per share;
and 133,333 shares of Common Stock at a price of $2.50 per share (the
"Conversion Price").
SECTION 902. Anti-Dilution Rights of Lender. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of the conversion privilege set forth in Section 901 hereof, but
will at all times in good faith carry out the provisions and intent of Section
901 and take all such action as may be necessary or appropriate to protect
against impairment of the rights of Lender to convert the Note into, or to
purchase, Common Stock. In the event that, at any time prior to full exercise
by Lender of its right to purchase such Common Stock, the Company shall sell
or otherwise transfer any Common Stock, the Company undertakes and agrees to
make any adjustments that may be necessary to permit Lender to purchase an
equal number of shares of the Common Stock for a per share price equal to the
per share price paid by such other purchaser or transferee, including, if
necessary, refunding to Lender any sums necessary to cause Lender to receive
the benefit of this Section 902, such benefit to survive the repayment of the
Note and to be applicable with respect to issuances of Common Stock until July
31, 2001. Nothing in this Section 902 shall be interpreted to permit or
require any increase in the consideration to be paid by Lender in exchange for
448,146 shares of the Common Stock.
SECTION 903. Manner of Exercise of Conversion Privilege. In order to
exercise the conversion privilege, Lender shall surrender the Note, duly
endorsed or assigned to the Company or in blank, at the office of the Company,
together with the Conversion Notice duly executed, that Lender elects to
convert the Note or the portion thereof specified in said Conversion Notice
or, alternatively, that Lender will purchase such Common Stock. Such
Conversion Notice shall also state the name or names, together with the
address or addresses in which the certificate or certificates for shares of
Common Stock which shall be issuable in such conversion or purchase shall be
issued as promptly as practicable after the surrender of the Note and the
receipt of such Conversion Notice, the Company shall issue and deliver to
Lender, or on Lender's written order, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of the Note
or portion thereof in accordance with the provisions of this Article IX. In
case the Note shall be surrendered for partial conversion, the Company shall
execute and deliver to or upon the order of Lender, at the expense of the
Company, a new note or notes in authorized denominations in an aggregate
principal amount equal to the unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which the Note shall have been surrendered
and such Conversion Notice received by the Company as aforesaid, and the
Person or Persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion or purchase
shall be deemed to have become the holder or holders of record of the shares
represented thereby at such time on such date.
SECTION 904. Notice to Lender Prior to Certain Corporate Actions. In
case:
(a) the Company shall authorize the granting to the holders of
its Common Stock generally of rights, warrants or options to subscribe for or
purchase any shares of stock of any class or of any other rights; or
(b) there shall be any reorganization or reclassification of the
Common Stock (other than a change in the par value of the Common Stock), or
any permissible consolidation or merger to which the Company is a party, or
any permissible conveyance, transfer, sale or lease of the Company's
properties and assets as, or substantially as, an entity; or
(c) there shall be a voluntary or in-voluntary dissolution,
liquidation or winding-up of the Company;
then the Company shall cause to be given to Lender, in the manner provided in
Section 110 hereof, and with respect to the events described in subsections
(a), (b) and (c) of this Section 904, as promptly as possible, but in any
event at least twenty (20) days prior to the applicable date hereinafter
specified, a notice stating (i) the date on which the Company expects to file
a Registration Statement covering the Common Stock, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
transfer, sale, lease, dissolution, liquidation, or winding-up is expected to
become effective or occur, and, if applicable, the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
transfer, sale, lease, dissolution, liquidation, or winding-up, subject to
compliance with the Right of First Refusal required by Section 702 hereof.
SECTION 905. Reservation of Shares of Common Stock. The Company covenants
that it will at all times reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued shares of Common
Stock, for the purpose of effecting conversion of the Note, the full number of
shares of Common Stock deliverable upon the conversion of the Note.
SECTION 906. Taxes Upon Conversion. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of the Note pursuant
hereto.
SECTION 907. Covenants as to Common Stock. The Company covenants that all
shares of Common Stock which may be delivered upon conversion of the Note
will, upon delivery, be duly and validly issued and fully paid and
non-assessable, free of all liens and charges and not subject to any
preemptive rights.
SECTION 908. Piggyback Registration Rights. If the Company shall
determine to register any of its securities, either for its own account or for
the account of a security holder or holders, other than a registration
relating solely to employee benefit plans, or a registration on any
registration form that does not permit secondary sales, the Company will
promptly give to Lender written notice thereof and use its best efforts to
include in such registration (and any related qualification under applicable
Blue Sky laws or other compliance), and any underwriting involved therein,
Common Stock specified in a written request made by Lender within twenty (20)
days after the written notice of the Company provided for above is given. Such
written request may specify all or a part of Lender's Common Stock. If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the company shall so advise as a part of
the written notice given as required above. In such event the right of Lender
to registration shall be conditioned upon Lender's participation in such
underwriting and the inclusion of its Common Stock in the underwriting. Lender
shall enter with the Company into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected by the
Company. Notwithstanding the above, if the representative of the underwriters
advises the Company in writing that marketing factors require a limitation of
the number of shares to be underwritten, the representative may exclude
Lender's Common Stock from, or limit the number of shares of Lender's Common
Stock to be included in, the registration and underwriting. The number of
shares of securities that are entitled to be included in the registration and
underwriting shall be allocated first to the Company for securities being sold
for its own account, then to Lender to the extent of securities it has elected
to sell for its own account, and thereafter to all other owners of Common
Stock with the right to participate in such registration and underwriting pro
rata in proportion to the percentage of all outstanding Common Stock owned by
each such Person immediately prior to commencement of such registration and
underwriting. If any Person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the
Company or the underwriter. Any Common Stock or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
shares are so withdrawn from the registration or if the number of shares of
Common Stock to be included in such registration is increased during the
period of such registration, the Company shall offer first to Lender and then,
if additional shares may be sold in the registration to all other Persons who
have retained the right to include securities in the registration, the right
to include additional securities in the registration in an aggregate amount
equal to the number of shares so withdrawn, with such shares to be allocated
among the Persons requesting additional inclusion pro rata in proportion to
the percentage that each Person's Common Stock represents of the total amount
of Common Stock owned by all such Persons prior to commencement of such
registration and underwriting.
ARTICLE X
CONDITIONS PRECEDENT
SECTION 1001. Conditions Precedent. The obligation of Lender to purchase
the Note(s) and to make all individual disbursements thereunder is expressly
conditioned upon the following:
(a) The Lender's receipt from the Company, in each instance, of
an Officer's Certificate signed by its President satisfactory to Lender in
which such President represents and warrants to Lender on behalf of the
Company that (1) use of the proceeds from any disbursement of principal of the
Note is limited as follows: (A) an amount equal to 85% thereof shall be
dedicated to the Postage Meter Project, and (B) the remaining 15% thereof
shall be dedicated to such corporate uses as the Company's Board of Directors
may deem proper; and (2) there are no defaults under this Agreement, the Note
or the Security Agreement.
(b) The Lender's receipt of a Certificate of Good Standing
certified by the Secretary of State of the State of Delaware as to the
corporate status of the Company; and
(c) Full compliance by the Company with each and every provision
of the Security Agreement, including the delivery of all documents, data and
other materials required thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, and their respective seals to be hereunto fixed and attested,
all as of the day and year first above written.
MICRO GENERAL CORPORATION
(the "Company")
By: /s/ Linda Morton
Linda Morton
Corporate Secretary
CALWEST SERVICE CORPORATION
("Lender")
By: /s/ Carl A. Strunk
Carl A. Strunk
Vice President
<PAGE>
Schedules
Schedule 401 is a list of all contracts and agreements between the
Company and purchasers of its goods and services (whether payable in cash or
in kind).
Schedule 402 is a list of all the members of the Company's Board of
Directors.
Schedule 404(b) is a list of any exceptions with respect to any
outstanding options, warrants, rights, calls, commitments, conversion rights,
plans or other agreements or instruments of any character providing for the
purchase or other acquisition by the holders of the Company's stock or
issuance of any company securities of any description.
Schedule 406 is a list of all notes receivable and accounts receivable of
the Company and exceptions to any valid offset or counterclaim.
Schedule 408 is an accurate, correct and complete list of all
instruments, commitments, agreements, arrangements and understandings related
to its business to which the Company is a party or by which it is bound, or
pursuant to which the Company is a beneficiary, meeting any of the
descriptions set forth below (the "Material Contracts"):
(a) Real estate leases, personal property leases, licenses of
intellectual property, technical information or software, employment contracts
and benefit plans;
(b) Any contract for capital expenditures or for the purchase of
goods or services in excess of $5,000;
(c) Any instrument evidencing indebtedness (other than routine
purchase orders), any liability for borrowed money, any obligation for the
deferred payment of the purchase price for property in excess of $5,000
(excluding normal trade payables), or any instrument guaranteeing any
indebtedness, obligation or liability;
(d) Any advertising contract not terminable without payment or
penalty on thirty (30) days (or less) notice;
(e) Any license or royalty agreement;
(f) Any contract for the purchase or sale of any assets in excess of
$5,000 other than in the ordinary course of business or granting an option or
preferential rights to purchase or sell any assets in excess of $5,000;
(g) Any contract containing covenants not to compete in any line of
business or with any person in any geographical area;
(h) Any contract relating to the acquisition of a business or the
equity of any other person;
(i) Any other contract, commitment, agreement, arrangement or
understanding related to its business which provides for payment or
performance by any party thereto having an aggregate value of $5,000 or more,
and is not terminable without payment or penalty on thirty (30) days (or less)
notice.
Schedule 409 is a list of any indebtedness, liability or obligation of
any nature, whether absolute, accrued, contingent or otherwise, related to or
arising from the operation of the Company's business or the ownership,
possession or use of any assets.
Schedule 411 is an accurate, correct and complete list of all real estate
which is leased or subleased by the Company, including identification of the
lease or sublease, street address, and list of material contracts, agreements,
leases, subleases, options and commitments, oral or written, affecting such
real estate or any interest therein to which the Company is a party or by
which the Company is bound (the "Real Estate Leases").
Schedule 412 is an accurate, correct and complete list of each lease of
personal property used in the business which provides for annual lease
payments in excess of $5,000 (the "Personal Property Leases").
Schedule 413 is an accurate, correct and complete list and summary
description of all patents, trademarks, trademark rights, trade names, trade
styles, trade dress, service marks, copyrights and applications for any of the
foregoing utilized by the business (the "Intellectual Property"), and contains
an accurate, correct and complete list and summary description of all licenses
and other agreements relating to any Intellectual Property, together with a
list of exceptions to the following statements:
(a) the Company is the sole and exclusive owner and, to the knowledge
of the company, has the sole and exclusive right to use the Intellectual
Property;
(b) no action, suit, proceeding or investigation is pending or, to
the Company's knowledge, threatened;
(c) to the knowledge of the Company, none of the Intellectual
Property interferes with, infringes upon, conflicts with or otherwise violates
the rights of others or is being interfered with or infringed upon by others,
and none is subject to any outstanding order, decree, judgment, stipulation or
charge;
(d) there are no royalty, commission or similar arrangements, and no
licenses, sublicenses or agreements, pertaining to any of the Intellectual
Property;
(e) the Company has not agreed to indemnify any person for or against
any infringement of or by the Intellectual Property; and
(f) the Intellectual Property constitutes all such assets, properties
and rights which are used in or necessary for the conduct of its business.
