FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999 OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from Not Applicable to
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Commission file number 0-17840
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NEW HORIZONS WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-2941704
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1231 East Dyer Road
Santa Ana, California 92705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 432-7600
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
Not Applicable Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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Title of Class
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of March 24, 2000 was approximately $104,120,592 computed on the
basis of the last reported sales price per share ($16.00) of such stock on The
Nasdaq Stock Market.
The number of shares of the Registrant's Common Stock outstanding as of March
24, 2000 was 9,692,438.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE
Part of Form 10-K Documents Incorporated
- ----------------- by Reference
Part III (Items 10, 11, 12 and 13) ---------------------------------------
Portions of the Registrant's definitive
Proxiy Statement to be used in
connection with its Annual Meeting of
Stockholders to be held on May 2, 2000
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NEW HORIZONS WORLDWIDE, INC.
INDEX TO ANNUAL REPORT
ON FORM 10K
PART I
Item 1. Business..............................................................1
General...............................................................1
Information Technology Education and Training Market..................2
New Horizons Business Model...........................................3
Company-owned Training Centers...................................3
Franchising......................................................4
Customers.............................................................7
Sales and Marketing...................................................7
Training Authorizations...............................................7
Competition...........................................................8
Information about Forward Looking Statements..........................9
Regulations...........................................................9
Insurance.............................................................9
Trademarks............................................................9
Employees............................................................10
Item 2. Properties...........................................................10
Item 3. Legal Proceedings....................................................10
Item 4. Submission of Matters to a Vote of Security Holders..................10
PART II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters....................................11
Item 6. Selected Consolidated Financial Data.................................12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................3
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ..........17
Item 8. Financial Statements and Supplementary Data..........................17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................17
PART III
Item 10. Directors and Executive Officers of the Registrant...................18
Item 11. Executive Compensation...............................................19
Item 12. Security Ownership of Certain Beneficial Owners and Management.......19
Item 13. Certain Relationships and Related Transactions.......................19
PART IV
Item 14. Exhibits and Reports on Form 8-K ....................................20
SIGNATURES...........................................................21
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to, those
discussed throughout this document and under the caption "Information About
Forward Looking Statements."
New Horizons Worldwide, Inc., (the "Company" or "New Horizons") formerly Handex
Corporation, through various subsidiaries, both owns and franchises computer
training centers. System-wide revenues include revenues for all centers, both
owned and franchised. The Company sold its environmental business segment and
changed its name to New Horizons in late 1996, in order to concentrate its
resources on the technology training market. The Company's common stock trades
on The Nasdaq Stock Market under the symbol "NEWH".
GENERAL
New Horizons' 1999 system-wide revenues of $435.1 million makes it the largest
independent provider in the fragmented PC software applications and technical
certification training industry. Through various subsidiaries, the Company both
owns and franchises computer training centers. Through these training centers
the Company offers a variety of flexible training choices including
instructor-led training (ILT), Web-based training (WBT), Computer-based training
(CBT) via CD-ROM, computer labs, certification exam preparation tools, and
24-hour, seven-day-a-week free help desk support. The goal of the training is to
deliver to the student information and skills which have immediate and practical
value in the workplace.
The New Horizons worldwide network delivered over 2.4 million student-days of
technology (IT) training in 1999, generating system-wide revenues, which include
both the results of company-owned and franchised operations, of $435.1 million,
up 21.7% from $357.5 million in 1998. The network has over 1,200 classrooms,
1,400 instructors and 1,300 account executives.
New Horizons specializes in instructor-led training which is the industry's
dominant delivery method for information technology (IT) training. The Company
has become a leader in the industry by developing the processes for delivering
quality training for the largest technology training segments: PC software
applications and technical certification training. The network's training
centers offer a broad range of courses for several of the major software
vendors, including Microsoft, Novell, Lotus, Adobe, Aldus, Apple Computer,
Corel, Symantec, Sun Microsystems, and Unix. New Horizons has the largest
network of Microsoft Certified Technical Education Centers and Novell Authorized
Education Centers in the world. Additionally, with certification testing
becoming increasingly important, New Horizons also has established the largest
number of Authorized Prometric Testing Centers in the world. Classes can be held
at New Horizons locations or on-site at the client's facility. Curriculum can be
tailored to the client's specific needs. The Company can also provide training
and courseware for customers' proprietary software. Additionally, using its
courseware as the source material, the Company has entered into an arrangement
with a company to develop its own line of computer-based products, entitled
Masterware, which became available to franchisees for sale in the third quarter
of 1997. The Company also has a reseller agreement with a company that has an
extensive offering of computer-based training courses that will prepare
customers for certification exams.
New Horizons owns and operates 26 computer training facilities located in Santa
Ana, Burbank, Los Angeles, Irvine, Long Beach, Sacramento, Stockton, Modesto and
Redding, California; Albuquerque, New Mexico; Charlotte, North Carolina; San
Antonio, Texas; and Denver, Englewood, Broomfield and Colorado Springs,
Colorado; two in Chicago, Illinois; Cleveland and Akron, Ohio; two in New York
City, New York; Memphis, Jackson and Nashville, Tennessee; and Hartford,
Connecticut.
As of December 31, 1999, the Company's franchisees operated 121 locations in the
United States and Canada and 83 locations in 38 other countries around the
world. An additional 38 franchises had been sold as of that date and are
scheduled for future openings.
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The Company was incorporated in Delaware on December 15, 1988, and its principal
executive offices are located 1231 East Dyer Road, Suite 140, Santa Ana,
California 92705. The Company maintains a website at http://www.newhorizons.com.
THE INFORMATION TECHNOLOGY EDUCATION AND TRAINING MARKET
The rapidly growing role of information technology in business organizations and
the emergence of the Internet are creating significant and increasing demand for
information technology training. A 1999 International Data Corporation ("IDC")
study estimated that in 1998 the worldwide market for information technology
education and training was about $16.5 billion and is expected to grow at a pace
of 11% per year to over $28 billion in the year 2003. The study indicated that
nearly one-fifth of the top U.S. IT executives rated the lack of skilled
personnel as the most serious constraint to the growth of their businesses in
1998. A survey published in 1997 by Information Technology Association of
America (ITAA) stated that the number of unfilled positions for IT employees at
large and midsized U.S. companies is approximately 190,000.
The growing need for technology training is driven by several developments
including: (i) increased use of computers in the workplace requiring employees
to acquire and apply information technology skills; (ii) rapid and complex
technological changes in operating systems, new software development, and
technical training; (iii) continuing emphasis by industry on productivity,
increasing the number of functions being automated throughout organizations;
(iv) greater focus by organizations on core competencies with a shifting
emphasis to outsourcing of non-core activities; (v) corporate downsizing
requiring remaining personnel to develop a greater variety of skills; and (vi)
development of the Internet. In its survey, the ITAA announced that education
will be a key facet of any solution to the skills problem.
Although a significant portion of technology training is provided by in-house
training departments, IDC, in its study, identified a decided shift towards
outsourcing to external training professionals. This outsourcing is motivated by
several factors, including: (i) the lack of internal trainers experienced in the
latest software; (ii) the cost of maintaining an in-house staff of trainers; and
(iii) the cost of developing and maintaining internal courseware.
Organizations are searching out and selecting outside technology training
services that can provide the following: (i) cost effective delivery of high
quality instruction; (ii) qualified, technically expert instructors; (iii)
flexibility to deliver a consistent training product at geographically dispersed
facilities; (iv) ability to tailor the training products to specific customers'
needs; (v) definitive, current courseware; (vi) testing and certification of
technical competency; (vii) effective training methods delivering knowledge and
skills with immediate practical value in the workplace; (viii) a depth and
breadth of curriculum; and (ix) flexible and convenient scheduling of classes.
Instructor-led classroom training is the dominant delivery method for technology
training in the U.S. with 75% of the information technology education market
according to the 1999 IDC report. IDC projects that instructor-led training will
continue to maintain a significant share of the market because trainees value
the personalized attention, interfacing and problem-solving with classmates and
instructors, and the insulation classroom training provides from workplace
interruptions. While IDC projects instructor-led training will continue to be
the leading delivery method in the market through 2003, the role of
technology-based training, consisting of computer-based training, Web-based
training, and CD-ROM multimedia is gaining greater acceptance. IDC estimates
that technology-based training will have 46% of the information technology
education market by 2003 while instructor-led classroom training will have 51%.
THE NEW HORIZONS BUSINESS MODEL
New Horizons' company-owned and franchised operations both provide an
instructor-led training delivery system to customers that is executed by
certified employee instructors primarily in fully equipped classrooms in New
Horizons facilities. Approximately 10% of classes are given on-site at the
customer's location. New Horizons often supplies the computer hardware for these
on-site classes. The Company sells its services primarily to businesses and
government agencies as opposed to individuals.
Curriculum is centered on software applications (approximately 52% of the
courses) and technical certification programs (approximately 48%). Classes are
concise, generally ranging from one to five days, and are designed to be
intensive skill-building experiences. The Company offers a broad array of
information technology courses covering the most popular software applications
and technical certification programs. The Company also provides customized
training for customers' proprietary software applications. The Company believes
it offers more classes more often than any other company in the industry.
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In addition to certified instructors and broad curriculum, the New Horizons
business model is designed to provide its customers significant training value
by featuring: (i) guaranteed training through the Company's free six-month
repeat privileges; (ii) skills assessment on subjects and skills for both
standard or proprietary software; (iii) professional certification training;
(iv) the largest network of authorized training centers in the industry ensuring
quality and consistency; (v) free 24 hours-a-day, 7 day-a-week help desk service
for a full sixty-day period after a class has been completed; (vi) on-site
training at customer's facilities; (vii) customized courseware from a library of
over 1,200 titles in 14 languages; (viii) club memberships providing a series of
classes for one platform at one low price; (ix) flexible scheduling including
evening and weekend classes; (x) a Corporate Education Solutions program, (CES),
formerly Major Accounts Program, which coordinates a national/international
referral system and delivery network of training for major clients which have
training requirements in multiple locations; and (xi) its Choice Learning
program which allows customers to blend the delivery methodology between
instructor-led training and technology-based training.
New Horizons believes that while Web-based training will become more prevalent,
the instructor will continue to play a critical role in the delivery of IT
education. The instructor naturally facilitates a structured learning
environment where students are focused on achieving course objectives, thereby
giving employers greater confidence that their training investment is maximized.
The Company believes these functions will continue to be critical in the future,
even as technology becomes a more pervasive part of the training curriculum.
New Horizons' existing Web-based training provides a rich, interactive
environment that teaches, prompts, and uses on-line tutors to guide students
through specific learning objectives. Created specifically for the Web by
recognized experts in the field, these in-depth courses give the user valuable
real-world skills and cover the most cutting edge technology topics. Since the
courses reside in a hosted server, there is no need for specialized software or
hardware.
New Horizons is developing a plan to create a new, fully Web-based training
curriculum. Through this strategy, the Company plans to achieve content parity
across its ILT, CBT and WBT product lines. This will add simplicity to the
account executive's sales process, which is presently biased towards
ILT-products, and will facilitate the selection of optimal training packages for
prospective customers.
The Company has historically grown through the sale of franchises, the opening
of new company-owned facilities, the buy back of franchises in certain markets,
and revenue growth from the existing training centers. Revenues at locations
open more than twelve months grew approximately 15% in 1999. The Company
believes a mix of franchised and company-owned centers will enable it to combine
the accelerated expansion opportunities provided by franchising while
maintaining ownership of a significant number of training centers. The Company
plans to continue to grow through the (i) improvement of revenues and profits at
both current company-owned and franchised operating locations; (ii) the sale of
additional franchises; (iii) the selective buyback of existing franchises in the
United States which have demonstrated the ability to achieve above average
profitability while increasing market share, and (iv) the potential acquisition
of companies in similar or complementary businesses.
Company-owned Training Centers
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At the end of 1999 the Company owned and operated 26 training centers that
generated $86.5 million in revenue. The locations open at the beginning of 1999
were as follows:
California Connecticut Illinois New York Ohio Tennessee
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Santa Ana Hartford Chicago New York (2) Cleveland Memphis
Irvine Nashville
Burbank Jackson
Los Angeles
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The franchise locations acquired in 1999 were as follows:
Albuquerque, New Mexico Acquired March 1, 1999
Charlotte, North Carolina Acquired April 1, 1999
Sacramento, Stockton and Redding, California Acquired April 1, 1999
San Antonio, Texas Acquired May 1, 1999
Denver, Englewood, Broomfield and Acquired September 1, 1999
Colorado Springs, Colorado
Additionally, the Company opened locations in Long Beach and Modesto,
California, Akron, Ohio, and Rosemont, Illinois in 1999.
The acquisitions are a result of the Company's strategy to acquire well
performing franchises in select United States markets. The selling shareholders,
other than the former owner of the Sacramento and Stockton franchises, have
continued to manage the acquired training centers, and will receive additional
consideration if certain performance criteria are met. The acquisitions have
been recorded using the purchase method of accounting and the operating results
have been included in the Company's financial statements from the date of
acquisition.
Franchising
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At the end of 1999 the Company supported a worldwide network of independent
franchises which provide information technology training at 204 locations in 40
countries. There were an additional 38 franchised locations which had been sold
and which are scheduled to open at various times during 2000. The franchisee is
given a non-exclusive license and franchise to participate in and use the
business model and sales system developed and refined by the Company. The
Company initially offered franchises for sale in 1991 and sold its first
franchise in 1992. The Company had 175 franchised locations operating at the end
of 1997; 194 at the end of 1998; and 204 at the end of 1999, of which 121 were
in the United States and Canada and 83 were abroad.
The offer and sale of franchises are subject to regulation by the United States
Federal Trade Commission and certain foreign countries. There also exist
numerous state laws that regulate the offer and sale of franchises and business
opportunities, as well as the ongoing relationship between franchisors and
franchisees, including the termination, transfer, and renewal of franchise
rights. The failure to comply with these laws could adversely affect the
Company's operations.
New Horizons estimates the initial investment required to acquire and start a
franchise operation, including the initial franchise fee, ranges from
approximately $250,000 to $450,000.
United States and Canada
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Franchise Fees
A franchisee in the United States and Canada is charged an initial franchise fee
and ongoing monthly royalties, which become effective a specified period of time
after the center begins operation. The initial franchise fee is based on the
size of the territory granted as defined in the Franchise Agreement. In the
United States and Canada, the size of a territory is measured by the number of
personal computers ("PC's") in the territory. The initial franchise fee for a
start-up center for a Type 1 territory (150,000 or more PC's) is $75,000; for a
Type 2 territory (75,000 to 149,999 PC's) is $50,000; and a Type 3 territory
(50,000 to 75,000 PC's) is $25,000. Entrepreneurs converting an existing
training center to a New Horizons center receive a 20% reduction in the initial
fee as a conversion allowance. Based on information furnished by IDC concerning
the number of PC's in various geographic areas, as of December 31, 1999, the
Company has identified 31 Type 1 territories, 25 Type 2 territories, and 18 Type
3 territories as the remaining territories currently available for sale as
franchises in the United States and Canada.
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The initial franchise fee is payable upon execution of the Franchise Agreement
and is not refundable under any circumstances. The territory is a "limited
exclusive" territory in that New Horizons agrees not to own or franchise any
other New Horizons Computer Learning Center provided the franchisee operates in
compliance with the terms of its franchise agreement. The geographic boundaries
of a territory are typically determined by United States Postal Service zip
codes. Unless the Franchise Agreement terminates or is amended by mutual
agreement, a territory will not be altered. Franchises are expected to market
their business to customers located within the defined territory and not to
customers within territories of other New Horizons franchises or affiliates.
Franchisees generally have six months from the date of the execution of the
Franchise Agreement to open a center.
Royalties
In addition to the initial franchise fee, franchisees pay the following fees to
New Horizons: (i) a monthly continuing royalty fee, consisting of the greater of
3% to 6% of monthly gross revenues or a minimum flat fee of $1,500 for a Type 1
territory or $1,000 for a Type 2 and Type 3 territory; (ii) a monthly marketing
and advertising fee of 1% of gross revenues; and (iii) a course materials and
proprietary computer-based training products surcharge of 9% of the gross
revenues from course materials and proprietary computer-based training products
sold to third parties. Each franchisee also pays a $50 per month maintenance fee
for customized software developed and maintained by New Horizons. The 6% royalty
fee rate was effective for franchises sold during September 1996 or later.
Franchise Agreement
The Franchise Agreement runs for an initial term of ten years and is renewable
for additional five-year terms. The franchise is exclusive within the specific
defined territory and is subject to a number of limitations and conditions.
These limitations and conditions include, but are not limited to: (i) staffing
requirements, including a General Manager plus a minimum number of account
executives based on the territory type; (ii) a minimum number of classrooms
depending on the territory type; (iii) full-time and continuous operations; (iv)
a pre-defined minimum required curriculum; (v) computer equipment and system
requirements; (vi) signage and display material requirements; (vii) minimum
insurance requirements; and (viii) record keeping requirements. The agreement
also contains non-competition restrictions which bar: (i) competing with New
Horizons during the term of the Franchise Agreement and for one year after
termination of the franchise, within a 25 mile radius of any New Horizons
center; (ii) diverting or attempting to divert any customer or business of the
franchise business to any competitor; (iii) performing any act that is injurious
or prejudicial to the goodwill associated with the New Horizons service marks or
operating system; and (iv) soliciting any person who is at that time employed by
the franchisor or any of its affiliated corporations to leave his or her
employment. In addition, there are certain restrictions on the franchisees'
rights to transfer the franchise license. New Horizons also maintains a "right
of first refusal" if a transfer effects a change of control. The agreement also
contains default and termination remedies.
International
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Franchise Fees
Initial franchisee fees and territories for international franchises are
market/country specific. While the Company does have some unit franchises
internationally, the Company has predominantly entered into Master Franchise
Agreements providing franchisees with the right to award sub-franchises to other
parties within a particular region. The Master Franchisee pays an initial master
franchise fee that is based upon the expected number of sub-franchises to be
sold. The master franchise fee is then earned ratably over the opening of the
sub-franchises. Under the terms of these Master Franchise Agreements, the
franchisee commits to open or cause to be opened a specified number of locations
within a specified time frame. The Master Franchisee is responsible for the
pre-opening and ongoing support of the sub-franchises. The Company shares with
the Master Franchisee in the proceeds of subsequent sales of individual
franchises and also receives a percentage of the royalties received by the
Master Franchisee. In 1999 the Company entered into Master Franchise Agreements
for the development of Bolivia, Columbia, France, Greece, Lebanon, Pakistan,
Peru and Venezuela. Approximately 17.6% of the Company's system-wide revenues
were generated by international locations in 1999. In addition to those markets
currently served by its franchisees, the Company has identified over 200
additional international markets that may support a training center.
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The initial franchise fee is payable upon execution of the Franchise Agreement
and is not refundable under any circumstances. The territory is a "limited
exclusive" territory in that New Horizons agrees not to own or franchise any
other New Horizons Computer Learning Center provided the franchisee operates in
compliance with the terms of its Franchise Agreement. Unless the Franchise
Agreement terminates or is amended by mutual agreement, a territory will not be
altered. Franchises are expected to market their business to customers located
within the defined territory and not to customers within territories of other
New Horizons franchises or affiliates. Franchisees generally have six months
from the date of the execution of the Franchise Agreement to open a center.
Royalties
In addition to the initial franchise fee, franchisees pay the following fees to
New Horizons: (i) Unit Franchisees: a monthly continuing royalty fee, ranging
from 3% to 6% of monthly gross revenues with minimum royalties ranging from $350
to $3,000, depending on the marketplace; (ii) Master Franchisees: 40% of the
royalties received from their Subfanchisees with those royalties ranging from 3%
to 6% with the aforementioned minimums; and (iii) a course materials and
proprietary computer-based training products surcharge of 9% of the gross
revenues from course materials and proprietary computer-based training products
sold to third parties. Each franchisee also pays a $50 per month maintenance fee
for customized software developed and maintained by New Horizons. The 6% royalty
fee rate was effective for franchises sold during September 1996 or later.
Master Franchise Agreement
A Master Franchisee receives a "Protected Area" which is typically a country or
a region encompassing multiple countries. Under the Master Franchise Agreement
the Master Franchisee shall: (i) license and service third party Unit
Subfranchises operated by persons other than the Master Franchisee and (ii) own
and operate at least one New Horizons location under a separate Unit Franchise
Agreement. The Master Franchise Agreement runs for an initial term of ten years
and is renewable for additional ten-year terms. The Master Franchisee is
expected to: (i) grant unit franchises in a form of Unit Franchise Agreement as
prescribed by New Horizons; (ii) perform and enforce against each Unit
Subfranchise the terms of any Unit Subfranchise Agreement it enters into; (iii)
provide the initial training in the New Horizons system to each Unit
Subfranchise; and (iv) provide ongoing support, consulting and assistance to
each Unit Subfranchise after the initial training. For these obligations the
Master Franchisee retains 60% of the initial franchise fees and the ongoing
royalties received from the Unit Subfranchises.
Unit Franchise Agreement
The Franchise Agreement runs for an initial term of ten years and is renewable
for additional five-year terms. The franchise is exclusive within the specific
defined territory, typically a city, and is subject to a number of limitations
and conditions. These limitations and conditions include, but are not limited
to: (i) staffing requirements, including a General Manager plus a minimum number
of account executives based on the territory; (ii) a minimum number of
classrooms depending on the territory; (iii) full-time and continuous
operations; (iv) a pre-defined minimum required curriculum; (v) computer
equipment and system requirements; (vi) signage and display material
requirements; (vii) minimum insurance requirements; and (viii) record keeping
requirements. The agreement also contains non-competition restrictions which
bar: (i) competing with New Horizons during the term of the Franchise Agreement;
(ii) diverting or attempting to divert any customer or business of the franchise
business to any competitor; (iii) performing any act that is injurious or
prejudicial to the goodwill associated with the New Horizons service marks or
operating system; and (iv) soliciting any person who is at that time employed by
the franchisor or any of its affiliated corporations to leave his or her
employment. In addition, there are certain restrictions on the franchisees'
rights to transfer the franchise license. New Horizons also maintains a "right
of first refusal" if a transfer effects a change of control. The agreement also
contains default and termination remedies.
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Franchise Support
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In return for the initial franchise fee and the other monthly fees, the Company
provides franchisees with the following services, products, and managerial
support: (i) two weeks of initial franchise training at the Company's operating
headquarters in Santa Ana, California, and one week of field training at the
franchisee's location; (ii) franchise and sales system information contained in
the Company's Confidential Operations Manual and other training manuals; (iii)
ongoing operating support via on-site visits from Regional Franchise Support
Managers, access to troubleshooting and business planning assistance; (iv)
current applications courseware at printing cost only (over 1,200 titles in
fourteen languages); (v) access to the Corporate Education Solutions program
which coordinates a national/international referral system and delivery network
of training for major clients which have training requirements in multiple
locations; (vi) site selection assistance; (vii) periodic regional and
international meetings and conferences; and (viii) advisory councils and monthly
communications.
CUSTOMERS
Customers for the training provided at New Horizons company-owned and franchised
training centers are predominantly employer-sponsored individuals from a wide
range of public and private corporations, service organizations, government
agencies and municipalities. Little, if any, of the Company's revenues are
generated from Title IV entitlement programs.
No single customer accounted for more than 10% of New Horizons revenues in 1999.
The New Horizons system delivered over 2.4 million student-days of technology
training in 1999.
SALES AND MARKETING
New Horizons markets its services primarily through account executives who
utilize telesales to target and contact potential customers. The New Horizons
sales system is organized and disciplined. After undergoing a formal initial
training program, account executives are expected to generate their own database
of customers through telephone sales, make a minimum number of calls per day,
and invoice and collect a minimum amount of revenue each month. These minimums
escalate over the first eight months an account executive is selling and are
designed to move the account executive from being compensated with a
non-recoverable draw against commission to a full commission compensation
program. Account executives' target sales areas are local and regional. Sales
opportunities that involve national and international accounts and involve
delivery of training at multiple locations are turned over to the Company's
Corporate Education Solutions program.
In 1995 the Company established it's major accounts program designed to market
computer training services to large organizations which have facilities and
training needs throughout the world. This program provides New Horizons'
national and international customers with a single point of contact to the
entire New Horizons network of training and support services. During 1999 New
Horizons competed for and won national and international contracts with Boeing,
GE Capital ITS, Honeywell International, Microsoft OEM Division, and Pitney
Bowes among others.
The Company maintains a web site for marketing its products over the Internet
(http://www.newhorizons.com). The Company believes that the Internet will become
an increasingly important tool in its marketing program.
TRAINING AUTHORIZATIONS
New Horizons is authorized to provide certified training by more than 30
software publishers, including Microsoft, Novell, Apple, and Sun Microsystems.
Many of the industry's major software vendors do not offer training, but support
their products through independent training companies using a system of
standards and performance criteria. In support of these vendors, the Company has
136 Microsoft (CTEC), 100 Novell (NAEC), and 28 Lotus (LAEC) authorized centers
worldwide. The authorization agreements are typically annual in length and are
renewable at the option of the publishers. While New Horizons believes that its
relationships with software publishers are good, the loss of any one of these
agreements could have a material adverse impact on its business. Additionally,
with certification testing becoming increasingly important, New Horizons has
grown its number of Authorized Prometric Testing Centers to 137.
7
<PAGE>
COMPETITION
The information technology training market is highly competitive, highly
fragmented, has low barriers to entry, and has no single competitor which
accounts for a dominant share of the market. The Company's competitors are
primarily in-house training departments and independent education and training
organizations. Computer retailers, computer resellers, and others also compete
with the Company. Periodically, some of these competitors offer instruction and
course titles similar to those offered by New Horizons at lower prices. In
addition, some of these competitors may have greater financial strength and
resources than New Horizons.
New Horizons believes that competition in the industry is based on a combination
of pricing, breadth of offering, quality of training, and flexibility and
convenience of service.
The Company recognizes that the emergence of computer-based training, as well as
distance learning and online training on the Internet, are important and growing
competitive developments in the industry.
In-house Training Departments
- -----------------------------
In-house training departments provide companies with the highest degree of
control over the delivery and content of information technology training,
allowing for customized instruction tailored to specific needs. However,
according to IDC, the demand for outsourced training is expected to grow as more
companies switch to outside training organizations. By outsourcing, companies
can choose to spend based on real-time training needs while alleviating the
overhead costs for in-house instructors' salaries and benefits.
Independent Education and Training Organizations
- ------------------------------------------------
Although the majority of independent training organizations are relatively small
and focus on local or regional markets, the Company competes directly on a
national level with several firms providing similar curriculum. Executrain,
Productivity Point, Global Knowledge Network, Learning Tree, and Catapult target
the same customer base and operate in some of the same markets as New Horizons.
The Company believes that the combination of its market presence, the depth and
breadth of its course offerings, its flexible customer service approach, its
centralized control of delivery to national customers, its status as the world's
largest network of Microsoft Certified Technical Education Centers and Novell
Authorized Education Centers, and its organized and disciplined sales system
distinguishes it from these competitors.
The Company also competes in certain locations with computer resellers like
Inacom and IKON, as well as computer retailers such as CompUSA.
Computer-based Training, Distance Learning, and Web-based Training
- ------------------------------------------------------------------
Instructor-led training has historically been the dominant delivery method for
information technology training. Multimedia, CBT, distance learning, and WBT
have been small but growing delivery methods. According to IDC, these training
delivery methods are expected to grow at a faster rate than instructor-led
training through the year 2003. The Company recognizes that its future success
depends on, among other factors, the market's continued acceptance of
instructor-led training as a delivery method for information technology
training, the Company's ability to continue to market competitive instructor-led
course offerings, and the Company's ability to successfully capitalize on the
potential of multimedia, CBT, distance learning, and WBT delivery methods. Using
its courseware as the source material, the Company has entered into an
arrangement with a company to develop its own line of computer-based products,
entitled Masterware, which became available to franchisees for sale in the third
quarter of 1997. As of December 31, 1999, there were 50 Masterware titles
available for sale. IDC's 1998 research found that IT professionals use 2.8
methods of study and preparation when preparing for certification exams. The
Company has a reseller agreement with a company that has an extensive offering
of CBT courses that will prepare customers for certification exams.
WBT represents an emerging trend in the computer training industry and IDC
estimates that the online learning market will increase from $440 million in
1998, to $5.3 billion by 2003. The Company has entered into an agreement with a
company that will allow New Horizons customers worldwide to have access to
tutor-supported WBT computer courses seven days a week, 24 hours a day.
8
<PAGE>
Information technology training can be broken into three segments: Segment 1
includes the most sophisticated levels of training for programmers and software
developers; Segment 2 includes certification for engineers (Microsoft, Novell);
and Segment 3 includes the end users of standard application software. While the
Company does very little training of programmers and software developers, it
does compete in Segments 2 and 3, with an estimated 48% of revenues from Segment
2 and 52% from Segment 3.
The Company competes with Catapult, Executrain, IKON, and Productivity Point in
Segments 2 and 3. The Company competes marginally with Learning Tree and Global
Knowledge Network in Segment 2.
INFORMATION ABOUT FORWARD LOOKING STATEMENTS
The statements made in this Annual Report on Form 10-K that are not historical
facts are forward looking statements. Such statements are based on current
expectations but involve risks, uncertainties, and other factors which may cause
actual results to differ materially from those contemplated by such forward
looking statements. Important factors which may result in variations from
results contemplated by such forward looking statements include, but are by no
means limited to: (i) the Company's ability to respond effectively to potential
changes in the manner in which computer training is delivered, including the
increasing acceptance of technology-based training, including through the
Internet, which could have more favorable economics with respect to timing and
delivery costs and the emergence of just-in-time interactive training; (ii) the
Company's ability to attract and retain qualified instructors and management
employees; (iii) the rate at which new software applications are introduced by
manufacturers and the Company's ability to keep up with new applications and
enhancements to existing applications; (iv) the level of expenditures devoted to
upgrading information systems and computer software by customers; (v) the
Company's ability to compete effectively with low cost training providers who
may not be authorized by software manufacturers; and (vi) the Company's ability
to manage the growth of its business.
The Company's strategy focuses on enhancing revenues and profits at current
locations, and also includes the possible opening of new company-owned
locations, the sale of additional franchises, the selective acquisition of
existing franchises in the United States which have demonstrated the ability to
achieve above average profitability while increasing market share, and the
acquisition of companies in similar or complementary businesses. The Company's
growth strategy is premised on a number of assumptions concerning trends in the
information technology training industry. These include the continuation of
growth in the market for information technology training and the trend toward
outsourcing. To the extent that the Company's assumptions with respect to any of
these matters are inaccurate, its results of operations and financial condition
could be adversely effected.
REGULATIONS
The offer and sale of franchises and business opportunities are subject to
regulation by the United States Federal Trade Commission, as well as many states
and foreign jurisdictions. There also exist numerous laws that regulate the
ongoing relationship between franchisors and franchisees, including the
termination, transfer and renewal of franchise rights. The failure to comply
with any such laws could have an adverse effect on the Company.
INSURANCE
The Company maintains liability insurance in amounts it believes to be adequate
based on the nature of its business. While the Company believes that it operates
its business safely and prudently, there can be no assurance that liabilities
incurred with respect to a particular claim will be covered by insurance or, if
covered, that the dollar amount of such liabilities will not exceed coverage
limits.
TRADEMARKS
The Company has issued trademark registrations and pending trademark
applications for the word mark "NEW HORIZONS" and for other trademarks
incorporating the words "NEW HORIZONS." The Company believes that the New
Horizons name and trademarks are important to its business. The Company has
obtained the European Community trademark which protects its name and mark
throughout the European Union. The Company is not aware of
9
<PAGE>
any pending or threatened claims of infringement or challenges to the Company's
right to use the New Horizons name and trademarks in its business. However, the
Company has been advised that it cannot register the word mark "NEW HORIZONS" in
certain foreign countries and that it cannot register or use any of the New
Horizons trademarks in Australia. The Company has an application filed with the
Australian trademark office to protect Skill Master as its trademark in
Australia, and its franchises there are using that name and trademark. The
Company believes that neither the pending claim nor the inability to register
certain of its trademarks in certain foreign countries will have a material
adverse effect on its financial condition or results of operations.
EMPLOYEES
As of February 29, 2000, the Company employed a total of 1,109 individuals in
its corporate operations and company-owned facilities. Of these employees, 374
are instructors, 263 are account executives, and 472 are administrative and
executive personnel. New Horizons also utilizes the services of outside contract
instructors to teach some of its curriculum, primarily technical certification
programs which require instructors who are certified by Microsoft, Novell, and
Lotus.
None of New Horizons' employees is represented by a labor organization. New
Horizons considers relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters and its flagship training center are
located in Santa Ana, California, pursuant to a lease, which expires in 2002.
The Company has signed a lease to relocate its corporate headquarters and the
Santa Ana training facility to Anaheim, California in 2001. The lease provides
for reimbursement of its Santa Ana lease costs through its expiration.
On October 2, 1998, the Company purchased 8.3 acres of undeveloped land in Santa
Ana, California for approximately $5.1 million. Until it signed the lease
discussed above the Company had intended to construct a building on the land to
serve as the world headquarters. With the signing of the lease the Company will
now market the land for sale.
As of December 31, 1999, New Horizons operated training centers at 25 other
leased facilities in California, Illinois, Ohio, Connecticut, New Mexico, North
Carolina, Texas, Tennessee and New York with leases that expire from 2000 to
2009.
The Company believes that its facilities are well maintained and are adequate to
meet current requirements and that suitable additional or substitute space will
be available as needed to accommodate any expansion of operations and for
additional offices if necessary.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in several lawsuits incidental to the ordinary conduct
of its business. Under the terms of the sale of the Company's environmental
business, the Company is also required to indemnify the purchaser against
liabilities arising out of pending litigation and from claims relating to the
performance of services prior to the sale. The Company does not believe that the
outcome of any or all these claims will have a material adverse effect upon its
business or financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common stock is traded on The Nasdaq Stock Market under the symbol NEWH. The
following table sets forth the range of high and low bid quotations per share of
common stock from January 1, 1998, through December 31, 1999, as reported by The
Nasdaq Stock Market.
1999 HIGH LOW
- ---- ---- ---
1st Quarter ............ (January 1 - March 31) 18.30 15.00
2nd Quarter ............ (April 1 - June 30) 19.75 14.30
3rd Quarter ............ (July 1 - September 30) 19.75 15.38
4th Quarter ............ (October 1 - December 31) 15.88 11.38
1998 HIGH LOW
- ---- ---- ---
1st Quarter ............ (January 1 - March 31) 12.40 9.80
2nd Quarter ............ (April 1 - June 30) 16.00 10.80
3rd Quarter ............ (July 1 - September 30) 18.00 13.30
4th Quarter ............ (October 1 - December 31) 18.50 11.30
As of March 10, 2000, the Company's common stock was held by 298 holders of
record. The Company has never paid cash dividends on its common stock and has no
present intention to pay cash dividends in the foreseeable future. The Company
currently intends to retain any future earnings to finance the growth of the
Company.
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share)
<TABLE>
<CAPTION>
Selected Consolidated
Statements of Operations Data 1999 1998 1997 1996 1995
- ----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues ............................................... $ 111,476 $ 72,629 $ 52,633 $ 41,269 $ 23,733
Cost of revenues ............................................. 50,301 32,749 26,814 20,599 13,164
Selling, general and administrative expenses ................. 46,407 31,354 23,368 19,063 11,757
Write-off of management system ............................... 3,338 -- -- -- --
Settlement of franchise arbitration .......................... 303 -- -- -- --
--------- --------- --------- --------- ---------
Operating income (loss) ...................................... 11,127 8,526 2,451 1,607 (1,188)
Interest income .............................................. 643 1,424 1,301 211 231
Interest expense ............................................. (354) (255) (469) (351) (100)
Gain from release of certain franchise obligations ........... -- -- 2,600 -- --
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before income taxes . 11,416 9,695 5,883 1,467 (1,057)
Provision (benefit) for income taxes ......................... 4,153 3,813 2,269 669 (440)
--------- --------- --------- --------- ---------
Income (loss) from continuing operations ..................... 7,263 5,882 3,614 798 (617)
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations ................... -- -- 349 (130) 424
Loss on disposal of discontinued operations .................. -- -- -- (7,303) --
--------- --------- --------- --------- ---------
Income (loss) from discontinued operations ................... -- -- 349 (7,433) 424
--------- --------- --------- --------- ---------
Net income (loss) ............................................ $ 7,263 $ 5,882 $ 3,963 $ (6,635) $ (193)
========= ========= ========= ========= =========
Basic Earnings Per Share
- ------------------------
Income (loss) per share from continuing operations ........... $ 0.76 $ 0.64 $ 0.41 $ 0.09 $ (0.07)
Income (loss) per share from discontinued operations ......... -- -- 0.04 (0.86) 0.05
--------- --------- --------- --------- ---------
Net income (loss) per share .................................. $ 0.76 $ 0.64 $ 0.45 $ (0.77) $ (0.02)
========= ========= ========= ========= =========
Diluted Earnings Per Share
- --------------------------
Income (loss) per share from continuing operations ........... $ 0.72 $ 0.61 $ 0.40 $ 0.09 $ (0.07)
Income (loss) per share from discontinued operations ......... -- -- 0.04 (0.86) 0.05
--------- --------- --------- --------- ---------
Net income (loss) per share .................................. $ 0.72 $ 0.61 $ 0.44 $ (0.77) $ (0.02)
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 28, December 30,
Selected Consolidated Balance Sheet Data 1999 1998 1997 1996 1995
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Working capital ............................... $ 6,010 $ 20,951 $ 27,030 $ 23,066 $ 28,898
Total assets .................................. 105,084 86,746 66,571 56,477
60,472
Long term obligations
less current portion ..................... 6,730 267 1,516 2,330 650
Total stockholders' equity .................... 72,730 61,569 49,056 43,757 49,428
<FN>
(1) Certain reclassifications were made to previous years' statements to conform with the presentation in 1999.
(2) Per Share amounts have been adjusted to reflect the five-for-four split of the Company's common stock effected June 8,1999.
</FN>
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes and "SELECTED CONSOLIDATED FINANCIAL
DATA" included elsewhere in this report.
GENERAL
The Company operates computer training centers in the United States and
franchises computer training centers in the United States and abroad. Prior to
1997, the Company also operated an environmental remediation business. As a
result of the completion of the sale of Handex Environmental, Inc. to ECB, Inc.
in December 1996, the results of operations for the Company's environmental
business segment have been classified as discontinued operations for all periods
presented in the accompanying consolidated financial statements. The Company
operates in two business segments: one operates wholly-owned computer training
centers and the other supplies systems of instruction, sales, and management
concepts concerning computer training to independent franchisees.
Corporate revenues are defined as revenues from company-owned training centers,
initial franchise fees, royalties, and other revenues from franchise operations.
System-wide revenues are defined as total revenues from all centers, both
company-owned and franchised. System-wide revenues are used to gauge the growth
rate of the entire New Horizons training network.
Revenues from company-owned training centers operated by New Horizons consist
primarily of training fees and fees derived from the sale of courseware
material. Cost of revenues consists primarily of instructor costs, rent,
utilities, classroom equipment, courseware costs, and computer hardware,
software and peripheral expenses. Included in selling, general and
administrative expenses are personnel costs associated with technical and
facilities support, scheduling, training, accounting and finance, and sales.
Revenues from franchising consist primarily of initial franchise fees paid by
franchisees for the purchase of specific franchise territories and franchise
rights, training royalty and advertising fees based on a percentage of gross
training revenues realized by the franchisees, percentage royalty fees received
on the sale of courseware, and revenue earned from the Corporate Education
Solutions program Cost of revenues consists primarily of costs associated with
courseware development and franchise support personnel who provide system
guidelines and advice on daily operating issues including sales, marketing,
instructor training, and general business problems. Included in selling, general
and administrative expenses are technical support, accounting and finance
support, Corporate Education Solutions support, advertising expenses, and
franchise sales expenses.
RESULTS OF OPERATIONS 1999 VERSUS 1998 - CONTINUING OPERATIONS
Revenues
- --------
Revenues for 1999 increased $38,847 to $111,476 or 53.5% over the $72,629
realized in 1998. The increase in revenues was attributable to significant
growth in royalties, the inclusion of the Memphis and Nashville, Tennessee and
Hartford, Connecticut centers for a full year in 1999, the acquisition of the
Albuquerque, New Mexico, Charlotte, North Carolina, Sacramento and Stockton,
California, San Antonio, Texas, and Denver, Colorado franchises. The centers
owned on January 1, 1999 had an aggregate year over year growth of 8.1%.
Revenues at company-owned centers increased 64.7% to $86,520 from $52,545 in
1998. The increase was primarily attributable to increased revenues at the New
York and Cleveland centers, the inclusion of the Memphis, Nashville and Hartford
centers for a full year, and the acquisition of the Albuquerque, Charlotte,
Sacramento, Stockton, San Antonio, and Denver franchises.
13
<PAGE>
In the Company's franchising segment, royalty fees for 1999 were $19,532, up
20.6% over the 1998 total of $16,189. The increase was principally due to a
16.2% revenue increase at locations open more than one year and the addition of
21 franchise locations during the year, less 11 locations purchased by the
Company and operated as company-owned centers. Franchise fees for 1999 were
$2,606, up 52.9% from the 1998 total of $1,704. At the end of 1999, there were
204 franchise locations in operation, up 5.2% over the 194 in operation at the
end of 1998. One hundred twenty one locations operate in the U.S. and Canada
while 83 operate in 38 other countries around the world. Other franchising
revenues for 1999 increased $627, up 28.6% from the 1998 total of $2,191. The
increase was due mainly to higher revenues from the Corporate Education
Solutions program.
System-wide revenues, which are defined as revenues from all centers, both
company-owned and franchised, increased to $435,124 at the end of 1999, up 21.7%
from $357,503 in 1998.
Cost of Revenues
- ----------------
Cost of revenues increased $17,552 or 53.6% for 1999 compared to 1998. As a
percentage of revenues, cost of revenues remained at 45.1% for 1999 and 1998.
The increase in cost of revenues in absolute dollars was primarily due to the
inclusion of the Memphis, Nashville, and Hartford franchises for a full year and
the acquisition of the Albuquerque, Charlotte, Sacramento, Stockton, San
Antonio, and Denver franchises.
Selling, General and Administrative Expenses
- ---------------------------------------------
Selling, general and administrative expenses increased $15,053 or 48.0% for 1999
compared to 1998. As a percentage of revenues, selling, general and
administrative expenses declined to 41.6% for 1999 from 43.2% for 1998. The
increase in absolute dollars for selling, general and administrative expenses
was due primarily to the inclusion of the Memphis, Nashville and Hartford
centers for a full year in 1999, the acquisition of the Albuquerque, Charlotte,
Sacramento, Stockton, San Antonio, and Denver franchises, and franchise support
for international operations. The decrease in selling, general and
administrative expense as a percentage of revenues was principally due to the
significant growth in revenues, synergies created through the acquisition of
these centers, and control of the addition of non-revenue producing employees.
Interest Income (Expense)
- -------------------------
Interest income for 1999 decreased $781 or 54.8% to $643 compared with $1,424 in
1998. As a percentage of revenues, interest income decreased to 0.6% for 1999
from 2.0% for 1998. The Company earned $137 in tax-free income, down from $938
in 1998.
Interest expense increased $99 to $354 for 1999 or 38.8% compared to $255 in
1998. As a percentage of revenues, interest expense was 0.3% in 1999 and 0.4% in
1998. The increase in interest expense in absolute dollars was due to an
increase in debt resulting from the franchise buy-backs in 1999.
Income Taxes
- ------------
The provision for income taxes as a percentage of income before income taxes was
36.4% for 1999 compared to 39.3% for 1998. The decrease in the effective tax
rate was due principally to the increase of foreign tax credits and state
enterprise zone tax credits. The decrease was partially offset by a smaller
percentage of the tax-free investment income to total income before taxes.
RESULTS OF OPERATIONS 1998 VERSUS 1997 - CONTINUING OPERATIONS
Revenues
- --------
Revenues for 1998 increased $19,996 to $72,629 or 38.0% over the $52,633
realized in 1997. Revenues include revenues from company-owned locations and
initial franchise fees and royalties from franchise operations. The increase in
revenues was attributable to significant growth in royalties, revenue increases
at the Santa Ana and Cleveland company-owned locations, and the acquisition of
the Memphis and Nashville, Tennessee and the Hartford, Connecticut franchises.
14
<PAGE>
Revenues at company-owned centers increased 35.8% to $52,545 from $38,692 in
1997. The increase was primarily attributable to a 16.3% increase at the centers
owned at January 1, 1998 and the acquisition of the Memphis, Nashville, and
Hartford franchises.
