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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________.
Commission File Number: 33-18600-D
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SourcingLink.net, Inc.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 98-0132465
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
16855 WEST BERNARDO DRIVE, SUITE 260, SAN DIEGO, CA 92127
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(Address of principal executive offices)
(858) 385-8900
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(Issuer's telephone number)
FORMER ADDRESS: 650 CASTRO STREET, SUITE 210, MOUNTAIN VIEW, CA 94041
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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.
X YES NO
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Shares of Common Stock outstanding as of November 9, 1999: 7,082,661 shares
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SourcingLink.net, Inc.
CONTENTS
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<TABLE>
<CAPTION>
Page
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Condensed Balance Sheets as of
September 30, 1999 (unaudited) and March 31, 1999 3
Consolidated Condensed Statements of Operations
for the three and six months ended September 30, 1999
and 1998 (unaudited) 4
Consolidated Condensed Statements of Cash Flows
for the six months ended September 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Unaudited Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 14
Item 4 Submission of Matters to a Vote of Security Holders 15
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signature 18
</TABLE>
2
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
SourcingLink.net, Inc.
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, March 31,
ASSETS 1999 1999
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Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 7,259,463 $ 1,266,880
Accounts receivable, net 191,008 222,769
Other current assets 166,375 7,111
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Total current assets 7,616,846 1,496,760
Property and equipment, net 197,513 185,286
Other non-current assets 81,642 12,839
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Total assets $ 7,896,001 $ 1,694,885
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LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 1,058,066 $ 707,121
Deferred revenue and other 115,911 42,437
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Total current liabilities 1,173,977 749,558
STOCKHOLDERS' EQUITY
Series A convertible preferred stock 3,233 3,816
Common stock 7,051 5,631
Additional paid-in capital 22,687,133 15,315,395
Common stock note receivable (40,000) (40,000)
Accumulated deficit (16,016,394) (14,420,409)
Cumulative foreign currency translation adjustments 81,001 80,894
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Total stockholders' equity 6,722,024 945,327
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Total liabilities and stockholders' equity $ 7,896,001 $ 1,694,885
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
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SourcingLink.net, Inc.
Consolidated Condensed Statements Of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Six months ended September 30,
------------------------------- -------------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenue:
Network $ 197,938 $ 149,146 $ 402,565 $ 291,367
Consulting 89,749 98,144 154,498 203,144
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287,687 247,290 557,063 494,511
Cost of revenue:
Network 80,681 61,172 164,032 119,630
Consulting 64,749 98,144 129,498 203,144
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145,430 159,316 293,530 322,774
Gross profit 142,257 87,974 263,533 171,737
Operating expenses:
Selling, general and
administrative 824,300 400,728 1,436,989 1,265,596
Product development 286,923 144,619 484,848 270,188
--------- --------- ---------- ----------
Total operating expenses 1,111,223 545,347 1,921,837 1,535,784
Operating loss (968,966) (457,373) (1,658,304) (1,364,047)
Other income (expense), net 2,592 82,678 (1,735) 103,391
Interest income 53,220 3,108 64,054 4,242
--------- --------- ---------- ----------
Net loss (913,154) (371,587) (1,595,985) (1,256,414)
Preferred dividend - - - (68,463)
--------- --------- ---------- ----------
Net loss attributed to common
stockholders $(913,154) $(371,587) $(1,595,985) $(1,324,877)
========= ========= ========== ==========
Net loss per share (basic and
diluted) $ (0.14) $ (0.08) $ (0.26) $ (0.28)
========= ========= ========== ==========
Weighted average number of shares
used in per share calculation
(basic and diluted) 6,482,378 4,752,840 6,101,628 4,672,803
========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
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SourcingLink.net, Inc.
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended September 30,
----------------------------------
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,595,985) $ (1,256,414)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 55,369 39,496
Unrealized exchange (gain) loss 1,209 (107,738)
Loss on disposal of fixed assets - 71,243
Expense related to stock options and warrants - 370,693
Changes in operating assets liabilities-net 232,158 103,891
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Net cash used in operating activities (1,307,249) (778,829)
Cash flows from investing activities:
Purchases of fixed assets (67,596) (143,370)
Proceeds from disposal of fixed assets - 4,413
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Net cash used in investing activities (67,596) (138,957)
Cash flows from financing activities:
Proceeds from issuance of common stock 7,309,076 846,159
Proceeds from exercise of stock options 63,500 -
Payments on capital leases (4,045) (4,874)
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Net cash provided by financing activities 7,368,531 841,285
Effect of exchange rate changes on cash (1,103) (13,622)
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Net increase (decrease) in cash and cash equivalents 5,992,583 (90,123)
Cash and cash equivalents, beginning of the period 1,266,880 475,145
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Cash and cash equivalents, end of the period $ 7,259,463 $ 385,022
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
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SourcingLink.net, Inc.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. Basis of presentation:
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On July 20, 1999, the stockholders of the Company approved a proposal to change
the Company's name from QCS.net Corporation to SourcingLink.net, Inc. The name
change became effective as of that date upon the Company's filing of its Amended
and Restated Certificate of Incorporation with the Delaware Secretary of State.
The interim consolidated condensed financial statements of SourcingLink.net,
Inc. ("SourcingLink" or the "Company") are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair presentation, in all material respects, of the
financial position and operating results of the Company for the interim periods.
The results of operations for the three and six months ended September 30, 1999
are not necessarily indicative of the results to be expected for the entire
fiscal year ending March 31, 2000. The year-end balance sheet data at March 31,
1999 was derived from the audited financial statements. All prior period share
and per share amounts have been restated to reflect the 1 for 4 reverse stock
split, which was effective August 25, 1999.
The consolidated financial statements include the accounts of SourcingLink.net,
Inc. and its wholly owned subsidiary. All significant intercompany transactions
and account balances have been eliminated in consolidation.
This financial information should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Form 10-KSB for
the fiscal period ended March 31, 1999.
Effective April 1, 1999, the Company changed its year end to March 31, from June
30. The corresponding comparative Statements of Operations and Cash Flows for
the six months ended September 30, 1998 have been presented accordingly.
2. Computation of net loss per share:
- ---------------------------------------
Net loss per share is presented on a basic and diluted basis. Basic earnings
per share is computed by dividing the income available to holders of Common
Stock by the weighted average number of shares of Common Stock outstanding for
the period. Diluted earnings per share are computed by giving effect to all
dilutive potential shares of Common Stock that were outstanding during the
period. For the Company, dilutive potential shares of Common Stock consist of
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and conversion of preferred stock for all periods.
Basic and diluted earnings per share are calculated as follows for the three and
six months ended September 30, 1999 and 1998 (unaudited):
<TABLE>
<CAPTION>
Three months ended September 30, Six months ended September 30,
---------------------------------------- ----------------------------------------
Basic and diluted: 1999 1998 1999 1998
----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Net loss attributed to
Common shareholders $ (913,154) $ (371,587) $ (1,595,985) $ (1,324,877)
================= ================== ================= ==================
Weighted average shares
outstanding for the
period 6,482,378 4,752,840 6,101,628 4,672,803
----------------- ------------------ ----------------- ------------------
Net loss per share $ (0.14) $ (0.08) $ (0.26) $ (0.28)
================= ================== ================= ==================
</TABLE>
All prior period share and per share amounts have been restated to reflect the 1
for 4 reverse stock split, which was effective August 25, 1999.
6
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At September 30, 1999, the Company had 944,250 options and 896,059 warrants
outstanding to purchase shares of Common Stock compared to 896,270 options and
844,660 warrants outstanding at March 31, 1999. These options and warrants were
not included in the computation of diluted earnings per share because their
inclusion would be anti-dilutive.
3. Reclassification:
- ----------------------
Certain prior period balances have been reclassified to conform to the current
period's presentation. These reclassifications did not affect the loss or total
stockholders' equity for the periods presented.
4. Comprehensive loss:
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Comprehensive loss for the three months ended September 30, 1999 and 1998 was
$919,111 and $461,917, respectively. For the six months ended September 30, 1999
and 1998 the comprehensive loss was $1,595,878 and $1,376,435, respectively. The
principal difference between comprehensive loss and net loss is the treatment of
cumulative foreign currency translation adjustments.
5. Issuance of Common Stock:
- -----------------------------
In August 1999, the Company completed a private placement of Common Stock,
primarily to institutional investors. The investment banking firm of Needham and
Co. acted as placement agent for the offering which totaled 1,258,000 Common
shares at a price of $6.40 per share, as adjusted for the August 25, 1999 1 for
4 reverse stock split. Gross proceeds were $8.1 million, and net proceeds, after
placement agent fees and other offering costs, were approximately $7.3 million.
The net proceeds of the offering are expected to be used primarily for general
working capital and corporate purposes, including product development and sales
and marketing of the Company's Internet solutions.
6. Recent pronouncements:
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In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company has
adopted SOP No. 98-1 as of the first quarter of fiscal year 2000. The adoption
of SOP No. 98-1 did not have a material impact on the Company's financial
statements.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements contained in this Report, including, without limitation,
statements containing the words "believes," "anticipates," "expects" and the
like, constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These factors include, but are not limited to,
the factors discussed under the caption "Risk Factors" below, and are discussed
in more detail in the Risk Factors section of the Company's Annual Report on
Form 10-KSB for the fiscal year ended March 31, 1999. Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to announce publicly the results of any revisions of the forward-looking
statements contained or incorporated by reference herein to reflect future
events or developments.
Overview
The Company has developed an Internet-based turnkey solution for business-to-
business eCommerce that enables retailers to organize, automate and
significantly reduce the cost of their merchandise sourcing activities by
connecting directly with their retail merchandise suppliers around the globe.
The Company's revenues are generated principally from network revenues
consisting of fees for access to and use of the Company's solutions. These fees
include initial registration fees, fixed monthly or annual subscription fees or
"pay-as-you-go" transactional fees.
7
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Effective April 1, 1999, the Company discontinued offering the pay-as-you-go
transactional fee option for new subscribers.
Historically, network revenues have been primarily from customer use of the
Company's private network desktop solution. In February 1999, the Company began
a rollout of its new Internet solution to selected merchandise suppliers of the
Company's retailer subscribers. While there continues to be revenue from the
desktop solution, the Company's focus is now centered on the broad Internet
solution, and current retailer customers are either adopting or have committed
to convert to the Internet solution.
The Company entered into a multi-faceted eCommerce agreement with IBM in the
third quarter of fiscal 1998, as an amendment to an earlier 1996 agreement under
which the Company became an active participant in IBM's e-commerce group. Under
the 1998 contract, referred to as the IBM Agreement or the Agreement in the
discussion below, IBM has been providing most of the sales and marketing effort,
worldwide help desk support and project management for the Company, as well as
the network and server infrastructure supporting the Company's solution.
Payments to IBM for these services have been based on a percentage of sales
under a revenue sharing provision of the Agreement. These payments to IBM
comprise the majority of cost of sales for network revenue.
The Company has assisted IBM with sales and marketing of the Company's solution,
and has billed IBM at cost for such services. These billings to IBM have been
recorded as consulting revenue. The Company's new strategy and intent is to
bring sales and project management in-house; therefore, the Company does not
expect to continue providing or billing these consulting services to IBM after
September 30, 1999.
Accounting for New IBM Agreements
Effective October 1, 1999, the Company entered into a new network services and
infrastructure agreement with IBM. In addition, the Company believes it has
nearly completed negotiations on a new agreement to define its on-going co-
marketing relationship with IBM. As mentioned above, the cost of these services
was historically based on revenue sharing, and was all included in cost of
revenue. Effective October 1, 1999, the Company expects that payments to IBM
will be accounted for as described below.
For the infrastructure agreement, which includes the housing of servers in IBM's
secure data management center, the Company will pay IBM under a combined fixed
and variable price structure, based upon the level of service. Payments for
these services will be accounted for as cost of revenue.
For the co-marketing agreement, which is anticipated to include service for the
active promotion of the Company's merchandise sourcing solution in the US, use
of the IBM logo and e-business mark on Company marketing material and our
website, and participation with IBM at its e-commerce trade show booths,
payments will be made on a revenue sharing basis and will be accounted for as
sales and marketing expense.
Accumulated Losses
From its inception in 1993 through September 30, 1999, the Company has generated
an accumulated deficit of $16.0 million. Since inception, the Company has
incurred substantial costs to develop its technology, to create, introduce and
enhance its sourcing solution, to establish marketing and distribution
relationships, to recruit and train a sales and marketing group and to build an
administrative organization. The Company's prospects must be considered in light
of its operating history, and the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new, unproved and rapidly evolving markets. The limited operating
history of the Company makes the prediction of future results of operations
difficult or impossible and, therefore, there can be no assurance that the
Company will grow or that it will be able to achieve or sustain profitability.
The Company's success depends to a significant degree upon the Company's ability
to raise additional capital, and continued contributions of key management,
engineering, sales and marketing, and finance personnel, certain of whom would
be difficult to replace. The loss of the services of any of the key personnel or
the inability to attract or retain qualified management and other personnel in
the future, or delays in hiring required personnel, could have a material
adverse effect on the Company's business, operating results or financial
condition. Also, the Company's success is highly dependent on its ability to
execute in a timely manner its new sales and marketing plan, of which no
assurance can be made.
8
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Change in Fiscal Year
In May 1999, the Company's Board of Directors approved a change in the Company's
fiscal year end from June 30 to March 31, commencing April 1, 1999. In the
comparison of the three and six-month periods ended September 30, 1999 and 1998,
the current fiscal year's periods represent the second quarter and first six
months of fiscal year 2000. The 1998 comparative three-month period is the first
quarter of old fiscal year 1999. The 1998 comparative six-month period is the
fourth quarter of old fiscal year 1998 plus the first quarter of old fiscal year
1999.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
Revenues
Total revenues for the three months ended September 30, 1999 increased $40,000,
or 16%, to $288,000 from $247,000 in the three months ended September 30, 1998.
This includes an increase in Network revenues of $49,000, or 33%, to $198,000
from $149,000, which was primarily attributable to revenue from the Company's
new Internet sourcing solution. The Company began rolling-out its Internet
solution in February 1999, and therefore was not receiving revenue from this
solution in the three-month period ended September 30, 1998. Consulting revenues
decreased $8,000, or 9%, to $90,000 for the three months ended September 30,
1999 from $98,000 for the same period one year ago. Consulting revenues are
derived primarily from the IBM Agreement, for sales, marketing and project
management assistance provided to IBM by the Company. This assistance to IBM has
been reduced in scope as compared to the prior year's three month period, and,
as mentioned above, the Company has reduced both its reliance on, and its
assistance to, IBM's sales and project management efforts. Under the new IBM
agreements discussed above, effective October 1, 1999 the Company will not
receive any further Consulting revenue from IBM. In addition to the IBM revenue
during the quarter, the Company also received Consulting revenue from one of its
retailer customers for custom modifications to the desktop solution. These fees
offset a portion of the decline, as compared to the prior year, in Consulting
revenue from IBM.
Total revenues for the six months ended September 30, 1999 increased $63,000, or
13%, to $557,000 from $495,000 in the six months ended September 30, 1998. The
six-month increase in Network revenues was $111,000, or 38%, to $403,000 from
$291,000 last year. As in the three-month period, this increase is primarily
attributable to the new Internet sourcing solution which the Company began
rolling-out in February 1999. Consulting revenues for the current year's six-
month period decreased $49,000, or 24%, to $154,000 from $203,000 for the six-
month period one year ago. This decrease is attributable to the reduction in
the assistance to IBM this year, as described above.