Schedule 414 is an accurate, correct and complete list and summary
description of all information in the nature of proprietary information,
including databases, compilations of information, copyrightable material and
technical information, if any, relating to its business "Technical
Information").
Schedule 415 is an accurate, correct and complete summary description of
all Software used by the Company (other than non-proprietary commercially
available Software).
Schedule 416 is a true, accurate and complete list of all policies of
insurance currently in force in which the Company is named as insured, loss
payee, or additional insured.
MICRO GENERAL CORPORATION
CONVERTIBLE NOTE
(MULTIPLE ADVANCES)
$1,000,000.00Irvine, California
August 1, 1996
MICRO GENERAL CORPORATION, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company," which term includes
any successor corporation or corporations under the Agreement hereinafter
referred to), for value received, hereby promises to pay to CalWest Service
Corporation, a California corporation, at its office at 17911 Von Karman
Avenue, Suite 500, Irvine, California 92614, or order ("Lender"), the
principal sum of One Million Dollars ($1,000,000), or so much thereof as shall
have been disbursed by Lender and which at that time remains unpaid, together
with simple interest thereon from the date hereof at the rate of nine and
one-half percent (9.5%) per annum, in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, payable as follows: Accrued interest only
on the principal amount hereof shall be payable quarterly in arrears during
the first two (2) years of the term hereof commencing August 1, 1996.
Thereafter, commencing August 1, 1998, the Note shall be payable in equal
quarterly installments of principal and accrued interest thereon until the
principal balance and all accrued but unpaid interest thereon is paid in full
on or before July 31, 2001, at which time the entire unpaid balance of this
Note, including principal and accrued but unpaid interest, shall be due and
payable. All payments shall be applied first to accrued interest and then to
principal.
This Note may be prepaid in whole or in part at any time with the prior
written consent of Lender so long as the Company gives ten (10) days' prior
written notice to Lender of the Company's intent to prepay this Note or any
portion hereof. Such notice shall state the proposed payment date (the
"Payment Date") and the principal amount to be repaid. At any time during the
term hereof, the Lender may, but shall not be obligated to, elect to convert
all or any portion of the principal to be repaid on the Payment Date into
shares of the Company's common stock (the "Common Stock") at the "Conversion
Price" (as that term is defined in the Agreement hereinafter referred to) then
in effect by delivering to the Company, to the attention of its President,
written notice of its election to exercise its conversion rights as set forth
herein. Notwithstanding anything contained herein to the contrary, and
notwithstanding the Company's payment of this Note in whole or in part, the
Lender shall retain the right to convert the then-outstanding principal
balance hereof into the subject shares of Common Stock throughout the five (5)
year term of this Note at the Conversion Price.
Any partial prepayments made hereunder shall be applied to installments
due hereunder in inverse order of maturity.
This Note is duly authorized and issued by the Company, is designated as
set forth on the face hereof, and is limited to the aggregate principal amount
of $1,000,000.00 issued under and pursuant to that certain Convertible Note
Purchase Agreement, dated as of August 1, 1996 (herein called the
"Agreement"), duly executed and delivered by the Company and Lender, to which
Agreement reference is hereby made for a further description of the rights,
limitation of rights, obligations, and duties thereunder of the Company and
Lender. In case an Event of Default shall have occurred under this Note or
under the Agreement (as the term "Event of Default" is defined in said
Agreement), the principal balance hereof and all accrued but unpaid interest
thereon may be declared, and upon such declaration shall become, due and
payable, in the manner, with the effect and subject to the conditions provided
in the Agreement.
Reference is hereby made to the further provisions of the Agreement,
including, without limitation, provisions giving the Lender of this Note the
right to convert this Note into Common Stock on the terms and subject to the
limitations more fully specified in the Agreement. Such further provisions
shall for all purposes have the same effect as though fully set forth at this
place. Capitalized terms used in this Note and not otherwise defined still
have the meanings assigned to such terms in the Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: August 1, 1996 MICRO GENERAL CORPORATION, the
"Company" By: /s/ Linda Morton
Name: Linda Morton
Title: Corporate Secretary
GENERAL ASSIGNMENT AND SECURITY AGREEMENT
"Borrower": Micro General "Lender": CalWest Service
Corporation,
Corporation, a California corporation a California corporation
"Mailing Address": Original Principal Amount:
1740 East Wilshire Boulevard $1,000,000.00 (the "Loan")
Santa Ana, California 92705
Date of this Assignment: August 1, 1996
1. Assignment and Grant of Security Interest; Collateral. For value
received, and for the purpose of securing Borrower's obligations under the
Loan and all obligations from Borrower to Lender, whenever arising, of
whatever kind or nature, Borrower hereby transfers, assigns and sets over unto
Lender, and grants to Lender a security interest in, all of Borrower's right,
title and interest in and to all of its inventory, accounts receivable,
intellectual property and any other of its significant assets (collectively,
the "Collateral").
2. Power of Attorney. Borrower hereby irrevocably appoints Lender as
Borrower's attorney in fact (such appointment being coupled with an interest)
to demand, receive and enforce any and all of Borrower's rights with respect
to the Collateral, and to perform any and all acts in the name of Borrower or,
at the option of Lender, in the name of Lender with the same force and effect
as if performed by Borrower in the absence of this General Assignment and
Security Agreement (the "Assignment").
3. Obligations Secured. This Assignment secures:
(a) payment of the principal sum and interest thereon evidenced
by one or more promissory notes (collectively, the "Note"), together with any
amendments, extensions or renewals thereof, executed in favor of Lender;
(b) payment of all other sums, with interest, becoming due and
payable to Lender under the Note, or any other document or instrument executed
and delivered to Lender by Borrower in connection with the Loan evidenced by
the Note (collectively, the "Loan Documents"); and
(c) except as otherwise provided therein, performance and
discharge of each and every obligation and agreement of Borrower under any of
the Loan Documents.
4. Covenants of Borrower. Borrower agrees as follows:
(a) to appear in and defend any action or proceeding which
affects or purports to affect the Collateral or the security of this
Assignment, and to pay all costs and expense thereof and all costs and
expenses in any such action or proceeding in which Lender may appear;
(b) to pay before delinquent all taxes and assessments affecting
the Collateral and all costs or penalties thereon;
(c) not to remove the Collateral, or any part thereof, from its
present location without first obtaining the express written consent of
Lender, except in the ordinary course of business;
(d) not to voluntarily transfer or permit any involuntary
transfer of the Collateral or any interest therein by way of sale, creation of
security interest, levy or other judicial process without first obtaining the
written consent of Lender;
(e) to execute and pay promptly on demand all costs and expenses
of filing, and Borrower hereby appoints Lender its attorney-in-fact to execute
and file, financing statements, continuation statements, partial releases and
termination statements deemed necessary or appropriate by Lender to establish
the validity and priority of the security interest of Lender or any
modification or expansion thereof and to pay all costs and expenses of any
searches required by Lender; and Borrower will pay all other claims and
charges which, in the reasonable opinion of Lender, might prejudice, imperil
or otherwise affect the Collateral or its security interest therein; and
(f) to append to this Assignment as an additional exhibit or
schedule hereto, and to notify Lender immediately upon becoming the owner of,
any Collateral acquired after the date hereof, and to take such other actions
as may be necessary to clarify that such after-acquired Collateral is covered
by this Assignment.
5. Warranties of Borrower. Borrower represents, warrants and
covenants that:
(a) With respect to any Collateral in which Borrower has an
interest as of the date hereof, Borrower is the legal owner thereof, free of
any interest (including, but not limited to, all rights, claims, liens or
encumbrances whatsoever), except Lender's interest and the interest of Dito
Caree L.P.; and
(b) With respect to any Collateral in which Borrower has no
present interest, Borrower will be, at the time of acquisition of an interest
therein, the lawful owner thereof, free of any interest (including, but not
limited to, all rights, claims, liens or encumbrances whatsoever), except
Lender's interest and the interest of Dito Caree L.P.
6. Expenses. If Borrower fails to do so within five (5) days after
demand, Lender may, but need not, perform any act required of Borrower and
may, but need not, pay, purchase, contest or compromise any claim, debt, lien,
charge or encumbrance which, in the judgment of Lender, may affect or appear
to affect the security of this Assignment and may, but need not, discharge
taxes, liens, security interests or other encumbrances at any time levied or
placed on the Collateral and make any payment for insurance on the Collateral
and for maintenance and preservation of the Collateral; all sums so expended
shall be immediately paid by Borrower upon demand by Lender, with interest
from date of demand at the default rate described in the Note, or, if the Note
does not contain a default rate, then with interest at five hundred (500)
basis points in excess of the per annum rate provided in the Note, as adjusted
from time to time.
7. Events of Default. Borrower shall be in default under this
Assignment upon Borrower being in default or breach of the Note or upon the
occurrence of an Event of Default under the Convertible Note Purchase
Agreement of even date herewith between Borrower and Lender (the "Note
Agreement").
8. Rights Upon Default. Upon Borrower's default under this
Assignment, Lender shall have the right to enforce Borrower's rights with
respect to any and/or all of the Collateral. Upon the occurrence of any such
default, Lender may, without affecting any of its rights or remedies against
Borrower under any other instrument, document or agreement, and may exercise
its rights under this Assignment as Borrower's attorney-in-fact or in any
other manner permitted by law. In addition, with regard to the Collateral,
Lender shall be entitled to exercise all of the rights and remedies available
to Lender under the Uniform Commercial Code and all other rights and remedies
at law and in equity available to secured creditors in the State of
California. Without limiting the generality of the foregoing, upon default and
failure to cure:
(a) Lender may take immediate possession of the Collateral, and
Borrower agrees: (1) upon demand, to assemble the Collateral and surrender
possession thereof to Lender peaceably at a place designated by Lender; (2)
that Lender may employ any and all means reasonably necessary, in its sole
discretion, to gain possession of the Collateral; and (3) that Lender, its
successors and assigns, agents, servants, attorneys and employees, are hereby
released from any cause or causes of action, costs, claims, damages, demands,
obligations, losses or liabilities whatsoever claimed to exist by reason of
taking possession or removal of the Collateral;
(b) Lender may sell and dispose of all or any portion of the
Collateral as a unit or in parcels upon commercially reasonable terms, at
public or private sale, conducted in Orange County, California, or the county
and state in which the Collateral is located, with or without removal of the
Collateral, upon the premises of Borrower, and upon the terms and in such
manner as Lender may determine, upon ten (10) days advance written notice to
Borrower setting forth the time and place of such sale. Upon the sale of the
Collateral, Lender may retain all proceeds of sale equal to the amount of all
indebtedness owed by Borrower to Lender and interest, together with all sums
sufficient to satisfy all other obligations of every class and character due
by Borrower to Lender by virtue of the provisions hereof, together with all
costs incurred by Lender and all charges of making such sale, including all
expenses of repossession, storage, preparation for sale, advertising, sale of
the Collateral and attorneys' fees and expenses. Lender or its agents,
successors or assigns may purchase all or any part of the Collateral at any
such sale. Any and all unexpired insurance shall inure to the benefit of and
pass to the purchaser of the Collateral at any sale held hereunder.