In the Company's franchising segment, royalty fees for 1998 were $16,189, up
36.2% over the 1997 total of $11,887. The increase was principally due to a
30.3% revenue increase at locations open more than one year and the addition of
22 franchise locations during the year, less three franchises purchased by the
Company and operated as company-owned locations. Franchise fees for 1998 were
$1,704, up 35.8% from the 1997 total of $1,255. At the end of 1998, there were
194 franchise locations in operation, up 10.9% over the 175 in operation at the
end of 1997. One hundred seventeen franchise locations operate in the U.S. and
Canada while 77 operate in 28 other countries around the world. Other
franchising revenues for 1998 increased $1,392, up 174% from the 1997 total of
$799. The increase was due mainly to higher revenues from the Major Accounts
Program.
System-wide revenues, which are defined as revenues from all centers, both
company-owned and franchised, increased to $357,503 at the end of 1998, up 33.7%
from $267,377 in 1997.
Cost of Revenues
- ----------------
Cost of revenues increased $5,935 or 22.1% for 1998 compared to 1997. As a
percentage of revenues, cost of revenues decreased to 45.1% for 1998 from 50.9%
for 1997. The increase in cost of revenues in absolute dollars was due to the
acquisition of Memphis, Nashville, and Hartford franchises and the increased
training costs at the Santa Ana and Cleveland locations resulting from the
growth in revenues. The decrease as a percentage of revenue resulted from the
control of the costs to deliver training.
Selling, General and Administrative Expenses
- ---------------------------------------------
Selling, general and administrative expenses increased $7,986 or 34.2% for 1998
compared to 1997. As a percentage of revenues, selling, general and
administrative expenses declined to 43.2% for 1998 from 44.4% for 1997. The
increase in absolute dollars for selling, general and administrative expenses
was due primarily to growth in spending in the areas of sales and marketing,
national advertising, expansion of the Major Accounts Program, and franchise
support for international operations. The decrease in selling, general and
administrative expense as a percentage of revenues was principally due to the
significant growth in revenues and control of the addition of non-revenue
producing employees.
Investment Income (Expense)
- ---------------------------
Investment income for 1998 increased $123 or 9.5% to $1,424 compared with $1,301
in 1997. As a percentage of revenues, investment income decreased to 2.0% for
1998 from 2.5% for 1997. The Company earned $938 in tax-free income, up from
$835 in 1997. The increase in investment income in 1998, in absolute dollars,
was due mainly to the substantial increase in short-term investment funds
resulting from the 1996 sale of the environmental business and the cash received
from the release of certain franchise obligations in 1997. The decrease in
investment income as a percentage of revenue was due to the growth in revenues.
Interest expense decreased $214 to $255 for 1998 or 45.6% compared to $469 in
1997. As a percentage of revenues, interest expense was 0.4% in 1998 and 0.9% in
1997. The decrease in interest expense in absolute dollars was due mainly to a
reduction in debt.
15
<PAGE>
Income Taxes
- ------------
The provision for income taxes as a percentage of income before income taxes was
39.3% for 1998 compared to 38.6% for 1997. The increase in the effective tax
rate was due principally to increased foreign taxes and the smaller percentage
of the tax-free investment income to total income before taxes.
DISCONTINUED OPERATIONS
In 1996 the Company sold Handex Environmental, Inc. and has reflected its net
assets and results of operations as discontinued operations in the accompanying
consolidated financial statements. Remaining assets and liabilities of Handex
Environmental are recorded at their expected realization value.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company's current ratio was 1.3 to 1, working
capital was $6,010, and its cash and cash equivalents totaled $2,868. Working
capital as of December 31, 1999, reflected a decrease of $14,941 from $20,951 as
of December 31, 1998. The decrease was due principally to the use of cash to
purchase six franchises, partially offset by cash generated from operating
activities and borrowings against a line of credit.
In 1999 cash used by investing activities increased by $14,557 to $19,504. This
was primarily due to an additional $22,346 incurred in 1999 to purchase six
franchises and the payment of direct costs for prior acquisitions of $2,336.
These increases in cash usage were partially offset by the net increase in the
redemption of marketable securities of $8,530 in 1999 compared to 1998.
Cash provided by operating activities was $12,893, an increase of $2,408
compared to 1998. The increase was due to an increase of $5,785 in net income
plus non-cash charges for depreciation and amortization, write-off of the
management system, and other adjustments, and the cash flow effect of the
increase in accounts receivable of $1,582. These increases were partially offset
by the cash flow of the payment to the Hartford franchise of $3,000. The
Company's net borrowing activities increased by $4,722.
The Company currently maintains a $25 million credit facility with a commercial
bank, $20 million of which is for future business acquisitions and $5 million of
which is for short-term financing requirements, at an interest rate of LIBOR
(6.1% at December 31, 1999) plus 1.75%. Total borrowings in 1999 were $13
million under the acquisition portion of the line of credit agreement. The
outstanding balance as of December 31, 1999 was $6.7 million. As of December 31,
1999, the Company has $13.3 million and $5 million available for borrowing under
the acquisition and short-term financing portions of the credit facility,
respectively.
The nature of the information technology and training industry requires
substantial cash commitments for the purchase of computer equipment, software,
and training facilities. During 1999 New Horizons spent approximately $6,748 on
capital items. Capital expenditures for 2000 are expected to total approximately
$4,800.
Management believes that its current working capital position, cash flows from
operations, along with its credit facility, will be adequate to support its
current and anticipated capital and operating expenditures and its strategies to
grow its computer education and training business.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 must be implemented by the Company
for the year ended December 31, 2001. The effects of SFAS No. 133 on the
Company's financial statements are not expected to be significant.
16
<PAGE>
YEAR 2000
The Company undertook a Year 2000 Compliance Project ("Y2K Project") that was
designed to ensure that the Company could effectively conduct business beyond
January 1, 2000, and that disruption from December 31, 1999 to January 1, 2000
would be minimized. The Company's Y2K Project addressed reporting compliance and
legal concerns and contained various phases, including evaluation of systems,
planning for system fixes, implementation of system fixes, development of
contingency plans, and testing of system fixes. Although problems may still
arise, the Company's Y2K Project appears to have been successful. As of the date
of this annual report, there have been no significant internal issues
identified, and inquiries after January 1, 2000 of the Company's key suppliers
and customers have indicated that they have not experienced significant issues
either.
When the Company's systems were upgraded as part of its Y2K Project, other
improvements to the Company's systems were made. The cost of the Company's Y2K
Project, including such system upgrades, was approximately $500.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates. A
discussion of the Company's accounting policies for financial instruments and
further disclosures relating to financial instruments are included in the Notes
to Consolidated Financial Statements. The Company monitors the risks associated
with interest rates and financial instrument positions.
The Company's primary interest rate risk exposure results from floating rate
debt on its line of credit. At December 31, 1999 most of the Company's total
long-term debt consisted of floating rate debt. If interest rates were to
increase 100 basis points (1.0%) from December 31, 1999 rates, and assuming no
changes in long-term debt from the December 31, 1999 levels, the additional
annual expense would be approximately $67 on a pre-tax basis. The Company
currently does not hedge its exposure to floating interest rate risk.
The Company's revenue derived from international operations is not material and,
therefore, the risk related to foreign currency exchange rates is not material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages F-1 to F-20 contain the Financial Statements and supplementary data
specified for Item 8 of Part II of Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
17
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
New Horizons Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of New
Horizons Worldwide, Inc. and subsidiaries (the Company) as of December 31, 1999
and 1998 and the related consolidated statements of income, comprehensive
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of New Horizons Worldwide, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 23, 2000
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
New Horizons Worldwide, Inc. and Subsidiaries
December 31, 1999 and December 31, 1998
(Dollars in thousands)
1999 1998
---- ----
Assets
- ------
Current assets:
Cash and cash equivalents ................... $ 2,868 $ 6,873
Investments ................................. -- 15,821
Accounts receivable, less allowance
for doubtful accounts of $943
in 1999 and $927 in 1998 (Note 2) ......... 20,991 16,538
Inventories ................................. 1,226 784
Prepaid expenses ............................ 1,438 1,039
Deferred income tax assets (Note 6) ......... 2,526 2,202
Other current assets ........................ 791 773
--------- ---------
Total current assets .................... 29,840 44,030
Property, plant and equipment, net (Note 4) ...... 14,797 13,818
Excess of cost over net assets of acquired
companies, net of accumulated amortization of
$3,420 in 1999 and $1,844 in 1998 (Note 12) .... 55,718 25,225
Cash surrender value of life insurance ........... 1,070 863
Other assets (Note 7) ............................ 3,659 2,810
--------- ---------
Total Assets ..................................... $ 105,084 $ 86,746
========= =========
Liabilities & Stockholders' Equity
- ----------------------------------
Current liabilities:
Notes payable and current portion
of long-term obligations (Note 3) ........... $ 189 $ 3,910
Accounts payable ............................ 2,155 2,391
Income taxes payable (Note 6) ............... 918 354
Other current liabilities (Note 8) .......... 20,568 16,424
--------- ---------
Total current liabilities ............... 23,830 23,079
Long-term obligations, excluding current
portion (Note 3) ............................... 6,730 267
Deferred income tax liability (Note 6) ........... 835 981
Deferred rent (Note 11) .......................... 885 658
Other long-term liabilities ...................... 127 192
--------- ---------
Total liabilities ....................... 32,407 25,177
--------- ---------
Commitments and contingencies (Note 11) .......... -- --
Stockholders' equity (Note 10):
Preferred stock without par value, 2,000,000
shares authorized, no shares issued ....... -- --
Common stock, $.01 par value, 15,000,000
shares authorized; issued and outstanding
9,788,583 shares in 1999 and 9,558,531
shares in 1998 ............................ 97 95
Additional paid-in capital .................. 37,098 33,202
Retained earnings ........................... 36,780 29,517
Treasury stock at cost - 185,000 shares
in 1999 and 1998 .......................... (1,298) (1,298)
Accumulated other comprehensive income ...... -- 53
--------- ---------
Total stockholders' equity .............. 72,677 61,569
--------- ---------
Total Liabilities & Stockholders' Equity ......... $ 105,084 $ 86,746
========= =========
See accompanying notes to consolidated financial statements
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1999, December 31, 1998, and December 31, 1997
(Dollars in thousands, except per share)
1999 1998 1997
---- ---- ----
Revenues
- --------
Franchising
Franchise fees .................... $ 2,606 $ 1,704 $ 1,255
Royalties ......................... 19,532 16,189 11,887
Other ............................. 2,818 2,191 799
--------- --------- ---------
Total franchising revenues ........ 24,956 20,084 13,941
Company-owned training centers ........ 86,520 52,545 38,692
--------- --------- ---------
Total revenues .................... 111,476 72,629 52,633
Cost of revenues ........................ 50,301 32,749 26,814
Selling, general and administrative
expenses .............................. 46,407 31,354 23,368
Write-off of management system
(Note 5) .............................. 3,338 -- --
Settlement of franchise arbitration
(Note 5) .............................. 303 -- --
--------- --------- ---------
Operating income ........................ 11,127 8,526 2,451
Interest income ......................... 643 1,424 1,301
Interest expense ........................ (354) (255) (469)
Gain from release of certain
franchise obligations ................. -- -- 2,600
--------- --------- ---------
Income from continuing operations
before income taxes ................... 11,416 9,695 5,883
Provision for income taxes (Note 6) ..... 4,153 3,813 2,269
--------- --------- ---------
Income from continuing operations ....... 7,263 5,882 3,614
Discontinued operations (Note 14):
Income from discontinued
operations net of applicable
income taxes of $0 ............... -- -- 349
--------- --------- ---------
Net income .............................. $ 7,263 $ 5,882 $ 3,963
========= ========= =========
Basic Earnings Per Share
- ------------------------
Income per share from continuing
operations ............................ $ 0.76 $ 0.64 $ 0.41
Income per share from discontinued
operations ............................ -- -- 0.04
--------- --------- ---------
Net income per share .................... $ 0.76 $ 0.64 $ 0.45
========= ========= =========
Diluted Earnings Per Share
- --------------------------
Income per share from continuing
operations ............................ $ 0.72 $ 0.61 $ 0.40
Income per share from discontinued
operations ............................ -- -- 0.04
--------- --------- ---------
Net income per share .................... $ 0.72 $ 0.61 $ 0.44
========= ========= =========
See accompanying notes to consolidated financial statements
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1999, December 31, 1998, and December 31, 1997
(Dollars in thousands)
1999 1998 1997
---- ---- ----
Net income ................................ $ 7,263 $ 5,882 $ 3,963
Other comprehensive income:
Unrealized holding gains on
available for sale securities arising
during year ............................... -- 53 --
Reclassification adjustment for
gains included in net income ......... (53) -- --
------- ------- -------
Comprehensive income ...................... $ 7,210 $ 5,935 $ 3,963
======= ======= =======
F-4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1999, December 31, 1998, and December 31, 1997
(In thousands)
Accumulated
Additional other com- Stock-
Common Stock paid-in Retained Treasury prehensive holders'
Shares Amount capital earnings stock income equity
------ ------ ---------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 .................. 8,907 $ 89 $ 25,293 $ 19,672 $ (1,298) $ -- $ 43,756
Issuance of common stock from exercise of
stock options ............................. 205 2 1,036 -- -- -- 1,038
Income tax benefit from the exercise of
stock options ............................. -- -- 299 -- -- -- 299
Net income .................................. -- -- -- 3,963 -- -- 3,963
------ -------- -------- -------- -------- -------- --------
Balance at December 31, 1997 ................ 9,112 91 26,628 23,635 (1,298) -- 49,056
Issuance of common stock from exercise of
stock options and warrants ................ 75 1 396 -- -- -- 397
Income tax benefit from the exercise of
stock options and warrants ................ -- -- 180 -- -- -- 180
Issuance of common stock for acquisitions ... 371 3 5,451 -- -- -- 5,454
Unrealized gain on investments .............. -- -- -- -- -- 53 53
Compensatory stock options and warrant grants -- -- 547 -- -- -- 547
Net income .................................. -- -- -- 5,882 -- -- 5,882
------ -------- -------- -------- -------- -------- --------
Balance at December 31, 1998 ................ 9,558 95 33,202 29,517 (1,298) 53 61,569
Issuance of common stock from exercise of
stock options ............................. 8 -- 75 -- -- -- 75
Income tax benefit from the exercise of
stock options ............................. -- -- 18 -- -- -- 18
Issuance of common stock for acquisitions ... 223 2 3,665 -- -- -- 3,667
Compensatory warrant grants ................ -- -- 138 -- -- -- 138
Other comprehensive income .................. -- -- -- -- -- (53) (53)
Net income .................................. -- -- -- 7,263 -- -- 7,263
------ -------- -------- -------- -------- -------- --------
Balance at December 31, 1999 ................ 9,789 $ 97 $ 37,098 $ 36,780 $ (1,298) $ -- $ 72,677
====== ======== ======== ======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statement
</FN>
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1999, December 31, 1998, and December 31, 1997
(Dollars in thousands)
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income .............................................................. $ 7,263 $ 5,882 $ 3,963
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................................... 6,074 4,006 3,786
Write-off of management system (Note 5) ................................. 2,860 -- --
Deferred income taxes .................................................. (470) (355) (839)
Stock-based compensation ................................................ 138 547 --
Cash provided (used) from the change in
(net of effects of acquisitions):
Accounts receivable ................................................. (1,689) (3,270) 5,816
Inventories ......................................................... (113) 133 (114)
Prepaid expenses and other current assets ........................... (198) (192) 3,954
Other assets ....................................................... (723) (195) (1,578)
Accounts payable .................................................... (590) (477) 187
Other current liabilities ........................................... (362) 4,861 4
Income taxes payable ................................................ 582 (515) 1,251
Deferred rent ....................................................... 121 60 363
Non-cash charges and working capital changes
from discontinued operations ...................................... -- -- (349)
-------- -------- --------
Net cash provided by operating activities ..................... 12,893 10,485 16,444
-------- -------- --------
Cash flows from investing activities
- ------------------------------------
Purchase of marketable securities ....................................... (279) (21,810) (22,758)
Redemption of marketable securities ..................................... 16,100 29,100 --
Cash surrender value of life insurance .................................. (207) (105) (84)
Cash received on redemption of preferred stock .......................... -- -- 2,000
Additions to property, plant and equipment .............................. (6,748) (8,359) (4,450)
Cash paid for acquired companies,
net of cash acquired (Note 12) ........................................ (26,034) (3,773) --
Cash paid for previous acquisitions (Note 12) ........................... (2,336) -- --
-------- -------- --------
Net cash used by investing activities ............................... (19,504) (4,947) (25,292)
-------- -------- --------
Cash flows from financing activities
- ------------------------------------
Proceeds from issuance of common stock .................................. 75 397 1,038
Proceeds from debt obligations .......................................... 12,906 181 1,264
Principal payments on debt obligations .................................. (10,375) (2,372) (1,736)
-------- -------- --------
Net cash provided (used) by financing activities .................... 2,606 (1,794) 566
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................ (4,005) 3,744 (8,282)
Cash and cash equivalents at beginning of year ............................... 6,873 3,129 11,411
-------- -------- --------
Cash and cash equivalents at end of year .................................... $ 2,868 $ 6,873 $ 3,129
======== ======== ========
Supplemental disclosure of cash flow information
Cash was paid for:
Interest ............................................................ $ 339 $ 180 $ 323
======== ======== ========
Income taxes ........................................................ $ 4,091 $ 4,303 $ 1,530
======== ======== ========
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
New Horizons Worldwide, Inc. and Subsidiaries
Years ended December 31, 1999, December 31, 1998, and December 31, 1997
(Dollars in thousands)
Supplemental Disclosure of Noncash Transactions -
1999 1998 1997
---- ---- ----
Noncash investing and financing activities:
Income tax benefit from exercise of stock
options and warrants .......................... $ 18 $180 $299
==== ==== ====
Unrealized gain on investments .................. $ -- $ 53 $ --
==== ==== ====
The Company completed six acquisitions in 1999
and three in 1998 summarized as follows (Note 12):
1999 1998
---- ----
Fair value of assets acquired ...................... $ 34,076 $ 14,833
Short-term debt and other obligations incurred ..... (921) (3,559)
Value of stock issued .............................. (2,983) (5,454)
Cash paid, net of cash acquired .................... (26,034) (3,773)
------- ------
Liabilities assumed ................................ $ 4,138 $ 2,047
======== ========
During the year ended December 31, 1999 the Company issued common stock with a
value of $684 as additional consideration for previous acquisitions.
F-7
<PAGE>
NEW HORIZONS WORLDWIDE, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, December 31, 1998, and December 31, 1997
(Dollars in thousands, except per share data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
New Horizons Worldwide, Inc. (New Horizons or the Company) owns and franchises
computer training centers. The Company's training centers provide application
software and technical certification training to a wide range of individuals and
employer-sponsored individuals from national and international public and
private corporations, service organizations and government agencies. As of
December 31, 1999, the Company and its franchisees delivered training in 26
company-owned and 204 franchised locations in 40 countries around the world.
Basis of Accounting and Principles of Consolidation
- ---------------------------------------------------
The consolidated financial statements include the accounts of New Horizons
Worldwide, Inc. and its subsidiaries, all of which are wholly owned. All
significant inter-company balances and transactions have been eliminated in
consolidation.
Franchise Sales
- ---------------
The terms of a typical franchise agreement allow for the sale of individual
franchises to operators of computer learning centers for an initial fee. The
initial fees are $25, $50 or $75 depending on the estimated number of personal
computers within a given territory. Operators of existing computer training
centers receive a 20% reduction in the initial fee as a conversion allowance.
Additionally, franchisees are assessed the following fees, among other fees, as
defined by the franchise agreement:
a. Continuing Monthly Royalty
The fee amount is equal to the greater of 3% to 6% of gross revenues or
certain minimums as defined depending on the size of the territory. Amounts
commence accruing on the effective date of the franchise agreement for new
operators and in the sixth month after the effective date of the franchise
agreement for operators converting their existing computer learning center
to a New Horizons.
b. Course Material and Computer-based Training Royalty
The fee amount is equal to 9% of gross revenues from course materials and
proprietary computer-based training products sold to third parties.
c. Marketing and Advertising Fee
The fee amount is equal to 1% of gross revenues for franchisees in the
United States and Canada and 0.2% for international franchisees who elect
to participate. Amounts commence accruing on the date the franchise
commences operation of the franchise business.
On February 28, 1997, the Company received cash consideration of $2,600 in
return for releasing the franchise obligations of an owner of four New Horizons
training centers in the state of New York. The Company is aggressively
attempting to re-franchise the territories that became available as a result of
this transaction. As of December 31, 1999, two of the territories have been
resold.
F-8
<PAGE>
Revenue Recognition
- -------------------
Revenues for training services and franchise royalty fees are recognized as
earned. Initial franchise fees are recognized when the Company has supplied
substantially all of the services and met all of the conditions of the sale of
the franchise rights. Master franchise fees are earned ratably over the opening
of sub-franchises.
Investments
- -----------
The Company accounts for investments pursuant to Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." The Company's investments have been categorized as
"available for sale" and, as a result, are stated at fair value. Accordingly,
any unrealized holding gains and losses are to be included as a component of
accumulated other comprehensive income, net of tax, until realized. As of
December 31, 1999, the Company had no investments.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Inventory costs are
determined using the first-in, first-out (FIFO) method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets, using the straight line
method as follows:
Equipment 3 to 5 years
Furniture and fixtures 5 to 10 years
Leasehold improvements Useful life or term of lease, if shorter
Income Taxes
- ------------
The Company accounts for income taxes under the asset and liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years when those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
When options granted under the Company's stock option plans are exercised, the
Company receives a tax deduction related to the difference between the market
value of its common stock at the date of exercise and the sum of the exercise
price and any compensation expense recognized for financial reporting purposes.
The tax benefit resulting from this tax deduction is reflected as a decrease in
the Company's income tax liability and an increase to additional paid-in
capital.
Intangibles and Other Long-Lived Assets
- ---------------------------------------
The excess of cost over net assets acquired is being amortized on a
straight-line basis over periods ranging from 25 to 40 years. The Company
assesses the recoverability of its long-lived assets whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
F-9
<PAGE>
Cash and Cash Equivalents
- -------------------------
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
Concentration of Credit Risk
- ----------------------------
The Company's credit risk on trade receivables is diversified over a wide
geographic area and many customers. Ongoing customer credit evaluations are
performed with respect to the Company's trade receivables and collateral is
generally not required to be provided by the customer.
Earnings Per Share
- ------------------
The Company calculates earnings per share (EPS) pursuant to (SFAS) No. 128
"Earnings Per Share." The computation of Basic EPS is based on the weighted
average number of shares outstanding during each year. The computation of
Diluted EPS is based upon the weighted average number of shares outstanding,
plus the shares that would be outstanding assuming the exercise of all
outstanding options and warrants, computed using the treasury stock method.
Dilutive options and warrants are not considered in the calculation of net loss
per share.
The weighted average number of shares outstanding used in determining Basic EPS
was 9,521,621 in 1999, 9,164,709 in 1998, and 8,838,539 in 1997. The weighted
average number of shares outstanding used in determining Diluted EPS was
10,021,991 in 1999, 9,601,776 in 1998, and 9,117,836 in 1997. The difference
between the shares used for calculating Basic and Diluted EPS relates to common
stock equivalents consisting of stock options and warrants outstanding during
the respective periods.
During fiscal 1999 the Company's Board of Directors approved a five-for-four
split of the Company's common stock. This split was effected on June 8, 1999 for
shareholders of record on May 18, 1999. All per share and share information has
been restated to reflect this stock split.
Stock Based Compensation
- ------------------------
The Company applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for employee stock-based compensation. The Company
adopted the pro forma and other disclosure requirements of SFAS No. 123, which
requires presentation of the pro forma effect of the fair-value based method on
net income and net income per share in the financial statement footnotes. (See
Note 10)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncements
- -----------------------------
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." SFAS No. 133 must be implemented by the Company for the
year ended December 31, 2001. The effects of SFAS No. 133 on the Company's
financial statements are not expected to be significant.
F-10
<PAGE>
Reclassification
- ----------------
Certain items on the 1998 and 1997 consolidated statements have been
reclassified to conform to the 1999 presentation.
2. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts includes the following:
Years ended December 31 1999 1998
----------------------- ---- ----
Balance, beginning of year $ 927 $ 1,693
Provisions 169 156
Deductions (153) (922)
------- -------
Balance, end of year $ 943 $ 927
======= =======
3. NOTES PAYABLE AND LONG-TERM OBLIGATIONS
The Company's debt and capital lease obligations are as follows:
1999 1998
---- ----
Amount outstanding on line of credit with bank,
bearing interest at LIBOR (6.1% at December 31,
1999) plus 1.75%, payable in quarterly principal
installments of $419 commencing March 2001,
interest payable monthly ...................... $ 6,700 $ --
Amounts due under capital leases with effective
interest rates ranging from 8.5% to 14.6% per
annum (Note 11) ............................... 219 1,013
Note payable to a former franchisee pursuant to a
franchise acquisition at 5% interest rate, paid
January 1999 .................................. -- 3,000
Notes payable to bank with effective interest
rates of 7.4% and 7.6%, paid May 1999 ......... -- 164
------- -------
6,919 4,177
Less: Current portion of notes payable and long-
term obligations .............................. (189) (3,910)
------- -------
$ 6,730 $ 267
======= =======
The Company has a credit facility with a bank providing for borrowings not
to exceed $25 million in the form of two credit facilities. The Tranche A
facility provides for borrowing of up to $20 million and is available for
business acquisitions and has a term repayment option. The Tranche A
facility expires on December 31, 2000. The Tranche B facility provides for
borrowing not to exceed $5 million and is available for general working
capital needs. The Tranche B facility expires September 30, 2002. As of
December 31, 1999, there was $6.7 million borrowed against the Tranche A
facility. The credit facility is unsecured and subject to certain
restrictive covenants including minimum earnings before interest, taxes,
depreciation and amortization. The Company was either in compliance with
these covenants or had obtained applicable waivers at December 31, 1999.
F-11
<PAGE>
The following is a summary of future payments required under the above
obligations:
2000 $ 189
2001 1,701
2002 1,679
2003 1,675
2004 1,675
------
$6,919
======
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are summarized below:
1999 1998
---- ----
Land ............................................ $ 5,099 $ 5,099
Leasehold improvements .......................... 2,720 2,046
Equipment and software .......................... 17,917 14,432
Furniture and fixtures .......................... 4,220 2,984
-------- --------
29,956 24,561
Less accumulated depreciation and amortization .. (15,159) (10,743)
-------- --------
$ 14,797 $ 13,818
======== ========
On October 2, 1998, the Company purchased 8.3 acres of undeveloped land in
Santa Ana, California for approximately $5.1 million. The Company had
intended to construct a building on the land that would serve as the world
headquarters. The Company has signed a lease to relocate its corporate
headquarters and the Santa Ana training facility to Anaheim, California in
2001. With the signing of the lease the company will now market the land
for sale. Management believes the land held for disposition is recorded at
the lower of cost or net realizable value.
Included in the Company's property , plant and equipment are equipment and
leasehold improvements under capital leases amounting to $359 (1999) and
$974 (1998), net of accumulated depreciation of $4,582 (1999) and $3,863
(1998).
5. WRITE-OFF OF MANAGEMENT SYSTEM AND SETTLEMENT OF FRANCHISE ARBITRATION
In the fourth quarter of 1999 the Company decided to discontinue the
development of its proprietary management system and, accordingly, recorded
a charge of $3,338 comprised primarily of capitalized development costs.
The Company is currently evaluating several "off-the-shelf" management
systems to support company-wide sales force automation and class scheduling
and registration.
During the year ended December 31, 1999, the Company settled a dispute with
a previously terminated master franchisee resulting in a charge of $303,
which is included in the accompanying statements of income.
F-12
<PAGE>
6. INCOME TAXES
Income tax expense for the periods below differs from the amounts computed
by applying the U.S. federal income tax rate of 35% to the pretax income as
a result of the following:
1999 1998 1997
---- ---- ----
Computed "expected" tax expense .......... $ 3,996 $ 3,393 $ 2,059
Amortization of excess of cost over net
assets acquired ........................ 63 15 15
State and local tax expense, net of
federal income tax effect .............. 494 578 345
Foreign income tax ....................... -- -- 201
Interest income from tax-free investments (48) (319) (284)
Other .................................... (352) 146 (67)
------- ------- -------
Income tax expense ....................... $ 4,153 $ 3,813 $ 2,269
======= ======= =======
Income tax expense consists of:
Federal:
Current ........................ $ 3,258 $ 2,843 $ 1,755
Deferred ....................... (389) (332) (243)
State and local:
Current ........................ 783 952 523
Deferred ....................... (81) (23) (70)
Foreign ............................ 582 373 304
------- ------- -------
$ 4,153 $ 3,813 $ 2,269
======= ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999
and 1998, are presented below:
1999 1998
---- ----
Deferred tax assets:
Accounts receivable, principally
due to allowance for doubtful
accounts .............................. $ 340 $ 509
Reserve for uninsured losses and
litigation ............................ 163 308
Accrued expenses ........................ 1,106 1,013
Property, plant and equipment,
principally due to differences
in depreciation ....................... 1,147 221
Foreign Tax Credit carryforward ......... 157 262
Deferred revenue ........................ 464 197
Other ................................... 64 --
------- -------
3,441 2,510
------- -------
Deferred tax liabilities:
Excess of cost over net assets of
acquired companies .................... 1,611 1,224
Loss on joint venture ................... 139 (22)
Other ................................... -- 87
------- -------
1,750 1,289
------- -------
Net deferred income taxes .................... $ 1,691 $ 1,221
======= =======
F-13
<PAGE>
7. OTHER ASSETS
a. Notes Receivable from Officers
------------------------------
Included in other assets are notes receivable from officers of the Company
in the aggregate amount of $1,385. The notes receivable are demand notes,
$860 of which is collateralized by the proceeds from certain life insurance
policies and bear interest at 7.3%. The remaining $525 relates primarily to
non-interest bearing loans in connection with such officers' relocation
expenses. The Company does not intend to demand repayment of these notes
during fiscal 2000.
b. Non-cash Proceeds of Sale of Environmental Business
---------------------------------------------------
Other assets consist of:
1999 1998
---- ----
Notes receivable from ECB, Inc. $ 3,681 $ 3,931
Valuation reserve for ECB, Inc. (2,960) (2,960)
Notes receivable from officers 1,385 625
Other 1,553 1,214
-------- --------
$ 3,659 $ 2,810
======== ========
The note receivable of $3,681 from ECB, Inc. (see Note 14) bearing
interest, payable quarterly, at a rate of 6%. Effective March 31, 1998,
interest is paid quarterly in arrears. Annual principal payments commenced
in April 1999 with the minimum principal payments being $250, $500, and
$750, for 1999, 2000, and 2001, respectively, with the balance due April
30, 2002.
8. OTHER CURRENT LIABILITIES
Other current liabilities consist of:
1999 1998
---- ----
Deferred revenues ............................. $ 8,318 $ 5,084
Accounts payable to franchisees ............... 3,882 3,497
Salaries, wages and commissions payable ....... 3,266 2,813
Unexpended advertising fund ................... 509 737
Payable to former franchisee pursuant to
a franchise acquisition ..................... 294 --
Accrued franchise arbitration expenses ........ 279 --
Accrued expenses in connection with the
disposition of the environmental segment .... 667 1,078
Accrued operating expenses and other
liabilities ................................. 3,353 3,215
-------- --------
$ 20,568 $ 16,424
======== ========
9. EMPLOYEE SAVINGS PLAN
The Company has a 401(k) Profit Sharing Trust and Plan in which employees
not currently covered by a collective bargaining agreement are eligible to
participate. None of the Company's employees is currently covered by a
collective bargaining agreement. The plan was established in 1995 and
through December 31, 1998, was non-contributory. Effective January 1, 1999,
the Board of Directors elected to match 25% of the employees'
contributions.
10. STOCK OPTION PLAN
The Company maintains a Key Employees Stock Option Plan and an Omnibus
Equity Plan which provide for the issuance of non-qualified options,
incentive stock options, and stock appreciation rights. These plans
currently provide for the granting of options to purchase up to 1,267,572
shares of common stock. Incentive stock options are exercisable for up to
ten years, at an option price of not less than the fair market value on the
date the option is granted or at a price of not less than 110% of the fair
market price in the case of an option granted to an individual who, at the
time of grant, owns more than 10% of the Company's common stock.
Non-qualified stock options may be issued at such exercise price and on
such other terms and conditions as the Compensation Committee of the Board
of Directors may determine. Optionees may also be granted stock
appreciation rights under which they may, in lieu of exercising an option,
elect to receive cash or common stock, or a combination thereof, equal to
the excess of the fair market value of the common stock over the option
price. All options were granted at fair market value at dates of grant.
F-14
<PAGE>
In 1999 and 1998 the Company granted to certain officers of the Company
options to purchase up to a maximum of 57,916 shares and 51,875 shares,
respectively, of the Company's common stock. The options had an exercise
price of $17.00 and $10.22 per share, respectively, which was the fair
market value on the date of grant. The number of options was dependent on
the officers meeting certain performance criteria. As of December 31, 1999
and 1998, the officers had been granted options to purchase 16,250 shares
and 49,441 shares of common stock. For the year ended December 31, 1999 and
1998 the Company recorded compensation expense of zero and $410 associated
with the option grants.
Directors of the Company who are not employees currently hold options to
acquire a total of 312,500 shares pursuant to option plans and agreements
adopted exclusively for their benefit. The exercise price under all of such
options was the fair market value as of the date of grant, and no further
options may be awarded under such plans and agreements. The Company's
Omnibus Equity Plan permits awards of options to be made to the
non-employee Directors of the Company in addition to its employees, but no
awards have been made to them under that plan.
Changes in shares under option for 1999, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
--------- --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year ..... 1,102,878 $ 8.75 840,312 $ 7.26 774,551 $ 6.16
Granted ......................... 273,808 15.81 312,566 12.29 250,000 11.62
Exercised ....................... (7,812) 10.06 (43,750) 5.20 (168,051) 6.27
Canceled ........................ (90,625) 12.87 (6,250) 10.22 (16,188) 7.09
--------- ------- -------
Outstanding, end of year ............ 1,278,249 9.97 1,102,878 8.75 840,312 7.26
========= ========= =======
Options exercisable, end of year .... 876,125 $ 8.22 669,062 $ 7.32 517,812 $ 5.70
========= ========= =======
Weighted average fair value of
options granted during the year..... $ 6.58 $ 6.31 $ 6.17
========= ========== =========
</TABLE>
Outstanding stock options at December 31, 1999 consist of the following:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ----------------------------
Weighted
Range of Average Weighted Weighted
Exercise Remaining Average Average
Prices Shares Life Price Shares Price
(Years)
--------------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 4.80 - $ 7.05 593,750 4.0 $ 6.23 593,750 $ 6.23
8.85 - 12.50 354,499 3.5 11.00 206,125 11.38
13.38 - 18.88 330,000 4.7 15.57 76,250 15.20
--------- ---------
$ 4.80 - $18.88 1,278,249 4.0 $ 9.97 876,125 $ 8.22
========= === ======== ========= ========
</TABLE>
F-15
<PAGE>
The fair value of each option grant was estimated as of the grant date
using the Black-Scholes option-pricing model assuming a risk-free interest
rate of 6.1%, volatility of 27%, and zero dividend yield for 1999 and a
risk-free interest rate of 6.5%, volatility of 55%, and zero dividend yield
for 1998, with expected lives of six years for both periods. The Company
applies Accounting Principles Board Opinion 25 and related interpretations
in accounting for its plans. If compensation expense was determined based
on the fair value method under the provisions of SFAS No. 123, the
Company's net income and net income per share would have been reduced to
the pro forma amounts indicated below:
1999 1998
---- ----
Net income As reported $ 7,263 $ 5,882
Pro forma 6,803 5,581
Basic earnings per share As reported $ 0.76 $ 0.64
Pro forma 0.71 0.61
Diluted earnings per share As reported $ 0.72 $ 0.61
Pro forma 0.68 0.58
As of December 31, 1999, there were 1,084,389 shares of common stock under
the Stock Option Plans that were available for future grant.
On December 31, 1997, the Company granted warrants to purchase up to 43,750
shares of its common stock at a price of $10.00 per share to a consultant
to the Company. The Company recorded the fair value of these warrants
($275) as compensation expense over the two-year vesting period of the
warrants.
11. COMMITMENTS AND CONTINGENCIES
Leases
------
The Company leases its offices, training facilities, and certain equipment
under operating and capitalized lease obligations. Operating leases expire
on various dates through 2009. The Company recognizes rent expense on a
straight line basis and records deferred rent based on the difference
between cash paid and straight line expense. Rent expense was $5,457,
$3,331, and $2,741 for 1999, 1998, and 1997, respectively.
Under the terms of the leases, future minimum commitments at December 31,
1999 are as follows:
Year ending December 31 Capital Leases Operating Leases
-------------- ----------------
2000 ......................... $ 228 $ 6,111
2001 ......................... 34 5,957
2002 ......................... 2 5,346
2003 ......................... -- 4,012
2004 ......................... -- 3,724
2005 & after ...................... -- 7,241
-------- --------
Total future minimum lease payment 264 $ 32,391
Less: Amount representing interest (45) ========
--------
219
Less: Current portion ............. (189)
--------
$ 30
========
Litigation
----------
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
F-16
<PAGE>
12. ACQUISITIONS
a. Albuquerque, New Mexico franchise
---------------------------------
On March 1, 1999, the Company purchased the assets of its franchise in
Albuquerque, New Mexico. The consideration paid included $2,787 in cash,
net of cash acquired, and 48,691 shares (38,953 shares prior to the
Company's stock split) of the Company's common stock. Based upon the
average price of the Company's stock seven days before and after the date
of the transaction, ($16.23 per share), total consideration paid for this
acquisition was $3,577. The selling shareholders will receive additional
consideration, in cash and stock, if certain performance targets are
achieved. The acquisition has been recorded using the purchase method of
accounting and the operating results have been included in the Company's
financial statements from the date of acquisition. The acquisition resulted
in goodwill of $3,779 which is being amortized over 25 years.
b. Charlotte, North Carolina franchise
-----------------------------------
On April 1, 1999, the Company purchased the assets of its franchise in
Charlotte, North Carolina. The consideration paid included $3,023 in cash,
net of cash acquired, and 50,110 shares (40,088 shares prior to the
Company's stock split) of the Company's common stock. Based upon the
average price of the Company's stock seven days before and after the date
of the transaction, ($15.35 per share), total consideration paid for this
acquisition was $3,793. The selling shareholder will receive additional
consideration, in cash and stock, if certain performance targets are
achieved. The acquisition has been recorded using the purchase method of
accounting and the operating results have been included in the Company's
financial statements from the date of acquisition. The acquisition resulted
in goodwill of $4,121 which is being amortized over 25 years.
c. Sacramento and Stockton, California franchises
----------------------------------------------
On April 1, 1999, the Company purchased the assets of its franchises in
Sacramento and Stockton, California. The consideration paid included $2,903
in cash, net of cash acquired. The selling shareholder will receive
additional cash consideration if certain performance targets are achieved.
The acquisition has been recorded using the purchase method of accounting
and the operating results have been included in the Company's financial
statements from the date of acquisition. The acquisition resulted in
goodwill of $3,463 which is being amortized over 25 years.
d. San Antonio, Texas franchise
----------------------------
On May 6, 1999, the Company purchased the assets of its franchise in San
Antonio, Texas. The consideration paid included $3,686 in cash, net of cash
acquired, and 63,244 shares (50,595 shares prior to the Company's stock
split) of the Company's common stock. Based upon the average price of the
Company's stock seven days before and after the date of the transaction,
($16.50 per share), total consideration paid for this acquisition was
$4,730. The selling shareholder will receive additional consideration, in
cash and stock, if certain performance targets are achieved. The
acquisition has been recorded using the purchase method of accounting and
the operating results have been included in the Company's financial
statements from the date of acquisition. The acquisition resulted in
goodwill of $4,522 which is being amortized over 25 years.
e. Denver, Colorado franchise
--------------------------
On September 1, 1999, the Company purchased the assets of its franchise in
Denver, Colorado. The consideration paid included $13,635 in cash, net of
cash acquired, and 21,634 shares of the Company's common stock. Based upon
the average price of the Company's stock seven days before and after the
date of the transaction, ($17.56 per share), total consideration paid for
this acquisition was $14,014. The selling shareholders will receive
additional consideration, in cash and stock, if certain performance targets
are achieved. The acquisition has been recorded using the purchase method
of accounting and the operating results have been included in the Company's
financial statements from the date of acquisition. The acquisition resulted
in goodwill of $13,164 which is being amortized over 25 years.
F-17
<PAGE>
f. Cash paid for previous acquisitions
-----------------------------------
During the twelve months ended December 31, 1999, the Company granted
additional consideration for previous acquisitions of $2,336 in cash and
42,545 in shares of the Company's stock due to the acquired centers meeting
certain performance targets.
If the results from the acquired locations had been included in the results
of operations at the beginning of each year presented below, the Company's
revenue, net income, and earnings per share would have approximated the
following:
1999 1998
---- ----
Revenue .................. $ 123,114 $ 100,616
Net Income ............... 7,020 7,122
Basic Earnings Per Share . 0.72 0.77
Diluted Earnings Per Share 0.69 0.73
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for continuing operations for 1999 and
1998 is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Year ended December 31, 1999
Revenues ..................... $22,102 $27,900 $30,581 $30,893
Operating income ............. 2,410 3,922 4,712 83
Net income ................... 1,619 2,474 3,011 159
Basic earnings per share ..... 0.17 0.26 0.32 0.02
Diluted earnings per share ... 0.16 0.25 0.30 0.02
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Year ended December 31, 1998
Revenues ..................... $14,685 $17,810 $19,659 $20,475
Operating income ............. 1,073 2,267 2,827 2,359
Net income ................... 811 1,637 1,869 1,565
Basic earnings per share ..... 0.09 0.18 0.20 0.17
Diluted earnings per share ... 0.09 0.17 0.19 0.16
F-18
<PAGE>
14. DISCONTINUED OPERATIONS
In 1996 the Company sold Handex Environmental, Inc. to ECB, Inc. and has
reflected its net assets and results of operations as discontinued
operations in the accompanying consolidated financial statements. Operating
results for 1999, 1998, and 1997 were as follows:
1999 1998 1997
---- ---- ----
Net operating revenues ...... $ -- $ -- $ --
====== ====== ======
Income before income taxes .. $ -- $ -- $ 349
Income taxes ................ -- -- --
------ ------ ------
Net income .................. $ -- $ -- $ 349
====== ====== ======
Remaining assets and liabilities of Handex Environmental are recorded at
their expected realization value.
15. SEGMENT REPORTING
The Company operates in two business segments - company-owned training
centers and franchising operations. The company-owned training centers
segment operates wholly-owned computer training centers in the United
States and derives its revenues from the operating revenues of those
centers. The franchising segment franchises computer training centers
domestically and internationally and supplies systems of instruction and
sales and management concepts concerning computer training to independent
franchisees. The franchising segment revenues are from the initial
franchise fees and royalties from the franchise operations and other
revenue such as from the Corporate Education Solutions program. The two
segments are managed separately because of the differences in the source of
revenues and the services offered. Information on the Company's segments is
as follows:
F-19
<PAGE>
<TABLE>
<CAPTION>
Company-
owned Executive Discontinued
Centers Franchising Office Operations Consolidated
--------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1999
- ------------------------------------
Revenues from external customers ................... $ 86,520 $ 24,956 $ -- $ -- $ 111,476
Interest income .................................... 453 190 -- -- 643
Interest expense ................................... (331) (23) -- -- (354)
Depreciation and amortization expense 5,183 891 -- -- 6,074
Write-off of management system ..................... -- 3,338 -- -- 3,338
Income tax expense ................................. 2,853 1,300 -- -- 4,153
Net income from continuing operations .............. 5,027 2,236 -- -- 7,263
Net deferred tax asset ............................. (80) 1,771 -- -- 1,691
Total assets ....................................... 85,537 16,294 3,253 -- 105,084
Additions to property, plant and equipment ......... 4,840 1,922 (14) -- 6,748
For the year ended December 31, 1998
- ------------------------------------
Revenues from external customers ................... $ 52,545 $ 20,084 $ -- $ -- $ 72,629
Interest income .................................... 971 453 -- -- 1,424
Interest expense ................................... (229) (26) -- -- (255)
Depreciation and amortization expense .............. 3,456 550 -- -- 4,006
Income tax expense ................................. 1,308 2,505 -- -- 3,813
Net income from continuing operations .............. 2,526 3,356 -- -- 5,882
Net deferred tax asset ............................. 249 972 -- -- 1,221
Total assets ....................................... 45,194 21,631 19,921 -- 86,746
Additions to property, plant and equipment ......... 2,445 5,914 -- -- 8,359
For the year ended December 31, 1997
- ------------------------------------
Revenues from external customers ................... $ 38,692 $ 13,941 $ -- $ -- $ 52,633
Gain from release of certain franchise obligations . -- 2,600 -- -- 2,600
Interest income .................................... 866 435 -- -- 1,301
Interest expense ................................... (421) (48) -- -- (469)
Depreciation and amortization expense .............. 3,377 409 -- -- 3,786
Income tax expense (benefit) ....................... (46) 2,315 -- -- 2,269
Net income from continuing operations .............. 434 3,180 -- -- 3,614
Income from discontinued operations, net of
applicable income taxes .......................... -- -- -- 349 349
Net deferred tax asset ............................. 655 211 -- -- 866
Total assets ....................................... 26,821 13,437 26,313 -- 66,571
Additions to property, plant and equipment ......... 2,536 1,914 -- -- 4,450
</TABLE>
F-20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information required by this Item 10 as to the Directors of the Company is
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 2, 2000, since such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year pursuant to Regulation
14A.
