<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1999 or
------------------
( ) Transition report pursuant to Section l3 or l5(d) of the Securities
Exchange Act of l934
For the transition period N/A
---
Commission file Number 1-10346
-------
MICROTEL INTERNATIONAL, INC.
- ------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0226211
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9485 Haven Avenue, Suite 100, Rancho Cucamonga, CA 91730
- --------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (909) 297-2699
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ---------------------------------- ---------------------
<S> <C>
Common Stock $.0033 par value None
- --------------------------------------------------------------------------------
</TABLE>
Securities registered pursuant to Section 12 (g) of the Act:
None
- --------------------------------------------------------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes /X/ No / /
As of November 8, 1999, there were 18,096,461 shares of common stock
outstanding.
<PAGE>
MICROTEL INTERNATIONAL, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item l. Financial Statements
Consolidated Condensed Balance Sheets
September 30, 1999 and December 31, 1998 3
Consolidated Condensed Statements of Operations
Three and Nine Months Ended September 30, 1999 and l998 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 1999 and l998 5
Notes to Consolidated Condensed Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-21
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
</TABLE>
-2-
<PAGE>
MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
CURRENT ASSETS 1999 1998
---------------- ----------------
<S> <C> <C>
Cash and cash equivalents $ 185 $ 572
Accounts receivable 6,467 7,337
Current portion of notes receivable 22 291
Inventories 4,684 6,426
Other current assets 694 926
--------- --------
Total current assets 12,052 15,552
Property, plant and equipment-net 1,399 1,939
Goodwill-net 1,556 1,701
Notes receivable, less current portion -- 533
Investment in unconsolidated affiliates 1,788 150
Other assets 1,209 1,367
--------- ---------
$ 18,004 $ 21,242
========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,633 $ 3,379
Current portion of long-term debt 466 805
Accounts payable 3,615 4,269
Accrued expenses 3,126 3,312
--------- ---------
Total current liabilities 9,840 11,765
Long-term debt, less current portion 1,088 1,430
Other liabilities 831 954
Minority interest 128 95
--------- ---------
Total liabilities 11,887 14,244
Convertible redeemable preferred stock 596 1,516
Stockholders' equity:
Common stock 59 42
Additional paid-in capital 23,657 20,463
Accumulated deficit (18,114) (15,122)
Accumulated comprehensive income (loss) (81) 99
---------- ---------
Total stockholders' equity 5,521 5,482
--------- ---------
$ 18,004 $ 21,242
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-3-
<PAGE>
MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------------- ----------------- ---------------- ----------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 6,952 $ 9,112 $ 21,263 $ 27,825
Cost of sales 4,729 5,554 14,043 18,615
---------- ---------- ---------- ----------
Gross profit 2,223 3,558 7,220 9,210
Operating expenses:
Selling, general and administrative 2,488 2,759 9,095 8,673
Engineering and product development 459 640 1,494 1,785
---------- ---------- ---------- ----------
Income (loss) from operations (724) 159 (3,369) (1,248)
Other income (expense)
Interest expense (100) (192) (302) (536)
Gain on sale of subsidiary -- -- 331 580
Equity in earnings of unconsolidated 28 -- 755 --
affiliates
Other (226) (28) (313) 15
----------- ----------- ----------- ----------
Loss before income taxes (1,022) (61) (2,898) (1,189)
Income tax expense 12 5 25 42
---------- ---------- ---------- ----------
Net loss (1,034) (66) (2,923) (1,231)
---------- --------- ---------- ---------
Other comprehensive income (loss):
Foreign currency translation adjustment 244 (118) (180) (123)
---------- ----------- ----------- ----------
Total comprehensive loss $ (790) $ (184) $ (3,103) $ (1354
========== ========== ========== ==========
Basic and diluted loss per share $ (0.06) $ (0.01) $ (0.18) $ (0.11)
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-4-
<PAGE>
MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
--------------- --------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,923) $ (1,231)
Adjustments to reconcile net loss to cash used in (provided by)
operating activities:
Depreciation and amortization 393 496
Write-off of note receivable 753
Amortization of intangibles 243 147
Gain on sale of subsidiary (331) (580)
Equity in earnings of unconsolidated entities (755) --
Stock and warrants issued as compensation 1,219 --
Other non cash items 139 (97)
Changes in operating assets and liabilities:
Accounts receivable 848 (528)
Inventories 1,383 (170)
Other assets 171 (279)
Accounts payable and accrued expenses (587) (891)
--------- ---------
Cash provided by (used in) operating activities 553 (3,133)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of property, plant and equipment (130) (387)
Cash received from note receivable 9 --
--
Proceeds from sale of subsidiary 750 1,350
----------- ----------
Cash provided by investing activities 629 963
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of notes payable (746) (113)
Net repayments of long-term debt (645) (1,077)
Private placement of convertible preferred stock -- 1,843
Sale of common stock - employee purchase plan 2 4
--------- ---------
Cash provided by (used in) financing activities (1,389) 657
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (180) 124
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (387) (1,389)
--------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 572 1,921
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 185 $ 532
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
-5-
<PAGE>
MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
WHEN USED IN THESE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, THE
WORDS "MAY," "WILL," "EXPECT," "ANTICIPATE," "CONTINUE," "ESTIMATE,"
"PROJECT," "INTEND," "SHOULD," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934 REGARDING EVENTS, CONDITIONS AND FINANCIAL TRENDS THAT MAY AFFECT THE
COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS STRATEGY, OPERATING COSTS AND
FINANCIAL POSITION. SPECIFICALLY, FORWARD-LOOKING STATEMENTS ARE INCLUDED IN
NOTES 1, 4 AND 6 HEREOF. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY DIFFER
MATERIALLY THAN THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MicroTel International, Inc. (the "Company") is a holding
company for its three wholly owned subsidiaries - CXR Telcom
Corporation in Fremont, CA; CXR, S.A. in Paris, France; XIT Corporation
in Ontario, CA; and its 41% owned affiliate company Digital
Transmission Systems, Inc. located near Atlanta, Georgia. CXR Telcom
Corporation, CXR, S.A. and Digital Transmission Systems, Inc. design,
manufacture and market electronic telecommunication test instruments,
wireless and wireline voice, data and video transmission and networking
equipment. XIT Corporation designs, manufactures and markets
information technology products, including input and display
components, subsystem assemblies and power supplies. The Company
operates out of facilities in the U.S., France, England and Japan.
Through March 31, 1999, the Company organized itself in three
product line sectors- Circuits, Components and Subsystem Assemblies,
and Instrumentation and Test Equipment. The sale of substantially all
the assets of the Company's HyComp, Inc. subsidiary effective as of
March 31, 1999 partially completed the Company's planned exit of the
Circuits business. The Company operates two smaller circuits
manufacturing locations that the Company intends to sell.
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and therefore do
not include all information and footnotes necessary for a complete
presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles.
-6-
<PAGE>
MICROTEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The unaudited consolidated condensed financial statements do,
however, reflect all adjustments, consisting of only normal recurring
adjustments, which are, in the opinion of management, necessary to
state fairly the financial position as of September 30, 1999 and
December 31, 1998 and the results of operations and cash flows for the
related interim periods ended September 30, 1999 and 1998. However,
these results are not necessarily indicative of results for any other
interim period or for the year. It is suggested that the accompanying
consolidated condensed financial statements be read in conjunction with
the Company's Consolidated Financial Statements included in its 1998
Annual Report on Form 10-K.
(2) LOSS PER SHARE
The following table illustrates the computation of basic and
diluted loss per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net loss $ (1,034) $ (66) $ (2,923) $ (1,231)
Less: accretion of the excess of the
redemption value over the carrying value of
redeemable preferred stock 24 24 69 36
----------- ----------- ----------- -----------
Loss attributable to common stockholders
(1,058) (90) (2,992) (1,267)
DENOMINATOR:
Weighted average number of common shares
outstanding during the period 17,200 11,931 16,192 11,929
----------- ----------- ----------- -----------
Basic and diluted loss per share $ (.06) $ (.01) $ (.18) $ (.11)
=========== =========== ============ ===========
</TABLE>
The computation of diluted loss per share excludes the effect
of incremental common shares attributable to the exercise of
outstanding common stock options and warrants because their effect was
antidilutive due to losses incurred by the Company or such instruments
had exercise prices greater than the average market price of the common
shares during the periods presented.
-7-
<PAGE>
(3) INVENTORIES
Inventories consist of the following.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------- -------------------
<S> <C> <C>
Raw materials $ 2,006,000 $ 2,926,000
Work-in-process 1,320,000 2,375,000
Finished goods 1,358,000 1,125000
---------------------- ------------------
$ 4,684,000 $ 6,426,000
====================== ==================
</TABLE>
(4) LITIGATION
The Company and its subsidiaries are, from time to time,
involved in legal proceedings, claims and litigation arising in the
ordinary course of business. While the amounts claimed may be
substantial, the ultimate liability cannot presently be determined
because of considerable uncertainties that exist. Therefore, it is
possible the outcome of such legal proceedings, claims and litigation
could have a material effect on quarterly or annual operating results
or cash flows when resolved in a future period. However, based on facts
currently available, management believes such matters will not have a
material adverse affect on the Company's consolidated financial
position, results of operations or cash flows.
SCHEINFELD V. MICROTEL INTERNATIONAL, INC.
During the third quarter of 1999, settlement was reached with
respect to the Scheinfeld case. The Company agreed to pay $75,000
payable in an initial payment of $6,250 and eleven monthly payments of
$6,250 thereafter without interest.
(5) ACQUISITION AND DISPOSITION OF BUSINESSES
On April 19, 1999, the Company completed the sale of
substantially all of the assets and liabilities of its HyComp, Inc.
subsidiary ("HyComp"), a manufacturer of hybrid, thin film and
flip-chip assembly circuits to SatCon Technology Corporation, a public
company. The sale was effective as of March 31, 1999 and resulted in a
gain of approximately $331,000 which was included in the results of
operations for the three months ended March 31, 1999. HyComp received
$750,000 in cash and a royalty on certain future sales and was
reimbursed approximately $85,000 for certain expenses paid by HyComp
between March 31, 1999 and the closing date. The proceeds from this
sale were used to partially repay amounts due under certain notes
payable and other current debt.
Summarized below are unaudited pro forma financial results of
operations of the Company as though the assets and liabilities had been
sold at the beginning of 1999.
<TABLE>
<S> <C>
Net sales $ 20,807,000
Net loss $ (2,8005,000)
Basic and diluted loss per share $ (.18)
</TABLE>
-8-
<PAGE>
MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(6) NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Financial Instruments and Hedging
Activities" ("SFAS 133") issued by the FASB is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. SFAS 133
provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. The Company does
not expect adoption of SFAS 133 to have a material effect on its
financial position or results of operations.
(7) REPORTABLE SEGMENTS
The Company has three reportable segments: Instrumentation and
Test Equipment, Components and Subsystem Assemblies, and Circuits. The
Instrumentation and Test Equipment segment operates principally in the
U.S. and European markets and designs, manufactures and distributes
telecommunications test instruments and voice and data transmission and
networking equipment. The Components and Subsystems Assemblies segment
operates in the U.S., European and Asian markets and designs,
manufactures and markets information technology products, including
input and display components, subsystem assemblies, and power supplies.
The Company has disposed of the majority of its circuits business
operations and has only one such operation that is material.
The Company evaluates performance based upon profit or loss
from operations before income taxes exclusive of nonrecurring gains and
losses. The Company accounts for intersegment sales at prices
negotiated between the individual segments.
The Company's reportable segments are comprised of operating
entities offering the same or similar products to similar customers.
Each segment is managed separately because each business has different
customers, and different design, manufacturing and marketing
strategies.
There were no differences in the basis of segmentation or in
the basis of measurement of segment profit or loss from the amounts
disclosed in the Company's consolidated financial statements included
in its 1998 Annual Report on Form 10-K.
-9-
<PAGE>
MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(7) REPORTABLE SEGMENTS (CONTINUED)
Selected financial data for each of the Company's operating
segments is shown below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ -------------------
<S> <C> <C>
SALES FROM EXTERNAL CUSTOMERS:
Instruments $ 11,279,000 $ 12,625,000
Components 8,018,000 9,347,000
Circuits 1,966,000 5,853,000
--------------- ---------------
$ 21,263,000 $ 27,825,000
=============== ===============
INTERSEGMENT SALES:
Instruments $ -- $ 17,000
Components 217,000 538,000
Circuits 371,000 483,000
--------------- ---------------
$ 588,000 $ 1,038,000
=============== ===============
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ -------------------
<S> <C> <C>
SEGMENT PROFITS (LOSSES)
Instruments $ (2,120,000) $ (606,000)
Components 189,000 575,000
Circuits (999,000) (495,000)
---------------- ----------------
$ (2,930,000) $ (526,000)
================ ================
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -------------------
<S> <C> <C>
SEGMENT ASSETS
Instruments $ 8,070,000 $ 8,861,000
Components 5,766,000 8,906,000
Circuits 1,331,000 2,602,000
--------------- ---------------
$ 15,167,000 $ 20,369,000
=============== ===============
</TABLE>
-10-
<PAGE>
MICROTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(7) REPORTABLE SEGMENTS (CONTINUED)
The following is a reconciliation of the reportable segment
loss and assets to the Company's consolidated totals.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------- --------------------
<S> <C> <C>
INCOME (EXPENSE OR LOSS)
Total loss for reportable segments $ (2,930,000) $ (526,000)
Unallocated amounts:
Gain on sale of assets of subsidiary 331,000 580,000
Equity in earnings of unconsolidated
affiliates 755,000 --
Unallocated general corporate expenses
(1,054,000) (1,243,000)
------------------ -----------------
Consolidated loss before income taxes $ (2,898,000) $ (1,189,000)
================== ================
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
-------------------- --------------------
<S> <C> <C>
ASSETS
Total assets for reportable segments $ 15,167,000 $ 20,369,000
Other assets 2,837,000 873,000
------------------ ---------------
Total consolidated assets $ 18,004,000 $ 21,242,000
================== =================
</TABLE>
-11-
<PAGE>
MICROTEL INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WHEN USED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, THE WORDS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"CONTINUE," "ESTIMATE," "PROJECT," "INTEND", "SHOULD," "BELIEVE" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 REGARDING EVENTS, CONDITIONS AND FINANCIAL
TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS
STRATEGY, OPERATING COSTS AND FINANCIAL POSITION. PROSPECTIVE READERS OR
INVESTORS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES
AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY THAN THOSE INCLUDED WITHIN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1998
NET SALES
Consolidated net sales for the third quarter of 1999 decreased by
approximately $2,160,000 or 23.7% compared with the same period in 1998. The
table below sets forth the composition of consolidated net sales by business
sector.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Variance- Percent
Sector September 30, 1999 September 30, 1998 Increase (Decrease) Change
------------------ ------------------ ------------------- ---------
<S> <C> <C> <C> <C>
Test Equipment $ 3,922 $ 4,096 $ (174) (4.2)%
Components 2,478 3,694 (1,216) (32.9)%
Circuits 552 1,322 (770) (58.2)%
----------- ----------- ------------
Total $ 6,952 $ 9,112 $ (2,160) (23.7)%
=========== =========== ------------
</TABLE>
The relative percent of net sale by sector between the respective
periods experienced the following changes:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
Sector September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Test Equipment 56.4% 45.0%
Components 35.6% 40.5%
Circuits 7.9% 14.5%
Total 100.0% 100.0%
</TABLE>
-12-
<PAGE>
Test Equipment sales were down slightly in the third quarter of
1999 compared to the comparable prior year period. Sales of voice mail
systems increased but such sales increases were offset with reductions in
sales of instruments as several customers' capital budgets have already been
allocated and year end funds are not yet available.
The substantial decline of sales in the Components sector in the
current quarter as compared to the third quarter of 1998 was due mainly to a
large order for a subassembly that was recorded in the third quarter of 1998.
This resulted in larger than usual sales in the component sector in the third
quarter of 1998. There was also a decrease in the demand for digiital switch
products in the current quarter as compared to the comparable prior year
period and lastly The Company disposed of its XCEL Lite product line and
subsystem assembly work both of which were unprofitable product lines.
Sales in the Circuit sector in the third quarter of 1999 were
58.2% less than sales in the sector in the third quarter of 1998 mainly
because of the sale of the Company's HyComp. Inc. subsidiary, the assets of
which were sold effective March 31, 1999. Sales at the Company's XCEL Etch
Tek division were declined compared to the prior year due to constrained
working capital. The company intends to exit this segment soon as a buyer can
be found.
GROSS PROFIT
The composition of consolidated gross profit by business sector and
the percentages of related net sales are set forth in the following table for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Percent Three Months Ended Percent
Sector September 30, 1999 of Net Sales September 30, 1998 of Net Sales
------------------ ------------ ------------------ ------------
<S> <C> <C> <C> <C>
Test Equipment $ 1,402 35.7% $ 1,962 47.9%
Components 837 33.8% 1,392 37.7%
Circuits (16) (2.9)% 204 15.4%
------------ ----------
Total $ 2,223 32.0% $ 3,558 39.0%
=========== ==========
</TABLE>
Due to the decrease in net sales in the third quarter of 1999
compared with the same period in 1998, gross profit decreased $1,335,000 or
37.5%. Additionally, the Company experienced a decrease in gross profit as a
percent of net sales as shown above due principally to decreased gross profit
margins in the Test Equipment sector. This sector's U.S. business operation
experienced a substantial decline in gross profit margin from 47.9% in the
third quarter of 1998 to 35.7% in the same period of 1999 resulting
principally from lower sales and, consequentially, less absorption of fixed
manufacturing overhead and a $225,000 inventory valuation write-down. Also,
the Company has reduced its expense base by an annualized amount of
$1,065,000, the effects of which should favorably impact the fourth quarter.
Gross margin as a percent of net sales for the Components sector
declined due to minor changes in product mix and the decrease in net sales
with the consequential unabsorption of manufacturing overhead. The Components
sector has continued to reduce its infrastructure cost as it has disposed of
or phased out individual product lines. This planned approach to the
anticipated decrease in net sales enabled the U.S. operations to relatively
maintain its gross profit margin that decreased from 37.7% in the third
quarter of 1998 to 33.8% in the same period in 1999. The Company
-13-
<PAGE>
is in the process of relocating its XIT Corporation subsidiary which
represents the domestic portion of the component sector. The relocation is
expected to result in approximately $360,000 of annual reductions in rent and
utility costs.