Sales of the Company's Internet solution generally require adoption by retailers
and then a roll-out to the retailer's merchandise suppliers which the Company
expects will result in lengthy sales and implementation cycles. Revenues from
the Internet solution in the current year are primarily from subscriptions among
the groups of suppliers that have been made available for roll-out by two of the
Company's current retailer customers.
Cost of Revenues
For the quarter ended September 30, 1999, the cost of Network revenues increased
$20,000, or 32%, to $81,000 from $61,000 in the quarter ended September 30,
1998. For the six months ended September 30, 1999, the cost of Network revenues
increased $44,000, or 37%, to $164,000 from $120,000 during the comparable six-
month period one year ago. The cost of Network revenues consists primarily of
revenue sharing payments under the IBM Agreement, and the increase in these
costs for both the three and six-month periods is largely due to the increase in
revenue.
The cost of Consulting revenue was $65,000 in the second quarter of this year,
compared to $98,000 in the quarter ended September 30, 1998. For the six-month
periods, the cost of Consulting revenue was $129,000 in the current year
compared to $203,000 in the six months ended September 30, 1998. Consulting
revenues from IBM, which comprise the majority of the total Consulting revenues
received, have a cost of the revenue equal to the revenues received. The
reduction in these costs for both the three and six-month periods is due to the
decrease in the Consulting activities with IBM, as previously described.
9
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Overall, gross profit in the current quarter increased $54,000 to $142,000, or
49% of revenues, from $88,000, or 36% of revenues, in the three months ended
September 30, 1998. For the six-month periods, overall gross profit increased
to $264,000, or 47% of revenues in the current year, from $172,000, or 35% of
revenues in the six months ended September 30, 1998. The increase in gross
profit as a percent of sales for both the three and six-month periods is largely
attributable to the reduction in consulting revenue, as the majority of such
revenue is billed at cost and there is no associated gross profit margin.
Under the new infrastructure agreement with IBM, effective October 1, 1999,
network and other infrastructure support costs will not be as closely tied to
revenue sharing, and will be relatively fixed over varying levels of activity;
accordingly, future fluctuations in revenue may have a greater impact on gross
profit margins than in prior periods.
Operating Expenses
Selling, General and Administrative Expenses. In the quarter ended September 30,
1999, the Company's selling, general and administrative expenses increased
$424,000, or 106%, to $824,000 from $401,000 in the quarter ended September 30,
1998. The Company has expanded its management team, and began hiring an internal
sales and project management staff during the second quarter of the current
year. The associated labor and travel costs, as well as costs related to
shareholder relations and directors and officers' insurance, comprise the
majority of the increase in selling, general and administrative expenses
compared to the same period in the prior year. For the six months ended
September 30, 1999, selling, general and administrative expenses increased
$171,000, or 14%, to $1.44 million from $1.27 million in the same six months of
the prior year. The increase in these costs for the six-month period is not as
great as the current quarter increase because of charges taken in the three
months ended June 30, 1998 with no similar charges this year. The charges taken
in the quarter ended June 30, 1998 related to the issuance of warrants, and to
legal and accounting fees associated with the closure of offices in France and
Hong Kong. Such costs more than offset the increased expenses associated with
the expanded management team in the first quarter of the current fiscal year.
Product Development Expenses. Product development expenses during the three
months ended September 30, 1999 increased by $142,000, or 98%, to $287,000 from
$145,000 in the three months ended September 30, 1998. For the six months,
product development expenses increased $215,000, or 79%, to $485,000 from
$270,000 for the same period last year. The increase in product development
expenses for both the three and six-month periods is primarily labor and support
costs associated with continued enhancement of the Company's Internet solution,
including new management and development personnel.
The Company expects that product development and selling, general and
administrative expenses will increase as it expands its operations, increases
its in-house sales and project management capabilities, and incurs additional
labor and other costs related to the enhancement and sales of its solutions.
Other Income (Expense), net and Interest Income
The principal component of other income (expense), net is the exchange gain or
loss on foreign currency translations with the Company's subsidiary in France.
Primarily as a result of these foreign currency translations, other income
(expense), net was income of $3,000 in the current year's second quarter
compared to income of $83,000 in the same period one year ago. For the six-month
periods, the current year result is an expense of $2,000 compared to income of
$103,000 in the prior year. Interest income increased to $53,000 in the current
year's second quarter from $3,000 in the quarter ended September 30, 1998. For
the six months ended September 30, 1999 and 1998, interest income was $64,000
from $4,000, respectively. During August 1999, the Company completed a private
placement of 1,258,000 shares of its Common Stock, primarily to a limited number
of institutional investors. Gross proceeds of the offering were $8.1 million,
and after placement agent fees and other offering costs, net proceeds of $7.3
million were received by the Company. The increases in interest income for the
three and six-month periods are primarily attributable to the increased cash
available for investment as a result of this private placement.
Income Taxes
The Company recorded net losses of $1.6 million and $1.3 million during the six
months ended September 30, 1999 and 1998, respectively. Accordingly, no
provision for income taxes was recorded in any of these periods. As of
10
<PAGE>
September 30, 1999, the Company had net operating loss carryforwards for United
States income tax purposes of approximately $9 million. These losses expire at
various dates between 2002 and 2020. As of September 30, 1999, the Company also
had net operating loss carryforwards for income tax purposes in France of
approximately $3.7 million which expire at various dates between 1999 and 2003.
A valuation allowance has been recorded for the tax benefit of the net operating
loss carryforwards and the deferred tax assets of the Company due to the fact
that, as of the present time, it is more likely than not that such assets will
not be realized.
Fluctuations in Quarterly Operating Results
Our quarterly operating results have varied significantly in the past and will
likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results could
fall below the expectations of securities analysts or investors in some future
quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our Common Stock.
Our quarterly operating results may vary depending on a number of factors,
including: demand for our solution and services; actions taken by our
competitors, including new product introductions and enhancements; delays or
reductions in spending for, or the implementation of, supply chain management
solutions by our potential customers as companies attempt to stabilize their
computer systems prior to January 1, 2000 in order to reduce the risk of
computer system problems associated with the year 2000; ability to scale our
network and operations infrastructure; ability to develop, introduce and market
new solutions and enhancements to our existing solution on a timely basis;
changes in our pricing policies or those of our competitors; ability to expand
our sales and marketing operations, including hiring additional sales personnel;
size and timing of sales of our solution and services; success in maintaining
and enhancing existing relationships and developing new relationships with
strategic partners; ability to control costs; technological changes in our
markets; deferrals of customer subscriptions in anticipation of new enhancements
or features of our solution; customer budget cycles and changes in these budget
cycles; and general economic factors.
We have increased our operating expenses substantially, and plan to continue to
do so, to expand our sales and marketing operations, fund greater levels of
product development, increase general and administrative support, develop new
partnerships, increase our professional services and support capabilities and
improve our operational and financial systems. If our revenues do not increase
along with these expenses, our business, operating results and financial
condition could be seriously harmed and net losses in a given quarter could be
even larger than expected. In addition, because our expense levels are
relatively fixed in the near term and are based in part on expectations of our
future revenues, any decline in our revenues to a level that is below our
expectations would have a disproportionately adverse impact on our operating
results.
Liquidity and Capital Resources
The Company's cash and cash equivalents at September 30, 1999 were $7.3 million,
an increase of $6.0 million from March 31, 1999. During August 1999, the Company
completed a private placement of its Common Stock through a placement agent to a
limited number of institutional investors. The offering included 1,258,000
Common shares and gross proceeds were $8.1 million. Net proceeds, after
placement agent fees and other offering costs, were $7.3 million, and are
expected to be used primarily for general working capital and corporate
purposes, including product development and the expansion of the sales,
marketing and management functions. Cash used in operating activities for the
six months ended September 30, 1999 was $1.3 million, compared to $779,000 for
the six months ended September 30, 1998. While the cash usage in each period was
primarily due to the net losses, approximately $540,000 less cash was used in
operations in the six-month period one year ago even though the net operating
loss was only $340,000 lower in that period. This is primarily due to non-cash
stock options and warrants expense in the six-month period ended September 30,
1998, with no similar no-cash expense in this year's six-month period. The
Company plans to continue investing in product development and sales and
marketing of its Internet sourcing solution, and use of cash to fund such
activities is expected to continue at or above current levels for the
foreseeable future.
The Company believes that its current working capital will be sufficient to meet
its working capital requirements for the next 15 months. The Company plans to
actively seek additional equity investment to fund operations beyond that
11
<PAGE>
period. If such efforts are unsuccessful, the Company will need to reduce
operating spending significantly, which would materially and adversely affect
the Company's business.
Subsequent to the end of the second quarter, the Company moved its headquarters
and operations from Mountain View, California to San Diego, California. The
majority of the employees located in Mountain View also relocated to San Diego.
There was no significant impact on operations or cash flow from the move.
The Company currently does not have a bank credit line. The Company does not
intend to pay cash dividends with respect to capital stock in the foreseeable
future.
Recent Pronouncements
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company has
adopted SOP No. 98-1 as of the first quarter of fiscal year 2000. The adoption
of SOP No. 98-1 did not have a material impact on the Company's financial
statements.
Year 2000 Compliance
The "Year 2000" issue is the result of computer programs being written using two
digits rather than four to define the applicable year. As such, computer
programs that have date sensitive software might recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in program failure or
miscalculation causing disruptions of operations including, among other things,
a temporary inability to process transactions, send invoices, operate equipment
or engage in similar normal business activities.
The Company has reviewed its internal computer systems, its Internet solution
and its desktop software solution that could be affected by the "Year 2000"
issue. The Company's Internet solution is "Year 2000" compliant. Within its
internal computer systems and its desktop software solution the Company
identified some systems and software applications that would be affected. The
Company presently believes that "Year 2000" issues relating to internal computer
systems and the desktop software solution have been resolved, and therefore will
not cause significant operational or customer problems. However, if the
modifications and conversions that have been made are not adequate, "Year 2000"
related problems could have a material adverse effect on the business, financial
condition and results of operations of the Company.
The Company began initiating formal communications with its significant
suppliers and large customers in fiscal 1999 to determine the extent to which
the Company is vulnerable to those third parties' failure to remediate their own
"Year 2000" issues. However, there can be no guarantee that the systems of
other companies on which the Company directly or indirectly relies will be
timely converted, or that a failure to convert by another company or a
conversion that is incompatible with the Company's systems will not have a
material adverse impact on the Company.
RISK FACTORS
- ------------
We have a history of losses and expect to incur losses in the future.
We incurred net losses of $1.5 million in fiscal 1999 and $1.6 million in the
first six months of fiscal 2000. As of September 30, 1999, we had an accumulated
deficit of approximately $16.0 million. We expect to derive substantially all of
our revenues for the foreseeable future from subscription fees of our Internet
sourcing solution, which is based on an unproven business model. Although these
revenues have grown in the most recent quarter, we may not be able to sustain
this growth in the future. In fact, we may not have any revenue growth, and our
revenues could decline. Moreover, we expect to incur significant sales and
marketing, product development, and general and administrative expenses. As a
result, we expect to incur significant losses for the foreseeable future.
The Company believes that its current working capital will be sufficient to meet
its working capital requirements for the next 15 months. The Company plans to
actively seek additional equity investment to fund operations beyond that
period. If such efforts are unsuccessful, the Company will need to reduce
operating spending significantly, which would materially and adversely affect
the Company's business.
12
<PAGE>
We expect to depend on our Internet solution for substantially all of our
revenues for the foreseeable future.
Our solution and related services account for substantially all of our revenues.
We anticipate that revenues from our solution and related services will continue
to constitute substantially all of our revenues for the foreseeable future.
Consequently, a decline in the price of, or demand for, our solution, or its
failure to achieve broad market acceptance, would seriously harm our business.
Implementation of our solutions by large retailers is complex, time consuming
and expensive. We frequently experience long sales and implementation cycles.
Our supply chain management solution is an enterprise-wide solution that must be
deployed with many users within a large retailer's sourcing organization. Its
adoption by large retailers is characterized by long sales cycles beginning with
pilot studies and concluding with retailers strongly encouraging their
merchandise suppliers to subscribe to our solution. In many cases, our customers
must change established business practices and conduct business in new ways. In
addition, they must generally consider a wide range of other issues before
committing to purchase our product, including product benefits, integration,
interoperability with existing computer systems, scalability, functionality and
reliability. As a result, we must educate potential customers on the use and
benefits of our solution. It frequently takes several months to finalize a sale
and the sale must often be approved by a number of management levels within the
customer organization. The implementation of our solution requires a commitment
of resources by our customers and third-party and our professional services
organizations. Delay of these commitments may adversely affect our financial
results of any particular quarter.
We currently depend on IBM for marketing of our solution and for the management
and security of our network infrastructure.
We have a marketing alliance with IBM, and are currently dependent on IBM for a
significant portion of our marketing activities. Therefore, IBM's decisions and
performance with respect to these matters have a material impact on our ability
to market our solution. While our current plans call for us to take over a
substantial portion of our sales and marketing activities, we may not be able to
do so effectively. Our agreement with IBM will permit IBM to discontinue
marketing our solution upon specified notice. A decision by IBM to cease or
reduce substantially its marketing efforts would have an immediate and material
adverse effect on our financial condition and results of operations.
In addition, we depend on IBM Global Network, or IGN, for certain services
relating to our infrastructure, including maintenance of communications lines
and management of network data centers. IGN may terminate its performance of
these services for us at any time on 90 days notice to us. If IGN were to
terminate these services, we would have to obtain them from another service
provider or perform them ourselves. There can be no assurance that we would be
able to obtain or perform these services on a timely or cost-effective basis. If
we were able to obtain such services from a third party, we would be entirely
dependent on them to manage and maintain our network infrastructure and to
provide security for it.
We depend on our key personnel.
Our future performance depends on the continued service of our senior
management, product development and sales personnel. The loss of the services of
one or more of our key personnel could seriously harm our business. Our future
success also depends on our continuing ability to attract, hire, train and
retain a substantial number of highly skilled managerial, technical, sales,
marketing and customer support personnel. We are particularly dependent on
hiring additional personnel to increase our direct sales and product development
organizations. In addition, new hires frequently require extensive training
before they achieve desired levels of productivity. Competition for qualified
personnel is intense, and we may fail to retain our key employees or to attract
or retain other highly qualified personnel.
13
<PAGE>
We depend on increasing use of the Internet and on the growth of eCommerce. If
the use of the Internet and eCommerce do not grow as anticipated, our business
will be seriously harmed.
Our success depends on the increased acceptance and use of the Internet as a
medium of commerce on a global basis. Rapid growth in the use of the Internet is
a recent phenomenon. As a result, acceptance and use may not continue to develop
at historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products.
Our business would be seriously harmed if:
. Use of the Internet, the web and other online services does not
continue to increase or increases more slowly than expected;
. The infrastructure for the Internet, the web and other online services
does not effectively support expansion that may occur; or
. The Internet, the web and other online services do not create a viable
commercial marketplace, inhibiting the development of eCommerce and
reducing the need for our solution.
The market for our solution is at an early stage. We need a critical mass of
retailers and their merchandise suppliers to implement and use our solution.