(c) In addition to any rights or remedies provided herein,
Lender may have and exercise all other rights and remedies as provided for by
law, and shall have the right to enforce one or more remedies hereunder
successively or concurrently, and such action shall not estop or prevent
Lender from pursuing any further remedy which it may have hereunder or by law.
9. Waiver.
(a) Borrower waives all right to require Lender to proceed
against any other person or to apply any security which Lender may hold at any
time or to pursue any other remedy. Collateral of Borrower of guarantors of
the Note or of any other person may be released, substituted or added without
affecting the liability of Borrower hereunder. Lender may, at its election,
exercise any right or remedy it may have against Borrower or any security held
by Lender, including, without limitation, the right to foreclose any such
security by judicial or non-judicial sale, without affecting or impairing in
any way the rights of Lender hereunder, and Borrower waives any defense
arising out of the absence, impairment or loss of any right of reimbursement
or subrogation or other right or remedy of Borrower against any party or any
such security, whether resulting from such election by Lender or otherwise.
Borrower waives any right of subrogation and any right to participate in the
Collateral until all obligations hereby secured have been paid in full.
Borrower waives any defense arising by reason of any disability or other
defense of Borrower or by reason of the cessation from any cause whatsoever of
the liability of Borrower, except performance in full of the Loan Documents,
including the full payment of the Note.
(b) No default shall be waived by Lender except in writing and
no waiver of any default shall operate as a waiver of any other default or the
same default on a future occasion.
10. Indemnification. Borrower agrees that Lender shall not be liable
to Borrower or to any other person for injury or damage that may result to any
person or property by reason of the use or condition of the Collateral or any
part thereof, and Borrower further agrees to defend and hold Lender and the
Collateral harmless from any and all costs, damages, demands, expenses,
claims, losses or liability (including attorneys' fees) arising out of or
connected with, directly or indirectly, the use, management or condition of
the Collateral or to which Lender may become exposed or which Lender may incur
in exercising any of Lender's rights under this Assignment. Borrower
acknowledges and agrees that Lender has not assumed and does not hereby assume
any of Borrower's obligations or duties under or in connection with the
Collateral.
11. Further Action. The Borrower agrees to do such further acts and
things, and to execute and deliver such agreements and instruments, as Lender
may at any time reasonably request in connection with the administration or
enforcement of this Assignment or related to the Collateral or any part
thereof or in order better to assure and confirm unto Lender its rights,
powers and remedies hereunder.
12. Survival. All the representations, warranties and covenants of
the parties contained in this Assignment shall survive the execution hereof.
13. Time of Essence. Time is of the essence of this Assignment.
14. Binding Effect. This Assignment and the terms, conditions,
covenants and agreements hereof are intended to and shall inure to the benefit
of and extend and include the successors and assigns of Lender and shall be
binding upon the successors and assigns of Borrower. Lender may assign this
Assignment.
15. Attorneys' Fees. Should suit (including as part of any bankruptcy
proceeding) be brought to enforce or construe this Assignment or by reason of
any claimed default in the performance hereof by Borrower, the prevailing
party therein shall be awarded attorneys' fees as part of the judgment
resulting from such suit.
16. Notices. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, overnight courier, or by facsimile, addressed to the parties as set
forth herein. Any such notice shall be deemed received upon the earlier of (a)
if personally delivered, the date of delivery to the address of the person to
receive such notice, (b) if mailed, four (4) business days after the date of
posting by the United States post office, (c) if given by overnight courier,
upon receipt by the person to receive such notice, or (d) if sent by
facsimile, when sent.
To the Company: Micro General Corporation
1740 East Wilshire Boulevard
Santa Ana, California 92705
Attn: President
Facsimile: 714/667-5052
To Lender: CalWest Service Corporation
17911 Von Karman Avenue, Suite 500
Irvine, California 92614
Attn: President
Facsimile: 714/622-4590
Any notice, request, demand, direction or other communication sent by telecopy
must be confirmed within forty-eight (48) hours by letter mailed or delivered
in accordance with the foregoing. Notice of change of address shall be given
by written notice in the manner detailed in this Section 110. Rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was given shall be deemed to constitute receipt of the
notice, demand, request or communication sent.
17. Governing Law. This Assignment has been negotiated, executed and
delivered at and shall be deemed to have been made in the State of California.
This Assignment shall be governed by and construed in accordance with the laws
of the State of California.
18. Entire Agreement. This Assignment and the Note, together with all
other instruments, agreements and certificates executed by the parties in
connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with
respect to the subject matter hereof and thereof and supersede all prior
agreements, understandings and inducements, whether express or implied, oral
or written.
19. Controlling Effect. In the event of any inconsistencies between
the provisions of this Assignment and the provisions of any other assignment
("Other Assignment") by which specific collateral or rights therein are
assigned to Lender, or a security interest therein is assigned to Lender,
whether heretofore, concurrently or hereafter executed by Borrower, the
provisions of such Other Assignment shall control to the extent of said
inconsistency. In the event of any inconsistency between this Assignment and
the Note Agreement, the Note Agreement shall control to the extent of such
inconsistency.
20. No Inducement. The parties hereto declare and represent that each
has executed this Assignment voluntarily after having had the benefit of such
party's separate counsel; that no promise, inducement or agreement not herein
expressed has been made to them; and that the terms of this Assignment are
contractual and not mere recital.
21. Miscellaneous. Wherever possible each provision of this
Assignment shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision hereof shall be prohibited or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the remainder of
such provision or remaining provisions of this Assignment. This Assignment
shall not be modified or amended except in writing signed by both parties.
This Assignment may be executed and delivered in any number of counterparts,
including facsimile counterparts, all of which when executed and delivered
shall have the force and effect of an original. In construing this Assignment,
feminine or neuter pronouns shall be substituted for those masculine in form
and vice versa in any place where the context so requires, and plural terms
shall be substituted for singular and singular for plural in any place where
the context so requires. The headings in this Assignment are inserted for
convenience only and are not a part of the Assignment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, and their respective seals to be hereunto fixed and attested,
all as of the day and year first above written.
MICRO GENERAL CORPORATION CALWEST SERVICE CORPORATION
"Borrower" "Lender"
By: /s/ Linda Morton By: /s/ Carl A. Strunk
Name:_____Linda Morton Name: Carl A. Strunk
Title:__Corporate Secretary Title: Vice President
CONVERTIBLE NOTE PURCHASE AGREEMENT
by and between
MICRO GENERAL CORPORATION,
a Delaware corporation,
and
DITO CAREE L.P.,
a Nevada limited partnership
Dated as of August 1, 1996
CONVERTIBLE NOTE
DUE JULY 31, 2001
<PAGE>
TABLE OF CONTENTS
Article I - Definitions and Other Provisions of General Application 2
Section 101. Definitions 2
Section 102. Effect of Headings and Table of Contents 4
Section 103. Successors and Assigns 4
Section 104. Severability Clause 4
Section 105. Benefits of Agreement 4
Section 106. Governing Law 5
Section 107. Legal Holidays 5
Section 108. Execution in Counterparts 5
Section 109. Attorneys' Fees 5
Section 110. Notices 5
Article II - The Note 6
Section 201. Form Generally 6
Section 202. Conversion Notice 6
Section 203. Designation, Amount and Issuance of the Note 6
Section 204. Execution of the Note 7
Section 205. Commitment Fee 7
Section 206. Security for the Note 7
Article III - Covenants of the Company 7
Section 301. Payment of Principal and Interest 7
Section 302. Corporate Existence 7
Section 303. Payment of Taxes and Other Claims 7
Section 304. Dividends/Compensation 8
Section 305. Corporate Existence; Foreign Qualification 8
Section 306. Books, Records and Inspections 8
Section 307. Compliance with Laws 8
Section 308. Maintenance of Permits 9
Section 309. Capital Expenditures/Debt 9
Article IV - Representations and Warranties 9
Section 401. Customer Contracts 9
Section 402. Board of Directors 9
Section 403. Organization, Etc 9
Section 404. Capital Stock; Stock Options 9
Section 405. Corporate Authority 10
Section 406. Notes and Accounts Receivable 10
Section 407. Actions, Suits, Etc 10
Section 408. Material Contracts 10
Section 409. Absence of Undisclosed Liabilities 11
Section 410. Accuracy of Information 11
Section 411. Real Estate Leases 12
Section 412. Personal Property Leases 12
Section 413. Intellectual Property 12
Section 414. Trade Secrets 13
Section 415. Software and Information Systems 13
Section 416. Insurance 13
Article V - Defaults; Remedies 13
Section 501. Events of Default 13
Section 502. Acceleration of Maturity, Rescission and Annulment;
Other Remedies 15
Section 503. Collection of Indebtedness and Suits for Enforcement 15
Section 504. Lender May File Proofs of Claim 16
Section 505. Application of Money Collected 16
Section 506. Rights and Remedies Cumulative 17
Section 507. Delay or Omission Not Waiver 17
Section 508. Waiver of Stay or Extension Laws 17
Article VI - Reports by Company 17
Section 601. Annual Statement 17
Section 602. Reports by Company 17
Section 603. Quarterly Financial Reports 18
Article VII - Consolidation, Merger, Conveyance, Transfer , Sale or
Lease 18
Section 701. Company May Consolidate. etc., on Certain Terms 18
Section 702. Right of First Refusal of Lenders 18
Article VIII - Redemption of Note by the Company 19
Section 801. Right to Redeem 19
Section 802. Notice of Redemption 19
Article IX - Right to Convert Note and/or Right to Purchase Stock 20
Section 901. Rights Granted 20
Section 902. Anti-Dilution Rights of Lender 20
Section 903. Manner of Exercise of Conversion Privilege 20
Section 904. Notice to Lender Prior to Certain Corporate Actions 21
Section 905. Reservation of Shares of Common Stock 21
Section 906. Taxes Upon Conversion 22
Section 907. Covenants as to Common Stock 22
Section 908. Piggyback Registration Rights 22
Article X - Conditions Precedent 23
Section 1001. Conditions Precedent 23
<PAGE>
CONVERTIBLE NOTE PURCHASE AGREEMENT
This CONVERTIBLE NOTE PURCHASE AGREEMENT (the "Agreement") is made and
effective as of August 1, 1996, by and between MICRO GENERAL CORPORATION, a
corporation duly organized and existing under the laws of the State of
Delaware (herein called the "Company"), having its principal office at 1740
East Wilshire Boulevard, Santa Ana, California 92705, and DITO CAREE, L.P., a
Nevada limited partnership ("Lender").