In the Company's Circuits sector, gross profit percent decreased
substantially due principally to the loss of the gross profit contribution
from the net sales of the Company's HyComp, Inc. subsidiary (the assets of
which were sold in the first quarter of 1999). Gross profit percent at the
Company's remaining circuit's business did not change materially from the
third quarter of 1998 to the same period of 1999.
OPERATING EXPENSES
Operating expenses for the three months ended September 30, 1999 and
1998 were comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Commissions $ 197 $ 276
Other selling expense 869 968
---------- ----------
Total selling expense 1,066 1,244
General & Administrative 1,422 1,515
---------- ----------
Total Selling, General & Administrative $ 2,488 $ 2,759
=========== ===========
Engineering & product development $ 459 $ 640
=========== ===========
</TABLE>
Total selling expense as a percentage of net sales was 15.3% and
13.7% for the three months ended September 30, 1999 and 1998, respectively.
Total selling expense decreased in the current quarter as compared with the
third quarter of 1998 but represented a greater percentage of sales due to
the large reduction in sales.
General and administrative expenses decreased by $93,000 from the
third quarter of 1998 to the third quarter of 1999. The decrease was due to
cost reduction efforts and the consolidation of the Test Equipment sector U.
S. administrative functions.
Engineering and product development costs were incurred by the Test
Equipment sector in the current quarter. Such expenses declined by $181,000
or 28.3% in third quarter of 1999 as compared to the third quarter of 1998.
These expenses represented 6.6% of sales in the third quarter of 1999.
Engineering and product expenses were reduced at the Test Equipment sector
due to a reduction of personnel and the absence of such expenses in the
Circuit sector in third quarter of 1999 as a result of the sale of the
Company's HyComp, Inc. subsidiary at the end of the first quarter of 1999. In
future periods, engineering and product development cost will be solely
attributable to the Test Equipment sector and are expected to increase
modestly as the U.S. Test Equipment operations add additional resources to
focus on bringing new products to market in the near term in order to
increase current net sales levels for that sector.
OTHER INCOME AND EXPENSE
The decrease in interest expense of $92,000 in the third quarter of
1999 compared to the same period in 1998 resulted principally from lower
average borrowings during the current period. The
-14-
<PAGE>
increase in the third quarter of 1999 in other expense of $198,000 was
primarily the result of increasing a potential product warranty expense by
$175,000 relating to the sale of HyComp, Inc. in the first quarter of 1999.
Also, a loss of $83,000 was recorded in the current quarter for the sale of
the partnership interest in the Company's Ontario, California facility.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS SEPTEMBER 30, 1998
NET SALES
Consolidated net sales for the first nine months of 1999 decreased
by approximately $6,562,000 or 23.6% compared with the same period in 1998.
The table below sets for the composition of consolidated net sales by
business sector.
<TABLE>
<CAPTION>
Variance-
Nine Months Ended Nine Months Ended Increase/ Percent
Sector September 30, 1999 September 30, 1998 (Decrease) Change
------------------ ------------------ ---------- -------
<S> <C> <C> <C> <C>
Test Equipment $ 11,279 $ 12,625 $ (1,346) (10.7)%
Components 8,018 9,347 (1,329) (14.2)%
Circuits 1,966 5,853 (3,887) (66.4)%
----------- ----------- ------------
Total $ 21,263 $ 27,825 $ (6,562) (23.6)%
=========== =========== ------------
</TABLE>
The relative percent of net sale by sector between the respective
periods experienced the following changes:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
Sector September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Test Equipment 53.0% 45.4%
Components 37.7% 33.6%
Circuits 9.3% 21.0%
Total 100.0% 100.0%
</TABLE>
During the first nine months of 1999, the Test Equipment sector
experienced a decrease in net sales in the both the U.S. operations and to a
lesser extent, the French operations as compared to the first nine months of
1998. In the U.S. market, the decline in test instrument sales resulted from
a delay in the expected delivery of certain equipment to one of the Regional
Bell Operating Companies and other smaller customers as qualification efforts
progressed slower than originally anticipated. In the French business
operation, test equipment sales were impacted principally by the decision of
a significant customer to delay anticipated purchase and a general reduction
in demand for these products. The reduction was offset by an increase in the
sales of voice and data transmission products
The decline of sales in the Components sector in the current nine month
period as compared to the prior year nine month period was due mainly to a
large order for a subassembly that was recorded in the third quarter of 1998.
This resulted in larger than usual sales in the Components sector in the
third quarter of 1998. Also, the Company sold its XCEL Lite product line and
discontinued its domestic sub system assembly products in the current year,
both of which were unprofitable.
-15-
<PAGE>
Net sales in the Company's Circuits sector decreased in the first nine months
of 1999 compared with the same period in 1998 as a result of the absence in
current period of net sales from both the Company's XCEL Arnold and HyComp,
Inc. subsidiaries, the assets of which were sold effective as of March 31,
1998 and March 31, 1999, respectively. Also affecting sales were a decrease
in net sales at the Company's XCEL Etch Tek division that resulted from
constrained working capital as well as a general decline in demand for
printed circuits principally related to weaker sales in the personal computer
industry.
GROSS PROFIT
The composition of consolidate gross profit by business sector and
the percentages of related net sale are set forth in the following table for
the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Percent Nine Months Ended Percent
Sector September 30, 1999 of Net Sales September 30, 1998 of Net Sales
------------------ ------------ ------------------ -------------
<S> <C> <C> <C> <C>
Test Equipment $ 4,302 38.1% $ 5,551 44.0%
Components 2,853 35.6% 3,235 34.6%
Circuits 65 3.3% 424 7.2%
-----------
Total $ 7,220 34.0% $ 9,210 33.1%
=========== ==========
</TABLE>
Due to the decrease in net sales in the nine months of 1999 compared
with the same period in 1998, gross profit decreased $1,990,000 or 21.6%.
Additionally, the Company experienced a decrease in gross profit as a percent
of net sales as shown above due principally to decreased gross profit margins
in the Test Equipment sector. This sector's U.S. business operation
experienced a decline in gross profit margin from 44.0% in the first nine
months of 1998 to 38.1% in the same period of 1999 resulting principally from
lower sales and, consequentially, less absorption of fixed manufacturing
overhead and a $225,000 inventory valuation writedown. The Company has
implemented cost reductions of approximately $1,065,000 on an annualized
basis that will have a positive impact on the Company's earnings beginning in
the fourth quarter of 1999.
Gross margin percent for the Components sector remained at
approximately 35%. The gross margin percent remained at this level despite
less sales in the nine month period of 1999 compared to the same period in
1998 because the prior period included the sale of a large subassembly that
carried a less than average gross profit.
In the Company's Circuits sector, gross profit percent for the first
nine months of 1999 decreased substantially compared with the same period in
1998 due principally to the loss of the gross profit contribution from the
net sales of the Company's HyComp, Inc. subsidiary, the assets of which were
sold at the end of the first quarter of 1999. The HyComp, Inc. business was
sold because its business prospects were rapidly diminishing. HyComp, Inc.
became unprofitable in the first quarter of 1999 and was expected to continue
to be unprofitable. This decrease in the circuit sector's gross profit would
have been greater but for the absence of gross profit deficit of XCEL Arnold
Circuits, Inc. in the first nine months of 1999 (XCEL Arnold had a gross
profit of $(362,000) in 1998 prior to its sale on March 31, 1998.
-16-
<PAGE>
OPERATING EXPENSES
Operating expenses for the nine months ended September 30, 1999 and
1998 were comprised of the following:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Commissions $ 636 $ 870
Other selling expense 2,658 3,109
---------- ----------
Total selling expense 3,294 3,979
General & Administrative 5,801 4,694
----------
Total S,G & A $ 9,095 $ 8,673
=========== ===========
Engineering & product development $ 1,494 $ 1,785
=========== ===========
</TABLE>
Total selling expense as a percentage of net sales was 15.5% and
14.3% for the first nine month periods of 1999 and 1998, respectively.
Commissions as a percent of net sales was essentially unchanged for the first
nine months of 1999 compared with the same period of 1998 (3.0% and 3.1% for
1999 and 1998, respectively).
General and administrative expenses increased $1,107,000 in the
first nine months of 1999 compared to the same period of 1998. This increase
was principally comprised of the following less reductions in administrative
expenses due to cost reduction efforts and the consolidation of
administrative functions:
- Investor relation expense totaling approximately $522,000
associated with the Company's program to retain the listing of its common
stock on the Nasdaq SmallCap Market ("Nasdaq"). These non-cash expenses were
attributable to the issuance of common stock and warrants as payment for
services provide by third parties in support of this effort. Despite this
effort, the trading price of the Company's common stock was insufficient to
meet the minimum listing maintenance requirement and was removed from Nasdaq
as of May 12, 1999 ("see Liquidity and Capital Resources"). The Company does
not expect to incur such expenses again in the foreseeable future.
- Compensation expense of approximately $193,000 in connection with
the Company's agreement to a one-time adjustment in the number of shares of
common stock issuable under the terms of certain Contingent Stock Agreements
between the Company and two of the former officers/owners of Critical
Communication, Inc. which was acquired by the Company in October 1997. The
Company made this adjustment to insure the retention of the engineering and
product development services of these individuals.
- The recording of a reserve in the second quarter of 1999 in the
amount of $466,000 for the net amount of a note receivable which was
determined to be uncollectable when the maker of the note was unable to remit
the first principal payment required in the second quarter of 1999.
Engineering and product development costs originated principally
from the research and product development activities of the Test Equipment
and Circuits sectors and decreased $291,000 or
-17-
<PAGE>
16.3% due to the absence of such expenses in the second and third quarters of
1999 as a result of the sale of the Company's HyComp, Inc. subsidiary at the
end of the first quarter of 1999. In future periods, engineering and product
development costs will be solely attributable to the Test Equipment sector
and are expected to increase modestly.
OTHER INCOME AND EXPENSE
The decrease in interest expense of $234,000 in the first nine
months of 1999 compared to the same period in 1998 resulted principally from
decreased average borrowing during the respective periods. The increase in
the first nine months of 1999 in other income (expense), net resulted
principally from the equity in the earnings of the unconsolidated affiliate
(Digital Transmission Systems, Inc.) acquired on January 31, 1999. Other
income (expense), net for the nine months ended September 30, 1999 and 1998
also included a gain on the sale of HyComp's assets of $331,000 and a gain on
the sale of XCEL Arnold's assets in the amount of $580,000, respectively. The
$313,000 of other expenses for the first nine month period of 1999 includes a
$175,000 increase in a product warranty provision related to the sale of
HyComp. Also, a loss of $83,000 was recorded in the current quarter for the
sale of the partnership interest in the Company's Ontario, California
facility.
LIQUIDITY AND CAPITAL RESOURCES
Cash of $311,000 was provided by operations in the first nine months
of 1999 versus cash of $3,133,000 used in operations in the first nine months
of 1998. The decrease in cash used in operations resulted from improved
collection of accounts receivable and reduction of inventories. Total cash
used in the first nine months of 1999 was $387,000 compared to total cash
used of $1,389,000 in the first nine months of 1998. Significant cash was
consumed by XACI to fund continued operating losses until its sale at the end
of the first quarter of 1998 The Company also paid down approximately
$668,000 in long-term debt obligations and $645,000 in current notes payable
with the cash flow from operations and the proceeds of the sale of HyComp,
which proceeds were received early in the second quarter of 1999.
The Company entered into an agreement with Congress Financial
Corporation on July 12, 1999. The agreement allowed the Company maintain an
overdraft status with its credit lines to Congress Financial Corporation in
the amount of $350,000. The Company was in an overdraft situation at the time
of the agreement in the amount of $350,000. The agreement required the
overdraft to be repaid by September 22, 1999. As of September 30, 1999, the
Company was in an overdraft position of $250,000. Congress Financial
Corporation is reducing the Company's credit availability by $5,000 a week in
order to pay down the overdraft balance.
The agreement of July 12, 1999 with Congress Financial Corporation
("Congress")also required the Company to establish a $350,000 availability
reserve against its term loan balance by paying down the loan balance by the
amount of the reserve. The reserve is required to be established by November
1, 1999 and to the extent that the reserve is not paid, the reserve is to be
captured by Congress during the period November 1, 1999 to December 31, 1999.
The Company has not paid the $350,000 to establish the reserve and Congress
has not recaptured the reserve as of the writing of this
-18-
<PAGE>
report. The Company does not have the cash resources to meet its obligation
to pay the $350,000 by December 31, 1999 and also provide the working capital
needed to continue operations.
The Company's financial position worsened during the quarter ended
September 30, 1999 as compared to the quarter ended June 30, 1999 due to the
net loss and increased debt used to finance the loss. The Company is unable
to timely pay some of its vendors and has been placed on COD terms by several
of its suppliers. If the Company is unable to obtain additional financing,
the Company may not be able to continue operations. There can be no assurance
that even if additional capital were obtained that the Company would be
capable of continuing its operations. Consequently, the Company is in the
process of selling certain assets and while significant buyers are in the due
diligence process there can be no assurance the Company can sell such assets
on a timely basis to support continued operations.
The Company intends to sell its Circuit sector businesses and its
37% interest in Digital Transmission Systems, Inc. in order to improve its
liquidity. The Company is also considering a proposal to sell its Components
business to a management buyout group. The Company has reduced expenses
considerably by over $1,500,000 on an annualized basis by actions taken this
year. However there can be no assurance that these efforts to improve
liquidity will be sufficient or timely enough to provide the Company with the
resources to continue operations.
DELISTING OF COMMON STOCK
On May 12, 1999, the listing of the Company's common stock on the
Nasdaq SmallCap Market ("Nasdaq") was discontinued and thereafter, the
Company's common stock has been traded on the OTC Bulletin Board under the
symbol "MCTL".
On August 6, 1999, the Company announced that an agreement
previously reached with the holders of the Company's Series A preferred stock
(the "Preferred Shares") and an extension thereof, which limited the
conversion rate of such stock to $0.50 per common share so long as the
Company's common stock continued to be listed on Nasdaq, had been terminated
as a result of the delisting. The conversion rate for the Preferred Shares
reverted to the provisions of the original subscription agreement which
provided that conversion would occur at the lower of $1.25 per common share
or the arithmetic average of the three lowest closing bid prices during the
forty (40) days immediately prior to conversion. The elimination of the
minimum conversion price may increase the number of common shares to be
issued upon conversion.
As a consequence of these two events, the Company could likely find
it more difficult to obtain capital though an equity offering of its stock in
the future.
LEGAL PROCEEDINGS
None
YEAR 2000
The Company continues its assessment of the potential impact of the
Year 2000 issue on its (i) computer applications and operating systems, (ii)
equipment which uses embedded software,
-19-
<PAGE>
(iii) products sold to customers and (iv) interactions with third parties in
order to determine the Company's state of readiness; costs to address the
Company's Year 2000 issues; risks of the Company's Year 2000 issues; and any
necessary contingency plans. Certain of the Company's telephone test and
transmission software-driven products utilize computer calendar/clock data
and are presently Year 2000 compliant. Additionally, information regarding
available upgrades necessary to enable previous versions of such products to
be made Year 2000 compliant have been made available to purchasers. The
majority of the products produced by the Company does not utilize computer
calendar/clock data and consequently have no potential Year 2000 problems.
The Company is currently installing accounting and operations
management computer applications which are Year 2000 compliant and which
operate on computer operating systems that are also Year 2000 compliant at
the last facility that requires such installation. The Company estimates that
the completion of this installation will be completed during the third
quarter of 1999. The Company did not initiate such changes in application and
operating software systems in order to accommodate the Year 2000 issue but
rather to upgrade and enhance its management information systems capability.
As a part of its selection criteria, the Company considered the impact of the
Year 2000 issue.
The Company is currently finalizing its review of internal Year 2000
issues and its evaluation of any potential Year 2000 issues related to third
parties. While the Company currently believes that the impact of the Year
2000 issue will not have a material effect on the Company's operations or
financial condition, its assessment of this issue is not yet complete and
therefore uncertainty exists as to whether material Year 2000 issues exist.
EFFECTS OF INFLATION
The impact of inflation and changing prices has not been significant
on the financial condition or results of operations of either the Company or
its various operating subsidiaries.
EURO CONVERSION
The Company has operating subsidiaries located in France and the
U.K. with combined net sales from these operations in the third quarter of
1999 approximating 58% of total Company net sales. Net sales from the French
subsidiary participating in the Euro conversion were 36% of the Company's net
sales in the first nine months of 1999. The Company continues to review the
impact of the Euro conversion on its operations.
In 1998, the Company's European operations took steps to ensure
their capability of entering into Euro transactions as of January 1, 1999. No
material changes to information technology and other systems were necessary
to accommodate these transactions as such systems previously had the
capability to utilize multiple currencies.
While it is difficult to assess the competitive impact of the Euro
conversion on the Company's European operations, at this time, the Company
does not foresee any material impediments in its ability to compete for
orders from customers requesting pricing using the new exchange rate. Since
the Company has no significant direct sales between its U.S. operations and
Europe, exchange rate risk is regarded as nominal.
-20-
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Financial Instruments and Hedging Activities" ("SFAS 133") issued
by the FASB is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. SFAS 133 provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. The Company does not expect adoption of SFAS 133 to have a
material effect on its financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Settlement of the Scheinfeld case. See Note 4 - Litigation in the
accompanying unaudited consolidated condensed financial statements and
Legal Proceedings section of Item 3 of the Company's 1998 Annual Report
on Form 10-K for a description of previously reported proceedings.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a vote of Security Holders
None
Item 5. Other Information - Subsequent Events
On October 16, the Company sold its partnership interest in the
property at 4290 E. Brickell Street, Ontario, California, which the Company
leased, for assumption of the Company's rent debt, $75,000 and forgiveness of
certain other debt. The sale also included a provision to release the company
of its future lease obligations consisting of seven remaining years and
approximately $3,000,000 of future lease payments regarding such property. As
part of the mutual release the Company relinquished its claim on a $51,000
deposit and $144,000 note receivable from the lessor. In accordance with this
agreement, the Company vacated the Brickell Street property on October 31,
1999. The company relocated its XIT Corporation components manufacturing
operations to a 15,745 square foot manufacturing facility at 9654 Hermosa
Avenue, Rancho Cucamonga, California and relocated its administration and
executive headquarters to a 5,404 square foot office facility at 9485
-21-
<PAGE>
Haven Avenue, Suite 100, Rancho Cucamonga, California. This move will result
in monthly rent reduction of $25,000 per month plus lower utilities estimated
to be a reduction of $5,000 a month.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Description
Number -----------
<S> <C>
10.1 Lease agreement between MicroTel International
Inc. and Property Reserve Inc.