The market for Internet-based supply chain management solutions and services is
at an early stage of development. Our success depends on a significant number of
large retailers implementing our solution and requiring their merchandise
suppliers to subscribe to our solution. The implementation of our solution by
major retailers and their merchandise suppliers is controlled by multiple
parties in the retail organization. In many cases, these organizations must
change established business practices and conduct business in new ways. Our
ability to attract additional customers for our solution will depend on
leveraging our existing customers as reference accounts. Our solution may not
achieve significant market acceptance. Unless a critical mass of retailers and
their merchandise suppliers implement our solution, our solution may not achieve
widespread market acceptance and our business would be seriously harmed.
We face intense competition. If we are unable to compete successfully, our
business will be seriously harmed.
The market for business-to-business eCommerce solutions in general, and supply
chain management solutions in particular, is extremely competitive, evolving and
characterized by continuous rapid development of technology. Competition to
capture business users is intense and is expected to increase dramatically in
the future, which will likely result in price reductions, reduced profit margins
and a decrease in our market share, which could have a serious adverse impact on
our business.
Indirect competitors are traditional Value Added Network, or VAN, solution
providers that have extended their VAN connections over the Internet and new
Internet companies that are focused on trading exchanges that allow merchandise
buyers and sellers to access each other on channels within existing portals. One
or more of these companies may develop and add preorder merchandise sourcing
capabilities to their existing product offerings, giving them a more
comprehensive solution than our solution, which could adversely affect our
business. We expect that additional established and emerging companies will seek
to enter our market as it continues to develop and expand. We may not be able to
compete successfully against future competitors, especially those with
significantly greater financial, marketing, service, support, technical and
other resources.
Additional risk factors are discussed in more detail in the risk factor section
of the Company's Annual Report on Form 10-KSB for the fiscal year ended March
31, 1999.
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds
On August 9, 1999 the Company issued 1,257,970 shares of Common Stock in a
private placement to certain existing and new stockholders of the Company at a
price of $6.40 per share (as adjusted for the August 25, 1999 1 for 4 reverse
stock split). Net proceeds to the Company, after placement agent fees and other
offering costs, were approximately
14
<PAGE>
$7.3 million. This private placement transaction was effected in reliance upon
the exemption from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act"), as contained in Section 4(2) of the
Securities Act on the basis that such transaction did not involve a public
offering.
On August 10, 1999, the Company issued 24,272 (post split) shares of Common
Stock in exchange for 97,088 of Series A preferred shares at the election of the
series A shareholder. These preferred shares were converted to Common Stock
under the terms and conditions of the November 22, 1994 Series A Convertible
Preferred Stock Purchase Agreement. This private placement transaction was
effected in reliance upon the exemption from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), as contained in
Section 4(2) of the Securities Act on the basis that such transaction did not
involve a public offering.
On August 25, 1999 the Company executed a 1 for 4 reverse split of its Common
Stock.
Item 4 Submission of Matters to a Vote of Security Holders
The Company held a Meeting of Stockholders on July 20, 1999, at which time the
following matters were submitted to a vote of the Company's stockholders:
Proposal 1: The election of the following persons as directors to serve until
the next succeeding Meeting of Stockholders and until their respective
successors have been elected and qualified, or until their earlier resignation
or removal:
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C> <C>
Marcel van Heesewijk 22,541,661 -0- 34,300
Sean M. Maloy 22,541,661 -0- 34,300
Mattheus Wegbrans 16,551,940 5,989,061 34,300
Johan A. Vunderink 22,541,661 -0- 34,300
Louis A. Delmonico 22,541,661 -0- 34,300
Proposal 2: To ratify the adoption of the 1999 Stock Incentive Plan.
Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C>
17,606,880 59,175 2,116,800
Proposal 3: To ratify the adoption of the Employee Stock Purchase Plan.
Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C>
17,638,380 31,675 2,114,800
</TABLE>
Proposal 4(a): To approve the filing of an Amended and Restated Certificate of
Incorporation to change the Company's name to SourcingLink.net, Inc.
<TABLE>
<CAPTION> Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C>
20,375,101 86,280 2,114,600
</TABLE>
15
<PAGE>
Proposal 4(b): To approve the filing of an Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of common stock to
60,000,000.
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C>
20,413,651 45,550 2,116,100
</TABLE>
Proposal 4(c): To approve the filing of an Amended and Restated Certificate of
Incorporation to authorize 10,000,000 shares of blank check
preferred stock.
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C> <C>
17,632,370 35,505 2,114,300
</TABLE>
Proposal 4(d): To approve the filing of an Amended and Restated Certificate of
Incorporation for other technical and clarifying amendments.
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C>
20,438,251 15,850 2,121,180
</TABLE>
Proposal 5: To approve the filing of an amendment to the Company's
Certificate of Incorporation to effect a 1 for 4 reverse stock split.
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C>
19,669,930 2,902,551 2,700
</TABLE>
Proposal 6: To approve and ratify the appointment of PricewaterhouseCoopers
LLP as independent auditors of the Company for the fiscal year ending March 31,
2000.
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------------------------------
For Against Withheld
------------------ ----------------- ------------------
<S> <C> <C>
20,434,501 26,600 2,114,780
</TABLE>
Item 5 Other Information
Effective October 15, 1999, the Company moved its operations and corporate
headquarters to San Diego, California. Its new address is 16855 West Bernardo
Drive, Suite 260, San Diego, California 92127 (telephone 858-385-8900).
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Company, as
filed July 20, 1999 (incorporated by reference to Exhibit C to the Company's
definitive proxy materials filed with the Commission on June 17, 1999 - the
"1999 Proxy Statement").
10.1 1999 Stock Option Plan (incorporated by reference to Exhibit A to the
1999 Proxy Statement).
10.2 Employee Stock Purchase Agreement (incorporated by reference to Exhibit
B to the 1999 Proxy Statement).
16
<PAGE>
10.3 Form of Common Stock Purchase Agreement (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-3, File Number
333-87051) between the Company and each of the Investors in the Company's 1999
Private Placement of Common Stock
10.4 Bernardo Executive center Gross Office Lease dated August 25, 1999
between the Company and Bernardo Three Flags, Inc.
10.5 Employment Agreement dated April 30, 1999 between the Company and Gary
Davidson.
27.1 Financial Data Schedule
b. Reports on Form 8-K
On July 30, 1999, the Company filed a Current Report on Form 8-K reporting that
it had changed its corporate name to SourcingLink.net, Inc. and had changed its
trading symbol on the OTC Bulletin Board to SNET.
17
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 15, 1999 SourcingLink.net, Inc.
By: /s/ Gary Davidson
-----------------
Gary Davidson,
Vice President Finance and Administration,
Chief Financial Officer
18
<PAGE>
EXHIBIT 10.4
BERNARDO EXECUTIVE CENTER
GROSS OFFICE LEASE
BERNARDO THREE FLAGS, INC.
A DELAWARE CORPORATION
Landlord
AND
SOURCINGLINK.NET,INC.
A DELAWARE CORPORATION
Tenant
August 25, 1999
<PAGE>
GROSS OFFICE LEASE
REFERENCE PAGE
<TABLE>
<CAPTION>
<S> <C>
BUILDING: Benardo Executive Center
LANDLORD: Bernardo/Three Flags, Inc.
a Delaware Corporation
c/o The Rreef Funds
LANDLORD'S ADDRESS:: 16835 W. Bernardo Drive, Suite 203, San Diego, CA 92127
LEASE REFERENCE DATE: August 25, 1999
TENANT: SourcingLink.net, Inc., a Delaware Corporation
TENANT'S ADDRESS:
(a) As of beginning of Term: 16855 West Bernardo Drive, Suite 205, San Diego, CA 92127
(b) Prior to beginning of Term: 16855 West Bernardo Drive, Suite 205, San Diego, CA 92127
PREMISES IDENTIFICATION: Suite Number: 260/
(For outline of premises, See Exhibit B)
USE & PREMISES RENTABLE AREA: General office use as allowed under existing zoning,
consisting of approximately 8,452 rentable square feet.
SCHEDULED COMMENCEMENT DATE: Upon completion of tenant improvements, anticipated to be
October 15, 1999, or sooner.
TERMINATION DATE: October 14, 2002.
TERM OF LEASE: Three (3) years, beginning on the Commencement Date and
ending on the Termination Date.
INITIAL ANNUAL RENT (Article 3): $187,634.40 plus electricity.
INITIAL MONTHLY INSTALLMENT OF ANNUAL $15,636.20 plus electricity/
RENT (Article 3):
BASE YEAR (DIRECT EXPENSES INSURANCE AND Calendar Year: 2000
ESCLATIONS):
BASE YEAR (TAXES): Calendar Year: 2000
TENANT'S PROPORTIONATE SHARE: 4.96%
SECURITY DEPOSIT: $46,908.60
ASSIGNMENT/SUBLETTING FEE: $1,000.00
REAL ESTATE BROKER DUE CB Richard Ellis, Inc.
</TABLE>
<PAGE>
COMMISSION:
The Reference Page information is incorporated into and made a part of the
Lease. In the event of any conflict between any Reference Page information and
the Lease, the Lease shall control. This Lease includes Exhibits A through E,
all of which are made a part of this Lease.
LANDLORD TENANT:
BERNARDO/THREE FLAGS, INC., SourcingLink.net, Inc.
a Delaware Corporation a Delaware Corporation
By: By:
------------------------------ ------------------------------
Jill E. Shanahan Sean M. Maloy
Title: Vice President Title: CEO and President
Dated: Dated:
-------------------------- --------------------------
3
<PAGE>
LEASE
By this Lease Landlord leases to Tenant and Tenant leases from Landlord thc
Premises in the Building as set forth and described on thc Reference Page. The
Reference Page, including all terms defined thereon, is incorporated as part of
this Lease.
1. USE AND RESTRICTIONS ON USE.
1.1 The Premises are to be used solely for general office purposes. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other tenants or occupants
of the Building or injure, annoy, or disturb them or allow the Premises to be
used for any improper, unmoral, unlawful, or objectionable purpose. Tenant shall
not do, permit or suffer in, on, or about the Premises the sale of any alcoholic
Liquor without the written consent of Landlord first obtained, or the commission
of any waste. Tenant shall comply with all governmental laws, ordinances and
regulations applicable to the use of the Premises and its occupancy and shall
promptly comply with all governmental orders and directions for the correction,
prevention and abatement of any violations in or upon, or in connection with,
the Premises, all at Tenant's sole expense. Tenant shall not do or permit
anything to be done on or about the Premises or bring or keep anything into the
Premises which will in any way increase the rate of, invalidate or prevent the
procuring of any insurance protecting against loss or damage to the Building or
any of its contents by fire or other casualty or against liability for damage to
property or injury to persons in or about the Building or any part thereof.
1.2 Tenant shall not, and shall not direct, suffer or permit any of its
agents, contractors, employees, licensees or invitees to at any time handle,
use, manufacture, store or dispose of in or about the Premises or the Building
any (collectively "Hazardous Materials") flammables, explosives, radioactive
materials, hazardous wastes or materials, toxic wastes or materials, or other
similar substances, petroleum products or derivatives or any substance subject
to regulation by or under any federal, state and local laws and ordinances
relating to the protection of the environment or the keeping, use or disposition
of environmentally hazardous materials, substances, or wastes, presently in
effect or hereafter adopted, all amendments to any of them, and all rules and
regulations issued pursuant to any of such laws or ordinances (collectively
"Environmental Laws") nor shall Tenant suffer or permit any Hazardous Materials
to be used in any manner not fully in compliance with all Environmental Laws, in
the Premises or the Building and appurtenant land or allow the environment to
become contaminated with any Hazardous Materials. Notwithstanding the foregoing,
and subject to Landlord's prior consent, Tenant may handle, store, use or
dispose of products containing small quantities of Hazardous Materials (such as
aerosol cans containing insecticides, toner for copiers, paints, paint remover
and the like) to the extent customary and necessary for the use of the Premises
for general office purposes; provided that Tenant shall always handle, store,
use, and dispose of any such Hazardous Materials in a safe and lawful manner and
never allow such Hazardous Materials to contaminate the Premises, Building and
appurtenant land or the environment. Tenant shall protect, defend, indemnify and
hold each and all of the Landlord Entities (as defined in Article 30) harmless
from and against any and all loss, claims, liability or costs (including court
costs and attorney's fees) incurred by reason of any actual or asserted failure
of Tenant to fully comply with all applicable Environmental Laws, or the
presence, handling, use or disposition in or from the Premises of any Hazardous
Materials by Tenant (even though permissible under all applicable Environmental
Laws or the provisions of this Lease), or by reason of any actual or asserted
failure of Tenant to keep, observe, or perform any provision of this Section
1.2.
2. TERM.
2.1 The Term of this Lease shall begin on the date ("Commencement Date")
which shall be the later of the Scheduled Commencement Date as shown on the
Reference Page and the date that Landlord shall tender possession of the
Premises to Tenant. Landlord shall tender possession of the Premises with all
the work, if any, to be performed by Landlord pursuant to Exhibit B to this
Lease substantially completed. Tenant shall deliver a punch list of items not
completed within 30 days after Landlord tenders possession of the Premises and
Landlord agrees to proceed with due diligence to perform its obligations
regarding such items. Landlord and Tenant shall execute a memorandum setting
forth the actual Commencement Date and Termination Date.
2.2 Tenant agrees that in the event of the inability of Landlord to deliver
possession of the Premises on the Scheduled Commencement Date, Landlord shall
not be liable for any damage resulting from such inability, but Tenant shall not
be liable for any rent or utilities until the time when Landlord can, after
notice to Tenant, deliver possession of the Premises to Tenant No such failure
to give possession on the Scheduled Commencement Date shall affect the other
obligations of Tenant under
1
<PAGE>
this Lease, except that if Landlord is unable to deliver possession of the
Premises within sixty (6O) days of the Scheduled Commencement Date. Tenant
shall have the option to terminate this Lease unless said delay is as a result
of: (a) Tenant's failure to agree to plans and specifications; (b) Tenant's
request for materials, finishes or installations other than Landlord's standard
except those, if any, that Landlord shall have expressly agreed to furnish
without extension of time agreed by Landlord; (c) Tenant's change in any plans
or specifications; or, (d) performance or completion by a party employed by
Tenant. If any delay is the result of any of the foregoing, the Commencement
Date and the payment of rent under this Lease shall be accelerated by the number
of days of such delay.
2.3 In the event Landlord shall permit Tenant to occupy the Premises
prior to the Commencement Date, such occupancy shall be subject to all the
provisions of this Lease. Said early possession shall not advance the
Termination Date.
3. RENT.
3.1 Tenant agrees to pay to Landlord the Annual Rent in effect from time
to time by paying the Monthly Installment of Rent then in effect on or before
the first day of each full calendar month during the Term, except that the first
month's rent shall be paid upon the execution of this Lease. The Monthly
Installment of Rent in effect at any time shall be one-twelfth of the Annual
Rent in effect at such time. Rent for any period during the Term which is less
than a full month shall be a prorated portion of the Monthly Installment of Rent
based upon a thirty (30) day month. Said rent shall be paid to Landlord, without
deduction or offset and without notice or demand, at the Landlord's address, as
set forth on the Reference Page, or to such other person or at such other place
as Landlord may from time to time designate in writing.