EXECUTIVE OFFICERS OF THE REGISTRANT*
The following is a list of the executive officers of the Company. The executive
officers are elected each year and serve at the pleasure of the Board of
Directors.
NAME AGE POSITION
- ---- --- --------
Curtis Lee Smith, Jr. 72 Chairman of the Board
Thomas J. Bresnan 47 President and Chief Executive Officer
Stuart O. Smith 67 Vice Chairman of the Board and Secretary
Robert S. McMillan 48 Vice President, Treasurer and Chief Financial
Officer
Kenneth M. Hagerstrom 41 President - Company-owned Center Division
Executive Vice President - New Horizons
Computer Learning Centers, Inc.
*The description of executive officers called for in this Item is included
pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K.
Set forth below is a brief description of the background of those executive
officers of the Company who are not Directors of the Company. Information with
respect to the background of those executive officers who are also Directors of
the Company is incorporated herein by reference as set forth under the caption
"Election of Directors" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 2, 2000.
18
<PAGE>
ROBERT S. MCMILLAN was named Vice President, Treasurer and Chief Financial
Officer of the Company in August 1997. He served as Chief Financial Officer of
New Horizons Computer Learning Centers, Inc. beginning in 1995 and became a
Senior Vice President in January 1997. From 1992 to 1995, Mr. McMillan was Chief
Financial Officer of ZNYX Corporation, Fremont California. From 1990 to 1992, he
was Chairman, Chief Executive Officer and Chief Financial Officer of Omnivar, in
Burbank, California.
KENNETH HAGERSTROM was named President of the Company-owned Center Division of
New Horizons in November 1997. Additionally, in October 1999 he was named
Executive Vice President of New Horizons Computer Learning Centers, Inc. From
June 1997 until November 1997 Mr. Hagerstrom was the Director of Field Support
for New Horizons Computer Learning Centers, Inc. From October 1995 to June 1997
he was General Manager of the Company-owned center in New York, NY. He
originally joined New Horizons network in 1994 at the Boston, MA franchise as an
Account Executive and was promoted in 1995 to Sales Manager. Before then, from
1982 to 1994, Mr. Hagerstrom was President of KMS Enterprises of Boston, MA.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to the
information set forth under the caption "Compensation of Directors and Executive
Officers" in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 2, 2000, since such Proxy Statement will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to the
information set forth under the caption "Share Ownership of Principal Holders
and Management" in the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 2, 2000, since such Proxy Statement
will be filed with the Securities and Exchange Commission not later than 120
days after the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 2, 2000, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following Consolidated Financial Statements of the Registrant and
its subsidiaries are included in Part II, Item 8:
Page
----
Reports of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Earnings F-3
Consolidated Statements of Comprehensive Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-20
(a) (2) All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
(a) (3) Exhibits
Reference is made to the Exhibit Index at sequential page 22 hereof.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Registrant during the quarter
ending December 31, 1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized at Santa Ana, California
this 30th day of March, 2000.
NEW HORIZONS WORLDWIDE, INC.
By: /s/Curtis Lee Smith, Jr.
---------------------------------
Curtis Lee Smith, Jr., Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/Curtis Lee Smith, Jr. Chairman )
- ------------------------ (Principal Executive Officer) )
Curtis Lee Smith, Jr. )
)
)
/s/Robert S. McMillan Vice President, Treasurer and )
- ------------------------- Chief Financial Officer )
Robert S. McMillan (Principal Financial and )
Accounting Officer) )
)
)
/s/Stuart O. Smith Director )
- ------------------------- )
Stuart O. Smith )
) March 30, 2000
)
/s/Thomas J. Bresnan Director )
- ------------------------- )
Thomas J. Bresnan )
)
)
/s/David A. Goldfinger Director )
- ------------------------- )
David A. Goldfinger )
)
)
/s/Richard L. Osborne Director )
- ------------------------- )
Richard L. Osborne )
)
)
/s/Scott R. Wilson Director )
- ------------------------- )
Scott R. Wilson )
)
)
/s/William H. Heller Director )
- ------------------------- )
William H. Heller )
)
21
<PAGE>
EXHIBIT INDEX
Exhibit Exhibit
Number Description
3.1 Amended Certificate of Incorporation of the Registrant (1)
3.2 By-laws of the Registrant (1)
3.3 Amendment to Certificate of Incorporation of the Registrant (4)
4.1 Specimen Certificate for Share of Common Stock, $.01 par value, of the
Registrant (7)
4.2 Business Loan Agreement between the Registrant and Bank of America,
N. A. (9)
10.1** Omnibus Equity Plan of the Registrant (2)
10.2** Standard form of Stock Option Agreement executed by recipients of
options under Omnibus Equity Plan *
10.3** Key Employees Stock Option Plan of the Registrant (1)
10.4** Amendment No.1 to the Key Employees Stock Option Plan of the Registrant
(7)
10.5** Stock Option Agreement dated August 6, 1992, between the Registrant and
Thomas J. Bresnan (7)
10.6** Stock Option Agreement dated January 22, 1998, between Registrant and
Charles G. Kinch based on performance criteria (6)
10.7** Stock Option Agreement dated January 22, 1998, between the Registrant
and Kenneth Hagerstrom based on performance criteria (6)
10.8** Stock Option Agreement dated January 22, 1998, between the Registrant
and Robert S. McMillan based on performance criteria (6)
10.9** Stock Option Agreement dated January 15, 1999, between Registrant and
Charles G. Kinch based on performance criteria (8)
10.10** Stock Option Agreement dated January 15, 1999, between the Registrant
and Kenneth Hagerstrom based on performance criteria (8)
10.11** Stock Option Agreement dated January 15, 1999, between the Registrant
and Robert S. McMillan based on performance criteria (8)
10.12** Outside Directors Stock Option Plan of the Registrant (1)
10.13** Amendment No. 1 to the Outside Directors Stock Option Plan of the
Registrant (7)
10.14** 1997 Outside Directors Elective Stock Option Plan of the Registrant (2)
10.15** Form of Option Agreement executed by recipients of options under 1997
Outside Directors Elective Stock Option Plan (2)
10.16** Stock Option Agreement dated September 19, 1996, between the Registrant
and David A. Goldfinger (2)
10.17** Stock Option Agreement dated September 19, 1996, between the Registrant
and William Heller (2)
10.18** Stock Option Agreement dated September 19, 1996, between the Registrant
and Richard L. Osborne (2)
10.19** Stock Option Agreement dated September 19, 1996, between the Registrant
and Scott R. Wilson (2)
22
<PAGE>
10.20** Form of Indemnity Agreement with Directors and Officers of the
Registrant (7)
10.21** New Horizons Worldwide 401(k) Profit Sharing Trust and Plan (7)
10.22 Warrants for the purchase of 43,750 shares of Common Stock, $.01 par
value per share, of the Registrant issued to The Nassau Group, Inc. -
December 31, 1997 (5)
10.23** Stock Purchase Agreement dated November 4, 1996, between the Registrant
and ECB, Inc. and certain exhibits thereto (3)
10.24** Relocation agreement dated July 27, 1999 between the Registrant and
Thomas J. Bresnan (9)
10.25** Promissory note dated August 31, 1999 between the Registrant and Thomas
J. Bresnan *
10.26** Amendment dated January 4, 2000 to relocation agreement between the
Registrant and Thomas J. Bresnan *
10.27** Promissory note dated October 14, 1999 between the Registrant and
Kenneth M. Hagerstrom *
10.28** Severance agreement dated January 4, 2000 between the Registrant and
Kenneth M. Hagerstrom *
10.29** Severance agreement dated January 4, 2000 between the Registrant and
Robert S. McMillan *
10.30 Lease Agreement dated February 15, 2000 between New Horizons Worldwide,
Inc. and Stadium Gateway Associates, LLC, guaranteed by the Registrant*
21.1 Subsidiaries of the Registrant *
27.0 Financial Data Schedule *
(1) Incorporated herein by reference to the appropriate exhibits to the
Registrant's Registration Statement on Form S-1 (File No. 33-28798).
(2) Incorporated herein by reference to the appropriate exhibits to the
Registrant's Registration Statement on Form S-8 (Reg. No. 333-56585).
(3) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended September
28, 1996.
(4) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 28,
1996.
(5) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997.
(6) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1998.
(7) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1998.
(8) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1999.
(9) Incorporated herein by reference to the appropriate exhibit to the
Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1999.
* Filed herewith
** Compensatory plan or arrangement
23
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of ________________, ____ by and between
New Horizons Worldwide, Inc., a Delaware corporation (the "Company"), and
________________________ (the "Optionee").
WITNESSETH:
WHEREAS, the Company maintains the New Horizons Worldwide, Inc. Omnibus
Equity Plan (the "Plan") for the benefit of eligible participants therein; and
WHEREAS, the Committee is currently charged with administering the Plan;
and
WHEREAS, the Committee has determined that the Optionee, as a person
eligible to receive awards under the Plan, should be granted nonqualified stock
options to acquire Shares under the Plan upon the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, the Company and the Optionee hereby agree as follows:
1. DEFINITIONS.
(a) The following terms shall have the meanings set forth below whenever
used in this instrument:
(i) The word "Act" shall mean the federal Securities Act of 1933, as
amended.
(ii) The word "Agreement" shall mean this instrument as originally
executed and as it may later be amended.
(iii)The word "Company" shall mean New Horizons Worldwide, Inc., a
Delaware corporation, and any successor thereto which shall
maintain the Plan.
1
<PAGE>
(iv) The word "Disability" or "Disabled" shall mean the Optionee's
inability, due to a mental or physical condition, to perform
services for the Company and/or an Affiliate substantially
consistent with past practice, as determined by the Committee
pursuant to written certification of such condition from a
physician acceptable to the Committee.
(v) The word "Employee" shall mean any person who is an employee of
either the Company or any Affiliate.
(vi) The words "Fair Market Value" means, in respect of a Share, its
fair market value as determined in the reasonable judgment of the
Committee at any time.
(vii)The word "Option" shall mean the right and option to purchase
Shares pursuant to the terms of this Agreement.
(viii) The words "Option Exercise Date" shall mean the date the
Optionee exercises the Option by performing the acts described in
Section 7 hereof.
(ix) The word "Optionee" shall mean the person to whom the Option has
been granted pursuant to this Agreement.
(x) The words "Personal Representative" shall mean, following the
Optionee's death, the person who shall have acquired, by will or
by the laws of descent and distribution, the right to exercise
the Option.
(xi) The word "Plan" shall mean the New Horizons Worldwide, Inc.
Omnibus Equity Plan, as it was originally adopted and as it may
later be amended.
(xii)The word "Spread" shall mean, as of the Option Exercise Dare, an
amount equal to the excess, if any, of the Fair Market Value of a
Share in respect of which the Option is exercised over the Option
Exercise Price.
2
<PAGE>
(xiii) The word "Transferee" shall mean the person or entity to whom
rights to acquire Shares pursuant to the exercise of the Option
shall have been transferred pursuant to Section 11 hereof.
(b) The following terms when used in the Agreement shall have the meanings
given them in the Plan: "Affiliate;" "Board;" "Change in Control;"
"Code;" "Committee;" "Consent;" "Family Members;" "Option Exercise
Price;" "Shares."
2. GRANT OF NONQUALIFIED OPTION. Effective as of the date of this Agreement,
the Company grants to the Optionee, upon the terms and conditions set forth
hereinafter, the right and option to purchase all or any lesser whole
number of an aggregate of ___________________________ (______) Shares at an
Option Exercise Price of $____ per Share. The Option shall for all purposes
be a nonqualified stock option subject to the federal income tax treatment
described in Section 1.83-7 of the Federal Income Tax Regulations. Both the
Company and the Optionee shall, on their respective federal income tax
returns, report any transaction relating to the Option in a manner
consistent with the preceding sentence.
3. TERM OF OPTION. Except as otherwise provided herein, the term of the Option
shall be for a period of _______ (_) years from the date hereof, and the
Option shall expire at the close of regular business hours at the Company's
principal executive office (currently located at 1231 East Dyer Road, Suite
140, Santa Ana, California 92705-5605) on the last day of the term of the
Option, or, if earlier, on the applicable expiration date provided for in
Sections 5, 6 and 7 hereof.
4. EXERCISE DATES. Except as otherwise provided herein, the Optionee shall be
entitled to exercise the Option with respect to the number of Shares
indicated below on or after the date indicated opposite such number below:
3
<PAGE>
Initial and Additional Total Shares with
Number of Shares with Respect to Which Date Beginning
Respect to Which the the Option May on Which Option
Option May be Exercised be Exercised May be Exercised
----------------------- ----------------- ----------------
Except as provided in Sections 5 and 6 hereof, the Option may not be
exercised at any time unless the Optionee shall be an Employee at such
time.
5. TERMINATION OF EMPLOYMENT, ETC. So long as the Optionee shall continue to
be an Employee, the Option shall not be affected by (a) any temporary leave
of absence approved in writing by the Company or an Affiliate, or (b) any
change of duties or position (including transfer to or from an Affiliate).
If the Optionee ceases to be an Employee for any reason other than death or
Disability, the Option may be exercised only to the extent of the purchase
rights, if any, which, pursuant to Section 4 hereof, existed as of the date
the Optionee ceases to be an Employee and which have not theretofore been
exercised; provided, however, that the Committee may in its absolute
discretion determine (but shall not be under any obligation to determine)
that such purchase rights shall be deemed to include additional Shares
which are subject to the Option. Except as provided in Section 6 below,
upon an Optionee's ceasing to be an Employee, such purchase rights shall in
any event terminate upon the earlier of either (a) three (3) months after
the date the Optionee ceased to be an Employee (one (1) year after the date
the Optionee ceased to be an Employee if the Optionee dies or becomes
Disabled within three (3) months after ceasing to be an Employee), or (b)
the last day of the term of the Option. Notwithstanding the preceding
provisions of this Section 5, unless the Committee shall otherwise
determine, upon (a) the Optionee's ceasing to be an Employee by reason of
an involuntary termination of such status for good cause, as determined by
the Committee, or (b) the Optionee's voluntary termination with the
intention of rendering services to a competitor of the Company or any
Affiliate or otherwise entering into competition with the Company or any
Affiliate directly or indirectly, or (c) the commission by the Optionee of
a material breach of his obligations under any agreement with the Company
or any Affiliate, the Optionee's right to purchase Shares pursuant to the
exercise of the Option shall terminate.
4
<PAGE>
6. OPTIONEE'S DEATH OR DISABILITY. If, while the Optionee is an Employee, the
Optionee dies or becomes Disabled, the Optionee or the Optionee's Personal
Representative may immediately exercise the Option with respect to all of
the Shares subject to the Option regardless of whether the Optionee had the
right under Section 4 hereof to exercise the Option at the time of his
death or Disability. The Option shall in any event terminate upon the
earlier of either (a) the first anniversary of the date the Optionee ceased
to be an Employee; or (b) the last day of the term of the Option.
7. CHANGE IN CONTROL. Notwithstanding the provisions of Section 4 hereof, in
connection with a Change in Control, the Optionee shall have the immediate
and nonforfeitable right to exercise the Option with respect to all Shares
covered by the Option. The Optionee shall be entitled to exercise the
Option as provided in the immediately preceding sentence regardless of
whether the surviving corporation in any merger or consolidation shall
adopt and maintain the Plan. In the event the Option becomes exercisable
pursuant to this Section 7, the Company shall notify the Optionee of his
right to exercise the Option. Upon a Change in Control described in Section
1.6(b)(iii) of the Plan, the Option, to the extent not exercised, shall
terminate unless the surviving corporation assumes the Option. In the event
of a Change in Control described in Section 1.6(b)(iv) of the Plan, the
Option, to the extent not exercised, shall terminate upon consummation of
the Change in Control.
5
<PAGE>
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The number of Shares which may
be purchased upon exercise of an Option and the Option Exercise Price shall
be appropriately adjusted as the Committee may determine for any change
after the date of the Agreement in the number of issued Shares resulting
from the subdivision or combination of Shares or other capital adjustments,
or the payment of a stock dividend, or other change in the Shares effected
without receipt of consideration by the Company; provided, that any
fractional Shares resulting from any such adjustment shall be eliminated.
Adjustments under this Section 8 shall be made by the Committee, whose
determination as to the adjustments to be made, and the extent thereof,
shall be final, binding and conclusive.
9. EXERCISE OF OPTION. The Option may be exercised by delivering to the
Chairman, Vice Chairman, President or Chief Financial Officer of the
Company at the then principal office address of the recipient officer, a
completed Notice of Exercise of Option (obtainable from the Chief Financial
Officer of the Company) setting forth the number of Shares with respect to
which the Option is being exercised. Such Notice shall be accompanied by
payment in full for the Shares, unless other arrangements satisfactory to
the Committee for prompt payment of such amount are made. Payment of the
Option Exercise Price may be made in any manner permitted by the Plan,
subject to the consent of the Committee as applicable. With the consent of
the Committee, the Optionee may effect a cashless exercise of the Option as
described in the Plan. With the consent of the Committee in its sole
discretion, payment for Shares acquired upon exercise of the Option may be
made by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Shares acquired upon exercise of the Option
to pay for all or some of the Shares acquired upon exercise of the Option
and an authorization to the broker or selling agent to pay that amount to
the Company, which sale shall be made at the Optionee's direction on the
Option Exercise Date; provided, that the Committee may require the Optionee
to furnish an opinion of counsel acceptable to the Committee to the effect
that such delivery would not result in the Optionee incurring any liability
under Section 16 of the Act and does not require any Consent.
6
<PAGE>
10. ISSUANCE OF SHARE CERTIFICATES. Subject to the last sentence of this
Section 10, upon receipt by the Company prior to expiration of the Option
of a duly completed Notice of Exercise of Option accompanied by payment for
the Shares being purchased pursuant to such Notice (and, with respect to
any Option exercised pursuant to Section 11 hereof by someone other than
the Optionee, accompanied in addition by proof satisfactory to the
Committee of the right of such person to exercise the Option), the Company
shall deliver to the Optionee, within thirty (30) days of such receipt, a
certificate for the number of Shares so purchased. The Optionee shall not
have any of the rights of a stockholder with respect to the Shares which
are subject to the Option unless and until a certificate representing such
Shares is issued to the Optionee. The Company shall not be required to
issue any certificates for Shares upon the exercise of the Option prior to
(i) obtaining any Consents which the Committee shall, in its sole
discretion, determine to be necessary or advisable, or (ii) the
determination by the Committee, in its sole discretion, that no Consents
need be obtained.
7
<PAGE>
11. SUCCESSORS IN INTEREST, ETC. This Agreement shall be binding upon and inure
to the benefit of any successor of the Company and the heirs, estate, and
Personal Representative of the Optionee. A deceased Optionee's Personal
Representative shall act in the place and stead of the deceased Optionee
with respect to exercising an Option or taking any other action pursuant to
this Agreement. The Option shall not be transferable other than by will or
the laws of descent and distribution, and the Option may be exercised
during the lifetime of the Optionee only by the Optionee; provided, that a
guardian or other legal representative who has been duly appointed for such
Optionee may exercise the Option on behalf of the Optionee. Notwithstanding
the preceding sentence, with the consent of the Committee in its sole
discretion, the Optionee may transfer the rights under the Option in
respect of some or all of the Shares which are subject to the Option to a
Family Member or a trust for the exclusive benefit of the Optionee and/or
Family Members, or a partnership or other entity affiliated with the
Optionee that may be approved by the Committee. All terms and conditions of
any Option, including provisions relating to the termination of the
Optionee's employment with the Company and its Affiliates, shall continue
to apply following a transfer made in accordance with this Section 11 and
the Transferee shall have no greater right to exercise the Option than the
Optionee would have in the absence of the transfer. The Option may be
exercised by the Transferee only in accordance with the terms of this
Agreement and the Transferee's exercise of the Option shall be subject to
the Transferee and/or the Optionee satisfying all of the conditions
relating to the exercise of the Option including, without limitation,
provisions concerning payment of the Option Exercise Price and tax
withholding.
12. PROVISIONS OF PLAN CONTROL. This Agreement is subject to all of the terms,
conditions, and provisions of the Plan and to such rules, regulations, and
interpretations relating to the Plan as may be adopted by the Committee and
as may be in effect from time to time. A copy of the Plan is attached
hereto as Exhibit "A" and is incorporated herein by reference. In the event
and to the extent that this Agreement conflicts or is inconsistent with the
terms, conditions, and provisions of the Plan, the Plan shall control, and
this Agreement shall be deemed to be modified accordingly.
8
<PAGE>
13. NO LIABILITY UPON DISTRIBUTION OF SHARES. The liability of the Company
under this Agreement and any distribution of Shares made hereunder is
limited to the obligations set forth herein with respect to such
distribution and no term or provision of this Agreement shall be construed
to impose any liability on the Company or the Committee in favor of any
person with respect to any loss, cost or expense which the person may incur
in connection with or arising out of any transaction in connection with
this Agreement.
14. NO RIGHT TO BE EMPLOYED, ETC. Nothing in this Agreement shall confer upon
the Optionee any right to continue as an Employee, or to serve as a member
of the Board, or to interfere with or limit either the right of the Company
or an Affiliate to terminate his employment at any time or the right of the
stockholders of the Company to remove him as a member of the Board for any
reason or with no reason.
15. RESALE LIMITATIONS. The Optionee acknowledges and agrees that (a) the
Shares he may acquire upon exercise of the Option may not be transferred
unless they become registered under the Act or unless the holder thereof
establishes to the satisfaction of the Company that an exemption from such
registration is available, (b) the Company will have no obligation to
provide any such registration or take such steps as are necessary to permit
sale of such Shares without registration pursuant to Rule 144 under the Act
or otherwise, (c) at such time as such Shares may be disposed of in routine
sales without registration in reliance on Rule 144 under the Act, such
disposition may be made only in limited amounts in accordance with all of
the terms and conditions of Rule 144 and (d) if the Rule 144 exemption is
not available, compliance with some other exemption from registration will
be required.
9
<PAGE>
16. WITHHOLDING TAXES.
(a) Whenever Shares are to be delivered pursuant to the exercise of the
Option, the Committee may require as a condition of delivery that the
Optionee remit an amount sufficient to satisfy all federal, state and
other governmental withholding tax requirements related thereto. The
Company may, as a condition of the exercise of the Option, deduct from
any salary or other payments due to the Optionee, an amount sufficient
to satisfy all federal, state and other governmental withholding tax
requirements related thereto or to the delivery of any Shares under
the Plan.
(b) With the consent of the Committee in its sole discretion, (i) the
Optionee may satisfy all or part of any withholding requirements by
delivery of unrestricted Shares owned by the Optionee for at least one
year (or such other period as the Committee may determine) having a
Fair Market Value (determined as of the date of such delivery) equal
to all or part of the amount to be withheld; provided, that the
Committee may require the Optionee to furnish an opinion of counsel or
other evidence acceptable to the Committee to the effect that such
delivery would not result in the Optionee incurring any liability
under Section 16 of the Act and does not require any Consent and/or
(ii) the Optionee may direct that Shares to be issued pursuant to the
exercise of the Option be used to satisfy any withholding obligation;
provided, that for purposes of satisfying any such obligation the
value of a Share shall be equal to the Spread.
17. CONSTRUCTION. The captions and section numbers appearing in this Agreement
are inserted only as a matter of convenience. They do not define, limit,
construe or describe the scope or intent of the provisions of this
Agreement. The use of the singular or plural herein shall not be
restrictive as to number and shall be interpreted in all cases as the
context shall require. The use of the feminine, masculine or neuter pronoun
shall not be restrictive as to gender and shall be interpreted in all cases
as the context may require.
10
<PAGE>
18. TIME PERIODS, ETC. Any action required to be taken under this Agreement
within a certain number of days shall be taken within that number of
calendar days; provided, however, that if the last day for taking such
action falls on a weekend or a holiday, the period during such action may
be taken shall be automatically extended to the next business day. If the
day for taking any action, or on which any action may be taken, under this
Agreement falls on a weekend or a holiday, such action may be taken on the
next business day.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware and any applicable
federal law.
20. NOTICES. Except as otherwise expressly provided herein, all notices
hereunder shall be in writing and delivered or mailed by registered or
certified mail, return receipt requested, or by private, overnight delivery
services (such as Federal Express) as follows:
If to the Company:
New Horizons Worldwide, Inc.
1231 East Dyer Road, Suite 140
Santa Ana, California 92705-5605
Attention: Chief Financial Officer
If to the Optionee:
Last address set forth on the records
of the Company or its Affiliates
or at such other address as either party may hereafter designate by giving
notice to the other party as set forth above.
21. FURTHER ASSURANCES. From time to time after the exercise of an Option,
either party, upon request of the other and without further consideration,
shall execute and deliver to the requesting party any document or
instrument, and shall take any other action as may be reasonably requested,
to give effect to the exercise of the Option and the terms of this
Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer, and the Optionee has hereunto set his
hand, all as of the day and year first above written.
NEW HORIZONS WORLDWIDE, INC.
(the "Company")
By:________________________
Its: ___________________
___________________________
(the "Optionee")
12
<PAGE>
PROMISSORY NOTE
$300,000.00 August 31, 1999
FOR VALUE RECEIVED, Thomas J. Bresnan ("Maker") promises to pay to the
order of New Horizons Worldwide, Inc. ("Holder") the principal sum of Three
Hundred Thousand Dollars ($300,000.00) in a single lump sum on August 31, 2004.
No interest shall be payable on such principal amount unless and until it shall
have become due and payable hereunder, after which it shall accrue and be
payable at the rate of ten percent (10%) per annum.
All payments of principal and interest shall be paid in lawful money of the
United States of America to Holder at 1231 East Dyer Road, Suite 140, Santa Ana,
California 92705-5605, or at such other place as the Holder shall designate in
writing to Maker from time to time.
This Note may be prepaid in whole or in part by Maker at any time without
premium or penalty.
This Note shall, at the option of the Holder, become immediately due and
payable in the event (a) the Maker shall fail to make the payment of principal
when due; or (b) any court of competent jurisdiction shall enter an order (i)
adjudicating the bankruptcy of Maker, (ii) appointing a trustee or approving a
petition for, or effecting an arrangement in bankruptcy, a reorganization
pursuant to the Federal Bankruptcy Act or any other judicial modification or
alteration of the rights of Holder or of any other creditors, or Maker shall
file any petition or take or consent to any other action seeking any such
judicial order, or make an assignment for the benefit of its creditors.
Maker hereby waives presentment, demand for payment, notice of dishonor,
notice of protest, and all other notices or demands in connection with the
delivery, acceptance, performance, default, endorsement or guarantee of this
Note.
________________________________
Thomas J. Bresnan
<PAGE>
January 4, 2000
Thomas J. Bresnan
Chief Executive Officer
New Horizons Worldwide, Inc.
1231 East Dyer Road, Suite 110
Santa Ana, California 92705-5605
Dear Tom:
This letter is intended to amend your letter agreement with the Company
dated July 27, 1999 concerning your relocation to California. Specifically, it
is hereby agreed as follows:
1. Paragraph 4b shall be deleted and replaced by the following:
"You will receive a lump sum benefit of $1,000,000;"
2. A new paragraph 4e shall be added as follows:
"If, in connection with a Change of Control, you incur any liability
for excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (relating to "excess parachute payments") the Company will pay you
an additional amount so that you will be in the same position, after
payment of all federal, state and local taxes, as you would have been had
you not been subject to such excise tax."
Please confirm your agreement with the foregoing by executing this letter
and the enclosed duplicate in the space provided and return one of such copies
to me.
Very truly yours,
Curtis Lee Smith, Jr.
Chairman of the Board
AGREED:
_______________________________
Thomas J. Bresnan
<PAGE>
PROMISSORY NOTE
$100,000.00 October 14, 1999
FOR VALUE RECEIVED, Kenneth M. Hagerstrom ("Maker") promises to pay to the
order of New Horizons Worldwide, Inc. ("Holder") the principal sum of One
Hundred Thousand Dollars ($100,000.00) in a single lump sum on October 14, 2004.
No interest shall be payable on such principal amount unless and until it shall
have become due and payable hereunder, after which it shall accrue and be
payable at the rate of ten percent (10%) per annum.
All payments of principal and interest shall be paid in lawful money of the
United States of America to Holder at 1231 East Dyer Road, Suite 140, Santa Ana,
California 92705-5605, or at such other place as the Holder shall designate in
writing to Maker from time to time.
This Note may be prepaid in whole or in part by Maker at any time without
premium or penalty.
This Note shall, at the option of the Holder, become immediately due and
payable in the event(a) the Maker shall fail to make the payment of principal
when due; or (b) any court of competent jurisdiction shall enter an order (i)
adjudicating the bankruptcy of Maker, (ii) appointing a trustee or approving a
petition for, or effecting an arrangement in bankruptcy, a reorganization
pursuant to the Federal Bankruptcy Act or any other judicial modification or
alteration of the rights of Holder or of any other creditors, or Maker shall
file any petition or take or consent to any other action seeking any such
judicial order, or make an assignment for the benefit of its creditors.
Maker hereby waives presentment, demand for payment, notice of dishonor,
notice of protest, and all other notices or demands in connection with the
delivery, acceptance, performance, default, endorsement or guarantee of this
Note.
________________________________
Kenneth M. Hagerstrom
<PAGE>
January 4, 2000
Mr. Kenneth Hagerstrom
New Horizons Computer Learning Centers, Inc.
1231 E. Dyer Road, Suite 110
Santa Ana, CA 92705
Dear Ken:
This letter will describe a severance pay program which the Board of Directors
of New Horizons Worldwide, Inc. (the "Company") has approved for you and certain
other key executives of the Company and its subsidiaries and affiliates (each
being hereinafter referred to as a "Subsidiary"). The program was approved by
the Board in an effort to provide the participants with assurances regarding the
economic consequences of certain terminations of employment and of a change of
control of the Company. In that regard, the following arrangements are hereby
being made available to you. Capitalized terms not previously defined are
defined in paragraph 7 below.
1. You will be entitled to receive a Salary Continuation Benefit for a period
of six (6) months should your employment be terminated by the Company
without Good Cause, by you for Good Reason, or as a result of your death or
Disability.
2. You will be entitled to receive a Lump Sum Benefit not later than one day
after a Change of Control of the Company, if such should occur on or before
December 31, 2001 and you remain employed by the Company or a Subsidiary
through the date of such change of control.
3. If, in connection with a Change of Control, you incur any liability for
excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (relating to "excess parachute payments"), the Company will pay you
an additional amount (the "Tax Gross-Up Payment") so that you will be in
the same position, after payment of all federal, state, and local taxes, as
you would have been had you not been subject to such excise tax.
4. The Salary Continuation Benefit, Lump Sum Benefit, and Tax Gross-Up Payment
shall be in addition to any other benefits payable by the Company or any
Subsidiary or under any insurance payable to you.
5. Your rights hereunder shall not be construed as a commitment by the Company
or any Subsidiary to maintain your employment for any period of time, which
shall remain "at will" and be subject to termination at any time for any
reason.
<PAGE>
6. Your rights hereunder will inure to the benefit of your heirs and legal
representatives, but shall otherwise not be assignable by you without the
Company's consent. The Company's obligations hereunder shall be binding
upon and inure to the benefit of its successors and assigns. The Company
further agrees to cause its obligations hereunder to become binding upon
any successor resulting from a Change of Control in the same manner as if
no such transaction had occurred, and the term "Company" as used herein
shall be so construed.
7. By your acknowledgment below, you hereby confirm the confidentiality,
non-competition, non-solicitation and non-interference covenants set forth
in your agreement with New Horizons Worldwide, Inc. dated December 13, 1997
and that such obligations will survive your termination of employment to
the extent therein set forth.
8. For purposes hereof the terms set forth below shall have the meanings
thereafter set forth:
(a) "Change of Control" shall have the meaning given such term in the
Omnibus Equity Plan of the Company.
(b) "Disability" shall mean any physical or mental impairment (a) because
of which you do not perform the principal duties of your employment
for a period of at least 120 consecutive days or for 180 days during
any twelve month period or (b) which, in the judgment of the Board of
Directors of the Company based on a written certification of a
physician acceptable to it, renders you incapable of performing the
principal duties of your employment.
(c) "Good Cause" shall mean (i)-any fraud, misappropriation or
embezzlement by you in connection with the business of the Company or
any Subsidiary; (ii)-any act of gross negligence, gross corporate
waste or disloyalty by you with respect to, or the commission of any
intentional tort by you against, the Company or any Subsidiary;
(iii)-any conviction of or nolo contendere plea to a felony or a first
degree misdemeanor by you that has or can reasonably be expected to
have a material detrimental effect on the Company or any Subsidiary;
(iv)-repeated absenteeism (other than medical leave, disability leave
or other approved absence), illegal drug use or excessive alcohol
consumption by you; (v)-any gross neglect or persistent neglect by you
to perform the duties assigned to you by the Board of Directors of the
Company or a Subsidiary or any designee to whom you report, provided
that you shall first have received a written notice which sets forth
in reasonable detail the manner in which you have grossly or
persistently neglected such duties and you shall have failed to cure
the same within a period of 30 days after such notice is given, unless
the same cannot reasonably be cured within said 30-day period, in
which event you shall have up to an additional 90 days to cure the
same so long as you are diligently seeking to cure the same, and
provided, further, that the Company shall not be required to give
written notice of, nor shall you have a period to cure, the same or
any similar gross neglect or persistent neglect as to which the
Company shall have previously given written notice and which you shall
have previously cured; (vi)-any public conduct by you that has or can
reasonably be expected to have a material detrimental effect on the
Company or any Subsidiary; or (vii) any voluntary resignation or other
termination of employment effected by you under circumstances in which
the Company or a Subsidiary could effect such termination pursuant to
the foregoing.
<PAGE>
(d) "Good Reason" shall mean (i)-a significant reduction in your position,
duties, responsibilities, authority or power; (ii)-a reduction of your
base salary; or (iii)-a material reduction or discontinuance of the
benefits (taken as a whole) provided to you, unless such reduction or
discontinuance similarly affects other senior executives of the
Company or a Subsidiary.
(e) "Lump Sum Benefit" shall mean $425,000, less applicable withholding
taxes.
(f) "Salary Continuation Benefit" shall mean (i) your base salary as in
effect at the date of termination of employment, less applicable
withholding taxes (which shall be payable in accordance with the
payroll practices then in effect) and (ii) an amount sufficient to
reimburse you for the cost of purchasing health insurance through the
Company or a Subsidiary should you exercise your COBRA rights.
9. This agreement constitutes the entire understanding between the parties
concerning its subject matter, supersedes any prior agreements, may be
amended only by a writing signed by both parties and shall be governed by
the laws of the State of California without regard to principles of
conflicts of laws.
I hope you are pleased with this new benefit and are in agreement. If so, kindly
execute this letter and the enclosed duplicate in the space provided, and return
one of them to me.
Very truly yours,
Thomas J. Bresnan
Chief Executive Officer
AGREED:
____________________________________
Kenneth Hagerstrom
Date: ___________________________
<PAGE>
January 4, 2000
Mr. Robert McMillan
New Horizons Computer Learning Centers, Inc.
1231 E. Dyer Road, Suite 110
Santa Ana, CA 92705
Dear Bob:
This letter will describe a severance pay program which the Board of Directors
of New Horizons Worldwide, Inc. (the "Company") has approved for you and certain
other key executives of the Company and its subsidiaries and affiliates (each
being hereinafter referred to as a "Subsidiary"). The program was approved by
the Board in an effort to provide the participants with assurances regarding the
economic consequences of certain terminations of employment and of a change of
control of the Company. In that regard, the following arrangements are hereby
being made available to you. Capitalized terms not previously defined are
defined in paragraph 7 below.
1. You will be entitled to receive a Salary Continuation Benefit for a period
of six (6) months should your employment be terminated by the Company
without Good Cause, by you for Good Reason, or as a result of your death or
Disability.
2. You will be entitled to receive a Lump Sum Benefit not later than one day
after a Change of Control of the Company, if such should occur on or before
December 31, 2001 and you remain employed by the Company or a Subsidiary
through the date of such change of control.
3. If, in connection with a Change of Control, you incur any liability for
excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (relating to "excess parachute payments"), the Company will pay you
an additional amount (the "Tax Gross-Up Payment") so that you will be in
the same position, after payment of all federal, state, and local taxes, as
you would have been had you not been subject to such excise tax.
4. The Salary Continuation Benefit, Lump Sum Benefit, and Tax Gross-Up Payment
shall be in addition to any other benefits payable by the Company or any
Subsidiary or under any insurance payable to you.
5. Your rights hereunder shall not be construed as a commitment by the Company
or any Subsidiary to maintain your employment for any period of time, which
shall remain "at will" and be subject to termination at any time for any
reason. 6. Your rights hereunder will inure to the benefit of your heirs
and legal representatives, but shall otherwise not be assignable by you
without the Company's consent. The Company's obligations hereunder shall be
binding upon and inure to the benefit of its successors and assigns. The
Company further agrees to cause its obligations hereunder to become binding
upon any successor resulting from a Change of Control in the same manner as
if no such transaction had occurred, and the term "Company" as used herein
shall be so construed.
<PAGE>
6. Your rights hereunder will inure to the benefit of your heirs and legal
representatives, but shall otherwise not be assignable by you without the
Company's consent. The Company's obligations hereunder shall be binding
upon and inure to the benefit of its successors and assigns. The Company
further agrees to cause its obligations hereunder to become binding upon
any successor resulting from a Change of control in the same manner as if
no such transaction had occurred, and the term "Company" as used herein
shall be so construed.
7. By your acknowledgment below, you hereby confirm the confidentiality,
non-competition, non-solicitation and non-interference covenants set forth
in your agreement with New Horizons Education Corp. dated October 17, 1995
and that such obligations will survive your termination of employment to
the extent therein set forth.
8. For purposes hereof the terms set forth below shall have the meanings
thereafter set forth:
(a) "Change of Control" shall have the meaning given such term in the
Omnibus Equity Plan of the Company.
(b) "Disability" shall mean any physical or mental impairment (a) because
of which you do not perform the principal duties of your employment
for a period of at least 120 consecutive days or for 180 days during
any twelve month period or (b) which, in the judgment of the Board of
Directors of the Company based on a written certification of a
physician acceptable to it, renders you incapable of performing the
principal duties of your employment.
(c) "Good Cause" shall mean (i) any fraud, misappropriation or
embezzlement by you in connection with the business of the Company or
any Subsidiary; (ii) any act of gross negligence, gross corporate
waste or disloyalty by you with respect to, or the commission of any
intentional tort by you against, the Company or any Subsidiary;
(iii) any conviction of or nolo contendere plea to a felony or a first
degree misdemeanor by you that has or can reasonably be expected to
have a material detrimental effect on the Company or any Subsidiary;
(iv) repeated absenteeism (other than medical leave, disability leave
or other approved absence), illegal drug use or excessive alcohol
consumption by you; (v) any gross neglect or persistent neglect by you
to perform the duties assigned to you by the Board of Directors of the
Company or a Subsidiary or any designee to whom you report, provided
that you shall first have received a written notice which sets forth
in reasonable detail the manner in which you have grossly or
persistently neglected such duties and you shall have failed to cure
the same within a period of 30 days after such notice is given, unless
the same cannot reasonably be cured within said 30-day period, in
which event you shall have up to an additional 90 days to cure the
same so long as you are diligently seeking to cure the same, and
provided, further, that the Company shall not be required to give
written notice of, nor shall you have a period to cure, the same or
any similar gross neglect or persistent neglect as to which the
Company shall have previously given written notice and which you shall
have previously cured; (vi) any public conduct by you that has or can
reasonably be expected to have a material detrimental effect on the
Company or any Subsidiary; or (vii) any voluntary resignation or other
termination of employment effected by you under circumstances in which
the Company or a Subsidiary could effect such termination pursuant to
the foregoing.
<PAGE>
(d) "Good Reason" shall mean (i)-a significant reduction in your position,
duties, responsibilities, authority or power; (ii)-a reduction of your
base salary; or (iii)-a material reduction or discontinuance of the
benefits (taken as a whole) provided to you, unless such reduction or
discontinuance similarly affects other senior executives of the
Company or a Subsidiary.
(e) "Lump Sum Benefit" shall mean $300,000, less applicable withholding
taxes.
(f) "Salary Continuation Benefit" shall mean (i) your base salary as in
effect at the date of termination of employment, less applicable
withholding taxes (which shall be payable in accordance with the
payroll practices then in effect) and (ii) an amount sufficient to
reimburse you for the cost of purchasing health insurance through the
Company or a Subsidiary should you exercise your COBRA rights.
9. This agreement constitutes the entire understanding between the parties
concerning its subject matter, supersedes any prior agreements, may be
amended only by a writing signed by both parties and shall be governed by
the laws of the State of California without regard to principles of
conflicts of laws.
I hope you are pleased with this new benefit and are in agreement. If so, kindly
execute this letter and the enclosed duplicate in the space provided, and return
one of them to me.