10.2 Lease agreement between XIT, Inc. and Rancho
Cucamonga Development Company
27 Unaudited Financial Data Schedule for the nine months
ended September 30, 1999. - electronic filing only
</TABLE>
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed in
the quarter ended September 30, 1999.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
l934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MicroTel International, Inc.
November 15, 1999 /s/ Carmine T. Oliva
--------------------------------------------
Carmine T. Oliva
Chief Executive Officer
(Principal Executive Officer)
/s/ Randolph D. Foote
--------------------------------------------
Randolph D. Foote
Chief Financial Officer
(Principal Accounting and Financial Officer)
-23-
<PAGE>
Exhibit 10.1
[GATEWAY POINTE]
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into this 9th day of September,
1999 between PROPERTY RESERVE, INC. (hereinafter referred to as "Landlord"),
whose address for purposes hereof is c/o INSIGNIA COMMERCIAL GROUP 9483 Haven
Avenue, Suite 104 Rancho Cucamonga CA 91730 and MicroTel International, INC.,
a Delaware Corporation (hereinafter referred to as "Tenant"), whose address
for purposes hereof is 4290 E. Brickell Street, Ontario, CA 91761
This LEASE AGREEMENT consists of the SPECIFIC LEASE PROVISIONS written here
below, the GENERAL LEASE PROVISIONS attached hereto as Exhibit "A," and all
other EXHIBITS attached hereto. In the event there is a conflict between the
SPECIFIC LEASE PROVISIONS and the GENERAL LEASE PROVISIONS, the SPECIFIC
LEASE PROVISIONS shall prevail.
SPECIFIC LEASE PROVISIONS
1. LEASED PREMISES. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord, subject to the terms and conditions of this
Lease Agreement, those certain premises hereinafter described, and referred
to as the "Leased Premises," consisting of approximately 5,404 rentable
square feet (determined with the BOMA definition, American National Standard,
Z65.1-1996) in the building known as Gateway Pointe, ("The Business Park"),
located at 9485 Haven Avenue, Suite 100, Rancho Cucamonga, CA 91730
(hereinafter referred to as the "Leased Premises"), together with the right
in common with others to the use of any and all common entrance ways,
lobbies, restrooms, elevators, drives, parking areas, stairs, and other
similar access and service ways and common areas in or adjacent to and used
in common with the building of which said Leased Premises are a part. The
Leased Premises are described below and reflected on the plan attached hereto
and made a part hereof as Exhibit "B":
2. TERM. Subject to and upon the terms and conditions set forth
herein, this Lease Agreement shall continue in force for a term of 36 months,
beginning on the 1st day of November, 1999, ("Beginning Date") and ending on
the 31st day of October, 2002, ("Expiration Date").
Tenant shall have the right to Early Occupancy upon execution of the Lease
and carpet installation free of charge. Tenant will not occupy until all
improvements have been made. Landlord and Tenant agree that all the terms
and conditions of the above referenced lease are to be in full force and
effect as of the date of Tenant's possession and occupancy. Any delays in
occupancy caused by Tenant's early possession of the space will not be a
cause for forgiveness of any rental amount due. In the event Tenant takes
possession of the Premises prior to completion of any construction, Tenant
agrees to hold Landlord harmless from any and all claims for damages to
goods, equipment and inconvenience.
OPTION TO EXTEND/FUTURE REPAIRS. Tenant shall have the
options to extend the initial Lease Term for up to four (4) additional twelve
(12) month periods, provided Tenant gives Landlord at least three (3) months'
advance written notice prior to the commencement of each option term.
The base monthly rental rate for each option term shall be at the
thirty-sixth month (36th) month rental rate plus four percent (4%).
Thereafter, Tenants rent shall increase by four percent (4%) annually.
1
<PAGE>
Right to renew will be terminated if Tenant is placed in financial default
during the term of their Lease.
3. RENTAL PAYMENT.
a. Tenant shall pay to Landlord on the first day of each
month during the term of this Lease Agreement in legal tender of the United
States of America, without prior notice or demand and without any offset or
deduction whatsoever, at the office of the Landlord, or at such place or to
such property manager as Landlord may from time to time designate in writing,
rental comprised of both Base Rental ("Base Rental") described below and
Additional Rent ("Additional Rent") as hereinafter described. Tenant shall,
however, be required to pay the first month's rent and security deposit upon
execution of this Lease Agreement. Base Rental and Additional Rent are
sometimes referred to hereafter as Rent ("Rent").
b. Tenant agrees that if any rental payment or other money
due hereunder from Tenant to Landlord remains unpaid five (5) calendar days
after said amount is due, a late charge shall be paid to Landlord by Tenant
in the amount of the greater of five (5%) percent of such payment due or
fifty ($50.00) dollars provided that in no event shall such charge be greater
than that permitted by law. Tenant agrees that such amount is a reasonable
estimate of Landlord's collection and administrative expenses.
c. Tenant hereby agrees to pay a base rental ("Base
Rental") in the amount of $5,404.00 per month for the term of the initial
Lease.
d. Tenants rent shall be abated in the second month of the
initial Lease term.
e. Tenant hereby agrees to pay its proportionate share of
the costs of water, trash removal, for the Business Park as Additional Rent.
This current monthly amount of Additional Rent is $162.12.
4. SECURITY DEPOSIT. Upon execution of this Lease Agreement,
Tenant shall deposit with Landlord the sum of $5,404.00. Such deposit shall
not earn interest for Tenant and shall be used for the purposes set forth in
the General Provisions attached hereto.
5. PROPOSED USE. Tenant represents, covenants, and warrants that
the Leased Premises will be used lawfully for the following purposes and for
no others:
General Office for electronic components and assemblies company.
6. IMPROVEMENTS. Landlord's obligation to construct and install
tenant improvements (sometimes called "Improvement Items" herein) in the
Leased Premises is set forth in Exhibit "C" hereto. The cost for
installation of these improvements, space planning, construction drawings and
permits, and construction management fees is $23,507.40.
7. SERVICE AND REPAIRS.
a. UTILITIES. Tenant shall pay for all gas, electricity,
water, sewer, and telephone service utilized in the operations of Tenant's
business. Landlord further reserves the right to have separate meters
installed for any of these services. If not separately metered, then Tenant
shall
2
<PAGE>
reimburse Landlord for its proportionate share for all such utilities. If
Tenant requests Landlord install a separate meter, then Tenant shall
reimburse Landlord for such costs of installation.
b. INITIAL LIGHTING. Landlord shall provide initial lamps,
bulbs, starters and ballast's used on the Leased Premises; Tenant agrees, at
his expense, to maintain and replace such lamps, bulbs, starters and
ballast's.
c. HVAC MAINTENANCE. Original paragraph deleted in its
entirety.
Tenant shall reimburse Landlord fifteen ($15.00) dollars per month for HVAC
maintenance.
d. ROUTINE MAINTENANCE. Landlord shall provide only
routine maintenance, included but not limited to roof, walls, floorplates and
painting to the structure, and electric lighting service for all public areas
and special service areas of the Project in the manner and to the extent
deemed by Landlord to be standard.
e. REPAIRS BY TENANT. The Tenant will keep, maintain and
preserve the Leased Premises in the condition in which it was originally
received. When and if needed, at the Tenant's sole cost and expense, the
Tenant will make all interior repairs and replacements including but not
limited to interior walls, doors and windows, floors, floor coverings, light
bulbs, plumbing fixtures, heating/air conditioning systems, hot water
systems, and electrical fixtures. Tenant shall also make all repairs and
replacements to Tenant's overhead garage and exterior pedestrian doors. The
Tenant will also repair and replace at its sole cost and expense any broken
windows and/or damage to the building or Premises caused by the Tenant or its
employees, agents, guests or invitees during the Lease term hereof.
If Tenant fails to make such repairs or replacements promptly,
Landlord may, at its option, make such repairs or replacements, and Tenant
shall repay the cost thereof to the Landlord as Additional Rent on demand.
However, Tenant shall not suffer any repair work costing over $5,000 to be
performed by Tenant or Tenant's agents without Landlord's prior written
consent.
f. ADDITIONAL SERVICES. In the event Tenant desires any of
the aforementioned services in amounts in excess of those deemed by Landlord
to be Project standard, and in the event Landlord elects to provide such
additional services, Tenant shall pay Landlord as Additional Rent hereunder
the cost of providing such additional services.
9. PARKING. Tenant shall be entitled to use stalls in the parking
areas of the Project in common with all other tenants of the Project. Tenant
agrees not to overburden the parking areas and to cooperate with Landlord and
the other tenants in the use of the parking areas. Tenant acknowledges that
its pro rata share of the parking spaces is 22 unassigned parking spaces.
Landlord reserves the right to determine whether the parking areas are
overburdened and, if so, to allocate parking spaces between Tenant and the
other tenants of the Project. Landlord shall reserve the right to designate
handicapped, loading, reserved, and visitor parking stalls.
10. BROKER'S COMMISSION. Tenant represents and warrants to
Landlord that Tenant has not entered into any agreements, nor will Tenant
enter into any agreement in the future whereby Landlord would be obligated to
pay any broker's commission or finder's fee in connection with Tenant's
execution of this Lease Agreement. Tenant agrees to indemnify Landlord
against, and to hold Landlord harmless
3
<PAGE>
from, all liabilities arising from any such claim. Tenant agrees to pay for
any broker representation it may desire or require during any negotiation for
expansion or contraction of the Leased Premises. Landlord will pay for any
representation it obtains.
11. GRAPHICS. Landlord at Tenant's cost shall provide and install
one sign complying with the sign criteria, of the Landlord and will confirm
graphics with Tenant before installation. Sign to be installed within sixty
days of the signing of this Lease Agreement. All graphics of Tenant, visible
in or from public corridors or the exterior of the Leased Premises, shall
require Landlord's prior written approval and if applicable, a permit from
the city. All of the above shall be in accordance with the Project's
Standards, Rules and Regulations.
12. GUARANTY. Paragraph deleted in its entirety.
13. TENANT'S NOTICE ADDRESS.
4290 E. Brickell Street, Ontario, CA 91761
14, THE FOLLOWING MODIFICATIONS ARE MADE TO THE RULES AND REGULATIONS.
PAGE "2": - SECTION "15"
- RULE #L., IS MODIFIED TO INCLUDE AFTER THE LAST SENTENCE,
"OTHER THAN ADDING FIXTURES INCLUDING BUT NOT LIMITED TO
SHELVES, PAINTINGS, ETC."
- RULE #M., DELETE THE FOLLOWING LANGUAGE FROM THE END OF THE
SENTENCE, "OR BUILDING ENTRANCES."
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15. EXHIBITS. The following exhibits are attached hereto and
pertain to this Lease Agreement:
1. Exhibit A General Lease Provisions
2. Exhibit B A Plan of the Demised Premises
3. Exhibit C Improvement Items
4. Exhibit D Rules and Regulations
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IN WITNESS WHEREOF, the parties have executed this Lease Agreement the day
and year first above written.
AGREED AND ACCEPTED AGREED AND ACCEPTED
LANDLORD: TENANT:
PROPERTY RESERVE, INC. MICROTEL INTERNATIONAL, INC., A
DELAWARE CORPORATION
BY: BY: /s/ JAMES P. BUTLER
-------------------------------- --------------------------------
ITS: ITS: CFO
------------------------------- -------------------------------
DATE: DATE: 9/16/99
------------------------------ ------------------------------
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(Master)
EXHIBIT "A"
GENERAL LEASE PROVISIONS
These following General Lease Provisions shall become effective when
attached to the signed Lease Agreement containing the Specific Lease
Provisions and shall, together with the Exhibits, form the Lease Agreement.
1. ABANDONMENT. Tenant shall not vacate nor abandon the Leased
Premises at any time during the term of this Lease Agreement, nor permit the
Leased Premises to remain unoccupied for a period longer than fifteen (15)
consecutive days during the term of this Lease Agreement. If Tenant shall
abandon, vacate, or surrender the Leased Premises, or be dispossessed by
process of law or otherwise, any personal property belonging to Tenant and
left on the Leased Premises shall, at the option of the Landlord, be deemed
abandoned and title thereto shall vest to Landlord. If Tenant vacates the
Leased Premises but continues to pay all sums due hereunder and otherwise
complies with the terms hereof, it shall not be considered abandonment.
2. ASSIGNMENT OR SUBLEASE. Tenant shall not, either voluntarily or
by operation of law, assign, encumber, pledge, or otherwise transfer or
hypothecate all or any part of Tenant's leasehold estate hereunder, or permit
the Leased Premises to be occupied by anyone other than Tenant or Tenant's
employees, or sublet the Leased Premises or any portion thereof, without
Landlord's prior written consent in every instance. Tenant shall give
Landlord written notice of such desire at least thirty (30) days in advance
of the date on which Tenant desires to make such assignment or sublease,
which notice shall include the name, address, evidence of financial
capability, and other pertinent information regarding the proposed assignee
or subtenant.
a. No assignment or subletting by Tenant shall relieve Tenant
of any obligations under this Lease Agreement. If Tenant is a corporation,
partnership, trust, or other legal fictional entity, the transfer of fifty
percent (50%) or more of the beneficial ownership of Tenant shall be deemed
an assignment of this Lease Agreement. Any attempted transfer by Tenant
without the consent of Landlord shall be null and void and, at the option of
Landlord, shall cause termination of this Lease Agreement. The giving of
consent by Landlord in one instance shall not preclude the need for Tenant,
and its successors and assigns, to obtain Landlord's consent to further
transfers.
b. In the event Tenant shall propose to assign or sublet the
Lease Premises and request the consent of Landlord to any assignment or
subletting, or if Tenant shall request consent of Landlord to any other act
Tenant proposes to do, as herein provided, then Tenant shall pay Landlord's
reasonable attorney's fees incurred in connection therewith. Any assignment or
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subletting shall not relieve Tenant from responsibility under the Lease
Agreement, and Tenant shall therefore remain liable for the faithful
performance of the Lease Agreement in case of breach or default by assignee
or subtenant.
c. If the proposed Base Rental between Tenant and any Subtenant
is greater than Base Rental of this lease, then such excess rental shall be
deemed Additional Rent owed by Tenant to Landlord.
d. Tenant shall not publicly advertise the Rent for which
Tenant is willing to sublet the space; and all public advertisements of the
assignment of the Lease Agreement or sublet of Leased Premises, or any
portion thereof, shall be subject to prior approval in writing by Landlord.
e. In any assignment or transfer, each assignee or transferee,
other than Landlord, shall assume, as provided herein, all obligations of the
Tenant under this Lease Agreement which relate to all or a portion of the
Leased Premises assigned or sublet, as the case may be, and shall be and
remain liable jointly and severally with Tenant for the payment of the Rent
and for due performance of all the terms, covenants, conditions, and
agreements herein contained on Tenant's part to be performed during the term
of this Lease Agreement.
f. No consent by Landlord to any assignment or subletting by
Tenant shall relieve Tenant of any obligation to be performed by the Tenant
under this Lease Agreement, whether accruing before or after such assignment
or subletting, unless granted by Landlord to Tenant in writing. The consent
by Landlord to any assignment or subletting shall not relieve Tenant from the
obligation to obtain Landlord's express written consent to any other
assignment or subletting. Any assignment or subletting which is not in
compliance with this Lease Agreement shall be void, and, at the option of
Landlord, shall constitute a material default by Tenant under this Lease
Agreement.
3. ATTORNEY'S FEES. In the event either party places the enforcement
of this Lease Agreement, or any part thereof, or the collection of any rent
due, or to become due hereunder, or recovery of the possession of the Leased
Premises in the hands of an attorney, or files suit upon the same, the
non-prevailing (or defaulting) party shall pay the other party's reasonable
attorneys' fees and court costs, in any proceeding, whether at trial, or
appeal therefrom, or on any petition for review, or in bankruptcy.
4. BINDING. Each individual executing this Lease Agreement on behalf
of Tenant and Landlord represents and warrants that he/she is duly authorized
to execute and deliver this Lease Agreement on behalf of Tenant and Landlord,
and that this Lease Agreement is binding upon each in accordance with its
terms. This Lease Agreement shall not be considered binding until it has been
fully executed by Landlord and Tenant.
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5. CARE OF LEASED PREMISES. Tenant shall not commit or allow any
waste or damage to be committed on any portion of the Leased Premises. Tenant
shall not permit the Leased Premises to be used for any purpose other than
stated in the Lease Agreement.
a. No later than the last day of the Term, Tenant will remove
all Tenant's personal property and repair all damage done by or in connection
with installation or removal of said property and surrender the Leased Premises
(together with all keys, access cards, or entrance passes to the Leased
Premises and/or the Project) in as good a condition as they were at the
beginning of the Term, reasonable wear and tear, unrepaired casualty not
caused by Tenant, and condemnation excepted. All property of Tenant remaining
in the Leased Premises after expiration of the Term shall be deemed
conclusively abandoned and may be removed by Landlord, and Tenant shall
reimburse Landlord for the cost of removing the same, subject, however, to
Landlord's right to require Tenant to remove any improvements or additions
made to the Leased Premises by Tenant pursuant to this Lease Agreement.
b. In doing any work related to the installation of Tenant's
furnishings, fixtures, or equipment in the Leased Premises, Tenant will use
only contractors or workmen consented to by Landlord in writing prior to the
time such work is commenced. Landlord may condition its consent upon its
receipt of evidence of workers compensation insurance acceptable lien waivers
from such contractors or workmen. Tenant shall promptly remove any lien or
claim of lien for material or labor claimed against the Leased Premises or
Project, or both, by such contractors or workmen, if such claim should arise,
and hereby indemnifies and holds Landlord harmless from and against any and
all loss, cost, damage, expense, or liabilities including, but not limited
to, attorneys' fees incurred by Landlord as a result of or in any way related
to such claims or such liens.
c. Tenant agrees that all personal property brought into the
Leased Premises by Tenant, its employees, licensees, and invitees shall be at
the sole risk of Tenant, and Landlord shall not be liable for theft thereof
or of money deposited therein or for any damages thereto, such theft or
damage being the sole responsibility of Tenant.
d. Upon termination of this Lease Agreement Landlord shall have
the right to reenter and resume possession of the Leased Premises. Landlord's
costs of post termination cleanup required to return the Leased Premises to
as good a condition as existed at time of occupancy by Tenant, with normal
wear and tear excepted, shall be billed to and promptly paid by Tenant.