3.2 Tenant recognizes that late payment of any rent or other sum due
under this Lease win result in administrative expense to Landlord, the extent of
which additional expense is extremely difficult and economically impractical to
ascertain. Tenant therefore agrees that if rent or any other sum is not paid
when due and payable pursuant to this Lease, a late charge may be imposed in an
amount equal to the greater of: (a) Fifty Dollars ($50.00), or (b) a sum equal
to three percent (3%) per month of the unpaid rent or other payment. The amount
of the late charge to be paid by Tenant shall be reassessed and added to
Tenant's obligation for each successive monthly period until paid. The
provisions of this Section 3.2 in no way relieve Tenant of the obligation to pay
rent or other payments on or before the date on which they are due, nor do the
terms of this Section 3.2 in any way affect Landlord's remedies pursuant to
Article 19 of this Lease in the event said rent or other payment is unpaid after
date due.
4. RENT ADJUSTMENTS.
4.1 For the purpose of this Article 4, the following terms are defined as
follows:
4.1.1 Lease Year: Each calendar year falling partly or wholly within
the Term.
4.1.2 Direct Expenses: All direct costs of operation, maintenance,
repair and management of the Building (including the amount of any credits which
Landlord may grant to particular tenants of the Building in lieu of providing
any standard services or paying any standard costs described in this Section
4.1.2 for similar tenants), as determined in accordance with generally accepted
accounting principles, including the following costs by way of Illustration, but
not limitation: water and sewer charges; insurance charges of or relating to all
insurance policies and endorsements deemed by Landlord to be reasonably
necessary or desirable and relating in any manner to the protection,
preservation, or operation of the Building or any part thereof; utility costs,
including, but not limited to, the cost of heat, light, power, steam, gas, and
waste disposal; the cost of janitorial services; the cost of security and alarm
services; window cleaning costs; labor costs; costs and expenses of managing the
Building including management fees; air conditioning maintenance costs; elevator
maintenance fees and supplies; material costs; equipment costs including the
cost of maintenance, repair and service agreements and rental and leasing costs;
purchase costs of equipment other than capital items; current rental and leasing
costs of items which would be amortizable capital items if purchased; tool
costs; licenses, permits and inspection fees; wages and salaries; employee
benefits and payroll taxes; accounting and legal fees; any sales, use or service
taxes incurred in connection therewith. Direct Expenses shall not include
depreciation or amortization of the Building or equipment in the Building except
as provided herein, loan principal payments, costs of alterations of tenants'
premises, leasing commissions, interest expenses on long-term borrowings,
advertising costs or management salaries for executive personnel other than
personnel located at the Building. In addition, Landlord shall be entitled to
amortize and include as an additional rental adjustment: (i) an
2
<PAGE>
allocable portion of the cost of capital improvement items which are reasonably
calculated to reduce operating expenses; (ii) fire sprinklers and suppression
systems and other life safety systems; and (iii) other capital expenses which
are required under any governmental laws, regulations or ordinances which were
not applicable to the Building at the time it was constructed. All such costs
shall be amortized over the reasonable life of such improvements in accordance
with such reasonable Life and amortization schedules as shall be determined by
Landlord in accordance with generally accepted accounting principles, with
interest on the unamortized amount at one percent (1%) in excess of the prime
lending rate announced from time to time as such by The Northern Trust Company
of Chicago, Illinois.
4.1.3 Taxes: Real estate taxes and any other taxes, charges and
assessments which are levied with respect to the Building or the land
appurtenant to the Building, or with respect to any improvements, fixtures and
equipment or other property of Landlord, real or personal, located in the
Building and used in connection with the operation of the Building and said
land, any payments to any ground lessor in reimbursement of tax payments made by
such lessor, and all fees, expenses and costs incurred by Landlord in
investigating, protesting, contesting or in any way seeking to reduce or avoid
increase in any assessments, levies or the tax rate pertaining to any Taxes to
be paid by Landlord in any Lease Year. Taxes shall not include any corporate
franchise, or estate, inheritance or net income tax, or tax imposed upon any
transfer by Landlord of its interest in this Lease or the Building.
4.2 If in any Lease Year, (i) Direct Expenses paid or incurred shall exceed
Direct Expenses paid or incurred in the Base Year (Direct Expenses) and or (ii)
Taxes paid or incurred by Landlord in any Lease Year shall exceed the amount of
such Taxes which became due and payable in the Base Year (Taxes), Tenant shall
pay as additional rent for such Lease Year Tenant's Proportionate Share of such
excess.
4.3 The annual determination of Direct Expenses shall be made by Landlord
and if certified by a nationally recognized firm of public accountants selected
by Landlord shall be binding upon Landlord and Tenant. Tenant may review the
books and records supporting such determination in the office of Landlord, or
Landlord's agent, during normal business hours, upon giving Landlord five (5)
days advance written notice within sixty (60) days after receipt of such
determination, but in no event more often than once in any one year period. In
the event that during all or any portion of any Lease Year, the Building is not
fully rented and occupied Landlord may make any appropriate adjustment in
occupancy-related Direct Expenses for such year for the purpose of avoiding
distortion of the amount of such Direct Expenses to be attributed to Tenant by
reason of variation in total occupancy of the Building by employing sound
accounting and management principles to determine Direct Expenses that would
have been paid or incurred by Landlord had the Building been fully rented and
occupied, and the amount so determined shall be deemed to have been Direct
Expenses for such Lease Year.
4.4 Prior to the actual determination thereof for a Lease Year, Landlord
may from time to time estimate Tenant's liability for Direct Expenses and/or
Taxes under Section 4.2. Article 6 and Article 29 for the Lease Year or portion
thereof. Landlord will give Tenant written notification of the amount of such
estimate and Tenant agrees that it will pay, by increase of its Monthly
Installments of Rent due in such Lease Year, additional rent in the amount of
such estimate. Any such increased rate of Monthly Installments of Rent pursuant
to this Section 4.4 shall remain in effect until further written notification to
Tenant pursuant hereto.
4.5 When the above mentioned actual determination of Tenant's liability for
Direct Expenses and/or Taxes is made for any Lease Year and when Tenant is so
notified in writing, then:
4.5.1 If the total additional rent Tenant actually paid pursuant to
Section 4.3 on account of Direct Expenses and/or Taxes for the Lease Year is
less than Tenant's liability for Direct Expenses and/or Taxes, then Tenant shall
pay such deficiency to Landlord as additional rent in one lump sum within thirty
(30) days of receipt of Landlord's bill therefor; and
4.5.2 If the total additional rent Tenant actually paid pursuant to
Section 4.3 on account of Direct Expenses and/or Taxes for the Lease Year is
more than Tenant's liability for Direct Expenses and/or Taxes, then Landlord
shall credit the difference against the then next due payments to be made by
Tenant under this Article 4. Tenant shall not be entitled to an credit by reason
of actual Direct Expenses and/or Taxes in any Lease Year being less than Direct
Expenses and/or Taxes in the Base Year (Direct Expenses and/or Taxes).
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4.6 If the Commencement Date is other than January 1 or if the Termination
Date is other than December 31, Tenant's liability for Direct Expenses and Taxes
for the Lease Year in which said Date occurs shall be prorated based upon a
three hundred sixty-five (365) day year.
5. SECURITY DEPOSIT.
Tenant shall deposit the Security Deposit with Landlord upon the execution of
this Lease. Said sum shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants and conditions of this Lease
to be kept and performed by Tenant and not as an advance rental deposit or as a
measure of Landlord's damage in case of Tenant's default. If Tenant defaults
with respect to any provision of this Lease, Landlord may use any part of the
Security Deposit for the payment of any rent or any other sum in default, or for
the payment of any amount which Landlord may spend or become obligated to spend
by reason of Tenant's default, or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
is so used, Tenant shall within five (5) days after written demand therefor,
deposit with Landlord an amount sufficient to restore the Security Deposit to
its original amount and Tenant's failure to do so shall be a material breach of
this Lease. Except to such extent, if any, as shall be required by law, Landlord
shall not be required to keep the Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such deposit. If Tenant
shall fully and faithfully perform every provision of this Lease to be performed
by it, the Security Deposit or any balance thereof shall be returned to Tenant
at such time after termination of this Lease when Landlord shall have determined
that all of Tenant's obligations under this Lease have been fulfilled.
6. ALTERATIONS.
6.1 Except for those, if any, specifically provided for in Exhibit B to
this Lease, Tenant shall not make or suffer to be made any alterations,
additions, or improvements, including, but not limited to, the attachment of any
fixtures or equipment in, on, or to the Premises or any part thereof or the
making of any improvements as required by Article 7, without the prior written
consent of Landlord. When applying for such consent, Tenant shall, if requested
by Landlord, furnish complete plans and specifications for such alterations,
additions and improvements.
6.2 In the event Landlord consents to the making of any such alteration,
addition or improvement by Tenant, the same shall be made using Landlord's
contractor (unless Landlord agrees otherwise) at Tenant's sole cost and expense.
If Tenant shall employ any Contractor other than Landlord's Contractor and such
other Contractor or any Subcontractor of such other Contractor shall employ any
non-union labor or supplier, Tenant shall be responsible for and bold Landlord
harmless from any and all delays, damages and extra costs suffered by Landlord
as a result of any dispute with any labor unions concerning the wage, hours,
terms or conditions of the employment of any such labor. In any event Landlord
may charge Tenant a reasonable charge to cover its overhead as it relates to
such proposed work.
6.3 All alterations, additions or improvements proposed by Tenant shall be
constructed in accordance with all government laws, ordinances, rules and
regulations and Tenant shall, prior to construction, provide the additional
insurance required under Article 11 in such case, and also all such assurances
to Landlord, including but not limited to, waivers of lien, surety company
performance bonds and personal guaranties of individuals of substance as
Landlord shall require to assure payment of the costs thereof and to protect
Landlord and the Building and appurtenant land against any loss from any
mechanic's, materialmen's or other liens. Tenant shall pay in addition to any
sums due pursuant to Article 4, any increase in real estate taxes attributable
to any such alteration, addition or improvement for so long, during the Term, as
such increase is ascertainable; at Landlord's, election said sums shall be paid
in the same way as sums due under Article 4.
6.4 All alterations, additions, and improvements in, on, or to the Premises
made or installed by Tenant, including carpeting, shall be and remain the
property of Tenant during the Term but, excepting furniture, furnishings,
movable partitions of less than full height from floor to ceiling and other
trade fixtures, shall become a part of the realty and belong to Landlord without
compensation to Tenant upon the expiration or sooner termination of the Term, at
which time title shall pass to Landlord under this Lease as by a bill of sale,
unless Landlord elects otherwise at the time of installation. Upon such election
by Landlord, Tenant shall upon Lease expiration, at Tenant's sole cost and
expense, forthwith and with all due diligence remove any such alterations,
additions or improvements which are designated by Landlord to be removed, and
Tenant shall forthwith and with all due diligence, at its sole cost and expense,
repair and restore the Premises to their original condition, reasonable wear and
Lear and damage by fire or other casualty excepted.
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7. REPAIR.
7.1 Landlord shall have no obligation to alter, remodel, improve, repair,
decorate or paint the Premises, except as specified in Exhibit B if attached to
this Lease and except that Landlord shall repair and maintain the structural
portions of the Building, including the basic plumbing, air conditioning,
heating and electrical systems installed or furnished by Landlord. By taking
possession of the Premises, Tenant accepts them as being in good order,
condition and repair and in the condition in which Landlord is obligated to
deliver them. It is hereby understood and agreed that no representations
respecting the condition of the Premises or the Building have been made by
Landlord to Tenant, except as specifically set forth in this Lease.
7.2 Tenant shall, at all times during the Term, keep the Premises in good
condition and repair excepting damage by fire, or other casualty, and in
compliance with all applicable governmental laws, ordinances and regulations,
promptly complying with all governmental orders and directives for the
correction, prevention and abatement of any violations or nuisances in or upon,
or connected with, the Premises, all at Tenant's sole expense.
7.3 Landlord shall not be liable for any failure to make any repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given to
Landlord by Tenant.
7.4 Except as provided in Article 22, there shall be no abatement of rent
and no liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or to
fixtures, appurtenances and equipment in the Building. Except to the extent, if
any, prohibited by law, Tenant waives the right to make repairs at Landlord's
expense under any law, statute or ordinance now or hereafter in effect.
8. LIENS.
Tenant shall keep the Premises, the Building and appurtenant land and Tenant's
leasehold interest in the Premises free from any liens arising out of any
services, work or materials performed, furnished, or contracted for by Tenant,
or obligations incurred by Tenant. In the event that Tenant shall not, within
ten (10) days following the imposition of any such lien, either cause the same
to be released of record or provide Landlord with insurance against the same
issued by a major title insurance company or such other protection against the
same as Landlord shall accept, Landlord shall have the right to cause the same
to be released by such means as it shall deem proper, including payment of the
claim giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith shall be considered additional rent and
shall be payable to it by Tenant on demand.
9. ASSIGNMENT AND SUBLETTING.
9.1 Tenant shall not have the right to assign or pledge this Lease or to
sublet the whole or any part of the Premises whether voluntarily or by operation
of law, or permit the use or occupancy of the Premises by anyone other than
Tenant, and shall not make, suffer or permit such assignment, subleasing or
occupancy without the prior written consent of Landlord, and said restrictions
shall be binding upon any and all assignees of the Lease and subtenants of the
Premises. In the event Tenant desires to sublet, or permit such occupancy of,
the Premises, or any portion, thereof, or assign this Lease, Tenant shall give
written notice thereof to Landlord at least (30) thirty days but no more than
one hundred eighty (180) days prior to the proposed commencement date of such
subletting or assignment, which notice shall set forth the name of the proposed
subtenant or assignee, the relevant terms of any sublease or assignment and
copies of financial reports and other relevant financial reports and other
relevant financial information of the proposed subtenant or assignee. Landlord's
consent shall not be unreasonably withheld.
9.2 Notwithstanding any assignment or subletting, permitted or otherwise,
Tenant shall at all times remain directly, primarily and fully responsible and
liable for the payment of the rent specified in this Lease and for compliance
with all of its other obligations under the terms, provisions and covenants of
this Lease. Upon the occurrence of an Event of Default, if the Premises or any
part of them are then assigned or sublet, Landlord, in addition to any other
remedies provided in this Lease or provided by law, may, at its option, collect
directly from such assignee or subtenant all rents due and becoming due to
Tenant under such assignment or sublease and apply such rent against any sums
due to Landlord from Tenant under this Lease, and no such collection shall be
construed to constitute a novation or release of Tenant from the further
performance of Tenant's obligations under this Lease.
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9.3 In addition to Landlord's right to approve of any subtenant or
assignee, Landlord shall have the option, in its sole discretion, in the event
of any proposed subletting or assignment, to terminate this Lease, or in the
case of a proposed subletting of less than the entire Premises, to recapture the
portion of the Premises to be sublet, as of the date the subletting or
assignment is to be effective. The option shall be exercised, if at all, by
Landlord giving Tenant written notice given by Landlord to Tenant within sixty
(60) days following Landlord's receipt of Tenant's written notice as required
above. If this Lease shall be terminated with respect to the entire Premises
pursuant to this Section, the Term of this Lease shall end on the date stated in
Tenant's notice as the effective date of the sublease or assignment as if that
date had been originally fixed in this Lease for the expiration of the Term. If
Landlord recaptures under this Section only a portion of the Premises, the rent
to be paid from time to time during the unexpired Term shall abate
proportionately based on the proportion by which the approximate square footage
of the remaining portion of the Premises shall be less than that of the Premises
as of the date immediately prior to such recapture. Tenant shall, at Tenant's
own cost and expense, discharge in full any outstanding commission obligation on
the part of Landlord with respect to this Lease, and any commissions which may
be due and owing as a result of any proposed assignment or subletting, whether
or not the Premises are recaptured pursuant to this Section 9.3 and rented by
Landlord to the proposed tenant or any other tenant.