Very truly yours,
Thomas J. Bresnan
Chief Executive Officer
AGREED:
__________________________________
Robert McMillan
Date: __________________________
<PAGE>
OFFICE LEASE
STADIUM GATEWAY
STADIUM GATEWAY ASSOCIATES, L.L.C.
a Delaware limited liability company,
as Landlord,
and
NEW HORIZONS WORLDWIDE, INC.,
a Delaware corporation,
as Tenant.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 PREMISES, BUILDING, PROJECT, AND COMMON AREAS......................3
ARTICLE 2 LEASE TERM.........................................................4
ARTICLE 3 BASE RENT..........................................................6
ARTICLE 4 ADDITIONAL RENT....................................................6
ARTICLE 5 USE OF PREMISES...................................................12
ARTICLE 6 SERVICES AND UTILITIES............................................13
ARTICLE 7 REPAIRS...........................................................14
ARTICLE 8 ADDITIONS AND ALTERATIONS.........................................15
ARTICLE 9 COVENANT AGAINST LIENS............................................16
ARTICLE 10 INSURANCE.........................................................16
ARTICLE 11 DAMAGE AND DESTRUCTION............................................18
ARTICLE 12 NONWAIVER.........................................................20
ARTICLE 13 CONDEMNATION......................................................20
ARTICLE 14 ASSIGNMENT AND SUBLETTING.........................................20
ARTICLE 15 SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES...23
ARTICLE 16 HOLDING OVER......................................................23
ARTICLE 17 ESTOPPEL CERTIFICATES.............................................23
ARTICLE 18 SUBORDINATION.....................................................23
ARTICLE 19 DEFAULTS; REMEDIES................................................24
ARTICLE 20 COVENANT OF QUIET ENJOYMENT.......................................25
ARTICLE 21 INTENTIONALLY OMITTED.............................................26
ARTICLE 22 INTENTIONALLY OMITTED.............................................26
ARTICLE 23 SIGNS.............................................................26
ARTICLE 24 COMPLIANCE WITH LAW...............................................27
ARTICLE 25 LATE CHARGES......................................................27
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT..............27
ARTICLE 27 ENTRY BY LANDLORD.................................................28
ARTICLE 28 TENANT PARKING....................................................28
ARTICLE 29 MISCELLANEOUS PROVISIONS..........................................29
EXHIBITS
A OUTLINE OF PREMISES
B TENANT WORK LETTER
C FORM OF NOTICE OF LEASE TERM DATES
D RULES AND REGULATIONS
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
F RECOGNITION OF COVENANTS, CONDITIONS, AND RESTRICTIONS
(i)
<PAGE>
INDEX
Abatement Event..............................................................14
Additional Passes.............................................................1
Additional Rent...............................................................6
Affiliate....................................................................22
all risks....................................................................17
Alterations..................................................................15
Applicable Laws..............................................................27
Applicable Reassessment......................................................11
as built.....................................................................15
Bank Prime Loan..............................................................27
Base Rent.....................................................................6
Base Taxes...................................................................10
Base Year.....................................................................7
BOMA..........................................................................3
Brokers......................................................................31
Builder's All Risk...........................................................16
Building......................................................................3
Building Common Areas.........................................................3
Building Hours...............................................................13
building standard............................................................11
Building Structure............................................................3
Building Systems..............................................................3
Buyout Premium................................................................5
CC&Rs........................................................................13
Code..........................................................................1
Commenced Construction........................................................4
Common Areas..................................................................3
Competing Business...........................................................12
Construction Commencement Date................................................4
Cosmetic Alterations.........................................................15
Cost Pools...................................................................10
Damage Termination Notice....................................................19
Direct Competitor............................................................12
Direct Expenses...............................................................7
Early Termination Notice......................................................4
Eligibility Period...........................................................14
Estimate.....................................................................10
Estimate Statement...........................................................10
Estimated Excess.............................................................10
Excess.......................................................................10
Excess Rent...................................................................5
Existing Landlord.............................................................5
Existing Lease Transferees....................................................5
Existing Lease Transfers......................................................5
Existing Premises.............................................................5
Expense Year..................................................................7
Force Majeure................................................................30
Hazardous Material............................................................8
Holidays.....................................................................13
HVAC.........................................................................13
Initial Term..................................................................4
Landlord......................................................................1
Landlord Parties.............................................................16
Landlord Repair Notice.......................................................18
Landlord's Reimbursement Amount...............................................5
Last Load Weekday Events.....................................................28
Lease.........................................................................1
Lease Commencement Date.......................................................4
Lease Expiration Date.........................................................4
Lease Year....................................................................4
Lines........................................................................32
Mail.........................................................................30
Market Rent...................................................................6
Monument Design Specifications..............................................26
Monument Sign Notice.........................................................26
Notices......................................................................30
Objectionable Name...........................................................27
Operating Expenses............................................................7
Option Rent...................................................................6
Option Rent Notice............................................................6
Option Term...................................................................6
Original Improvements........................................................17
(ii)
<PAGE>
Original Tenant...............................................................6
Other Improvements...........................................................32
Overlap Period...............................................................14
Parking Agreement............................................................13
Premises......................................................................3
Primary Passes................................................................1
Project.......................................................................3
Proposition 13...............................................................10
Proposition 13 Protection Amount.............................................11
Proposition 13 Purchase Price................................................11
Quoted Rent..................................................................21
Reassessment.................................................................11
Renovations..................................................................32
rent.........................................................................25
Rent..........................................................................6
Rooftop Sign.................................................................26
Rooftop Sign Design Specifications...........................................26
Rooftop Sign Notice..........................................................26
Sportstown Anaheim REA.......................................................13
Stadium Gateway...............................................................3
Statement....................................................................10
Subject Space................................................................20
Summary.......................................................................1
Tax Expenses..................................................................9
Tenant........................................................................1
Tenant Parties...............................................................16
Tenant Work Letter............................................................3
Tenant's Monument Signage....................................................26
Tenant's Security System.....................................................14
Tenant's Share...............................................................10
Termination Fee...............................................................5
Transfer.....................................................................22
Transfer Notice..............................................................20
Transfer Premium.............................................................21
Transferee...................................................................20
Transferee's Rent............................................................21
Transfers....................................................................20
Utility Estimate.............................................................13
worth at the time of award...................................................25
(iii)
<PAGE>
STADIUM GATEWAY
OFFICE LEASE
This Office Lease (the "Lease"), dated as of the date set forth in Section
1 of the Summary of Basic Lease Information (the "Summary"), below, is made by
and between STADIUM GATEWAY ASSOCIATES, L.L.C., a Delaware limited liability
company ("Landlord"), and NEW HORIZONS WORLDWIDE, INC., a Delaware corporation
("Tenant").
SUMMARY OF BASIC LEASE INFORMATION
TERMS OF LEASE DESCRIPTION
1. Date: February 15, 2000
2. Premises(Article 1).
2.1 Building: 261,554 square foot office building to
be constructed by Landlord, located in
the Stadium Gateway, generally as
depicted on Exhibit A-1 to the Office
Lease.
2.2 Premises: Approximately 75,000 rentable square
feet of space located on a portion of
the first (1st) and all of the second
(2nd) floors of the Building, as further
set forth in Exhibit A to the Office
Lease.
3. Lease Term
(Article 2).
3.1 Length of Term: 10 years.
3.2 Lease Commencement Date: January 1, 2002
3.3 Lease Expiration Date: The last day of the tenth (10th) year
following the Lease Commencement Date.
4. Base Rent (Article 3):
Monthly Annual Rental Rate
Annual Installment per Rentable
Lease Year Base Rent of Base Rent Square Foot
1-5 $ 1,800,750.00 $ 150,062.50 $ 24.01
6-10 $ 1,890,750.00 $ 157,562.50 $ 25.21
5. Base Year(Article 4): Calendar year 2002.
6. Tenant's Share Approximately 28.67%.
(Article 4):
7. Permitted Use Computer training classrooms (subject to
(Article 5): the limitation set forth in Section 5.2
of this Lease) and general office
purposes consistent with the character
of the Building as a first-class office
building.
8. Security Deposit NONE.
(Article 21):
9. Parking Pass Ratio Subject to the terms of Article 28, four
(Article 28): (4) unreserved parking passes for every
1,000 rentable square feet of the
Premises ("Primary Passes"), together
with three hundred (300) additional
passes in the area to be designated by
Landlord ("Additional Passes").
1
<PAGE>
10. Address of Tenant
(Section 29.18): New Horizons Worldwide, Inc.
1231 E. Dyer Road
Suite 110
Santa Ana, California 92705-5643
Attention: Mr. Robert S. McMillan
(Prior to Lease Commencement Date)
and
New Horizons Worldwide, Inc.
1900 South State College Boulevard
Suite 100
Anaheim, California 92806
Attention: Mr. Robert S. McMillan
(After Lease Commencement Date)
11. Address of Landlord(Section 29.18): See Section 29.18 of the Lease.
12. Broker(s)(Section 29.24): TENANT:
CB Richard Ellis
17700 Castleton Street
City of Industry, California 91748
and
LANDLORD:
Cushman and Wakefield
1920 Main Street
Suite 100
Irvine, California 92614
2
<PAGE>
ARTICLE 1
PREMISES, BUILDING, PROJECT, AND COMMON AREAS
1.1 Premises, Building, Project and Common Areas.
1.1.1 THE PREMISES. Notwithstanding anything in this Lease to the contrary,
Landlord and Tenant hereby acknowledge and agree that (i) Landlord
does not currently hold fee title to the Project, and (ii) if Landlord
does not obtain fee title to the Project on or before the
"Construction Commencement Date" (defined in Section 2.2 below) then,
Landlord or Tenant shall be entitled to terminate this Lease and in
such event, Tenant shall be entitled to the liquidated damages as set
forth in Section 2.2, below, of this Lease. Subject to the foregoing,
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the premises set forth in Section 2.2 of the Summary (the
"Premises"). The outline of the Premises is set forth in Exhibit A
attached hereto and each floor or floors of the Premises has the
number of rentable square feet as set forth in Section 2.2 of the
Summary. The parties hereto agree that the lease of the Premises is
upon and subject to the terms, covenants and conditions herein set
forth, and Tenant covenants as a material part of the consideration
for this Lease to keep and perform each and all of such terms,
covenants and conditions by it to be kept and performed and that this
Lease is made upon the condition of such performance. The parties
hereto hereby acknowledge that the purpose of Exhibit A is to show the
approximate location of the Premises in the "Building," as that term
is defined in Section 1.1.2, below, only, and such Exhibit is not
meant to constitute an agreement, representation or warranty as to the
construction of the Premises, the precise area thereof or the specific
location of the "Common Areas," as that term is defined in
Section 1.1.3, below, or the elements thereof or of the accessways to
the Premises or the "Project," as that term is defined in Section
1.1.2, below. Except as specifically set forth in this Lease and in
the Tenant Work Letter attached hereto as Exhibit B (the "Tenant Work
Letter"), Landlord shall not be obligated to provide or pay for any
improvement work or services related to the improvement of the
Premises. Tenant also acknowledges that neither Landlord nor any agent
of Landlord has made any representation or warranty regarding the
condition of the Premises, the Building or the Project or with respect
to the suitability of any of the foregoing for the conduct of Tenant's
business, except as specifically set forth in this Lease and the
Tenant Work Letter. Except as provided in the Tenant Work Letter, the
taking of possession of the Premises by Tenant shall conclusively
establish that the Premises and the Building were at such time in good
and sanitary order, condition and repair. Notwithstanding the
foregoing, Landlord shall deliver the "Base, Shell and Core" (as that
term is defined in Section 1.1 of the Tenant Work Letter) of the
Building, which Base, Shell and Core shall include the building
structure ("Building Structure") and the building systems ("Building
Systems") as set forth in Schedule 1 to the Tenant Work Letter, as of
the "Delivery Date" as that term is defined in Section 1.1 of the
Tenant Work Letter in the required "Delivery Condition" (defined in
Section 1.1 of the Tenant Work Letter).
1.1.2 THE BUILDING AND THE PROJECT. The Premises are a part of the building
set forth in Section 2.1 of the Summary (the "Building"). The Building
is part of a mixed use, retail and office project known as " Stadium
Gateway" ("Stadium Gateway") For purposes of this Lease, this term
"Project,", shall mean, collectively, (i) the Building and the
Building Common Areas, (ii) the land (which is improved with
landscaping, parking facilities and other improvements) upon which the
Building is located, (iii) those portions of the Stadium Gateway
Project to be used by Landlord and the occupants and tenants of the
Building pursuant to and (iv) at Landlord's reasonable discretion, any
additional real property, areas, land, buildings or other improvements
added thereto, provided such addition shall not materially adversely
affect Tenant's rights or materially increase Tenant's obligations
under this Lease.
1.1.3 COMMON AREAS. Tenant shall have the non-exclusive right to use in
common with other tenants in the Project, and subject to the rules and
regulations referred to in Article 5 of this Lease, those portions of
the Project which are provided, from time to time, for use in common
by Landlord, Tenant and any other tenants of the Project (such areas,
together with such other portions of the Project designated by
Landlord, in its discretion, including certain areas designated for
the exclusive use of certain tenants, or to be shared by Landlord and
certain tenants, are collectively referred to herein as the "Common
Areas"). The term "Building Common Areas," as used in this Lease,
shall mean the portions of the Common Areas located within the
Building designated as such by Landlord. The manner in which the
Common Areas are maintained and operated shall be at the reasonable
discretion of Landlord and the use thereof shall be subject to such
rules, regulations and restrictions as Landlord may make from time to
time. Landlord reserves the right to close temporarily, make
alterations or additions to, or change the location of elements of the
Project and the Common Areas; provided, such alterations, additions or
changes do not materially interfere with Tenant's access to the
Premises.
1.2 VERIFICATION OF RENTABLE SQUARE FEET OF PREMISES AND BUILDING. For purposes
of this Lease, "rentable square feet" and "usable square feet" shall be
calculated pursuant to Standard Method of Measuring Floor Area in Office
Building, ANSI Z65.1 - 1996 ("BOMA"). Within thirty (30) days after the
Lease Commencement Date, Landlord's space planner/architect shall measure
the rentable and usable square feet of the Premises, and thereafter the
rentable and usable square feet of the Premises and the Building are
subject to verification from time to time by Landlord's space
planner/architect and such verification shall be made in accordance with
the provisions of this Section 1.2. In the event that Landlord's space
planner/architect shall determine that the rentable or usable square
footages shall be different from those set forth in this Lease, then,
within ten (10) business days following notice thereof from Landlord,
Tenant shall be entitled to object in writing to such determination (the
"Objection Notice"), in which event the parties shall meet and discuss such
measurements within ten (10) business days following Landlord's receipt of
the Objection Notice. If the parties cannot agree upon the rentable and
usable square footages within such ten (10) business day period, then the
rentable and usable square footage shall be determined, at Tenant's
expense, in accordance with the BOMA standard by a third party architect
selected by Landlord and approval by Tenant in Tenant's reasonable
discretion (the "Third Party Architect"). The finding of the Third Party
Architect shall be binding upon Landlord and Tenant. In the event that a
remeasurement pursuant to the terms of this Section 1.2 establishes that
the rentable and/or usable square footages shall be different from those
set forth in this Lease, all amounts, percentages and figures appearing or
referred to in this Lease based upon such incorrect amount (including,
without limitation, the amount of the "Rent" and any "Security Deposit," as
those terms are defined in Section 4.1 and Article 21 of this Lease,
respectively) shall be modified in accordance with such determination. If
such determination is made, it will be confirmed in writing by Landlord to
Tenant.
3
<PAGE>
ARTICLE 2
LEASE TERM
2.1 INITIAL TERM. The terms and provisions of this Lease shall be effective as
of the date of this Lease. The term of this Lease (the "Initial Term")
shall be as set forth in Section 3.1 of the Summary, shall commence on the
date set forth in Section 3.2 of the Summary (the "Lease Commencement
Date"), and shall terminate on the date set forth in Section 3.3 of the
Summary (the "Lease Expiration Date") unless this Lease is sooner
terminated as hereinafter provided. For purposes of this Lease, the term
"Lease Year" shall mean each consecutive twelve (12) month period during
the Lease Term; provided, however, that the first Lease Year shall commence
on the Lease Commencement Date and end on the last day of the twelfth month
thereafter and the second and each succeeding Lease Year shall commence on
the first day of the next calendar month; and further provided that the
last Lease Year shall end on the Lease Expiration Date. At any time during
the Lease Term, Landlord may deliver to Tenant a notice in the form as set
forth in Exhibit C, attached hereto, as a confirmation only of the
information set forth therein, which Tenant shall execute and return to
Landlord within ten (10) days of receipt thereof.
2.2 PRE-COMMENCEMENT DATE TERMINATION RIGHt. Notwithstanding anything to the
contrary contained in this Lease, in the event Landlord has not "Commenced
Construction" (defined, below) of the Building on or before July 1, 2000
(the "Construction Commencement Date"), Tenant shall be entitled to
terminate this Lease upon written notice to Landlord (the "Early
Termination Notice"), provided such Early Termination Notice is delivered
to Landlord no later than the earlier of (i) the date Landlord Commenced
Construction on the Building and (ii) 5:00 p.m., Pacific Daylight Time,
July 31, 2000. In the event Tenant does not deliver the Early Termination
Notice within the time period hereinabove provided, Tenant shall be deemed
to have waived Tenant's right to terminate the Lease as provided in this
Section 2.2. For purposes of this Lease, "Commenced Construction" shall
mean that Landlord shall have commenced demolition, excavation, or
foundation work with respect to the Building in accordance with any
applicable permit issued by the City of Anaheim. Notwithstanding the
foregoing, the Construction Commencement Date shall be extended by any
"Force Majeure" (defined in Section 29.16, below) delay; provided in the
event the Construction Commencement Date is delayed by a Force Majeure
delay beyond December 31, 2000, Tenant shall have the right to terminate
this Lease as hereinafter set forth; however, in such event, Tenant shall
not be entitled to recover any damages based on such termination as
hereinafter set forth in this Section 2.2. In the event Landlord has not
Commenced Construction on or before the Construction Commencement Date, as
the same may be extended by Force Majeure delays, and Tenant terminates
this Lease as hereinabove provided in this Section 2.2, Tenant shall be
entitled to recover damages in the amount of Five Hundred Thousand and
No/100 Dollars ($500,000.00) from Landlord, which Landlord shall pay to
Tenant within fourteen (14) days following written demand therefor from
Tenant. LANDLORD AND TENANT AGREE THAT IT WOULD BE IMPRACTICAL AND
EXTREMELY DIFFICULT TO ESTIMATE THE DAMAGES WHICH TENANT MAY SUFFER IN THE
EVENT LANDLORD FAILS TO COMMENCE CONSTRUCTION ON OR BEFORE THE CONSTRUCTION
COMMENCEMENT DATE. THEREFORE, LANDLORD AND TENANT DO HEREBY AGREE THAT A
REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT THAT TENANT WOULD SUFFER IN
THE EVENT THAT LANDLORD DOES NOT COMMENCE CONSTRUCTION ON OR BEFORE THE
CONSTRUCTION COMMENCEMENT DATE IS AND SHALL BE TENANT'S SOLE AND EXCLUSIVE
REMEDY (WHETHER AT LAW OR EQUITY), AND AN AMOUNT EQUAL TO FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($500,000.00). SAID AMOUNT SHALL BE THE FULL,
AGREED AND LIQUIDATED DAMAGES RECOVERABLE BY TENANT, ALL OTHER CLAIMS TO
DAMAGES OR OTHER REMEDIES BEING HEREIN EXPRESSLY WAIVED BY TENANT. THE
PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A
FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS
3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO TENANT
PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677. TENANT
HEREBY WAIVES THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 3389. UPON
TERMINATION OF THIS LEASE AS PROVIDED IN THIS SECTION 2.2, THIS LEASE SHALL
BE TERMINATED AND NEITHER PARTY SHALL HAVE ANY FURTHER RIGHTS OR
OBLIGATIONS HEREUNDER, EACH TO THE OTHER, EXCEPT FOR THE RIGHT OF TENANT TO
COLLECT SUCH LIQUIDATED DAMAGES FROM LANDLORD.
Landlord's Initials: __________ Tenant's Initials: _________
2.3 Tenant's Existing Lease Obligation.
2.3.1 REIMBURSEMENT OF TENANT'S EXISTING LEASE OBLIGATIONS. In the event
this Lease is not terminated as provided in Section 2.2 above, or for
any other reason on or before July 1, 2001, effective as of July 1,
2001, subject to the terms of this Section 2.3, Landlord shall
reimburse Tenant for Tenant's "Monthly Rent" and "Common Operating
Costs," as those terms are defined in the "Existing Lease" (defined
below), accruing under the Existing Lease after the later of (i) the
date occurring ninety (90) days after the "Delivery Date", as that
term is defined in Section 1 of the Tenant Work Letter, (ii) the
occurrence of the "Base, Shell, and Core Completion Delivery Date", as
that term is defined in Section 1 of the Tenant Work Letter, and (iii)
July 1, 2001, and for no other obligations under the Existing Lease,
up to the aggregate amount of Eight Hundred Forty-Six Thousand
Forty-Eight and No/100 Dollars ($846,048.00) ("Landlord's
Reimbursement Amount"). Landlord shall pay the "Existing Landlord", as
defined below, for such amount, or portions thereof, as and when they
are due by Tenant under the Existing Lease; provided that to the
extent Tenant does not vacate the "premises" under the "Existing
Lease" as that term is defined below, on or before ninety (90) days
after the commencement of Landlord's obligation to pay Landlord's
Reimbursement Amount, Landlord's obligations hereunder shall be
suspended until Tenant vacates such Premises. Landlord's Reimbursement
Amount shall not include and Landlord shall not be required to pay for
any rent applicable to the "Temporary Premises," as that term is
defined in the Existing Lease. For the purposes of this Section 2.3,
the "Existing Lease" shall mean that certain Building Lease by and
between Orange County Tech Center Associates, L.P., a Delaware limited
partnership (the "Existing Landlord") and New Horizons Computer
Learning Centers, Inc., a Delaware corporation, dated September 15,
1995, as amended by that certain First Amendment to Lease, dated
January 24, 1997 relating to certain "Temporary Premises" and that
Second Amendment to Lease, dated October 1, 1997 relating to certain
"Mezzanine Space", for premises located at 1231 East Dyer Road, Santa
Ana, California. Landlord's Reimbursement Amount, or any portion
thereof, shall be made solely in accordance with this Section 2.3. To
the extent Landlord does not pay Landlord's Reimbursement Amount
within ten (10) business days notice from Tenant to Landlord that such
amount is due to the Existing Landlord, upon five (5) business days
notice by Tenant to Landlord, Tenant shall be entitled to offset
against any Rent next due under this Lease the applicable unpaid
portion of the Landlord's Reimbursement Amount plus any late penalties
incurred by Tenant in connection with Landlord's failure to timely pay
under the Existing Lease.
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2.3.2 LANDLORD'S SUBLEASING RIGHTS. In consideration of Landlord's
reimbursement to Tenant as hereinabove provided, Landlord shall have
the right to solicit and negotiate with, on Tenant's behalf, potential
subtenants, assignees or other occupants ("Existing Lease
Transferees") for one (1) or more subleases, assignments or other
occupancy agreements ("Existing Lease Transfers") for space leased
pursuant to the Existing Lease (the "Existing Premises"). Accordingly,
Tenant shall cooperate fully with Landlord in any manner reasonably
requested by Landlord with respect to any potential transfers,
including, but not limited to, showing the Premises, communicating
with the potential Existing Lease Transferees, assisting Landlord to
the fullest extent possible in communicating with and negotiating with
the Existing Landlord to obtain any consent of the Existing Landlord
with respect to any proposed Existing Lease Transfer, which shall
include submitting to the Existing Landlord all information and
documentation regarding the terms of such Existing Lease Transfer for
approval by the Existing Landlord, assisting Landlord with respect to
seeking the Existing Landlord's approval of any alteration to the
Existing Premises, and executing all commercially reasonable
documentation required to effect any such Existing Lease Transfer.
Further, to preserve Landlord's right to transfer the Existing
Premises as set forth hereunder, Tenant shall not negotiate with or
enter into any Existing Lease Transfers for the Existing Premises, or
any portion thereof, without the prior consent of Landlord, which
consent may be withheld in Landlord's sole discretion. In the event of
an Existing Lease Transfer for the Existing Premises, or portion
thereof, all rent received by Tenant pursuant to such Existing Lease
Transfer shall be paid by Tenant to Landlord and, in the event the
rent or other consideration payable by the Existing Lease Transferee
under such Existing Lease Transfer exceeds the rent payable by Tenant
to the Existing Landlord under the Existing Lease with respect to the
subject space (hereinafter the "Excess Rent"), Tenant shall distribute
such Excess Rent in the following order: (i) first, to the Existing
Landlord to the extent required pursuant to the Existing Lease; (ii)
next, to Landlord in an amount equal to all costs expended by Landlord
in connection with any such sublease, including but not limited to
costs relating to any changes, alterations or improvements to the
subleased premises, any free rent reasonably provided to the
sublessee, legal fees, marketing costs, and any brokerage commissions;
(iii) next, to Landlord in an amount equal to any portion of the
Landlord Reimbursement Amount theretofore paid by Landlord to Tenant;
and (iv) lastly, only after full payment of all amounts in the
preceding clauses (i) - (iii), the balance, if any, to Landlord and
Tenant, in equal shares. Tenant's obligation to disburse Excess Rent,
or any portion thereof to the Landlord as provided herein shall be
deemed Additional Rent under this Lease, and any failure by Tenant to
promptly pay such amounts shall be a default under this Lease.
2.3.3 LANDLORD'S BUYOUT/TERMINATION RIGHTS. In further consideration of
Landlord's reimbursement to Tenant as hereinabove provided, Landlord
shall have the right to negotiate, on Tenant's behalf, with the
Existing Landlord for an early termination of the Existing Lease.
Tenant shall cooperate fully with Landlord in any manner reasonably
requested by Landlord in connection with any such termination,
including, without limitation, assisting Landlord in the negotiation
of any transaction with the Existing Landlord. Tenant shall further
execute all commercially reasonable documentation required to effect
any such early termination, provided either such transaction does not
increase Tenant's current obligations under the Existing Lease. In the
event Landlord negotiates a termination of the Existing Lease, and the
Existing Landlord pays to Tenant any amount in connection therewith
(the "Buyout Premium"), Tenant shall disburse the Buyout Premium as
follows: (i) first, to Landlord in an amount equal to all or any
portion of the Landlord Reimbursement Amount paid or to be paid by
Landlord; (ii) next, to Landlord in an amount equal to all of
Landlord's costs incurred in connection with the negotiation of the
buyout, including but not limited to legal fees and brokerage
commissions, if any; and (iii) lastly, only after full payment of the
amounts set forth in the preceding clauses (i) and (ii), the balance,
if any, to Landlord and Tenant, in equal shares. Tenant's obligation
to pay the Buyout Premium, or any portion thereof, to Landlord as
provided herein shall be deemed to be Additional Rent due under this
Lease, and failure to promptly pay such amounts shall be a default
under this Lease. In the event that Landlord negotiates an early
termination of the Existing Lease which includes a termination fee
payable by Tenant to the Existing Landlord (the "Termination Fee") and
such Termination Fee is less than the Landlord's Reimbursement Amount,
after deducting any portion of the Landlord's Reimbursement Amount
previously paid by Landlord, Landlord shall pay the Termination Fee
(provided that Landlord shall not be obligated to pay to Tenant or
otherwise disburse any difference between the Termination Fee and any
then remaining balance of Landlord's Reimbursement Amount). If the
Termination Fee is greater than the then remaining balance of Landlord
Reimbursement Amount, then Tenant shall have the right to elect to pay
the difference or reject the proposed termination agreement.
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2.4 OPTION TERM.
2.4.1 OPTION RIGHT. Landlord hereby grants the Tenant named in the Summary
(the "Original Tenant"), one (1) option to extend the Lease Term for a
period of five (5) years (the "Option Term"), which option shall be
exercisable only by written notice delivered by Tenant to Landlord as
provided below, provided that, as of the date of delivery of such
notice, Tenant is not in default under this Lease and Tenant has not
previously been in default under this Lease beyond the applicable cure
period provided in this Lease more than three (3) times during the
initial Lease Term. Upon the proper exercise of such option to extend,
and provided that, as of the end of the initial Lease Term, Tenant is
not in default under this Lease beyond the applicable cure period
provided in this Lease and Tenant has not previously been in default
under this Lease beyond the applicable cure period provided in this
Lease more than three (3) times during the initial Lease Term, the
Lease Term, for the entire Premises then being leased by Tenant, shall
be extended for a period of five (5) years. The rights contained in
this Section 2.4 shall be personal to Original Tenant and may only be
exercised by Original Tenant (and not any assignee, sublessee or other
transferee of the Original Tenant's interest in this Lease) if
Original Tenant occupies at least seventy-five percent (75%) of the
Premises.
2.4.2 OPTION RENT. The Rent payable by Tenant during the Option Term (the
"Option Rent") shall be equal to the greater of (i) one hundred
percent (100%) of the base rent (plus any additional rent and
considering any "base year" or "expense stop" applicable thereto),
including all escalations, at which tenants, as of the commencement of
the Option Term, are leasing non-sublease, non-encumbered space
comparable in size, location and quality to the Premises for a
comparable term, which comparable space is located in the Building
taking into consideration the following concessions: (a) rental
abatement concessions, if any, being granted such tenants in
connection with such comparable space and (b) tenant improvements or
allowances provided or to be provided for such comparable space,
taking into account, and deducting the value of, the existing
improvements in the Premises, such value to be based upon the age,
quality and layout of the improvements and the extent to which the
same could be utilized by Tenant based upon the fact that the precise
tenant improvements existing in the Premises are specifically suitable
to Tenant (the "Market Rent") and (ii) the sum of (1) the monthly Base
Rent due under this Lease for the Lease month immediately preceding
the commencement of the Option Term, and (2) the amount of Tenant's
Share of Direct Expenses payable by Tenant on an annual, per rentable
square foot basis for the Premises immediately prior to the
commencement of the Option Term. If, in determining the applicable
Market Rent, Tenant is entitled to a tenant improvement or comparable
allowance for the improvement of the Premises, Landlord may, at
Landlord's sole option, elect to grant all or a portion of any such
allowance in accordance with the following: (1) to grant some or all
of such allowance to Tenant in the form as described above (i.e., as
an improvement allowance), and/or (2) to offset against the rental
rate component of the Market Rent all or a portion of any such
allowance (in which case such portion of any such allowance provided
in the form of a rental offset shall not be granted to Tenant.
2.4.3 EXERCISE OF OPTION. The option contained in this Section 2.4 shall be
exercised by Tenant, if at all, and only in the following manner: (i)
Tenant shall deliver written notice to Landlord not less than twelve
(12) months prior to the expiration of the initial Lease Term, stating
that Tenant may be interested in exercising its option; (ii) Landlord,
after receipt of Tenant's notice, shall deliver notice (the "Option
Rent Notice") to Tenant not less than eleven (11) months prior to the
expiration of the initial Lease Term, setting forth the Option Rent;
and (iii) if Tenant wishes to exercise such option, Tenant shall, on
or before the date occurring nine (9) months prior to the expiration
of the initial Lease Term, exercise the option by delivering written
notice thereof to Landlord.
ARTICLE 3
BASE RENT
Tenant shall pay, without prior notice or demand, to Landlord or Landlord's
agent at the management office of the Project, or, at Landlord's option, at such
other place as Landlord may from time to time designate in writing, by a check
for currency which, at the time of payment, is legal tender for private or
public debts in the United States of America, base rent ("Base Rent") as set
forth in Section 4 of the Summary, payable in equal monthly installments as set
forth in Section 4 of the Summary in advance on or before the first day of each
and every calendar month during the Lease Term, without any setoff or deduction
whatsoever except as otherwise provided in this Lease. The Base Rent for the
first full month of the Lease Term shall be paid by Tenant to Landlord within
ten (10) business days following delivery of notice by Landlord to Tenant that
Landlord has Commenced Construction as provided in Section 2.2, above. If any
Rent payment date (including the Lease Commencement Date) falls on a day of the
month other than the first day of such month or if any payment of Rent is for a
period which is shorter than one month, the Rent for any fractional month shall
accrue on a daily basis for the period from the date such payment is due to the
end of such calendar month or to the end of the Lease Term at a rate per day
which is equal to 1/365 of the applicable annual Rent. All other payments or
adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis. ARTICLE 4
ADDITIONAL RENT
4.1 GENERAL TERMS. In addition to paying the Base Rent specified in Article 3
of this Lease, Tenant shall pay "Tenant's Share" of the annual "Direct
Expenses," as those terms are defined in Sections 4.2.6 and 4.2.2 of this
Lease, respectively, which are in excess of the amount of Direct Expenses
applicable to the "Base Year," as that term is defined in Section 4.2.1,
below; provided, however, that in no event shall any decrease in Direct
Expenses for any Expense Year below Direct Expenses for the Base Year
entitle Tenant to any decrease in Base Rent or any credit against sums due
under this Lease. Such payments by Tenant, together with any and all other
amounts payable by Tenant to Landlord pursuant to the terms of this Lease,
are hereinafter collectively referred to as the "Additional Rent", and the
Base Rent and the Additional Rent are herein collectively referred to as
"Rent." All amounts due under this Article 4 as Additional Rent shall be
payable for the same periods and in the same manner as the Base Rent.
Without limitation on other obligations of Tenant which survive the
expiration of the Lease Term, the obligations of Tenant to pay the
Additional Rent provided for in this Article 4 shall survive the expiration
of the Lease Term.
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4.2 DEFINITIONS OF KEY TERMS RELATING TO ADDITIONAL RENT. As used in this
Article 4, the following terms shall have the meanings hereinafter set
forth:
4.2.1 "Base Year" shall mean the period set forth in Section 5 of the
Summary.
4.2.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax Expenses."
4.2.3 "Expense Year" shall mean each calendar year in which any portion of
the Lease Term falls, through and including the calendar year in which
the Lease Term expires, provided that Landlord, upon notice to Tenant,
may change the Expense Year from time to time to any other twelve (12)
consecutive month period, and, in the event of any such change,
Tenant's Share of Direct Expenses shall be equitably adjusted for any
Expense Year involved in any such change.
4.2.4 "Operating Expenses" shall mean all expenses, costs and amounts of
every kind and nature which Landlord pays or accrues during any
Expense Year because of or in connection with the ownership,
management, maintenance, security, repair, replacement, restoration or
operation of the Project, or any portion thereof. Without limiting the
generality of the foregoing, Operating Expenses shall specifically
include any and all of the following: (i) the cost of supplying all
utilities, excluding HVAC (except to the extent paid by Tenant or any
other tenant directly to the service provider or to Landlord), the
cost of operating, repairing, maintaining, and renovating the utility,
telephone, mechanical, sanitary, storm drainage, and elevator systems,
and the cost of maintenance and service contracts in connection
therewith; (ii) the cost of licenses, certificates, permits and
inspections and the cost of contesting any governmental enactments
which may affect Operating Expenses, and the costs incurred in
connection with a transportation system management program or similar
program; (iii) the cost of all insurance carried by Landlord in
connection with the Project; (iv) the cost of landscaping, relamping,
and all supplies, tools, equipment and materials used in the
operation, repair and maintenance of the Project, or any portion
thereof; (v) costs incurred in connection with the parking areas
servicing the Project; (vi) fees and other costs, including management
fees, consulting fees, legal fees and accounting fees, of all
contractors and consultants in connection with the management,
operation, maintenance and repair of the Project; (vii) payments under
any equipment rental agreements and the fair rental value of any
management office space; (viii) wages, salaries and other compensation
and benefits, including taxes levied thereon, of all persons engaged
in the operation, maintenance and security of the Project; (ix) costs
under any instrument pertaining to the sharing of costs by the
Project; (x) operation, repair, maintenance and replacement of all
systems and equipment and components thereof of the Building (except
to the extent paid by Tenant or any other tenant directly to the
service provider or to Landlord); (xi) the cost of janitorial, alarm,
security and other services (except to the extent paid by any tenant
directly to the service provider or Landlord), replacement of wall and
floor coverings, ceiling tiles and fixtures in common areas,
maintenance and replacement of curbs and walkways, repair to roofs and
re-roofing; (xii) amortization (including interest on the unamortized
cost) of the cost of acquiring or the rental expense of personal
property used in the maintenance, operation and repair of the Project,
or any portion thereof; (xiii) the cost of capital improvements or
other costs incurred in connection with the Project (A) which are
intended to effect economies in the operation or maintenance of the
Project, or any portion thereof, (B) that are required to comply with
present or anticipated conservation programs, (C) which are
replacements or modifications of nonstructural items located in the
Common Areas required to keep the Common Areas in good order or
condition, (D) that are required under any governmental law or
regulation, or (E) that relate to the HVAC system for the Project;
provided, however, that any capital expenditure shall be amortized
with interest over its reasonable useful life; (xiv) costs, fees,
charges or assessments imposed by, or resulting from any mandate
imposed on Landlord by, any federal, state or local government for
fire and police protection, trash removal, community services, or
other services which do not constitute "Tax Expenses" as that term is
defined in Section 4.2.5, below; and (xv) payments under any easement,
license, operating agreement, declaration, restrictive covenant, or
instrument pertaining t o the sharing of costs by the Building
(including, without limitation, costs payable under the "Sportstown
Anaheim REA" and "Parking Agreement" [defined in Section 5.3, below]).
Notwithstanding the foregoing, Operating Expenses shall not, however,
include:
(a) costs, including marketing costs, legal fees, space planners'
fees, advertising and promotional expenses, and brokerage fees
incurred in connection with the original construction or
development, or original or future leasing of the Project, and
costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements made for
new tenants in the Project or incurred in renovating or otherwise
improving, decorating, painting or redecorating vacant space for
tenants or other occupants of the Project (excluding, however,
such costs relating to any common areas of the Project or parking
facilities);
(b) except as set forth in items (xii), (xiii), and (xiv) above,
depreciation, interest and principal payments on mortgages and
other debt costs, if any, penalties and interest, costs of
capital repairs and alterations, and costs of capital
improvements and equipment;
(c) costs for which the Landlord is reimbursed by any tenant or
occupant of the Project or by insurance by its carrier or any
tenant's carrier or by anyone else, and electric power costs for
which any tenant directly contracts with the local public service
company;
(d) any bad debt loss, rent loss, or reserves for bad debts or rent
loss;
(e) costs associated with the operation of the business of the
partnership or entity which constitutes the Landlord, as the same
are distinguished from the costs of operation of the Project
(which shall specifically include, but not be limited to,
accounting costs associated with the operation of the Project).
Costs associated with the operation of the business of the
partnership or entity which constitutes the Landlord include
costs of partnership accounting and legal matters, costs of
defending any lawsuits with any mortgagee (except as the actions
of the Tenant may be in issue), costs of selling, syndicating,
financing, mortgaging or hypothecating any of the Landlord's
interest in the Project, and costs incurred in connection with
any disputes between Landlord and its employees, between Landlord
and Project management, or between Landlord and other tenants or
occupants, and Landlord's general corporate overhead and general
and administrative expenses;
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(f) the wages and benefits of any employee who does not devote
substantially all of his or her employed time to the Project
unless such wages and benefits are prorated to reflect time spent
on operating and managing the Project vis-a-vis time spent on
matters unrelated to operating and managing the Project;
provided, that in no event shall Operating Expenses for purposes
of this Lease include wages and/or benefits attributable to
personnel above the level of Project manager or Project engineer;
(g) amount paid as ground rental for the Project by the Landlord;
(h) except for a Project management fee to the extent allowed
pursuant to item (m), below, overhead and profit increment paid
to the Landlord or to subsidiaries or affiliates of the Landlord
for services in the Project to the extent the same exceeds the
costs of such services rendered by qualified, first-class
unaffiliated third parties on a competitive basis;
(i) any compensation paid to clerks, attendants or other persons in
commercial concessions operated by the Landlord, provided that
any compensation paid to any concierge at the Project shall be
includable as an Operating Expense;
(j) rentals and other related expenses incurred in leasing air
conditioning systems, elevators or other equipment which if
purchased the cost of which would be excluded from Operating
Expenses as a capital cost, except equipment not affixed to the
Project which is used in providing janitorial or similar services
and, further excepting from this exclusion such equipment rented
or leased to remedy or ameliorate an emergency condition in the
Project ;
(k) all items and services for which Tenant or any other tenant in
the Project reimburses Landlord or which Landlord provides
selectively to one or more tenants (other than Tenant) without
reimbursement;
(l) costs, other than those incurred in ordinary maintenance and
repair, for sculpture, paintings, fountains or other objects of
art;
(m) fees payable by Landlord for management of the Project in excess
of three and one-half percent (3.5%) (the "Management Fee Cap")
of Landlord's gross rental revenues, adjusted and grossed up to
reflect a one hundred percent (100%) occupancy of the Building
with all tenants paying rent, including base rent, pass-throughs,
and parking fees (but excluding the cost of after hours services
or utilities) from the Project for any calendar year or portion
thereof;
(n) any costs expressly excluded from Operating Expenses elsewhere in
this Lease;
(o) rent for any office space occupied by Project management
personnel to the extent the size or rental rate of such office
space exceeds the size or fair market rental value of office
space occupied by management personnel of the Comparable
Buildings in the vicinity of the Building, with adjustment where
appropriate for the size of the applicable project;
(p) costs arising from the gross negligence or wilful misconduct of
Landlord or its agents, employees, vendors, contractors, or
providers of materials or services;
(q) costs incurred to comply with laws relating to the removal of
hazardous material (as defined under applicable law) and asbestos
containing material (collectively, "Hazardous Material") which
was in existence in the Building or on the Project prior to the
Lease Commencement Date, and was of such a nature that a federal,
State or municipal governmental authority, if it had then had
knowledge of the presence of such Hazardous Material, in the
state, and under the conditions that it then existed in the
Building or on the Project, would have then required the removal
of such Hazardous Material or other remedial or containment
action with respect thereto; costs incurred with respect to any
Hazardous Material which was in existence in the Building or on
the Project prior to the Lease Commencement Date, and which
Landlord is obligated to abate or remediate after the Lease
Commencement Date in accordance with an abatement or remediation
plan which was in effect prior to the Lease Commencement Date;
and costs incurred to remove, remedy, contain, or treat Hazardous
Material, which Hazardous Material is brought into the Building
or onto the Project after the date hereof by Landlord or any
other tenant of the Project and is of such a nature, at that
time, that a federal, State or municipal governmental authority,
if it had then had knowledge of the presence of such Hazardous
Material, in the state, and under the conditions, that it then
exists in the Building or on the Project, would have then
required the removal of such Hazardous Material or other remedial
or containment action with respect thereto;
(r) costs arising from Landlord's charitable or political
contributions;
(s) any gifts provided to any entity whatsoever, including, but not
limited to, Tenant, other tenants, employees, vendors,
contractors, prospective tenants and agents;
(t) the cost of any magazine, newspaper, trade or other
subscriptions;
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(u) any costs covered by any warranty, rebate, guarantee or service
contract which are actually collected by Landlord (which shall
not prohibit Landlord from passing through the costs of any such
service contract if otherwise includable in Operating Expenses);
(v) marketing costs, including leasing commissions, attorneys' fees
in connection with the negotiation and preparation of letters,
deal memos, letters of intent, leases, subleases and/or
assignments, space planning costs, and other costs and expenses
incurred in connection with lease, sublease and/or assignment
negotiations and transactions with present or prospective tenants
or other occupants of the Building, including attorneys' fees and
other costs and expenditures incurred in connection with disputes
with present or prospective tenants or other occupants of the
Building:
(w) advertising and promotional expenditures, and costs of signs in
or on the Building identifying the owner of the Building or other
tenants' signs;
(x) bad debt expenses and interest, principal, points and fees on
debts (except in connection with the financing of items which may
be included in Operating Expenses) or amortization on any
mortgage or mortgages or any other debt instrument encumbering
the Building or the Project (including the land on which the
Building is situated);
(y) tax penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments or file returns when
due; and
(z) all assessments and premiums which are not specifically charged
to Tenant because of what Tenant has done, which can be paid by
Landlord in installments, shall be paid by Landlord in the
maximum number of installments permitted by law (except to the
extent inconsistent with the general practice of the Comparable
Buildings) and shall be included as Operations Expenses in the
year in which the assessment or premium installment is actually
paid; and
(aa) costs relating to the HVAC system servicing the Premises or
Building and costs of electricity to the extent supplied to
tenant occupied portions of the Building.
If Landlord is not furnishing any particular work or service (the cost of
which, if performed by Landlord, would be included in Operating Expenses) to a
tenant who has undertaken to perform such work or service in lieu of the
performance thereof by Landlord, Operating Expenses shall be deemed to be
increased by an amount equal to the additional Operating Expenses which would
reasonably have been incurred during such period by Landlord if it had at its
own expense furnished such work or service to such tenant. If the Project is not
at least one hundred percent (100%) occupied during all or a portion of the Base
Year or any Expense Year, Landlord may elect to make an appropriate adjustment
to the components of Operating Expenses for such year to determine the amount of
Operating Expenses that would have been incurred had the Project been one
hundred percent (100%) occupied; and the amount so determined shall be deemed to
have been the amount of Operating Expenses for such year. Operating Expenses for
the Base Year shall not include market-wide labor-rate increases due to
extraordinary circumstances, including, but not limited to, boycotts and
strikes, and utility rate increases due to extraordinary circumstances
including, but not limited to, conservation surcharges, boycotts, embargoes or
other shortages, or amortized costs relating to capital improvements. Landlord
shall not (i) make a profit by charging items to Operating Expenses that are
otherwise also charged separately to others and (ii) subject to Landlord's right
to adjust the components of Operating Expenses described above in this
paragraph, collect Operating Expenses from Tenant and all other tenants in the
Building in an amount in excess of what Landlord actually incurs for the items
included in Operating Expenses. In no event shall the components of Direct
Expenses for any Expense Year related to electrical costs be less than the
components of Direct Expenses related to electrical costs in the Base Year. All
assessments and premiums which are not specifically charged to Tenant because of
what Tenant has done, which can be paid by Landlord in installments, shall be
paid by Landlord in the maximum number of installments permitted by law and not
included as Expenses except in the year in which the assessment or premium
installment is actually paid; provided, however, that if the prevailing practice
in other comparable office buildings in the vicinity of the Building is to pay
such assessments or premiums on an earlier basis, and Landlord pays on such
basis, such assessments or premiums shall be included in Expenses as paid by
Landlord.
4.2.5 Taxes.
4.2.5.1 "Tax Expenses" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other
impositions of every kind and nature, whether general, special,
ordinary or extraordinary, (including, without limitation, real
estate taxes, general and special assessments, transit taxes,
leasehold taxes or taxes based upon the receipt of rent,
including gross receipts or sales taxes applicable to the receipt
of rent, unless required to be paid by Tenant, personal property
taxes imposed upon the fixtures, machinery, equipment, apparatus,
systems and equipment, appurtenances, furniture and other
personal property used in connection with the Project, or any
portion thereof), which shall be paid or accrued during any
Expense Year (without regard to any different fiscal year used by
such governmental or municipal authority) because of or in
connection with the ownership, leasing and operation of the
Project, or any portion thereof. For purposes of this Lease, Tax
Expenses shall be calculated as if the Tenant Improvements in the
Building are fully constructed and the Project, the Building, and
all tenant improvements in the Building were fully assessed for
real estate tax purposes, and accordingly, Tax Expenses shall be
deemed to be increased appropriately.