6. CHOICE OF LAW. All rights and remedies of Landlord and Tenant
under this Lease Agreement shall be cumulative and none shall exclude any
other rights or remedies allowed by law. All of the terms hereof shall be
construed and enforced according to the laws of the State in which the Leased
Premises are located.
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7. COMMON AREAS--UTILITY ACCESS. The Leased Premises shall include
the appurtenant right to use, in common with others, the lobbies, entrances,
stairs, elevators, restrooms, and other public portions of the Project.
Landlord retains the right to make changes in the common areas as it solely
deems to be in the best interest of the Project. All of the outside walls and
windows of the Leased Premises, and any space in the Leased Premises used for
shafts, stacks, pipes, conduits, ducts, and electric or other utilities,
custodial sinks or other Project facilities, are part of the rentable area of
the Leased Premises; however, the right to the use thereof and access thereto
through the Leased Premises for the purposes of operation, maintenance, and
repair, are reserved to Landlord.
8. CONDITION OF PREMISES. Tenant's taking possession of the Leased
Premises shall be deemed conclusive evidence that, as of the date of taking
possession, the Leased Premises are in good order and satisfactory condition.
No promise of landlord to alter or remodel, repair, or improve the Lease
Premises or the Project, and no representation, express or implied,
respecting any matter or thing relating to the Leased Premises, the Project
or this Lease Agreement, including, without limitation, the condition of the
Leased Premises, has been made to Tenant by Landlord other than as may be
contained herein or in a separate Exhibit or Addendum attached to this Lease
Agreement and incorporated herein or separately signed by Landlord and Tenant.
9. DAMAGE TO LEASED PREMISES. If all or a portion of the Leased
Premises are rendered untenantable by damage from any casualty insured
against under a standard fire and extended coverage insurance policy, the
damage shall be repaired forthwith by and at the expense of Landlord,
provided such repairs can be, in Landlord's opinion, completed within one
hundred twenty (120) days after notice to Landlord of the occurrence of such
damage, without the payment of overtime or other premiums. Except as set
forth herein below, until such repairs are completed, the rent shall be
abated in proportion to the part of the Leased Premises which is unusable by
Tenant in the conduct of its business. Should the damage be caused by a
casualty not insured against under a standard fire and extended coverage
insurance policy, Landlord shall have no obligation to repair or rebuild.
Should Landlord elect not to repair or rebuild, this lease may be terminated
by thirty (30) days' notice to tenant. There shall be no abatement of rent by
reason of any portion of the Leased Premises being unusable for a period of
less than two days. Landlord's opinion as to completion date of any repair
shall be given to Tenant in writing within thirty (30) days of the occurrence
of the damage.
10. DAMAGE OR DESTRUCTION--Tenant's Election to Terminate. In case of
any significant damage or destruction mentioned herein, which Landlord is
required or undertakes to repair as provided herein, Tenant may terminate
this Lease Agreement by written notice to Landlord any time prior to
completion of the required repairs if Landlord has not restored and rebuilt
the Leased Premises (exclusive of any property of Tenant or improvements
installed by Tenant located therein) to substantially the same condition as
existed immediately prior to such damage or destruction within one hundred
twenty (120) days after notice to Landlord of the occurrence of such damage
or destruction, or such longer period as Landlord has estimated, plus such
additional period thereafter (not exceeding six months) as shall equal the
aggregate period
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Landlord may have been delayed in doing so by acts of God, adjustment of
insurance, labor trouble, governmental controls, unavailability of materials,
or any other cause beyond Landlord's reasonable control.
11. DAMAGE NEAR END OF TERM. Notwithstanding anything to the contrary
contained in this Lease Agreement, Landlord shall not have any obligation
whatsoever to repair, reconstruct, or restore the Leased Premises or the
Project when such damage occurs during the last twelve (12) months of the
Lease term or any extension thereof, and when the cost of repair exceeds
twenty percent (20%) of the value of the Leased Premises or the Project.
12. EVENTS OF DEFAULT-BY TENANT. The following shall constitute
events of default by Tenant: (a) If Tenant shall fail to make any payment due
under this Lease Agreement, and such failure shall continue for ten (10)
business days after written notice by Landlord; (b) if a default exists in
the performance of any of the other covenants or conditions which Tenant is
required to observe and to perform, and such default shall continue for
twenty (20) days after written notice by Landlord; (c) if the interest of
Tenant under this Lease Agreement is levied upon, or is under execution or
other legal process, or if any petition shall be filed by or against Tenant
to declare Tenant as bankrupt or to delay, reduce, or modify Tenant's debts
or obligations; (d) if any petition shall be filed or other action taken to
reorganize or modify Tenant's capital structure if Tenant be a corporation or
other entity; unless approved in writing by Landlord which shall not be
unreasonably withheld; (e) if Tenant is declared insolvent, or if any
assignment of Tenant's property is made for the benefit of creditors or if a
receiver or trustee is appointed for in Tenant or its property; (f) if Tenant
vacates or abandons the Leased Premises during the term of this Lease
Agreement or any extensions thereof; or (g) if Tenant makes any transfer of
any interest in the Leased Premises not in accordance with the requirements
of this Lease Agreement, then Landlord may treat the occurrence of any one or
more of the foregoing events as a breach of this Lease Agreement and
thereupon, at Landlord's option, Landlord shall have one or more of the
following described remedies in addition to all other rights and remedies
provided at law or in equity:
a. Landlord may terminate this Lease Agreement and forthwith,
in accordance with applicable law, repossess the Leased Premises and remove
all persons or property therefrom, and be entitled to recover as damages a
sum of money equal to the total of (i) the cost of recovering the Leased
Premises (ii) the unpaid rent owed thereon from due date plus interest
thereon at the rate of 18% per annum or the maximum rate permitted by
applicable law, whichever is lower, (iii) the present value of the balance of
the rent for the remainder of the term, discounted to the present at 8% per
annum, and (iv) any other sum of money and damages owed by Tenant to Landlord;
b. Landlord shall also be entitled to terminate Tenant's right
of possession in accordance with applicable law and to repossess the Leased
Premises, without demand or notice of any kind to Tenant, by summary
proceedings, any other applicable action or proceeding, or otherwise, all
without terminating this Lease Agreement, in which event Landlord may, but
shall be under no obligation to, relet the same for the account of Tenant for
such rent and upon such
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terms as shall be satisfactory to Landlord. None of these actions will be
deemed an acceptance of surrender of the Leased Premises. For the purpose of
such reletting Landlord is authorized to decorate or to make any reasonable
repairs, changes, alterations, or additions in or to the Leased Premises that
may be necessary or convenient, and (i) if Landlord shall fail or refuse to
relet the Leased Premises, or (ii) if the same is relet and a sufficient sum
shall not be realized from such reletting, after paying the unpaid Base
Rental due hereunder earned or unpaid at the time of reletting, plus interest
thereon at the rate set forth herein, the cost of recovering possession, and
all of the reasonable costs and expenses of such decoration, repairs,
changes, alterations, and additions, and the reasonable expense of such
reletting, and of the reasonable collection of the rent accruing therefrom to
satisfy the payment of the rent provided for in this Lease Agreement, then
Tenant shall pay to Landlord as damages a sum equal to the amount of the
rental reserved in this Lease Agreement for such period or periods, or if the
Leased Premises have been relet, Tenant shall satisfy and pay any such
deficiency upon demand therefor from time to time; and Tenant agrees that
Landlord may file suit to recover any sums falling due under the terms of
this Lease Agreement from time to time on one or more occasions without
Landlord being obligated to wait until expiration of the term of this Lease
Agreement and without barring or affecting in any manner Landlord's right to
bring a later action or actions for further damages; nor shall such reletting
be construed as an election on the part of Landlord to terminate this Lease
Agreement unless a written notice of such intention be given to Tenant by
Landlord. Notwithstanding any such reletting without termination, Landlord
may at any time thereafter elect to terminate this Lease Agreement for such
previous breach.
c. Without prejudice to any other remedy for default, Landlord
may perform any obligation or make any payment required to cure a default by
Tenant. The cost of performance, including attorneys' fees and all
disbursements, shall immediately be paid by Tenant to Landlord upon demand as
Additional Rent.
13. DEFECTS. Tenant agrees to report in writing to Landlord any
defective condition in or about the Leased Premises known to Tenant, and
further agrees to attempt to contact Landlord by telephone immediately in
such instance.
14. EMINENT DOMAIN
a. In the event the Leased Premises are taken pursuant to
powers of eminent domain, all awards for the taking other than awards for
interruption of Tenant's business shall belong solely to Landlord, and Tenant
shall make no claim therefor.
b. In the event of a partial taking, which does not result in a
termination of this Lease Agreement, rent shall be abated in proportion to
the part of the Leased Premises so made unusable by said partial taking, and
any award for the taking shall belong solely to Landlord.
c. No temporary taking of the Leased Premises and/or of
Tenant's rights therein or under this Lease Agreement shall terminate this
Lease Agreement or give Tenant any
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right to any abatement of rent hereunder; and any award made to Tenant by
reason of any such temporary taking shall belong entirely to Tenant, and
Landlord shall not be entitled to share therein. The Tenant and Landlord will
work together to cause the governmental agency responsible for the taking to
restore the Leased Premises and Project, after the taking, to their original
condition prior to the taking.
d. If the whole of the Leased Premises, or so much thereof as
to render the balance unusable by Tenant, shall be taken by any governmental
authority under power of Eminent Domain, this Lease Agreement shall
automatically terminate as of the date of such condemnation, or as of the
date possession is taken by the condemning authority, whichever is earlier.
No award for any partial or entire taking shall be apportioned, and Tenant
hereby assigns to Landlord any award which may be made in such taking or
condemnation, together with any and all rights of Tenant now or hereafter
arising in or to the same or any part thereof, provided, however, that
nothing contained herein shall be deemed to give Landlord any interest in or
to require Tenant to assign to Landlord any award made to Tenant for the
taking of personal property, equipment, and fixtures belonging to Tenant
and/or for the interruption of or damage to Tenant's business or for Tenant's
unamortized cost of improvements installed by Tenant and/or the cost of
moving and/or the lost value of Tenant's unexpired Lease Agreement term.
15. ENTIRE AGREEMENT. This instrument, along with any exhibits and
attachments or other documents affixed hereto or referred to herein,
constitute the entire and exclusive agreement between Landlord and Tenant
relative to the Leased Premises herein described, and this Agreement and said
exhibits and attachments and other documents may be altered and/or revoked
only by an instrument in writing signed by both Landlord and Tenant. Landlord
and Tenant hereby agree that all prior written and oral agreements,
understandings and/or practices relative to the leasing of the Leased
Premises are merged in or revoked by this Lease Agreement.
16. ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to
time, upon not business less than ten (10) business days prior written notice
from Landlord, execute, acknowledge and deliver to Landlord or to other
parties as Landlord may direct, a statement in writing, (a) certifying that
this Lease Agreement is unmodified and in full force and effect, (or, if
modified, stating the nature of such modification and certifying that this
Lease Agreement as so modified is in full force and effect), the date to
which the rental and other charges are paid in advance, and the amount of the
Base Rental, Estimated Operating Expense Adjustment, and the commencement and
termination dates of the Lease Agreement, and (b) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults if any are claimed. Any such statement
may be relied upon by any prospective purchaser or encumbrancer of all or
any portion of the real property of which the Leased Premises are a part.
Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that: (i) this Lease Agreement is in full force and
effect, without modification except as may be represented by Landlord, (ii)
there are no uncured defaults in Landlord's performance, and (iii) not more
than one month's Base Rental, or Estimated Operating Expense Adjustment
installment, has been paid in advance. If Landlord desires to finance or
refinance the Project, or any part thereof, Tenant
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agrees to deliver to any lender designated by Landlord such financial
statements of Tenant as may be reasonably required by such financial
institution. All such financial statements shall be received by Landlord in
confidence and shall be used only for the purpose herein set forth.
17. FORCE MAJEURE. Any prevention, delay, or stoppage of work to be
performed by Landlord or Tenant which is due to strikes, labor disputes,
inability to obtain labor, materials, equipment, or reasonable substitutes
therefor, acts of God, governmental restrictions or regulations or controls,
judicial orders, enemy or hostile government actions, civil commotion, fire
or other casualties, or other causes beyond the reasonable control of the
party obligated to perform hereunder, shall excuse performance of the work by
that party for a period equal to the duration of that prevention, delay, or
stoppage. Nothing herein shall excuse or delay Tenant's obligation to pay
rent or other charges under this Lease Agreement, except as otherwise
provided in this Lease Agreement.
18. NO HAZARDOUS SUBSTANCES ALLOWED. Tenant shall not cause or permit
any "Hazardous Substances," as defined below; except in amounts as permitted
by law, to be brought upon or kept or used in or about the Premises or the
Project by Tenant, its agents, employees, contractors, or invitees.
a. Tenant shall at all times and in all respects comply with
all local, state, and federal laws, ordinances, regulations and orders
(collectively, "Hazardous Substances Laws") relating to industrial hygiene,
environmental protection, or the use, analysis, generation, manufacture,
storage, disposal, or transportation of any Hazardous Substances.
b. As used in this Agreement, the term "Hazardous Substances"
means any hazardous or toxic substances, materials or wastes, including, but
not limited to, those substances, materials, and wastes listed in the United
States Department of Transportation Hazardous Materials Table (49 CFR 172.
101) or by the Environmental Protection Agency as hazardous substances (40
CFR Part 302) and amendments thereto, or such substances, materials and
wastes which are or become regulated under any applicable local, state or
federal law including, without limitation, any material, waste or substance
which is (i) petroleum or any fraction thereof, (ii) asbestos, (iii)
polychlorinated biphenyls, (iv) defined as a "hazardous waste" under relevant
state statutes or any rule promulgated thereunder, (v) designated as a
"hazardous substance" pursuant to Section 3 1 1 of the Clean Water Act, 33
U.S.C. Section 1251, ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (vi) defined as
a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, ET SEQ., (42 U.S.C. Section 6903) or
(vii) defined as "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9601, ET SEQ. (42 U.S.C. Section 9601).
c. Tenant shall indemnify, defend (by counsel acceptable to
Landlord), protect, and hold harmless Landlord, and each of Landlord's
partners, directors, officers, employees, agents, attorneys, successors, and
assigns, from and against any and all claims,
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liabilities, penalties, fines, judgements, forfeitures, losses (including,
without limitation), diminution in the value of the Premises or the Building,
damages for the loss or restriction on use of rentable or usable space or of
any amenity of the Premises or the Building, costs or expenses (including
attorneys' fees, consultant fees, and expert fees) for the death of or injury
to any person or damage to any property whatsoever, arising from or caused in
whole or in part, directly or indirectly, (a) by the presence in, on, under,
or about the Premises, or any discharge or release in or from the Premises of
any Hazardous Substances, or Tenant's use, analysis, storage, transportation,
disposal, release, threatened release, discharge, or generation of Hazardous
Substances to, in, on, under, about, or from the Premises or the Building, or
(b) Tenant's failure to comply with any Hazardous Substances Law. Tenant's
obligations under this Section shall include, without limitation, and
whether foreseeable or unforeseeable, any and all costs incurred in
connection with any investigation of site conditions, and any and all costs
of any required or necessary repair, cleanup, detoxification, or
decontamination of the Premises or the Building, and the preparation and
implementation of any closure, remedial action, or other required plans in
connection therewith. Tenant's obligations under this Section shall survive
the expiration or earlier termination of the term of the Lease. For purposes
of the release and indemnity provisions hereof, any acts or omissions of
Tenant, or by employees, agents, assignees, contractors, or subcontractors of
Tenant or others acting for or on behalf of Tenant (whether or not they are
negligent, intentional, willful, or unlawful), shall be strictly attributable
to Tenant.
d. Tenant acknowledges and agrees that it shall not be
unreasonable for Landlord to withhold its consent to any proposed assignment,
subletting, or transfer of Tenant's interest in this Lease if (a) the
anticipated use of the Premise by the proposed assignee, subtenant, or
transferee (collectively, a "Transferee") involves the generation, storage,
use treatment, or disposal of Hazardous Substances; (b) the proposed
Transferee has been required by any prior Landlord, lender, or governmental
authority to make remedial action in connection with Hazardous Substances
contaminating a property, if the contamination resulted from such
Transferee's actions or use of the property in question; or (c) the proposed
Transferee is subject to an enforcement order issued by any governmental
authority in connection with the use, disposal, or storage of a Hazardous
Substance.
e. Landlord does hereby represent to Tenant that, to the best
of Landlord's knowledge, no toxic or hazardous substances have been deposited
in or located on the Leased Premises on the commencement date of the lease
except in the amounts as permitted by law.
19. HOLD HARMLESS:
a. BY TENANT: Tenant hereby agrees to indemnify and hold
Landlord harmless from and against any injury, expense, damage, liability, or
claim imposed on Landlord by any person or entity, whether due to damage to
the Leased Premises or the Project, claims for injuries to the person or
property of any other tenant of the Project or of any other person in or
about the Project for any purpose whatsoever, or due to administrative or
criminal action by a governmental authority, whether such injury, expense,
damage, liability, or claim results either
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directly or indirectly from the act, omission, negligence, misconduct, or
breach of any provisions of this Lease Agreement by Tenant, the agents,
servants, or employees of Tenant, or any other person entering upon the
Leased Premises under express or implied invitation or consent of Tenant.