9.4 In the event that Tenant sells, sublets, assigns or transfers this
Lease, Tenant shall pay to Landlord as additional rent an amount equal to one
hundred percent (100%) of any Increased Rent (as defined below) when and as such
Increased Rent is received by Tenant. As used in this Section, "Increased Rent"
shall mean the excess of (a) all rent and other consideration which Tenant is
entitled to receive by reason of any sale, sublease, assignment or other
transfer of this Lease, over (ii) the rent otherwise payable by Tenant under
this Lease at such time. For purposes of the foregoing, any consideration
received by Tenant in form other than cash shall be valued at its fair market
value as determined by Landlord in good faith.
9.5 Notwithstanding any other provision hereof, Tenant shall have no
right to make (and Landlord shall have the absolute right to refuse consent to)
any assignment of this Lease or sublease of any portion of the Premises if at
the time of either Tenant's notice of the proposed assignment or sublease or the
proposed commencement date thereof, there shall exist any uncured default of
Tenant or matter which will become a default of Tenant with passage of time
unless cured, or if the proposed assignee or sublessee is an entity: (a) with
which Landlord is already in negotiation as evidenced by the issuance of a
written proposal; (b) is already an occupant of the Building unless Landlord is
unable to provide the amount of space required by such occupant; (c) is a
governmental agency; (d) is incompatible with the character of occupancy of the
Building; or (e) would subject the Premises to a use which would: (i) involve
increased personnel or wear upon the Building; (ii) violate any exclusive right
granted to another tenant of the Building; (iii) require any addition to or
modification of the Premises or the Building in order to comply with building
code or other governmental requirements; or, (iv) involve a violation of Section
1.2. Tenant expressly agrees that Landlord shall have the reasonable right to
refuse consent to any such assignment or sublease and that for the purposes of
any statutory or other requirement of reasonableness on the part of Landlord
such refusal shall be reasonable.
9.6 Upon any request to assign or sublet, Tenant will pay to Landlord
the Assignment Subletting Fee plus, on demand, a sum equal to all of Landlord's
reasonable actual out of pocket costs, including reasonable attorney's fees,
incurred in investigating and considering any proposed or purported assignment
or pledge of this Lease or sublease of any of the Premises, regardless of
whether Landlord shall consent to, refuse consent, or determine that Landlord's
consent is not required for, such assignment, pledge or sublease. Any purported
sale, assignment, mortgage, transfer of this Lease or subletting which does not
comply with the provisions of this Article 9 shall be void.
9.7 If Tenant is a corporation, partnership or trust, any transfer or
transfers of or change or changes within any twelve month period in the number
of the outstanding voting shares of the corporation, the general partnership
interests in the partnership or the identity of the persons or entities
controlling the activities of such partnership or trust resulting in the persons
or entities owning or controlling a majority of such shares, partnership
interests or activities of such partnership or trust at the beginning of such
period no longer having such ownership or control shall be regarded as
equivalent to an assignment of this Lease to the persons or entities acquiring
such ownership or control and shall be subject to all the provisions of this
Article 9 to the same extent and for all intents and purposes as though such an
assignment. [This provision does not apply to a public offering or stock by the
company, mergers, acquisitions, or the exercising of stock options by employees,
provided the Tenant maintains a similar net worth (of at least $8 million) as of
the lease execution
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date. Tenant shall have the obligation to provide Landlord written notice of any
merger or acquisitions.]
10. INDEMNIFICATION.
None of the Landlord Entities shall be liable and Tenant hereby waives all
claims against them for any damage to any property or any injury to any person
in or about the Premises or the Building by or from any cause whatsoever
(including without limiting the foregoing, rain or water leakage of any
character from the roof, windows, walls, basement, pipes, plumbing works or
appliances, the Building not being in good condition or repair, gas, fire, oil,
electricity or theft), except to the extent caused by or arising from the gross
negligence or willful misconduct of Landlord or its agents, employees or
contractors. Tenant shall protect, indemnify and hold the Landlord Entities
harmless from and against any and all loss, claims, liability or costs
(including court costs and attorney's fees) incurred by reason of (a) any damage
to any property (including but not limited to property of any Landlord Entity)
or any injury (including but not limited to death) to any person occurring in,
on or about the Premises or the Building to the extent that such injury or
damage shall be caused by or arise from any actual or alleged act, neglect,
fault, or omission by or of Tenant, its agents, servants, employees, invitees,
or visitors to meet any standards imposed by any duty with respect to the injury
or damage; (b) the conduct or management of any work or thing whatsoever done by
the Tenant in or about the Premises or from transactions of the Tenant
concerning the Premises; (c) Tenant's failure to comply with any and all
governmental laws, ordinances and regulations applicable to the condition or use
of the Premises or its occupancy; or (d) any breach or default on the part of
Tenant in the performance of any covenant or agreement on the part of the Tenant
to be performed pursuant to this Lease. The provisions of this Article shall
survive the termination of this Lease with respect to any claims or liability
accruing prior to such termination.
11. INSURANCE.
11.1 Tenant shall keep in force throughout the Term: (a) a Commercial
General Liability insurance policy or policies to protect the Landlord Entities
against any liability to the public or to any invitee of Tenant or a Landlord
Entity incidental to the use of or resulting from any accident occurring in or
upon the Premises with a limit of not less than $1,000,000.00 per occurrence and
not less than $2,000,000.00 in the annual aggregate, or such larger amount as
Landlord may prudently require from time to time, covering bodily injury and
property damage Liability and $1,000,000 products/completed operations
aggregate; (b) Business Auto Liability covering owned, non-owned and hired
vehicles with a limit of not less than $1,000,000 per accident; (c) insurance
protecting against liability under Worker's Compensation Laws with limits at
least as required by statute; (d) Employers Liability with limits of $500,000
each accident, $500,000 disease policy limit, $500,000 disease--each employee;
(e) All Risk or Special Form coverage protecting Tenant against loss of or
damage to Tenant's alterations, additions, improvements, carpeting, floor
coverings, panelings, decorations, fixtures, inventory and other business
personal property situated in or about the Premises to the full replacement
value of the property so insured; and, (f) Business Interruption Insurance with
limit of liability representing loss of at least approximately six months of
income.
11.2 Each of the aforesaid policies shall (a) be provided at Tenant's
expense; (b) name the Landlord and the building management company, if any, as
additional insureds; (c) be issued by an insurance company with a minimum Best's
rating of "A:VII" during the Term; and (d) provide that said insurance shall not
be cancelled unless thirty (30) days prior written notice (ten days for non-
payment of premium) shall have been given to Landlord; and said policy or
policies or certificates thereof shall be delivered to Landlord by Tenant upon
the Commencement Date and at least thirty (30) days prior to each renewal of
said insurance.
11.3 Whenever Tenant shall undertake any alterations, additions or
improvements in, to or about the Premises ("Work") the aforesaid insurance
protection must extend to and include injuries to persons and damage to property
arising in connection with such Work, without limitation including liability
under any applicable structural work act, and such other insurance as Landlord
shall require; and the policies of or certificates evidencing such insurance
must be delivered to Landlord prior to the commencement of any such Work.
12. WAIVER OF SUBROGATION.
So long as their respective insurers so permit, Tenant and Landlord hereby
mutually waive their respective rights of recovery against each other for any
loss insured by fire, extended coverage, All Risks or other insurance now or
hereafter existing for the benefit of the respective party but only to the
extent of the net insurance proceeds payable under such policies. Each party
shall obtain any
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special endorsements required by their insurer to evidence compliance with the
aforementioned waiver.
13. SERVICES AND UTILITIES
13.1 Provided Tenant shall not be in default under this Lease beyond all
applicable cure periods and subject to the other provisions of this Lease,
Landlord agrees to furnish to the Premises during ordinary business hours on
generally recognized business days (but exclusive in any event of Sundays and
legal holidays), the following services and utilities subject to the rules and
regulations of the Building prescribed from time to time: (a) water suitable for
normal office use of the Premises; (b) heat and air conditioning required in
Landlord's judgment for the use and occupation of the Premises; (c) cleaning and
janitorial service; (d) elevator service by nonattended automatic elevators; (e)
such window washing as may from time to time in Landlord's judgment be
reasonably requited; and, (f) equipment to bring to Tenant's meter, electricity
for lighting, convenience outlets and other normal office use. To the extent
that Tenant is not billed directly by a public utility, Tenant shall pay, upon
demand, as additional rent, for all electricity used by Tenant in the Premises.
The charge shall be at the rates charged for such services by the local public
utility. Landlord shall nor be liable for, and Tenant shall not be entitled to,
any abatement or reduction of rental by reason of Landlord's failure to furnish
any of the foregoing, unless such failure shall persist for an unreasonable time
after written notice of such failure is given to Landlord by Tenant and provided
further that Landlord shall not be liable when such failure is caused by
accident, breakage, repairs, labor disputes of any character, energy usage
restrictions or by any other cause, similar or dissimilar, beyond the reasonable
control of Landlord. Landlord shall use reasonable efforts to remedy any
interruption in the furnishing of services and utilities.
13.2 Should Tenant require any additional work or service, as described
above, including services furnished outside ordinary business hours specified
above, Landlord may, on terms to be agreed, upon reasonable advance notice by
Tenant, furnish such additional service and Tenant agrees to pay Landlord such
charges as may be agreed upon, including any tax imposed thereon, but in no
event at a charge less than Landlord's actual cost plus overhead for such
additional service and, where appropriate, a reasonable allowance for
depreciation of any systems being used to provide such service.
13.3 Wherever heat-generating machines or equipment are used by Tenant
in the Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in or for the benefit of the Premises and the cost thereof,
including the cost of installation and the cost of operations and maintenance,
shall be paid by Tenant to Landlord upon demand as such additional rent.
13.4 Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises, including but not limited to, electronic
data processing machines and machines using current in excess of 200 watts or
110 volts, which will in any way increase the amount of electricity or water
usually furnished or supplied for use of the Premises for normal office use, nor
connect with electric current, except through existing electrical outlets in the
Premises, or water pipes, any apparatus or device for the purposes of using
electrical current or water. If Tenant shall require water or electric current
in excess of that usually furnished or supplied for use of the Premises as
normal office use, Tenant shall procure the prior written consent of Landlord
for the use thereof, which Landlord may refuse, and if Landlord does consent,
Landlord may cause a water meter or electric current meter to be installed so as
to measure the amount of such excess water and electric current. The cost of any
such meters shall be paid for by Tenant. Tenant agrees to pay as additional rent
to Landlord promptly upon demand therefor, the cost of all such excess water and
electric current consumed (as shown by said meters, if any, or, if none, as
reasonably estimated by Landlord) at the rates charged for such services by the
local public utility or agency, as the case may be, furnishing the same, plus
any additional expense incurred in keeping account of the water and electric
current so consumed.
14. HOLDING OVER.
Tenant shall pay Landlord for each day Tenant retains possession of the Premises
or part of them after termination of this Lease by lapse of time or otherwise at
the rate ("Holdover Rate") which shall be 200% of the greater of: (a) the amount
of the Annual Rent for the last period prior to the date of such termination
plus all Rent Adjustments under Article 4; and, (b) the then market rental value
of the Premises as determined by Landlord assuming a new lease of the Premises
of the then usual duration and other terms, in either case prorated on a daily
basis, and also pay all damages sustained by Landlord by reason of such
retention. If Landlord gives notice to Tenant of Landlord's election to
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that effect, such holding over shall constitute renewal of this Lease for a
period from month to month or one year, whichever shall be specified in such
notice, in either case at the Holdover Rate, but if the Landlord does not so
elect, no such renewal shall result notwithstanding acceptance by Landlord of
any sums due hereunder after such termination; and instead, a tenancy at
sufferance at the Holdover Rate shall be deemed to have been created. In any
event, no provision of this Article 14 shall be deemed to waive Landlord's right
of reentry or any other right under this Lease or at law.
15. SUBORDINATION.
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be subject and
subordinate at all times to ground or underlying leases and to the lien of any
mortgages or deeds of trust now or hereafter placed on, against or affecting the
Building, Landlord's interest or estate in the Building, or any ground or
underlying lease; provided, however, that if the lessor, mortgagee, trustee, or
holder of any such mortgages or deed of trust elects to have Tenant's interest
in this Lease be superior to any such instrument, then, by notice to Tenant,
this Lease shall be deemed superior, whether this Lease was executed before or
after said instrumental. Notwithstanding the foregoing, Tenant covenants and
agrees to execute and deliver upon demand such further instruments evidencing
such subordination or superiority of this Lease as may be required by Landlord.
16. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with all the rules and regulations as
set forth in Exhibit C to this Lease and all reasonable modifications of and
additions to them from time to time put into effect by Landlord. Landlord shall
not be responsible to Tenant for the non-performance by any other tenant or
occupant of the Building of any such rules and regulations.
17. REENTRY BY LANDLORD.
17.1 Landlord reserves and shall at all Limes have the right to re-enter
the Premises to inspect the same, to supply janitor service and any other
service to be provided by Landlord to Tenant under this Lease, to show said
Premises to prospective purchasers, mortgagees or tenants, and to alter, improve
or repair the Premises and any portion of the Building, without abatement of
rent, and may for that purpose erect, use and maintain scaffolding, pipes,
conduits and other necessary structures and open any wall, ceiling or floor in
and through the Building and Premises where reasonably required by the character
of the work to be performed, provided entrance to the Premises shall not be
blocked thereby, and further provided that the business of Tenant shall not be
interfered with unreasonably.
17.2 Landlord shall have the right at any time to change the arrangement
and/or locations of entrance, or passageways, doors and doorways, and corridors,
windows, elevators, stairs, toilets or other public parts of the Building and to
change the name, number or designation by which the Building is commonly known.
In the event that Landlord damages any portion of any wall or wall covering,
ceiling, or floor or floor covering Within the Premises, Landlord shall repair
or replace the damaged portion to match the original as nearly as commercially
reasonable but shall not be required to repair or replace more than the portion
actually damaged.
17.3 Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet employment of the Premises, and any ocher loss occasioned by any action
of Landlord authorized by this Article 17. Tenant agrees to reimburse Landlord,
on demand, as additional rent, for any expenses which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease.
17.4 For each of the aforesaid purposes, Landlord shall at all times
have and retain a key with which to unlock all of the doors in the Premises,
excluding Tenant's vaults and safes or special security areas (designated in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem proper to open said doors in an emergency to obtain entry to
any portion of the Premises. As to any portion to which access can't be had by
means of a key or keys in Landlord's possession, Landlord is authorized to gain
access by such means as Landlord shall elect and the cost of repairing any
damage occurring in doing so shall be borne by Tenant and paid to Landlord as
additional rent upon demand. Landlord shall provide Tenant one day notice before
entering Tenant's premises (other than emergencies).
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18. DEFAULT.
