<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000.
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
-------------- ----------------
Commission File Number 0-22561
EFAX.COM
(Exact name of Registrant as specified in its charter)
Delaware 77-0182451
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1378 Willow Road, Menlo Park, California 94025
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (650) 324-0600
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 May 12, 2000 there were 13,191,359 shares of common stock, $.01 par
value, outstanding.
<PAGE>
EFAX.COM AND SUBSIDIARIES
INDEX TO
REPORT ON FORM 10-Q
FOR QUARTER ENDED APRIL 1, 2000
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets - March 31,
2000 and December 31, 1999................................. 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999................. 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999................. 5
Notes to Condensed Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 24
PART II. OTHER INFORMATION
Item 2. Changes in Securities........................................ 25
Item 6. Exhibits and Reports on Form 8-K............................. 25
Signature.................................................... 26
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EFAX.COM AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
March 31, December 31,
2000 1999 (1)
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,601 $ 1,752
Short-term investments - 2,988
Accounts receivable, net 2,180 2,414
Inventories 671 1,698
Prepaid expenses 342 507
---------- ----------
Total current assets 4,794 9,359
Property, net 2,295 2,253
Other assets 3,831 3,896
---------- ----------
Total assets $ 10,920 $ 15,508
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,076 $ 4,404
Accrued liabilities 2,836 2,044
Restructuring reserve 470 605
Current deferred revenue 659 360
---------- ----------
Total current liabilities 8,041 7,413
Deferred revenue 25 25
Stockholders' equity:
Series A convertible preferred stock, $0.01
par value; 5,000,000 shares authorized,
shares outstanding: 1,500 in 2000 and 1999 7,467 7,467
Common stock, $0.01 par value; 35,000,000
shares authorized, shares outstanding:
13,186,775 in 2000 and 13,012,130 in 1999 132 130
Additional paid-in capital 48,795 48,342
Warrants 7,098 7,098
Accumulated other comprehensive income - (7)
Accumulated deficit (60,638) (54,960)
---------- ----------
Total stockholders' equity 2,854 8,070
---------- ----------
Total liabilities and stockholders' equity $ 10,920 $ 15,508
========== ==========
</TABLE>
(1) Derived from the December 31, 1999 audited consolidated balance sheet
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
See notes to condensed consolidated financial statements.
3
<PAGE>
EFAX.COM AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Product $ 3,294 $ 6,196
Software and technology license fees 1,099 1,148
Development fees - 426
eFax services 1,119 -
---------- ----------
Total revenues 5,512 7,770
---------- ----------
Costs and expenses:
Cost of product revenues 2,458 4,304
Cost of software and technology license fees 114 164
Cost of eFax services 1,271 213
Research and development 1,368 1,655
Selling and marketing 3,796 1,957
General and administrative 1,876 791
---------- ----------
Total costs and expenses 10,883 9,084
---------- ----------
Loss from operations (5,371) (1,314)
---------- ----------
Other income (expense):
Interest income 63 53
Other expense (61) (16)
---------- ----------
Total other income, net 2 37
---------- ----------
Loss before income taxes (5,369) (1,277)
Provision for income taxes 10 15
---------- ----------
Net loss (5,379) (1,292)
Series A Convertible Preferred stock dividends (299) -
---------- ----------
Net loss applicable to common stockholders $ (5,678) $ (1,292)
========== ==========
Net loss per share:
Basic $ (0.43) $ (0.11)
========== ==========
Diluted $ (0.43) $ (0.11)
========== ==========
Shares used in computing net loss per share:
Basic 13,101 12,009
========== ==========
Diluted 13,101 12,009
========== ==========
</TABLE>
For presentation purposes, the periods ended April 1, 2000 and April 3, 1999
are referred to above as ending on March 31, 2000 and 1999, respectively.
4
<PAGE>
EFAX.COM AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,379) $ (1,292)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 393 195
Loss on disposal of assets 30 -
Issuance of Common Stock for services - 208
Common Stock options - severance 225 -
Changes in assets and liabilities:
Trade receivables 234 (503)
Inventories 1,027 511
Prepaid expenses 165 47
Accounts payable (328) 1,171
Deferred revenue 299 -
Accrued liabilities 493 (224)
Restructuring reserve (135) -
---------- ----------
Net cash provided by (used for) operating
Activities (2,976) 113
---------- ----------
Cash flows from investing activities:
Sale of short-term investments 2,981 1,750
Purchase of property (314) (314)
Proceeds from sale of property 17 -
(Increase) decrease in other assets (89) (103)
---------- ----------
Net cash provided by investing activities 2,595 1,333
---------- ----------
Cash flows from financing activities:
Proceeds from sale of Common Stock 230 181
---------- ----------
Net cash provided by financing activities 230 181
---------- ----------
Increase (decrease) in cash and cash equivalents (151) 1,627
Cash and cash equivalents, beginning of period 1,752 1,305
---------- ----------
Cash and cash equivalents, end of period $ 1,601 $ 2,932
========== ==========
Supplemental cash flow information:
Taxes paid - foreign withholding $ 10 $ -
========== ==========
Supplemental noncash investing and financial
information:
Issuance of Common Stock options - severance $ 225 $ -
========== ==========
Issuance of Common Stock for services $ - $ 208
========== ==========
Cumulative dividends on Series A Convertible
Preferred Stock $ 299 $ -
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
EFAX.COM AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
Interim Financial Information
- -----------------------------
The accompanying condensed consolidated financial statements of
eFax.com(tm) and its wholly-owned subsidiaries ("eFax" or the "Company") as of
March 31, 2000 and for the three months ended March 31, 2000 and 1999 are
unaudited. In the opinion of management, the condensed consolidated financial
statements include all adjustments (consisting of normal recurring accruals)
that management considers necessary for a fair presentation of its financial
position, operating results and cash flows for the interim periods presented.
Operating results and cash flows for interim periods are not necessarily
indicative of results for the entire year.
The condensed consolidated financial statements have been prepared on a
going concern basis, which contemplates, among other things, the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Company's net loss of $5.4 million for the three months ended March 31,
2000 and its negative working capital position of $3.2 million at March 31,
2000 raise substantial doubt regarding the Company's ability to continue as a
going concern. In the three months ended March 31, 2000, the Company's revenues
were not sufficient to support its operations, and revenues will not be
sufficient enough to support operations until such time, if any, that the
Company's revenues from fee generating Internet-based services gain substantial
market acceptance. The Company has completed discussions with JFAX.COM to
finance the Company through an interim loan agreement of $5.0 million while the
two parties continue merger discussions pursuant to a letter of intent to merge
the Company with JFAX.COM; however, no assurance can be given that these
discussions and negotiations will culminate in the contemplated merger.
In the event that the Merger is not consummated, the Company will need to
Obtain additional financing to repay the loan from JFAX.COM and to finance
continuing operating losses. In such event, there can be no assurance that the
Company will be successful in obtaining additional financing and that would
result in a material adverse effect on the Company's ability to meet its
business objectives and continue as a going concern. Management believes that
these actions will allow the Company to continue as a going concern.
Accordingly, the consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amount and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as
a going concern.
This financial data should be read in conjunction with the audited
financial statements and notes thereto included in eFax.com's Annual Report on
Form 10-K for the year ended December 31, 1999.
Certain prior quarter amounts have been reclassified to conform to the
current quarter presentation for cost of licenses and services as well as
selling and marketing expenses.
Fiscal Period End
- -----------------
The Company uses a 52-53 week fiscal year ending on the first Saturday on
or after December 31. For presentation purposes, the Company refers herein to
the 13-week periods ended April 1, 2000 and April 3, 1999 as the three months
ended March 31, 2000 and 1999, respectively.
Per Share Information
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average common shares outstanding for the period while diluted
earnings (loss) per share also includes the dilutive impact of stock options
and warrants. Common stock equivalents from options and warrants have been
excluded from the computation during all periods presented as their effect is
antidilutive due to eFax.com's net losses. Such options and warrants will be
included, using the treasury stock method, in periods where eFax.com reports
net income and the average fair market value of its common stock exceeds the
exercise price. The net loss and the shares used for the computation of both
basic and diluted loss per share are the same.