RECITALS
WHEREAS, Lender has agreed to make a series of loans to the Company; and
WHEREAS, in order to evidence its agreement to repay said loans, the
Company has duly authorized the issuance of two (2) separate convertible
promissory notes, one in the principal amount of $1,000,000.00 and one in the
principal amount of $2,000,000.00, and each of which permits the Lender to
convert said note into a certain number of shares of the Company's common
capital stock or to purchase a certain number of shares of the Company's
common capital stock, and in connection therewith, the parties have authorized
the execution and delivery of two (2) separate purchase agreements
substantially in the form hereof, and
WHEREAS, as contemplated hereinabove, the Company has, contemporaneously
herewith, issued its convertible promissory note (the "Note") in the original
principal amount of $2,000,000.00, and the Lender has agreed to purchase said
Note; and
WHEREAS, in order to set forth the terms and conditions upon which the
Note is to be issued by the Company and purchased by the Lender, the Company
and Lender have duly authorized the execution and delivery of this Agreement;
and
WHEREAS, as an inducement to Lender to purchase the Note, whether or not
the Company borrows the full amount of the Note, the Company has agreed to
give Lender the right, but not the obligation, throughout the five (5) year
term of the Note, to either convert all or a portion of the principal of the
Note into, or to purchase directly from the Company, an aggregate of 896,292
shares of the Company's common stock five cent ($.05) par value common capital
stock (the "Common Stock"), the cost of which in either event shall be
calculated as follows: 333,332 shares of Common Stock at $2.00 per share;
296,294 shares of Common Stock at $2.25 per share; and 266,666 shares of
Common Stock at $2.50 per share;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements hereinafter set forth, and intending to be legally bound hereby,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND
OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation; and
(3) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Administrative Agent" means CalWest Service Corporation, a California
corporation, which shall act as agent for the Lenders.
"Agreement" means this instrument as originally executed or, if amended
or supplemented as herein provided, as so amended or supplemented.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of the board of directors of the Company.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in the City of Los Angeles,
California are authorized or required to close.
"Commitment Fee" has the meaning set forth in Section 205 hereof.
"Common Stock" means the five cent ($.05) par value Common Stock of the
Company as the same exists at the date of the execution of this Agreement or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company and which are not
subject to redemption by the Company; provided, however, that if at any time
there shall be more than one such resulting class, the share of each such
class then so issuable shall be substantially in the proportion which the
total number of shares of such class resulting from all such reclassifications
bears to the total number of shares of all such classes resulting from all
such reclassifications.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor corporation shall have become such
pursuant to applicable provisions of this Agreement, and thereafter "Company"
shall mean such successor corporation.
"Conversion Notice" has the meaning specified in Sections 202 and 903
hereof.
"Conversion Price" has the meaning specified in Section 901 hereof.
"Corporation" includes corporations, associations, companies and business
trusts.
"Dollars" and "$" means the lawful money of the United States of America.
"Event of Default" has the meaning specified in Section 501 hereof.
"Executive Employee" means any employee of the Company who holds the
title of Vice President or above.
"Indebtedness" means money borrowed.
"Lender," when used in the singular, means Dito Caree L.P.; and
"Lenders," when used in the plural, means collectively Dito Caree L.P. and
CalWest Service Corporation.
"Interest Payment Date" has the meaning specified in Section 203 hereof.
"Note," when used in the singular, means the Note executed by the Company
and delivered to the Lender under this Agreement as specified in the recitals
hereof; and "Notes," when used in the plural, means collectively the two Notes
executed by the Company and delivered to the Lenders under this Agreement as
specified in the recitals hereof.
"Note Rate" has the meaning specified in Section 203 hereof.
"Notice of Redemption" has the meaning specified in Section 802 hereof.
"Officer's Certificate" means a certificate signed by the President of
the Company and delivered to Lender describing with particularity the use of
proceeds of an advance on the Note, representing that there are no defaults
under this Agreement, the Note or the Security Agreement, or relating to such
other matters as may be required hereunder.
"Payment Date" shall mean an Interest Payment Date or a Principal Payment
Date.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Postage Meter Project" means that certain long-term project of the
Company for the development of electronic postage meters, built to USPS
Service specifications as recently propounded by the USPS, with the ability to
interface to electronic scales at the low-to-mid-range market and with the
high range of the market geared to computerized postage, utilizing personal
computers or USPS manifesting; and, as a concurrent project, the Company will
develop the mailing machine bases.
"Principal Payment Date" means any date on which a payment of principal
and interest on the Note shall be due.
"Redemption Date" has the meaning specified in Section 802 hereof.
"Security Agreement" has the meaning specified in Section 206 hereof.
"Subsidiary" means any corporation more than fifty percent (50%) of the
outstanding voting stock of which is at the time owned, directly or
indirectly, by the Company or by one or more other Subsidiaries, or by the
Company and one or more other Subsidiaries. For purposes of this definition,
the term "voting stock" means stock which ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
"USPS" means the United States Postal Service.
"Vice President," when used with respect to the Company, means any vice
president, whether or not designated by a number or a word or words added
before or after the title "vice president."
SECTION 102. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 103. Successors and Assigns. All covenants and agreements in this
Agreement by either party shall bind its successors and assigns, whether so
expressed or not. Any act or proceeding by any provision of this Agreement
authorized or required to be done or performed by any board, committee or
officer of either party shall and may be done and performed with like force
and effect by the board, committee or officer of any corporation that shall at
the time be the lawful sole successor of either party.
SECTION 104. Severability Clause. In case any provision in this Agreement
or in the Note shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
SECTION 105. Benefits of Agreement. Nothing in this Agreement or in the
Note, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder any benefit or any legal or equitable
right, remedy or claim under this Agreement.
SECTION 106. Governing Law. Each of this Agreement, the Note and the
Security Agreement shall be governed by and construed in accordance with the
laws of the State of California.
SECTION 107. Legal Holidays. In any case where the date of maturity of or
interest on or principal of the Note or the date fixed for redemption or for
purchase of the Note or the last day on which Lender has the right to convert
the Note shall not be a Business Day then (notwithstanding any other provision
of this Agreement or of the Note) payment of such interest, premium or
principal or conversion of the Note need not be made on such date but may be
made on the next succeeding Business Day with the same force and effect as if
made on the date of maturity or the date fixed for redemption or for purchase
or the last day for conversion, and interest shall accrue for the period from
and after such date of maturity or date fixed for redemption or for purchase
or last day for conversion to such next succeeding Business Day.
SECTION 108. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, including facsimile counterparts, each of which
shall be an original, but all of which counterparts shall together constitute
one and the same instrument.
SECTION 109. Attorneys' Fees. Should suit be filed seeking enforcement or
interpretation of this Agreement and/or the Note, the prevailing party in any
such action shall be entitled to receive in addition to any other sums awarded
to such party, attorneys' fees and all other costs of collection actually
incurred in such action.
SECTION 110. Notices. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, overnight courier, or by facsimile, addressed to the parties as set
forth herein. Any such notice shall be deemed received upon the earlier of (a)
if personally delivered, the date of delivery to the address of the person to
receive such notice, (b) if mailed, four (4) business days after the date of
posting by the United States post office, (c) if given by overnight courier,
upon receipt by the person to receive such notice, or (d) if sent by
facsimile, when sent.
To the Company: Micro General Corporation
1740 East Wilshire Boulevard
Santa Ana, California 92705
Attn: President
Facsimile: 714/667-5052
To Lender: Dito Caree L.P.
3735 Howard Hughes Parkway, Suite 200
Las Vegas, Nevada 89109
Attn: David B. Hehn, President of Gamebusters,
Inc., General
Partner
Facsimile: 714/ 759-9539
Any notice, request, demand, direction or other communication sent by telecopy
must be confirmed within forty-eight (48) hours by letter mailed or delivered
in accordance with the foregoing. Notice of change of address shall be given
by written notice in the manner detailed in this Section 110. Rejection or
other refusal to accept or the inability to deliver because of changed address
of which no notice was given shall be deemed to constitute receipt of the
notice, demand, request or communication sent.
ARTICLE II
THE NOTE
SECTION 201. Form Generally. The Note shall be in substantially the form
set forth on Exhibit "A" attached hereto, but with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Agreement, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with applicable securities laws.
SECTION 202. Conversion Notice. A Conversion Notice, substantially in the
form of Exhibit "B" attached hereto, shall be attached to the Note and shall
be used by Lender to exercise the right to convert the Note into Common Stock.
SECTION 203. Designation, Amount and Issuance of the Note.
(a) The Note shall be designated as a "convertible note" of the
Company, and shall be one of two (2) such "convertible notes," to-wit, the
Notes that are the subject of this Agreement, one in the face amount of One
Million Dollars ($1,000,000.00) and the other in the face amount of Two
Million Dollars ($2,000,000.00); provided, however, that disbursements of
principal under the Note shall be limited to no more than $500,000.00 per
quarter during the term of the Note, and Lender shall have no obligation to
make any disbursement under the Note until it shall have received an Officer's
Certificate with respect to each such disbursement in compliance with the
requirements of Section 1001(a) hereof.
(b) The Note shall be dated the date of its issue and shall bear
simple interest from the date thereof at the rate of nine and one-half percent
(9.5%) per annum (the "Note Rate"), and shall be payable as follows: Accrued
interest only on the principal amount of the Note shall be payable quarterly
in arrears during the first two (2) years of the term thereof commencing
August 1, 1996 (each, an "Interest Payment Date"). Thereafter, commencing
August 1, 1998, the Note shall be payable in equal quarterly installments of
principal and accrued interest thereon (each, a "Principal Payment Date")
until the principal balance and all accrued but unpaid interest thereon is
paid in full on or before July 31, 2001, at which time the entire unpaid
balance of the Note, including principal and accrued but unpaid interest,
shall be due and payable.
SECTION 204. Execution of the Note. The Note shall be executed on behalf
of the Company by its President or one of its Vice Presidents, under its
corporate seal reproduced thereon, and by its Secretary, one of its Assistant
Secretaries, its Chief Financial Officer, or any Assistant Treasurer.
SECTION 205. Commitment Fee. Contemporaneously with the execution and
delivery of this Agreement and the Note, the Company shall pay to the Lender a
commitment fee (the "Commitment Fee") in an amount equal to one percent (1%)
of the original principal balance of the Note.
SECTION 206. Security for the Note. In order to secure the prompt
repayment of principal and interest on the Note, the right of Lender to
convert the Note into Common Stock, and the full performance of the Company
under the Note and this Agreement, the Company shall grant Lender a security
interest in all of its inventory, accounts receivable, Intellectual Property
and any other of its significant assets, and agrees to execute a General
Assignment and Security Agreement (the "Security Agreement") in favor of
Lender in substantially the form attached hereto as Exhibit "C." The Company
agrees to execute such documents and to take any other actions reasonably
necessary to grant and perfect the security interest of Lender in the property
described above, including the execution of UCC financing statements and any
amendments to the Security Agreement, as shall be necessary to perfect
Lender's security interest. The Administrative Agent shall file a UCC
financing statement for each Note issued.
ARTICLE III
COVENANTS OF THE COMPANY
For so long as this Agreement shall remain in effect, the Company
covenants that
SECTION 301. Payment of Principal and Interest. It will duly and
punctually pay the principal of and interest on the Note at the place, at the
respective times and in the manner provided in the Note; and each installment
of principal and/or interest on the Note shall be paid by mailing checks or
wire transferring funds for the amount due to Lender in a manner reasonably
calculated to cause such funds to be received on or prior to a Payment Date.
SECTION 302. Corporate Existence. Subject to Article VII hereof, the
Company will do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence.