18.1 Except as otherwise provided in Article 20. the following events
shall be deemed to be Events of Default under this Lease:
18.1.1 Tenant shall fail to pay within five (5) days of when due
any sum of money becoming due to be paid to Landlord under this Lease, whether
such sum be any installment of the rent reserved by this Lease, any other amount
treated as additional rent under this Lease, or any other payment or
reimbursement to Landlord required by this Lease, whether or not treated as
additional rent under this Lease, and such failure shall continue for a period
of five days after written notice that such payment was not made when due, but
if any such notice shall be given, for the twelve month period commencing with
the date of such notice, the failure to pay within five days after due any
additional sum of money becoming due to be paid to Landlord under this Lease
during such period shall be an Event of Default, without notice.
18.1.2 Tenant shall fail to comply with any term, provision or
covenant of this Lease which is not provided for in another Section of this
Article and shall not cure such failure within twenty (20) days (forthwith, if
the failure involves a hazardous condition) after written notice of such failure
to Tenant.
18.1.3 Tenant shall fail to vacate the Premises immediately upon
termination of this Lease, by lapse of time or otherwise, or upon termination of
Tenant's right to possession only.
18.1.4 Tenant shall become insolvent, admit in writing its
inability to pay its debts generally as they become due, file a petition in
bankruptcy or a petition to take advantage of any insolvency statute, make an
assignment for the benefit of creditors, make a transfer in fraud of creditors,
apply for or consent to the appointment of a receiver of itself or of the whole
or any substantial part of its property, or file a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws, as now in
effect or hereafter amended, or any other applicable law or statute of the
United States or any state thereof.
18.1.5 A court of competent jurisdiction shall enter an order,
judgment or decree adjudicating Tenant bankrupt, or appointing a receiver of
Tenant, or of the whole or any substantial part of its property, without the
consent of Tenant, or approving a petition filed against Tenant seeking
reorganization or arrangement of Tenant under the bankruptcy laws of the United
States, as now in effect or hereafter amended, or any state thereof, and such
order, judgment or decree shall not be vacated or set aside or stayed within
thirty (30) days from the date of entry thereof.
19. REMEDIES.
19.1 Except as otherwise provided in Article 20, upon the occurrence of
any of the Events of Default described or referred to in Article 18, Landlord
shall have the option to pursue any one or more of the following remedies
without any notice or demand whatsoever, concurrently or consecutively and not
alternatively:
19.1.1 Landlord may, at its election, terminate this Lease or
terminate Tenant's right to possession only, without terminating the Lease.
19.1.2 Upon any termination of this Lease, whether by lapse of time
or otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
Premises immediately, and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free license to enter into and upon the
Premises in such event and to repossess Landlord of the Premises as of
Landlord's former estate and to expel or remove Tenant and any others who may be
occupying or be within the Premises and to remove Tenant's signs and other
evidence of tenancy and all other property of Tenant therefrom without being
deemed in any manner guilty of trespass, eviction or forcible entry or detainer,
and without incurring any liability for any damage resulting therefrom, Tenant
waiving any right to claim damages for such re-entry and expulsion, and without
relinquishing Landlord's right to rent or any other right given to Landlord
under this Lease or by operation of law.
19.1.3 Upon any termination of this Lease, whether by lapse of time
or otherwise, Landlord shall be entitled to recover as damages, all rent,
including any amounts treated as additional rent under this Lease, and other
sums due and payable by Tenant on the date of termination, plus as liquidated
damages and not as a penalty, an amount equal to the sum of: (a) an amount equal
to the then present value of the rent reserved in this Lease for the residue of
the stated Term of this Lease
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including any amounts treated as additional rent under this Lease and all other
sums provided in this Lease to be paid by Tenant, minus the fair rental value of
the Premises for such residue; (b) the value of the time and expense necessary
to obtain a replacement tenant or tenants, and the estimated expenses described
in Section 19.1.4 relating to recovery of the Premises, preparation for
reletting and for reletting itself; and (c) the cost of performing any other
covenants which would have otherwise been performed by Tenant.
19.1.4 Upon any termination of Tenant's right to possession only
without termination of the Lease:
19.1.4.1.1 Neither such termination of Tenant's right to
possession nor Landlord's taking and holding possession thereof as provided in
Section 19.1.2 shall terminate the Lease or release Tenant, in whole or in part,
from any obligation, including Tenant's obligation to pay the rent, including
any amounts treated as additional rent, under this Lease for the full Term, and
if Landlord so elects Tenant shall pay forthwith to Landlord the sum equal to
the entire amount of the rent, including any amounts treated as additional rent
under this Lease, for the remainder of the Term plus any other sums provided in
this Lease to be paid by Tenant for the remainder of the Term.
19.1.4.1.2 Landlord may, but need not, relet the Premises
or any part thereof for such rent and upon such terms as Landlord, in its sole
discretion, shall determine (including the right to relet the premises for a
greater or lesser term than that remaining under this Lease, the right to relet
the Premises as a part of a larger area, and the right to change the character
or use made of the Premises). In connection with or in preparation for any
reletting, Landlord may, but shall not be required to, make repairs, alterations
and additions in or to the Premises and redecorate the same to the extent
Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the
cost thereof, together with Landlord's expenses of reletting, including, without
limitation, any commission incurred by Landlord. If Landlord decides to relet
the Premises or a duty to relet is imposed upon Landlord by law, Landlord and
Tenant agree that nevertheless Landlord shall at most be required to use only
the same efforts Landlord then uses to lease premises in the Building generally
and that in any case that Landlord shall not be required to give any preference
or priority to the showing or leasing of the Premises over any other space that
Landlord may be leasing or have available and may place a suitable prospective
tenant in any such other space regardless of when such other space becomes
available. Landlord shall not be required to observe any instruction given by
Tenant about any reletting or accept any tenant offered by Tenant unless such
offered tenant has a credit-worthiness acceptable to Landlord and leases the
entire Premises upon terms and conditions including a rate of rent (after giving
effect to all expenditures by Landlord for tenant improvements, broker's
commissions and other leasing costs) all no less favorable to Landlord than as
called for in this Lease, nor shall Landlord be required o make or permit any
assignment or sublease for more than the current term or which Landlord would
not be required to permit under the provisions of Article 9.
19.1.4.1.3 Until such time as Landlord shall elect to
terminate the Lease and shall thereupon be entitled to recover thc amounts
specified in such case in Section 19.13, Tenant shall pay to Landlord upon
demand the full amount of all rent, including any amounts treated as additional
rent under this Lease and other sums reserved in this Lease for the remaining
Term, together with the costs of repairs, alterations, additions, redecorating
and Landlord's expenses of reletting and the collection of the rent accruing
therefrom (including attorney's fees and broker's commissions), as the same
shall then be due or become due from time to time, less only such consideration
as Landlord may have received from any reletting of the Premises; and Tenant
agrees that Landlord may file suits from time to time to recover any sums
falling due under this Article 19 as they become due. Any proceeds of reletting
by Landlord in excess of the amount then owed by Tenant to Landlord from time to
time shall be credited against Tenant's future obligations under this License
but shall not otherwise be refunded to Tenant or inure to Tenant's benefit.
19.2 Landlord may, at Landlord's option, enter into and upon the
Premises if Landlord determines in its sole discretion that Tenant is not acting
within a commercially reasonable time to maintain, repair or replace anything
for which Tenant is responsible under this Lease and correct the same, without
being deemed in any manner guilty of trespass, eviction or forcible entry and
detainer and without incurring any liability for any damage or interruption of
Tenant's business resulting therefrom. If Tenant shall have vacated the
Premises, Landlord may at Landlord's option re-enter the Premises at any time
during the last six months of the then current Term of this Lease and make any
and all such changes, alterations, revisions, additions and tenant and other
improvements in or about the Premises as Landlord shall elect, all without any
abatement of any of the rent otherwise to be paid by Tenant under this Lease.
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19.3 If, on account of any breach or default by Tenant in Tenant's
obligations under the terms and conditions of this Lease, it shall become
necessary or appropriate for Landlord to employ or consult with an attorney
concerning or to enforce or defend any of Landlord's rights or remedies arising
under this Lease, Tenant agrees to pay all Landlord's attorney's fees so
incurred. Tenant expressly waives any right to: (a) trial by jury; and (b)
service of any notice required by any present or future law or ordinance
applicable to landlords or tenants but not required by the terms of this Lease.
19.4 Pursuit of any of the foregoing remedies shall not preclude pursuit
of any of the other remedies provided in this Lease or any other remedies
provided by law (all such remedies being cumulative), nor shall pursuit of any
remedy provided in this Lease constitute a forfeiture or waiver of any rent due
to Landlord under this Lease or of any damages accruing to Landlord by reason of
the violation of any of the terms, provisions and covenants contained in this
Lease.
19.5 No act or thing done by Landlord or its agents during the Term
shall be deemed a termination of this Lease or an acceptance of the surrender of
the Premises, and no agreement to terminate this Lease or accept a surrender of
said Premises shall be valid, unless in writing signed by Landlord. No waiver by
Landlord of any violation or breach of any of the terms, provisions and
covenants contained in this Lease shall be deemed or construed to constitute a
waiver of any other violation or breach of any of the terms, provisions and
covenants contained in this Lease. Landlord's acceptance of the payment of
rental or other payments after the occurrence of an Event of Default shall not
be construed as a waiver of such Default, unless Landlord so notifies Tenant in
writing. Forbearance by Landlord in enforcing one or more of the remedies
provided in this Lease upon an Event of Default shall not be deemed or construed
to constitute a waiver of such Default or of Landlord's right to enforce any
such remedies with respect to such Default or any subsequent Default.
19.6 Any and all properly which may be removed from the Premises by
Landlord pursuant to the authority of this Lease or of law, to which Tenant is
or may be entitled, may be handled, removed and/or stored, as the case may be,
by or at the direction of Landlord but at the risk, cost and expense of Tenant,
and Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession or under Landlord's
control. Any such property of Tenant not retaken by Tenant from storage within
thirty (30) days after removal from the Premises shall, at Landlord's option, be
deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale
without further payment or credit by Landlord to Tenant.
20. TENANT'S BANKRUPTCY OR INSOLVENCY.
20.1 If at any time and for so long as Tenant shall be subjected to the
provisions of the United States Bankruptcy Code or other law of the United
States or any state thereof for the protection of debtors as in effect at such
time (each a "Debtor's Law"):
20.1.1 Tenant, Tenant as debtor-in-possession, and any trustee or
receiver of Tenant's assets (each a "Tenant's Representative") shall have no
greater right to assume or assign this Lease or any interest in this Lease, or
to sublease any of the Premises than accorded to Tenant in Article 9, except to
the extent Landlord shall be required to permit such assumption, assignment or
sublease by the provisions of such Debtor's Law. Without limitation of the
generality of the foregoing, any right of any Tenant's Representative to assume
or assign this Lease or to sublease any of the Premises shall be subject to the
conditions that:
20.1.1.1.1 Such Debtor's Law shall provide to Tenant's
Representative a right of assumption of this Lease which Tenant's Representative
shall have timely exercised and Tenant's Representative shall have fully cured
any default of Tenant under this Lease.
20.1.2 Tenant's Representative or the proposed assignee as the case
shall be, shall have deposited with Landlord as security for the timely payment
of rent an amount equal to the larger of: (a) three months' rent and other
monetary charges accruing under this Lease; and (b) any sum specified in Article
5; and shall have provided Landlord with adequate other assurance of the future
performance of the obligations of the Tenant under this Lease. Without
limitation, such assurances shall include, at least, in the case of assumption
of this Lease, demonstration to the satisfaction of the Landlord that Tenant's
Representative has and will continue to have sufficient unencumbered assets
after the payment of all secured obligations and administrative expenses to
assure Landlord that Tenant's Representative will have sufficient funds to
fulfill the obligations of Tenant under this
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Lease; and, in the case of assignment, submission of current financial
statements of the proposed assignee, audited by an independent certified public
accountant reasonably acceptable to Landlord and showing a net worth and working
capital in amounts determined by Landlord to be sufficient to assure the future
performance by such assignee of all of the Tenant's obligations under this
Lease.
20.1.3 The assumption or any contemplated assignment of this Lease
or subleasing any part of the Premises, as shall be the case, will not breach
any provision in any other lease, mortgage, financing agreement or other
agreement by which Landlord is bound.
20.1.4 Landlord shall have, or would have had absent the Debtor's
Law, no right under Article 9 to refuse consent to the proposed assignment or
sublease by reason of the identity or nature of the proposed assignee or
sublessee or the proposed use of the Premises concerned.
21. QUIET' ENJOYMENT.
Landlord represents and warrants that it has full right and authority to enter
into this Lease and that Tenant, while paying the rental and performing its
other covenants and agreements contained in this Lease, shall peaceably and
quietly have, hold and enjoy the Premises for the Term without hindrance or
molestation from Landlord subject to the terms and provisions of this Lease.
Landlord shall not be liable for any interference or disturbance by other
tenants or third persons, nor shall Tenant be released from any of the
obligations of this Lease because of such interference or disturbance.
22. DAMAGE BY FIRE, ETC.
22.1 In the event the Premises or the Building are damaged by fire or
other cause and in Landlord's reasonable estimation such damage can be
materially restored within ninety (90) days, Landlord shall forthwith repair the
same and this Lease shall remain in full force and effect, except that Tenant
shall be entitled to a proportionate abatement in rent from the date of such
damage. Such abatement of rent shall be made pro rata in accordance with the
extent to which the damage and the making of such repairs shall interfere with
the use and occupancy by Tenant of the Premises from time to time. Within forty-
five (45) days from the date of such damage. Landlord shall notify Tenant, in
writing, of Landlord's reasonable estimation of the length of time within which
material restoration can be made, and Landlord's determination shall be binding
on Tenant. For purposes of this Lease, the Building or Premises shall be deemed
"materially restored" if they are in such condition as would not prevent or
materially interfere with Tenant's use of the Premises for the purpose for which
it was being used immediately before such damage.
22.2 If such repairs cannot, in Landlord's reasonable estimation, be
made within ninety (90) days, Landlord and Tenant shall each have the option of
giving the other, at any time within sixty (60) days after such damage, notice
terminating this Lease as of the date of such damage. In the event of the giving
of such notice, this Lease shall expire and all interest of the Tenant in the
Premises shall terminate as of the date of such damage as if such date bad been
originally fixed in this Lease for the expiration of the Term. In the event that
neither Landlord nor Tenant exercises its option to terminate this Lease, then
Landlord shall repair or restore such damage, this Lease continuing in full
force and effect, and the rent hereunder shall be proportionately abated as
provided in Section 22.1.
22.3 Landlord shall not be required to repair or replace any damage or
loss by or from fire or other cause to any partitions, decorations, partitions,
additions, railings, ceilings, floor coverings, office fixtures or any other
property or improvements installed on the Premises or belonging to Tenant. Any
insurance which may be carried by Landlord or Tenant against loss or damage to
the Building or Premises shall be for the sole benefit of the party carrying
such insurance and under its sole control.