Tenant further agrees to reimburse Landlord for any costs or expenses,
including, but not limited to, court costs and reasonable attorney's fees
which Landlord may incur in investigating, handling, or litigating any such
claim or any action by a governmental authority.
b. BY LANDLORD: Landlord hereby agrees to indemnify and hold
Tenant harmless from and against any injury, expense, damage, liability, or
claim imposed on Tenant by any person or entity, whether due to damage to the
Leased Premises or the Project, claims for injuries to the person or property
of any other tenant of the Project or of any other person in or about the
Project for any purpose whatsoever, or due to administrative or criminal
action by a governmental authority, whether such injury, expense, damage,
liability, or claim results either directly or indirectly from the act,
omission, gross negligence, misconduct, or breach of any provisions of this
Lease Agreement by Landlord, the agents, servants, or employees of Landlord,
or any other person entering upon the Leased Premises under express or
implied invitation or consent of Landlord. Landlord further agrees to
reimburse Tenant for any costs or expenses, including, but not limited to,
court costs and reasonable attorney's fees, which Tenant may incur in
investigating, handling, or litigating any such claim or any action by a
governmental authority.
20. HOLDING OVER. In the event of holding over by Tenant, after
expiration or termination of this Lease Agreement without the written consent
of Landlord, Tenant shall pay to Landlord one hundred and twenty-five and
percent (25%) of the total of Base Rental which Tenant was obligated to pay
for the month Immediately preceding the end of the term of this Lease
Agreement, for each month or any part thereof of any such holdover period,
together with any Additional Rent. No holding over by Tenant after the
termination of this Lease Agreement shall operate to extend the Lease
Agreement term. In the event of any unauthorized holding over, Tenant shall
indemnify Landlord against all claims for damages by any other tenant against
Landlord to whom Landlord may have leased all or any part of the Leased
Premises covered hereby effective upon the termination of this Lease
Agreement. Any holding over with the written consent of Landlord shall
thereafter constitute this Lease Agreement a lease from month to month, and
Landlord or Tenant may terminate it upon not less than thirty (30) days prior
written notice.
21. IMPROVEMENT DELAYS CAUSED BY TENANT. If Tenant shall cause any of
the following delays in the completion of Landlord's Work, then the beginning
date of the Lease Agreement shall be altered: (i) delay caused because
Tenant's requirements for materials or installations are different from
Landlord's "Project Standard Improvements" (the basic improvement package
Landlord offers to tenants of the Project), (ii) delay in the payment of any
sum due from Tenant pertaining to Landlord's Work, (iii) delay in performance
or completion by a party employed by Tenant, (iv) delay by reason of
compliance with applicable laws arising from Tenant's design of Tenant's
Improvements, (v) delay by reason of changes in the work ordered by Tenant or
by reason of any Change Order, (vi) delay by reason of the malfunctioning of
any item or aspect of Tenant's Improvements which was designed by Tenant.
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In the event of any such delay mentioned above then, notwithstanding the
provisions of the Lease Agreement, the Beginning Date of the Lease Agreement
shall be the earlier of (i) the date Landlord would have completed Landlord's
Work had it not been for Tenant's delay, or (ii) the earliest Beginning Date
as provided in this Lease Agreement. Any and all cost related to either the
illegality or malfunctioning of any item or aspect of Tenant's Improvements,
which arises from Tenant's design, plans, specifications, or working
drawings, shall be borne solely by Tenant, notwithstanding Landlord's
approval or installation of the same.
22. IMPROVEMENTS, ALTERATIONS, AND ADDITIONS. Tenant shall not make
or allow to be made any alterations or physical additions in or to the Leased
Premises which affect the structure or any other improvements in excess of
the amount stated in the Specific Lease Provisions without first obtaining
the written consent of Landlord. All work shall be done by contractors
approved by Landlord. Landlord's approval or consent shall not be
unreasonably withheld or delayed. Any and all such alterations, physical
additions, or improvements, when made to the Leased Premises by Tenant, shall
at once become the property of Landlord and shall be surrendered to Landlord
upon the termination of this Lease Agreement by lapse of time or otherwise;
provided, however, this clause shall not apply to movable equipment or
furniture owned by Tenant. Tenant shall comply with all government, local
building code and permitting requirements and provide Landlord with evidence
of compliance. Tenant shall give Landlord written notice five (5) days prior
to employing any laborer or contractor to perform work on the Leased Premises
so that Landlord may post a notice of nonresponsibility if allowed by law.
Landlord reserves the right to require Tenant, at Tenant's expense, to remove
such alterations, physical additions, or improvements upon termination of
this Lease Agreement and to repair any damage caused by such removal.
23. IMPROVEMENTS OBLIGATIONS OF TENANT. Should Tenant fail to perform
its obligations regarding the construction of improvements as set forth in the
attached exhibit, Tenant shall pay to Landlord as Additional Rent (for the
purpose of reimbursing Landlord for additional expenses which will be
incurred by Landlord because of its inability to proceed), one (1) day's Base
Rental on the Leased Premises for each day that Landlord is delayed because
of Tenant's failure to perform its obligations. Such Additional Rent shall be
paid by Tenant to Landlord within thirty (30) days after receipt by Tenant of
Landlord's invoice therefor.
24. INCONVENIENCE DAMAGE. No damages, compensation, or claim shall be
payable by Landlord for inconvenience, loss of business, or annoyance arising
from any repair or restoration of any portion of the Leased Premises or other
portion of the Project. Landlord shall use commercially reasonable efforts to
effect such repair or restoration promptly and in such manner as to not
unreasonably interfere with Tenant's use and occupancy.
25. INSURANCE BY LANDLORD. Landlord shall maintain during the term of
this Lease Agreement an all-risk commercial property policy insuring the
project, common areas, and personal property owned by Landlord, in amounts
equal to replacement value. Landlord shall not be obligated to insure any
furniture, equipment, machinery, goods, or supplies owned by
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Tenant or which Tenant may bring or obtain upon the Leased Premises, or any
additional improvements which Tenant may construct thereon. If the annual
premiums charged Landlord for such insurance exceed the standard premium
rates because of the nature of Tenant's operations, then Tenant shall, upon
receipt of appropriate premium invoices, reimburse Landlord for such
increases in premium. Landlord may, should it choose to do so, self insure
all or part of the above referenced risks. Should Landlord choose to self
insure any insurance risks, the cost demonstrated by a bid from a reputable
insurance company shall be included in the cost of insurance for expense
reimbursement purposes.
26. INSURANCE BY TENANT. Tenant shall, at all times during the term
of this Lease Agreement, insure Tenant's personal property including any
additional improvements made by Tenant, while in or upon the Leased Premises,
with an all-risk policy. In addition, Tenant shall maintain a policy or
policies of Commercial General Liability Insurance with the premiums thereon
fully paid on or before due date, issued by an insurance company having at
least an A.M. Best rating of A or better and licensed to do business within
the state the Project is located. The limits afforded by said liability
policy shall not be less than One Million Dollars ($1,000,000) combined
single occurrence limit for personal injury and property damage and
$2,000,000 annual aggregate. Landlord shall be added as an additional insured
thereto, and said policy shall not be canceled or substantially modified
without first giving Landlord thirty (30) days written notice thereof. In
addition, Tenant shall maintain Workers Compensation insurance as required by
statute. Tenant shall furnish, within thirty (30) days of Landlord's request
and approval, a certificate of insurance, acceptable to Landlord, evidencing
the Commercial General Liability and Workers Compensation coverages referred
to herein and naming Landlord and Property Manager as additional insured as to
the General Liability Insurance.
27. LAWS, ORDINANCES, REGULATIONS, AND AMERICANS WITH DISABILITIES
ACT. Landlord shall comply, at its sole cost, with all laws, ordinances,
orders, rules and regulations (state, federal, municipal, or promulgated by
other agencies or bodies having any jurisdiction thereof) relating to the use
(based upon the approved use for Tenant hereunder), condition, or occupancy
of the Leased Premises. Tenant shall comply, at its sole cost, with
requirements of the Americans with Disabilities Act which provides for the
removal of architectural barriers that prevent equal access to disabled
persons on the interior of the Leased Premises. To the extent that barrier
removal relates to access on the exterior of the Project, the obligation
shall be that of the Landlord.
28. LEASE MEMORANDUM. Neither this Lease Agreement, nor any notice
nor memorandum regarding the terms hereof, shall be recorded by Tenant
without the prior written consent of the Landlord.
29. LIMITATION OF LANDLORD'S LIABILITY. The obligations of Landlord
under this Lease Agreement do not constitute personal obligations of Landlord
or of the individual partners, directors, officers, employees, or
shareholders of Landlord or its partners, and Tenant shall look solely to the
property that is the Project described in this Lease Agreement and to no
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other assets of Landlord for satisfaction of any liability in respect of this
Lease Agreement, and Tenant will not seek recourse against any other property
of Landlord or against the individual partners, directors, officers,
employees, or shareholders of landlord or its partners or any of their
personal assets for such satisfaction.
30. NAME OF PROJECT. Tenant shall not use the name of the Project for
any purpose other than as an address of business to be conducted by the
Tenant. Landlord and its agents shall have the right to change the name,
number, or designation of the Project without liability to Tenant upon
fourteen (14) days prior written notice to Tenant.
31. NO JOINT VENTURE. This Lease Agreement shall not be deemed or
construed to create or establish any relationship of partnership or joint
venture or similar relationship or arrangement between Landlord and Tenant
hereunder.
32. NOTICES. All notices, demands, consents, and approvals, which may
or are required to be given by either party to the other hereunder, shall be
in writing and shall be deemed to have been fully given when personally
delivered or delivered by a nationally recognized over night courier, or, if
the notice is deposited in the United States mail, certified or registered,
return receipt requested, postage prepaid, and addressed to the party to be
notified at the address for such party specified in this Lease Agreement
(with copies to Property Reserve, Inc., 10 E. South Temple Street, Suite 400,
Salt Lake City, Utah 84133, and Kirton and McConkie, 60 E. South Temple
Street, Suite 1800, Salt Lake City, UT 84145), then the notice shall be
deemed fully given on earlier of (i) the date of delivery, if delivered
personally or by courier, or (ii) the date set forth on the receipt, or (iii)
three (3) days after the notice is deposited in the mail.
Either party may change its address for notice by at least fifteen (15)
days written notice to the other party. Tenant hereby appoints as its agent
to receive the service of all dispossessory or distraint proceedings and
notices thereunder the person in charge of or occupying the Leased Premises
at the time, and, if no person shall be in charge of or occupying the same,
then, if allowed by law, such service may be made by attaching the same on
the main entrance of the Leased Premises.
33. OCCUPANCY DELAY. In the event that the Leased Premises should not
be ready for occupancy for any reason, this Lease Agreement shall not be void or
voidable, and Landlord shall not be liable or responsible for any claims,
damages, or liabilities in connection therewith or by reason thereof, and the
term of this Lease Agreement shall be for the same term of months as set
forth in the Lease Agreement, but the beginning date shall be effective only
from the time that the Leased Premises are prepared for occupancy in
accordance with the terms and conditions set forth herein. Should the term of
this Lease Agreement begin on a date other than the beginning date, Landlord
and Tenant will, at the request of either, execute a declaration specifying
the revised beginning the term of this Lease Agreement. In such event rental
under this Lease Agreement shall not commence until said revised beginning date,
and the stated term in this
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Lease Agreement shall thereupon commence and the expiration date shall be
extended so as to give effect to the full stated term. Within five (5) days
after Tenant receives Landlord's notice that the Leased Premises are ready
for occupancy, Tenant shall inspect the Leased Premises, and except for items
specified by Tenant to Landlord within five (5) days of Tenant's inspection,
Tenant shall be deemed to have accepted the Leased Premises in their then
condition, "as is." The existence of "punch list" (as that term is generally
used in the construction industry) items shall not postpone the beginning
date of this Lease Agreement.
34. PEACEFUL ENJOYMENT. Tenant shall occupy and may peacefully have,
hold, and enjoy the Leased Premises, subject to the other provisions hereof,
provided that Tenant pays the rent herein recited and performs all of
Tenant's covenants and agreements herein contained, including the observance
of all reasonable rules and regulations made by Landlord from time to time
pursuant to this Lease Agreement. It is understood and agreed that this
covenant and any and all other covenants of Landlord contained in this Lease
Agreement shall be binding upon Landlord and its successors only with respect
to breaches occurring during its and their respective ownerships of
Landlord's interest hereunder.
35. PERSONAL PROPERTY TAX. Tenant shall be liable for and shall pay,
not later than ten (10) days before delinquency, all taxes levied against any
personal property or trade fixture placed by Tenant, in or about the Leased
Premises. Landlord may, after written notice to Tenant, pay any such levy or
tax, regardless of the validity of such levy, but only under proper protest
if so requested by Tenant in writing. Additionally, if the assessed value of
Landlord's property is increased by the inclusion of the value placed upon
any of the personal property or trade fixture of Tenant, Landlord may, after
written notice to Tenant, pay those taxes which are based upon such increased
assessment, regardless of the validity thereof, but only with proper protest
if so requested by Tenant in writing. In such an event Tenant shall, upon
demand, repay to Landlord taxes so levied and paid by Landlord, or that
portion of such taxes resulting from such increase in the assessment. Tenant
shall have the right, in the name of the Landlord and with Landlord's full
cooperation, at no cost to Landlord, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes so paid under protest.
Any amounts so recovered shall belong to Tenant.
36. PROHIBITED ACTIVITIES. Tenant shall not do or permit anything to
be done in or about the Leased Premises nor bring or keep anything therein
which will in any way increase the existing rate of or affect any fire or
other insurance upon the Project or any of its contents, or cause
cancellation of any insurance policy covering said Project or any part thereof
or any of its contents. Tenant shall not do or permit anything to be done in
or about the Leased Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Project or injure or annoy
them, or use or allow the Leased Premises to be used for any improper,
immoral, unlawful, or objectionable purpose, nor shall Tenant cause,
maintain, or permit any nuisance in, on, or about the Leased Premises. Tenant
shall not violate any of the rules and regulations of the Project.
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Tenant shall not do or permit to be done on or about the Leased
Premises, and the Landlord shall not do or permit to be done outside the
Leased Premises any of the following: (a) any violation of any federal, state
or local law, ordinance, or any regulation, ordinance, order or directive of
a governmental agency as such statutes, ordinances, regulations, orders, or
directives now exist or may hereafter come into effect and concern the use,
safety, or environment of the Property; (b) any violation of any Certificate
of Occupancy covering or affecting the use of the Property or any part
thereof; (c) commit any public or private nuisance.
37. RELOCATION. Original paragraph deleted in its entirety.
38. REPAIRS AND INSPECTION ENTRY. Tenant shall permit Landlord or its
agents or representatives to enter into and upon any part of the Leased
Premises at all reasonable hours to inspect same, clean, make repairs,
alterations, or additions thereto or for any reasonable purpose as Landlord
may deem necessary or desirable, and Tenant shall not be entitled to any
abatement or reduction sums due under this Lease Agreement by reason thereof.
39. RESERVATIONS BY LANDLORD. Landlord reserves the right to:
a. Make changes, additions, improvements, or deletions to, or
to reduce, partition, or otherwise eliminate the Common Areas, including,
without limitation, changes in the location, size shape and number of
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, landscaped areas, and hallways.
b. Close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Leased Premises remains
available.
c. Designate other land to be part of the Common Area where the
additional Common Area is available for the use and benefit of tenants of the
Project.
d. Expand the Project.
40. RULES AND REGULATIONS. Landlord shall have the right to make and
enforce rules and regulations (the "Rules and Regulations") consistent with
this Lease Agreement for the purposes of regulating access, parking, use of
the common areas in the Leased Premises, and promoting safety, order,
cleanliness, and good service to the Project. Tenant will promptly comply
with all such Rules and Regulations. The parties acknowledge that the Rules
and Regulations attached hereto and are presently the Rules and Regulations
now in effect; however, Landlord, may at its option and at any time,
reasonably amend and modify said Rules and
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Regulations, and Tenant, upon receipt of written notice of same, shall be
obligated to comply with said Rules and Regulations.
41. SALES TAX. In addition to the rental payments hereunder, all
state, county, and municipal transaction privilege (sales) taxes or similar
excise taxes imposed by any state, county, municipality, or other
governmental entity relative to the rental activity under this Lease
Agreement, if required, shall be reimbursed to the Landlord by the Tenant as
Additional Rent.
42. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord,
without payment of interest to Tenant, as security for Tenant's full and
faithful performance of every provision of this Lease Agreement. Landlord may
commingle the deposit with other funds of Landlord and may apply the deposit
to the cost of performing any obligation which Tenant fails to perform within
the time required by this Lease Agreement but such application shall not be
Landlord's exclusive remedy for Tenant's default. If any portion of said
deposit is applied by Landlord, Tenant shall pay the sum necessary to
replenish the deposit to its original amount upon demand by Landlord. Should
Landlord sell its interest in the Project during the Term hereof, and if
Landlord deposits with the purchaser thereof the then unappropriated funds
deposited by and when Tenant as aforesaid, Landlord shall thereupon be
discharged from any further liability with respect to the Security Deposit,
as and when purchaser assumes Landlords obligations under this Lease or any
extension thereof. Notwithstanding the foregoing, Landlord shall comply with
any laws or regulations in effect and related to the handling of Security
Deposits in commercial rental agreements. The Security Deposit shall increase
pro rata for any expansion space added to the Leased Premises.
43. SEVERABILITY. If any term or provision of this Lease Agreement,
or the application thereof to any person or circumstances, shall to any
extent be invalid or unenforceable, the remainder of this Lease Agreement, or
the application of such provision to persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected
thereby, and each provision of this Lease Agreement shall be valid and shall
be enforceable to the extent permitted by law.
44. SERVICES INTERRUPTION. It is understood that Landlord does not
warrant that any of the services referred to above, or any other services
which Landlord may supply, will be free from interruption. Tenant
acknowledges that any one or more such services may be suspended or reduced
by reason of accident or repairs, alterations, or improvements necessary to
be made, by strikes or accident or by any cause beyond the reasonable control
of Landlord, or by orders or regulations of any federal, state, county, or
municipal authority.