6
<PAGE>
EFAX.COM AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Inventories
-----------
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Materials and supplies $ 410 $ 305
Work-in-process - 624
Finished goods 261 769
---------- ----------
Total $ 671 $ 1,698
========== ==========
</TABLE>
3. Accrued Liabilities
-------------------
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Compensation and related benefits $ 993 $ 684
Accrued Series A Convertible Preferred
Stock dividends 1,068 769
Product warranty 56 59
Royalties 49 42
Other 670 490
---------- ----------
Total $ 2,836 $ 2,044
========== ==========
</TABLE>
4. Comprehensive Income
--------------------
Effective January 1, 1998, eFax.com adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires an enterprise to report, by major components and as a single
total, the change in net assets during the period from non-owner sources. For
the three months ended March 31, 2000 the eFax.com's comprehensive loss was
$5,372,000 as compared to a net loss of $5,379,000. For the three months ended
March 31, 1999, there were no differences between eFax.com's comprehensive loss
and net loss.
5. Disclosures about Segments of an Enterprise and Related Information
-------------------------------------------------------------------
The Company reports segment data pursuant to SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which establishes
annual and interim reporting standards for an enterprise's business segments
and related disclosures about its products, services, geographic areas and
major customers. The Company operates in one reportable segment, within which
are multiple product lines including internet-related services and legacy MFP
and OEM products. Revenues and related costs of goods and services are recorded
for internal management purposes as reflected in the accompanying Consolidated
Statement of Operations. For internal management purposes, expenses below that
level and related assets are not separately recorded and monitored.
7
<PAGE>
EFAX.COM AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Effect Of Changes In Accounting Principles
------------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
defines derivatives, requires that all derivatives be carried at fair value,
and provides for hedging accounting when certain conditions are met. The
Company is required to adopt this statement in the first quarter of fiscal year
2001, with early adoption permitted. On a forward-looking basis, although
eFax.com has not fully assessed the implications of this new statement,
eFax.com does not believe adoption of this statement will have a material
impact on eFax.com's financial position or results of operations.
7. Discontinued Product Lines and Related Restructuring Charges
------------------------------------------------------------
During January 2000, the Company restructured its operations to focus on
the Internet communications services which it introduced in February 1999 by
discontinuing efforts on the development and marketing of branded and licensed
products and software solutions for the "multifunction product ("MFP") market".
In connection with the Company's announced decision to exit from the
manufacturing of MFP products, the Company recognized in the fourth quarter of
1999 a $1.1 million write-down of inventory to reflect anticipated net
realizable values of the inventory on hand. Also in connection with the
Company's decision to exit from manufacturing MFP products, the Company
recognized in the fourth quarter of 1999 an $872,000 restructuring charge for
the write-down of capital equipment, intellectual property and leasehold
improvements, excess facilities accruals and severance costs. As a result, the
Company substantially reduced its manufacturing work force and downsized its
hardware manufacturing operations. The discontinuation and restructuring was
substantially completed in the first quarter of 2000, during which an
additional charge of $450,000 was recognized for certain executive severance
costs incurred in January 2000. The Company recorded total charges of $ 1.9
million as follows:
<TABLE>
<CAPTION>
Total
Restructuring Balance at
Charge Utilized March 31, 2000
(in thousands) ------------- -------- --------------
<S> <C> <C> <C>
Write-down of inventory $ 826 $ 826 $ -
Reserve for estimated cost of
purchase commitments 234 - 234
------- ------- -------
Subtotal 1,060 826 234
------- ------- -------
Write-down of machinery and equipment 312 312 -
Reserve for estimated lease costs 171 - 171
Reserve for estimated severance costs 169 157 12
Write-down of acquired technology 167 167 -
Reserve for estimated post-warranty
technical support costs 53 - 53
------- ------- -------
Subtotal 872 636 236
------- ------- -------
$ 1,932 $ 1,462 $ 470
======= ======= =======
</TABLE>
Included in the fourth quarter 1999 write-downs are charges $312,000
related to the net loss on disposal of machinery and equipment and leasehold
improvements which was written down to fair market value in accordance with
SFAS No. 121, "Accounting for Impairment of Long-Live Assets and for Long-Lived
Assets to be Disposed Of."
8
<PAGE>
The Company anticipates substantially all accrued severance and benefits
will be paid within one year.
8. Subsequent Events
-----------------
On April 5, 2000, the Company entered into a letter of intent and a loan
commitment letter with JFAX.COM, Inc., a unified Internet communications
company, which was filed with the Company's Current Report on Form 8-K filed on
April 6, 2000 in which:
o The Company and JFAX.COM established the principal terms for a potential
merger of the Company and JFAX.COM.
o JFAX.COM agreed to lend the Company $5 million. The loan will have an
interest rate of 13% and a maturity date of August 31, 2000, subject to
adjustment which could increase the maturity date by up to 60 days. On
May 5, 2000, the Company received the first in a series of advances under
that agreement totalling $750,000.
o The Company agreed to grant to JFAX.COM a warrant to acquire 250,000
shares of the Company's common stock. The warrant will have a term of two
years and will be exercisable at the market price of the Company's common
stock on the date of grant, but the exercise price will reset to $1.00 per
share if the proposed merger of the Company and JFAX.COM does not occur.
The warrant was granted on April 5, 2000 at a price of $4.4375.
o The Company agreed to grant to JFAX.COM a warrant with a term of two years
and an exercise price of $1.00 per share of the Company's common stock.
The warrant will be granted if the merger between the Company and JFAX.COM
does not occur. The warrant will be for 750,000 shares of the Company's
common stock if JFAX.COM terminates the merger discussions, other than
following a material breach of the letter of intent by the Company, prior
to the execution of a definitive merger agreement, or if the definitive
merger agreement is terminated because JFAX.COM's shareholders fail to
approve the merger or JFAX.COM materially breaches the definitive merger
agreement. The warrant will be for 1,750,000 shares of the Company's
common stock if the merger does not occur for any reason not discussed in
the preceding sentence.
Prior to the execution of a definitive purchase agreement, neither the
Company nor JFAX.COM is required to complete the merger. In the merger,
approximately 18.5 million shares of JFAX.COM common stock will be issued to
the current holders of the Company's common and preferred stock. The number of
shares of JFAX.COM common stock to be received will be subject to downward
adjustment based on the amount borrowed under the loan and from JFAX.COM.
JFAX.COM would be the surviving corporation in the merger. On April 5, 2000,
the Company and the current holders of all of its shares of Series A
Convertible Preferred Stock entered into an exchange agreement under which the
holders agreed to exchange all of their outstanding shares of Series A
Convertible Preferred Stock for a new Series B Convertible Preferred Stock. The
Series B shares have a stated value which reflects the 25% premium that the
holders would have had the right, under the Series A Convertible Preferred
Stock, to receive in cash at the time of the Company's merger with JFAX.COM.
The Company has the right to require the Series B stockholders to accept
JFAX.COM common stock at the closing of the merger in return for any shares of
Series B Convertible Preferred Stock which they then own. The Series B
Convertible Preferred Stock will be convertible into shares of the Company's
common stock based on the average closing bid price of the Company's common
stock for the 20 trading days beginning on April 7, 2000 and ending on May 5,
2000. The average closing bid price of the Company's common stock for this
period was $2.31.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
- --------
The statements contained in this Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 (the ''Securities Act'') and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"), including statements
regarding eFax.com's expectations, hopes, intentions or strategies regarding
the future. When used herein, the words ''may,'' ''will,'' ''expect,''
''anticipate,'' ''continue,'' ''estimate,'' ''project,'' ''intend'' and similar
expressions are intended to identify forward-looking statements within the
meaning of the Securities Act and the Exchange Act. Forward-looking statements
include: statements regarding events, conditions and financial trends that may
affect eFax.com's future plans of operations, business strategy, results of
operations and financial position. All forward-looking statements included in
this document are based on information available to eFax.com on the date
hereof, and eFax.com assumes no obligation to update any such forward-looking
statements. 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 from those included within the
forward-looking statements as a result of various factors. These forward-
looking statements are made in reliance upon the safe harbor provision of The
Private Securities Litigation Reform Act of 1995. Factors that could cause or
contribute to such differences include, but are not limited to, those described
below, under the heading "Factors That May Affect Operating Results" and
elsewhere in this Report on Form 10-Q.
eFax.com is a leading provider of Internet communications services.
eFax.com currently provides its free and fee-based Internet communications
services to more than 2.0 million users. In February 1999, eFax.com launched
its Internet communications services, which incorporate fax-to-email, voicemail
and voice-to-email capabilities. Prior to developing this market, eFax.com had
developed and marketed branded and licensed products and software solutions for
the multifunction product ("MFP") market, which consisted of electronic office
devices that combine print, fax, copy and scan capabilities in a single unit.