22.4 In the event that Landlord should fail to complete such repairs and
material restoration within sixty (60) days after the date estimated by Landlord
therefor as extended by this Section 22.4, Tenant may at its option and as its
sole remedy terminate this Lease by delivering written notice to Landlord,
within fifteen (15) days after the expiration of said period of time, whereupon
the Lease shall end on the date of such notice or such later date fixed in such
notice as if the date of such notice was the date originally fixed in this Lease
for the expiration of the Term; provided, however, that if construction is
delayed because of changes, deletions or additions in construction requested by
Tenant, strikes, lockouts, casualties, Acts of God, war, material or labor
shortages, government regulation or control or other causes beyond the
reasonable control of Landlord, the period for restoration, repair or rebuilding
shall be extended for the amount of time Landlord is so delayed.
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22.5 Notwithstanding anything to the contrary contained in this Article:
(a) Landlord shall not have any obligation whatsoever to repair, reconstruct, or
restore the Premises when the damages resulting from any casually covered by the
provisions of this Article 22 occur during the last twelve (12) months of the
Term or any extension thereof, but if Landlord determines not to repair such
damages Landlord shall notify Tenant and if such damages shall render any
material portion of the Premises untenantable Tenant shall have the right to
terminate this Lease by notice to Landlord within fifteen (15) days after
receipt of Landlord's notice; and (b) in the event the bolder of any
indebtedness secured by a mortgage or deed of trust covering the Premises or
Building requires that any insurance proceeds be applied to such indebtedness,
then Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is made by any such holder, whereupon this Lease shall end on the date of such
damage as if the date of such damage were the date originally fixed in this
Lease for the expiration of the Term.
22.6 In the event of any damage or destruction to the Building or
Premises by any peril covered by the provisions of this Article 22, it shall be
Tenant's responsibility to properly secure the Premises and upon notice from
Landlord to remove forthwith, at its sole cost and expense, such portion of all
of the property belonging to Tenant or its licensees from such portion or all of
the Building or Premises as Landlord shall request.
23. EMINENT DOMAIN.
If all or any substantial part of the Premises shall be taken or appropriated by
any public or quasi-public authority under the power of eminent domain, or
conveyance in lieu of such appropriation, either party to this Lease shall have
the right, at its option, of giving the other, at any time within thirty (30)
days after such taking, notice terminating this Lease, except that Tenant may
only terminate this Lease by reason of taking or appropriation, if such taking
or appropriation shall be so substantial as to materially interfere with
Tenant's use and occupancy of the Premises. If neither party to this Lease shall
so elect to terminate this Lease, the rental thereafter to be paid shall be
adjusted on a fair and equitable basis under the circumstances. In addition to
the rights of Landlord above, if any substantial part of the Building shall be
taken or appropriated by any public or quasi-public authority under the power of
eminent domain or conveyance in lieu thereof, and regardless of whether the
Premises or any part thereof are so taken or appropriated, Landlord shall have
the right, at its sole option, to terminate this Lease. Landlord shall be
entitled to any and all income, rent, award, or any interest whatsoever in or
upon any such sum, which may be paid or made in connection with any such public
or quasi-public use or purpose, and Tenant hereby assigns to Landlord any
interest it may have in or claim to all or any part of such sums, other than any
separate award which may be made with respect to Tenant's trade fixtures and
moving expenses; Tenant shall make no claim for the value of any unexpired Term.
24. SALE BY LANDLORD.
In event of a sale or conveyance by Landlord of the Building, the same shall
operate to release Landlord from any future liability upon any of the covenants
or conditions, expressed or implied, contained in this Lease in favor of Tenant,
and in such event Tenant agrees to look solely to the responsibility of the
successor in interest of Landlord in and to this Lease. Except as set forth in
this Article 24, this Lease shall not be affected by any such sale and Tenant
agrees to attorn to the purchaser or assignee. If any security has been given by
Tenant to secure the faithful performance of any of the covenants of this Lease,
Landlord may transfer or deliver said security, as such, to Landlord's successor
in interest and thereupon Landlord shall be discharged from any further
liability with regard to said security.
25. ESTOPPEL CERTIFICATES
Within ten (10) days following any written request which Landlord may make from
time to time, Tenant shall execute and deliver to Landlord or mortgagee or
prospective mortgagee a sworn statement certifying: (a) the dare of commencement
of this Lease; (b) the fact that this Lease is unmodified and in full force and
effect (or, If there have been modifications to this Lease, that this lease is
in full force and effect, as modified, and stating the date and nature of such
modifications); (c) the date to which the rent and other sums payable under this
Lease have been paid; (d) the fact that there are no current defaults under this
Lease by either Landlord or Tenant except as specified in Tenant's statement;
and (e) such other matters as may be requested by Landlord. Landlord and Tenant
intend that any statement delivered pursuant to this Article 25 may be relied
upon by any mortgagee, beneficiary or purchaser and Tenant shall be liable for
all loss, cost or expense resulting from the failure of any sale or funding of
any loan caused by any material misstatement contained in
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such estoppel certificate. Tenant irrevocably agrees that if Tenant fails to
execute and deliver such certificate within such ten (10) day period Landlord or
Landlord's beneficiary or agent may execute and deliver such certificate on
Tenant's behalf, and that such certificate shall be fully binding on Tenant.
26. SURRENDER OF PREMISES.
26.1 Tenant shall, at least thirty (30) days before the last day of the
Term, arrange to meet Landlord for a joint inspection of the Premises. In the
event of Tenant's failure to arrange such joint inspection to be held prior to
vacating the Premises, Landlord's inspection at or after Tenant's vacating the
Premises shall be conclusively deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
26.2 At the end of the Term or any renewal of the Term or other sooner
termination of this Lease, Tenant will peaceably deliver up to Landlord
possession of the Premises, together with all improvements or additions upon or
belonging to the same, by whomsoever made, in the same conditions received or
first installed, broom clean and free of all debris, excepting only ordinary
wear and tear and damage by fire or other casualty. Tenant may, and at
Landlord's request shall, at Tenant's sole cost, remove upon termination of this
Lease, any and all furniture, furnishings, movable partitions of less than full
height from floor to ceiling, trade fixtures and other property installed by
Tenant, title to which shall not be in or pass automatically to Landlord upon
such termination, repairing all damage caused by such removal. Property not so
removed shall, unless requested to be removed, be deemed abandoned by the Tenant
and title to the same shall thereupon pass to Landlord under this Lease as by a
bill of sale. All other alterations, additions and improvements in, on or to the
Premises shall be dealt with and disposed of as provided in Article 6 hereof.
26.3 All obligations of Tenant under this Lease not fully performed as
of the expiration or earlier termination of the Term shall survive the
expiration or earlier termination of the Term. In the event that Tenant's
failure to perform prevents Landlord from releasing the Premises, Tenant shall
continue to pay rent pursuant to the provisions of Article 14 until such
performance is complete. Upon the expiration or earlier termination of the Term,
Tenant shall pay to Landlord the amount, as estimated by Landlord, necessary to
repair and restore the Premises as provided in this Lease and/or to discharge
Tenant's obligation for unpaid amounts due or to become due to Landlord. All
such amounts shall be used and held by Landlord for payment of such obligations
of Tenant, with Tenant being liable for any additional costs upon demand by
Landlord, or with any excess to be returned to Tenant after all such obligations
have been determined and satisfied. Any otherwise unused Security Deposit shall
be credited against the amount payable by Tenant under this Lease.
27. NOTICES.
Any notice or document required or permitted to be delivered under this Lease
shall be addressed to the intended recipient, shall be transmitted personally,
by fully prepaid registered or certified United States Mail return receipt
requested, or by reputable independent contract delivery service furnishing a
written record of attempted or actual delivery, and shall be deemed to be
delivered when tendered for delivery to the addressee at its address set forth
on the Reference Page, or at such other address as it has then last specified by
written notice delivered in accordance with this Article 27, or if to Tenant at
either its aforesaid address or its last known registered office or home of a
general partner or individual owner, whether or not actually accepted or
received by the addressee.
28. TAXES PAYABLE BY TENANT.
In addition to rent and other charges to be paid by Tenant under this Lease,
Tenant shall reimburse to Landlord, upon demand, any and all taxes payable by
Landlord (other than net income taxes) whether or not now customary or within
the contemplation of the parties to this Lease: (a) upon, allocable to, or
measured by or on the gross or net rent payable under this Lease, including
without limitation any gross income tax or excise tax levied by the State any
political subdivision thereof, or the Federal Government with respect to the
receipt of such rent; (b) upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy of the
Premises or any portion thereof, including any sales, use or service tax imposed
as a result thereof; (c) upon or measured by the Tenant's gross receipts or
payroll or the value of Tenant's equipment, furniture, fixtures and other
personal property of Tenant or leasehold improvements, alterations or additions
located in the Premises; or (d) upon this transaction or any document to which
Tenant is a party creating or transferring any interest of Tenant in this Lease
or the Premises. In addition to the foregoing Tenant agrees to pay, before
delinquency, any and all taxes levied or assessed against
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Tenant and which become payable during the term hereof upon Tenant's equipment,
furniture, fixtures and other personal property of Tenant located in the
Premises.
29. RELOCATION OF TENANT
Landlord at its sole expense, on at least ninety (90) days prior written notice,
may require Tenant to move from the Premises the location shall be per mutual
consent, where the consent shall not be reasonably withheld to other space of
comparable size and decor in order to permit Landlord to consolidate the space
leased to Tenant with other adjoining space leased or to be leased to another
tenant. In the event of any such relocation, Landlord will pay all expenses of
preparing and decorating the new premises so that they will be substantially
similar to the Premises from which Tenant is moving, and Landlord will also pay
the expense of moving Tenant's furniture and equipment to the relocated
premises. In such event this Lease and each and all of the terms and covenants
and conditions hereof shall remain in full force and effect and thereupon be
deemed applicable to such new space except that a revised Reference Page and a
revised Exhibit A shall become part of this Lease and shall reflect the location
of the new premises.
30. DEFINED TERMS AND HEADINGS.
The Article headings shown in this Lease are for convenience of reference and
shall in no way define, increase, limit or describe the scope or intent of any
provision of this Lease. Any indemnification or insurance of Landlord shall
apply to and inure to the benefit of all the following "Landlord Entities",
being Landlord, Landlord's investment manager, and the trustees, boards of
directors, officers, general partners, beneficiaries, stockholders, employees
and agents of each of them. Any option granted to Landlord shall also include or
be exercisable by Landlord's trustee, beneficiary, agents and employees, as the
case may be. In any case where this Lease is signed by more than one person, the
obligations under this Lease shall be joint and several. The terms "Tenant" and
"Landlord" or any pronoun used in place thereof shall indicate and include the
masculine or feminine, the singular or plural number, individuals, firms or
corporations, and each of their respective successors, executors, administrators
and permitted assigns, according to the context hereof. The term "rentable area"
shall mean the rentable area of the Premises or the Building as calculated by
the Landlord on the basis of the plans and specifications of the Building
including a proportionate share of any common areas. Tenant hereby accepts and
agrees to be bound by the figures for the rentable space footage of the Premises
and Tenant's Proportionate Share shown on the Reference Page.
31. TENANT'S AUTHORITY.
If Tenant signs as a corporation each of the persons executing this Lease on
behalf of Tenant represents and warrants that Tenant has been and is qualified
to do business in the state in which the Building is located, that the
corporation has full right and authority to enter into this Lease, and that all
persons signing on behalf of the corporation were authorized to do so by
appropriate corporate actions. If Tenant signs as a partnership, trust or other
legal entity, each of the persons executing this Lease on behalf of Tenant
represents and warrants that Tenant has complied with all applicable laws, rules
and governmental regulations relative to its right to do business in the state
and that such entity on behalf of the Tenant was authorized to do so by any and
all appropriate partnership, trust or other actions, Tenant agrees to furnish
promptly upon request a corporate resolution, proof of due authorization by
partners, or other appropriate documentation evidencing the due authorization of
Tenant to enter into this Lease.
32. COMMISSIONS.
Each of the panics represents and warrants to the other that it has not dealt
with any broker or finder in connection with this Lease, except as described on
the Reference Page. Landlord is to pay all brokerage fees in connection with
this Lease.
33. TIME AND APPLICABLE LAW.
Time is of the essence of this Lease and all of its provisions. This Lease shall
in all respects be governed by the laws of the state in which the Building is
located.
34. SUCCESSORS AND ASSIGNS.
Subject to the provisions of Article 9, the terms, covenants and conditions
contained in this Lease shall be binding upon and inure to the benefit of the
heirs, successors, executors, administrators and assigns of the parties to this
Lease.
16
<PAGE>
35. ENTIRE AGREEMENT.
This Lease, together with its exhibits, contains all agreements of the parties
to this Lease and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its exhibits. This Lease may not be
modified except by a written instrument duly executed by the parties to this
Lease.
36. EXAMINATION NOT OPTION.
Submission of this Lease shall not be deemed to be a reservation of the
Premises. Landlord shall not be bound by this Lease until it has received a copy
of this Lease duly executed by Tenant and has delivered to Tenant a copy of this
Lease duly executed by Landlord, and until such delivery Landlord reserves the
right to exhibit and lease the Premises to other prospective tenants.
Notwithstanding anything contained in this Lease to the contrary, Landlord may
withhold delivery of possession of the Premises from Tenant until such time as
Tenant has paid to Landlord any security deposit required by Article 5, the
first month's rent as set forth in Article 3 and any sum owed pursuant to this
Lease.
37. RECORDATION.
Tenant shall not record or register this Lease or a short form memorandum hereof
without the prior written consent of Landlord, and then shall pay all charges
and taxes incident such recording or registration.
38. LIMITATION OF LANDLORD'S LIABILITY.
Redress for any claim against Landlord under this Lease shall be limited to and
enforceable only against and to the extent of Landlord's interest in the
Building. The obligations of Landlord under this Lease are not intended to and
shall not be personally binding on, nor shall any resort be had to the private
properties of, any of its trustees or board of directors and officers, as the
case may be, its investment manager, the general partners thereof, or any
beneficiaries, stockholders, employees, or agents of Landlord or the investment
manager.
39. RENT SCHEDULE
<TABLE>
<S> <C> <C> <C>
Rent for the period Month 1, 8-12 shall be $15,636.20 per month
Rent for the period Month 2-7 shall be $ 7,818.10 per month
Rent for the period Year 2 shall be $16,183.47 per month
Rent for the period Year 3 shall be $16,749.89 per month
</TABLE>
40. TENANT'S PROPORTIONATE SHARE
"Tenant's Proportionate Share" is defined, for purposes of this Lease, as the
percentage which the total square footage of the Premises bears to the total
square footage of the building that Tenant is located in. Tenant's Share is
subject to change according to BOMA standards.
41. PARKING
Tenant shall be entitled to park free of charge and in common with other tenants
on a non-exclusive basis and to use the parking areas under a irrevocable
license. Landlord shall not be subject to any liability and Tenant shall not be
entitled to any compensation or abatement of rent, nor shall such revocation or
diminution be deemed constructive or actual eviction. Landlord reserves the
right to relocate, improve, adjust, alter, modify, reduce or change the size,
level, arrangement or location of such parking areas. Tenant shall comply with
all rules and regulations that may be hereafter promulgated by Landlord with
respect to the parking of automobiles in said parking areas. Unless otherwise
provided in the Lease, Tenant will be entitled to use parking spaces based on a
ratio of 4.0 cars for every 1,000 square feet of useable area of the Premises
during the term of the Lease. Tenant's use of the parking spaces shall be
unassigned, unreserved, undesignated and non-exclusive.