SECTION 303. Payment of Taxes and Other Claims. The Company has paid and
will in the future pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (a) all taxes, assessments and governmental
charges levied or imposed upon the Company or upon the income, profits or
property of the Company, and (b) all lawful claims against the Company for
labor, materials and supplies which in the case of either clause (a) or (b) of
this Section 303, if unpaid, might by law become a lien upon its property;
provided, however, that the Company shall not be required to pay or discharge
or cause to be paid or discharged any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 304. Dividends/Compensation. It shall not (a) declare, pay or
make any dividend or distribution (in cash, property or obligations) on any
shares of any class of its capital stock (now or hereafter outstanding) of the
Company or on any warrants, options or other rights with respect to any shares
of any class of capital stock (now or hereafter outstanding) of the Company,
or apply any of its funds, property or assets to the purchase, redemption,
sinking fund or other retirement of any shares of any class of capital stock
(now or hereafter outstanding) of the Company or any option, warrant or other
right to acquire shares of the Company's capital stock, or (b) make any
deposit for any of the foregoing purposes. No additional salary, bonus or
other cash or non-cash compensation shall be paid to any of the Company's
Executive Employees in an amount greater than the amount set forth in any
existing employment contracts with such individuals, or, in the case of
"at-will" Executive Employees, any increase in the compensation paid for such
Executive Employees shall require the prior written approval of the Company's
Board of Directors and the Administrative Agent, which approval will not be
unreasonably withheld. No non-cash compensation shall be paid to any employees
of the Company without the prior written approval of the Company's Board of
Directors and the Administrative Agent, which approval will not be
unreasonably withheld.
SECTION 305. Corporate Existence; Foreign Qualification. It will do and
cause to be done at all times all things necessary to (a) maintain and
preserve the corporate existence of the Company (b) be duly qualified to do
business and in good standing as foreign corporations in each jurisdiction
where the nature of its business makes such qualification necessary, and (c)
comply with all contractual obligations and requirements of law binding upon
it.
SECTION 306. Books, Records and Inspections. It shall:
(a) maintain, and cause each of its Subsidiaries, if any, to
maintain complete and accurate books and records;
(b) permit, and cause each of its Subsidiaries, if any, to
permit access at reasonable times by Lender to its books and records;
(c) permit, and cause each of its Subsidiaries, if any, to
permit Lender to inspect at reasonable times its properties and operations;
and
(d) permit, and cause each of its Subsidiaries, if any, to
permit Lender to discuss its business, operations and financial condition with
its officers and employees or with its outside auditors.
SECTION 307. Compliance with Laws. It shall comply with all federal,
state and local laws, rules and regulations related to its businesses;
SECTION 308. Maintenance of Permits. It shall maintain all permits,
licenses and consents as may be required for the conduct of its business by
any state, federal or local government agency or instrumentality.
SECTION 309. Capital Expenditures/Debt. It shall not, without the express
prior written consent of Lender, (a) make any capital expenditures not made
with the proceeds of the sale of the Note, and the use of all proceeds for
capital expenditures shall be substantially as described in the Officer's
Certificate applicable thereto, or (b) other than the Note or any other
"convertible note" as referenced in Section 203(a) hereof, incur any new
Indebtedness, liability or obligation to any third party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows to Lender:
SECTION 401. Customer Contracts. The Company represents and warrants to
Lender that, as of the date hereof, to its knowledge all contracts and
agreements between it and purchasers of its goods and services (whether
payable in cash or in kind) are valid and in full force and effect, all
amounts due and owing to the Company thereunder have been paid, no default
exists either on the part of the Company or of any other party to any such
contract and that the list of such contracts appearing on Schedule 401
attached hereto is true, accurate and complete;
SECTION 402. Board of Directors. As of the date hereof, the list of
Directors making up its Board of Directors set forth on Schedule 402 attached
hereto is true, accurate and complete, and all such Directors have been duly
elected by valid shareholder action in the manner required by the Certificate
of Incorporation and/or the Bylaws of the Company;
SECTION 403. Organization, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has no active Subsidiaries at the date hereof. The company has
corporate power to own or lease its properties and to carry on its business as
and in the places where such properties are now owned, leased or operated, and
its business is now conducted, and the Company has complied in all material
respects with all material federal, state and local laws with respect to the
operation and the conduct of its business. Copies of the Certificate of
Incorporation and all amendments thereto, bylaws as amended and currently in
force, stock records and corporate minutes and records of the Company
heretofore made available to Lender are complete and correct at the date
hereof;
SECTION 404. Capital Stock; Stock Options.
(a) The Company has authorized capital stock consisting of
10,000,000 shares of Common Stock, five cent ($.05) par value, of which
1,948,166 shares are issued and outstanding, and 1,000,000 shares of Preferred
Stock, five cent ($.05) par value, none of which are issued or outstanding.
All of the issued and outstanding shares of Common Stock are duly authorized
and validly issued, fully-paid and nonassessable, were offered, issued and
sold in accordance with applicable federal and state securities laws, and
there are no preemptive rights in respect thereof. There are no other classes
of stock of the Company other than the Common Stock and Preferred Stock.
(b) There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, plans or other agreements or instruments of
any character providing for the purchase or other acquisition by the holders
thereof or issuance of any company securities of any description, except as
set forth on Schedule 404(b) attached hereto.
SECTION 405. Corporate Authority. The Company has full legal right and
corporate power and authority, without the consent of any other person, to
make, execute, deliver and perform this Agreement and the transactions
contemplated hereby, and the execution, delivery and performance of this
Agreement by the Company has been duly authorized by all necessary corporate
action of the Company.
SECTION 406. Notes and Accounts Receivable. To its knowledge, all notes
receivable and accounts receivable are valid obligations of the respective
makers thereof, are as set forth on Schedule 406 attached hereto; except as
disclosed in such Schedule 406, are not subject to any valid offset or
counterclaim; and are not subject to any assignment, claim, lien or security
interest.
SECTION 407. Actions, Suits, Etc. There are no actions, suits, claims,
complaints, charges, hearings, investigations, arbitrations (or other dispute
resolution proceedings) or other proceedings pending or, to its knowledge,
threatened against, by or affecting the Company in any court or panel or
before any arbitrator or governmental agency, domestic or foreign, other than
(a) actions related to garnishments of employee wages, or (b) routine matters
covered by insurance. The Company has not been charged with, and to its
knowledge is not under investigation with respect to, any charge concerning
any violation of any provision of any federal, state or other applicable law
or administrative regulation with respect to its business. There are no
judgments unsatisfied against the Company and no consent decrees to which the
Company is subject. The Company is not involved in or threatened with any
labor dispute which could have a material adverse effect on the business and
operations of the Company.
SECTION 408. Material Contracts. Schedule 408 attached hereto sets forth
an accurate, correct and complete list of all instruments, commitments,
agreements, arrangements and understandings related to its business to which
the Company is a party or bound, or pursuant to which the Company is a
beneficiary, meeting any of the descriptions set forth below (the "Material
Contracts"):
(a) Real estate leases, personal property leases, licenses of
intellectual property, technical information or software, employment contracts
and benefit plans;
(b) Any contract for capital expenditures or for the purchase of
goods or services in excess of $5,000;
(c) Any instrument evidencing indebtedness (other than routine
purchase orders), any liability for borrowed money, any obligation for the
deferred payment of the purchase price for property in excess of $5,000
(excluding normal trade payables), or any instrument guaranteeing any
indebtedness, obligation or liability;
(d) Any advertising contract not terminable without payment or
penalty on thirty (30) days (or less) notice;
(e) Any license or royalty agreement;
(f) Any contract for the purchase or sale of any assets in
excess of $5,000 other than in the ordinary course of business or granting an
option or preferential rights to purchase or sell any assets in excess of
$5,000;
(g) Any contract containing covenants not to compete in any line
of business or with any person in any geographical area;
(h) Any contract relating to the acquisition of a business or
the equity of any other person;
(i) Any other contract, commitment, agreement, arrangement or
understanding related to its business which provides for payment or
performance by any party thereto having an aggregate value of $5,000 or more,
and is not terminable without payment or penalty on thirty (30) days (or less)
notice.
Accurate, correct and complete copies of each such contract have been made
available to Lender. Each contract is in full force and effect and is valid, bin
ding and enforceable as to the Company in accordance with its terms. The
Company and, to the Company's knowledge, each other party has complied in all
material respects with all material commitments and obligations on its part to
be performed or observed under each such contract. The Company has not
received any written or, to its knowledge, other notice of a default, offset
or counterclaim under any contract, or any other written or, to its knowledge,
other communication calling upon the Company to comply with any provision of
any contract or asserting noncompliance by the Company.
SECTION 409. Absence of Undisclosed Liabilities. To its knowledge, the
Company does not have any indebtedness, liability or obligation of any nature,
whether absolute, accrued, contingent or otherwise, related to or arising from
the operation of its business or the ownership, possession or use of any
assets, except as set forth on Schedule 409 attached hereto.
SECTION 410. Accuracy of Information. None of the information furnished
by the Company to Lender in writing shall contain any untrue statement of a
material fact or shall omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
circumstances under which they were made, not misleading.
SECTION 411. Real Estate Leases. Schedule 411 attached hereto sets forth
an accurate, correct and complete list of all real estate which is leased or
subleased by the Company, including identification of the lease or sublease,
street address, and list of material contracts, agreements, leases, subleases,
options and commitments, oral or written, affecting such real estate or any
interest therein to which the Company is a party or by which the Company is
bound (the "Real Estate Leases"). The Company has made available to Lender
accurate, correct and complete copies of each Real Estate Lease and no default
exists under any Real Estate Lease.
SECTION 412. Personal Property Leases. Schedule 412 attached hereto
contains an accurate, correct and complete list of each lease of personal
property used in the business which provides for annual lease payments in
excess of $5,000 (the "Personal Property Leases"). The Company has made
available to Lender accurate, correct and complete copies of each Personal
Property Lease and no default exists under any Personal Property Lease.
SECTION 413. Intellectual Property. Schedule 413 attached hereto contains
an accurate, correct and complete list and summary description of all patents,
trademarks, trademark rights, trade names, trade styles, trade dress, service
marks, copyrights and applications for any of the foregoing utilized by the
business (the "Intellectual Property"). During the preceding five (5) years,
the Company has not been known by or done business under any name other than
Micro General Corporation. Schedule 413 contains an accurate, correct and
complete list and summary description of all licenses and other agreements
relating to any Intellectual Property. Except as set forth on Schedule 413,
with respect to the Intellectual Property, (a) the Company is the sole and
exclusive owner and, to the knowledge of the company, has the sole and
exclusive right to use the Intellectual Property; (b) no action, suit,
proceeding or investigation is pending or, to the Company's knowledge,
threatened; (c) to the knowledge of the Company, none of the Intellectual
Property interferes with, infringes upon, conflicts with or otherwise violates
the rights of others or is being interfered with or infringed upon by others,
and none is subject to any outstanding order, decree, judgment, stipulation or
charge; (d) there are no royalty, commission or similar arrangements, and no
licenses, sublicenses or agreements, pertaining to any of the Intellectual
Property; (e) the Company has not agreed to indemnify any person for or
against any infringement of or by the Intellectual Property; and (f) the
Intellectual Property constitutes all such assets, properties and rights which
are used in or necessary for the conduct of its business. To the knowledge of
the Company, the operation of its business by the Company after the date
hereof, in the manner and geographic areas in which its business is currently
conducted by the Company or is to be conducted as a result of its plans to
expand its business into other geographic areas, will not interfere with or
infringe upon any currently issued United States Letters Patent or trademarks
currently registered in the Primary Register of the United States Patent and
Trademark Office. The Company is not subject to any judgment, order, writ,
injunction or decree of any court or any federal, state, local or other
governmental agency or instrumentality, domestic or foreign, or any
arbitrator, and has not entered into or is not a party to any contract which
restricts or impairs the use of any Intellectual Property.