In addition, eFax.com has licensed its embedded systems technology and software
to a number of manufacturers of multi-function products. On January 10, 2000,
we announced that we will focus exclusively on expanding our position as a
leading provider of enhanced Internet communications services and solutions and
that we will discontinue manufacturing and sales of multifunction products.
eFax.com's revenues are derived from four sources: (i) product revenues
consisting of sales of JetFax branded MFPs, original equipment manufacturer
("OEM") branded MFPs, consumables and upgrades; (ii) software and technology
license fees related to both the Company's embedded system technology for MFPs
and desktop software; (iii) development fees for the customization and
integration of eFax.com's embedded system technology and desktop software in
OEM products; and (iv) eFax( Service revenues derived from the Company's
internet-based services introduced during the quarter ended June 30, 1999.
Historically, product revenues have accounted for the majority of eFax.com's
total revenues. For the three months ended March 31, 2000, product revenues,
software and technology licenses fees, development fees and eFax services
revenues as a percentage of total revenues were 59.8%, 19.9%, 0%, and 20.3%,
respectively, as compared to 79.7%, 14.8%, 5.5%, and 0% for the prior year.
Overall product revenues for the three months ended March 31, 2000
declined from the prior year as a result of the Company's transition to an
internet-based business model. Shipments of the new OEM platform MFP began in
the fourth quarter of 1999. In January 2000, the Company announced its decision
to discontinue manufacturing its MFP products. We completed the final OEM
shipments during the first quarter of 2000.
The new emphasis on Internet services has resulted in increased
expenditures for both external promotions and other marketing expenses. The
majority of these costs are related to media and Internet advertising promoting
both the basic service and new products and features as introduced. Similarly
infrastructure costs to support the planned expansion of services have
increased. These infrastructure costs include the cost of delivery of the
service such as telephony charges and depreciation on capital equipment, as
well as technical and operational support personnel.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
Recent Developments
- -------------------
On April 5, 2000, the Company entered into a letter of intent and a loan
commitment letter with JFAX.COM, Inc., a unified Internet communications
company, which was filed with the Company's Current Report on Form 8-K filed on
April 6, 2000 in which:
o The Company and JFAX.COM established the principal terms for a potential
merger of the Company and JFAX.COM.
o JFAX.COM agreed to lend the Company $5 million. The loan will have an
interest rate of 13% and a maturity date of August 31, 2000, subject to
adjustment which could increase the maturity date by up to 60 days. On
May 5, 2000, the Company received the first in a series of advances under
that agreement totalling $750,000.
o The Company agreed to grant to JFAX.COM a warrant to acquire 250,000
shares of the Company's common stock. The warrant will have a term of two
years and will be exercisable at the market price of the Company's common
stock on the date of grant, but the exercise price will reset to $1.00 per
share if the proposed merger of the Company and JFAX.COM does not occur.
The warrant was granted on April 5, 2000 at a price of $4.4375.
o The Company agreed to grant to JFAX.COM a warrant with a term of two years
and an exercise price of $1.00 per share of the Company's common stock.
The warrant will be granted if the merger between the Company and JFAX.COM
does not occur. The warrant will be for 750,000 shares of the Company's
common stock if JFAX.COM terminates the merger discussions, other than
following a material breach of the letter of intent by the Company, prior
to the execution of a definitive merger agreement, or if the definitive
merger agreement is terminated because JFAX.COM's shareholders fail to
approve the merger or JFAX.COM materially breaches the definitive merger
agreement. The warrant will be for 1,750,000 shares of the Company's
common stock if the merger does not occur for any reason not discussed in
the preceding sentence.
Prior to the execution of a definitive purchase agreement, neither the
Company nor JFAX.COM is required to complete the merger. In the merger,
approximately 18.5 million shares of JFAX.COM common stock will be issued to
the current holders of the Company's common and preferred stock. The number of
shares of JFAX.COM common stock to be received will be subject to downward
adjustment based on the amount borrowed under the loan and from JFAX.COM.
JFAX.COM would be the surviving corporation in the merger. On April 5, 2000,
the Company and the current holders of all of its shares of Series A
Convertible Preferred Stock entered into an exchange agreement under which the
holders agreed to exchange all of their outstanding shares of Series A
Convertible Preferred Stock for a new Series B Convertible Preferred Stock. The
Series B shares have a stated value which reflects the 25% premium that the
holders would have had the right, under the Series A Convertible Preferred
Stock, to receive in cash at the time of the Company's merger with JFAX.COM.
The Company has the right to require the Series B stockholders to accept
JFAX.COM common stock at the closing of the merger in return for any shares of
Series B Convertible Preferred Stock which they then own. The Series B
Convertible Preferred Stock will be convertible into shares of the Company's
common stock based on the average closing bid price of the Company's common
stock for the 20 trading days beginning on April 7, 2000 and ending on May 5,
2000. The average closing bid price of the Company's common stock for this
period was $2.31.
Results of Operations
- ---------------------
The following table sets forth, as a percentage of total revenues, certain
items in eFax.com's statements of operations for the periods indicated.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues:
Product 59.8% 79.7%
Software and technology license fees 19.9 14.8
Development fees - 5.5
eFax services 20.3 -
------ ------
Total revenues 100.0 100.0
------ ------
Costs and expenses:
Cost of product revenues 44.5 55.4
Cost of software and technology license fees 2.1 2.1
Cost of eFax services 23.1 2.7
Research and development 24.8 21.3
Selling and marketing 68.9 25.2
General and administrative 34.0 10.2
------ ------
Total costs and expenses 197.4 116.9
------ ------
Loss from operations (97.4) (16.9)
Other income, net - 0.5
------ ------
Loss before income taxes (97.4) (16.4)
Provision for income taxes 0.2 0.2
------ ------
Net loss (97.6)% (16.6)%
====== ======
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. Total revenues decreased 29% to $5.5 million from $7.8 million
--------
for the three months ended March 31, 2000 and 1999, respectively. The decline
resulted primarily from a decline in product revenues as the Company
transitioned to an internet-based business model.
Product revenues decreased 47% to $3.3 million from $6.2 million for the
three months ended March 31, 2000 and 1999, respectively, a reflection of the
factors related to the discontinuation of the Company's JetFax branded
products. Revenue from shipments of MFPs for the three months ended March 31,
2000 declined 69% from the similar period in the preceding year, as final
domestic and international units of the JetFax branded Series M900 product were
sold. Product revenues also reflected the continued erosion in average selling
prices, driven by the level of OEM business, product discontinuation and
general market pressures. Average selling prices for the three months ended
March 31, 2000 declined 17% from the similar period in the prior year. Unit
sales for the three months ended March 31, 2000 also decreased, down 64% from
the similar period in the prior year. As a result, hardware product revenues
declined for the three months ended March 31, 2000 as the move to a new
business model was implemented. During the first quarter of 2000, we shipped
our remaining MFP product inventory to our OEM customer and do not intend to
sell any MFP products in the future. Consumable revenues increased 1.3% for the
three months ended March 31, 2000 versus the similar period in the prior year.
We anticipate that we will continue to sell consumables to our installed base
of hardware customers. However, as this base will not continue to grow, we
expect consumable revenues will begin to decline over the next several
quarters.
Software and technology licensing fees declined 4% to $1.1 million for the
three months ended March 31, 2000 from $1.1 million for the three months ended
March 31, 1999. Royalty fees from sales of the Hewlett-Packard 3100 decreased
by 7% from the prior year. In January 2000, Hewlett-Packard released the
follow-on product to the 3100, the 3150. We anticipate that we will continue
to receive royalties over the life of this product.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
Development fees declined 100% to none from $426,000 for the three months
ended March 31, 2000 and 1999, respectively, reflecting the completion of
current projects and conversion of development fees to per unit royalties.
Currently, we have no plans for new development projects and as a result do not
anticipate future development fees.
eFax Services revenue totaled $1.1 million for the three months ended
March 31, 2000 as compared to none in the first quarter of 1999 and reflects
the Company's transition to an internet-based business model. eFax Services
revenue consisted primarily of recurring monthly subscription fees, signup
fees, usage-based charges and revenues from advertising activities. eFax
premium service revenues began in June 1999.
International revenues accounted for 7% and 16% of total revenues for the
three months ended March 31, 2000 and 1999, respectively. All of the
development fees and software and technology license revenues, and most of the
product revenues, have been denominated and collected in United States dollars.