Any such interruption or suspension of services shall never be deemed an
eviction of or disturbance to Tenant's use and possession of the Leased
Premises or any part thereof, or render Landlord liable to Tenant for
damages by abatement of rent, or otherwise relieve Tenant of performance of
Tenant's obligation under this Lease Agreement. Landlord will use
commercially reasonable efforts to restore service to full operations, and in
the event of a strike to secure parties not involved in the labor dispute to
provide minimum services.
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45. SUBORDINATION TO MORTGAGES. This Lease Agreement shall
automatically be subject and subordinate to the lien of any mortgage or deed
of trust given by Landlord which does now or may hereafter encumber the
Project of which the Leased Premises form a part, and to all renewals,
modifications, consolidations, replacements, and extensions thereof. Landlord
shall also have the right to assign its interest in this Lease Agreement for
security purposes to any mortgagee or trust deed beneficiary. Tenant agrees
that it will execute, within five (5) business days of Landlord's request,
any appropriate instrument or certificate that Landlord or any mortgagee or
trust deed beneficiary may require to further document this subordination,
provided that such mortgagee or trust deed beneficiary shall agree with
Tenant not to disturb Tenant's right to possess the Leased Premises so long
as Tenant complies with all of the terms and conditions of this Lease
Agreement. Tenant further agrees that it will provide any such mortgagee or
trust deed beneficiary with any evidence required to show the authority of
Tenant to execute any such subordination instrument or certificate and will,
if so requested by any such mortgagee or trust deed beneficiary, provide to
that person or entity a copy of any notice Tenant gives or is required to
give Landlord under this Lease Agreement. In the event of the enforcement by
the mortgagee or the beneficiary under such mortgage or deed of trust of the
remedies provided for by law or by such mortgage or deed of trust, or in the
event Landlord gives a deed-in-lieu-of-foreclosure to such mortgagee or trust
deed beneficiary, Tenant will, upon request of any person or party succeeding
to the interest of Landlord as a result of such enforcement or termination,
automatically become the Tenant of such successor in interest without change
in the terms or other provisions of this Lease Agreement, provided, however,
that such successor in interest shall not be bound by (i) any payment of rent
or additional rent for more than one month in advance, (ii) any amendment or
modification of this Lease Agreement made without the written consent of such
mortgagee or such beneficiary or their successor in interest, or (iii) any
defaults of Landlord under this Lease Agreement which remain uncured at the
time such successor in interest obtains title to the Project. Tenant shall
execute and deliver any instrument or instruments confirming the attornment
herein provided for.
In the event of any act or omission by Landlord by reason of which
Tenant may claim the right to terminate this Lease Agreement or claim a
defense or offset against the Base Rental due hereunder, Tenant agrees not to
exercise any such right until: (i) Tenant has notified the mortgagee or trust
deed beneficiary in writing of such act or omission by Landlord, and (ii)
Tenant has given the mortgagee or trust deed beneficiary a reasonable
opportunity to cure such act or omission, including the time as shall be
reasonably required to obtain possession of the property and to commence and
carry to completion the foreclosure of its mortgage or deed of trust.
46. SUCCESSORS AND ASSIGNS. This Lease Agreement shall be binding
upon and inure to the benefit of Landlord, its successors and assigns, and
shall be binding upon and inure to the benefit of Tenant, its successors,
and, to the extent assignment may be approved by Landlord hereunder, Tenant's
permitted assigns.
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47. TENANT TO KEEP THE LEASED PREMISES LIEN FREE. Tenant shall keep
the Leased Premises and Project free from any mechanic's liens arising
from any work performed, material furnished, or obligations incurred by
Tenant, and shall obtain from its contractor lien releases if required by
Landlord. Tenant shall keep Landlord informed of the status of any contest
and shall defend, indemnify, and hold harmless Landlord from and against any
such lien or claim or action thereon, together with costs of suit and
reasonable attorneys' fees incurred by Landlord in connection with any such
claim or action.
48. TENANT'S PROPERTY. Landlord shall not be required to carry
insurance of any kind on Tenant's personal property, and shall not be
obligated to repair any damage thereto or replace the same for any reason,
except Landlord or its employees, and agents' intentional acts or gross
negligence.
49. TENANTS REQUESTS. Tenant shall pay all the out of pocket legal
expenses incurred by Landlord not to exceed five hundred dollars ($500.00)
per occurrence as a result of requests from Tenant to exercise its rights
granted under this Lease Agreement, except for litigation in which the Tenant
is the prevailing party.
50. TENANT'S RIGHT TO AUDIT. In the event Tenant's Proportionate
Share of Operating Expenses increases, excluding property taxes and
insurance, by more than five percent (5%) in any Calendar Year, Tenant may
audit Landlord common area operating costs in order to verify the accuracy of
operating expense charges, provided that:
a. Tenant specifically designates the calendar year(s) that
Tenant intends to audit, which shall be a year within two (2) years of date
of the audit, but must be within the Term of this Lease Agreement.
b. Such audit will be conducted only by a licensed firm,
unaffiliated with Tenant, with prior Landlord approval, and during regular
business hours at the office where Landlord maintains Operating Expense
records, and only after Tenant gives Landlord fourteen (14) days' notice.
c. Tenant shall pay for all costs associated with audit.
d. If audit yields a result that Tenant has underpaid the
Tenant will reimburse Landlord upon receipt of invoice.
e. Tenant agrees not to divulge the results of the audit to any
other party.
f. Tenant shall deliver to Landlord a copy of the results of
such audit within fifteen (15) days of its receipt by Tenant. No such audit
shall be conducted if any other tenant has conducted an audit for the time
period Tenant intends to audit and Landlord furnishes to Tenant a copy of the
results of such audit. No audit shall be conducted at any time that Tenant is
in default of any of the terms of the Lease Agreement. No subtenant shall
have any right to conduct an audit and no assignee shall conduct an audit for
any period during which such
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EXHIBIT "B"
A Plan of the Demised Premises
The property is a suite of offices in a single story office park. The
occupied suite of offices consists of approximately 5,404 square feet. There
are six (6) enclosed offices or rooms adjacent to the north and south sides
of the building. There are two (2) restrooms and the majority of the
remaining area is open for partitioned office or other use. All external
sides, except for one section do have glass facades.
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EXHIBIT "C"
IMPROVEMENT ITEMS
1. INSTALLATION OF ONE (1) SET OF DOUBLE DOORS.
2. REMOVAL OF ONE DOOR TO INCLUDE REPAIR OF WALL.
3. NEW CARPETING, BASE AND VCT THROUGHOUT THE SUITE.
4. REPAIR AND PAINTING OF WALLS THROUGHOUT THE SUITE.
5. HVAC ADDED IN TO ADDITIONAL SPACE AS NEEDED.
6. GENERAL CLEAN UP THROUGHOUT THE SUITE.
7. REMOVAL OF CABINETS IDENTIFIED BY TENANT.
8. REPLACE OR ADD TILE OR VINYL IN MAILROOM AS NECESSARY.
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(GATEWAY POINTE)
EXHIBIT "D"
RULES AND REGULATIONS
1. The doors, sidewalks, passages, exits, and entrances shall be used
for ingress and egress and shall not be obstructed. Tenant shall use
reasonable efforts to keep such areas clean and free from rubbish.
2. Loitering anywhere in the Project shall not be permitted. Landlord
reserves the right to exclude or expel from the Project any person who, in
the judgment of Landlord, is under the influence of liquor or drugs or who
shall in any manner do any act in violation of the Rules and Regulations of
the Project.
3. Alterations in any way to the interior or exterior of the Leased
Premises including attaching pictures, certificates, licenses, and similar
items may be done only in a reasonable manner, subject to review by Landlord.
4. Tenant shall not alter, paint, cover, obstruct, screen, tint,
install curtains, draperies, blinds, or shades, or obscure any window, shall
not affix any signs, advertisements, or notices on or to any window, and
shall not have any window treatment other than building standard as
established by Landlord, without the written consent of Landlord.
5. All Tenant identification in the public areas of the Project must
be installed and approved by Landlord based on the standard signage as
established by Landlord.
6. The location of electrical, telephone, computer or other wiring
and of related outlets must be pre-approved prior to installation in writing
by Landlord. Such items shall be installed by qualified personnel in
accordance with building codes applicable to the Project and the Leased
Premises.
7. No items of unusual size or weight shall be used or placed in the
Project without Landlord's written permission. In no event shall any floor be
overloaded as determined by a competent licensed engineer.
8. The moving of any of Tenant's business or personal furniture,
equipment, inventory, or other items in or out of the Project or Leased
Premises will be at a time and in a manner designated by Landlord.
9. No Tenant shall use or keep any foul or noxious gas or substance
which may in any manner be offensive or objectionable to Landlord or other
occupants of the Project. No noises, vibrations, odors, or activities
bothersome to other Tenants will be allowed in the Leased Premises or on the
grounds of the Project.
10. No animals, fish, birds, etc., are allowed within the Project
without Landlord's written permission.
11. The Tenant is prohibited from storing goods, wares, or merchandise
in the Project or Leased Premises in areas not acceptable to Landlord for
storage. No auction, public or private, will be permitted in the Leased
Premises.
12. All Tenant requests for service or maintenance to the Landlord
will be made by notifying the Landlord or its agents at a designated
location. Landlord's agents or contractors shall not perform any work or do
anything outside of their regular or contracted duties unless under special
written instructions from the Landlord.
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13. All keys shall be obtained from Landlord, and all keys shall be
returned to Landlord upon termination or expiration of Tenant's Lease. No
duplicate keys shall be made without Landlord's approval. Tenant is
responsible to control the keys to the Leased Premises, and Tenant shall pay
for lost keys. Tenant shall not change the locks or install other locks on
the doors without Landlord's written approval. If Landlord gives Tenant
written approval to change locks, then Tenant will provide Landlord with keys.
14. Tenant is responsible to lock and secure all doors to the Leased
premises after regular business hours or after entering or leaving on
nonbusiness days. Landlord is not responsible to respond to after-hours
lock-outs.
15. The following acts shall not be allowed or suffered to be done nor
conditions allowed to exist upon the Premises or any part thereof:
a. Any violation of any federal, state, or municipal statute or
ordinance, or any regulation, order, or directive of a governmental
agency, as such statutes, ordinances, regulations, orders, or
directives now exist or may hereafter provide concerning the use and
safety of the Leased Premises.
b. Any violation of any certificate of occupancy covering or affecting
the use of the Leased Premises or any part hereof.
c. Any public or private nuisance.
d. The display or distribution of drug paraphernalia or sexually
related paraphernalia, except as the same may be legally dispensed
by a physician or surgeon, dentist, or pharmacist, duly licensed to
such profession in the State.
e. The manufacture, distribution, sales, or dispensing in any manner of
illegal drugs, or any type of illegal drug activity or consumption.
f. The sale or dispensing of alcoholic beverages.
g. The showing, displaying, viewing, renting, or selling of movie films
within the Leased Premise would be classified or rated as "X or
R-rated" under present standards or criteria for such class and
rating.
h. Gambling.
i. The establishment or maintenance of a bawdy house, bar, nightclub,
or tavern.
j. Any other act or condition which shall be lewd, obscene, or
licentious.
k. Performance of abortions.
l. Mark, or drive nails, screw or drill into, the partitions, woodwork
or plaster or otherwise deface its premises or any part thereof.
m. Smoking shall not be permitted in or around any offices, interior
common corridors, restrooms areas, elevators, stairwells, or building
entrances.
16. Landlord shall have the right to regulate parking throughout the
Project in a manner beneficial to the entire Project. Landlord shall have the
right to re-stripe parking stalls, lanes, and other areas as Landlord deems
reasonably necessary to control parking and access. Landlord may refuse to
permit any person who violates the rules.
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to park in the parking lot, and any violation of the rules shall subject the
car to removal. No extended period parking for campers, trailers, motor
homes, emergency equipment, or other nonstandard sized vehicles is permitted.
17. Tenant shall not use the Project, Leased Premises, or parking
facilities for housing or sleeping whatsoever.
18. Landlord shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the Leased Premises of any
person. In the case of invasion, mob riot, public excitement, or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Leased Premises during the
continuance of the same by such action as Landlord may deem appropriate,
including closing doors and restricting access to public areas of the Project.
19. Each Tenant shall see that appliances and utilities are shut off as
appropriate before Tenant or Tenant's employees leave the Leased Premises.
Tenant is required to prevent controllable waste or damage in all aspects of
the Leased Premises from any default or carelessness. All Tenants shall keep
the doors to the Project's corridors closed at all times, except for ingress
and egress, unless door is equipped with an approved magnetic door holder.
20. No Tenant shall install any radio or television antenna, or
satellite dish, loudspeaker, or other device on the roof or exterior walls of
the Project without Landlord's written permission.
21. Each Tenant shall store all its refuse or waste within its Leased
Premises and dispose of such refuse or waste only in accordance with Project
rules and all applicable local, state, and federal regulations and laws.
22. Tenant is not allowed to disturb, solicit, or canvass any occupant
of the Project and shall cooperate to prevent same. Canvassing, soliciting,
distributing handbills or any other written material, or peddling in the
Project is prohibited.
23. Tenant agrees to enforce and, as necessary, to acquaint all persons
doing business with Tenant with the Project's Rules and Regulations.
24. The failure of Landlord to enforce any of the Rules and Regulations
against any other Tenant in the Project shall not be deemed a waiver of any
of such Rules and Regulations. Landlord shall not be liable to Tenant for
violation of any of the Rules and Regulations or the breach of any covenant
or condition in any lease by any other Tenant in the Project.
25. Landlord shall control and operate the public portions of the
Project, and the public facilities, and heating and air conditioning, as well
as facilities furnished for the common use of Tenant. Such control and
operation shall be accomplished in a manner consistent with the best
interests of the tenants in general. Tenant shall not obstruct, alter or in
any way impair the effective operation of the hearing and air conditioning,
electrical, fire, safety, or lighting systems, and Tenant shall not tamper
with or change any of the thermostats or temperature control valves in the
Project except those that are in Tenant's space and are provided for Tenant's
use.
26. Tenant shall not use or keep in the Leased Premises or in the
Project any kerosene, gasoline, or other inflammable or combustible fluid or
material, nor use any method or heating or air conditioning not acceptable to
Landlord.
27. All damage done to the Leased Premises or the Project by the
installation or removal of any property of Tenant, or done by Tenant's
property while in the Leased Premises, shall be repaired at the expense of
Tenant.
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28. Plumbing fixtures and appliances shall be used only for their
intended purposes, and Tenant, and shall not deposit any sweepings, rubbish,
rags, or other unsuitable substances therein. Damage resulting from misuse
shall be paid for by Tenant.
29. Landlord shall not be responsible for any loss or theft or damage to
personal property in the Leased Premises or the Project ham any cause
whatsoever, whether or not such loss, theft, or damage occurs when the
Leased Premises or other pardons of the Project are locked against entry.
30. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
31. In the event of any conflict between these Rules and Regulations and
any lease with Tenant, the provisions of the Lease shall be controlling.
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Exhibit 10.2
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, AUGUST 30,
1999 ,is made by and between RANCHO CUCAMONGA DEVELOPMENT COMPANY, A
CALIFORNIA GENERAL PARTNERSHIP (herein called "Lessor") and XIT, INC. A NEW
JERSEY CORPORATION (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
that certain real property situated in the COUNTY OF SAN BERNARDINO STATE OF
CALIFORNIA commonly known as 9654 HERMOSA AVE, RANCHO CUCAMONGA, 91730 and
described as approximately 15,745 SQUARE FEET OF OFFICE/WAREHOUSE SPACE MORE
SPECIFICALLY AS EXHIBIT "A"& "B" ATTACHED HERETO AND MADE A PART OF THIS
LEASE BY THIS REFERENCE.
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. TERM.
3.1 TERM The term of this Lease shall be for SIXTY (60) MONTHS
commencing on DECEMBER 1. 1999 and ending on NOVEMBER 30. 2004 unless sooner
terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date, Lessor shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Lease or the obligations of Lessee
hereunder or extend the term hereof, but in such case, Lessee shall not be
obligated to pay rent until possession of the Premises is tendered to Lessee,
provided, however, that if Lessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten ( in) days
thereafter, cancel this Lease,. in which event the parties shall de
discharged from all obligations hereunder; provided further, however, that if
such written notice of Lessee is not received by Lessor within said ten (10)
day period, Lessee's right to cancel this Lease hereunder shall terminate and
be of no further force or effect.
3.3 EARLY POSSESSION.
See Paragraph 54-EARLY POSSESSION
4. RENT. Lessee shall pay to Lessor as rent for the premises, monthly
payments of $ 7,243.00, in advance, on the FIRST day of each month of term
hereof. Lessee shall pay Lessor upon the execution hereof $7,243.00 as rent
for DECEMBER 1-31, 1999
See Paragraph 47-RENT ESCALATIONS
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable
in lawful money of the United Stales to Lessor at the address stated herein
or to such other persons or at such other places as Lessor may designate in
writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$7,243.00 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may surfer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days alter written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Lessee's failure to do so shall be a material
breach of this Lease. If the monthly rent shall, from time to time, increase
during the term of this Lease, Lessee shall thereupon deposit with Lessor
additional security deposit so that the amount of security deposit held by
Lessor shall at all times bear the same proportion to current rent as the
original security deposit bears to the original monthly rent set forth in
paragraph 4 hereof. Lessor shall not be required to keep said deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest hereunder) at the
expiration of the term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect
to said Security Deposit.
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6. USE.