SECTION 414. Trade Secrets. Schedule 414 attached hereto contains an
accurate, correct and complete list and summary description of all information
in the nature of proprietary information, including databases, compilations of
information, copyrightable material and technical information, if any,
relating to its business "Technical Information"). The Company has the right
to use the Technical Information by virtue of ownership or by virtue of the
license agreements identified in Schedule 414. The Company has no knowledge of
any violation of any trade secret rights or copyrights with respect to such
Technical Information.
SECTION 415. Software and Information Systems. The Company has the right
to use all electronic data processing systems, information systems, hardware,
computer software programs, indexes, program specifications, charts,
procedures, source codes, input data, routines, data bases and report layouts
and formats, record file layouts, diagrams, functional specifications and
narrative descriptions, flow charts and other related material (if any) used
in and reasonably necessary for the conduct of its business (collectively the
"Software"). Schedule 415 attached hereto contains an accurate, correct and
complete summary description of all Software (other than non-proprietary
commercially available Software).
SECTION 416. Insurance. Set forth on Schedule 416 attached hereto is a
true, accurate and complete list of all policies of insurance currently in
force in which the Company is named as insured, loss payee, or additional
insured, premiums on all of such policies have been paid, and copies of all
policies have been delivered to Lender at the date hereof, and Lender has been
named as loss payee or additional insured on all such policies on which such
coverage is available.
ARTICLE V
DEFAULTS; REMEDIES
SECTION 501. Events of Default. "Event of Default," wherever used herein
with respect to the Note, means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) By the Company.
(1) default in the payment of any installment of principal
and/or interest on the Note as and when it becomes due and payable, whether by
virtue of the terms of the Note as to payments of principal and/or interest,
at maturity, in connection with any redemption, or otherwise and the passage
of seven (7) days following written notice thereof to the Company; or
(2) default in the performance, or breach, of any material
covenant, representation or warranty of the Company in this Agreement and the
passage of thirty (30) days following written notice thereof to the Company,
or, if such default cannot be cured within such thirty (30) days, commencement
of the cure of such default within such thirty (30) days and diligent
prosecution of such cure to completion; or
(3) application of eighty-five percent (85%) of all
advances under the Note to any use other than the Postage Meter Project and in
a manner materially different from that set forth in the Officer's Certificate
to which such proceeds relate and the passage of seven (7) days following
written notice thereof to the Company; or
(4) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a decree or
order adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any applicable Federal or
state law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or of all or
substantially all of its property, or ordering the winding up or liquidation
of its affairs, and-the continuance of any such decree or order for relief or
for any such other decree or order unstayed and in effect for a period of 45
consecutive days;
(5) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or the consent by it to the entry of a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law, other consent by it to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the company or of all or substantially all
of its property, or the making by it of a general assignment for the benefit
of creditors; or
(6) until all sums due under the Note have been repaid, or
any increase by the Company of the number of members of its Board of Directors
to a number greater than the number who hold office at the time of execution
of the Note, or any change in the actual members of the Company's Board of
Directors, without the prior written consent of the Lender; or
(7) the failure of the Company to provide any information
or report to Lender required to be provided pursuant to Article VI hereof and
the passage of thirty (30) days following written notice thereof to the
Company, or, if such default cannot be cured within such thirty (30) days,
commencement of the cure of such default within such thirty (30) days and
diligent prosecution of such cure to completion.
(b) By the Lender. The failure of the Lender to fund pursuant to
Section 203(a) hereof in the event that a proper Officer's Certificate
pursuant to Section 1001(a) is received and the Company is in compliance with
all covenants of this Agreement and the Note.
SECTION 502. Acceleration of Maturity, Rescission and Annulment; Other
Remedies.
(a) Lender's Remedies.
(i) Upon the occurrence of an Event of Default under any
event described in Section 501(a) (other than an Event of Default described in
Sections 501(a)(4) and 501(a)(5) hereof), then in every such case Lenders may
declare the principal amounts of the Notes to be due and payable immediately,
by a notice in writing to the Company and upon any such declaration such
principal amounts shall become immediately due and payable. The Company specific
ally acknowledges and agrees that the occurrence of any Event of Default under
any event described in Section 501(a) hereof will automatically cause all
existing Notes to be in default, and all Events of Default under all Notes
must be cured before any one Event of Default shall be deemed cured.
(ii) At any time after such a declaration of acceleration
with respect to the Note has been made and before a judgment or decree for
payment of the money due has been obtained by Lender as hereinafter in this
Article provided, Lender may, by written notice to the Company, rescind and
annul such declaration and its consequences if, (1) the Company has paid to
Lender a sum sufficient to pay (A) all overdue interest on the Note, (B) the
principal on the Note which has become due otherwise than by such declaration
of acceleration and interest thereon at the Note Rate, (C) to the extent that
payment of such interest is lawful, interest upon overdue interest at the Note
Rate, and (D) all sums paid or advanced by Lender hereunder and the actual
compensation, expenses, disbursements and advances of Lender, its agents and
counsel; and (2) all Events of Default with respect to the Note, other than
the nonpayment of the principal of the Note which has become due solely by
such declaration of acceleration, have been cured or waived by Lender. No such
rescission shall affect any subsequent default or impair any right consequent
thereon. In the case of any Event of Default described in Section 501(a)(4) or
501(a)(5), all unpaid principal of and accrued interest on the Note shall be
due and payable immediately without any declaration or other act on the part
of Lender.
(b) The Company's Remedies. Upon the occurrence of an Event of
Default as described in Section 501(b) hereof, then the option amount referred
to in Section 901 hereof shall be limited to a number equal in value to the
amount already funded.
SECTION 503. Collection of Indebtedness and Suits for Enforcement.
(a) The Company covenants that if default is made in the payment
of any principal and/or interest on the Note when such principal and/or
interest becomes due and payable, whether at a time specified in the Note, at
maturity of the Note or in connection with any redemption or otherwise, the
Company will, upon demand of Lender, pay to it the whole amount then due and
payable on the Note for principal and interest and, to the extent that payment
of such interest shall be legally enforceable, interest on any overdue
principal and-on any overdue interest, at the Note Rate, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of Lender, its agents and counsel, it being
understood that as to the Lenders, any payments will be applied on a pro rata
basis among the Lenders based on each Lender's respective Note amount. If the
Company fails to pay such amounts forthwith upon such demand, Lender may
prosecute a proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor on the Note and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or of any other obligor on the Note, wherever
situated, it being understood that any monies collected shall be applied on a
pro rata basis among the Lenders based on each Lender's respective Note. In
addition, Lender may give notice to customers of the Company that all payments
under contracts listed on Schedule 401 shall, until further notice, be paid
directly to Lender, and the Company consents to each such notice.
(b) If an Event of Default with respect to the Note occurs,
Lender may in its discretion proceed to protect and enforce its rights by such
appropriate judicial proceedings as it shall deem most effectual to protect
and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Agreement or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 504. Lender May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or of any other obligor on the Note or the property of the Company
or of such other obligor or their creditors, Lender (irrespective of whether
the principal of the Note shall then be due and payable as therein expressed
or by declaration or otherwise and irrespective of whether it shall have made
any demand on the Company for the payment of overdue principal or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of principal
and interest owing and unpaid in respect of the Note and to file such other
papers and documents as may be necessary or advisable in order to have the
claims of Lender (including any claim to the right to own Common Stock or for
the reasonable compensation, expenses, disbursements and advances of Lender,
its agents and counsel) allowed in such judicial proceeding, and
(b) to collect and receive any monies or other property payable
or deliverable on any such claims.
SECTION 505. Application of Money Collected. Any money collected by
Lender pursuant to this Article V shall be applied in the following order, at
the date or dates fixed by Lender and, in case of the distribution of such
money on account of principal or interest, upon presentation of the Note and
the notation thereon of the payment if only partially said and upon surrender
thereof if fully paid:
First: To the costs and expenses of Lender in collecting sums due
it hereunder;
Second: To the payment of the amounts then due and unpaid first for
interest on and then for principal of all outstanding Notes, applied on a pro
rata basis among the Lenders based on each Lender's respective Note; and
Third: To the payment of the remainder, if any, to the Company or
any other Person lawfully entitled thereto.
SECTION 506. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Lender is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 507. Delay or Omission Not Waiver. No delay or omission of Lender
to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default. Every right and remedy given by this Article V or by law may be
exercised from time to time, and as often as may be deemed expedient by
Lender.
SECTION 508. Waiver of Stay or Extension Laws. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Agreement; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to Lender, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE VI
REPORTS BY COMPANY
SECTION 601. Annual Statement. The Company will deliver to Lender, within
30 days after the end of each fiscal year of the Company, an Officer's
Certificate stating that to the best of such officer's knowledge, the Company
has fulfilled all its obligations under this Agreement throughout such year,
or, if there has been a default in the fulfillment of any such obligation and
such default is continuing, specifying each such default of which such officer
has knowledge, and the nature and status thereof.
SECTION 602. Reports by Company. The Company shall file with Lender, such
information, documents and other reports, and such summaries thereof, as
Lender shall request, immediately upon request, but without request the
Company shall deliver to Lender audited financial statements of the Company
prepared by independent certified public accountants ("Accountants") within
ninety (90) days of the end of each Company fiscal year.
SECTION 603. Quarterly Financial Reports. Throughout the term of this
Agreement and for so long as any amount remains unpaid under the Note, the
Company shall furnish Lender with copies of its quarterly financial reports no
later than forty-five (45) days following the end of the subject fiscal
quarter.
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, SALE OR LEASE
SECTION 701. Company May Consolidate. etc., on Certain Terms. The Company
shall not consolidate with or merge into any other corporation or convey,
transfer, sell or lease its properties and assets as, or substantially as, an
entirety to any Person, issue any capital stock (including Common Stock) of
the Company unless (a) prior to such transaction Lender has released in
writing its Right of First Refusal as required by Section 702 hereof, and (b)
upon any such consolidation, merger, sale, conveyance or exchange of or by the
Company, (i) the Company is the continuing corporation and the Company's
Common Stock outstanding immediately prior to the merger is not exchanged for
securities, cash or other property of another corporation, (ii) there is an
exchange of the Note for other securities in connection with such transaction,
or (iii) the due and punctual payment of the principal of and interest on, the
Note, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Agreement to be
performed by the Company, are expressly assumed by a note supplemental to the
Note by the corporation formed by such consolidation, or whose securities,
cash or other property will immediately after the merger be owned, by virtue
of the merger, by the holders of Common Stock of the Company immediately prior
to the merger, or by the corporation that shall have acquired such property or
securities. Furthermore, the Company shall not consolidate with or merge into
any other corporation or convey, transfer, sell or lease its properties and
assets as, or substantially as, an entirety to any Person, or enter into any
statutory exchange of securities with another corporation, unless the Right of
First Refusal has been released and unless immediately after giving effect to
such transaction no Event of Default shall have occurred and be continuing,
and the Company shall have delivered to Lender an Officer's Certificate
stating that such transaction and such supplemental agreement comply with this
Agreement.