Historically, international revenues were derived primarily from product sales
and consumables. International revenues are likely to decline in the near term
due to the discontinuation of hardware production. The Company has not hedged
the foreign currency exposure related to product sales denominated in foreign
currencies as the impact has not been significant.
Software and technology license fees result from licensing the Company's
proprietary embedded system technology and desktop software to OEMs for
integration into their products. The recurring license revenues reported by the
Company are dependent on the timing and accuracy of product manufacturing or
quarterly sales reports received from the Company's OEM customers. The
quarterly reports, as well as any verbal estimates, are subject to delay and
potential revision by the OEM. In such an event, the Company may subsequently
be required to adjust revenues for subsequent periods due to the change in
estimate, which could have a material adverse effect on the Company's business,
financial condition, and results of operations and on the price of the
Company's Common Stock.
Two customers, Konica Business Technologies and Hewlett-Packard, accounted
for $1.4 million (25%) and $914,000 (17%) of total revenues for the current
quarter, respectively. Two customers, Hewlett-Packard and IKON Office
Solutions, accounted for $1.2 million (16%) and $1.0 million (14%),
respectively, of total revenues for the quarter ended March 31, 1999
Cost of Product Revenues. Cost of product revenues consists primarily of
------------------------
purchased materials; direct production labor and supervision for assembly and
testing; subcontracted manufacturing, mainly for printed circuit boards;
indirect labor for inventory management, shipping and receiving, purchasing,
manufacturing engineering, document control and operations management; and
related facility and support costs. Cost of product revenues may vary as a
percentage of total revenues in the future as a result primarily the cost of
consumables.
The gross margins for the Company's branded MFP products were constrained
by the competitive nature of the marketplace, pricing pressures and the greater
name recognition of the larger companies with which eFax.com competes. The
margins on consumables, such as toner cartridges and drums, and on upgrades,
such as the two-line upgrade, were typically higher than on the base unit. In
addition, the Company's consumables generate recurring revenues which tend to
increase as the cumulative number of units sold increases.
Cost of product revenues decreased 43% to $2.5 million from $4.3 million
for the three months ended March 31, 2000 and 1999, respectively. Product
gross margin was 25%, down from 31% for the similar period in the prior year.
The decrease was attributable to volume and average selling price declines.
Cost of Software and Technology License Fees Revenues. Cost of software
and technology license fees revenues consists primarily of royalties paid for
licensed technology included in the Company's products and amortization of
purchased technology. Cost of software and technology license fees revenues
decreased 30% to $114,000 from $164,000. The decrease in royalty revenues for
the three months ended March 31, 2000 generated a corresponding decrease in
royalties payable for certain technology licensed from others for the same
period.
Cost of eFax Services. Direct costs of providing the eFax Services
---------------------
totaled $1.3 million for the three months ended March 31, 2000 as compared to
$213,000 in the similar period in the prior year. Planned expansion in
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
support of the business growth included service delivery costs such as
telephony charges, depreciation on capital equipment, operations personnel as
well as all technical and customer support related expenses.
Research and Development. Research and development expenses declined 17%
------------------------
to $1.4 million from $1.7 million for the three months ended March 31, 2000 and
1999, respectively, resulting from lower software development charges in
support of the new eFax Service, reduced outside development services and a
decrease in prototype and tooling charges in support of the OEM MFP platform.
Selling and Marketing. Selling and marketing expenses increased 94% to
---------------------
$3.8 million from $2.0 million for the three months ended March 31, 2000 and
1999, respectively. Increased promotional activity in support of the new eFax
Service accounted for substantially all of the increase, more than offsetting
the elimination of external marketing efforts related to the branded hardware
business. Selling and marketing expenses included approximately $2.0 million in
expenses associated with advertising for the three months ended March 31, 2000
as compared to $574,000 million for the similar period in 1999. Selling and
marketing expenses are expected to decline from the current level on a dollar
basis in the second and third quarters of 2000 but remain important to the
Company's continued development.
General and Administrative. General and administrative expenses rose
--------------------------
137% to $1.9 million from $791,000 for the three months ended March 31, 2000
and 1999, respectively. The increase primarily resulted from $450,000 of
severance charges related to changes in executive management in the first
quarter. The increase in general and administrative expenses in 2000 also
resulted from the amortization of trademarks, legal expenses, consultant
expenses, and, to a lesser degree, hiring and compensation expenses were
responsible for this increase.
Interest and Other Income, Net. Interest and other income, net, decreased
------------------------------
to $2,000 from $37,000 for the three months ended March 31, 2000 and 1999,
respectively, reflecting primarily a decrease in interest income from interest-
bearing investments.
Provision for Income Tax. Due to eFax.com's net losses, there were no
------------------------
provisions for federal or state income taxes for three months ended March 31,
1999 and 1998, respectively. Income tax provisions of $10,000 and $15,000,
respectively, relate primarily to foreign withholding taxes on certain royalty
fees, but also include minimum state and franchise taxes.
Recent Accounting Pronouncements
- --------------------------------
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". This bulletin summarizes certain interpretations and practices
followed by the Division of Corporation Finance and the Office of the Chief
Accountant of the SEC in administering the disclosure requirements of the
Federal securities laws in applying generally accepted accounting principles to
revenue recognition in financial statements. Application of the accounting and
disclosures desired in the bulletin is required by the second quarter of 2000.
The Company has elected early adoption of SAB 101 and is in compliance with SAB
101 revenue recognition requirements.
Liquidity and Capital Resources
- -------------------------------
In the three months ended March 31, 2000, the Company's revenues were not
sufficient to support its operations, and revenues will not be sufficient
enough to support operations until such time, if any, that the Company's
revenues from technology licensing agreements and fee generating Internet-based
services gain substantial market acceptance. Historically, eFax.com has
financed its operations to date principally through private placements of debt
and equity securities, proceeds from borrowings under a bank line of credit,
debt associated with the Crandell Acquisition, and sales of common stock. The
total amount of equity raised through March 31, 2000 was approximately $70
million through a series of private financing rounds at both eFax.com and
DocuMagix, and sales of common and preferred stock. The Company has completed
discussions with JFAX.COM to finance the
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
Company through an interim loan agreement of $5.0 million while the two parties
continue merger discussion pursuant to a letter of intent to merge the Company
with JFAX.COM; however, no assurance can be given that these discussions and
negotiations will culminate in the contemplated merger. On May 5, 2000 the
Company received $750,000 pursuant to the terms of the loan agreement. In the
event that the Merger is not consummated, the Company will need to obtain
additional financing to repay the loan from JFAX.COM and to finance continuing
operating losses. In such event, there can be no assurance that the Company
will be successful in obtaining additional financing and that would result in a
material adverse effect on the Company's ability to meet its business
objectives and continue as a going concern. See Notes 1 and 8 to the Condensed
Consolidated Financial Statements.
Cash, cash equivalents and short-term investments decreased to $1.6
million at March 31, 2000 from $4.7 million at December 31, 1999. Net cash used
for operating activities was $3.0 million for the three months ended March 31,
2000, resulting primarily from the Company's net loss of $5.4 million partially
offset by noncash charges of $648,000. In addition, inventories decreased to
$671,000 from $1.7 million at March 31, 2000 and 1999, respectively, a result
of reduced stocking levels related to the discontinuance of the Company's MFP
product line and an associated write-down of $1.0 million. Accounts receivable
decreased to $2.2 million from $2.4 million at March 31, 2000 and 1999,
respectively, which was principally the result of the withdrawal from the MFP
market. Accounts payable decreased $328,000 to $4.1 million at March 31, 2000
from $4.4 million at December 31, 1999. Other changes in working capital items
also partially offset the net loss by approximately $1.3 million.
Investing activities for the three months ended March 31, 2000 provided
$2.6 million of cash as $3.0 million in proceeds from the sale of short-term
investments and $17,000 in proceeds from the sale of property were partially
offset by $314,000 for property purchases and a $65,000 decrease in other
assets.
Financing activities for the three months ended March 31, 2000 provided
$230,000 of cash in proceeds from the sale of Common Stock.
Factors That May Affect Operating Results
- -----------------------------------------
eFax.com operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. This Quarterly Report on Form 10-Q
and the documents incorporated by reference in this Quarterly Report on Form
10-Q may contain projections of results of operations and financial condition
or other "forward-looking statements" which involve risks and uncertainties.