4.2.5.2 Tax Expenses shall include, without limitation: (i) Any tax on
the rent, right to rent or other income from the Project, or any
portion thereof, or as against the business of leasing the
Project, or any portion thereof; (ii) Any assessment, tax, fee,
levy or charge in addition to, or in substitution, partially or
totally, of any assessment, tax, fee, levy or charge previously
included within the definition of real property tax, it being
acknowledged by Tenant and Landlord that Proposition 13 was
adopted by the voters of the State of California in the June 1978
election ("Proposition 13") and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for
such services as fire protection, street, sidewalk and road
maintenance, refuse removal and for other governmental services
formerly provided without charge to property owners or occupants,
and, in further recognition of the decrease in the level and
quality of governmental services and amenities as a result of
Proposition 13, Tax Expenses shall also include any governmental
or private assessments or the Project's contribution towards a
governmental or private cost-sharing agreement provided such
agreements are entered into as a substitution for services and
amenities normally provided by governmental agencies; and (iii)
Any assessment, tax, fee, levy, or charge allocable to or
measured by the area of the Premises or the Rent payable
hereunder, including, without limitation, any business or gross
income tax or excise tax with respect to the receipt of such
rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises, or any portion thereof.
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4.2.5.3 Any costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred in attempting to protest,
reduce or minimize Tax Expenses shall be included in Tax Expenses
in the Expense Year such expenses are paid. Tax refunds shall be
credited against Tax Expenses and refunded to Tenant regardless
of when received, based on the Expense Year to which the refund
is applicable, provided that in no event shall the amount to be
refunded to Tenant for any such Expense Year exceed the total
amount paid by Tenant as Additional Rent under this Article 4 for
such Expense Year. If Tax Expenses for any period during the
Lease Term or any extension thereof are increased after payment
thereof for any reason, including, without limitation, error or
reassessment by applicable governmental or municipal authorities,
Tenant shall pay Landlord upon demand Tenant's Share of any such
increased Tax Expenses included by Landlord as Building Tax
Expenses pursuant to the terms of this Lease. Notwithstanding
anything to the contrary contained in this Section 4.2.5 (except
as set forth in Section 4.2.5.1, above), there shall be excluded
from Tax Expenses (i) all excess profits taxes, franchise taxes,
gift taxes, capital stock taxes, inheritance and succession
taxes, estate taxes, federal and state income taxes, and other
taxes to the extent applicable to Landlord's general or net
income (as opposed to rents, receipts or income attributable to
operations at the Project), (ii) any items included as Operating
Expenses, and (iii) any items paid by Tenant under Section 4.5 of
this Lease.
4.2.5.4 The amount of Tax Expenses for the Base Year attributable to
the valuation of the Project, inclusive of tenant improvements,
shall be known as the "Base Taxes". If in any comparison year
subsequent to the Base Year, the amount of Tax Expenses decreases
below the amount of Base Taxes, then for purposes of all
subsequent comparison years, including the comparison year in
which such decrease in Tax Expenses occurred, the Base Taxes, and
therefore the Base Year, shall be decreased by an amount equal to
the decrease in Tax Expenses.
4.2.6 "Tenant's Share" shall mean the percentage set forth in Section 6 of
the Summary.
4.3 Allocation of Direct Expenses.
4.3.1 Landlord shall have the right, from time to time, to equitably
allocate some or all of the Direct Expenses for the Project among
different portions or occupants of the Project (the "Cost Pools"), in
Landlord's reasonable discretion. Such Cost Pools may include, but
shall not be limited to, the office space tenants of the Building ,
and the retail space tenants of the Building . The Direct Expenses
within each such Cost Pool shall be allocated and charged to the
tenants within such Cost Pool in an equitable manner.
4.4 CALCULATION AND PAYMENT OF ADDITIONAL RENt. If for any Expense Year ending
or commencing within the Lease Term, Tenant's Share of Direct Expenses for
such Expense Year exceeds Tenant's Share of Direct Expenses applicable to
the Base Year, then Tenant shall pay to Landlord, in the manner set forth
in Section 4.4.1, below, and as Additional Rent, an amount equal to the
excess (the "Excess").
4.4.1 STATEMENT OF ACTUAL DIRECT EXPENSES AND PAYMENT BY TENANT. Landlord
shall endeavor to give to Tenant following the end of each Expense
Year, a statement (the "Statement") which shall state on a line-item
by line-item basis the Direct Expenses incurred or accrued for such
preceding Expense Year, and which shall indicate the amount, if any,
of the Excess. Upon receipt of the Statement for each Expense Year
commencing or ending during the Lease Term, if an Excess is present,
Tenant shall pay, with its next installment of Base Rent due, the full
amount of the Excess for such Expense Year, less the amounts, if any,
paid during such Expense Year as "Estimated Excess," as that term is
defined in Section 4.4.2, below. The failure of Landlord to timely
furnish the Statement for any Expense Year shall not prejudice
Landlord or Tenant from enforcing its rights under this Article 4.
Even though the Lease Term has expired and Tenant has vacated the
Premises, when the final determination is made of Tenant's Share of
Direct Expenses for the Expense Year in which this Lease terminates,
if an Excess if present, Tenant shall, within fourteen (14) days
following receipt by Tenant of a statement therefor from Landlord, pay
to Landlord such amount as calculated pursuant to this Section 4.4,
and if such final determination indicates that Tenant has paid more as
Estimated Excess than was owed, Landlord shall repay such excess
amount within thirty (30) days. The provisions of this Section 4.4.1
shall survive the expiration or earlier termination of the Lease Term.
4.4.2 STATEMENT OF ESTIMATED DIRECT EXPENSES. In addition, Landlord shall
endeavor to give Tenant a yearly expense estimate statement (the
"Estimate Statement") which shall set forth Landlord's reasonable
estimate (the "Estimate") of what the total amount of Direct Expenses
for the then-current Expense Year shall be and the estimated excess
(the "Estimated Excess") as calculated by comparing the Direct
Expenses for such Expense Year, which shall be based upon the
Estimate, to the amount of Direct Expenses for the Base Year. The
failure of Landlord to timely furnish the Estimate Statement for any
Expense Year shall not preclude Landlord from enforcing its rights to
collect any Estimated Excess under this Article 4, nor shall Landlord
be prohibited from revising any Estimate Statement or Estimated Excess
theretofore delivered to the extent necessary. Thereafter, Tenant
shall pay, with its next installment of Base Rent due, a fraction of
the Estimated Excess for the then-current Expense Year (reduced by any
amounts paid pursuant to the next to last sentence of this Section
4.4.2). Such fraction shall have as its numerator the number of months
which have elapsed in such current Expense Year, including the month
of such payment, and twelve (12) as its denominator. Until a new
Estimate Statement is furnished (which Landlord shall have the right
to deliver to Tenant at any time), Tenant shall pay monthly, with the
monthly Base Rent installments, an amount equal to one-twelfth (1/12)
of the total Estimated Excess set forth in the previous Estimate
Statement delivered by Landlord to Tenant.
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4.5 TAXES AND OTHER CHARGES FOR WHICH TENANT IS DIRECTLY RESPONSIBLE.
4.5.1 Tenant shall be liable for and shall pay before delinquency, taxes
levied against Tenant's equipment, furniture, fixtures and any other
personal property located in or about the Premises; provided, upon
notice by Landlord to Tenant of any such levy, Tenant shall have the
right to protest the same so long as, if required, Tenant makes any
required payment, under protest, during the pendency of such protest.
If any such taxes on Tenant's equipment, furniture, fixtures and any
other personal property are levied against Landlord or Landlord's
property or if the assessed value of Landlord's property is increased
by the inclusion therein of a value placed upon such equipment,
furniture, fixtures or any other personal property and if Landlord
pays the taxes based upon such increased assessment, which Landlord
shall have the right to do regardless of the validity thereof but only
under proper protest if requested by Tenant, Tenant shall upon demand
repay to Landlord the taxes so levied against Landlord or the
proportion of such taxes resulting from such increase in the
assessment, as the case may be.
4.5.2 If the tenant improvements in the Premises, whether installed and/or
paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real
property tax purposes at a valuation higher than the valuation at
which tenant improvements conforming to Landlord's "building standard"
in other space in the Building are assessed, then the Tax Expenses
levied against Landlord or the property by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of Section
4.5.1, above.
4.5.3 Notwithstanding any contrary provision herein, Tenant shall pay prior
to delinquency any (i) rent tax or sales tax, service tax, transfer
tax or value added tax, or any other applicable tax on the rent or
services herein or otherwise respecting this Lease, or (ii) taxes
assessed upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion of the Project, including the
Project parking facilities.
4.6 TENANT'S PAYMENT OF CERTAIN TAX EXPENSES. Notwithstanding anything to the
contrary contained in this Lease, in the event that, at any time during the
first five (5) Lease Years of the initial Lease Term only, any sale,
refinancing, or change in ownership of the Building is consummated, and as
a result thereof, and to the extent that in connection therewith, the
Building is reassessed (the "Reassessment") for real estate tax purposes by
the appropriate governmental authority pursuant to the terms of Proposition
13 (as adopted by the voters of the State of California in the June, 1978
election), then the terms of this Section 4.6 shall apply. 4.6.1 The Tax
Increase. For purposes of this Article 4, the term "Tax Increase" shall
mean that portion of the Tax Expenses, as calculated immediately following
the Reassessment, which is attributable solely to the Reassessment.
Accordingly, the term Tax Increase shall not include any portion of the Tax
Expenses, as calculated immediately following the Reassessment, which (i)
is attributable to the initial assessment of the value of the Building, or
the tenant improvements located in the Building, (ii) is attributable to
assessments which were pending immediately prior to the Reassessment, which
assessments were conducted during, and included in, such Reassessment, or
which assessments were otherwise rendered unnecessary following the
Reassessment, (iii) is attributable to the annual inflationary increase of
real estate taxes, or (iv) is attributable to any Tax Expenses incurred
during the Base Year (with such Tax Expenses incurred during the Base Year
calculated without regard to any Proposition 8 reduction in Tax Expenses
for the Base Year).
4.6.1 THE TAX INCREASE For purposes of this Article 4, the term "Tax
Increase" shall mean that portion of the Tax Expenses, as calculated
immediately following the Reassessment, which is attributable solely
to the Reassessment. Accordingly, the term Tax Increase shall not
include any portion of the Tax Expenses, as calculated immediately
following the Reassessment, which (i) is attributable to the initial
assessment of the value of the Building, or the tenant improvements
located in the Building, (ii) is attributable to assessments which
were pending immediately prior to the Reassessment, which assessments
were conducted during, and included in, such Reassessment, or which
assessments were otherwise rendered unnecessary following the
Reassessment, (iii) is attributable to the annual inflationary
increase of real estate taxes, or (iv) is attributable to any Tax
Expenses incurred during the Base Year (with such Tax Expenses
incurred during the Base Year calculated without regard to any
Proposition 8 reduction in Tax Expenses for the Base Year).
4.6.2 PROTECTION. During the first (1st) five (5) Lease Years of the initial
Lease Term, Tenant shall not be obligated to pay any portion of the
Tax Increase.
4.6.3 LANDLORD'S RIGHT TO PURCHASE THE PROPOSITION 13 PROTECTION AMOUNT
ATTRIBUTABLE TO A PARTICULAR REASSESSMENT. The amount of Tax Expenses
which Tenant is not obligated to pay or will not be obligated to pay
during the initial Lease Term in connection with a particular
Reassessment pursuant to the terms of this Section4.6, shall be
sometimes referred to hereafter as a "Proposition 13 Protection
Amount." If the occurrence of a Reassessment is reasonably foreseeable
by Landlord and the Proposition 13 Protection Amount attributable to
such Reassessment can be reasonably quantified or estimated for each
Lease Year commencing with the Lease Year in which the Reassessment
will occur, the terms of this Section 4.6.3 shall apply to each such
Reassessment. Upon notice to Tenant, Landlord shall have the right to
purchase the Proposition 13 Protection Amount relating to the
applicable Reassessment (the "Applicable Reassessment"), at any time
during the Lease Term, by paying to Tenant an amount equal to the
"Proposition 13 Purchase Price," as that term is defined below,
provided that the right of any successor of Landlord to exercise its
right of repurchase hereunder shall not apply to any Reassessment
which results from the event pursuant to which such successor of
Landlord became the Landlord under this Lease. As used herein,
"Proposition 13 Purchase Price" shall mean the present value of the
Proposition 13 Protection Amount remaining during the initial Lease
Term, as of the date of payment of the Proposition 13 Purchase Price
by Landlord. Such present value shall be calculated (i) by using the
portion of the Proposition 13 Protection Amount attributable to each
remaining Lease Year (as though the portion of such Proposition 13
Protection Amount benefited Tenant at the end of each Lease Year), as
the amounts to be discounted, and (ii) by using discount rates for
each amount to be discounted equal to (A) the prime rate quoted by
Bank of America N.T. & S.A. as of the date of payment of the
Proposition 13 Protection Amount by Landlord, minus (B) one percent
(1%) per annum. Upon such payment of the Proposition 13 Purchase
Price, the provisions of Section 4.6.2 of this Lease shall not apply
to any Tax Increase attributable to the Applicable Reassessment. Since
Landlord is estimating the Proposition 13 Purchase Price because a
Reassessment has not yet occurred, then when such Reassessment occurs,
if Landlord has underestimated the Proposition 13 Purchase Price, upon
notice by Landlord to Tenant, Tenant's Rent next due shall be credited
with the amount of such underestimation, and if Landlord overestimates
the Proposition 13 Purchase Price, then upon notice by Landlord to
Tenant, Rent next due shall be increased by the amount of the
overestimation.
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4.7 LANDLORD'S BOOKS AND RECORDS. Within one (1) year after receipt of a
Statement by Tenant, if Tenant disputes the amount of Additional Rent set
forth in the Statement, a reputable certified public accountant (which
accountant is a member of a reputable independent nationally recognized
accounting firm and has had previous experience in reviewing financial
operating records of landlords of office buildings; provided that such
accountant is not retained by Tenant on a contingency fee basis),
designated and paid for by Tenant, may, after reasonable notice to Landlord
and at reasonable times, inspect Landlord's records with respect to the
Statement at Landlord's offices, provided that Tenant is not then in
default under this Lease and Tenant has paid all amounts required to be
paid under the applicable Estimate Statement and Statement, as the case may
be. In connection with such inspection, Tenant and Tenant's agents must
agree in advance to follow Landlord's reasonable rules and procedures
regarding inspections of Landlord's records, and shall execute a
commercially reasonable confidentiality agreement regarding such
inspection. Tenant's failure to commence its inspection of Landlord's
records with respect to a dispute as to the amount of Additional Rent set
forth in any Statement within one (1) year of tenant's receipt of such
Statement, and to diligently pursue the resolution of such dispute
thereafter, shall be deemed to be Tenant's approval of such Statement and
Tenant, thereafter, waives the right or ability to dispute the amounts set
forth in such Statement. If after such inspection, Tenant still disputes
such Additional Rent, a determination as to the proper amount shall be
made, at Tenant's expense, by an independent certified public accountant
(the "Accountant") selected by Landlord and subject to Tenant's reasonable
approval; provided that if such determination by the Accountant proves that
Direct Expenses were overstated by more than five percent (5%), then the
cost of the Accountant and the cost of such determination shall be paid for
by Landlord. Landlord shall be required to maintain records of all Direct
Expenses set forth in each Statement delivered to Tenant for two (2) years
following Landlord's delivery of the applicable Statement. In no event
shall this Section 4.7 be deemed to allow any review of any of Landlord's
records by any subtenant of Tenant. Tenant agrees that this Section 4.7
shall be the sole method to be used by Tenant to dispute the amount of any
Direct Expenses payable or not payable by Tenant pursuant to the terms of
this Lease, and Tenant hereby waives any other rights at law or in equity
relating thereto. Notwithstanding anything in this Section to the contrary,
nothing herein shall limit Tenant's rights at law or in equity with respect
to a claim of fraud by Tenant against Landlord.
ARTICLE 5
USE OF PREMISES
5.1 PERMITTED USE. Tenant shall use the Premises solely for the Permitted Use
set forth in Section 7 of the Summary and Tenant shall not use or permit
the Premises or the Project to be used for any other purpose or purposes
whatsoever without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion.
5.2 PROHIBITED USES. The uses prohibited under this Lease shall include,
without limitation, use of the Premises or a portion thereof for (i)
offices or any other facilities of any agency or bureau of the United
States or any state or political subdivision thereof; (ii) offices or
agencies of any foreign governmental or political subdivision thereof;
(iii) offices or any other facilities of any health care professionals or
service organization; (iv) schools or other training facilities (other than
a school conducting, solely, short term, seminar-type, computer training
classes for professionals of the same quality and type conducted by Tenant
in the Premises as of the Lease Commencement Date), except only as
permitted pursuant to Section 7 of the Summary; (v) retail or restaurant
uses; or (vi) communications firms such as radio and/or television
stations. Tenant further covenants and agrees that Tenant shall not use, or
suffer or permit any person or persons to use, the Premises or any part
thereof for any use or purpose contrary to the provisions of the Rules and
Regulations set forth in Exhibit D, attached hereto, or in violation of the
laws of the United States of America, the State of California, or the
ordinances, regulations or requirements of the local municipal or county
governing body or other lawful authorities having jurisdiction over the
Project) including, without limitation, any such laws, ordinances,
regulations or requirements relating to hazardous materials or substances,
as those terms are defined by applicable laws now or hereafter in effect.
Tenant or its invitees shall not do or permit anything to be done in or
about the Premises or Project which will in any way damage the reputation
of the Project or obstruct or interfere with the rights of other tenants or
occupants of the Building, or injure or annoy them or use or allow the
Premises or the Project to be used for any improper, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Premises. Tenant and its invitees shall comply
with all recorded covenants, conditions, and restrictions now or hereafter
affecting the Project.
5.3 DIRECT COMPETITORS. In the event, and so long as the Original Tenant's
primary business continues to be conducting short term, seminar type,
computer training classes for both corporate students and other
individuals, Landlord shall not enter into any direct lease for space in
the Project with any "Direct Competitor", as that term is defined
herein below, of Tenant. Landlord's approval of another Tenant's request to
assign or sublease all or any portion of its premises shall not be deemed a
violation by Landlord of this Section 5.3. For purposes of this Section
5.3, a "Direct Competitor" of Tenant shall be limited to an entity which is
engaged in, as its primary business, the conduct of short term, computer
training classes for both corporate students and other individuals (the
"Competing Business"). Nothing herein shall prohibit Landlord from leasing
space in the Project to a tenant that engages in the Competing Business as
part of its business, but which does not intend to and is not permitted
under its lease to engage in the Competing Business at the Project. In the
event Landlord believes that a proposed tenant may be deemed to be a Direct
Competitor of Tenant, Landlord shall deliver a written request to Tenant
that Tenant notify Landlord as to whether Tenant deems the proposed tenant
to be a Direct Competitor of Tenant. Tenant shall have ten (10) business
days following receipt of such request within which to notify Landlord of
any objection to the proposed tenant on the grounds that such proposed
tenant is a Direct Competitor. In the event Tenant does not provide any
objection to Landlord within said ten (10) business day period, the
proposed tenant shall be deemed not to be a Direct Competitor under the
provisions of this Lease, and Landlord shall be free to lease space in the
Project to such proposed tenant. The rights set forth in this Section 5.3
shall be personal to the Original Tenant (and not any assignee, sublessee
or transferee of the Tenant's interest in this Lease) and may be exercised
by the Original Tenant only while it is in occupancy of at least
seventy-five percent (75%) the entire Premises and so long as Tenant is not
in default under this Lease beyond the applicable cure period provided in
this Lease.
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5.4 RECORDED DOCUMENTS. Tenant shall comply with all recorded covenants,
conditions, and restrictions currently affecting the Project, and Tenant
acknowledges that the Project may be subject to any future covenants,
conditions, and restrictions which Landlord, in Landlord's discretion,
deems reasonably necessary or desirable (collectively, the "CC&Rs"). Tenant
agrees that this Lease shall be subject and subordinate to such CC&Rs.
Landlord shall have the right to require Tenant to execute and acknowledge,
within fifteen (15) business days of a request by Landlord, a "Recognition
of Covenants, Conditions, and Restriction," in a form substantially similar
to that attached hereto as Exhibit F, agreeing to and acknowledging the
CC&Rs. Tenant acknowledges that the CC&Rs will include, without limitation,
(i) that certain Declaration of Covenants, Conditions and Restrictions and
Grant of Reciprocal Easements for Sportstown Anaheim (the "Sportstown
Anaheim REA") to be recorded against Stadium Gateway (including the
Project), and (ii) that certain Parking Agreement concerning Landlord's
rights to use the Stadium Gateway parking areas (the "Parking Agreement")
to be recorded against Stadium Gateway and the Project.
ARTICLE 6
SERVICES AND UTILITIES
6.1 STANDARD TENANT SERVICES. Landlord shall provide the following services on
all days (unless otherwise stated below) during the Lease Term.
6.1.1 Subject to limitations imposed by all governmental rules, regulations
and guidelines applicable thereto, Landlord shall, provide subject to
reimbursement to Landlord by Tenant or direct payment by Tenant as
provided in Sections 6.1.2. of this Lease, heating and air
conditioning ("HVAC") when necessary for normal comfort for normal
office use in the Premises twenty-four (24) hours per day; provided,
however, for purposes of this Lease, as hereinafter set forth,
"Building Hours" shall be deemed to include only the hours from 8:00
A.M. to 6:00 P.M. Monday through Friday, and on Saturdays from 9:00
A.M. to 1:00 P.M., except for the date of observation of New Year's
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day and, at Landlord's discretion, other locally or
nationally recognized holidays (collectively, the "Holidays").
6.1.2 Landlord shall provide adequate electrical wiring and facilities for
connection to Tenant's lighting fixtures and incidental use equipment,
provided that (i) the connected electrical load of the incidental use
equipment does not exceed an average of 3.5 watts per usable square
foot of the Premises on a monthly basis, and the electricity so
furnished for incidental use equipment will be at a nominal one
hundred twenty (120) volts and no electrical circuit for the supply of
such incidental use equipment will require a current capacity
exceeding twenty (20) amperes, and (ii) the connected electrical load
of Tenant's lighting fixtures does not exceed an average of 1.5 watts
per usable square foot of the Premises on a monthly basis, and the
electricity so furnished for Tenant's lighting will be at a nominal
one hundred twenty (120) volts, which electrical usage shall be
subject to applicable laws and regulations, including Title 24. Tenant
shall bear the cost of replacement of lamps, starters and ballasts for
non-Building standard lighting fixtures within the Premises. To the
extent possible, Tenant's utilities (including use for incidental
equipment, lighting fixtures, and Building Systems and equipment
(including HVAC)) shall be separately metered and Tenant shall pay to
Landlord all costs incurred by Landlord for all such separately
metered utilities furnished to the Premises as well as for the
installation and maintenance of such separate metering devices. For
any utilities that cannot be separately metered, Tenant shall pay to
Landlord an amount reasonably allocated by Landlord to the Premises,
based on the use by the Premises, as established by Landlord partially
through the use of the Building energy management system. In addition
to the cost of the utilities, Tenant shall pay to Landlord all costs
reasonably and actually incurred by Landlord in connection with the
operation, repair, maintenance, improvement, and replacement of any
portion of the HVAC system located within the Premises, (and a
pro-rata share of any such costs with respect to any portion of the
HVAC system which serves the Premises, but is not actually located in
the Premises) including any portion thereof that would be deemed to be
part of the Building Systems, provided such costs shall be reasonably
competitively priced. With respect to any utilities that are not
separately metered, Landlord shall have the right to provide Tenant
with Landlord's reasonable estimate of what the total amount of such
utility charges for the then current Expense Year (the "Utility
Estimate") and shall deliver such Utility Estimate to Tenant at the
same time Landlord delivers the Estimate Statement under Section 4.4.2
of this Lease. Tenant shall thereafter pay, on a monthly basis, in
addition to Base Rent, the Utilities Estimate in the same manner as
applicable to the Estimated Excess under Section 4.4.2 of this Lease
and any reconciliations with respect to the Utilities Estimate shall
be made in the same manner as set forth in Section 4.4.1 of this
Lease.
6.1.3 Landlord shall provide city water from the regular Building outlets
for drinking, lavatory and toilet purposes in the Building Common
Areas.
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6.1.4 Landlord shall not provide janitorial services to the Premises.
Tenant shall be responsible, at Tenant's sole cost and expense, for
providing janitorial services to the Premises adequate to maintain the
Premises in the condition required under this Lease.
6.1.5 Landlord shall provide nonexclusive, non-attended automatic passenger
elevator service during the Building Hours, and shall have one
elevator available at all other times.
6.2 OVERSTANDARD TENANT USE. Tenant shall not, without Landlord's prior written
consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
Building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of
Section 6.1 of this Lease. If such consent is given, Landlord shall have
the right to install supplementary air conditioning units or other
facilities in the Premises, including supplementary or additional metering
devices, and the cost thereof, including the cost of installation,
operation and maintenance, increased wear and tear on existing equipment
and other similar charges, shall be paid by Tenant to Landlord upon billing
by Landlord. To the extent Tenant uses water, electricity, heat or air
conditioning in excess of the normal Building Hours, Tenant shall pay to
Landlord, upon billing, the cost of the installation, operation, and
maintenance of equipment which is installed, if any, in order to supply
such excess consumption, and the cost of the increased wear and tear on
existing Building Systems and equipment caused by such excess consumption.
Tenant's use of electricity shall never exceed the capacity of the feeders
to the Project or the risers or wiring installation.
6.3 INTERRUPTION OF USE. In the event that Tenant is prevented from using, and
does not use, the Premises or any portion thereof, as a result of (i) any
repair, maintenance or alteration performed by Landlord, or which Landlord
failed to perform, after the Lease Commencement Date and required by the
Lease, which substantially interferes with Tenant's use of the Premises, or
(ii) any failure to provide services, utilities or access to the Premises
(either such set of circumstances as set forth in items (i) or (ii), above,
to be known as an "Abatement Event"), then Tenant shall give Landlord
notice of such Abatement Event, and if such Abatement Event continues for
five (5) consecutive business days after Landlord's receipt of any such
notice or ten (10) non-consecutive business days in a twelve (12) month
period (provided Landlord is sent a notice pursuant to Section 29.18 of
this Lease of each of such Abatement Event) (in either such event, the
"Eligibility Period"), then the Base Rent and Tenant's Share of Building
Direct Expenses and Tenant's obligation to pay for parking shall be abated
or reduced, as the case may be, after expiration of the Eligibility Period
for such time that Tenant continues to be so prevented from using, and does
not use, the Premises or a portion thereof, in the proportion that the
rentable area of the portion of the Premises that Tenant is prevented from
using, and does not use, bears to the total rentable area of the Premises;
provided, however, in the event that Tenant is prevented from using, and
does not use, a portion of the Premises for a period of time in excess of
the Eligibility Period and the remaining portion of the Premises is not
sufficient to allow Tenant to effectively conduct its business therein, and
if Tenant does not conduct its business from such remaining portion, then
for such time after expiration of the Eligibility Period during which
Tenant is so prevented from effectively conducting its business therein,
the Base Rent and Tenant's Share of Building Direct Expenses and Tenant's
obligation to pay for parking for the entire Premises shall be abated for
such time as Tenant continues to be so prevented from using, and does not
use, the Premises. If, however, Tenant reoccupies any portion of the
Premises during such period, the rent allocable to such reoccupied portion,
based on the proportion that the rentable area of such reoccupied portion
of the Premises bears to the total rentable area of the Premises, shall be
payable by Tenant from the date Tenant reoccupies such portion of the
Premises. If Tenant's right to abatement occurs during a free rent period,
Tenant's free rent period shall be extended for the number of days that the
abatement period overlapped the free rent period ("Overlap Period").
Landlord shall have the right to extend the Lease Expiration Date for a
period of time equal to the Overlap Period if Landlord sends a notice to
Tenant of such election within ten (10) days following the end of the
extended free rent period. Such right to abate Base Rent and Tenant's Share
of Building Direct Expenses shall be Tenant's sole and exclusive remedy at
law or in equity for an Abatement Event. Except as provided in this Section
19.4.2, nothing contained herein shall be interpreted to mean that Tenant
is excused from paying Rent due hereunder. To the extent Tenant is entitled
to abatement without regard to the Eligibility Period, because of an event
described in Articles 11 or 13 of this Lease, then the Eligibility Period
shall not be applicable.
6.4 THE TENANT'S SECURITY SYSTEM. Tenant may, at Tenant's sole cost and
expense, install its own security system ("Tenant's Security System") in
the Premises; provided, however, that Tenant shall coordinate the
installation and operation of Tenant's Security System with Landlord to
assure that Tenant's Security System is compatible with Landlord's security
system and the Building Systems. To the extent that Tenant's Security
System is not compatible with Landlord's security system and the Building
Systems, Tenant shall not be entitled to install or operate Tenant's
Security System. Once installed, Tenant shall be solely responsible, at
Tenant's sole cost and expenses, for the monitoring, operation and removal
of Tenant's Security System. The installation of Tenant's Security System
shall be governed by Article 8 of this Lease.
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ARTICLE 7
REPAIRS
Tenant shall, at Tenant's own expense, pursuant to the terms of this Lease,
including without limitation Article 8 hereof, keep the Premises, including all
improvements, fixtures and furnishings therein, and the floor or floors of the
Building on which the Premises are located, in good order, repair and condition
at all times during the Lease Term. In addition, Tenant shall, at Tenant's own
expense, but under the supervision and subject to the prior approval of
Landlord, and within any reasonable period of time specified by Landlord,
pursuant to the terms of this Lease, including without limitation Article 8
hereof, promptly and adequately repair all damage to the Premises and replace or
repair all damaged, broken, or worn fixtures and appurtenances, except for
damage caused by ordinary wear and tear or beyond the reasonable control of
Tenant; provided however, that, at Landlord's reasonable option, or if Tenant
fails to make such repairs, Landlord may, but need not, make such repairs and
replacements, and Tenant shall pay Landlord the cost thereof, including a
percentage of the cost thereof (to be uniformly established for the Building)
sufficient to reimburse Landlord for all overhead, general conditions, fees and
other costs or expenses arising from Landlord's involvement with such repairs
and replacements forthwith upon being billed for same. Notwithstanding the
foregoing, Landlord shall be responsible for repairs to the exterior walls,
foundation and roof of the Building, the structural portions of the floors of
the Building, and the systems and equipment of the Building, except to the
extent that such repairs are required due to the negligence or wilful misconduct
of Tenant; provided, however, that if such repairs are due to the negligence or
wilful misconduct of Tenant, Landlord shall nevertheless make such repairs at
Tenant's expense, and except to the extent that Tenant is required to pay for
the costs of repair to the Building HVAC system located within the Premises as
provided in Section 6.1.2, above. Landlord may, but shall not be required to,
enter the Premises at all reasonable times to make such repairs, alterations,
improvements or additions to the Premises or to the Project or to any equipment
located in the Project as Landlord shall desire or deem necessary or as Landlord
may be required to do by governmental or quasi-governmental authority or court
order or decree, provided, however, except for (i) emergencies, (ii) repairs,
alterations, improvements or additions required by governmental or
quasi-governmental authorities or court order or decree, or (iii) repairs which
are the obligation of Tenant hereunder, any such entry into the Premises by
Landlord shall be performed in a manner so as not to materially interfere with
Tenant's use of, or access to, the Premises. Tenant hereby waives any and all
rights under and benefits of subsection 1 of Section 1932 and Sections 1941 and
1942 of the California Civil Code or under any similar law, statute, or
ordinance now or hereafter in effect.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 LANDLORD'S CONSENT TO ALTERATIONS. Tenant may not make any improvements,
alterations, additions or changes to the Premises or any mechanical,
plumbing or HVAC facilities or systems pertaining to the Premises
(collectively, the "Alterations") without first procuring the prior written
consent of Landlord to such Alterations, which consent shall be requested
by Tenant not less than thirty (30) days prior to the commencement thereof,
and which consent shall not be unreasonably withheld by Landlord, provided
it shall be deemed reasonable for Landlord to withhold its consent to any
Alteration which adversely affects the structural portions or the systems
or equipment of the Building or is visible from the exterior of the
Building. Notwithstanding the foregoing, Tenant shall be permitted to make
Alterations following ten (10) business days notice to Landlord, but
without Landlord's prior consent, to the extent that such Alterations do
not adversely affect the systems and equipment of the Building, exterior
appearance of the Building, or structural aspects of the Building and do
not cost in excess of Ten Thousand and No/100 Dollars ($10,000.00) in the
aggregate (the "Cosmetic Alterations"). The construction of the initial
improvements to the Premises shall be governed by the terms of the Tenant
Work Letter and not the terms of this Article 8.
8.2 MANNER OF CONSTRUCTION. Landlord may impose, as a condition of its consent
to any and all Alterations or repairs of the Premises or about the
Premises, such requirements as Landlord in its reasonable discretion may
deem desirable, including, but not limited to, the requirement that Tenant
utilize for such purposes only contractors, subcontractors, materials,
mechanics and materialmen selected by Tenant from a list provided and
approved by Landlord, the requirement that upon Landlord's request, Tenant
shall, at Tenant's expense, remove such Alterations upon the expiration or
any early termination of the Lease Term. If such Alterations will involve
the use of or disturb hazardous materials or substances existing in the
Premises, Tenant shall comply with Landlord's rules and regulations
concerning such hazardous materials or substances. Tenant shall construct
such Alterations and perform such repairs in a good and workmanlike manner,
in conformance with any and all applicable federal, state, county or
municipal laws, rules and regulations and pursuant to a valid building
permit, issued by the City of Anaheim, all in conformance with Landlord's
construction rules and regulations. In the event Tenant performs any
Alterations in the Premises which require or give rise to governmentally
required changes to the Base, Shell and Core. In performing the work of any
such Alterations, Tenant shall have the work performed in such manner so as
not to obstruct access to the Project or any portion thereof, by any other
tenant of the Project, and so as not to obstruct the business of Landlord
or other tenants in the Project. Tenant shall not use (and upon notice from
Landlord shall cease using) contractors, services, workmen, labor,
materials or equipment that, in Landlord's reasonable judgment, would
disturb labor harmony with the workforce or trades engaged in performing
other work, labor or services in or about the Building or the Common Areas.
In addition to Tenant's obligations under Article 9 of this Lease, upon
completion of any Alterations, Tenant agrees to cause a Notice of
Completion to be recorded in the office of the Recorder of the County of
Orange in accordance with Section 3093 of the Civil Code of the State of
California or any successor statute, and Tenant shall deliver to the
Building management office a reproducible copy of the "as built" drawings
of the Alterations as well as all permits, approvals and other documents
issued by any governmental agency in connection with the Alterations.
8.3 PAYMENT FOR IMPROVEMENTS. In the event Tenant orders any alteration or
repair work directly from Landlord, or from the contractor selected by
Landlord, the charges for such work shall be deemed Additional Rent under
this Lease, payable upon billing therefor, either periodically during
construction or upon the substantial completion of such work, at Landlord's
option. Upon completion of such work, Tenant shall deliver to Landlord, if
payment is made directly to contractors, evidence of payment, contractors'
affidavits and full and final waivers of all liens for labor, services or
materials. If Tenant orders any work directly from Landlord, Tenant shall
pay to Landlord a percentage of the cost of such work (such percentage to
be established on a uniform basis for the Building and/or the Project)
sufficient to compensate Landlord for all overhead, general conditions,
fees and other costs and expenses arising from Landlord's involvement with
such work. If Tenant does not order the work directly from Landlord, Tenant
shall reimburse Landlord for Landlord's reasonable, actual out-of-pocket
costs and expenses actually incurred in connection with Landlord's review
of such work.
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8.4 CONSTRUCTION INSURANCE. In addition to the requirements of Article 10 of
this Lease, in the event that Tenant makes any Alterations, prior to the
commencement of such Alterations, Tenant shall provide Landlord with
evidence that Tenant carries "Builder's All Risk" insurance in an amount
approved by Landlord covering the construction of such Alterations, and
such other insurance as Landlord may require, it being understood and
agreed that all of such Alterations shall be insured by Tenant pursuant to
Article 10 of this Lease immediately upon completion thereof. In addition,
Landlord may, in its discretion, require Tenant to obtain a lien and
completion bond or some alternate form of security satisfactory to Landlord
in an amount sufficient to ensure the lien-free completion of such
Alterations and naming Landlord as a co-obligee.
8.5 LANDLORD'S PROPERTY. All Alterations, improvements, fixtures, equipment
and/or appurtenances which may be installed or placed in or about the
Premises, from time to time, shall be at the sole cost of Tenant and shall
be and become the property of Landlord, except that Tenant may remove any
Alterations, improvements, fixtures and/or equipment which Tenant can
substantiate to Landlord have not been paid for with any Tenant improvement
allowance funds provided to Tenant by Landlord, provided Tenant repairs any
damage to the Premises and Building caused by such removal and returns the
affected portion of the Premises to a building standard tenant improved
condition as reasonably determined by Landlord. If requested by Tenant at
the time Tenant requests Landlord's consent to any Alteration, Landlord
shall give written notice to Tenant at the time Landlord consents to such
Alterations of whether or not Tenant shall be required to remove any
Alterations upon the expiration or earlier termination of this Lease. If
Landlord does not so require removal of the applicable Alteration(s) at the
time of Landlord's consent, Tenant shall not be responsible for the removal
of any such Alterations upon the expiration or earlier termination of this
Lease. If Tenant fails to complete any required removal and/or to repair
any damage caused by the removal of any Alterations or improvements in the
Premises required to be removed hereunder, and return the affected portion
of the Premises to a building standard tenant improved condition as
determined by Landlord, Landlord may do so and may charge the cost thereof
to Tenant. Tenant hereby protects, defends, indemnifies and holds Landlord
harmless from any liability, cost, obligation, expense or claim of lien in
any manner relating to the installation, placement, removal or financing of
any such Alterations, improvements, fixtures and/or equipment in, on or
about the Premises, which obligations of Tenant shall survive the
expiration or earlier termination of this Lease.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant shall keep the Project and Premises free from any liens or
encumbrances arising out of the work performed, materials furnished or
obligations incurred by or on behalf of Tenant, and shall protect, defend,
indemnify and hold Landlord harmless from and against any claims, liabilities,
judgments or costs (including, without limitation, reasonable attorneys' fees
and costs) arising out of same or in connection therewith. Tenant shall give
Landlord notice at least twenty (20) days prior to the commencement of any such
work on the Premises (or such additional time as may be necessary under
applicable laws) to afford Landlord the opportunity of posting and recording
appropriate notices of non-responsibility. Tenant shall remove any such lien or
encumbrance by bond or otherwise within five (5) days after notice by Landlord,
and if Tenant shall fail to do so, Landlord may pay the amount necessary to
remove such lien or encumbrance, without being responsible for investigating the
validity thereof. The amount so paid shall be deemed Additional Rent under this
Lease payable upon demand, without limitation as to other remedies available to
Landlord under this Lease. Nothing contained in this Lease shall authorize
Tenant to do any act which shall subject Landlord's title to the Building or
Premises to any liens or encumbrances whether claimed by operation of law or
express or implied contract. Any claim to a lien or encumbrance upon the
Building or Premises arising in connection with any such work or respecting the
Premises not performed by or at the request of Landlord shall be null and void,
or at Landlord's option shall attach only against Tenant's interest in the
Premises and shall in all respects be subordinate to Landlord's title to the
Project, Building and Premises.
ARTICLE 10
INSURANCE
10.1 INDEMNIFICATION AND WAIVER. Tenant hereby assumes all risk of damage to
property or injury to persons in, upon or about the Premises from any cause
whatsoever and agrees that Landlord, its partners, subpartners and their
respective officers, agents, servants, employees, and independent
contractors (collectively, "Landlord Parties") shall not be liable for, and
are hereby released from any responsibility for, any damage either to
person or property or resulting from the loss of use thereof, which damage
is sustained by Tenant or by other persons claiming through Tenant. Tenant
shall indemnify, defend, protect, and hold harmless the Landlord Parties
from any and all loss, cost, damage, expense and liability (including
without limitation court costs and reasonable attorneys' fees) incurred in
connection with or arising from any cause in, on or about the Premises, any
acts, omissions or negligence of Tenant or of any person claiming by,
through or under Tenant, or of the contractors, agents, servants,
employees, invitees, guests or licensees of Tenant or any such person, in,
on or about the Project or any breach of the terms of this Lease, either
prior to, during, or after the expiration of the Lease Term, provided that
the terms of the foregoing indemnity shall not apply to the gross
negligence or willful misconduct of Landlord. Should Landlord be named as a
defendant in any suit brought against Tenant in connection with or arising
out of Tenant's occupancy of the Premises, Tenant shall pay to Landlord its
costs and expenses incurred in such suit, including without limitation, its
actual professional fees such as appraisers', accountants' and attorneys'
fees. Landlord shall indemnify, defend, protect, and hold harmless Tenant,
its parent or subsidiaries, its partners, and their respective officers,
agents, servants, employees, and independent contractors (collectively,
"Tenant Parties") from any and all loss, cost, damage, expense and
liability (including without limitation court costs and reasonable
attorneys' fees) arising from the gross negligence or wilful misconduct of
Landlord in, on or about the Project, and Landlord's breach of the terms of
this Lease, except to the extent caused by the negligence or wilful
misconduct of the Tenant Parties. Notwithstanding anything to the contrary
set forth in this Lease, either party's agreement to indemnify the other
party as set forth in this Section 10.1 shall be ineffective to the extent
the matters for which such party agreed to indemnify the other party are
covered by insurance required to be carried by the non-indemnifying party
pursuant to this Lease. Further, Tenant's agreement to indemnify Landlord
and Landlord's agreement to indemnify Tenant pursuant to this Section 10.1
are not intended to and shall not relieve any insurance carrier of its
obligations under policies required to be carried by Tenant pursuant to the
provisions of this Lease, to the extent such policies cover the matters
subject to the parties' indemnification obligations; nor shall they
supersede any inconsistent agreement of the parties set forth in any other
provision of this Lease. The provisions of this Section 10.1 shall survive
the expiration or sooner termination of this Lease with respect to any
claims or liability arising in connection with any event occurring prior to
such expiration or termination. Notwithstanding anything to the contrary
contained in this Lease, nothing in this Lease shall impose any obligations
on Tenant or Landlord to be responsible or liable for, and each hereby
releases the other from all liability for, consequential damages other than
those consequential damages incurred by Landlord in connection with a
holdover of the Premises by Tenant after the expiration or earlier
termination of this Lease or incurred by Landlord in connection with any
repair, physical construction or improvement work performed by or on behalf
of Tenant in the Project. Notwithstanding the foregoing, for purposes of
this Lease, consequential damages shall not be deemed to include property
damage or personal injury damages.
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10.2 TENANT'S COMPLIANCE WITH LANDLORD'S FIRE AND CASUALTY INSURANCE. Landlord
shall carry commercial general liability insurance with respect to the
Building during the Lease Term, and shall further insure the Building
during the Lease Term against loss or damage due to fire and other
casualties covered within the classification of fire and extended coverage,
vandalism coverage and malicious mischief, sprinkler leakage, water damage
and special extended coverage. Such coverage shall be in such amounts, from
such companies, and on such other terms and conditions, as Landlord may
from time to time reasonably determine. Additionally, at the option of
Landlord, such insurance coverage may include the risks of earthquakes
and/or flood damage and additional hazards, a rental loss endorsement and
one or more loss payee endorsements in favor of the holders of any
mortgages or deeds of trust encumbering the interest of Landlord in the
Building or the ground or underlying lessors of the Building, or any
portion thereof. Notwithstanding the foregoing provisions of this Section
10.2, the coverage and amounts of insurance carried by Landlord in
connection with the Building shall, at a minimum, be comparable to the
coverage and amounts of insurance which are carried by reasonably prudent
landlords of Comparable Buildings, and Worker's Compensation and Employer's
Liability coverage as required by applicable law. Tenant shall, at Tenant's
expense, comply with all insurance company requirements pertaining to the
use of the Premises. If Tenant's conduct or use of the Premises causes any
increase in the premium for such insurance policies then Tenant shall
reimburse Landlord for any such increase. Tenant, at Tenant's expense,
shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.
10.3 TENANT'S INSURANCE. Tenant shall maintain the following coverages in the
following amounts.