SECTION 702. Right of First Refusal of Lenders. For so long as any
amounts due under the Note shall be outstanding, Lenders shall have and retain
the first option to purchase any and all assets of the Company and any and all
capital stock (including Common Stock) of the Company, upon the same terms and
subject to the same conditions as may be offered to the Company by a third
party for such assets or capital stock; provided, however, that any non-cash
consideration offered for any such assets or capital stock shall be given its
then current market value in cash and Lenders shall have the opportunity to
pay the amount of such cash in lieu of any non-cash consideration offered by a
prospective owner of any assets or capital stock on a pro rata basis as to the
Lenders' exercise of that right. Immediately upon receipt of any offer to
purchase any assets or capital stock, or upon determining that the Company
desires to sell any assets or capital stock, the Company shall immediately
notify Lenders of the assets and/or capital stock proposed to be bought and
sold, and of the terms of such proposed purchase and sale. Within twenty (20)
days of being so notified, Lenders shall notify either the Company and/or the
owner of the capital stock in question that they (or any one of them) will
exercise the right of first refusal granted herein ("Right of First Refusal"),
or, in the alternative, that they (or any one of them) thereby release such
Right of First Refusal and consents to the sale of the assets or capital stock
on the terms described. Any change in such terms shall give each Lender the
right to once again exercise or release its Right of First Refusal within an
additional time period identical to that specified above.
ARTICLE VIII
REDEMPTION OF NOTE BY THE COMPANY
SECTION 801. Right to Redeem. The Company may, at its option, redeem all
or, from time to time, any part of the Note, on any date prior to maturity, in
the manner specified in this Article VIII, at the original principal amount
thereof, plus accrued and unpaid interest, if any, to the date fixed for
redemption, but no such redemption shall in any way impair the right of Lender
to convert the Note into shares of Common Stock as specified in this Agreement
or in the Right of First Refusal granted hereunder.
SECTION 802. Notice of Redemption.
(a) In case the Company shall desire to exercise its right to
redeem all or any part of the Note pursuant to Section 801 hereof, it shall
fix a date for redemption (a "Redemption Date"), shall notify Lenders in
writing of such date, and shall mail or cause to be mailed a notice of such
redemption (a "Notice of Redemption") at least ten (10) and not more than
thirty (30) days prior to the date fixed for redemption to Lenders at their
principal executive offices. Such mailing shall be by first class mail. The
Company agrees to exercise said right of redemption on an equitable and pro
rata basis among the Lenders.
(b) The Notice of Redemption shall specify the principal amount
of the Note to be redeemed, the Redemption Date for the Note, and the
Redemption Price at which the Note is to be redeemed, and shall state that
payment of the Redemption Price of the Note or portions thereof to be redeemed
will be made on surrender of the Note to be redeemed, that interest accrued to
such Redemption Date will be paid as specified in such notice, and that from
and after such date interest thereon will cease to accrue. In the event of
full redemption of the Note, such Notice of Redemption shall also state that
the right to convert the Note or portion thereof into Common Stock will expire
at the close of business on July 31, 2001.
(c) On or prior to each Redemption Date specified in each Notice
of Redemption given as provided in this Section 802, the Company will pay to
Lender an amount of money sufficient to redeem on such Redemption Date the
Note or portion thereof so called for redemption at the appropriate Redemption
Price, together with accrued interest to the Redemption Date.
(d) If the Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear
interest from the date fixed for redemption at the Note Rate and the Note
shall remain convertible into Common Stock until July 31, 2001, or until all
amounts due under the Note have been repaid in full.
ARTICLE IX
RIGHT TO CONVERT NOTE AND/OR RIGHT TO PURCHASE STOCK
SECTION 901. Rights Granted. Subject to and upon compliance with the
provisions of this Article IX, and specifically Section 902 hereof, Lender
shall have the right, at its option, at any time or from time to time on or
prior to the close of business on July 31, 2001, to convert the principal
amount of the Note up to a value of $2,000,000.00 into, or to pay in cash in
an amount up to $2,000,000.00 for, an aggregate of 896,292 shares of Common
Stock, calculated as follows: 333,332 shares of Common Stock at a price of
$2.00 per share; 296,294 shares of Common Stock at a price of $2.25 per share;
and 266,666 shares of Common Stock at a price of $2.50 per share (the
"Conversion Price").
SECTION 902. Anti-Dilution Rights of Lender. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of the conversion privilege set forth in Section 901 hereof, but
will at all times in good faith carry out the provisions and intent of Section
901 and take all such action as may be necessary or appropriate to protect
against impairment of the rights of Lender to convert the Note into, or to
purchase, Common Stock. In the event that, at any time prior to full exercise
by Lender of its right to purchase such Common Stock, the Company shall sell
or otherwise transfer any Common Stock, the Company undertakes and agrees to
make any adjustments that may be necessary to permit Lender to purchase an
equal number of shares of the Common Stock for a per share price equal to the
per share price paid by such other purchaser or transferee, including, if
necessary, refunding to Lender any sums necessary to cause Lender to receive
the benefit of this Section 902, such benefit to survive the repayment of the
Note and to be applicable with respect to issuances of Common Stock until July
31, 2001. Nothing in this Section 902 shall be interpreted to permit or
require any increase in the consideration to be paid by Lender in exchange for
896,292 shares of the Common Stock.
SECTION 903. Manner of Exercise of Conversion Privilege. In order to
exercise the conversion privilege, Lender shall surrender the Note, duly
endorsed or assigned to the Company or in blank, at the office of the Company,
together with the Conversion Notice duly executed, that Lender elects to
convert the Note or the portion thereof specified in said Conversion Notice
or, alternatively, that Lender will purchase such Common Stock. Such
Conversion Notice shall also state the name or names, together with the
address or addresses in which the certificate or certificates for shares of
Common Stock which shall be issuable in such conversion or purchase shall be
issued as promptly as practicable after the surrender of the Note and the
receipt of such Conversion Notice, the Company shall issue and deliver to
Lender, or on Lender's written order, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of the Note
or portion thereof in accordance with the provisions of this Article IX. In
case the Note shall be surrendered for partial conversion, the Company shall
execute and deliver to or upon the order of Lender, at the expense of the
Company, a new note or notes in authorized denominations in an aggregate
principal amount equal to the unconverted portion of the surrendered Note.
Each conversion shall be deemed to have been effected immediately prior to the
close of business on the date on which the Note shall have been surrendered
and such Conversion Notice received by the Company as aforesaid, and the
Person or Persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion or purchase
shall be deemed to have become the holder or holders of record of the shares
represented thereby at such time on such date.
SECTION 904. Notice to Lender Prior to Certain Corporate Actions. In
case:
(a) the Company shall authorize the granting to the holders of
its Common Stock generally of rights, warrants or options to subscribe for or
purchase any shares of stock of any class or of any other rights; or
(b) there shall be any reorganization or reclassification of the
Common Stock (other than a change in the par value of the Common Stock), or
any permissible consolidation or merger to which the Company is a party, or
any permissible conveyance, transfer, sale or lease of the Company's
properties and assets as, or substantially as, an entity; or
(c) there shall be a voluntary or in-voluntary dissolution,
liquidation or winding-up of the Company;
then the Company shall cause to be given to Lender, in the manner provided in
Section 110 hereof, and with respect to the events described in subsections
(a), (b) and (c) of this Section 904, as promptly as possible, but in any
event at least twenty (20) days prior to the applicable date hereinafter
specified, a notice stating (i) the date on which the Company expects to file
a Registration Statement covering the Common Stock, or (ii) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
transfer, sale, lease, dissolution, liquidation, or winding-up is expected to
become effective or occur, and, if applicable, the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
transfer, sale, lease, dissolution, liquidation, or winding-up, subject to
compliance with the Right of First Refusal required by Section 702 hereof.
SECTION 905. Reservation of Shares of Common Stock. The Company covenants
that it will at all times reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued shares of Common
Stock, for the purpose of effecting conversion of the Note, the full number of
shares of Common Stock deliverable upon the conversion of the Note.
SECTION 906. Taxes Upon Conversion. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of the Note pursuant
hereto.
SECTION 907. Covenants as to Common Stock. The Company covenants that all
shares of Common Stock which may be delivered upon conversion of the Note
will, upon delivery, be duly and validly issued and fully paid and
non-assessable, free of all liens and charges and not subject to any
preemptive rights.
SECTION 908. Piggyback Registration Rights. If the Company shall
determine to register any of its securities, either for its own account or for
the account of a security holder or holders, other than a registration
relating solely to employee benefit plans, or a registration on any
registration form that does not permit secondary sales, the Company will
promptly give to Lender written notice thereof and use its best efforts to
include in such registration (and any related qualification under applicable
Blue Sky laws or other compliance), and any underwriting involved therein,
Common Stock specified in a written request made by Lender within twenty (20)
days after the written notice of the Company provided for above is given. Such
written request may specify all or a part of Lender's Common Stock. If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the company shall so advise as a part of
the written notice given as required above. In such event the right of Lender
to registration shall be conditioned upon Lender's participation in such
underwriting and the inclusion of its Common Stock in the underwriting. Lender
shall enter with the Company into an underwriting agreement in customary form
with the representative of the underwriter or underwriters selected by the
Company. Notwithstanding the above, if the representative of the underwriters
advises the Company in writing that marketing factors require a limitation of
the number of shares to be underwritten, the representative may exclude
Lender's Common Stock from, or limit the number of shares of Lender's Common
Stock to be included in, the registration and underwriting. The number of
shares of securities that are entitled to be included in the registration and
underwriting shall be allocated first to the Company for securities being sold
for its own account, then to Lender to the extent of securities it has elected
to sell for its own account, and thereafter to all other owners of Common
Stock with the right to participate in such registration and underwriting pro
rata in proportion to the percentage of all outstanding Common Stock owned by
each such Person immediately prior to commencement of such registration and
underwriting. If any Person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the
Company or the underwriter. Any Common Stock or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. If
shares are so withdrawn from the registration or if the number of shares of
Common Stock to be included in such registration is increased during the
period of such registration, the Company shall offer first to Lender and then,
if additional shares may be sold in the registration to all other Persons who
have retained the right to include securities in the registration, the right
to include additional securities in the registration in an aggregate amount
equal to the number of shares so withdrawn, with such shares to be allocated
among the Persons requesting additional inclusion pro rata in proportion to
the percentage that each Person's Common Stock represents of the total amount
of Common Stock owned by all such Persons prior to commencement of such
registration and underwriting.