The words "anticipate," "believe," "estimate," and "expect" and similar
expressions when used in this Quarterly Report on Form 10-Q in relation to
eFax.com or its management are intended to identify such forward-looking
statements. eFax.com's actual results, performance, or achievements could
differ materially from these projections or forward-looking statements as a
result of many factors, including those discussed in this "Factors That May
Affect Operating Results" section of this Quarterly Report on Form 10-Q. This
section should be read in conjunction with the unaudited Condensed Consolidated
Financial Statements and Notes thereto and the audited Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 31,
1999 contained in eFax.com's Annual Report on Form 10-K for the year ended
December 31, 1999.
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT
eFax.com has had annual net losses since the company was formed.
eFax.com's historical losses and certain preferred stock dividends have
resulted in an accumulated deficit of approximately $60.6 million as of March
31, 2000. We can give you no assurance that eFax.com will achieve profitability
on a quarterly or annual basis in the future. As a result of our history of
operating losses and substantial expenditures associated with the transition to
an Internet-based business model, we are currently experiencing a liquidity
shortfall which we are addressing by seeking additional capital investments.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT FUNDS TO OPERATE OUR BUSINESS.
Due to our limited operating history in Internet communication services
and the nature of our industry, our future capital needs are difficult to
predict. Our current assets are less than our quarterly loss from operations.
Therefore, we will require additional capital to fund any of the following:
o continuing operating losses;
o unanticipated opportunities;
o strategic alliances;
o changing business conditions; and
o unanticipated competitive pressures.
Obtaining additional financing will be subject to a number of factors,
including restrictions placed on us by JFAX and our other creditors, market
conditions, our operating performance and investor sentiment. These factors may
make the timing, amount, terms and conditions of additional financings
unattractive to us. If we are unable to raise additional capital, our current
operations and our growth could be impeded.
WE HAVE EXPERIENCED FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS.
eFax.com in the past has experienced, and in the future may experience,
significant fluctuations in its quarterly operating results. These fluctuations
have been or may be caused by many factors, including:
o acceptance and timing of new products combining communications technology
with the Internet;
o the size and timing of development or software licensing agreements;
o fluctuations in consumer demand for products which are made by eFax.com's
manufacturing and software license customers incorporating eFax.com's
technology; and
o seasonal trends, competition and pricing.
EFAX.COM EXPECTS THAT ITS OPERATING RESULTS WILL CONTINUE TO FLUCTUATE AS A
RESULT OF THESE AND OTHER FACTORS.
For these and other reasons, we believe that period-to-period comparisons
of eFax.com's results of operations are not necessarily meaningful. We believe
that you should not rely upon these comparisons as indicators of future
performance. It is likely that in future quarters, eFax.com's operating results
will sometimes be below the expectations of public market analysts and
investors. This could have a material adverse effect on the price of eFax.com's
common stock.
We believe that the accuracy of eFax.com's report of its quarterly license
revenues received from its manufacturing and software license customers has
been, and will continue to be, dependent on the timing and accuracy of product
sales reports which we receive from these manufacturing and software license
customers. Our manufacturing and software license customers only provide these
reports on a quarterly basis and this quarterly basis may not coincide with
eFax.com's quarter. Our manufacturing and software license customers may also
delay or
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
revise these reports. Therefore, we are required to estimate all of the
recurring license revenues from manufacturing and software license customers
for each quarter. As a result, we will record an estimate of such revenues
prior to public announcement of eFax.com's quarterly results. In the event the
product sales reports we receive from our manufacturing and software license
customers are delayed or subsequently revised, we may be required to adjust
revenues for subsequent periods. This adjustment of revenues could have a
material adverse effect on eFax.com's business, financial condition and results
of operations and, as a result, the price of eFax.com's common stock.
WE HAVE CHANGED THE FOCUS OF OUR BUSINESS TO INTERNET-RELATED SERVICES,
PRODUCTS AND TECHNOLOGIES AND GROWTH OF BUSINESS IN THIS NEW FOCUS AREA IS
UNCERTAIN.
Historically, eFax.com has focused primarily on the development,
manufacture and sale of its branded multifunction products. eFax.com derived a
substantial portion of its revenues from the sale of these brand multifunction
products. However, on January 10, 2000, we announced the discontinuation of our
manufacturing operations and that we now expect that our future revenue growth
will be dependent, largely, on expansion of our Internet-based communications
services, such as its fax-to-e-mail service, and on further licensing of
eFax.com's hardware and software technologies and software products. Currently,
costs exceed our revenue from our Internet-based communications services. In
addition, we cannot assure you that eFax.com will realize growth in revenues
from such sales. If such growth in revenues does not occur, it could have a
material adverse effect on eFax.com's business, financial condition and results
of operations.
THE PRICE OF EFAX.COM STOCK MAY BE VOLATILE DUE TO MANY FACTORS, INCLUDING OUR
STATUS AS AN INTERNET-RELATED COMPANY, OUR LIQUIDITY, FLUCTUATIONS IN OUR
QUARTERLY OPERATING RESULTS, THE RAPID PACE OF TECHNOLOGICAL CHANGE, THE
UNCERTAINTY OF OUR BUSINESS TRANSACTIONS AND THE CONTENTS OF NEWS AND SECURITY
ANALYST REPORTS.
The trading price of eFax.com's common stock is likely to be highly
volatile. The price could be subject to wide fluctuations in response to
factors such as:
o actual or anticipated variations in eFax.com's quarterly operating
results;
o announcements of events affecting our liquidity, including any subsequent
financing and the status of the proposed merger with JFAX;
o announcements of significant acquisitions or strategic partnerships by
eFax.com or its competitors;
o changes in financial estimates and recommendations by securities analysts;
and
o news reports relating to trends in eFax.com's markets.
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that is often unrelated to the operating performance of these companies. These
broad market and industry fluctuations may adversely affect the price of
eFax.com's common stock, regardless of eFax.com's actual operating performance.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
CERTAIN OF OUR PRODUCTS ARE BEING DISCONTINUED AND OUR MANUFACTURING AND
SOFTWARE LICENSE CUSTOMERS, WHICH PROVIDE A SIGNIFICANT PORTION OF OUR
REVENUES, MAY NOT CONTINUE TO DEVELOP, MARKET OR SELL PRODUCTS INCORPORATING
EFAX.COM'S TECHNOLOGY.
eFax.com has derived a significant portion of its revenues from licensing
of its software and hardware and software technologies to other parties and
from providing development services to manufacturing and software license
customers. eFax.com currently has manufacturing relationships with Hewlett-
Packard Company, Oki Data Corporation, and Konica Business Systems. As a
result of discontinuing our hardware products, we do not anticipate future
product revenues Oki Data Corporation or Konica Business Systems after the
first quarter of 2000. eFax.com anticipates that it will derive a significant
portion of its revenues in the future from Hewlett-Packard Company and its
software license customers and that eFax.com's revenues will be dependent upon,
among other things, the ability and willingness of its manufacturing and
software license customers to develop and promote products that incorporate
eFax.com's technology. The ability and willingness of these manufacturing and
software license customers to do this is based upon a number of factors,
including eFax.com's ability to complete timely development of designs for
them. We cannot give you any assurances regarding the ability or willingness
of eFax.com's manufacturing and software license customers to continue
developing, marketing and selling products incorporating eFax.com's technology.
The loss of any of eFax.com's significant manufacturing and software license
customers could have a material adverse effect on eFax.com's business,
financial condition and results of operations.
ALTHOUGH WE TAKE STEPS TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WE MAY
BECOME SUBJECT TO TIME-CONSUMING AND COSTLY LITIGATION WHERE WE ARE ACCUSED OF
INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHER PARTIES. IN FACT, WE WERE
RECENTLY SUED FOR INFRINGING A TRADEMARK OF E-FAX COMMUNICATIONS.
eFax.com's success is heavily dependent upon its intellectual property.
To protect its proprietary rights, eFax.com relies on a combination of
copyright, trade secret and trademark laws, patents, nondisclosure agreements
and other contractual restrictions. As part of its confidentiality procedures,
eFax.com generally enters into nondisclosure agreements with its employees,
consultants, manufacturing and software license customers and strategic
partners. eFax.com also limits access to and distribution of its designs,
software and other proprietary information. Despite these efforts, eFax.com may
be unable to effectively protect its proprietary rights. In addition,
enforcement of eFax.com's proprietary rights may be expensive. We cannot assure
you that eFax.com's means of protecting its proprietary rights will be
adequate. Nor can we assure you that eFax.com's competitors will not
independently develop similar technology.