10.3.1 Commercial General Liability Insurance covering the insured against
claims of bodily injury, personal injury and property damage
(including loss of use thereof) arising out of Tenant's operations,
and contractual liabilities (covering the performance by Tenant of its
indemnity agreements) including a Broad Form endorsement covering the
insuring provisions of this Lease and the performance by Tenant of the
indemnity agreements set forth in Section 10.1 of this Lease, for
limits of liability not less than:
Bodily Injury and $5,000,000 each occurrence
Property Damage Liability $5,000,000 annual aggregate
Personal Injury Liability $5,000,000 each occurrence
$5,000,000 annual aggregate
0% Insured's participation
10.3.2 Physical Damage Insurance covering (i) all office furniture,
business and trade fixtures, office equipment, free-standing cabinet
work, movable partitions, merchandise and all other items of Tenant's
property on the Premises installed by, for, or at the expense of
Tenant, (ii) the "Tenant Improvements," as that term is defined in
Section 2.1 of the Tenant Work Letter, and any other improvements
which exist in the Premises as of the Lease Commencement Date
(excluding the Base Building) (the "Original Improvements"), and (iii)
all other improvements, alterations and additions to the Premises
which do not comprise part of the Building Structure or Building
Systems. Such insurance shall be written on an "all risks" of physical
loss or damage basis, for the full replacement cost value (subject to
reasonable deductible amounts) new without deduction for depreciation
of the covered items and in amounts that meet any co-insurance clauses
of the policies of insurance and shall include coverage for damage or
other loss caused by fire or other peril including, but not limited
to, vandalism and malicious mischief, theft, water damage of any type,
including sprinkler leakage, bursting or stoppage of pipes, and
explosion, and providing business interruption coverage for a period
of one year.
10.3.3 Worker's Compensation and Employer's Liability or other similar
insurance pursuant to all applicable state and local statutes and
regulations.
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10.4 FORM OF POLICIES. The minimum limits of policies of insurance required of
Tenant under this Lease shall in no event limit the liability of Tenant
under this Lease. Such insurance shall (i) name Landlord, and any other
party the Landlord so specifies that has a financial interest in the
Building, as an additional insured, including Landlord's managing agent, if
any; (ii) specifically cover the liability assumed by Tenant under this
Lease, including, but not limited to, Tenant's obligations under Section
10.1 of this Lease; (iii) be issued by an insurance company having a rating
of not less than AX in Best's Insurance Guide or which is otherwise
acceptable to Landlord and licensed to do business in the State of
California; (iv) be primary insurance as to all claims thereunder and
provide that any insurance carried by Landlord is excess and is
non-contributing with any insurance requirement of Tenant; (v) be in form
and content reasonably acceptable to Landlord; and (vi) provide that said
insurance shall not be canceled or coverage changed unless thirty (30)
days' prior written notice shall have been given to Landlord and any
mortgagee of Landlord. Tenant shall deliver said policy or policies or
certificates thereof to Landlord on or before the Lease Commencement Date
and at least thirty (30) days before the expiration dates thereof. In the
event Tenant shall fail to procure such insurance, or to deliver such
policies or certificate, Landlord may, at its option, after delivery of
five (5) days prior written notice to Tenant, and Tenant's failure to
deliver such certificates to Landlord within such five (5) day period,
procure such policies for the account of Tenant, and the cost thereof shall
be paid to Landlord within five (5) days after delivery to Tenant of bills
therefor.
10.5 SUBROGATION. Landlord and Tenant agree to have their respective insurance
companies issuing property damage insurance waive any rights of subrogation
that such companies may have against Landlord or Tenant, as the case may
be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are
contained in their respective insurance policies, Landlord and Tenant
hereby waive any right that either may have against the other on account of
any loss or damage to their respective property to the extent such loss or
damage is insurable under policies of insurance for fire and all risk
coverage, or other similar property insurance.
10.6 ADDITIONAL INSURANCE OBLIGATIONS. Tenant shall carry and maintain during
the entire Lease Term, at Tenant's sole cost and expense, increased amounts
of the insurance required to be carried by Tenant pursuant to this Article
10 and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein,
as may be reasonably requested by Landlord but in no event shall such
increased amounts of insurance or such other reasonable types of insurance
coverage be in excess of that being required by landlords of comparable
buildings, for comparable uses, in the Central Orange County, California
area.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 REPAIR OF DAMAGE TO PREMISES BY LANDLORD. Tenant shall promptly notify
Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any Common Areas serving or providing access
to the Premises shall be damaged by fire or other casualty, Landlord shall
promptly and diligently, subject to reasonable delays for insurance
adjustment or other matters beyond Landlord's reasonable control, and
subject to all other terms of this Article 11, restore the Base Building
and such Common Areas. Such restoration shall be to substantially the same
condition of the Base Building and the Common Areas prior to the casualty,
except for modifications required by zoning and building codes and other
laws or by the holder of a mortgage on the Building or Project or any other
modifications to the Common Areas deemed desirable by Landlord, provided
that access to the Premises and any common restrooms serving the Premises
shall not be materially impaired. Upon the occurrence of any damage to the
Premises, upon notice (the "Landlord Repair Notice") to Tenant from
Landlord, Tenant shall assign to Landlord (or to any party designated by
Landlord) all insurance proceeds payable to Tenant under Tenant's insurance
required under Section 10.3 of this Lease, and Landlord shall repair damage
to the Tenant Improvements and the Original Improvements installed in the
Premises and shall return such Tenant Improvements and Original
Improvements to their original condition; provided that if the cost of such
repair by Landlord exceeds the amount of insurance proceeds received by
Landlord from Tenant's insurance carrier, as assigned by Tenant, the cost
of such repairs shall be paid by Tenant to Landlord prior to Landlord's
commencement of repair of the damage. In the event that Landlord does not
deliver the Landlord Repair Notice within sixty (60) days following the
date the casualty becomes known to Landlord, Tenant shall, at its sole cost
and expense, repair any damage to the Tenant Improvements and the Original
Improvements installed in the Premises and shall return such Tenant
Improvements and Original Improvements to their original condition. Whether
or not Landlord delivers a Landlord Repair Notice, prior to the
commencement of construction, Tenant shall submit to Landlord, for
Landlord's review and approval, all plans, specifications and working
drawings relating thereto, and Landlord shall select the contractors to
perform such improvement work. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or its visitors, or injury to Tenant's
business resulting in any way from such damage or the repair thereof;
provided however, that if such fire or other casualty shall have damaged
the Premises or Common Areas necessary to Tenant's occupancy, Landlord
shall allow Tenant a proportionate abatement of Rent to the extent Landlord
is reimbursed from the proceeds of rental interruption insurance purchased
by Landlord as part of Operating Expenses, during the time and to the
extent the Premises are unfit for occupancy for the purposes permitted
under this Lease, and not occupied by Tenant as a result thereof; provided,
further, however, that if the damage or destruction is due to the
negligence or wilful misconduct of Tenant or any of its agents, employees,
contractors, invitees or guests, Tenant shall be responsible for any
reasonable, applicable insurance deductible (which shall be payable to
Landlord upon demand) and there shall be no rent abatement. In the event
that Landlord shall not deliver the Landlord Repair Notice, Tenant's right
to rent abatement pursuant to the preceding sentence shall terminate as of
the date which is reasonably determined to be the date Tenant should have
completed repairs to the Premises assuming Tenant used reasonable due
diligence in connection therewith.
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11.2 LANDLORD'S OPTION TO REPAIR. Notwithstanding the terms of Section 11.1 of
this Lease, Landlord may elect not to rebuild and/or restore the Premises,
Building and/or Project, and instead terminate this Lease, by notifying
Tenant in writing of such termination within sixty (60) days after the date
of discovery of the damage, such notice to include a termination date
giving Tenant sixty (60) days to vacate the Premises, but Landlord may so
elect only if the Building or Project shall be damaged by fire or other
casualty or cause, whether or not the Premises are affected, and one or
more of the following conditions is present: (i) in Landlord's reasonable
judgment, repairs cannot reasonably be completed within one hundred eighty
(180) days after the date of discovery of the damage (when such repairs are
made without the payment of overtime or other premiums); (ii) the holder of
any mortgage on the Building or Project or ground lessor with respect to
the Building or Project shall require that the insurance proceeds or any
portion thereof be used to retire the mortgage debt, or shall terminate the
ground lease, as the case may be; or (iii) the damage is not fully covered
by Landlord's insurance policies. If Landlord does not elect to terminate
this Lease pursuant to Landlord's termination right as provided above,
Landlord shall, within sixty (60) days of the date of damage, deliver
written notice to Tenant specifying Landlord's reasonable opinion of the
date of completion of the repairs, and if the repairs to be made by
Landlord cannot, in the reasonable opinion of the Landlord, be completed
within one (1) year after being commenced (which one (1) year period shall
be subject to extension as a result of any event of "Force Majeure," as
that term is defined in Section 29.16 of this Lease), Tenant may elect,
within thirty (30) days after the date of Landlord's notice, to terminate
this Lease by written notice to Landlord effective as of the date specified
in the notice, which date shall not be less than thirty (30) days nor more
than sixty (60) days after the date such notice is given by Tenant.
Furthermore, if neither Landlord nor Tenant has terminated this Lease, and
the repairs to be made by Landlord are not actually completed within such
one (1) year period (as extended for an event of Force Majeure), then
Tenant shall have the right to terminate this Lease during the first five
(5) business days of each calendar month following the end of such period
until such time as the repairs to be made by Landlord are complete, by
notice to landlord (the "Damage Termination Notice"), which Damage
Termination Date shall not be less than ten (10) business days following
the end of each such month. Notwithstanding the foregoing, if Tenant
delivers a Damage Termination Notice to Landlord, then Landlord shall have
the right to suspend the occurrence of the Damage Termination Date for a
period ending thirty (30) days after the Damage Termination Date set forth
in the Damage Termination Notice by delivering to Tenant, within five (5)
business days of Landlord's receipt of the Damage Termination Notice, a
certification of Landlord's contractor responsible for the repair of the
damage certifying that it is such contractor's good faith judgment that the
repairs to be made by Landlord shall be substantially completed within
thirty (30) days after the Damage Termination Date. If such repairs shall
be substantially completed prior to the expiration of such thirty-day
period, then the Damage Termination Notice shall be of no force or effect,
but if such repairs shall not be substantially completed within such
thirty-day period, then this Lease shall terminate upon the expiration of
such thirty-day period. At any time, from time to time, after the date
occurring sixty (60) days after the date of the damage, Tenant may request
that Landlord inform Tenant of Landlord's reasonable opinion of the date of
completion of the repairs to be made by Landlord and Landlord shall respond
to such request within ten (10) business days. In addition, in the event
that the Premises, the Building, and/or the Project is destroyed or damaged
to any substantial extent during the last twenty-four (24) months of the
Lease Term, then notwithstanding anything contained in this Article 11,
Landlord shall have the option to terminate this Lease by giving written
notice to Tenant of the exercise of such option within thirty (30) days
after Landlord's discovery of the damage or destruction, in which event
this Lease shall cease and terminate as of the date of such notice. In
addition, in the event that the Premises, the Building, and/or the Project
is destroyed to any substantial extent during the last twelve (12) months
of the Lease Term, then notwithstanding anything contained in this Article
11, Landlord shall have the option to terminate this Lease by giving
written notice to Tenant of the exercise of such option within thirty (30)
days after such damage or destruction, in which event this Lease shall
cease and terminate as of the date of such notice. Notwithstanding the
foregoing, if the damage occurs during the last twelve (12) months of the
Lease Term and such damage cannot be repaired within sixty (60) days
following the date of the casualty and such casualty substantially
interferes with Tenant's use of or access to the Premises, then Tenant may
elect, no earlier than thirty (30) days after the date of the discovery of
the damage and not later than sixty (60) days after the date of discovery
of such damage, to terminate this Lease by written notice to Landlord
effective as of the date specified in the notice, which date shall not be
less than thirty (30) days nor more than sixty (60) days after the date
such notice is given by Tenant. Upon any such termination of this Lease
pursuant to this Section 11.2, Tenant shall pay the Base Rent and
Additional Rent, properly apportioned up to such date of termination, and
both parties hereto shall thereafter be freed and discharged of all further
obligations hereunder except as provided for in provisions of this Lease
which by their terms survive the expiration or earlier termination of the
Lease Term.
11.3 WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease, including
this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any
part of the Premises, the Building or the Project, and any statute or
regulation of the State of California, including, without limitation,
Sections 1932(2) and 1933(4) of the California Civil Code, with respect to
any rights or obligations concerning damage or destruction in the absence
of an express agreement between the parties, and any other statute or
regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the
Building or the Project.
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ARTICLE 12
NONWAIVER
No provision of this Lease shall be deemed waived by either party hereto
unless expressly waived in a writing signed thereby. The waiver by either party
hereto of any breach of any term, covenant or condition herein contained shall
not be deemed to be a waiver of any subsequent breach of same or any other term,
covenant or condition herein contained. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular Rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
Rent. No acceptance of a lesser amount than the Rent herein stipulated shall be
deemed a waiver of Landlord's right to receive the full amount due, and Landlord
may accept such check or payment without prejudice to Landlord's right to
recover the full amount due.
ARTICLE 13
CONDEMNATION
If the whole or any part of the Premises, Building or Project shall be
taken by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if any adjacent property or street
shall be so taken or condemned, or reconfigured or vacated by such authority in
such manner as to require the use, reconstruction or remodeling of any part of
the Premises, Building or Project, or if Landlord shall grant a deed or other
instrument in lieu of such taking by eminent domain or condemnation, Landlord
shall have the option to terminate this Lease effective as of the date
possession is required to be surrendered to the authority. If more than
twenty-five percent (25%) of the rentable square feet of the Premises is taken;
if more than ten percent (10%) of the parking passes allocated to the Tenant as
provided in this Lease is taken; or if access to the Premises is substantially
impaired; or if any portion of the public streets or highways in the vicinity of
the Premises is taken and such taking materially, adversely interferes with
access to the Premises or the parking areas servicing the Premises, in each case
for a period in excess of one hundred eighty (180) days, Tenant shall have the
option to terminate this Lease effective as of the date possession is required
to be surrendered to the authority. Tenant shall not because of such taking
assert any claim against Landlord or the authority for any compensation because
of such taking and Landlord shall be entitled to the entire award or payment in
connection therewith, except that Tenant shall have the right to file any
separate claim available to Tenant for any taking of Tenant's personal property
and fixtures belonging to Tenant and removable by Tenant upon expiration of the
Lease Term pursuant to the terms of this Lease, and for moving expenses, so long
as such claims do not diminish the award available to Landlord, its ground
lessor with respect to the Building or Project or its mortgagee, and such claim
is payable separately to Tenant. All Rent shall be apportioned as of the date of
such termination. If any part of the Premises shall be taken, and this Lease
shall not be so terminated, the Rent shall be proportionately abated. Tenant
hereby waives any and all rights it might otherwise have pursuant to Section
1265.130 of The California Code of Civil Procedure. Notwithstanding anything to
the contrary contained in this Article 13, in the event of a temporary taking of
all or any portion of the Premises for a period of one hundred and eighty (180)
days or less, then this Lease shall not terminate but the Base Rent and the
Additional Rent shall be abated for the period of such taking in proportion to
the ratio that the amount of rentable square feet of the Premises taken bears to
the total rentable square feet of the Premises. Landlord shall be entitled to
receive the entire award made in connection with any such temporary taking.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 TRANSFERS. Tenant shall not, without the prior written consent of Landlord,
assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder,
permit any assignment, or other transfer of this Lease or any interest
hereunder by operation of law, sublet the Premises or any part thereof, or
enter into any license or concession agreements or otherwise permit the
occupancy or use of the Premises or any part thereof by any persons other
than Tenant and its employees and contractors (all of the foregoing are
hereinafter sometimes referred to collectively as "Transfers" and any
person to whom any Transfer is made or sought to be made is hereinafter
sometimes referred to as a "Transferee"). If Tenant desires Landlord's
consent to any Transfer, Tenant shall notify Landlord in writing, which
notice (the "Transfer Notice") shall include (i) the proposed effective
date of the Transfer, which shall not be less than thirty (30) days nor
more than one hundred eighty (180) days after the date of delivery of the
Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "Subject Space"), (iii) all of the terms of the proposed
Transfer and the consideration therefor, including calculation of the
"Transfer Premium", as that term is defined in Section 14.3 below, in
connection with such Transfer, the name and address of the proposed
Transferee, and a copy of all existing executed and/or proposed
documentation pertaining to the proposed Transfer, including all existing
operative documents to be executed to evidence such Transfer or the
agreements incidental or related to such Transfer, provided that Landlord
shall have the right to require Tenant to utilize Landlord's standard
Transfer documents in connection with the documentation of such Transfer,
(iv) current financial statements of the proposed Transferee certified by
an officer, partner or owner thereof, business credit and personal
references and history of the proposed Transferee and any other information
reasonably required by Landlord which will enable Landlord to determine the
financial responsibility, character, and reputation of the proposed
Transferee, nature of such Transferee's business and proposed use of the
Subject Space and (v) an executed estoppel certificate from Tenant in the
form attached hereto as Exhibit E. Any Transfer made without Landlord's
prior written consent shall, at Landlord's option, be null, void and of no
effect, and shall, at Landlord's option, constitute a default by Tenant
under this Lease. Whether or not Landlord consents to any proposed
Transfer, Tenant shall pay Landlord's review and processing fees, as well
as any reasonable professional fees (including, without limitation,
attorneys', accountants', architects', engineers' and consultants' fees)
incurred by Landlord, within thirty (30) days after written request by
Landlord provided, such fee shall not exceed $2,000.00 per occurrence.
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14.2 LANDLORD'S CONSENT. Landlord shall not unreasonably withhold its consent to
any proposed Transfer of the Subject Space to the Transferee on the terms
specified in the Transfer Notice. Without limitation as to other reasonable
grounds for withholding consent, the parties hereby agree that it shall be
reasonable under this Lease and under any applicable law for Landlord to
withhold consent to any proposed Transfer where one or more of the
following apply:
14.2.1 The Transferee is of a character or reputation or engaged in a
business which is not consistent with the quality of the Building or
the Project, or would be a significantly less prestigious occupant of
the Building than Tenant;
14.2.2 The Transferee intends to use the Subject Space for purposes which
are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or instrumentality
thereof;
14.2.4 The Transfer occurs during the period from the Lease Commencement
Date until the earlier of (i) the second anniversary of the Lease
Commencement Date or (ii) the date at least ninety-five percent (95%)
of the rentable square feet of the Building is leased, and the rent
charged by Tenant to such Transferee during the term of such Transfer
(the "Transferee's Rent"), calculated using a present value analysis,
is less than ninety-five percent (95%) of the rent being quoted by
Landlord at the time of such Transfer for comparable space in the
Building for a comparable term (the "Quoted Rent"), calculated using a
present value analysis;
14.2.5 The Transferee is not a party that has, at least, substantially the
same financial worth and/or financial stability as Tenant;
14.2.6 The proposed Transfer would cause a violation of another lease for
space in the Project, or would give an occupant of the Project a right
to cancel its lease; or
14.2.7 Either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the
Project at the time of the request for consent, or (ii) is negotiating
with Landlord to lease space in the Project at such time, or (iii) has
negotiated with Landlord during the thirty (30)-day period immediately
preceding the Transfer Notice, provided that this Section 14.2.7 shall
only be applicable with respect to Transfers in excess of 10,000
rentable square feet, and then only to the extent Landlord has space
in the Project reasonably capable of satisfying the proposed
transferee's needs.
If Landlord consents to any Transfer pursuant to the terms of this
Section 14.2 (and does not exercise any recapture rights Landlord may
have under Section 14.4 of this Lease), Tenant may within six (6)
months after Landlord's consent, but not later than the expiration of
said six-month period, enter into such Transfer of the Premises or
portion thereof, upon substantially the same terms and conditions as
are set forth in the Transfer Notice furnished by Tenant to Landlord
pursuant to Section 14.1 of this Lease, provided that if there are any
changes in the terms and conditions from those specified in the
Transfer Notice (i) such that Landlord would initially have been
entitled to refuse its consent to such Transfer under this Section
14.2, or (ii) which would cause the proposed Transfer to be more
favorable to the Transferee than the terms set forth in Tenant's
original Transfer Notice, Tenant shall again submit the Transfer to
Landlord for its approval and other action under this Article 14
(including Landlord's right of recapture, if any, under Section 14.4
of this Lease). Notwithstanding anything to the contrary in this
Lease, if Tenant or any proposed Transferee claims that Landlord has
unreasonably withheld or delayed its consent under Section 14.2 or
otherwise has breached or acted unreasonably under this Article 14,
Tenant shall have the right to sue Landlord for contract damages
suffered by Tenant as a result thereof (other than damages for injury
to or interference with, Tenant's business, including without
limitation, loss of profits, however occurring), but Tenant hereby
waives any right to terminate the Lease as a result thereof.
14.3 TRANSFER PREMIUM. If Landlord consents to a Transfer, as a condition
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord fifty percent (50%) of any "Transfer Premium," as that term is
defined in this Section 14.3, received by Tenant from such Transferee.
"Transfer Premium" shall mean all rent, additional rent or other
consideration payable by such Transferee in connection with the Transfer in
excess of the Rent and Additional Rent payable by Tenant under this Lease
during the term of the Transfer on a per rentable square foot basis if less
than all of the Premises is transferred, after deducting the reasonable
expenses incurred by Tenant for (i) any changes, alterations and
improvements to the Premises in connection with the Transfer, (ii) any free
base rent reasonably provided to the Transferee, (iii) legal fees, and (iv)
any brokerage commissions in connection with the Transfer. "Transfer
Premium" shall also include, but not be limited to, key money, bonus money
or other cash consideration paid by Transferee to Tenant in connection with
such Transfer, and any payment in excess of fair market value for services
rendered by Tenant to Transferee or for assets, fixtures, inventory,
equipment, or furniture transferred by Tenant to Transferee in connection
with such Transfer. In the calculations of the Rent (as it relates to the
Transfer Premium calculated under this Section 14.3), and the Transferee's
Rent and Quoted Rent under Section 14.2 of this Lease, the Rent paid during
each annual period for the Subject Space, and the Transferee's Rent and the
Quoted Rent, shall be computed after adjusting such rent to the actual
effective rent to be paid, taking into consideration any and all leasehold
concessions granted in connection therewith, including, but not limited to,
any rent credit and tenant improvement allowance. For purposes of
calculating any such effective rent all such concessions shall be amortized
on a straight-line basis over the relevant term.
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14.4 LANDLORD'S OPTION AS TO SUBJECT SPACE. Notwithstanding anything to the
contrary contained in this Article 14, with respect to any Transfer in
which the rentable square footage of such transfer, when aggregated with
the rentable square footage of all prior Transfers, exceeds fifty percent
(50%) of the rentable square footage of the Premises. Landlord shall have
the option, by giving written notice to Tenant within thirty (30) days
after receipt of any Transfer Notice, to recapture the Subject Space. Such
recapture notice shall cancel and terminate this Lease with respect to the
Subject Space as of the date stated in the Transfer Notice as the effective
date of the proposed Transfer until the last day of the term of the
Transfer as set forth in the Transfer Notice (or at Landlord's option,
shall cause the Transfer to be made to Landlord or its agent, in which case
the parties shall execute the Transfer documentation promptly thereafter).
In the event of a recapture by Landlord, if this Lease shall be canceled
with respect to less than the entire Premises, the Rent reserved herein
shall be prorated on the basis of the number of rentable square feet
retained by Tenant in proportion to the number of rentable square feet
contained in the Premises, and this Lease as so amended shall continue
thereafter in full force and effect, and upon request of either party, the
parties shall execute written confirmation of the same. If Landlord
declines, or fails to elect in a timely manner to recapture the Subject
Space under this Section 14.4, then, provided Landlord has consented to the
proposed Transfer, Tenant shall be entitled to proceed to transfer the
Subject Space to the proposed Transferee, subject to provisions of this
Article 14.
14.5 EFFECT OF TRANSFER. If Landlord consents to a Transfer, (i) the terms and
conditions of this Lease shall in no way be deemed to have been waived or
modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or
Tenant's chief financial officer, setting forth in detail the computation
of any Transfer Premium Tenant has derived and shall derive from such
Transfer, and (v) no Transfer relating to this Lease or agreement entered
into with respect thereto, whether with or without Landlord's consent,
shall relieve Tenant or any guarantor of the Lease from any liability under
this Lease, including, without limitation, in connection with the Subject
Space. Landlord or its authorized representatives shall have the right at
all reasonable times to audit the books, records and papers of Tenant
relating to any Transfer, and shall have the right to make copies thereof.
If the Transfer Premium respecting any Transfer shall be found understated,
Tenant shall, within thirty (30) days after demand, pay the deficiency, and
if understated by more than five percent (5%), Tenant shall pay Landlord's
costs of such audit.
14.6 ADDITIONAL TRANSFERS. For purposes of this Lease, the term "Transfer" shall
also include (i) if Tenant is a partnership, the withdrawal or change,
voluntary, involuntary or by operation of law, of fifty percent (50%) or
more of the partners, or transfer of fifty percent (50%) or more of
partnership interests, within a twelve (12)-month period, or the
dissolution of the partnership without immediate reconstitution thereof,
and (ii) if Tenant is a closely held corporation (i.e., whose stock is not
publicly held and not traded through an exchange or over the counter), (A)
the dissolution, merger, consolidation or other reorganization of Tenant or
(B) the sale or other transfer of an aggregate of fifty percent (50%) or
more of the voting shares of Tenant (other than to immediate family members
by reason of gift or death), within a twelve (12)-month period, or (C) the
sale, mortgage, hypothecation or pledge of an aggregate of fifty percent
(50%) or more of the value of the unencumbered assets of Tenant within a
twelve (12)-month period. If Tenant is a publicly held corporation, the
provisions of this Section 14.6 shall not apply.
14.7 OCCURRENCE OF DEFAULT. Any Transfer hereunder shall be subordinate and
subject to the provisions of this Lease, and if this Lease shall be
terminated during the term of any Transfer, Landlord shall have the right
to: (i) treat such Transfer as cancelled and repossess the Subject Space by
any lawful means, or (ii) require that such Transferee attorn to and
recognize Landlord as its landlord under any such Transfer. If Tenant shall
be in default under this Lease, Landlord is hereby irrevocably authorized,
as Tenant's agent and attorney-in-fact, to direct any Transferee to make
all payments under or in connection with the Transfer directly to Landlord
(which Landlord shall apply towards Tenant's obligations under this Lease)
until such default is cured. Such Transferee shall rely on any
representation by Landlord that Tenant is in default hereunder, without any
need for confirmation thereof by Tenant. Upon any assignment, the assignee
shall assume in writing all obligations and covenants of Tenant thereafter
to be performed or observed under this Lease. No collection or acceptance
of rent by Landlord from any Transferee shall be deemed a waiver of any
provision of this Article 14 or the approval of any Transferee or a release
of Tenant from any obligation under this Lease, whether theretofore or
thereafter accruing. In no event shall Landlord's enforcement of any
provision of this Lease against any Transferee be deemed a waiver of
Landlord's right to enforce any term of this Lease against Tenant or any
other person. If Tenant's obligations hereunder have been guaranteed,
Landlord's consent to any Transfer shall not be effective unless the
guarantor also consents to such Transfer.
14.8 NON-TRANSFERS. Notwithstanding anything to the contrary contained in this
Article 14, an assignment or subletting of all or a portion of the Premises
to (a) an affiliate of Tenant (an entity which is controlled by, controls,
or is under common control with, Tenant), (b) an entity which merges with
or acquires or is acquired by, Tenant, or (c) a transferee of substantially
all of the assets of Tenant (items (a), (b), and (c) to be collectively
referred to herein as an "Affiliate"), shall not be deemed a Transfer under
this Article 14, provided that Tenant notifies Landlord of any such
assignment or sublease and promptly supplies Landlord with any documents or
information requested by Landlord regarding such assignment or sublease or
such Affiliate, and further provided that such assignment or sublease is
not a subterfuge by Tenant to avoid its obligations under this Lease.
"Control," as used in this Section 14.8, shall mean the ownership, directly
or indirectly, of at least fifty-one percent (51%) of the voting securities
of, or possession of the right to vote, in the ordinary direction of its
affairs, of at least fifty-one percent (51%) of the voting interest in, any
person or entity.
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ARTICLE 15
SURRENDER OF PREMISES; OWNERSHIP AND
REMOVAL OF TRADE FIXTURES
15.1 SURRENDER OF PREMISES. No act or thing done by Landlord or any agent or
employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in writing by Landlord. The delivery of keys to
the Premises to Landlord or any agent or employee of Landlord shall not
constitute a surrender of the Premises or effect a termination of this
Lease, whether or not the keys are thereafter retained by Landlord, and
notwithstanding such delivery Tenant shall be entitled to the return of
such keys at any reasonable time upon request until this Lease shall have
been properly terminated. The voluntary or other surrender of this Lease by
Tenant, whether accepted by Landlord or not, or a mutual termination
hereof, shall not work a merger, and at the option of Landlord shall
operate as an assignment to Landlord of all subleases or subtenancies
affecting the Premises or terminate any or all such sublessees or
subtenancies.
15.2 REMOVAL OF TENANT PROPERTY BY TENANT. Upon the expiration of the Lease
Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable
wear and tear and repairs which are specifically made the responsibility of
Landlord hereunder excepted. Upon such expiration or termination, Tenant
shall, without expense to Landlord, remove or cause to be removed from the
Premises all debris and rubbish, and such items of furniture, equipment,
business and trade fixtures, free-standing cabinet work, movable partitions
and other articles of personal property owned by Tenant or installed or
placed by Tenant at its expense in the Premises, and such similar articles
of any other persons claiming under Tenant, as Landlord may, in its sole
discretion, require to be removed, and Tenant shall repair at its own
expense all damage to the Premises and Building resulting from such
removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term or earlier
termination thereof, with or without the express or implied consent of Landlord,
such tenancy shall be from month-to-month only, and shall not constitute a
renewal hereof or an extension for any further term, and in such case Rent shall
be payable at a monthly rate equal to the product of (i) the Rent applicable
during the last rental period of the Lease Term under this Lease, and (ii) a
percentage equal to the sum of (A) for the first six (6) months of any such
holdover, 150% and (B) for any period thereafter, 200%. Such month-to-month
tenancy shall be subject to every other applicable term, covenant and agreement
contained herein. Nothing contained in this Article 16 shall be construed as
consent by Landlord to any holding over by Tenant, and Landlord expressly
reserves the right to require Tenant to surrender possession of the Premises to
Landlord as provided in this Lease upon the expiration or other termination of
this Lease. The provisions of this Article 16 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
or at law. If Tenant fails to surrender the Premises within thirty (30) days
following the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including reasonable
attorneys' fees) and liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
tenant founded upon such failure to surrender and any lost profits to Landlord
resulting therefrom.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute, acknowledge and deliver to Landlord an estoppel certificate,
which, as submitted by Landlord, shall be substantially in the form of Exhibit
E, attached hereto (or such other form as may be required by any prospective
mortgagee or purchaser of the Project, or any portion thereof), indicating
therein any exceptions thereto that may exist at that time, and shall also
contain any other information reasonably requested by Landlord or Landlord's
mortgagee or prospective mortgagee. Any such certificate may be relied upon by
any prospective mortgagee or purchaser of all or any portion of the Project.
Tenant shall execute and deliver whatever other instruments may be reasonably
required for such purposes. At any time during the Lease Term, Landlord may
require Tenant to provide Landlord with a current financial statement and
financial statements of the two (2) years prior to the current financial
statement year. Such statements shall be prepared in accordance with generally
accepted accounting principles and, if such is the normal practice of Tenant,
shall be audited by an independent certified public accountant. Failure of
Tenant to timely execute, acknowledge and deliver such estoppel certificate or
other instruments shall constitute an acceptance of the Premises and an
acknowledgment by Tenant that statements included in the estoppel certificate
are true and correct, without exception.
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ARTICLE 18
SUBORDINATION
This Lease shall be subject and subordinate to all present and future
ground or underlying leases of the Building or Project and to the lien of any
mortgage, trust deed or other encumbrances now or hereafter in force against the
Building or Project or any part thereof, if any, and to all renewals,
extensions, modifications, consolidations and replacements thereof, and to all
advances made or hereafter to be made upon the security of such mortgages or
trust deeds, unless the holders of such mortgages, trust deeds or other
encumbrances, or the lessors under such ground lease or underlying leases,
require in writing that this Lease be superior thereto. The receipt by Tenant of
commercially reasonable non-disturbance agreements(s) in favor of Tenant from
any ground lessor, mortgage holders, or lien holders of Landlord who come into
existence with respect to the Building or Project at any time prior to the
expiration of the Lease Term shall be a condition precedent to Tenant's
agreement to be bound by the terms of this Article 18. Tenant covenants and
agrees in the event any proceedings are brought for the foreclosure of any such
mortgage or deed in lieu thereof (or if any ground lease is terminated), to
attorn, without any deductions or set-offs whatsoever, to the lienholder or
purchaser or any successors thereto upon any such foreclosure sale or deed in
lieu thereof (or to the ground lessor), if so requested to do so by such
purchaser or lienholder or ground lessor, and to recognize such purchaser or
lienholder or ground lessor as the lessor under this Lease, provided such
lienholder or purchaser or ground lessor shall agree to accept this Lease and
not disturb Tenant's occupancy, so long as Tenant timely pays the rent and
observes and performs the terms, covenants and conditions of this Lease to be
observed and performed by Tenant. Landlord's interest herein may be assigned as
security at any time to any lienholder. Tenant shall, within five (5) days of
request by Landlord, execute such further instruments or assurances as Landlord
may reasonably deem necessary to evidence or confirm the subordination or
superiority of this Lease to any such mortgages, trust deeds, ground leases or
underlying leases. Tenant waives the provisions of any current or future
statute, rule or law which may give or purport to give Tenant any right or
election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 Events of Default. The occurrence of any of the following shall constitute
a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge required
to be paid under this Lease, or any part thereof, when due unless such
failure is cured within five (5) business days after notice that
payment is overdue; or
19.1.2 Except where a specific time period is otherwise set forth for
Tenant's performance in this Lease, in which event the failure to
perform by Tenant within such time period shall be a default by Tenant
under this Section 19.1.2, any failure by Tenant to observe or perform
any other provision, covenant or condition of this Lease to be
observed or performed by Tenant where such failure continues for
thirty (30) days after written notice thereof from Landlord to Tenant;
provided that if the nature of such default is such that the same
cannot reasonably be cured within a thirty (30) day period, Tenant
shall not be deemed to be in default if it diligently commences such
cure within such period and thereafter diligently proceeds to rectify
and cure such default, but in no event exceeding a period of time in
excess of thirty (30) days after written notice thereof from Landlord
to Tenant; or
19.1.3 Abandonment of all or a substantial portion of the Premises by
Tenant; or
19.1.4 Vacation of the ground floor portion of the Premises, except to the
extent Tenant covers the windows of such portion of the Premises in a
manner reasonably acceptable to Landlord or lights the Premises in a
manner reasonably satisfactory to Landlord (in order that such portion
of the Premises shall not appear to be vacated); or
19.1.5 The failure by Tenant to observe or perform according to the
provisions of Articles 5, 14, 17 or 18 of this Lease where such
failure continues for more than two (2) business days after notice
from Landlord.
The notice periods provided herein are in lieu of, and not in addition
to, any notice periods provided by law.
19.2 REMEDIES UPON DEFAULT. Upon the occurrence of any event of default by
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity (all of which remedies shall be distinct,
separate and cumulative), the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and
nonexclusive, without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have
for possession or arrearages in rent, enter upon and take possession
of the Premises and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof, without being
liable for prosecution or any claim or damages therefor; and Landlord
may recover from Tenant the following:
(i) The worth at the time of any unpaid rent which has been earned at
the time of such termination; plus
(ii) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
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(iii)The worth at the time of award of the amount by which the unpaid
rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, ; and
(v) At Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant to Landlord
pursuant to the terms of this Lease. As used in Paragraphs 19.2.1(i) and
(ii), above, the "worth at the time of award" shall be computed by allowing
interest at the rate set forth in Article 25 of this Lease, but in no case
greater than the maximum amount of such interest permitted by law. As used
in Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil Code
Section 1951.4 (lessor may continue lease in effect after lessee's
breach and abandonment and recover rent as it becomes due, if lessee
has the right to sublet or assign, subject only to reasonable
limitations). Accordingly, if Landlord does not elect to terminate
this Lease on account of any default by Tenant, Landlord may, from
time to time, without terminating this Lease, enforce all of its
rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.2.3 Landlord shall at all times have the rights and remedies (which
shall be cumulative with each other and cumulative and in addition to
those rights and remedies available under Sections 19.2.1 and 19.2.2,
above, or any law or other provision of this Lease), without prior
demand or notice except as required by applicable law, to seek any
declaratory, injunctive or other equitable relief, and specifically
enforce this Lease, or restrain or enjoin a violation or breach of any
provision hereof.
19.3 SUBLEASES OF TENANT. If Landlord elects to terminate this Lease on account
of any default by Tenant, as set forth in this Article 19, Landlord shall
have the right to terminate any and all subleases, licenses, concessions or
other consensual arrangements for possession entered into by Tenant and
affecting the Premises or may, in Landlord's sole discretion, succeed to
Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any
such subleases, licenses, concessions or arrangements, Tenant shall, as of
the date of notice by Landlord of such election, have no further right to
or interest in the rent or other consideration receivable thereunder.
19.4 FORM OF PAYMENT AFTER DEFAULT. Following the occurrence of an event of
default by Tenant, Landlord shall have the right to require that any or all
subsequent amounts paid by Tenant to Landlord hereunder, whether to cure
the default in question or otherwise, be paid in the form of cash, money
order, cashier's or certified check drawn on an institution acceptable to
Landlord, or by other means approved by Landlord, notwithstanding any prior
practice of accepting payments in any different form.
19.5 EFFORTS TO RELET. No re-entry or repossession, repairs, maintenance,
changes, alterations and additions, reletting, appointment of a receiver to
protect Landlord's interests hereunder, or any other action or omission by
Landlord shall be construed as an election by Landlord to terminate this
Lease or Tenant's right to possession, or to accept a surrender of the
Premises, nor shall same operate to release Tenant in whole or in part from
any of Tenant's obligations hereunder, unless express written notice of
such intention is sent by Landlord to Tenant. Tenant hereby irrevocably
waives any right otherwise available under any law to redeem or reinstate
this Lease.
19.6 LANDLORD DEFAULT. Notwithstanding anything to the contrary set forth in
this Lease, Landlord shall be in default in the performance of any
obligation required to be performed by Landlord pursuant to this Lease if
Landlord fails to perform such obligation within thirty (30) days after the
receipt of notice from Tenant specifying in detail Landlord's failure to
perform; provided, however, if the nature of Landlord's obligation is such
that more than thirty (30) days are required for its performance, then
Landlord shall not be in default under this Lease if it shall commence such
performance within such thirty (30) day period and thereafter diligently
pursue the same to completion, provided however, to the extent expressly
set forth in Section 6.3 of this Lease, Tenant shall have the remedies set
forth therein in the event of Landlord's failure to perform in less than
thirty (30) days with respect to the matters itemized in said Section 6.3.
ARTICLE 20
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.
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ARTICLE 21
INTENTIONALLY OMITTED
ARTICLE 22
INTENTIONALLY OMITTED
ARTICLE 23
SIGNS
23.1 FULL FLOORS. Subject to Landlord's prior written approval, in its sole
discretion, and provided all signs are in keeping with the quality, design
and style of the Building and Project, Tenant, if the Premises comprise an
entire floor of the Building, at its sole cost and expense, may install
identification signage anywhere in the Premises including in the elevator
lobby of the Premises, provided that such signs must not be visible from
the exterior of the Building.
23.2 MULTI-TENANT FLOORS. If other tenants occupy space on the floor on which
the Premises is located, Tenant's identifying signage shall be provided by
Landlord, at Tenant's cost, and such signage shall be comparable to that
used by Landlord for other similar floors in the Building and shall comply
with Landlord's Building standard signage program.
23.3 PROHIBITED SIGNAGE AND OTHER ITEMS. Any signs, notices, logos, pictures,
names or advertisements which are installed and that have not been
separately approved by Landlord may be removed without notice by Landlord
at the sole expense of Tenant. Tenant may not install any signs on the
exterior or roof of the Project or the Common Areas. Any signs, window
coverings, or blinds (even if the same are located behind the
Landlord-approved window coverings for the Building), or other items
visible from the exterior of the Premises or Building, shall be subject to
the prior approval of Landlord, in its sole discretion.
23.4 BUILDING DIRECTORY. A building directory shall be located in the lobby of
the Building. Tenant shall have the right, at Landlord's sole cost and
expense with respect to the initial installation, to use fifteen (15)
spaces in such directory to display names under Tenant's entry in such
directory. Any additions or changes to Tenant's names following the initial
installation shall be at Tenant's sole cost and expense.
23.5 BUILDING TOP SIGNAGE. Subject to the terms of this Section 23.5, Tenant
shall have the non-exclusive right to place a sign on the rooftop of the
Building (the "Rooftop Sign"), at Tenant's sole cost and expense; provided
that (i) the size, location, color, quality, graphics, materials, design,
style, and size (collectively, the "Rooftop Sign Design Specifications") of
the Rooftop Sign shall be subject to Landlord's prior written approval, in
Landlord's reasonable discretion, (ii) the Rooftop Sign shall be subject to
all Applicable Laws and the CC&Rs (including, without limitation, the terms
of the Stadium Gateway REA), and (iii) Tenant's right to maintain the
Rooftop Sign shall be personal to the Original Tenant or an Affiliate of
the Original Tenant (and not any other assignee, sublessee or other
transferee of the Original Tenant's interest in this Lease) and subject to
the Original Tenant's or its Affiliates' occupancy of the entire Premises.
In the event that Tenant desires to exercise its right to have the Rooftop
Sign installed and Tenant has satisfied items (ii) and (iii), above, then
Tenant shall provide written notice to Landlord of the same (the "Rooftop
Sign Notice") and shall provide Landlord with the Rooftop Sign Design
Specifications desired by Tenant. In the event that Landlord approves such
Rooftop Sign Design Specifications, in Landlord's sole discretion, then
Tenant shall install the Rooftop Sign, at Tenant's sole cost and expense,
in accordance with the terms of Article 8, above. Tenant shall maintain the
Rooftop Sign at Tenant's sole cost and expense. Upon the expiration or
earlier termination of this Lease or in the event that Tenant fails to
satisfy the requirements of items (ii) and (iii), above, Tenant shall
remove the Rooftop Sign and repair any damage caused by such removal.
Notwithstanding anything in this Lease to the contrary, Tenant's obtaining
of government approval for the Rooftop Sign shall in no event be considered
a condition precedent to Tenant's obligations under this Lease.
23.6 MONUMENT SIGN. Subject to the terms of this Section 23.6, Tenant shall have
the non-exclusive right to install, at Tenant's sole cost and expense,
Tenant's name on one line of the Building monument sign, in a location on
such Building Monument Sign to be designated by Landlord ("Tenant's
Monument Signage"); provided that (i) the size, location, color, quality,
graphics, materials, design, style, and size (collective, the "Monument
Design Specifications") of Tenant's Monument Signage shall be subject to
Landlord's prior written approval, in Landlord's reasonable discretion,
(ii) Tenant's Monument Signage shall be subject to all Applicable Laws and
the CC&Rs (including, without limitation, the terms of the Stadium Gateway
REA), and (iii) Tenant's right to maintain Tenant's Monument Signage shall
be personal to the Original Tenant or an Affiliate of the Original Tenant
only (and not any other assignee, sublessee or other transferee of the
Original Tenant's interest in this Lease) and subject to the Original
Tenant's or its Affiliate's occupancy of at least 75% of the Premises. In
the event that Tenant desires to exercise its right to install Tenant's
Monument Signage, then Tenant shall provide written notice to Landlord of
the same (the "Monument Sign Notice") and shall provide Landlord with the
Monument Design Specifications desired by Tenant. In the event that
Landlord approves such Monument Design Specifications, in Landlord's sole
discretion, then Tenant shall install Tenant's Monument Signage, at
Tenant's sole cost and expense, in accordance with the terms of Article 8,
above. Tenant shall maintain Tenant's Monument Signage at Tenant's sole
cost and expense. Upon the expiration or earlier termination of this Lease,
Tenant shall remove Tenant's Monument Signage, if any, and repair any
damage caused by such removal.
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23.7 OBJECTIONABLE NAME. Should the name of the Original Tenant be legally
changed to another name, or should Tenant assign its rights hereunder to an
Affiliate, Tenant shall be entitled to modify, at Tenant's sole cost and
expense, Tenant's Monument Signage and Rooftop Sign, if any, to reflect the
new name, but only if the new name is not an "Objectionable Name," as
defined below. The term "Objectionable Name" shall mean any name which
relates to an entity which is of a character or reputation, or is
associated with a political orientation or faction, which is inconsistent
with the quality of the Building, or which would otherwise reasonably
offend a landlord of the comparable buildings or projects, taking into
consideration the level and visibility of signage rights inherent in
Tenant's Monument Signage and Rooftop Sign.
ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about the
Premises or the Project which will in any way conflict with any law, statute,
ordinance or other governmental rule, regulation or requirement now in force or
which may hereafter be enacted or promulgated by the City of Anaheim or any
other governing entity ("Applicable Laws"). At its sole cost and expense, Tenant
shall promptly comply with all such governmental measures. Should any standard
or regulation now or hereafter be imposed on Landlord or Tenant by a state,
federal or local governmental body charged with the establishment, regulation
and enforcement of occupational, health or safety standards for employers,
employees, landlords or tenants, then Tenant agrees, at its sole cost and
expense, to comply promptly with such standards or regulations. Tenant shall be
responsible, at its sole cost and expense, to make all alterations to the
Premises as are required to comply with the governmental rules, regulations,
requirements or standards described in this Article 24. The judgment of any
court of competent jurisdiction or the admission of Tenant in any judicial
action, regardless of whether Landlord is a party thereto, that Tenant has
violated any of said governmental measures, shall be conclusive of that fact as
between Landlord and Tenant. Notwithstanding the foregoing, in complying with
laws, statues, ordinances and governmental rules, regulations and requirements
and with the requirements of any board of fire underwriter or similar body
relating to or affecting the condition, use of occupancy of the Premises, Tenant
(i) shall be responsible, at Tenant's sole cost and expense, to make required
alterations, additions or improvements to the Premises, but (ii) shall not be
responsible for any alterations, additions or improvements to the Building or to
the Common Areas except to the extent any such obligations are triggered by
Tenant's Alterations, the Tenant Improvements, or the use of the Premises by
Tenant for non-general office use and (iii) shall not be required to make
structural repairs or capital improvements to the Premises or the Building
except to the extent any such obligations are triggered by Tenant's Alterations,
the Tenant Improvements, or the use of the Premises by Tenant for non-general
office use. Landlord shall comply with all Applicable Laws, (including without
limitation Applicable Laws relating to Hazardous Materials) relating to the
Building Structure and the Building Systems or the real property upon which the
Project is located, provided that compliance with such Applicable Laws is not
the responsibility of Tenant under this Lease, and provided further that
Landlord's failure to comply therewith would prohibit Tenant from obtaining or
maintaining a certificate of occupancy for the Premises, or would unreasonably
and materially affect the safety of Tenant's employees or create a significant
health hazard for Tenant's employees. Landlord shall be permitted to include in
Operating Expenses any costs or expenses incurred by Landlord under this Article
24 to the extent consistent with the terms of Section 4.2.4, above.
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) business days after
said amount is due, then Tenant shall pay to Landlord a late charge equal to
five percent (5%) of the overdue amount plus any attorneys' fees incurred by
Landlord by reason of Tenant's failure to pay Rent and/or other charges when due
hereunder. The late charge shall be deemed Additional Rent and the right to
require it shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any manner. In addition to the late charge
described above, any Rent or other amounts owing hereunder which are not paid
within ten (10) days after the date they are due shall bear interest from the
date when due until paid at a rate per annum equal to the lesser of (i) the
annual "Bank Prime Loan" rate cited in the Federal Reserve Statistical Release
Publication G.13(415), published on the first Tuesday of each calendar month (or
such other comparable index as Landlord and Tenant shall reasonably agree upon
if such rate ceases to be published) plus four (4) percentage points, and (ii)
the highest rate permitted by applicable law.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 LANDLORD'S CURE. All covenants and agreements to be kept or performed by
Tenant under this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any reduction of Rent, except to the extent, if
any, otherwise expressly provided herein. If Tenant shall fail to perform
any obligation under this Lease, and such failure shall continue in excess
of the time allowed under Section 19.1.2, above, unless a specific time
period is otherwise stated in this Lease, Landlord may, but shall not be
obligated to, make any such payment or perform any such act on Tenant's
part without waiving its rights based upon any default of Tenant and
without releasing Tenant from any obligations hereunder.
26.2 TENANT'S REIMBURSEMENT. Except as may be specifically provided to the
contrary in this Lease, Tenant shall pay to Landlord, upon delivery by
Landlord to Tenant of statements therefor: (i) sums equal to expenditures
reasonably made and obligations incurred by Landlord in connection with the
remedying by Landlord of Tenant's defaults pursuant to the provisions of
Section 26.1; (ii) sums equal to all losses, costs, liabilities, damages
and expenses referred to in Article 10 of this Lease; and (iii) sums equal
to all expenditures made and obligations incurred by Landlord in collecting
or attempting to collect the Rent or in enforcing or attempting to enforce
any rights of Landlord under this Lease or pursuant to law, including,
without limitation, all legal fees and other amounts so expended. Tenant's
obligations under this Section 26.2 shall survive the expiration or sooner
termination of the Lease Term.
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ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant (except in the case of an emergency) to enter the Premises to
(i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees
or tenants, or to current or prospective mortgagees, ground or underlying
lessors or insurers; (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Building, or for structural alterations,
repairs or improvements to the Building or the Building's systems and equipment.
Notwithstanding anything to the contrary contained in this Article 27, Landlord
may enter the Premises at any time to (A) perform services required of Landlord,
including janitorial service (but only in the event Tenant fails to maintain
adequate janitorial service); (B) take possession due to any breach of this
Lease in the manner provided herein; and (C) perform any covenants of Tenant
which Tenant fails to perform. Landlord may make any such entries without the
abatement of Rent and may take such reasonable steps as required to accomplish
the stated purposes. Tenant hereby waives any claims for damages or for any
injuries or inconvenience to or interference with Tenant's business, lost
profits, any loss of occupancy or quiet enjoyment of the Premises, and any other
loss occasioned thereby. For each of the above purposes, Landlord shall at all
times have a key with which to unlock all the doors in the Premises, excluding
Tenant's vaults, safes and special security areas designated in advance by
Tenant. In an emergency, Landlord shall have the right to use any means that
Landlord may deem proper to open the doors in and to the Premises. Any entry
into the Premises by Landlord in the manner hereinbefore described shall not be
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an actual or constructive eviction of Tenant from any portion of the
Premises. No provision of this Lease shall be construed as obligating Landlord
to perform any repairs, alterations or decorations except as otherwise expressly
agreed to be performed by Landlord herein.
ARTICLE 28
TENANT PARKING
Tenant acknowledges that the Project parking facilities serving the
Premises are operated by an unrelated third party pursuant to the Sportstown
Anaheim REA and Parking Agreement, and Landlord's right to use the Project
parking facilities and therefore Tenant's parking rights under this Lease are
subject to the Sportstown Anaheim REA and Parking Agreement. Subject to the
foregoing, Tenant shall have the right to use, commencing on the Lease
Commencement Date, four (4) unreserved parking passes for every 1,000 rentable
square feet of the Premises (the "Primary Passes") and 300 additional passes
(the "Additional Passes") (collectively, the "Parking Passes"), on a monthly
basis without charge throughout the Lease Term, which Parking Passes shall
pertain to the Project parking facilities. All Parking Passes allocated to
Tenant herein are generally subject to reduction during hours other than between
6:30 AM to 6:30 PM, Monday through Friday and 6:30 AM to 12:30 PM on Saturday
and Sunday, as deemed necessary by Landlord in order for Landlord to comply with
the terms of the Sportstown Anaheim REA and the Parking Agreement. The
Additional Passes shall, in addition to any other terms of this Section 28, be
subject to the following limitations: (i) the Additional Passes shall be located
in the area designated by Landlord as required for Landlord's compliance with
the Parking Agreement; (ii) the Additional Passes shall be available only during
the hours of 9:00 A.M. - 3:30 P.M., Monday through Friday, excluding holidays;
(iii) the use of the Additional Passes is personal to the Tenant and such
Additional Passes may not be used by any Transferee; and (iv) Tenant's right to
use the Additional Passes is conditioned on Tenant's continued operation as a
computer training facility. The Additional Parking Passes may further be
subject, on certain days, in certain events (collectively, the "Last Load
Weekday Events"), as set forth in the Parking Agreement, to reduction after
12:00 P.M., Monday through Friday, as deemed necessary by Landlord in order for
Landlord to comply with the terms of the Sportstown Anaheim REA and the Parking
Agreement. Notwithstanding the foregoing, in the event the Additional Passes are
reduced as a result of a Last Load Weekday Event, Landlord shall provide Tenant
with alternate Additional Passes, which parking passes shall be among those
parking passes which are usable by Landlord under the Parking Agreement and are
not subject to a Last Load Weekday Event. Such alternate parking pass usage may
be provided by Landlord through the use of valet parking or stacked parking, at
Landlord's option. Tenant's continued right to use the parking passes is
conditioned upon Tenant abiding by all rules and regulations which are
prescribed from time to time for the orderly operation and use of the parking
facility where the parking passes are located, including any sticker or other
identification system established by Landlord, Tenant's cooperation in seeing
that Tenant's employees and visitors also comply with such rules and regulations
and Tenant not being in default under this Lease. Tenant's continued right to
use the parking passes is further conditioned upon Tenant abiding by all the
terms and conditions of the CC&Rs, including, without limitation, the Sportstown
Anaheim REA and Parking Agreement. Landlord specifically reserves the right to
change the size, configuration, design, layout and all other aspects of the
Project parking facilities at any time and Tenant acknowledges and agrees that
Landlord may, without incurring any liability to Tenant and without any
abatement of Rent under this Lease, from time to time, relocate the areas in
which Tenant is able to use its parking passes, as determined by Landlord in
order for Landlord to comply with the terms of the Sportstown Anaheim REA and
the Parking Agreement, close-off or restrict access to the Project parking
facilities for purposes of permitting or facilitating any such construction,
alteration or improvements. Landlord may delegate its rights and
responsibilities hereunder to a parking operator in which case such parking
operator shall have all the rights of control attributed hereby to the Landlord.
The parking passes allocated to Tenant pursuant to this Article 28 are provided
to Tenant solely for use by Tenant's own personnel and such passes may not be
transferred, assigned, subleased or otherwise alienated by Tenant without
Landlord's prior approval. Tenant may validate visitor parking by such method or
methods as the Landlord may establish, at the validation rate from time to time
generally applicable to visitor parking.
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ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 TERMS; CAPTIONS. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. The necessary grammatical
changes required to make the provisions hereof apply either to corporations
or partnerships or individuals, men or women, as the case may require,
shall in all cases be assumed as though in each case fully expressed. The
captions of Articles and Sections are for convenience only and shall not be
deemed to limit, construe, affect or alter the meaning of such Articles and
Sections.
29.2 BINDING EFFECT. Subject to all other provisions of this Lease, each of the
covenants, conditions and provisions of this Lease shall extend to and
shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective heirs, personal
representatives, successors or assigns, provided this clause shall not
permit any assignment by Tenant contrary to the provisions of Article 14 of
this Lease.
29.3 NO AIR RIGHTS. No rights to any view or to light or air over any property,
whether belonging to Landlord or any other person, are granted to Tenant by
this Lease. If at any time any windows of the Premises are temporarily
darkened or the light or view therefrom is obstructed by reason of any
repairs, improvements, maintenance or cleaning in or about the Project, the
same shall be without liability to Landlord and without any reduction or
diminution of Tenant's obligations under this Lease.
29.4 MODIFICATION OF LEASE. Should any current or prospective mortgagee or
ground lessor for the Building or Project require a modification of this
Lease, which modification will not cause an increased cost or expense to
Tenant or in any other way materially and adversely change the rights and
obligations of Tenant hereunder, then and in such event, Tenant agrees that
this Lease may be so modified and agrees to execute whatever documents are
reasonably required therefor and to deliver the same to Landlord within ten
(10) days following a request therefor. At the request of Landlord or any
mortgagee or ground lessor, Tenant agrees to execute a short form of Lease
and deliver the same to Landlord within ten (10) days following the request
therefor.
29.5 TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that Landlord has the
right to transfer all or any portion of its interest in the Project or
Building and in this Lease, and Tenant agrees that in the event of any such
transfer, provided any such proposed transferee agrees in writing to assume
Landlord's obligations under the Lease following such transfer, Landlord
shall automatically be released from all liability under this Lease and
Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder after the date of transfer and such
transferee shall be deemed to have fully assumed and be liable for all
obligations of this Lease to be performed by Landlord, including the return
of any Security Deposit, and Tenant shall attorn to such transferee. Tenant
further acknowledges that Landlord may assign its interest in this Lease to
a mortgage lender as additional security and agrees that such an assignment
shall not release Landlord from its obligations hereunder and that Tenant
shall continue to look to Landlord for the performance of its obligations
hereunder.
29.6 PROHIBITION AGAINST RECORDING. Except as provided in Section 29.4 of this
Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant.
29.7 LANDLORD'S TITLE. Landlord's title is and always shall be paramount to the
title of Tenant. Nothing herein contained shall empower Tenant to do any
act which can, shall or may encumber the title of Landlord.
29.8 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be deemed or
construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant.
29.9 APPLICATION OF PAYMENTS. Landlord shall have the right to apply payments
received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant
hereunder, in such order and amounts as Landlord, in its sole discretion,
may elect.
29.10 TIME OF ESSENCE. Time is of the essence with respect to the performance of
every provision of this Lease in which time of performance is a factor.
29.11 PARTIAL INVALIDITY. If any term, provision or condition contained in this
Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is
invalid or unenforceable, shall not be affected thereby, and each and every
other term, provision and condition of this Lease shall be valid and
enforceable to the fullest extent possible permitted by law.
29.12 NO WARRANTY. In executing and delivering this Lease, Tenant has not relied
on any representations, including, but not limited to, any representation
as to the amount of any item comprising Additional Rent or the amount of
the Additional Rent in the aggregate or that Landlord is furnishing the
same services to other tenants, at all, on the same level or on the same
basis, or any warranty or any statement of Landlord which is not set forth
herein or in one or more of the exhibits attached hereto.
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29.13 LANDLORD EXCULPATION. The liability of Landlord or the Landlord Parties to
Tenant for any default by Landlord under this Lease or arising in
connection herewith or with Landlord's operation, management, leasing,
repair, renovation, alteration or any other matter relating to the Project
or the Premises shall be limited solely and exclusively to an amount which
is equal to the lesser of (a) the interest of Landlord in the Building or
(b) the equity interest Landlord would have in the Building if the Building
were encumbered by third-party debt in an amount equal to eighty percent
(80%) of the value of the Building (as such value is determined by
Landlord), provided that in no event shall such liability extend to any
sales or insurance proceeds received by Landlord or the Landlord Parties in
connection with the Project, Building or Premises. Neither Landlord, nor
any of the Landlord Parties shall have any personal liability therefor, and
Tenant hereby expressly waives and releases such personal liability on
behalf of itself and all persons claiming by, through or under Tenant. The
limitations of liability contained in this Section 29.13 shall inure to the
benefit of Landlord's and the Landlord Parties' present and future
partners, beneficiaries, officers, directors, trustees, shareholders,
agents and employees, and their respective partners, heirs, successors and
assigns. Under no circumstances shall any present or future partner of
Landlord (if Landlord is a partnership), or trustee or beneficiary (if
Landlord or any partner of Landlord is a trust), have any liability for the
performance of Landlord's obligations under this Lease. Notwithstanding any
contrary provision herein, neither Landlord nor the Landlord Parties shall
be liable under any circumstances for injury or damage to, or interference
with, Tenant's business, including but not limited to, loss of profits,
loss of rents or other revenues, loss of business opportunity, loss of
goodwill or loss of use, in each case, however occurring.
29.14 ENTIRE AGREEMENT. Except with respect to any written letter agreement
expressly referencing this Lease, if any, executed by Landlord and Tenant
and dated as of the date hereof, it is understood and acknowledged that
there are no oral agreements between the parties hereto affecting this
Lease and this Lease constitutes the parties' entire agreement with respect
to the leasing of the Premises and supersedes and cancels any and all
previous negotiations, arrangements, brochures, agreements and
understandings, if any, between the parties hereto or displayed by Landlord
to Tenant with respect to the subject matter thereof, and none thereof
shall be used to interpret or construe this Lease. None of the terms,
covenants, conditions or provisions of this Lease can be modified, deleted
or added to except in writing signed by the parties hereto.
29.15 RIGHT TO LEASE. Landlord reserves the absolute right, subject to the terms
of Section 5.3 of this Lease, to effect such other tenancies in the Project
as Landlord in the exercise of its sole business judgment shall determine
to best promote the interests of the Building or Project. Tenant does not
rely on the fact, nor does Landlord represent, that any specific tenant or
type or number of tenants shall, during the Lease Term, occupy any space in
the Building or Project.
29.16 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes, lockouts,
labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by
Tenant pursuant to this Lease and except as to Tenant's obligations under
Articles 5 and 24 of this Lease (collectively, a "Force Majeure"),
notwithstanding anything to the contrary contained in this Lease, shall
excuse the performance of such party for a period equal to any such
prevention, delay or stoppage and, therefore, if this Lease specifies a
time period for performance of an obligation of either party, that time
period shall be extended by the period of any delay in such party's
performance caused by a Force Majeure.
29.17 WAIVER OF REDEMPTION BY TENANT. Tenant hereby waives, for Tenant and for
all those claiming under Tenant, any and all rights now or hereafter
existing to redeem by order or judgment of any court or by any legal
process or writ, Tenant's right of occupancy of the Premises after any
termination of this Lease.
29.18 NOTICES. All notices, demands,statements, designations, approvals or other
communications (collectively, "Notices") given or required to be given by
either party to the other hereunder or by law shall be in writing, shall be
(A) sent by United States certified or registered mail, postage prepaid,
return receipt requested ("Mail"), (B) transmitted by telecopy, if such
telecopy is promptly followed by a Notice sent by Mail, (C) delivered by a
nationally recognized overnight courier, or (D) delivered personally. Any
Notice shall be sent, transmitted, or delivered, as the case may be, to
Tenant at the appropriate address set forth in Section 10 of the Summary,
or to such other place as Tenant may from time to time designate in a
Notice to Landlord, or to Landlord at the addresses set forth below, or to
such other places as Landlord may from time to time designate in a Notice
to Tenant. Any Notice will be deemed given (i) three (3) days after the
date it is posted if sent by Mail, (ii) the date the telecopy is
transmitted, (iii) the date the overnight courier delivery is made, or (iv)
the date personal delivery is made or attempted to be made. If Tenant is
notified of the identity and address of Landlord's mortgagee or ground or
underlying lessor, Tenant shall give to such mortgagee or ground or
underlying lessor written notice of any default by Landlord under the terms
of this Lease by registered or certified mail, and such mortgagee or ground
or underlying lessor shall be given a reasonable opportunity to cure such
default prior to Tenant's exercising any remedy available to Tenant. As of
the date of this Lease, any Notices to Landlord must be sent, transmitted,
or delivered, as the case may be, to the following addresses:
STADIUM GATEWAY ASSOCIATES, L.L.C.
1970 East Grand Avenue
Suite 300
El Segundo, California 90245
Attention: Jack L. Mahoney
and
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Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue of the Stars, Suite 1800
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
29.19 JOINT AND SEVERAL. If there is more than one Tenant, the obligations
imposed upon Tenant under this Lease shall be joint and several.
29.20 AUTHORITY. If Tenant is a corporation, trust or partnership, each
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in California and that Tenant has full right and authority to
execute and deliver this Lease and that each person signing on behalf of
Tenant is authorized to do so. In such event, Tenant shall, within ten (10)
days after execution of this Lease, deliver to Landlord satisfactory
evidence of such authority and, if a corporation, upon demand by Landlord,
also deliver to Landlord satisfactory evidence of (i) good standing in
Tenant's state of incorporation and (ii) qualification to do business in
California.
29.21 ATTORNEYS' FEES. In the event that either Landlord or Tenant should bring
suit for the possession of the Premises, for the recovery of any sum due
under this Lease, or because of the breach of any provision of this Lease
or for any other relief against the other, then all costs and expenses,
including reasonable attorneys' fees, incurred by the prevailing party
therein shall be paid by the other party, which obligation on the part of
the other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not the
action is prosecuted to judgment.
29.22 GOVERNING LAW; WAIVER OF TRIAL BY JURY. This Lease shall be construed and
enforced in accordance with the laws of the State of California. IN ANY
ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT
TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF
CALIFORNIA, (II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA
LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE
PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY
MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF
LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY
CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY. IN THE
EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT
OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY
COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL
BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO
AN INDEPENDENT ACTION AT LAW.
29.23 SUBMISSION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of, option for or
option to lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
29.24 BROKERS. Landlord and Tenant hereby warrant to each other that they have
had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 12 of the Summary (the "Brokers"), and that they know
of no other real estate broker or agent who is entitled to a commission in
connection with this Lease. Each party agrees to indemnify and defend the
other party against and hold the other party harmless from any and all
claims, demands, losses, liabilities, lawsuits, judgments, costs and
expenses (including without limitation reasonable attorneys' fees) with
respect to any leasing commission or equivalent compensation alleged to be
owing on account of any dealings with any real estate broker or agent,
other than the Brokers, occurring by, through, or under the indemnifying
party.
29.25 INDEPENDENT COVENANTS. This Lease shall be construed as though the
covenants herein between Landlord and Tenant are independent and not
dependent and Tenant hereby expressly waives the benefit of any statute to
the contrary and agrees that if Landlord fails to perform its obligations
set forth herein, Tenant shall not be entitled to make any repairs or
perform any acts hereunder at Landlord's expense or to any setoff of the
Rent or other amounts owing hereunder against Landlord.
29.26 PROJECT OR BUILDING NAME AND SIGNAGE. Landlord shall have the right at any
time to change the name of the Project or Building and to install, affix
and maintain any and all signs on the exterior and on the interior of the
Project or Building as Landlord may, in Landlord's sole discretion, desire.
Tenant shall not use the name of the Project or Building or use pictures or
illustrations of the Project or Building in advertising or other publicity
or for any purpose other than as the address of the business to be
conducted by Tenant in the Premises, without the prior written consent of
Landlord.
29.27 COUNTERPARTS. This Lease may be executed in counterparts with the same
effect as if both parties hereto had executed the same document. Both
counterparts shall be construed together and shall constitute a single
lease.
29.28 CONFIDENTIALITY. Tenant acknowledges that the content of this Lease and
any related documents are confidential information. Tenant shall keep such
confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than Tenant's
financial, legal, and space planning consultants or as required with
respect to any governmentally required securities filings.
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29.29 TRANSPORTATION MANAGEMENT. Tenant shall fully comply with all present or
future governmentally mandated programs intended to manage parking,
transportation or traffic in and around the Building, and in connection
therewith, Tenant shall take responsible action for the transportation
planning and management of all employees located at the Premises by working
directly with Landlord, any governmental transportation management
organization or any other governmental transportation-related committees or
entities.
29.30 BUILDING RENOVATIONS. It is specifically understood and agreed that
Landlord has made no representation or warranty to Tenant and has no
obligation and has made no promises to alter, remodel, improve, renovate,
repair or decorate the Premises, Building, or any part thereof and that no
representations respecting the condition of the Premises or the Building
have been made by Landlord to Tenant except as specifically set forth
herein or in the Tenant Work Letter. However, Tenant hereby acknowledges
that Landlord is currently renovating or may during the Lease Term
renovate, improve, alter, or modify (collectively, the "Renovations") the
Project, the Building and/or the Premises including without limitation the
parking structure, common areas, systems and equipment, roof, and
structural portions of the same, which Renovations may include, without
limitation, (i) installing sprinklers in the Building common areas and
tenant spaces, (ii) modifying the common areas and tenant spaces to comply
with applicable laws and regulations, including regulations relating to the
physically disabled, seismic conditions, and building safety and security,
and (iii) installing new floor covering, lighting, and wall coverings in
the Building common areas, and in connection with any Renovations, Landlord
may, among other things, erect scaffolding or other necessary structures in
the Building, limit or eliminate access to portions of the Project,
including portions of the common areas, or perform work in the Building,
which work may create noise, dust or leave debris in the Building. Tenant
hereby agrees that such Renovations and Landlord's actions in connection
with such Renovations shall in no way constitute a constructive eviction of
Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct or
indirect injury to or interference with Tenant's business arising from the
Renovations, nor shall Tenant be entitled to any compensation or damages
from Landlord for loss of the use of the whole or any part of the Premises
or of Tenant's personal property or improvements resulting from the
Renovations or Landlord's actions in connection with such Renovations, or
for any inconvenience or annoyance occasioned by such Renovations or
Landlord's actions.
29.31 NO VIOLATION. Tenant hereby warrants and represents that neither its
execution of nor performance under this Lease shall cause Tenant to be in
violation of any agreement, instrument, contract, law, rule or regulation
by which Tenant is bound, and Tenant shall protect, defend, indemnify and
hold Landlord harmless against any claims, demands, losses, damages,
liabilities, costs and expenses, including, without limitation, reasonable
attorneys' fees and costs, arising from Tenant's breach of this warranty
and representation.
29.32 COMMUNICATIONS AND COMPUTER LINES. Tenant may install, maintain, replace,
remove or use any communications or computer wires and cables
(collectively, the "Lines") at the Project in or serving the Premises,
provided that (i) Tenant shall obtain Landlord's prior written consent, use
an experienced and qualified contractor approved in writing by Landlord,
and comply with all of the other provisions of Articles 7 and 8 of this
Lease, (ii) an acceptable number of spare Lines and space for additional
Lines shall be maintained for existing and future occupants of the Project,
as determined in Landlord's reasonable opinion, (iii) the Lines therefor
(including riser cables) shall be appropriately insulated to prevent
excessive electromagnetic fields or radiation, and shall be surrounded by a
protective conduit reasonably acceptable to Landlord, (iv) any new or
existing Lines servicing the Premises shall comply with all applicable
governmental laws and regulations, (v) as a condition to permitting the
installation of new Lines, Landlord may require that Tenant remove existing
Lines located in or serving the Premises and repair any damage in
connection with such removal, and (vi) Tenant shall pay all costs in
connection therewith. Landlord reserves the right to require that Tenant
remove any Lines located in or serving the Premises which are installed in
violation of these provisions, or which are at any time in violation of any
laws or represent a dangerous or potentially dangerous condition.
29.33 DEVELOPMENT OF THE PROJECT.
29.33.1 SUBDIVISION. Landlord reserves the right to further subdivide all
or a portion of the Project. Tenant agrees to execute and deliver,
upon demand by Landlord and in the form requested by Landlord, any
additional documents needed to conform this Lease to the circumstances
resulting from such subdivision.
29.33.2 THE OTHER IMPROVEMENTS. If portions of the Project or property
adjacent to the Project (collectively, the "Other Improvements") are
owned by an entity other than Landlord, Landlord, at its option, may
enter into an agreement with the owner or owners of any or all of the
Other Improvements to provide (i) for reciprocal rights of access
and/or use of the Project and the Other Improvements, (ii) for the
common management, operation, maintenance, improvement and/or repair
of all or any portion of the Project and the Other Improvements, (iii)
for the allocation of a portion of the Direct Expenses to the Other
Improvements and the operating expenses and taxes for the Other
Improvements to the Project, and (iv) for the use or improvement of
the Other Improvements and/or the Project in connection with the
improvement, construction, and/or excavation of the Other Improvements
and/or the Project. Nothing contained herein shall be deemed or
construed to limit or otherwise affect Landlord's right to convey all
or any portion of the Project or any other of Landlord's rights
described in this Lease.
29.33.3 CONSTRUCTION OF PROJECT AND OTHER IMPROVEMENTS. Tenant
acknowledges that portions of the Project and/or the Other
Improvements may be under construction following Tenant's
occupancy of the Premises, and that such construction may result
in levels of noise, dust, obstruction of access, etc. which are
in excess of that present in a fully constructed project. Tenant
hereby waives any and all rent offsets or claims of constructive
eviction which may arise in connection with such construction.
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29.34 TELECOMMUNICATION EQUIPMENT. At any time during the Lease Term, Tenant may
install and operate for Tenant's exclusive use, at Tenant's sole cost and
expense, one (1) satellite dish not to exceed one (1) meter in size upon
the roof of the Building, including structural platforms, if any, cabling
and other equipment incidental thereto (collectively, the
"Telecommunication Equipment"), without the payment of any additional Base
Rent, except that Tenant shall pay for all utilities necessary to Tenant's
operation of the Telecommunication Equipment. Tenant shall submit to
Landlord, for Landlord's prior written approval, all plans and
specifications for the installation of the Telecommunication Equipment,
which approval may not be unreasonably withheld or delayed, provided it
shall be reasonable for Landlord to withhold its approval if any proposed
Telecommunication Equipment will adversely affect the Building structure or
the Building systems. Once Landlord has approved Tenant's plans and
specifications for the Telecommunication Equipment, Tenant may not alter or
modify such plans and specifications, or the actual installation of the
Telecommunication Equipment, without Landlord's prior written consent,
which consent shall be granted or withheld in accordance with the standards
set forth hereinabove in this Section 29.34. Tenant shall use the roof of
the Building solely for the Telecommunication Equipment and not for any
other purpose. Landlord and its agents may enter and inspect the roof of
the Building at any time in the event of an emergency, and otherwise at any
reasonable time upon reasonable prior notice and without any unreasonable
interference with Tenant's operations. If Tenant installs any locks to
secure the Telecommunication Equipment, concurrently with such
installation, Tenant shall deliver to Landlord a key for any such locks.
Tenant agrees and acknowledges that it shall use the roof of the Building
at its sole risk, and Tenant absolves and fully releases Landlord and the
Landlord Parties from any and all cost, loss, damage, expense, liability,
and cause of action, whether foreseeable or not, arising from any cause (i)
that Tenant may suffer to its personal property located on the roof of the
Building, or (ii) that Tenant or Tenant's officers, agents, employees, or
independent contractors may suffer as a direct or indirect consequence of
Tenant's use of the roof of the Building, the Telecommunication Equipment,
or access areas to the roof of the Building, unless caused by the gross
negligence or willful misconduct of Landlord. Landlord has made no warranty
or representation that the Telecommunication Equipment is permitted by law
and Tenant assumes all liability and risk in obtaining all permits and
approvals necessary for the installation and use of the Telecommunication
Equipment. Landlord does not warrant or guaranty that Tenant will receive
unobstructed transmission or reception to or from the Telecommunication
Equipment and Tenant assumes all risk involved in the transmission and
reception to and from the Telecommunication Equipment. Tenant's
installation and use of the Telecommunication Equipment shall be subject to
compliance with any and all Applicable Laws, including, but not limited to,
satisfying all applicable requirements of the Federal Communications
Commission and the Federal Aviation Administration and to the CC&Rs. Tenant
shall maintain such Telecommunication Equipment in good condition and
repair, at Tenant's sole cost and expense. Tenant's installation,
maintenance and use of the Telecommunication Equipment shall be further
subject to all applicable terms and conditions of this Lease, including,
but not limited to, the indemnification and insurance provisions set forth
in Article 10 of this Lease. Prior to the expiration or earlier termination
of this Lease, Tenant shall, at Tenant's sole cost and expense, remove all
of Tenant's Telecommunication Equipment and repair any and all damage
caused by Tenant's installation or removal of such equipment. If Tenant
fails to complete such removal or fails to repair any damage caused by such
installation or removal by the expiration or earlier termination of this
Lease, then Landlord may perform such work and charge the reasonable cost
thereof to Tenant, which amounts shall be immediately payable by Tenant.
29.35 NON-DISCRIMINATION. Tenant herein covenants by and for itself , its
successors and assigns, and all persons claiming under or through Tenant,
and this Lease is made and accepted upon and subject to the condition that
there shall be no discrimination against or segregation of any person or
group of persons, on account of race, color, creed, religion, sex, marital
status, national origin, or ancestry in the leasing, subleasing,
transferring, use, occupancy, tenure, or employment of the Premises nor
shall the Tenant, or any person claiming under or through Tenant, establish
or permit any such practice or practices of discrimination or segregation
with reference to the selection, location, number, use, or occupancy of
tenants, lessees, sublessees, subtenants, or vendees in the Premises herein
leased.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed
the day and date first above written.
"Landlord":
STADIUM GATEWAY ASSOCIATES, L.L.C.,
a Delaware limited liability company
By: HPMC Development Partners II, L.P.,
a Delaware limited partnership,
its Managing Member
By: HCG Development, L.L.C.,
a Delaware limited liability company,
its General Partner
By:
Jack L. Mahoney
Vice President
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"Tenant":
NEW HORIZONS WORLDWIDE, INC.,
a Delaware corporation
By:
Its:
By:
Its:
34
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EXHIBIT A
STADIUM GATEWAY
OUTLINE OF PREMISES
EXHIBIT A
1
<PAGE>
EXHIBIT B
SPORTSTOWN ANAHEIM
TENANT WORK LETTER
This Tenant Work Letter shall set forth the terms and conditions relating
to the construction of the Premises. This Tenant Work Letter is essentially
organized chronologically and addresses the issues of the construction of the
Premises, in sequence, as such issues will arise during the actual construction
of the Premises. All references in this Tenant Work Letter to Articles or
Sections of "this Lease" shall mean the relevant portions of Articles 1 through
29 of the Office Lease to which this Tenant Work Letter is attached as Exhibit
B, and all references in this Tenant Work Letter to Sections of "this Tenant
Work Letter" shall mean the relevant portions of Sections 1 through 5 of this
Tenant Work Letter.
SECTION 1
DELIVERY OF THE PREMISES AND BASE BUILDING
Landlord shall deliver to Tenant the "Base, Shell and Core," as defined
below, of the Building on or before April 1, 2001 (the "Delivery Date"), in a
condition which is adequate to allow Tenant to construct the Tenant Improvements
without any material interference or delay. The delivery condition on the
Delivery Date, as hereinabove specified, is referred to, for purposes of this
Lease, as the "Delivery Condition." Notwithstanding the foregoing, Tenant
acknowledges and agrees that Landlord may not have received and shall not be
required to have received by the Delivery Date a temporary certificate of
occupancy for the Building and/or Premises, and that Landlord shall be in the
process of completing construction of the Base, Shell and Core concurrently with
Tenant's completion of the Tenant Improvements. Tenant and Tenant's agents shall
not interfere with Landlord's construction of the Base, Shell and Core and shall
coordinate the construction of the Tenant Improvements with Landlord to the
extent necessary to avoid any such interference. Landlord shall deliver to
Tenant the completed Base, Shell and Core of the Building on or before June 30,
2001, at which time, the Base, Shell and Core shall comply with applicable
building codes and other governmental laws, ordinances and regulations which
were enacted prior to the date of this Lease, for unoccupied space to the extent
necessary to allow Tenant to obtain a certificate of occupancy (or its
equivalent) for the use of the Premises for general office purposes upon the
completion of the Tenant Improvements (collectively, the "Code") (the "Base,
Shell, and Core Completion Delivery Date"). In the event Tenant interferes with
Landlord's construction of the Base, Shell and Core, and Tenant's interference
is the cause of Landlord's delay in delivering the Base, Shell and Core to
Tenant as required pursuant to this Section, Tenant shall not be entitled to any
extension of the Lease Commencement Date as hereinbelow provided to the extent
such delays are caused by Tenant's interference and the Base, Shell, and Core
Completion Delivery Date shall be deemed to be the date the same would have
occurred but for such interference by Tenant. In the event Landlord does not
deliver the Base, Shell and Core to Tenant as provided herein on or before the
Delivery Date, and/or on or before June 30, 2001, in the condition required as
of each respective date, and such delay actually causes Tenant to be unable to
substantially complete the "Tenant Improvements" (defined below) on or before
July 1, 2001, the Lease Commencement Date shall be extended by one (1) day for
each day of delay in substantially completing the Tenant Improvements beyond
July 1, 2001, resulting solely from Landlord's failure to deliver the Base,
Shell and Core to Tenant on the Delivery Date or on June 30, 2001, as required.
For purposes of this Lease, the "Base, Shell and Core" shall include only the
items set forth on Schedule 1 attached hereto.
SECTION 2
TENANT IMPROVEMENTS
2.1 TENANT IMPROVEMENT ALLOWANCE. Tenant shall be entitled to a one-time tenant
improvement allowance (the "Tenant Improvement Allowance") in the amount of
Thirty-Three and No/100 Dollars ($33.00) per usable square foot of the
Premises for the costs relating to the initial design and construction of
Tenant's improvements, which are permanently affixed to the Premises (the
"Tenant Improvements"). In no event shall Landlord be obligated to make
disbursements pursuant to this Tenant Work Letter in a total amount which
exceeds the Tenant Improvement Allowance. In addition to, and not as a
deduction from, the Tenant Improvement Allowance, provided that the Lease
has not been terminated as provided in Section 2.2 of the Lease, or for any
other reason, and provided that Tenant is not in default under the Lease,
Landlord shall, within five (5) business days following occupancy of the
Premises by Tenant for business purposes, deliver to Tenant the sum of
Three Hundred Thirty Thousand and No/100 Dollars ($330,000.00), as
reimbursement for Tenant's moving expenses (the "Moving Allowance"). In
addition, as long as the commission due to the Brokers in connection with
this Lease is reduced by $50,000.00, as evidenced by written agreement of
the Brokers with respect to such decrease, the Moving Allowance shall be
increased by $50,000.00.
2.2 DISBURSEMENT OF THE TENANT IMPROVEMENT ALLOWANCE.
2.2.1 TENANT IMPROVEMENT ALLOWANCE ITEMS. Except as otherwise set forth in
this Tenant Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord only for the following items and costs
(collectively the "Tenant Improvement Allowance Items"):
2.2.1.1 Payment of the fees of the "Architect" and the "Engineers," as
those terms are defined in Section 3.1 of this Tenant Work
Letter, which fees shall, notwithstanding anything to the
contrary contained in this Tenant Work Letter, not exceed an
aggregate amount equal to $3.50 per usable square foot of the
Premises, and payment of the fees incurred by, and the cost of
documents and materials supplied by, Landlord and Landlord's
consultants in connection with the preparation and review of the
"Construction Drawings," as that term is defined in Section 3.1
of this Tenant Work Letter;
EXHIBIT B
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2.2.1.2 The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements;
2.2.1.3 The cost of construction of the Tenant Improvements,
including, without limitation, testing and inspection costs,
freight elevator usage, hoisting and trash removal costs, and
contractors' fees and general conditions;
2.2.1.4 The cost of connection to Landlord's Building energy
management system;
2.2.1.5 The cost of Tenant's Increased Restroom Facilities;
2.2.1.6 The cost of any changes in the Base Building when such changes
are required by the Construction Drawings (including if such
changes are due to the fact that such work is prepared on an
unoccupied basis), such cost to include all direct architectural
and/or engineering fees and expenses incurred in connection
therewith
2.2.1.7 The cost of any changes to the Construction Drawings or Tenant
Improvements required by all applicable building codes (the
"Code");
2.2.1.8 The cost of the "Coordination Fee," as that term is defined in
Section 4.2.2 of this Tenant Work Letter;
2.2.1.9 Sales and use taxes and Title 24 fees; and
2.2.1.10 All other costs to be expended by Tenant in connection with
the construction of the Tenant Improvements.
2.2.2 DISBURSEMENT OF TENANT IMPROVEMENT ALLOWANCE. During the construction
of the Tenant Improvements, Landlord shall make monthly disbursements
of the Tenant Improvement Allowance for Tenant Improvement Allowance
Items for the benefit of Tenant and shall authorize the release of
monies for the benefit of Tenant as follows.
2.2.2.1 MONTHLY DISBURSEMENTS. On or before the first (1st) day of each
calendar month, as determined by Landlord, during the construction of
the Tenant Improvements (or such other date as Landlord may
designate), Tenant shall deliver to Landlord: (i) a request for
payment of the "Contractor," as that term is defined in Section 4.1 of
this Tenant Work Letter, approved by Tenant, in a form to be provided
by Landlord, showing the schedule, by trade, of percentage of
completion of the Tenant Improvements in the Premises, detailing the
portion of the work completed and the portion not completed; (ii)
invoices from all of "Tenant's Agents," as that term is defined in
Section 4.1.2 of this Tenant Work Letter, for labor rendered and
materials delivered to the Premises; (iii) executed mechanic's lien
releases from all of Tenant's Agents which shall comply with the
appropriate provisions, as reasonably determined by Landlord, of
California Civil Code Section 3262(d); and (iv) all other information
reasonably requested by Landlord. Tenant's request for payment shall
be deemed Tenant's acceptance and approval of the work furnished
and/or the materials supplied as set forth in Tenant's payment
request. Thereafter, Landlord shall deliver a check to Tenant made
jointly payable to Contractor and Tenant in payment of the lesser of:
(A) the amounts so requested by Tenant, as set forth in this Section
2.2.2.1, above, less a ten percent (10%) retention (the aggregate
amount of such retentions to be known as the "Final Retention"), and
(B) the balance of any remaining available portion of the Tenant
Improvement Allowance (not including the Final Retention), provided
that Landlord does not dispute any request for payment based on
non-compliance of any work with the "Approved Working Drawings," as
that term is defined in Section 3.4 below, or due to any substandard
work, or for any other reason. Landlord's payment of such amounts
shall not be deemed Landlord's approval or acceptance of the work
furnished or materials supplied as set forth in Tenant's payment
request.
2.2.2.2 FINAL RETENTION. Subject to the provisions of this Tenant Work
Letter, a check for the Final Retention payable jointly to Tenant and
Contractor shall be delivered by Landlord to Tenant following the
completion of construction of the Premises, provided that (i) Tenant
delivers to Landlord properly executed mechanics lien releases in
compliance with both California Civil Code Section 3262(d)(2) and
either Section 3262(d)(3) or Section 3262(d)(4), (ii) Landlord has
determined that no substandard work exists which adversely affects the
mechanical, electrical, plumbing, heating, ventilating and air
conditioning, life-safety or other systems of the Building, the
curtain wall of the Building, the structure or exterior appearance of
the Building, or any other tenant's use of such other tenant's leased
premises in the Building and (iii) Architect delivers to Landlord a
certificate, in a form reasonably acceptable to Landlord, certifying
that the construction of the Tenant Improvements in the Premises has
been substantially completed.
2.2.2.3 OTHER TERMS. Landlord shall only be obligated to make disbursements
from the Tenant Improvement Allowance to the extent costs are incurred
by Tenant for Tenant Improvement Allowance Items. All Tenant
Improvement Allowance Items for which the Tenant Improvement Allowance
has been made available shall be deemed Landlord's property under the
terms of this Lease.
EXHIBIT B
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2.3 STANDARD TENANT IMPROVEMENT PACKAGE. Landlord has established
specifications (the "Specifications") for the Building standard components
to be used in the construction of the Tenant Improvements in the Premises
(collectively, the "Standard Improvement Package"), which Specifications
shall be supplied to Tenant by Landlord. The quality of Tenant Improvements
shall be equal to or of greater quality than the quality of the
Specifications, provided that the Tenant Improvements shall comply with
certain Specifications as designated by Landlord. Landlord may make changes
to the Specifications for the Standard Improvement Package from time to
time.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 SELECTION OF ARCHITECT/CONSTRUCTION DRAWINGS. Tenant shall retain the
architect/space planner selected by Tenant and reasonably approved by
Landlord (the "Architect") to prepare the "Construction Drawings," as that
term is defined in this Section 3.1. Tenant shall retain the engineering
consultants designated by Landlord (the "Engineers") to prepare all plans
and engineering working drawings relating to the structural, mechanical,
electrical, plumbing, HVAC, lifesafety, and sprinkler work in the Premises,
which work is not part of the Base Building. The plans and drawings to be
prepared by Architect and the Engineers hereunder shall be known
collectively as the "Construction Drawings." All Construction Drawings
shall comply with the drawing format and specifications determined by
Landlord, and shall be subject to Landlord's approval. Tenant and Architect
shall verify, in the field, the dimensions and conditions as shown on the
relevant portions of the base building plans, and Tenant and Architect
shall be solely responsible for the same, and Landlord shall have no
responsibility in connection therewith. Landlord's review of the
Construction Drawings as set forth in this Section 3, shall be for its sole
purpose and shall not imply Landlord's review of the same, or obligate
Landlord to review the same, for quality, design, Code compliance or other
like matters. Accordingly, notwithstanding that any Construction Drawings
are reviewed by Landlord or its space planner, architect, engineers and
consultants, and notwithstanding any advice or assistance which may be
rendered to Tenant by Landlord or Landlord's space planner, architect,
engineers, and consultants, Landlord shall have no liability whatsoever in
connection therewith and shall not be responsible for any omissions or
errors contained in the Construction Drawings, and Tenant's waiver and
indemnity set forth in this Lease shall specifically apply to the
Construction Drawings.
3.2 FINAL SPACE PLAN. Tenant shall supply Landlord with four (4) copies signed
by Tenant of its final space plan for the Premises before any architectural
working drawings or engineering drawings have been commenced. The final
space plan (the "Final Space Plan") shall include a layout and designation
of all offices, rooms and other partitioning, their intended use, and
equipment to be contained therein. Landlord may request clarification or
more specific drawings for special use items not included in the Final
Space Plan. Landlord shall advise Tenant within five (5) business days
after Landlord's receipt of the Final Space Plan for the Premises if the
same is unsatisfactory or incomplete in any respect. If Tenant is so
advised, Tenant shall promptly cause the Final Space Plan to be revised to
correct any deficiencies or other matters Landlord may reasonably require.