6.1 USE. The Premises shall be used and occupied only for
ADMINISTRATIVE OFFICE/MANUFACTURING AND ASSEMBLY OF ELECTRONIC COMPONENTS or
any other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the
obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event
Lessee does not give to Lessor written notice of the violation of this
warranty within six months from the date that the Lease term commences, the
correction of same shall be the obligation of the Lessee at Lessee's sole
cost. The warranty contained in this paragraph 6.2 (a) shall be of no force
or effect if. prior to the date of this Lease, Lessee was the owner or
occupant of the Premises, and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes. ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use nor permit
the use of the Premises in any manner that will tend to create waste or a
nuisance or, if there shall be more than one tenant in the building
containing the Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession)
and Lessor further warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly. at Lessor's
sole cost, rectify such violation. Lessee's failure to give such written
notice to Lessor within thirty (30) days after the Lease commencement date
shall cause the conclusive presumption that Lessor has complied with all of
Lessor's obligations hereunder. The warranty contained in this paragraph
6.3(a) shall be of no force or effect if prior to the date of this Lease,
Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal. county and stale laws,
ordinances and regulations governing and regulating the use of the Premises,
and any covenants or restrictions of record, and accepts this Lease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made
any representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 6,
7.2, and 9 and except for damage caused by any negligent or intentional act
or omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in
good order, condition and repair the foundations, exterior walls and the
exterior roof of the Premises. Lessor shall not, however, be obligated to
paint such exterior, nor shall Lessor be required to maintain the interior
surface of exterior walls, windows, doors or plate glass. Lessor shall have
no obligation to make repairs under this Paragraph 7.1 until a reasonable
time after receipt of written notice of the need for such repairs. Lessee
expressly waives the benefits of any statute now or hereafter in effect which
would otherwise afford Lessee the right to make repairs at Lessor's expense
or to terminate this Lease because of Lessor's failure to keep the Premises
in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee,
at Lessee's expense, shall keep in good order, condition and repair the
Premises and every part thereof (whether or not the damaged portion of the
Premises or the means of repairing the same are reasonably or readily
accessible to Lessee) including, without limiting the generality of the
foregoing, all plumbing, heating, air conditioning. (Lessee shall procure and
Initials _______________
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maintain, at Lessee's expense, an air conditioning system maintenance
contract) ventilating, electrical and lighting facilities and Equipment
within the Premises, fixtures, interior walls and interior surface or
exterior walls, ceilings, windows, doors, plate glass, and skylights, located
within the and signs located in the Premises and all sidewalks.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at
Lessor's option enter upon the Premises after 10 days prior written notice to
Lessee (except in the case of emergency, in which case no notice shall be
required), perform such obligations on Lessee's behalf and put the Premises
in good order, condition and repair, and the cost thereof together with
interest thereon at the maximum rate then allowable by law shall be due and
payable as additional rent to Lessor together with Lessee's next rental
installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of its trade fixtures. furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease,
Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space healers, air conditioning, plumbing
and fencing on the premises in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises, except for nonstructural alterations not exceeding $2,500
in cumulative costs during the term of this Lease. In any event, whether or
not in excess of $2,500 in cumulative cost, Lessee shall make no change or
alteration to the exterior of the Premises nor the exterior of the
building(s) on the Premises without Lessor's prior written consent. As used
in this Paragraph 7.3 the term "Utility Installation" shall mean carpeting,
window coverings, air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing, and fencing.
Lessor may require that Lessee remove any or all of said alterations,
improvements, additions or Utility Installations at the expiration of the
term, and restore the Premises to their prior condition. Lessor may require
Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liability for
mechanic's and materialmen's liens and to insure completion of the work.
Should Lessee make any alterations, improvements, additions or Utility
installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in
written form, with proposed detailed plans. If Lessor shall give its consent,
the consent shall be deemed conditioned upon Lessee acquiring a permit to do
so from appropriate governmental agencies, the furnishing of a copy thereof
to Lessor prior to the commencement of the work and the compliance by Lessee
of all conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of
any work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall,
in good faith, contest the validity of any such lien, claim or demand, then
Lessee shall, at its sole expense defend itself and Lessor against the same
and shall pay and satisfy any such adverse judgement that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises,
upon the condition that if Lessor shall require, Lessee shall furnish to
Lessor a surely bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
d) Unless Lessor requires their removal, as set forth in
Paragraph 7.3(a) all alterations, installations, improvements, additions and
Utility Installations (whether or not such Utility Installations constitute
trade fixtures of Lessee) which may be made on the Premises, shall become the
properly of Lessor and remain upon and be surrendered with the Premises at
the expiration of the term. Notwithstanding the provisions of this Paragraph
7 3(d), Lessee's machinery and equipment, other than that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of Paragraph 7.2(c).
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8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term or this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance
of the Premises and all other areas appurtenant thereto. Such insurance shall
be in an amount not less than $500,000 per occurrence. The policy shall
insure performance by Lessee of the indemnity provisions or this Paragraph 8.
The limits of said insurance shall not, however, limit the liability of
Lessee hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Properly Damage Insurance, insuring Lessor, but not Lessee,
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto in an amount
not less than $500,000 per occurrence.
8.3 PROPERLY INSURANCE. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or
damage to the Premises, but not Lessee's fixtures, equipment or tenant
improvements in an amount not to exceed the full replacement value thereof,
as the same may exist from time to time, providing protection against all
perils included within the classification of fire, extended coverage,
vandalism, malicious mischief, flood (in the event same is required by a
lender having a lien on the Premises) special extended perils ("all risk", as
such term is used in the insurance industry) but not plate glass insurance.
In addition, the Lessor shall obtain and keep in force during, the term of
this Lease, a policy of rental value insurance covering a period of one year,
with loss payable to Lessor, which insurance shall also cover all real estate
taxes and insurance costs for said period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) Lessee shall pay to Lessor, during the term hereof, in
addition to the rent, the amount of any increase in premiums for the
insurance required under Paragraphs 8.2 and 8.3 over and above such premiums
paid during the Base Period, as hereinafter defined, whether such premium
increase shall be the result of the nature of Lessee's occupancy, any act or
omission of Lessee, requirements of the holder or a mortgage or deed of trust
covering the Premises, increased valuation of the Premises, or general rate
increases. In the event that the Premises have been occupied previously, the
words "Base Period" shall mean the last twelve months of the prior occupancy.
In the event that the Premises have never been previously occupied, the
premiums during the "Base Period" shall be deemed to be the lowest premiums
reasonably obtainable for said insurance assuming the most nominal use of the
Premises. Provided, however, in lieu of the Base Period, the parties may
insert a dollar amount al the end of this sentence which figure shall be
considered as the insurance premium for the Base Period: $1,738.00*. In no
event, however, shall Lessee be responsible for any portion of the premium
cost attributable to liability insurance coverage in excess of $1,000,000
procured under paragraph 8.2 * SEE PARAGRAPH 52
(b) Lessee shall pay any such premium increases to Lessor within
30 days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence or the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase
attributable to the Premises and showing in reasonable detail, the manner in
which such amount was computed. If the term of this Lease shall not expire
concurrently with the expiration of the period covered by such insurance,
Lessee's liability for premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee
shall not be responsible for paying any increase in the properly insurance
premium caused by the acts or omissions of any other tenant of the building
of which the Premises are a part.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender having a lien on the
Premises, as set forth in the most current issue of "Best's Insurance Guide".
Lessee shall deliver to Lessor copies of policies of liability insurance
required under Paragraph 8.1 or certificates evidencing the existence and
amounts of such insurance. No such policy shall be cancellable or subject to
reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies furnish Lessor with renewals or "Binders"
thereof, or Lessor may order such insurance and charge the cost thereof to
Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not
do or permit to be done anything which shall invalidate the insurance
policies referred to in Paragraph 8.3.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance
carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease.
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8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Premises, or
from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere
and shall further indemnify and hold harmless Lessor from and against any and
all claims arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any negligence of the Lessee, or any of Lessee's agents,
contractors, or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon; and in case any action or proceeding be
brought against Lessor by reason of any such claim, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel satisfactory to
Lessor. Lessee, as a material part of the consideration to Lessor, hereby
assumes all risk of damage to properly or injury to persons, in, upon or
about the Premises arising from any cause and Lessee hereby waives all claims
in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
properly of Lessee. Lessee's employees, invitees, customers, or any other
person in or about the Premises, nor shall Lessor be liable for injury to the
person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects or
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether the said damage or injury results
from conditions arising upon the Premises or upon other portions of the
building of which the Premises are a part, or from other sources or places
and regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for
any damages arising from any act or neglect of any other tenant, if any, of
the building in which the Premises are located.
Initials: _______________
GROSS
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9. DAMAGE OR DESTRUCTION.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less
than 50% of the fair market value of the Premises immediately prior to such
damage or destruction. "Premises Building Partial Damage" shall herein mean
damage or destruction to the building of which the Premises are a part to the
extent that the cost of repair is less than 50% or the fair market value of
such building as a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or
more of the fair market value of the Premises immediately prior to such
damage or destruction. "Premises Building Total Destruction" shall herein
mean damage or destruction to the building of which the Premises are a part
to the extent that the cost of repair is 50% or more of the fair market value
of such building as a whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which
was caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5, and 9.6, if at any time during the term of this Lease
there is damage which is an Insured Loss and which falls into the
classification of Premises Partial Damage or Premises Building Partial
Damage, then Lessor shall, at Lessor's sole cost, repair such damage, but not
Lessee's fixtures, equipment or tenant improvements, as soon as reasonably
possible and this Lease shall continue in full force and effect.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease
there is damage which is not an Insured Loss and which falls within the
classification of Premises Partial Damage or Premises Building Partial
Damage, unless caused by a negligent or willful act of Lessee (in which event
Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's
option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after
the receipt of such notice to give written notice to Lessor of Lessee's
intention to repair such damage at Lessee's expense, without reimbursement
from Lessor, in which event this Lease shall continue in full force and
effect, and Lessee shall proceed to make such repairs as soon as reasonably
possible. If Lessee does not give such notice within such 10-day period this
Lease shall be cancelled and terminated as of the dale of the occurrence of
such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease
there is damage, whether or not an Insured Loss, (including destruction
required by any authorized public authority), which falls into the
classification of Premises Total Destruction or Premises Building Total
Destruction, this Lease shall automatically terminate as of the date of such
total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this
Lease there is damage, whether or not an Insured Loss, which fails within the
classification of Premises Partial Damage, Lessor may at Lessor's option
cancel and terminate this Lease as of the date of occurrence of such damage
by giving written notice to Lessee of Lessor's election to do so within 30
days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than 20 days after the
occurrence of an Insured Loss falling within the classification of Premises
Partial Damage during the last six months of the term of this Lease. If
Lessee duly exercises such option during said 20 day period, Lessor shall, at
Lessor's expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise
such option during said 20 day period, then Lessor may at Lessor's option
terminate and cancel this Lease as of the expiration of said 20 day period by
giving written notice to Lessee of Lessor's election to do so within 10 days
after the expiration of said 20 day period, notwithstanding any term or
provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3,
and Lessor or Lessee repairs or restores the Premises
pursuant to the provisions of this Paragraph 9, the rent
payable hereunder for the period during which such damage,
repair or restoration continues shall be abated in proportion
to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
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(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions or this Paragraph 9 and shall not commence such
repair or restoration within 90 days after such obligations shall accrue,
Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessor written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real properly tax,
as defined in paragraph 10.3. applicable to the Premises; provided, however,
that Lessee shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real
estate tax year 1999 2000 . Such payment shall be made by Lessee within
thirty (30) days after receipt of Lessor's written statement setting forth
the amount or such increase and the computation thereof. If the term of this
Lease shall not expire concurrently with the expiration of the tax fiscal
year, Lessee's liability for increased taxes for the last partial lease year
shall be prorated on an annual basis.
10.2 ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof,
Lessee shall pay to Lessor upon demand therefor the entirely of any increase
in real property tax if assessed solely by reason of additional improvements
placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate lax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Premises or in the real properly of which
the Premises are a part, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Premises. The term
"real properly tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
properly tax," or (ii) the nature of which was hereinbefore included within
the definition of "real property tax." or (iii) which is imposed for a
service or right not charged prior to June 1. 1978, or, if previously
charged, has been increased since June 1, 1978, or (iv) which is imposed as a
result of a transfer, either partial or total, of Lessor's interest in the
Premises or which is added to a tax or charge hereinbefore included within
the definition of real property tax by reason or such transfer, or (v) which
is imposed by reason of this transaction, any modifications or changes
hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real properly
taxes for all of the land and improvements included within the tax parcel
assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information
as may be reasonably available. Lessor's reasonable determination thereof, in
good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the
real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable
to Lessee within 10 days after receipt of a written statement setting forth
the taxes applicable to Lessee's properly.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor
of all charges jointly metered with other premises.
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12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part or Lessee's interest in this Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute a breach of this Lease.
12..2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, or to any person or
entity which acquires all the assets of Lessee as a going concern of the
business that is being conducted on the Premises, provided that said assignee
assumes, in full, the obligations of Lessee under this Lease. Any such
assignment shall not, in any way, affect or limit the liability of Lessee
under the terms or this Lease even if after such assignment or subletting the
terms of this Lease are materially changed or altered without the consent or
Lessee, the consent of whom shall not be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or
their consent thereto and such action shall not relieve Lessee of liability
under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent or Lessor for any act Lessee proposes to
do then Lessee shall pay Lessor's reasonable attorneys fees incurred in
connection therewith, such attorneys fees not to exceed $350.00 for each such
request.
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13.1 DEFAULTS; REMEDIES.
3.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period or three days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee, other than described in paragraph (b) above, where such failure
shall continue for a period or 30 days after written notice thereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's default
is such that more than 30 days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commenced such cure
within said 30-day period and thereafter diligently prosecutes such cure to
completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C.Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.l(d)
is contrary to any applicable law, such provision shall be of no force or
effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee s default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could
be reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to
Lessee in writing, specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligations is
such that more than thirty (30) days are required for performance then Lessor
shall not be in default if Lessor commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such, costs include, but are not limited
to, processing and accounting charges, and late charges which may be imposed
on Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to
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Lessor a late charge equal to 6% of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of rent, then rent shall automatically
become due and payable quarterly in advance, rather than monthly,
notwithstanding paragraph 4 or any other provision of this Lease to the
contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay
to Lessor, if Lessor shall so request, in addition to any other payments
required under this Lease, a monthly advance installment, payable at the same
time as the monthly rent, as estimated by Lessor, for real properly tax and
insurance expenses on the Premises which are payable by Lessee under the
terms of this Lease. Such fund shall be established to insure payment when
due, before delinquency, of any or all such real properly taxes and insurance
premiums. If the amounts paid to Lessor by Lessee under the provisions of
this paragraph are insufficient to discharge the obligations of Lessee to pay
such real properly taxes and insurance premiums as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums
necessary to pay such obligations. All moneys paid to Lessor under this
paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a default in the obligations of Lessee to perform
under this Lease, then any balance remaining from funds paid to Lessor under
the provisions of this paragraph may, at the option of Lessor, be applied to
the payment of any monetary default of Lessee in lieu of being applied to the
payment of real properly tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than 10% of the
floor area of the building on the Premises, or more than 25% of the land area
of the Premises which is not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing only
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the rent shall be reduced in the proportion that the floor area
of the building taken bears to the total floor area of the building situated
on the Premises. No reduction of rent shall occur if the only area taken is
that which does not have a building located thereon. Any award for the taking
of all or any part of the Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the properly
of Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any award for loss of or
damage to Lessee's trade fixtures and removable personal properly. In the
event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of severance damages received by Lessor in
connection with such condemnation, repair any damage to the Premises caused
by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess
of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
DELMAR COMMERCIAL REAL ESTATE SERVICES & LEE & ASSOCIATES Licensed real
estate broker(s), a fee as set forth in a separate agreement between Lessor
and said broker(s), or in the event there is no separate agreement between
Lessor and said broker(s), the sum of $ PER CONTRACT , for brokerage services
rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under
this Lease, or any subsequently granted option which is substantially similar
to an Option granted to Lessee under this Lease, or if Lessee acquires any
rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or if Lessee remains in possession of the
Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the
Premises and/or any adjacent property in which Lessor has an interest, then
as to any of said transactions, Lessor shall pay said broker(s) a fee In
accordance with the schedule of said broker(s) in effect at the time of
execution of this Lease.
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(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Said broker shall be a
third parry beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to
Lessor a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease, as
so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any
uncured defaults on the part of Lessor hereunder, or specifying
such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there
are no uncured defaults in Lessor's performance, and (iii) that not more than
one month's rent has been paid in advance or such failure may be considered
by Lessor as a default by Lessee under this Lease.
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(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and
shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises, and except as expressly provided
in Paragraph 15, in the event of any transfer of such title or interest,
Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of the Lessor or the then grantor at the
time of such transfer, in which Lessee has an interest, shall be delivered to
the grantee. The obligations contained in this Lease to be performed by
Lessor shall, subject as aforesaid, be binding on Lessor's successors and
assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law from the date due. Payment of such interest shall
not excuse or cure any default by Lessee under this Lease, provided, however,
that interest shall not be payable on late charges incurred by Lessee nor on
any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in
this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in Paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employees or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of said Premises and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance
thereof with all applicable laws and regulations in effect during the term of
this Lease except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal delivery or by certified mail, and
if given personally or by mail, shall be deemed sufficiently given if
addressed to Lessee or to Lessor at the address noted below the signature of
the respective parties, as the case may be. Either party may by notice to the
other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice purposes. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from to time to time
hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent
to or approval or any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee
of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of
this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession
of the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions
of this Lease pertaining to the obligations of Lessee, but all options and
rights of first refusal, if any, granted under the terms of this Lease shall
be deemed terminated and be of no further effect during month to month
tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
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29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of Paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms.
If any mortgagee, trustee or ground lessor, shall elect to have this Lease
prior to the lien of its mortgage, deed of trust or ground lease, and shall
give written notice thereof to Lessee, this Lease shall be deemed prior to
such mortgage, deed of trust, or ground lease, whether this Lease is dated
prior or subsequent to the date of said mortgage, deed of trust, or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure
to execute such documents within 10 days after written demand shall
constitute a material default by Lessee hereunder, or, at Lessor's option,
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the
same, showing the same to prospective purchasers, lenders, or lessees, and
making such alterations, repairs, improvements or additions to the Premises
or to the building of which they are a part as Lessor may deem necessary or
desirable. Lessor may at any time place on or about Premises any ordinary
"For Sale" signs and Lessor may at any time during the last 120 days of the
term hereof place on or about the Premise ordinary "For Lease" signs, all
without rebate or rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without
Lessor's prior written consent except that Lessee shall have the right,
without the prior permission of Lessor to place ordinary and usual for rent
or sublet signs thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party, such consent
shall not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease
or to renew this Lease or to extend or renew any lease that Lessee has on
other properly of Lessor; (2) the option or right of first refusal to lease
the Premises or the right of first offer to lease the Premises or the right
of first refusal to lease other
5a
<PAGE>
property of Lessor or the right of first offer to lease other property of
Lessor; (3) The right or option to purchase the Premises, or the right of
first refusal to purchase the Premises, or the right of first offer to
purchase the Premises or the right of option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor
or the right of first offer to purchase other property or Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate
as defined in paragraph 12.2 of this Lease. The Options herein granted to
Lessee are not assignable separate and apart from this Lease..