As the number of patents, copyrights, trademarks and other intellectual
property rights in eFax.com's industry increases, eFax.com's intellectual
property may increasingly become the subject of infringement claims. In the
past, eFax.com has received communications from other parties claiming that
eFax.com's trademarks or products infringe the proprietary rights of these
parties. eFax.com has also received communications asking for
"indemnification" against such infringement. "Indemnification" means that
eFax.com would promise to repay or reimburse the other party for loss or
damages suffered by that other party as a result of infringement. eFax.com's
manufacturing and software license customers generally require eFax.com to
reimburse or "indemnify" the manufacturing and software license customers for
claims of infringement from third parties. We can give you no assurance that
third parties will not make infringement claims against eFax.com or its
manufacturing and software license customers in the future. Any of these
claims, even if they have no legal merit, could be time consuming (especially
for key management and technical personnel), result in costly litigation or
cause delays in revenues. In addition, these claims could require eFax.com to
enter into royalty or licensing agreements on terms unacceptable to eFax.com.
If eFax.com fails to develop a substitute technology, or to license a
substitute technology on acceptable terms, this could have a material adverse
effect on eFax.com's business, financial condition and results of operations.
As an example, eFax.com was sued in February 1999 by E-Fax Communications which
claimed that the use of the name "eFax.com" infringed this party's trademark
rights. In settlement of the matter, eFax.com paid E-Fax Communications a
combination of cash and common stock in an amount not exceeding $2.5 million.
OUR REVENUES MAY NOT GROW AS ANTICIPATED BECAUSE THE MARKET FOR OUR INTERNET-
RELATED SERVICES IS NEW, RAPIDLY CHANGING AND UNCERTAIN.
The market for Internet-related communication services is very new and is
evolving rapidly. eFax.com expects to rely significantly in the future on
revenues generated through its "eFax" service, a free fax-to-email, email-to-
fax and voice-to-email service, and products which support this service. We
cannot assure you, however, that the base of customers subscribing to our
eFax(c) service will continue to expand rapidly. Nor can we assure you that
users will be willing to pay fees for premium services or that the subscriber
base will grow large enough to be capable of generating advertising revenue. As
a result, our revenues may not grow as anticipated, which would have a negative
effect on our business.
WE DEPEND ON THE CONTINUED GROWTH OF INTERNET COMMERCE. WE FACE THE RISKS THAT
INTERNET COMMERCE MAY NOT GROW AS RAPIDLY AS ANTICIPATED AND THAT THE INTERNET
MAY EXPERIENCE TECHNICAL PROBLEMS DUE TO INSUFFICIENT INFRASTRUCTURE AND
INADEQUATE TECHNOLOGICAL IMPROVEMENTS.
eFax.com intends to derive a significant portion of its revenues from its
Internet communications services, called "eFax", and related products. Rapid
growth in the use of and interest in the Internet and online Internet services
is a recent phenomenon. As a result, a sufficiently broad base of consumers may
not adopt and continue to use the Internet and other online services as a way
of purchasing and conducting business. Internet web-based advertising and the
sales of premium Internet services are relatively new. It is difficult to
predict the extent that these will grow, or if they will grow at all. In
addition, the Internet may not prove to be a viable commercial marketplace for
reasons such as potentially inadequate development of:
o Internet network infrastructure; and
o technologies which enable use of the Internet.
If any of the following take place, it could have a material adverse
effect on eFax.com's business, financial condition and results of operation:
o if the use of the Internet and other online services does not continue to
increase or increases more slowly than expected;
o if performance improvements to support increased levels of Internet
activity prove to be inadequate,
o if the infrastructure for the Internet and online services proves to be
inadequate to effectively support expansion; or
o if the Internet does not become a viable commercial marketplace.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
WE MAY FAIL TO ADAPT TO OUR MARKET'S RAPIDLY CHANGING TECHNOLOGY AND EVOLVING
INDUSTRY STANDARDS AND WE MAY LOSE COMPETITIVENESS AND REVENUES AS A RESULT.
The market for eFax.com's products and services is characterized by
rapidly changing technology, evolving industry standards and needs, and
frequent new product introductions. As the market for Internet-based
communication services grows, this market will begin to exert more pressure on
companies to develop advanced features at more economical pricing. As product
development increases in complexity and the expected time to bring a product to
market continues to decrease, the risk and difficulty in meeting these
development schedules increases and the costs to eFax.com and its manufacturing
and software license customers also increases. In addition, eFax.com, its
manufacturing and software license customers and their competitors may, from
time to time, announce new products, capabilities or technologies that may
replace or shorten the life cycles of eFax.com's services and software and the
life cycles of manufacturing and software license customers' products
incorporating eFax.com's technology. eFax.com's success will depend on, among
other things:
o market acceptance of eFax.com's service offerings; and
o the ability of eFax.com and its manufacturing and software license
customers to respond to industry changes and market demands.
Any failure of eFax.com to anticipate or respond adequately to the rapidly
changing technology and evolving industry standards and needs could result in a
loss of our competitiveness or revenues. Any significant delay in our
development or introduction of new and enhanced products and services could
also result in a loss of competitiveness or revenues. Such a loss of
competitiveness or revenues could have a material adverse effect on eFax.com's
business, financial condition and results of operations.
WE FACE A HIGH LEVEL OF COMPETITION IN OUR INTERNET-RELATED INDUSTRY.
The market for Internet-related communication services, such as eFax.com's
fax-to-e-mail service, is a newly emerging market and competitors are just
beginning to appear. eFax.com anticipates that it will need to:
o provide good service and grow its business rapidly to meet demand;
o create name recognition for eFax.com in advance of competitors;
o build its subscriber base prior to any significant entry by the
competition; and
o continue to expand and improve on its Internet communication service
offerings.
eFax.com's technology, development services and software primarily compete
with solutions developed internally by manufacturing and software license
customers. Virtually all of eFax.com's manufacturing and software license
customers have significant investments in their existing solutions. These
manufacturing and software license customers have the substantial resources
necessary to develop competing multifunction technologies and software that may
be implemented into their own products. eFax.com also competes with
technologies, software and development services provided in the multifunction
product market by other systems and software suppliers to manufacturing and
software license customers.
The market for Internet-related communication services, related technology
and software is highly competitive. This market is characterized by continuous
pressure to improve performance, to introduce new features and to accelerate
the release of new products. eFax.com also competes on the basis of vendor
name and recognition, technology and software expertise, product functionality,
development time and price. eFax.com anticipates
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
increasing competition for its multifunction products, technologies, software
under development and Internet services. Most of eFax.com's existing
competitors, many of its potential competitors and all of eFax.com's
manufacturing and software license customers have substantially greater
financial, technical, marketing and sales resources than eFax.com. In the
event that price competition increases, competitive pressures could cause
eFax.com to:
o reduce the cost of its fee-based eFax Service offerings;
o expand services to match those offered by competitors; or
o reduce the amount of royalties received on new licenses.
In turn, these reductions could reduce eFax.com's profit margins and
result in losses and a decrease in market share, which would have a material
adverse effect on eFax.com's business, financial condition and results of
operations.
WE ARE DEPENDENT ON KEY PERSONNEL AND COULD BE AFFECTED BY THE LOSS OF THEIR
SERVICES.
eFax.com is largely dependent upon the skills and efforts of its senior
management, as well as other officers and key employees, some of whom only
recently have joined eFax.com. None of eFax.com's officers or key employees
have an employment agreement with eFax.com. eFax.com believes that its future
success will depend in large part upon its ability to attract and retain highly
skilled engineering, managerial, sales, marketing and operations personnel,
many of whom are in great demand. Competition for such personnel, especially
engineering personnel, has recently increased significantly. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect on eFax.com's business, financial condition and results
of operations. Edward R. Prince, III, our Chief Executive Officer, and Lon
Radin, our Vice President of Engineering recently resigned.