3.3 FINAL WORKING DRAWINGS. After the Final Space Plan has been approved by
Landlord, Tenant shall supply the Engineers with a complete listing of
standard and non-standard equipment and specifications, including, without
limitation, B.T.U. calculations, electrical requirements and special
electrical receptacle requirements for the Premises, to enable the
Engineers and the Architect to complete the "Final Working Drawings" (as
that term is defined below) in the manner as set forth below. Upon the
approval of the Final Space Plan by Landlord and Tenant, Tenant shall
promptly cause the Architect and the Engineers to complete the
architectural and engineering drawings for the Premises, and Architect
shall compile a fully coordinated set of architectural, structural,
mechanical, electrical and plumbing working drawings in a form which is
complete to allow subcontractors to bid on the work and to obtain all
applicable permits (collectively, the "Final Working Drawings") and shall
submit the same to Landlord for Landlord's approval. Tenant shall supply
Landlord with four (4) copies signed by Tenant of such Final Working
Drawings. Landlord shall advise Tenant within five (5) business days after
Landlord's receipt of the Final Working Drawings for the Premises if the
same is unsatisfactory or incomplete in any respect. If Tenant is so
advised, Tenant shall immediately revise the Final Working Drawings in
accordance with such review and any disapproval of Landlord in connection
therewith.
3.4 APPROVED WORKING DRAWINGS. The Final Working Drawings shall be approved by
Landlord (the "Approved Working Drawings") prior to the commencement of
construction of the Premises by Tenant. After approval by Landlord of the
Final Working Drawings, Tenant may submit the same to the appropriate
municipal authorities for all applicable building permits. Tenant hereby
agrees that neither Landlord nor Landlord's consultants shall be
responsible for obtaining any building permit or certificate of occupancy
for the Premises and that obtaining the same shall be Tenant's
responsibility; provided, however, that Landlord shall cooperate with
Tenant in executing permit applications and performing other ministerial
acts reasonably necessary to enable Tenant to obtain any such permit or
certificate of occupancy. No changes, modifications or alterations in the
Approved Working Drawings may be made without the prior written consent of
Landlord, which consent may not be unreasonably withheld.
EXHIBIT B
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SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 TENANT'S SELECTION OF CONTRACTORS.
4.1.1 THE CONTRACTOR. A general contractor shall be retained by Tenant to
construct the Tenant Improvements. Such general contractor
("Contractor") shall be selected by Tenant from a list of general
contractors supplied by Landlord, and Tenant shall deliver to Landlord
notice of its selection of the Contractor upon such selection.
4.1.2 TENANT'S AGENTS. All subcontractors, laborers, materialmen, and
suppliers used by Tenant (such subcontractors, laborers, materialmen,
and suppliers, and the Contractor to be known collectively as
"Tenant's Agents") must be approved in writing by Landlord, which
approval shall not be unreasonably withheld or delayed. If Landlord
does not approve any of Tenant's proposed subcontractors, laborers,
materialmen or suppliers, Tenant shall submit other proposed
subcontractors, laborers, materialmen or suppliers for Landlord's
written approval.
4.2 CONSTRUCTION OF TENANT IMPROVEMENTS BY TENANT'S AGENTS.
4.2.1 CONSTRUCTION CONTRACT; COST BUDGET.Prior to Tenant's execution of the
construction contract and general conditions with Contractor (the
"Contract"), Tenant shall submit the Contract to Landlord for its
approval, which approval shall not be unreasonably withheld or
delayed. Prior to the commencement of the construction of the Tenant
Improvements, and after Tenant has accepted all bids for the Tenant
Improvements, Tenant shall provide Landlord with a detailed breakdown,
by trade, of the final costs to be incurred or which have been
incurred, as set forth more particularly in Sections 2.2.1.1 through
2.2.1.8, above, in connection with the design and construction of the
Tenant Improvements to be performed by or at the direction of Tenant
or the Contractor, which costs form a basis for the amount of the
Contract (the "Final Costs"). Prior to the commencement of
construction of the Tenant Improvements, Tenant shall supply Landlord
with a check in an amount (the "Over-Allowance Amount") equal to the
difference between the amount of the Final Costs and the amount of the
Tenant Improvement Allowance (less any portion thereof already
disbursed by Landlord, or in the process of being disbursed by
Landlord, on or before the commencement of construction of the Tenant
Improvements). The Over-Allowance Amount shall be disbursed by
Landlord prior to the disbursement of any of the then remaining
portion of the Tenant Improvement Allowance, and such disbursement
shall be pursuant to the same procedure as the Tenant Improvement
Allowance. In the event that, after the Final Costs have been
delivered by Tenant to Landlord, the costs relating to the design and
construction of the Tenant Improvements shall change, any additional
costs necessary to such design and construction in excess of the Final
Costs, shall be paid by Tenant to Landlord immediately as an addition
to the Over-Allowance Amount or at Landlord's option, Tenant shall
make payments for such additional costs out of its own funds, but
Tenant shall continue to provide Landlord with the documents described
in Sections 2.2.2.1 (i), (ii), (iii) and (iv) of this Tenant Work
Letter, above, for Landlord's approval, prior to Tenant paying such
costs.
4.2.2 TENANT'S AGENTS.
4.2.2.1 LANDLORD'S GENERAL CONDITIONS FOR TENANT'S AGENTS AND TENANT
IMPROVEMENT WORK. Tenant's and Tenant's Agent's construction of
the Tenant Improvements shall comply with the following: (i) the
Tenant Improvements shall be constructed in strict accordance
with the Approved Working Drawings; (ii) Tenant's Agents shall
submit schedules of all work relating to the Tenant's
Improvements to Contractor and Contractor shall, within five (5)
business days of receipt thereof, inform Tenant's Agents of any
changes which are necessary thereto, and Tenant's Agents shall
adhere to such corrected schedule; (iii) Tenant shall abide by
all rules made by Landlord's Building manager with respect to the
use of freight, loading dock and service elevators, storage of
materials, coordination of work with the contractors of other
tenants, and any other matter in connection with this Tenant Work
Letter, including, without limitation, the construction of the
Tenant Improvements and (iv) Tenant shall provide Landlord with
ten (10) days advance notice prior to commencing construction of
the Tenant Improvements, to allow Landlord sufficient time to
post notices of nonresponsibility. Tenant shall pay a logistical
coordination fee (the "Coordination Fee") to Landlord in an
amount equal to the product of (i) one percent (1%) and (ii) the
sum of the Tenant Improvement Allowance, the Over-Allowance
Amount, as such amount may be increased hereunder, and any other
amounts expended by Tenant in connection with the design and
construction of the Tenant Improvements, which Coordination Fee
shall be for services relating to the coordination of the
construction of the Tenant Improvements.
4.2.2.2 INDEMNITY. Tenant's indemnity of Landlord as set forth in this
Lease shall also apply with respect to any and all costs, losses,
damages, injuries and liabilities related in any way to any act
or omission of Tenant or Tenant's Agents, or anyone directly or
indirectly employed by any of them, or in connection with
Tenant's non-payment of any amount arising out of the Tenant
Improvements and/or Tenant's disapproval of all or any portion of
any request for payment. Such indemnity by Tenant, as set forth
in this Lease, shall also apply with respect to any and all
costs, losses, damages, injuries and liabilities related in any
way to Landlord's performance of any ministerial acts reasonably
necessary (i) to permit Tenant to complete the Tenant
Improvements, and (ii) to enable Tenant to obtain any building
permit or certificate of occupancy for the Premises.
4.2.2.3 REQUIREMENTS OF TENANT'S AGENTS. Each of Tenant's Agents shall
guarantee to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible
shall be free from any defects in workmanship and materials for a
period of not less than one (1) year from the date of completion
thereof. Each of Tenant's Agents shall be responsible for the
replacement or repair, without additional charge, of all work
done or furnished in accordance with its contract that shall
become defective within one (1) year after the later to occur of
(i) completion of the work performed by such contractor or
subcontractors and (ii) the Lease Commencement Date. The
correction of such work shall include, without additional charge,
all additional expenses and damages incurred in connection with
such removal or replacement of all or any part of the Tenant
Improvements, and/or the Building and/or common areas that may be
damaged or disturbed thereby. All such warranties or guarantees
as to materials or workmanship of or with respect to the Tenant
Improvements shall be contained in the Contract or subcontract
and shall be written such that such guarantees or warranties
shall inure to the benefit of both Landlord and Tenant, as their
respective interests may appear, and can be directly enforced by
either. Tenant covenants to give to Landlord any assignment or
other assurances which may be necessary to effect such right of
direct enforcement.
EXHIBIT B
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4.2.2.4 INSURANCE REQUIREMENTS.
4.2.2.4.1 GENERAL COVERAGES. All of Tenant's Agents shall carry
worker's compensation insurance covering all of their
respective employees, and shall also carry public liability
insurance, including property damage, all with limits, in
form and with companies as are required to be carried by
Tenant as set forth in this Lease.
4.2.2.4.2 SPECIAL COVERAGES. Tenant shall carry "Builder's All
Risk" insurance in an amount approved by Landlord covering
the construction of the Tenant Improvements, and such other
insurance as Landlord may require, it being understood and
agreed that the Tenant Improvements shall be insured by
Tenant pursuant to this Lease immediately upon completion
thereof. Such insurance shall be in amounts and shall
include such extended coverage endorsements as may be
reasonably required by Landlord including, but not limited
to, the requirement that all of Tenant's Agents shall carry
excess liability and Products and Completed Operation
Coverage insurance, each in amounts not less than $500,000
per incident, $1,000,000 in aggregate, and in form and with
companies as are required to be carried by Tenant as set
forth in this Lease.
4.2.2.4.3 GENERAL TERMS. Certificates for all insurance carried
pursuant to this Section 4.2.2.4 shall be delivered to
Landlord before the commencement of construction of the
Tenant Improvements and before the Contractor's equipment is
moved onto the site. All such policies of insurance must
contain a provision that the company writing said policy
will give Landlord thirty (30) days prior written notice of
any cancellation or lapse of the effective date or any
reduction in the amounts of such insurance. In the event
that the Tenant Improvements are damaged by any cause during
the course of the construction thereof, Tenant shall
immediately repair the same at Tenant's sole cost and
expense. Tenant's Agents shall maintain all of the foregoing
insurance coverage in force until the Tenant Improvements
are fully completed and accepted by Landlord, except for any
Products and Completed Operation Coverage insurance required
by Landlord, which is to be maintained for ten (10) years
following completion of the work and acceptance by Landlord
and Tenant. All policies carried under this Section 4.2.2.4
shall insure Landlord and Tenant, as their interests may
appear, as well as Contractor and Tenant's Agents. All
insurance, except Workers' Compensation, maintained by
Tenant's Agents shall preclude subrogation claims by the
insurer against anyone insured thereunder. Such insurance
shall provide that it is primary insurance as respects the
owner and that any other insurance maintained by owner is
excess and noncontributing with the insurance required
hereunder. The requirements for the foregoing insurance
shall not derogate from the provisions for indemnification
of Landlord by Tenant under Section 4.2.2.2 of this Tenant
Work Letter. Landlord may, in its discretion, require Tenant
to obtain a lien and completion bond or some alternate form
of security satisfactory to Landlord in an amount sufficient
to ensure the lien-free completion of the Tenant
Improvements and naming Landlord as a co-obligee.
4.2.3 GOVERNMENTAL COMPLIANCE. The Tenant Improvements shall comply in all
respects with the following: (i) the Code and other state, federal,
city or quasi-governmental laws, codes, ordinances and regulations, as
each may apply according to the rulings of the controlling public
official, agent or other person; (ii) applicable standards of the
American Insurance Association (formerly, the National Board of Fire
Underwriters) and the National Electrical Code; and (iii) building
material manufacturer's specifications.
4.2.4 INSPECTION BY LANDLORD. Landlord shall have the right to inspect the
Tenant Improvements at all times, provided however, that Landlord's
failure to inspect the Tenant Improvements shall in no event
constitute a waiver of any of Landlord's rights hereunder nor shall
Landlord's inspection of the Tenant Improvements constitute Landlord's
approval of the same. Should Landlord disapprove any portion of the
Tenant Improvements, Landlord shall notify Tenant in writing of such
disapproval and shall specify the items disapproved. Any defects or
deviations in, and/or disapproval by Landlord of, the Tenant
Improvements shall be rectified by Tenant at no expense to Landlord,
provided however, that in the event Landlord determines that a defect
or deviation exists or disapproves of any matter in connection with
any portion of the Tenant Improvements and such defect, deviation or
matter might adversely affect the mechanical, electrical, plumbing,
heating, ventilating and air conditioning or life-safety systems of
the Building, the structure or exterior appearance of the Building or
any other tenant's use of such other tenant's leased premises,
Landlord may, take such action as Landlord deems necessary, at
Tenant's expense and without incurring any liability on Landlord's
part, to correct any such defect, deviation and/or matter, including,
without limitation, causing the cessation of performance of the
construction of the Tenant Improvements until such time as the defect,
deviation and/or matter is corrected to Landlord's satisfaction.
4.2.5 MEETINGS. Commencing upon the execution of this Lease, Tenant shall
hold weekly meetings at a reasonable time, with the Architect and the
Contractor regarding the progress of the preparation of Construction
Drawings and the construction of the Tenant Improvements, which
meetings shall be held at a location designated by Landlord, and
Landlord and/or its agents shall receive prior notice of, and shall
have the right to attend, all such meetings, and, upon Landlord's
request, certain of Tenant's Agents shall attend such meetings. In
addition, minutes shall be taken at all such meetings, a copy of which
minutes shall be promptly delivered to Landlord. One such meeting each
month shall include the review of Contractor's current request for
payment.
EXHIBIT B
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4.3 NOTICE OF COMPLETION; COPY OF RECORD SET OF PLANS. Within ten (10) days
after completion of construction of the Tenant Improvements, Tenant shall
cause a Notice of Completion to be recorded in the office of the Recorder
of the county in which the Building is located in accordance with Section
3093 of the Civil Code of the State of California or any successor statute,
and shall furnish a copy thereof to Landlord upon such recordation. If
Tenant fails to do so, Landlord may execute and file the same on behalf of
Tenant as Tenant's agent for such purpose, at Tenant's sole cost and
expense. At the conclusion of construction, (i) Tenant shall cause the
Architect and Contractor (A) to update the Approved Working Drawings as
necessary to reflect all changes made to the Approved Working Drawings
during the course of construction, (B) to certify to the best of their
knowledge that the "record-set" of as-built drawings are true and correct,
which certification shall survive the expiration or termination of this
Lease, and (C) to deliver to Landlord two (2) sets of copies of such record
set of drawings within ninety (90) days following issuance of a certificate
of occupancy for the Premises, and (ii) Tenant shall deliver to Landlord a
copy of all warranties, guaranties, and operating manuals and information
relating to the improvements, equipment, and systems in the Premises.
SECTION 5
MISCELLANEOUS
5.1 TENANT'S REPRESENTATIVE. Tenant has designated Robert S. McMillan as its
sole representative with respect to the matters set forth in this Tenant
Work Letter, who shall have full authority and responsibility to act on
behalf of the Tenant as required in this Tenant Work Letter.
5.2 LANDLORD'S REPRESENTATIVE. Landlord has designated David Gaulton as its
sole representatives with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Tenant, shall have full authority
and responsibility to act on behalf of the Landlord as required in this
Tenant Work Letter.
5.3 TIME OF THE ESSENCE IN THIS TENANT WORK LETTER. Unless otherwise indicated,
all references herein to a "number of days" shall mean and refer to
calendar days. If any item requiring approval is timely disapproved by
Landlord, the procedure for preparation of the document and approval
thereof shall be repeated until the document is approved by Landlord.
5.4 TENANT'S LEASE DEFAULT. Notwithstanding any provision to the contrary
contained in this Lease, if an event of default as described in the Lease
or this Tenant Work Letter has occurred at any time on or before the
Substantial Completion of the Premises, then (i) in addition to all other
rights and remedies granted to Landlord pursuant to this Lease, Landlord
shall have the right to withhold payment of all or any portion of the
Tenant Improvement Allowance and/or Landlord may cause Contractor to cease
the construction of the Premises (in which case, Tenant shall be
responsible for any delay in the substantial completion of the Premises
caused by such work stoppage), and (ii) all other obligations of Landlord
under the terms of this Tenant Work Letter shall be forgiven until such
time as such default is cured pursuant to the terms of this Lease (in which
case, Tenant shall be responsible for any delay in the substantial
completion of the Premises caused by such inaction by Landlord).
EXHIBIT B
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SCHEDULE 1
BASE SHELL AND CORE
BUILDING
The building shall contain floors 1 through 6 plus an equipment penthouse above
grade including ground floor lobby with enhanced ceiling volume, mechanical and
equipment rooms, elevator override for fire life safety system and building top
architectural details.
FOUNDATION AND STEEL FRAME
The steel frame of the building employs a moment frame system and shall be
professionally engineered materially consistent with all current codes,
regulations and engineering practices.
The concrete floors of the Premises shall be finished in accordance with the
Approved Working Drawings for the Building.
Floor flatness within the Premises shall be consistent with ACI 117, class BCC
steel trowel finish, with a tolerance of 1/2 of an inch in ten feet.
The floor areas of the Premises shall be designed to accommodate a combined
weight load of 80 lbs. per square foot.
The building shall have a finished ceiling height of at least 10 feet on the
ground floor and 8 feet and 10 inches above the finished concrete floor on the
second through sixth floors.
GLASS
The exterior glass shall be energy efficient as required by code, tinted and/or
with reflective coating and shall be free substantially from scratches, nicks,
cracks and marring and otherwise in now condition. The interior window mullions
and/or metal frames shall be free from punctures, screw holes, dents and
scratches. The metal surfaces shall be in new condition.
PERIMETER DRYWALL
All exterior walls shall be fully insulated without drywall with the exception
of the ground floor, which will be full-height glass and have no insulation or
drywall. All crib walls, soffits, columns and intermediate locations throughout
the perimeter of the building and including all intermediate columns within the
Premises shall be installed by and at Tenant's expense.
BUILDING CORE
Vertical shaft space shall be provided and identified, for the use of Tenant
within the core to accommodate riser requirements for Tenant's private
telephone, electrical, data and CTV systems. (Refer to Communications Systems).
Typical office floor passenger and freight elevator lobbies shall have walls
taped. Elevator lobbies shall include fire rated doors with magnetic hold open
devices, smoke detectors, (strobe lighting if required) and general lighting as
required by code and otherwise designed and constructed to comply with "smoke
shaft assembly" requirements.
All core walls facing Tenant areas shall be fire taped drywall finished and
ready to accept Tenant's finish.
The building core of the Premises shall include full height premium grade wood
or metal doors, frames and hardware. Doors, frames and hardware shall be
provided at all stairwells, toilet rooms and service lobbies (all doors which
open to the exterior of the building core). All other doors shall be hollow
metal or as designed.
Landlord shall select an illuminated exit sign as required by building code.
Landlord shall provide exit signs installed in place as required to accommodate
an unoccupied floor.
Vertical stairwell exit shafts shall be constructed as required by building code
and all surfaces shall be painted. Tenant shall be permitted to use the
stairwells for travel between Tenant's floors. Any security devices required by
Tenant to allow access to Tenant's floors from the stairwells shall be installed
by and at Tenant's expense. Landlord, at its sole cost and expense, shall
purchase and install all equipment necessary to maintain the integrity of the
building's security system, which system shall meet the minimum requirements as
defined within this document under Security, including but not limited to
security card readers, and electrically controlled door hardware on selected
doors and meet all code and regulatory requirements. Tenant at its sole cost and
expense shall be responsible for other security requirements within the Premises
unique to its operation.
SCHEDULE 1
1
<PAGE>
TOILET ROOMS
Landlord shall construct women's and men's toilet rooms as necessary to obtain a
temporary certificate of occupancy or a certificate of occupancy, or legal
equivalent, for the Building consistent with details of design and finish
developed by Landlord's architect ("Landlord's Required Restroom Facilities"),
provided, notwithstanding the foregoing, Landlord's Required Restroom Facilities
shall not include more than one (1) men's and one (1) women's toilet room on the
first floor. Notwithstanding the foregoing, in addition to Landlord's Required
Restroom Facilities, Landlord shall, at Landlord's cost, install hot and cold
water lines and waste lines in sufficient capacity for one (1) men's toilet room
and one (1) women's toilet room to be installed by Tenant on the first floor of
the Building, based upon Tenant's non-general office use (the "Additional Toilet
Rooms"), which lines shall be stubbed to the Additional Toilet Rooms, and
Landlord shall install the partition wall that creates the outside perimeter of
the Additional Toilet Rooms, which perimeter wall shall include only the studs
and one (1) layer of drywall on the exterior side of such partition wall,
provided Tenant shall within ten (10) days of request by Landlord deliver to
Landlord any information reasonably requested by Landlord with respect to
Tenant's desired location of such lines and partition wall.
The minimum level of design and finish for Landlord's Required Restroom
Facilities shall not be less than the following:
Water (hot and cold) shall be provided for all rest rooms.
Lavatory counters shall have high quality stone tops and splashes with
recessed lavatories.
Floors shall be finished with ceramic tile.
The ceilings shall be painted drywall.
All fixtures and accessories shall be stainless steel or chrome and meet
the Americans with Disabilities Act and shall include but not be limited
to, recessed seat cover dispenser, recessed paper towel dispenser/waste
receptacles, recessed feminine napkin vendor, partition mounted roll toilet
tissue dispenser, handicap grab bar as required by code, lavatory soap
dispensers.
TENANT PLUMBING SYSTEMS
Two points of access to domestic cold, sanitary waste and vent for Tenant's
distribution shall be provided on each floor.
HVAC
1. The primary HVAC distribution loop.
2. One (1) air handling unit to be dedicated to New Horizons' premises.
LIGHTING SYSTEM
Lighting for all areas within the Premises shall be provided by lighting
fixtures at Tenant's cost. Common areas, mechanical, electrical and freight
elevator rooms are lighted as specified and installed by Landlord.
ELECTRICAL AND POWER SYSTEMS
Landlord shall provide emergency power to operate all essential building
services during an emergency that includes but is not limited to emergency
elevator service, emergency lighting, smoke evacuation, and fire and life safety
systems. Landlord provided emergency power is from a separate generator located
in the project and is fueled from a separate supply.
FIRE AND LIFE SAFETY SYSTEMS
Base building fire and life safety systems shall meet all local codes and
regulations and all requirements of California State Title 24, the Americans
with Disabilities Act. Fire alarm pull stations and fire extinguishers shall be
at each stairwell entry along with fire alarm pulls, strobes, exit signs, smoke
shaft door assemblies at each elevator lobby.
The shell and core building improvements include a fire sprinkler system, main
loop and branch distribution piping, including mains, laterals, drops and heads
as required by local code for unoccupied space with the heads turned up.
SECURITY SYSTEMS
The building shall have a fully operable security system with stairwell and
selected perimeter door monitoring and alarm annunciation at the main lobby
console. Closed circuit television cameras shall be provided at selected
building entrances and exits.
COMMUNICATION SYSTEM
A main telephone terminal room shall be provided at the base of the building
with multiple feeder ducts and service from the telephone companies. Conduits
are provided by Landlord from this terminal room to the main telephone riser
that services Tenant's premises.
ELEVATORS
Selected elevator cabs shall be equipped with security card readers. All
elevator cabs shall be in compliance with all codes and regulations including
the Americans with Disabilities Act.
A freight elevator shall be provided with adequate size and weight capability to
accommodate the efficient loading and unloading of building materials and
standard office equipment. This elevator shall also be a passenger elevator and
provides access to all floors of Tenant's Premises and the building.
EXHIBIT B
2
<PAGE>
EXHIBIT C
STADIUM GATEWAY
NOTICE OF LEASE TERM DATES
To: _______________________
_______________________
_______________________
_______________________
Re: Office Lease dated ____________, 19__ between ____________________, a
_____________________ ("Landlord"), and _______________________, a
_______________________ ("Tenant") concerning Suite ______ on floor(s)
__________ of the office building located at
____________________________, _____________, California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise you and/or
confirm as follows:
1. The Lease Term shall commence on or has commenced on ______________ for a
term of __________________ ending on __________________.
2. Rent commenced to accrue on __________________, in the amount of
________________.
3. If the Lease Commencement Date is other than the first day of the month,
the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.
4. Your rent checks should be made payable to __________________ at
___________________.
5. The exact number of rentable/usable square feet within the Premises is
____________ square feet.
6. Tenant's Share as adjusted based upon the exact number of rentable square
feet within the Premises is ________%.
"Landlord":
__________________________ ,
a
By: _____________________
Its: _______________
Agreed to and Accepted
as of ____________, 20___.
"Tenant":
___________________________ ,
a _________________________
By: ______________________
Its: _________________
EXHIBIT C
1
<PAGE>
EXHIBIT D
STADIUM GATEWAY
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Project. In the event of any
conflict between the Rules and Regulations and the other provisions of this
Lease, the latter shall control.
1. Tenant shall not alter any lock or install any new or additional locks or
bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or
repairs required by Tenant. Two keys will be furnished by Landlord for the
Premises, and any additional keys required by Tenant must be obtained from
Landlord at a reasonable cost to be established by Landlord. Upon the
termination of this Lease, Tenant shall restore to Landlord all keys of
stores, offices, and toilet rooms, either furnished to, or otherwise
procured by, Tenant and in the event of the loss of keys so furnished,
Tenant shall pay to Landlord the cost of replacing same or of changing the
lock or locks opened by such lost key if Landlord shall deem it necessary
to make such changes. Tenant shall have the right to change any locks
within the premises without Landlord's written permission, provided, Tenant
shall utilize the building master key system or provide Landlord with a set
of keys for any changed locks.
2. All doors opening to public corridors shall be kept closed at all times
except for normal ingress and egress to the Premises.
3. Landlord reserves the right to close and keep locked all entrance and exit
doors of the Building during such hours as are customary for comparable
buildings in the Anaheim, California area. Tenant, its employees and agents
must be sure that the doors to the Building are securely closed and locked
when leaving the Premises if it is after the normal hours of business for
the Building. Any tenant, its employees, agents or any other persons
entering or leaving the Building at any time when it is so locked, or any
time when it is considered to be after normal business hours for the
Building, may be required to sign the Building register. Access to the
Building may be refused unless the person seeking access has proper
identification or has a previously arranged pass for access to the
Building. Landlord will furnish passes to persons for whom Tenant requests
same in writing. Tenant shall be responsible for all persons for whom
Tenant requests passes and shall be liable to Landlord for all acts of such
persons. The Landlord and his agents shall in no case be liable for damages
for any error with regard to the admission to or exclusion from the
Building of any person. In case of invasion, mob, riot, public excitement,
or other commotion, Landlord reserves the right to prevent access to the
Building or the Project during the continuance thereof by any means it
deems appropriate for the safety and protection of life and property.
4. No furniture, freight or equipment of any kind shall be brought into the
Building without prior notice to Landlord. All moving activity into or out
of the Building shall be scheduled with Landlord and done only at such time
and in such manner as Landlord designates. Landlord shall have the right to
prescribe the weight, size and position of all safes and other heavy
property brought into the Building and also the times and manner of moving
the same in and out of the Building. Safes and other heavy objects shall,
if considered necessary by Landlord, stand on supports of such thickness as
is necessary to properly distribute the weight. Landlord will not be
responsible for loss of or damage to any such safe or property in any case.
Any damage to any part of the Building, its contents, occupants or visitors
by moving or maintaining any such safe or other property shall be the sole
responsibility and expense of Tenant.
5. No furniture, packages, supplies, equipment or merchandise will be received
in the Building except in areas and in such manner as may be reasonably
designated by Landlord.
6. The requirements of Tenant will be attended to only upon application at the
management office for the Project or at such office location designated by
Landlord. Employees of Landlord shall not perform any work or do anything
outside their regular duties unless under special instructions from
Landlord.
7. No sign, advertisement, notice or handbill shall be exhibited, distributed,
painted or affixed by Tenant on any part of the Premises or the Building
without the prior written consent of the Landlord. Tenant shall not
disturb, solicit, peddle, or canvass any occupant of the Project and shall
cooperate with Landlord and its agents of Landlord to prevent same.
8. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the tenant who, or whose servants, employees,
agents, visitors or licensees shall have caused same.
9. Tenant shall not overload the floor of the Premises, nor mark, drive nails
or screws, or drill into the partitions, woodwork or drywall or in any way
deface the Premises or any part thereof without Landlord's prior written
consent. Tenant shall not purchase spring water, ice, towel, linen,
maintenance or other like services from any person or persons not approved
by Landlord.
EXHIBIT D
1
<PAGE>
10. Except for vending machines intended for the sole use of Tenant's employees
and invitees, no vending machine or machines other than fractional
horsepower office machines shall be installed, maintained or operated upon
the Premises without the written consent of Landlord.
11. Tenant shall not use or keep in or on the Premises, the Building, or the
Project any kerosene, gasoline, explosive material, corrosive material,
material capable of emitting toxic fumes, or other inflammable or
combustible fluid chemical, substitute or material. Tenant shall provide
material safety data sheets for any Hazardous Material used or kept on the
Premises.
12. Tenant shall not without the prior written consent of Landlord use any
method of heating or air conditioning other than that supplied by Landlord.
13. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, or permit or allow the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Project by reason of noise, odors, or
vibrations, or interfere with other tenants or those having business
therein, whether by the use of any musical instrument, radio, phonograph,
or in any other way. Tenant shall not throw anything out of doors, windows
or skylights or down passageways.
14. Tenant shall not bring into or keep within the Project, the Building or the
Premises any animals, birds, aquariums, or, except in areas designated by
Landlord, bicycles or other vehicles.
15. No cooking shall be done or permitted on the Premises, nor shall the
Premises be used for the storage of merchandise, for lodging or for any
improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' laboratory-approved equipment and microwave ovens may be used
in the Premises for heating food and brewing coffee, tea, hot chocolate and
similar beverages for employees and visitors, provided that such use is in
accordance with all applicable federal, state, county and city laws, codes,
ordinances, rules and regulations.
16. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the use of the
Premises provided for in the Summary. Tenant shall not occupy or permit any
portion of the Premises to be occupied as an office for a messenger-type
operation or dispatch office, public stenographer or typist, or for the
manufacture or sale of liquor, narcotics, or tobacco in any form, or as a
medical office, or as a barber or manicure shop, or as an employment bureau
without the express prior written consent of Landlord. Tenant shall not
engage or pay any employees on the Premises except those actually working
for such tenant on the Premises nor advertise for laborers giving an
address at the Premises.
17. Landlord reserves the right to exclude or expel from the Project any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any
of these Rules and Regulations.
18. Tenant, its employees and agents shall not loiter in or on the entrances,
corridors, sidewalks, lobbies, courts, halls, stairways, elevators,
vestibules or any Common Areas for the purpose of smoking tobacco products
or for any other purpose, nor in any way obstruct such areas, and shall use
them only as a means of ingress and egress for the Premises.
19. Tenant shall not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to ensure the most effective operation of the
Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls. Tenant shall participate in recycling
programs undertaken by Landlord.
20. Tenant shall store all its trash and garbage within the interior of the
Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash and
garbage in Anaheim, California without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be
made only through entry-ways and elevators provided for such purposes at
such times as Landlord shall designate. If the Premises is or becomes
infested with vermin as a result of the use or any misuse or neglect of the
Premises by Tenant, its agents, servants, employees, contractors, visitors
or licensees, Tenant shall forthwith, at Tenant's expense, cause the
Premises to be exterminated from time to time to the satisfaction of
Landlord and shall employ such licensed exterminators as shall be approved
in writing in advance by Landlord.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
22. Any persons employed by Tenant to do janitorial work shall be subject to
the prior written approval of Landlord, and while in the Building and
outside of the Premises, shall be subject to and under the control and
direction of the Building manager (but not as an agent or servant of such
manager or of Landlord), and Tenant shall be responsible for all acts of
such persons.
23. No awnings or other projection shall be attached to the outside walls of
the Building without the prior written consent of Landlord, and no
curtains, blinds, shades or screens shall be attached to or hung in, or
used in connection with, any window or door of the Premises other than
Landlord standard drapes. All electrical ceiling fixtures hung in the
Premises or spaces along the perimeter of the Building must be fluorescent
and/or of a quality, type, design and a warm white bulb color approved in
advance in writing by Landlord. Neither the interior nor exterior of any
windows shall be coated or otherwise sunscreened without the prior written
consent of Landlord. Tenant shall be responsible for any damage to the
window film on the exterior windows of the Premises and shall promptly
repair any such damage at Tenant's sole cost and expense. Tenant shall keep
its window coverings closed during any period of the day when the sun is
shining directly on the windows of the Premises. Prior to leaving the
Premises for the day, Tenant shall draw or lower window coverings and
extinguish all lights. Tenant shall abide by Landlord's regulations
concerning the opening and closing of window coverings which are attached
to the windows in the Premises, if any, which have a view of any interior
portion of the Building or Building Common Areas.
EXHIBIT D
2
<PAGE>
24. The sashes, sash doors, skylights, windows, and doors that reflect or admit
light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any
bottles, parcels or other articles be placed on the windowsills.
25. Tenant must comply with requests by the Landlord concerning the informing
of their employees of items of importance to the Landlord.
26. Tenant must comply with all applicable "NO-SMOKING" or similar governmental
or quasi government rules, regulations and ordinances.
27. Tenant hereby acknowledges that Landlord shall have no obligation to
provide guard service or other security measures for the benefit of the
Premises, the Building or the Project. Tenant hereby assumes all
responsibility for the protection of Tenant and its agents, employees,
contractors, invitees and guests, and the property thereof, from acts of
third parties, including keeping doors locked and other means of entry to
the Premises closed, whether or not Landlord, at its option, elects to
provide security protection for the Project or any portion thereof. Tenant
further assumes the risk that any safety and security devices, services and
programs which Landlord elects, in its sole discretion, to provide may not
be effective, or may malfunction or be circumvented by an unauthorized
third party, and Tenant shall, in addition to its other insurance
obligations under this Lease, obtain its own insurance coverage to the
extent Tenant desires protection against losses related to such
occurrences. Tenant shall cooperate in any reasonable safety or security
program developed by Landlord or required by law.
28. All office equipment of any electrical or mechanical nature shall be placed
by Tenant in the Premises in settings approved by Landlord, to absorb or
prevent any vibration, noise and annoyance.
29. Tenant shall not use in any space or in the public halls of the Building,
any hand trucks except those equipped with rubber tires and rubber side
guards.
30. No auction, liquidation, fire sale, going-out-of-business or bankruptcy
sale shall be conducted in the Premises without the prior written consent
of Landlord.
31. No tenant shall use or permit the use of any portion of the Premises for
living quarters, sleeping apartments or lodging rooms.
32. Tenant shall not purchase spring water, towels, janitorial or maintenance
or other similar services from any company or persons not approved by
Landlord. Landlord shall approve a sufficient number of sources of such
services to provide Tenant with a reasonable selection, but only in such
instances and to such extent as Landlord in its judgment shall consider
consistent with the security and proper operation of the Building.
33. Tenant shall install and maintain, at Tenant's sole cost and expense, an
adequate, visibly marked and properly operational fire extinguisher next to
any duplicating or photocopying machines or similar heat producing
equipment, which may or may not contain combustible material, in the
Premises.
Landlord reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Premises,
Building, the Common Areas and the Project, and for the preservation of good
order therein, as well as for the convenience of other occupants and tenants
therein. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenants, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
tenant, nor prevent Landlord from thereafter enforcing any such Rules or
Regulations against any or all tenants of the Project. Tenant shall be deemed to
have read these Rules and Regulations and to have agreed to abide by them as a
condition of its occupancy of the Premises.
EXHIBIT D
3
<PAGE>
EXHIBIT E
STADIUM GATEWAY
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of ___________, 199 by and between _______________ as
Landlord, and the undersigned as Tenant, for Premises on the ______________
floor(s) of the office building located at ______________, ______________,
California ____________, certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease and
all amendments and modifications thereto. The documents contained in
Exhibit A represent the entire agreement between the parties as to the
Premises.
2. The undersigned currently occupies the Premises described in the Lease, the
Lease Term commenced on __________, and the Lease Term expires on
___________, and the undersigned has no option to terminate or cancel the
Lease or to purchase all or any part of the Premises, the Building and/or
the Project.
3. Base Rent became payable on ____________.
4. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
5. Tenant has not transferred, assigned, or sublet any portion of the Premises
nor entered into any license or concession agreements with respect thereto
except as follows:
6. Tenant shall not modify the documents contained in Exhibit A without the
prior written consent of Landlord's mortgagee.
7. All monthly installments of Base Rent, all Additional Rent and all monthly
installments of estimated Additional Rent have been paid when due through
___________. The current monthly installment of Base Rent is
$_____________________.
8. All conditions of the Lease to be performed by Landlord necessary to the
enforceability of the Lease have been satisfied and Landlord is not in
default thereunder. In addition, the undersigned has not delivered any
notice to Landlord regarding a default by Landlord thereunder.
9. No rental has been paid more than thirty (30) days in advance and no
security has been deposited with Landlord except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets, or, to
the undersigned's knowledge, claims or any basis for a claim, that the
undersigned has against Landlord.
11. If Tenant is a corporation or partnership, each individual executing this
Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business
in California and that Tenant has full right and authority to execute and
deliver this Estoppel Certificate and that each person signing on behalf of
Tenant is authorized to do so.
12. There are no actions pending against the undersigned under the bankruptcy
or similar laws of the United States or any state.
13. Other than in compliance with all applicable laws and incidental to the
ordinary course of the use of the Premises, the undersigned has not used or
stored any hazardous substances in the Premises.
14. To the undersigned's knowledge, all tenant improvement work to be performed
by Landlord under the Lease has been completed in accordance with the Lease
and has been accepted by the undersigned and all reimbursements and
allowances due to the undersigned under the Lease in connection with any
tenant improvement work have been paid in full.
The undersigned acknowledges that this Estoppel Certificate may be
delivered to Landlord or to a prospective mortgagee or prospective purchaser,
and acknowledges that said prospective mortgagee or prospective purchaser will
be relying upon the statements contained herein in making the loan or acquiring
the property of which the Premises are a part and that receipt by it of this
certificate is a condition of making such loan or acquiring such property.
Executed at ______________ on the ____ day of ___________, 19 .
"Tenant":
__________________________________ ,
a ________________________________
By: ____________________________
Its: ______________________
By: ____________________________
Its: ______________________
EXHIBIT E
1
<PAGE>
EXHIBIT F
STADIUM GATEWAY
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
ALLEN, MATKINS, LECK, GAMBLE
& MALLORY LLP
1999 Avenue of the Stars
18th Floor
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
RECOGNITION OF COVENANTS,
CONDITIONS, AND RESTRICTIONS
This Recognition of Covenants, Conditions, and Restrictions (this
"Agreement") is entered into as of the __ day of ________, 199__, by and between
__________________ ("Landlord"), and ________________ ("Tenant"), with reference
to the following facts:
A. Landlord and Tenant entered into that certain Office Lease Agreement dated
_____, 199__ (the "Lease"). Pursuant to the Lease, Landlord leased to
Tenant and Tenant leased from Landlord space (the "Premises") located in an
office building on certain real property described in Exhibit "A" attached
hereto and incorporated herein by this reference (the "Property").
B. The Premises are located in an office building located on real property
which is part of an area owned by Landlord containing approximately ___(__)
acres of real property located in the City of ____________, California (the
"Project"), as more particularly described in Exhibit "B" attached hereto
and incorporated herein by this reference.
C. Landlord, as declarant, has previously recorded, or proposes to record
concurrently with the recordation of this Agreement, a Declaration of
Covenants, Conditions, and Restrictions (the "Declaration"), dated
________________, 19__, in connection with the Project.
D. Tenant is agreeing to recognize and be bound by the terms of the
Declaration, and the parties hereto desire to set forth their agreements
concerning the same.
NOW, THEREFORE, in consideration of (a) the foregoing recitals and the
mutual agreements hereinafter set forth, and (b) for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows,
1. TENANT'S RECOGNITION OF DECLARATION. Notwithstanding that the Lease has
been executed prior to the recordation of the Declaration, Tenant agrees to
recognize and by bound by all of the terms and conditions of the
Declaration.
2. MISCELLANEOUS.
2.1 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, estates, personal
representatives, successors, and assigns.
2.2 This Agreement is made in, and shall be governed, enforced and
construed under the laws of, the State of California.
2.3 This Agreement constitutes the entire understanding and agreements of
the parties with respect to the subject matter hereof, and shall
supersede and replace all prior understandings and agreements, whether
verbal or in writing. The parties confirm and acknowledge that there
are no other promises, covenants, understandings, agreements,
representations, or warranties with respect to the subject matter of
this Agreement except as expressly set forth herein.
2.4 This Agreement is not to be modified, terminated, or amended in any
respect, except pursuant to any instrument in writing duly executed by
both of the parties hereto.
2.5 In the event that either party hereto shall bring any legal action or
other proceeding with respect to the breach, interpretation, or
enforcement of this Agreement, or with respect to any dispute relating
to any transaction covered by this Agreement, the losing party in such
action or proceeding shall reimburse the prevailing party therein for
all reasonable costs of litigation, including reasonable attorneys'
fees, in such amount as may be determined by the court or other
tribunal having jurisdiction, including matters on appeal.
2.6 All captions and heading herein are for convenience and ease of
reference only, and shall not be used or referred to in any way in
connection with the interpretation or enforcement of this Agreement.
EXHIBIT F
1
<PAGE>
2.7 If any provision of this Agreement, as applied to any party or to any
circumstance, shall be adjudged by a court of competent jurisdictions
to be void or unenforceable for any reason, the same shall not affect
any other provision of this Agreement, the application of such
provision under circumstances different form those adjudged by the
court, or the validity or enforceability of this Agreement as a whole.
2.8 Time is of the essence of this Agreement.
2.9 The Parties agree to execute any further documents, and take any
further actions, as may be reasonable and appropriate in order to
carry out the purpose and intent of this Agreement.
2.10 As used herein, the masculine, feminine or neuter gender, and the
singular and plural numbers, shall each be deemed to include the
others whenever and whatever the context so indicates.
EXHIBIT F
2
<PAGE>
SIGNATURE PAGE OF RECOGNITION OF
COVENANTS, CONDITIONS AND RESTRICTIONS
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first
above written.
"Landlord":
_________________________,
a ________________________
By: _____________________
Its: _______________
"Tenant":
__________________________
a ________________________
By: _____________________
Its: _______________
By: _____________________
Its: _________________
EXHIBIT F
3
<PAGE>
Exhibit 21.1
New Horizons Worldwide, Inc.
Subsidiaries:
New Horizons Education Corporation
New Horizons Computer Learning Centers, Inc.
New Horizons Computer Learning Centers APAC, L.L.C.
New Horizons Computer Learning Centers EMEA, L.L.C.
New Horizons Computer Learning Center of Chicago, Inc.
New Horizons Computer Learning Center of Metropolitan New York, Inc.
New Horizons Computer Learning Center of Santa Ana, Inc.
New Horizons Computer Learning Center of Cleveland, Ltd., L.L.C.
New Horizons Computer Learning Center of Memphis, Inc.
New Horizons Computer Learning Center of Nashville, Inc.
New Horizons Computer Learning Center of Hartford, Inc.
New Horizons Computer Learning Center of Albuquerque, Inc.
Nova Vista, L.L.C.
New Horizons Computer Learning Center of Charlotte, Inc.
New Horizons Computer Learning Center of Sacramento, Inc.
NHCLC of San Antonio, Inc.
New Horizons Computer Learning Center of Denver, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's 1998 Consolidated Balance Sheets and Consolidated Statements of
Operations, and is qualified in its entirety by reference to such 1998 10-K.
</LEGEND>
<CIK> 0000850414
<NAME> New Horizons Worldwide, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 2,868
<SECURITIES> 0
<RECEIVABLES> 21,934
<ALLOWANCES> 943
<INVENTORY> 1,226
<CURRENT-ASSETS> 29,840
<PP&E> 29,956
<DEPRECIATION> 15,159
<TOTAL-ASSETS> 105,084
<CURRENT-LIABILITIES> 23,830
<BONDS> 6,730
0
0
<COMMON> 79
<OTHER-SE> 72,598
<TOTAL-LIABILITY-AND-EQUITY> 105,084
<SALES> 111,476
<TOTAL-REVENUES> 111,476
<CGS> 50,301
<TOTAL-COSTS> 100,349
<OTHER-EXPENSES> (643)
<LOSS-PROVISION> 169
<INTEREST-EXPENSE> 354
<INCOME-PRETAX> 11,416
<INCOME-TAX> 4,153
<INCOME-CONTINUING> 7,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,263
<EPS-BASIC> 0.76
<EPS-DILUTED> 0.72
</TABLE>