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the
commencing from the date Lessor gives to Lessee a notice of default pursuant
to paragraph 13.1(b) or 13.l(c) and continuing until the default alleged in
said notice of default is cured, or (ii) during the period of time commencing
on the day after a monetary obligation to Lessor is due from Lessee and
unpaid (without any necessity for notice thereof to Lessee) continuing until
the obligation is paid, or (iii) at any time after an event of default
described in paragraphs 13.l(a), 13.l(d), or 13.1 (e) (without any necessity
of Lessor to give notice of such default to Lessee), or (iv) in the that
Lessor has given to Lessee three or more notices of default under paragraph
13.1(b), where a late charge becomes payable under paragraph 13.4 for each of
such defaults, or paragraph 13.1(c), whether or not the defaults are cured,
during the 12 month period prior to the time that Lessee intends to exercise
the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of 30 days alter such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails
to commence to cure a default specified in paragraph 13.1(c) within 30 days
after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraph 13.1 (a),13.l(d) or
13.1 (e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default
under paragraph 13.1(b), where a late charge becomes payable under paragraph
13.4 for each such default, or paragraph 13.l(c), whether or not the defaults
are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide
by, keep and observe all reasonable rules and regulations which Lessor may
make from time to time for the management, safely, care, cleanliness of the
building and grounds, the parking of vehicles and the preservation of good
order therein as well as for the convenience of other occupants and tenants
of the building. The violations of any such rules and regulations shall be
deemed a material breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost or guard service or security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of Lessee, its
agents and invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure
to do so shall constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under
the provisions hereof, the party against whom the obligation to pay the
money is asserted shall have the right to make payment "under protest"
and such payment shall not be regarded as a voluntary payment, and there
shall survive the right on the part of said party to institute suit for
recovery of such sum. If it shall be adjudged that there was no legal
obligation on the part of said party to pay such sum or any part
thereof, said party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of
this Lease.
5b
<PAGE>
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants the he or she is duly authorized to execute and
deliver this lease on behalf of said entity. If Lessee is a corporation,
trust or Partnership, Lessee shall, within thirty (30) days alter execution
of this Lease, deliver to Lessor evidence of such authority satisfactory to
Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by written
or handwritten provisions.
46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs 47 through 58 which constitutes a part of this Lease.
5c
<PAGE>
Also attached:
Exhibit A - Site Plan
Exhibit B - Floor Plan
ADA/Hazardous Materials and Tax Disclosure
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEAEIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEOUENCES OF THIS LEASE OR THE TRANSACTION RELATING TO;
THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS
TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates
specified immediately adjacent to their respective signatures.
Rancho Cucamonga Development Company,
Executed at a California General Partnership
---------------------------
- ---------------------------------------
By
-------------------------------------
Address 12297 Shasta Drive By Alan R. Tibbetts, General Partner
--------------------------------- ------------------------------------
Etiwanda, CA 91739 (909) 899-9545 "LESSOR" (Corporate seal)
--------------------------------- XIT, Inc.
Executed at a New Jersey Corporation
---------------------------- ------------------------------------
on By
------------------------------------- --------------------------------
Print Name/Title:
Address 9654 Hermosa, Ave By
-------------------------------- ------------------------------------
Print Name/Title:
Rancho Cucamonga, CA 91730 "LESSEE" (Corporate Seal)
- ----------------------------------------
For these forms write or call the American Industrial Real Estate
Association. 345 South Figueroa St. M-1 Los Angeles, CA 90071
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL LEASE
DATED AUGUST 30, 1999
-----------------------------------------
BY AND BETWEEN Rancho Cucamonga Development Company
---------------------------------------
(LESSOR)
XIT, Inc., a New Jersey Corporation (LESSEE)
------------------------------------------------------
47 RENT ESCALATIONS
- --
(a) On December 1, 2000, December 1, 2001 December 1, 2002 and December 1,
2003 the monthly rent payable under paragraph 4 of the attached Lease shall
be adjusted by the increase, if any, from the date this Lease commenced, in
the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for Urban Wage Earners and Clerical Workers, Los
Angeles-Long Beach-Anaheim, California (1967=100), "All Items", herein
referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month
of the term of this Lease, as set forth in paragraph 4 of the attached Lease,
shall be multiplied by a fraction the numerator of which shall be the C.P.I.
of the calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the
actual adjustment, Lessee shall pay an estimated adjusted rental, as
reasonably determined by Lessor by reference to the then available C.P.I.
information. Upon notification of the actual adjustment after publication of
the required C.P.I., any overpayment shall be credited against the next
installment of rent due, and any underpayment shall be immediately due and
payable by Lessee. Lessor's failure to request payment of an estimated or
actual rent adjustment shall not constitute a waiver of the right to any
adjustment provided for in the Lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I.
shall be used to make such calculation. In the event that Lessor and Lessee
cannot agree on such alternative index, then the matter shall be submitted
for decision to the American Arbitration Association in accordance with the
then rules of said association and the decision of the arbitrators shall be
binding upon the parties. The cost of said Arbitrators shall be paid equally
by Lessor and Lessee.
Initials: ____________
Initials: ____________
Rent Escalations
FORM RE-3-383
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL LEASE - GROSS
BY AND BETWEEN
RANCHO CUCAMONGA DEVELOPMENT COMPANY, LESSOR
AND
XIT, INC., A NEW JERSEY CORPORATION, LESSEE
DATED: AUGUST 30, 1999
48. GOVERNMENTAL APPROVALS:
Subject to the provisions of Paragraph 6.2, Lessee shall have the sole
responsibility to secure any and all governmental approvals relating to
Lessee's use of the Premises, including but not necessarily limited to a
business license issued by the City of Rancho Cucamonga. Lessee shall
secure such approvals promptly and hold Lessor harmless from any costs and
fees incurred in the process, and from any fines or penalties arising from
Lessee's non-conformance with applicable laws or regulations.
49. OUTSIDE STORAGE:
No unscreened storage will be allowed outside the building nor on any of
the common areas as pertains to landscaping, driveways, parking lots,
fences, and all sidewalks and parkways adjacent to the Premises. This
includes, but is not limited to, supplies, materials, goods, pallets,
dunnage, and equipment. No vehicles, including boats and trailers, will be
allowed outside the building overnight, Lessee may park an operating
passenger vehicle outside the building overnight for a period not to exceed
seven (7) days. Violation of this paragraph shall constitute a material
breach of this Lease.
50.. SIGNAGE:
Lessee shall provide a Lessee identification sign at his sole cost and
expense. Lessee may install said sign upon obtaining Lessor's approval in
writing of all copy and/or logo design and location, which said approval
will not be unreasonable delayed or withheld. In addition, all proposed
signs shall be submitted to the City of Rancho Cucamonga for their review
and approval. Should Lessee fail to obtain said sign on or before March 1,
2000, Lessor may procure and cause to be installed a suitable sign, of
Lessor's design, and Lessee shall reimburse Lessor the cost of said sign
within thirty (30) days after receipt of written notification of said cost
from Lessor.
51.. PROPERTY INSURANCE (CONTINUED FROM PARAGRAPH 8.3):
Lessee shall be responsible for and shall carry and keep in force during
the term of this Lease a policy (or policies) of insurance covering damage
to Lessee's fixtures and equipment.
52. PAYMENT OF PREMIUM INCREASE (CONTINUED FROM PARAGRAPH 8.4):
The premium shall be prorated in accordance with the square footage leased
as compared with the total square footage in the building.
53. PAYMENT OF PROPERTY TAX INCREASE (CONTINUED FROM PARAGRAPH 10.1:
The property taxes shall be prorated in accordance with the square footage
leased as compared with the total square footage of the buildings in the
tax parcel. No property tax increase shall be the responsibility of Lessee
resulting from the sale or transfer of title to the property or
reassessment due to recent reconstruction of the property.
54. EARLY POSSESSION:
Paragraph 3.3 EARLY POSSESSION is hereby deleted and the following
substituted therefore: Lessee is to be allowed to occupy the Premises upon
complete execution and compliance with Lease terms (including Paragraph
8.1: Liability Insurance--Lessee), but no sooner than October 1, 1999. Rent
is to begin on December 1, 1999. Lessor and Lessee agree that all the terms
and conditions of the above referenced Lease are to be in full force and
effect as of the date of Lessee's possession of the Premises. Lessee
accepts Premises in its present condition (subject to the terms of any
paragraph warranting the condition of the Premises). Lessor agrees to
complete all Tenant Improvements as set forth in the Lease. Lessee
understands that his early occupancy may cause some delay in the
construction of the Tenant Improvements and that such delay will not be a
cause for forgiveness of any rent due. It is further understood that any
improvement of the leased Premises by the Lessee which may result in the
delay in construction of Tenant Improvements or in the obtaining of a
building permit without prior written consent of Lessor is hereby
prohibited. Any such violation may cause the termination of this Lease.
In the event Lessee takes possession of the Premises prior to completion of
any construction, Lessee agrees to hold Lessor harmless from any and all
claims for damages to goods, equipment or inconvenience.
This Early Possession Agreement is being provided as additional
consideration for Lessee executing this Lease. Lessee and Lessor herein
agree that said Early Possession is equal to a minimum of a $14, 486.00
(Fourteen Thousand, four hundred eighty six Dollars) rent credit. In the
event Lessee defaults during the Term of this Lease, Lessee understands and
agrees that Lessor shall be entitled to recover this rent credit as
additional damages.
55. OPTION TO EXTEND:
Lessee may, at its option, renew this Lease at the expiration of the
initial term of this Lease for two (2) ONE-year periods upon the same terms
and conditions as contained in this Lease, except for the monthly rent
which shall
<PAGE>
be negotiated at the time the option is exercised. To exercise such
option Lessee, shall notify Lessor in writing of Lessee's intent to
exercise such option no later than one hundred twenty (120) days and no
sooner than one hundred eighty (180) days prior to the expiration of the
initial term of this Lease. The monthly rental rate and annual rental
escalations during the option period shall be at the then fair rental
value, i.e., prevailing market rate for the Premises. If within thirty
(30) days after exercise of this option, Lessor and Lessee have not
agreed upon a rate, the rental rate shall be set by arbitration through
appraisers. In such an event, each of the parties within ten (10) days
shall select and be responsible for the payment of an MAI real appraiser
with at least live (5) years of full-time commercial appraisal
experience in WESTERN BERNARDINO COUNTY to act as arbitrators to
appraise and set "the rates," as outlined above, for the Premises. The
two appraisers appointed by the parties as stated in this paragraph
shall meet promptly and attempt to set "the rates." If either party does
not appoint an appraiser within ten (10) days after the other party has
given written notice of the name of its appraiser, the single appraiser
appointed shall be the sole arbitrator and shall set "the rates"; the
cost of this appraiser shall be divided equally between Lessor and
Lessee. If Lessor and Lessee are unable to agree within thirty (30) days
after the appraiser(s) have been appointed, they shall within ten (10)
days thereafter jointly select a "final" appraiser meeting the
qualifications stated in this paragraph. The cost of this appraiser
"final" shall be equally divided between Lessor and Lessee. If Lessor
and Lessee are unable to agree on the "final" appraiser's "rate" within
a ten 10) day period, an agreement by and between any two of the three
appraisers shall set "the rates." However, in no event shall the monthly
rent be less than that which was due for the last full month immediately
preceding the renewal period. Lessee's Option to Renew shall be subject
to the condition that at the expiration of the origin or any extension
thereof, Lessee shall not have been in default in performance in any of
the covenants and conditions of the Lease. This option does not grant
Lessee any further Option to Renew.
56. TENANT IMPROVEMENTS:
Lessor at Lessor's sole cost and expense, prior to commencement shall
complete the following tenant improvements per mutually agreed spaceplan:
a) Install a two stall womens shop restroom
b) Install a one stall & urinal mens shop restroom
c) Install approximately 8' kitchen counter with sink
d) Install shop maintenance sink
57. EARLY TERMINATION:
Provided Lessee is not in default of this lease, Lessee at Lessee's option
may terminate this lease on November 30, 2002. To effect such early
termination, Lessee must give Lessor written no Lessee's intention on or
before October 1, 2002. In addition, Lessee must pay to Lessor upon written
notification of early termination, an amount equal to three (3) times the
monthly base rent due for the month of November 2002. After November 30,
2002, there shall be no further early termination rights.
58. EARLY ACCESS:
Upon mutual lease execution, Lessee shall be granted access to the premises
for purposes of utility installation (i.e. phone, computer data line,
electrical, etc.) and furniture storage (in the office area) only. This
does not constitute possession of the premises, and Lessee agrees not to
occupy the premises until October 1, 1999 or sooner if permitted by Lessor.
<PAGE>
REAL ESTATE SERVICES
CALIFORNIA SALE/LEASE AMERICANS WITH DISABILITIES ACT,
HAZARDOUS MATERIALS AND TAX DISCLOSURE
ADA: The Americans With Disabilities Act is intended to make many business
establishments equally accessible to persons with a variety of disabilities;
modifications to real property may be required. State and local laws also may
mandate changes. The real estate brokers in this transaction are not
qualified to advise you as to what, if any, changes may be required now, or
in the future. Owners and tenants should consult the attorneys and qualified
design professionals of their choice for information regarding these matters.
Real estate brokers cannot determine which attorneys or design professionals
have the appropriate expertise in this area.
HAZARDOUS MATEERIALS: Various construction materials may contain items that
have been or may in the future be determined to be hazardous (toxic) or
undesirable and may need to be specifically treated/handled or removed. For
example, some transformers and other electrical components contain PCB's and
asbestos has been used in components such as fire-proofing, heating and
cooling systems, air duct insulation, spray-on and tile acoustical materials,
linoleum, floor tiles, roofing, dry wall and plaster. Due to prior or current
uses of the Property or in the area, the Property may have hazardous or
undesirable metals (including lead-based paint), minerals, chemicals,
hydrocarbons, or biological or radioactive items (including electric and
magnetic fields) in soils, water, building components, above or below-ground
containers or elsewhere in areas that may or may not be accessible or
noticeable. Such items may leak or otherwise be released. Real estate agents
have no expertise in the detection or correction of hazardous or undesirable
items. Expert inspections are necessary. Current or future laws may require
clean up by past, present and/or future owners and/or operators. It is the
responsibility of the Seller/Lessor and Buyer/Tenant to retain qualified
experts to detect and correct such matters and to consult with legal counsel
of their choice to determine what provisions, if any, they may include in
transaction documents regarding the Property.
ASBESTOS SURVEYS: To the best of Seller/Lessor's knowledge, Seller/Lessor
has attached to this Disclosure copies of all existing surveys and reports
known to Seller/Lessor regarding asbestos and other hazardous materials and
undesirable substances related to the Property. Sellers/Lessors are required
under California Health and Safety Code Section 25915 et seq. to disclose
reports and surveys regarding asbestos to certain persons, including their
employees, contractors, co-owners, purchasers and tenants. Buyers/Tenants
have similar disclosure obligations. Sellers/Lessors and Buyers/Tenants have
additional hazardous materials disclosure responsibilities to each other
under California Health and Safety Code Section 25359.7 and other California
laws. Consult your attorney regarding this matter, DELMAR COMPANY REAL ESTATE
SERVICES, AND THEIR AGENTS, ARE NOT QUALIFIED TO ASSIST YOU IN THIS MATTER OR
PROVIDE YOU WITH OTHER LEGAL OR TAX ADVICE
FIRPTA: Sale, lease and other transactions can have local, state and federal
tax consequences for the seller/lessor and/or buyer/tenant. In the event of
sale, Internal Revenue Code Section 1445 requires that all buyers of an
interest in any real property located in the United States must withhold and
pay over to the Internal Revenue Service (IRS) an amount equal to ten percent
(10%) of the gross sales price within ten (10) days of the date of the sale
unless the buyer can adequately establish that the seller was not a
foreigner, generally by having the seller sign a Non-Foreign Seller
Certificate. Note that depending upon the structure of the transaction, the
tax withholding liability could exceed the net cash proceeds to be paid to
the seller at closing. California poses an additional withholding requirement
equal to three and one-third percent (3 1/3%) of the gross sales price NOT
ONLY ON FOREIGN SELLERS BUT ALSO OUT-OF-STATE AND SELLERS AND SELLERS LEAVING
THE STATE if the sale price exceeds $100,000. Generally, withholding is
required if the sales proceeds are disbursed outside of California, if the
last known address of the seller is outside of California or if a financial
intermediary is used. Consult your tax and legal advisor. REAL ESTATE BROKERS
ARE NOT QUALIFIED TO GIVE LEGAL OR TAX ADVICE, NOR TO DETERMINE WHETHER ANY
OTHER PERSON IS PROPERLY QUALIFIED TO PROVIDE LEGAL OR TAX ADVICE.
Delmar Commercial Real Estate Services (Broker), its agents and brokers, have
not independently verified any information about the property, or its
suitability for your intended use. Broker recommends that buyers/tenants
select experienced professionals of their choice to inspect the property and
verify all the material facts concerning the property, including, but not
limited to Utilities available, city/county permits, zoning, entitlements,
ADA requirements, legal and tax matters, soils-drainage, flood control,
seismic safety requirements, Uniform Electrical Codes requirements for all
machines, and Fire-Sprinkler Requirements.
Your signature below evidences you have received a copy of this Disclosure.
SELLOR/LESSOR BUYER/TENANT
By: By:
------------------------------ --------------------------------
By: By:
------------------------------ --------------------------------
Date: Date:
---------------------------- ------------------------------
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<PAGE>
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