OUR RAPID GROWTH PLACES A STRAIN ON OUR OPERATIONS AND FINANCIAL RESOURCES AND
WE MAY FAIL TO MANAGE OUR GROWTH EFFECTIVELY. IN ADDITION, WE MAY FACE RISKS
ASSOCIATED WITH ANY POTENTIAL ACQUISITION OF OTHER COMPANIES WHICH WE MAY
CHOOSE TO UNDERTAKE.
eFax.com has grown rapidly in recent years. A continuing period of rapid
growth could place a significant strain on eFax.com's management, operations
and other resources. eFax.com's ability to manage its growth will require
eFax.com to continue to invest in its operational, financial and management
information systems, procedures and controls, and to attract, retain, motivate
and effectively manage its employees. We can give no assurance that eFax.com
will be able to manage its growth effectively. Failure to manage growth
effectively would have a material adverse effect on eFax.com's business,
financial condition and results of operations. eFax.com may, from time to time,
pursue the acquisition of other companies, assets or product lines that
complement or expand its existing business. Acquisitions involve a number of
risks that could adversely affect eFax.com's operating results. These risks
include:
o the diversion of management's attention from day-to-day business;
o the difficulty of combining and assimilating the operations and personnel
of the acquired companies;
o charges to the company's earnings as a result of the purchase of
intangible assets; and
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
o the potential loss of key employees as a result of an acquisition.
eFax.com has no present commitments nor is it engaged in any discussions
or negotiations regarding possible acquisitions. However, should any
acquisition by eFax.com take place, we can give no assurance that this
acquisition will not materially and adversely affect eFax.com or that any such
acquisition will enhance eFax.com's business.
WE ARE DEPENDENT ON A LIMITED NUMBER OF SERVICE PROVIDERS AND MAY BE AFFECTED
BY CHANGES, DELAYS OR INTERRUPTIONS IN OF SERVICES FROM THESE SUPPLIERS.
eFax.com relies on various providers or network communication
infrastructure, telecommunications infrastructure and other partners providing
network management services. We depend on relationships with providers and
partners for, among other things:
o management of our network operations;
o providing and managing our telephone numbers;
o telephony infrastructure; and
o network connectivity.
eFax.com generally purchases network and telecommunications services under
multi-year agreements. Alternate providers or partners may be readily
available for some of these services, but there may be unavoidable
interruptions in service if we change service providers. However, for other
network management services, we do not know how long it would take to find a
replacement provider or partner and to establish a replacement network
operations center. If we need to find another provider or partner of those
network management services which we now purchase from a single source, we may
experience delays, operational difficulties and increased expenses, and our
ability to provide services to our users or expand our operations may be
impaired. Although we believe we could develop other providers or partners for
these single source services, no alternative providers or partners currently
exist and the process of finding an alternate provider or partner could take
several months or longer. Therefore, any interruption in the performance of
these network management services could have a material adverse effect on
eFax.com's business, financial condition and results of operations.
Given our dependence on network communication infrastructure,
telecommunications infrastructure and network management partners, any of the
following events could have a material adverse effect on eFax.com's business,
financial condition and results of operations:
o if any of these companies were to experience extended interruptions in
network services;
o if these providers were to experience financial difficulties or other
problems which prevented them from meeting contractual service obligations;
o any shortage or interruption in the supply of telephone numbers used in
eFax.com's services; or
o the inability of eFax.com to obtain any of these services from alternate
providers or partner on acceptable terms.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
WE GENERATE A PORTION OF OUR REVENUES FROM OUR INTERNATIONAL ACTIVITIES AND WE
ARE SUBJECT TO MANY RISKS AS A RESULT OF THESE ACTIVITIES.
A portion of eFax.com's total revenues come from sales to eFax.com's
customers outside the United States. The international market for eFax.com's
brand products and products incorporating eFax.com's technology and software is
highly competitive. Risks inherent in eFax.com's international business
activities also include:
o currency fluctuations and restrictions;
o the burdens of complying with a wide variety of foreign laws and
regulations;
o longer accounts receivable cycles;
o the imposition of government controls;
o risks of localizing and internationalizing products to local requirements
in foreign countries;
o trade restrictions;
o tariffs and other trade barriers;
o restrictions on bringing earnings back into the United States; and
o potentially adverse tax consequences.
Any of these risks could have a material adverse effect on eFax.com's
business, financial condition and results of operations. Substantially all of
eFax.com's international sales are currently made in U.S. dollars. Therefore,
increases in the value of the U.S. dollar relative to foreign currencies could
make eFax.com's products less competitive in foreign markets. Because of
eFax.com's international activities, it faces currency exposure and currency
exchange risks. For example, eFax.com purchases some of its key components
pursuant to purchase contracts which require payment in foreign currency which
results in currency exchange risks.
OUR BUSINESS DEPENDS UPON THE DELIVERY OF ACCURATE ELECTRONIC INFORMATION VIA
THE INTERNET, AND IF YEAR 2000 ISSUES CAUSE LONG-TERM INOPERABILITY OF THE
INTERNET OR OUR SERVICES, WE COULD LOSE USERS OF OUR SERVICES OR BE UNABLE TO
CONTINUE OUR BUSINESS.
Any year 2000 compliance problems faced by us, users of our online
marketplace and strategic partners could seriously harm our business. In
addition, our ability to operate our business depends upon delivery of
accurate, electronic information via the Internet. To the extent year 2000
issues result in the long-term inoperability of the Internet or our online
marketplace, our business would be seriously harmed.
We can give you no assurance that we were able to detect all potential
failures of eFax.com's computer systems or the computer systems of third
parties. A significant failure of eFax.com's or a third party's computer
system could have a material adverse effect on eFax.com's business, financial
condition and results of operations. eFax.com has completed its contingency
plan, detailing actions that would be taken in the event that such failure
occurs. To date, we have not experienced any significant disruptions related to
the Year 2000 issue.
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION (Continued)
WE MAY BE ADVERSELY AFFECTED IF OUR COMPUTER SYSTEMS OR THOSE OF OUR
DISTRIBUTORS, SUPPLIERS AND CUSTOMERS FAIL BECAUSE OF ANY RESIDUAL YEAR 2000
PROBLEMS.
The Year 2000 issue refers to whether computer systems will properly
recognize two digit year values as the year 2000 versus the year 1900. Systems
that do not properly recognize such information could generate erroneous data
or cause a system to fail. Any year 2000 compliance problems faced by us, users
of our online marketplace and strategic partners could seriously harm our
business. In addition, our ability to operate our business depends upon
delivery of accurate, electronic information via the Internet. To the extent
year 2000 issues result in the long-term inoperability of the Internet or our
online marketplace, our business would be seriously harmed. We recognize the
need to insure that our operations and relationships with our customers,
suppliers and other third parties will not be adversely impacted by the Year
2000 software issue. During 1999, we have implemented and completed a Year 2000
project designed to identify and assess the risks associated with its
information systems, products, operations and infrastructure, suppliers and
customers that are not Year 2000 compliant, and to develop, implement and test
remediation and contingency plans to mitigate these risks. To date, we have not
experienced any significant disruptions related to the Year 2000 issue and have
not been informed of any failures of the Company's products related to the year
2000 issue. We are not aware of any significant Year 2000 disruptions affecting
our critical suppliers and vendors. We cannot guarantee that our efforts will
prevent a material adverse impact on our results of operations, financial
condition or cash flow that might result from the failure of any key third
party systems to accommodate the Year 2000 problem. If our systems or those of
key third parties are not fully Year 2000 functional, we estimate that
disruptions in operations could occur. Such disruptions could result in delays
in providing services and in issuing billings to customers. These consequences
could have a material adverse impact on our consolidated results of operations,
financial condition and cash flows if we are unable to substantially conduct
our business in the ordinary course.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No change has occurred since the filing by the Registrant of its Annual
Report on Form 10-K for the year ended December 31, 1999. Reference is made to
Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk,
in the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999.
24
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------------------------------------------------
<S> <C>
3.22 Edward R. Prince III Agreement
3.23 Executive Change In Control Agreement
10.56 Gross Rent Real Property Lease by and between Patterson
Associates, LLC and the Company for Santa Barbara
facilities dated February 3, 2000
27.1 Financial Data Schedule.
-------------------
</TABLE>
(b) Reports on Form 8-K. The Company did not file any Reports on Form 8-K
during the quarter ended March 31, 2000.
25
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EFAX.COM, INC.
--------------------------
(Registrant)
Date: May 16, 2000 By: /s/ TODD J. KENCK
--------------------------
Todd J. Kenck
Vice President, Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial and
Accounting Officer)
26
<PAGE>
EXHIBIT 3.22
SEPARATION AGREEMENT, GENERAL RELEASE AND WAIVER OF CLAIMS
This Separation Agreement, General Release and Waiver of Claims
("Agreement") is entered into by and between Edward R. Prince, III (hereafter
referred to as "Prince") and eFax.com, Inc., formerly known as Jetfax, Inc.