ARTICLE X
CONDITIONS PRECEDENT
SECTION 1001. Conditions Precedent. The obligation of Lender to purchase
the Note(s) and to make all individual disbursements thereunder is expressly
conditioned upon the following:
(a) The Lender's receipt from the Company, in each instance, of
an Officer's Certificate signed by its President satisfactory to Lender in
which such President represents and warrants to Lender on behalf of the
Company that (1) use of the proceeds from any disbursement of principal of the
Note is limited as follows: (A) an amount equal to 85% thereof shall be
dedicated to the Postage Meter Project, and (B) the remaining 15% thereof
shall be dedicated to such corporate uses as the Company's Board of Directors
may deem proper; and (2) there are no defaults under this Agreement, the Note
or the Security Agreement.
(b) The Lender's receipt of a Certificate of Good Standing
certified by the Secretary of State of the State of Delaware as to the
corporate status of the Company; and
(c) Full compliance by the Company with each and every provision
of the Security Agreement, including the delivery of all documents, data and
other materials required thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, and their respective seals to be hereunto fixed and attested,
all as of the day and year first above written.
MICRO GENERAL CORPORATION
(the "Company")
By: /s/ Linda Morton
Name: Linda Morton
Title: Corporate Secretary
DITO CAREE L.P. ("Lender")
By: /s/ David B.Hehn
Title: President, Gamebusters Inc.
General Partner
<PAGE>
Schedules
Schedule 401 is a list of all contracts and agreements between the
Company and purchasers of its goods and services (whether payable in cash or
in kind).
Schedule 402 is a list of all the members of the Company's Board of
Directors.
Schedule 404(b) is a list of any exceptions with respect to any
outstanding options, warrants, rights, calls, commitments, conversion rights,
plans or other agreements or instruments of any character providing for the
purchase or other acquisition by the holders of the Company's stock or
issuance of any company securities of any description.
Schedule 406 is a list of all notes receivable and accounts receivable of
the Company and exceptions to any valid offset or counterclaim.
Schedule 408 is an accurate, correct and complete list of all
instruments, commitments, agreements, arrangements and understandings related
to its business to which the Company is a party or by which it is bound, or
pursuant to which the Company is a beneficiary, meeting any of the
descriptions set forth below (the "Material Contracts"):
(a) Real estate leases, personal property leases, licenses of
intellectual property, technical information or software, employment contracts
and benefit plans;
(b) Any contract for capital expenditures or for the purchase of
goods or services in excess of $5,000;
(c) Any instrument evidencing indebtedness (other than routine
purchase orders), any liability for borrowed money, any obligation for the
deferred payment of the purchase price for property in excess of $5,000
(excluding normal trade payables), or any instrument guaranteeing any
indebtedness, obligation or liability;
(d) Any advertising contract not terminable without payment or
penalty on thirty (30) days (or less) notice;
(e) Any license or royalty agreement;
(f) Any contract for the purchase or sale of any assets in excess of
$5,000 other than in the ordinary course of business or granting an option or
preferential rights to purchase or sell any assets in excess of $5,000;
(g) Any contract containing covenants not to compete in any line of
business or with any person in any geographical area;
(h) Any contract relating to the acquisition of a business or the
equity of any other person;
(i) Any other contract, commitment, agreement, arrangement or
understanding related to its business which provides for payment or
performance by any party thereto having an aggregate value of $5,000 or more,
and is not terminable without payment or penalty on thirty (30) days (or less)
notice.
Schedule 409 is a list of any indebtedness, liability or obligation of
any nature, whether absolute, accrued, contingent or otherwise, related to or
arising from the operation of the Company's business or the ownership,
possession or use of any assets.
Schedule 411 is an accurate, correct and complete list of all real estate
which is leased or subleased by the Company, including identification of the
lease or sublease, street address, and list of material contracts, agreements,
leases, subleases, options and commitments, oral or written, affecting such
real estate or any interest therein to which the Company is a party or by
which the Company is bound (the "Real Estate Leases").
Schedule 412 is an accurate, correct and complete list of each lease of
personal property used in the business which provides for annual lease
payments in excess of $5,000 (the "Personal Property Leases").
Schedule 413 is an accurate, correct and complete list and summary
description of all patents, trademarks, trademark rights, trade names, trade
styles, trade dress, service marks, copyrights and applications for any of the
foregoing utilized by the business (the "Intellectual Property"), and contains
an accurate, correct and complete list and summary description of all licenses
and other agreements relating to any Intellectual Property, together with a
list of exceptions to the following statements:
(a) the Company is the sole and exclusive owner and, to the knowledge
of the company, has the sole and exclusive right to use the Intellectual
Property;
(b) no action, suit, proceeding or investigation is pending or, to
the Company's knowledge, threatened;
(c) to the knowledge of the Company, none of the Intellectual
Property interferes with, infringes upon, conflicts with or otherwise violates
the rights of others or is being interfered with or infringed upon by others,
and none is subject to any outstanding order, decree, judgment, stipulation or
charge;
(d) there are no royalty, commission or similar arrangements, and no
licenses, sublicenses or agreements, pertaining to any of the Intellectual
Property;
(e) the Company has not agreed to indemnify any person for or against
any infringement of or by the Intellectual Property; and
(f) the Intellectual Property constitutes all such assets, properties
and rights which are used in or necessary for the conduct of its business.
Schedule 414 is an accurate, correct and complete list and summary
description of all information in the nature of proprietary information,
including databases, compilations of information, copyrightable material and
technical information, if any, relating to its business "Technical
Information").
Schedule 415 is an accurate, correct and complete summary description of
all Software used by the Company (other than non-proprietary commercially
available Software).
Schedule 416 is a true, accurate and complete list of all policies of
insurance currently in force in which the Company is named as insured, loss
payee, or additional insured.
MICRO GENERAL CORPORATION
CONVERTIBLE NOTE
(MULTIPLE ADVANCES)
$2,000,000.00
Irvine, California
August 1, 1996
MICRO GENERAL CORPORATION, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company," which term includes
any successor corporation or corporations under the Agreement hereinafter
referred to), for value received, hereby promises to pay to Dito Caree L.P., a
Nevada limited partnership, at its office at 3735 Howard Hughes Parkway, Suite
200, Las Vegas, Nevada 89109 ("Lender"), or order, principal sum of Two
Million Dollars ($2,000,000), or so much thereof as shall have been disbursed
by Lender and which at that time remains unpaid, together with simple interest
thereon from the date hereof at the rate of nine and one-half percent (9.5%)
per annum, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, payable as follows: Accrued interest only on the principal amount
hereof shall be payable quarterly in arrears during the first two (2) years of
the term hereof commencing August 1, 1996. Thereafter, commencing August 1,
1998, the Note shall be payable in equal quarterly installments of principal
and accrued interest thereon until the principal balance and all accrued but
unpaid interest thereon is paid in full on or before July 31, 2001, at which
time the entire unpaid balance of this Note, including principal and accrued
but unpaid interest, shall be due and payable. All payments shall be applied
first to accrued interest and then to principal.
This Note may be prepaid in whole or in part at any time with the prior
written consent of Lender so long as the Company gives ten (10) days' prior
written notice to Lender of the Company's intent to prepay this Note or any
portion hereof. Such notice shall state the proposed payment date (the
"Payment Date") and the principal amount to be repaid. At any time during the
term hereof, the Lender may, but shall not be obligated to, elect to convert
all or any portion of the principal to be repaid on the Payment Date into
shares of the Company's common stock (the "Common Stock") at the "Conversion
Price" (as that term is defined in the Agreement hereinafter referred to) then
in effect by delivering to the Company, to the attention of its President,
written notice of its election to exercise its conversion rights as set forth
herein. Notwithstanding anything contained herein to the contrary, and
notwithstanding the Company's payment of this Note in whole or in part, the
Lender shall retain the right to convert the then-outstanding principal
balance hereof into the subject shares of Common Stock throughout the five (5)
year term of this Note at the Conversion Price.
Any partial prepayments made hereunder shall be applied to installments
due hereunder in inverse order of maturity.
This Note is duly authorized and issued by the Company, is designated as
set forth on the face hereof, and is limited to the aggregate principal amount
of $2,000,000.00 issued under and pursuant to that certain Convertible Note
Purchase Agreement, dated as of August 1, 1996 (herein called the
"Agreement"), duly executed and delivered by the Company and Lender, to which
Agreement reference is hereby made for a further description of the rights,
limitation of rights, obligations, and duties thereunder of the Company and
Lender. In case an Event of Default shall have occurred under this Note or
under the Agreement (as the term "Event of Default" is defined in said
Agreement), the principal balance hereof and all accrued but unpaid interest
thereon may be declared, and upon such declaration shall become, due and
payable, in the manner, with the effect and subject to the conditions provided
in the Agreement.
Reference is hereby made to the further provisions of the Agreement,
including, without limitation, provisions giving the Lender of this Note the
right to convert this Note into Common Stock on the terms and subject to the
limitations more fully specified in the Agreement. Such further provisions
shall for all purposes have the same effect as though fully set forth at this
place. Capitalized terms used in this Note and not otherwise defined still
have the meanings assigned to such terms in the Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: August 1, 1996 MICRO GENERAL CORPORATION
(the "Company")
By: /s/ Linda Morton
Name: Linda Morton
Title: Corporate Secretary
ACCOUNTANTS' CONSENT
The Board of Directors
Micro General Corporation:
We consent to incorporation by reference in the Registration Statements
No. 33-22240, No. 2-85485 and No. 2-92490 on Form S-8 of Micro General
Corporation (the Company) of our report dated March 6, 1997, relating to the
balance sheets of Micro General Corporation as of December 31, 1996 and
December 31, 1995 and the related statements of operations, shareholders'
equity and cash flows in the three-year period ended December 31, 1996 and
the related schedule, which report appears in the December 31, 1996 annual
report on Form 10-K of Micro General Corporation.
Our report, dated March 6, 1997, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations and has
limited working capital resources which raise substantial doubt about its
ability to continue as a going concern. The financial statements and
financial statement schedule do not include any adjustments that might result
from the outcome of that uncertainty.
/s/ KPMG PEAT MARWICK LLP
Orange County, California
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000067383
<NAME> MICRO GENERAL CORPORTION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 413,533
<SECURITIES> 0
<RECEIVABLES> 68,141
<ALLOWANCES> 35,333
<INVENTORY> 1,039,972
<CURRENT-ASSETS> 1,661,972
<PP&E> 1,103,059
<DEPRECIATION> 895,400
<TOTAL-ASSETS> 2,190,229
<CURRENT-LIABILITIES> 299,377
<BONDS> 0
0
0
<COMMON> 97,458
<OTHER-SE> 293,394
<TOTAL-LIABILITY-AND-EQUITY> 2,190,229
<SALES> 2,155,378
<TOTAL-REVENUES> 2,155,378
<CGS> 1,398,516
<TOTAL-COSTS> 1,398,516
<OTHER-EXPENSES> 1,885,872
<LOSS-PROVISION> 16,285
<INTEREST-EXPENSE> 52,356
<INCOME-PRETAX> (1,181,366)
<INCOME-TAX> 800
<INCOME-CONTINUING> (1,182,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,182,166)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