Landlord reserves the right, except during the initial Lease term, to establish
and enforce parking charges and adjust the parking charges in Landlord's sole
and absolute discretion at any time after thirty (30) days prior written notice.
Parking charges shall constitute additional rent and shall be due and payable
(in addition to monthly base rent) in advance at the same place and at the same
time as the monthly base rent.
17
<PAGE>
Landlord reserves the right to assign and reassign, from time to time, parking
spaces for use by persons as specifically designated by Landlord. Tenant shall
not park in any numbered space or any space designated as reserved, handicapped,
visitor, time-limited, loading or other similar restricted designation. Landlord
further reserves the right to restrict parking by tenants, their officers,
agents and employees to employee parking areas; to discourage non-customer
parking; and to close all or any portion of the parking areas to such extent as
may, in the opinion of Landlord's counsel, be legally sufficient to prevent a
dedication thereof or the accrual of any rights to any person or the public
therein.
Neither Landlord nor any operator of the parking areas shall be liable for any
loss of, or damage to any automobile parked in the parking areas, any contents
of such automobile, accessories to any such automobile, or any property left in
any of the parking areas, resulting from fire, theft, vandalism, accident,
conduct of other users of the parking areas and other persons, or any other
casualty or cause, including negligence or misconduct by Landlord, its agents,
employees or operators. Landlord shall not be liable to Tenant for any
unavailable parking spaces, or will the unavailability of parking spaces entitle
Tenant to any offset, deduction or allowance under the terms of the Lease.
Tenant acknowledges and agrees that (a) Landlord will not be obligated to
provide any traffic control, security protection or operator for the parking
areas; (b) Tenant uses the parking areas at its own risk; and (c) Landlord will
not be liable for personal injury or death, or theft, loss of, or damage to
property occurring in the parking areas.
Tenant waives and releases Landlord from any and all liability arising out of
the use of the parking areas by Tenant, its employees, agents, invitees, and
visitors.
If the parking areas are damaged or destroyed, or if the use of the parking
areas is limited or prohibited by any governmental entity or authority, or the
use or operation of the parking areas is limited or prevented by strike or other
labor difficulties or other causes beyond Landlord's control, Landlord shall not
be liable to Tenant for any inconvenience or damages caused to Tenant. Tenant's
inability or prevention from using said parking areas shall riot subject
Landlord or any operator to any liability to Tenant and shall not release Tenant
of any of its obligations under the Lease and the Lease shall remain in full
force and effect.
42. TEMPORARY PREMISES
Landlord will permit Tenant to occupy Suite 104 located at 16855 West Bernardo
Drive upon Landlord's receipt of this Lease executed by the Tenant which is also
accompanied by first months rent and three (3) months security deposit for Suite
250. The Tenant will pay Landlord a total of Three Thousand Dollars ($3,000.00)
plus any pro rata share of utilities for its occupancy of Suite 104. The term of
this temporary premises shall commence on approximately Monday, August 30, 1999
(subject to the receiving of the signed lease, check, and all necessary
insurance) and end when the Tenant Improvements are completed for Suite 250, but
in no event shall the term extend beyond November 30, 1999.
43. ADA AND LIFE SAFETY COMPLIANCE
If necessary, Landlord will make modifications in the common areas of the
project to comply with ADA. Landlord will accept its responsibility and the
costs associated therewith so long as it is deemed required by the governmental
agency having jurisdiction thereof, and if not required due to Tenant's specific
use of premises; or, if appropriate, Landlord will be able to secure an
Unreasonable Hardship Exemption for the benefit of Tenant and Landlord. However,
Tenant shall be responsible for any ADA requirements within the premises after
Landlord delivers the fully permitted premises meeting the code as of the date
of the permit. Further, Tenant shall be responsible for complying with all codes
and regulations and regulations relating to its own specific required
improvements within the premises.
44. RENEWAL OPTION
Landlord grants Tenant one (I) option to extend the lease term for an additional
term of three (3) years on the same terms and conditions as set forth in the
lease except that the rental rate shall be at the then prevailing market rate
for comparable space in comparable buildings. Said option shall be exercised
only by written notice delivered to Landlord at least one hundred twenty (120)
days prior to the expiration of the lease term.
18
<PAGE>
45. SIGNAGE
Tenant shall be entitled to standard building and suite directory signage. All
costs of associated with the purchase, installation, maintenance, and the
eventual removal of said signage shall be borne exclusively by the Tenant, but
the costs may be deducted from the Tenant Improvement Allowance stated in
Exhibit "B" of this lease. All signage shall conform with all City of San
Diego's rules and regulations.
46. HAZARDOUS MATERIALS
46.1 Tenant agrees that Tenant, its agents and contractors, licensees, or
invitees shall not handle, use, manufacture, store or dispose of any flammables,
explosives, radioactive materials, hazardous wastes or materials, toxic wastes
or materials, or other similar substances, petroleum products or derivatives
(collectively "Hazardous Materials") on, under, or about the Premises, without
Landlord's prior written consent (which consent may be given or withheld in
Landlord's sole discretion), provided that Tenant may handle, store, use or
dispose of products containing small quantities of Hazardous Materials, which
products are of a type customarily found in offices and households (such as
aerosol cans containing insecticides, toner for copies, paints, paint remover,
and the like) provided further that Tenant shall handle, store, use and dispose
of any such Hazardous Materials in a safe and lawful manner and shall not allow
such Hazardous Materials to contaminate the Premises or the environment.
46.2 Without limiting the above, Tenant shall reimburse, defend, indemnify
and hold Landlord harmless from and against any and all claims, losses,
liabilities, damages, costs and expenses, including without limitation, loss of
rental income, loss due to business interruption, and attorneys' fees and costs,
arising out of or in any way connected with the use, manufacture, storage, or
disposal of Hazardous Materials by Tenant, its agents or contractors on, under
or about the Premises including, without limitation, the costs of any required
or necessary investigation, repair, cleanup or detoxification and the
preparation of any closure or other required plans in connection herewith,
whether voluntary or compelled by governmental authority. The indemnity
obligations of Tenant under this clause shall survive any termination of the
Lease.
46.3 Notwithstanding anything set forth in this Lease, Tenant shall only
be responsible for contamination of Hazardous Materials or any cleanup resulting
directly therefrom, resulting directly from matters occurring or Hazardous
Materials deposited (other than by contractors, agents or representatives
controlled by Landlord) during the Lease term, and any other period of time
during which Tenant is in actual or constructive occupancy of the Premises.
Tenant shall take reasonable precautions to prevent the contamination of the
Premises with Hazardous Materials by third parties.
46.4 It shall not be unreasonable for Landlord to withhold its consent to
any proposed Assignment or Sublease of (i) the proposed Assignee's or
subtenant's anticipated use of the premises involves the generation, storage,
use, treatment or disposal of Hazardous Materials; (ii) the proposed Assignee or
subtenant has been required by any prior Landlord, lender, or governmental
authority to take remedial action in connection with Hazardous Materials
contaminating a property if the contamination resulted from such Assignee's or
subtenant's actions or use of the property in question; or (iii) the
proposed Assignee or subtenant is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal, or storage of
hazardous material.
47. SQUARE FOOTAGE VERIFICATION
Upon final agreement as to the Space Plan (Exhibit "B") for Suite 260 this Lease
shall be amended to confirm the resulting change in square footage change (if
any). Additionally, all appropriate numbers that are affected by a square
footage change (if any) e.g., rent, tenant's proportionate share, security
deposit, etc., shall be documented in the previously mentioned Amendment.
48. CORPORATE AUTHORITY
If Tenant is a corporation, Tenant represents and warrants that this Lease and
the undersigned's execution of this Lease has been duly authorized and approved
by the corporation's Board of Directors. The undersigned officers and
representatives of the corporation executing this Lease on behalf of the
corporation represent and warrant that they are officers of the corporation with
authority to execute this Lease on behalf of the corporation.
19
<PAGE>
LANDLORD: TENANT:
BERNARDO/THREE FLAGS, INC., SourcingLink.net, Inc.
a Delaware Corporation a Delaware Corporation
By: By:
---------------------- ---------------------------
Jill E Shanahan Sean M. Maloy
Title: Vice President Title: CEO and President
Dated: Dated:
------------------- ------------------------
20
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE, dated this 4th day of October, 1999 between
Bernardo/Three Flags, Inc., a Delaware Corporation ("Landlord") and
SourcingLink.net, Inc. ("Tenant"), for the premises located in the City of San
Diego, County of San Diego, State of California, commonly known as Suite 250,
16855 West Bernardo Drive, San Diego, California 92127 (Bernardo Executive
Center) ("Premises").
- --------------------------------------------------------------------------------
Page 1 of 1
WITNESSETH:
WHEREAS, Landlord and Tenant entered into that certain Lease dated August
25, 1999 (hereinafter collectively referred to as the "Lease"); and
WHEREAS, now, therefore:
1. Definitions. Unless otherwise specifically set forth herein, all
-----------
capitalized terms herein shall have the same meaning as set forth in the Lease.
a. Use & Premises Rentable Area: General office use as allowed under
----------------------------
existing zoning, consisting of approximately of 8,373 rentable feet.
b. Initial Annual Rent (Article 3): $185,880.60 plus electricity.
-------------------------------
c. Initial Monthly Installment of Annual Rent (Article 3): $15,490.05
------------------------------------------------------
plus electricity.
d. Tenant's Proportionate Share: 4.91%.
----------------------------
e. Security Deposit: Security Deposit of $46,470.15.
----------------
f. Rent Schedule: (Article 39)
-------------
Rent for the Period: Months 1, 8-12 shall be $15,490.05 per month
Rent for the Period: Month 2-7 shall be $ 7,745.03 per month
Rent for the Period: Year 2 shall be $16,032.20 per month
Rent for the Period: Year 3 shall be $16,593.44 per month
2. Incorporation. Except as modified herein, all other terms and conditions
-------------
of the Lease between the parties above described, as attached hereto, shall
continue in full force and effect.
3. Limitation of Landlord's Liability. Redress for any claims against
----------------------------------
Landlord under this Amendment or under the Lease shall only be made against
Landlord to the extent of Landlord's interest in the property to which the
Premises are a part. The obligations of Landlord under this Amendment and the
Lease shall not be personally binding on, or shall any resort be had to the
private properties of, any of its trustees or board of directors and officers,
as the case may be, the general partners thereof or any beneficiaries,
stockholders, employees or agents of Landlord, or its investment manager.
LANDLORD: TENANT:
BERNARDO/THREE FLAGS, INC. SOURCINGLINK.NET, INC.
A Delaware Corporation a California Corporation
By: By: /s/ SEAN M. MALOY
--------------------------- -----------------------------
Jill E. Shanahan Sean M. Maloy
<PAGE>
EXHIBIT 10.5
[LETTERHEAD OF QCS.NET APPEARS HERE]
April 30, 1999
Gary Davidson
1852 Coltridge Place
Escondido, California 92029
Dear Gary:
We are pleased to offer you the position of Vice President of Finance and
Chief Financial Officer of QCS.net Corporation (the "Company"), reporting to the
Chief Executive Officer of the Company. Your base salary will start at
$14,166.67 per month. In addition to your base salary, you shall be eligible for
an annual performance bonus of up to $59,500(35% of your annual base salary),
which shall be based upon the attainment of certain objectives to be mutually
determined by the Chief Executive Officer and you. We would anticipate your
start date to be no later than June 1, 1999, and will work to permit you to
concurrently fulfill any remaining reasonable commitments from your current
position.
Upon commencement of your employment (the "Effective Date") the Company
will grant you a stock option to purchase 300,000 shares of the Company's
Common Stock at an exercise price equal to the closing price of the Company's
Common Stock on the Effective Date, which option shall vest over a period of
four (4) years at the rate of 25% per year on each anniversary of the Effective
Date.
As a regular employee of the Company, you will be eligible for four (4)
weeks of vacation per year, coverage under the Company's group medical and
dental plans, and the other benefits that the Company provides from time to time
to comparable employees. In addition, during the term of your employment the
Company will pay the cost of your universal life insurance coverage, up to a
maximum of $2,500 per year. You will also be reimbursed for all reasonable
business expenses, including commuting expenses for travel between San Diego and
San Jose, subject to your compliance with the Company's reimbursement policies.
Employment with the Company is not for a specific term and can be
terminated by yourself or by the Company at any time for any reason, with or
without cause. Any contrary representations which have been made or which may be
made to you are superseded by this offer. This provision can only be changed or
revoked in a formal written contract signed by the Chief Executive Officer of
the Company, and cannot be changed by any express or implied agreement based on
statements or actions.
This letter sets forth the entire agreement between you and the Company.
Once signed by you and ratified by the Company's Board of Directors, it will
become a legally binding contract, and will supersede all prior discussions,
promises, and negotiations. Any additions or modifications of these terms would
have to be in writing and signed by yourself and the Chief Executive Officer.
Your employment pursuant to this offer is contingent upon you executing the
enclosed Proprietary Information and Inventions Agreement, upon you providing
the Company with the legally required proof of your identity and authorization
to work in the United States, and upon your continued compliance with the
Company's policies and procedures as established from time to time.
<PAGE>
2
I am very excited about the opportunity to work together again. I believe
that with the proper team and level of dedication, we will build a successful
business together in the exciting world of the Internet. If you accept the
above-described offer, please return to me a signed copy of this letter and the
executed Proprietary Information and Inventions Agreement. This offer, if not
accepted, will expire on May 6, 1999.
Sincerely,
QCS.NET CORPORATION
By: /s/ Sean Maloy
______________________
Sean Maloy,
Chief Executive Officer
I accept this offer:
/s/ Gary Davidson
______________________________ ________________
Gary Davidson Date
cc: Marcel VanHeesewijk
<PAGE>
Offer Letter to Gary Davidson
Addendum A
Should Sean Maloy cease to be employed by QCS.net for any reason other than
termination for cause, Gary Davidson will be entitled to six months severance
pay should he also cease to be employed by QCS.net for any reason other than
termination for cause.
The exercise price for the stock option to purchase 300,000 shares of the
Company's Common Stock will be at an exercise price equal to the closing price
of the Company's Common Stock on the date of employment. Any stock options which
have not vested will be accelerated and treated as fully vested at any time
during the four year vesting period if there is a change in control of the
Company.
These amendments to the Offer Letter are accepted by:
/s/ SEAN MALOY /s/ GARY DAVIDSON
- ------------------------------- -------------------------------
Sean Maloy Gary Davidson
Chief Executive Officer
5-5-99
- ------------------------------- -------------------------------
Date Date
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THREE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000825517
<NAME> SOURCINGLINK.NET
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,259
<SECURITIES> 0
<RECEIVABLES> 221
<ALLOWANCES> 30
<INVENTORY> 0
<CURRENT-ASSETS> 167
<PP&E> 396
<DEPRECIATION> 198
<TOTAL-ASSETS> 7,896
<CURRENT-LIABILITIES> 1,174
<BONDS> 0
0
3
<COMMON> 7
<OTHER-SE> 6,712
<TOTAL-LIABILITY-AND-EQUITY> 7,896
<SALES> 0
<TOTAL-REVENUES> 288
<CGS> 0
<TOTAL-COSTS> 145
<OTHER-EXPENSES> 1,055
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (913)
<INCOME-TAX> 0
<INCOME-CONTINUING> (913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (913)
<EPS-BASIC> (.14)
<EPS-DILUTED> (.14)
</TABLE>