(hereafter referred to as "the Company"), effective upon the expiration of the
revocation period set forth in Paragraph 17 (the "Effective Date"). Prince and
the Company have agreed to definitively resolve and settle any and all claims
or differences which may exist between them, including any claims that have not
been raised, according to the following terms, and they freely and voluntarily
enters into this Agreement for that purpose.
1. Prince's employment as Chairman and Chief Executive Officer with the
Company terminated effective January 10, 2000 ("the Termination Date"), at
which time he resigned all offices held with the Company, including but not
limited to his position as Chairman and a Director of the Board of Directors.
2. Prince acknowledges and agrees that he has been paid all salary and
wages due through and including the Termination Date, including any accrued but
unused vacation to which he was entitled, less all applicable deductions. The
parties acknowledge and agree that Prince is entitled to be reimbursed for all
outstanding expenses incurred by him during the course of his employment;
Prince agrees to submit appropriate documentation of said expenses, which to
the best of his knowledge do not exceed $15,000.00, to the Company no later
than thirty (30) days from the Effective Date and the Company agrees reimburse
Prince as promptly as practicable thereafter.
3. In return for the general release and waiver of claims by Prince in
Paragraph 6 and the other provisions of this Agreement, the Company has agreed
to provide Prince the following consideration, to which he otherwise is not
entitled:
(a) payments of $18,750.00 per month (less all applicable deductions) for a
period of one year (beginning on January 10, 2000 and ending on January 10,
2001) (the "Severance Period"), which is the equivalent of one year of Prince's
annual base salary and which will be paid according to the Company's standard
payroll practices;
(b) continuation of the health insurance and 401(k) benefits provided to
Prince during the course of his employment with the Company during the
Severance Period to the extent permitted by the applicable plan documents,
provided however that any such benefits continuation shall cease in the event
Prince obtains employment which includes such benefits prior to the conclusion
of the Severance Period; and
(c) accelerated vesting of the equivalent of one year's worth of Prince's
outstanding options to purchase the Company's common stock as follows:
(i) On October 3, 1996, the Company granted Prince an incentive stock
option to purchase 100,000 shares of the Company's common stock at an exercise
price of $0.50 per share. As of January 10, 2000, 91,666 of the shares granted
in this option had vested; the Company will accelerate the vesting of the
remaining 8,334 shares such that all 100,000 of the shares granted to Prince in
this option shall be vested and exercisable by him as of January 10, 2000.
Prince must exercise his option to purchase these 100,000 shares on or before
April 5, 2000;
(ii) On November 5, 1997, the Company granted Prince an incentive stock
option to purchase 40,300 shares of the Company's common stock at an exercise
price of $8.00 per share. As of January 10, 2000, 21,829 of the shares granted
in this option had vested; the Company will accelerate the vesting of an
additional 10,075 shares such that 31,904 of the shares granted to Prince in
this option shall be vested and exercisable by him as of January 10, 2000.
Prince must exercise his option to purchase these 31,904 shares on or before
April 5, 2000;
(iii) On November 5, 1997, the Company granted Prince a nonqualified
stock option to purchase 134,700 shares of the Company's common stock at an
exercise price of $8.00 per share. As of January 10,
<PAGE>
2000, 72,962 of the shares granted in this option had vested; the Company will
accelerate the vesting of an additional 33,675 shares such that 106,637 of the
shares granted to Prince in this option shall be vested and exercisable by him
as of January 10, 2000. Prince must exercise his option to purchase these
106,637 shares on or before January 9, 2001;
(iv) On January 8, 1999, the Company granted Prince a nonqualified stock
option to purchase 150,000 shares of the Company's common stock at an exercise
price of $2.9375 per share. As of January 10, 2000, 60,000 of the shares
granted in this option had vested; the Company will accelerate the vesting of
an additional 30,000 shares such that 90,000 of the shares granted to Prince in
this option shall be vested and exercisable by him as of January 10, 2000.
Prince must exercise his option to purchase these 90,000 shares on or before
January 9, 2001; and
(v) On August 17, 1999, the Company granted Prince a nonqualified stock
option to purchase 125,000 shares of the Company's common stock at an exercise
price of $11.8125 per share. As of January 10, 2000, none of the shares
granted in this option had vested and the Company does not agree to accelerate
the vesting of any of the shares granted in this option.
Except as expressly provided in this Agreement, Prince acknowledges and agrees
that he has not been granted any other stock options to purchase shares of the
Company's common stock, he is not entitled to any further vesting of his
options, and the terms of his option agreements with the Company (which are
attached hereto as Exhibits A, B, C, D, and E) otherwise remain in full force
and effect.
4. During the Severance Period, Prince agrees, upon the reasonable request
of the Company, to provide consulting services to the Company relating to the
Company's exit from its hardware business and in certain business development
activities. Prince and the Company acknowledge and agree that $5,000.00 of
each of the monthly payments to be made to him by the Company pursuant to
Paragraph 3(a) above constitute adequate consideration for these consulting
services.
5. Prince has the right to consult an attorney before executing this
Agreement and the general release and waiver of claims contained herein.
Pursuant to the Age Discrimination in Employment Act of 1967 ("ADEA"), 29
U.S.C. Sec. 621 et seq., as amended by the Older Workers Benefit Protection
Act, the Company hereby advises him to do so.
6. GENERAL RELEASE AND WAIVER OF CLAIMS:
a. General Release. Except as set forth below in subparagraph 6(d), the
Company hereby fully releases and forever discharges Prince and Prince, on
behalf of himself, his family members and his and their heirs and successors,
assigns, affiliates, attorneys and agents, fully releases and forever
discharges the Company, Jetfax, Inc., and any other affiliated entities, as
well as anyone connected with them, including but not limited to their past and
present officers, directors, management staff, employees, attorneys and agents,
and the predecessors, successors and assigns of each of the foregoing
(collectively the "the Company Releasees") from any and all claims, demands,
costs, contracts, lawsuits, charges and liabilities of every kind, whether in
law or in equity, known or unknown, suspected or unsuspected, which the Company
had, now has, or may have against Prince and that Prince ever had, now has or
may have against one or more of the Company Releasees of any type, nature, and
description. The foregoing releases include claims arising out of the
execution of this Agreement or the negotiation of this Agreement, or any
purported representations or omissions leading to this Agreement. However,
nothing in this release extends to claims for breach of any party's obligations
under this Agreement.
b. Prince's Release Includes Employment-Related and Non-Employment Related
Claims. Prince's general release and waiver set forth in paragraph 6(a) is
intended to cover any and all claims which Prince may have against the Company
Releasees and anyone connected with them, including but not limited to any
employment-related claims such as claims for damages arising from racial
discrimination, sex discrimination, claims under the Age Discrimination in
Employment Act, the Americans with Disabilities Act, the federal Family Medical
Leave Act and its state counterpart, the California Family Rights Act, the
California Fair Employment and Housing Act, applicable provisions of the
California Labor Code, and any amendments to those statutes, as well as any
claims in tort or contract related to Prince' employment relationship with the
Company or the termination of that relationship, any claims for commissions,
bonuses, stock options, or any other form of compensation, equity or benefits,
and for any acts or omissions of the Company Releasees or anyone connected with
them. This release covers all potential employment-related claims and any
other potential claims held by Prince against the Company Releasees; it is not
limited to those claims described in this Agreement.
c. Release Includes Claims, Whether Known Or Unknown, Existing Prior to
Signing of Agreement. The releases and waivers set forth above extend to all
such claims as existed before the execution of this Agreement and Prince and
the Company expressly waives all rights under Section 1542 of the California
Civil Code. That Section reads as follows:
"1542. A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release
which if known to him must have materially affected his settlement with the
debtor."
Prince understands that any rights or claims under the ADEA that may arise
after the date he executes this Agreement are not waived.
d. Exclusions. Notwithstanding the foregoing, specifically excluded from
the general release in Paragraph 6(a) are any and all claims which the Company
may have against Prince arising out of presently unknown criminal conduct or
prohibited harassment engaged in by him while he was employed by the Company.
7. The Company will not sue or initiate against Prince, and Prince will not
sue or initiate against the Company or any of the Company Releasees any action
or proceeding, or participate in same, individually or as a member of a class,
under any contract (express or implied), law, or regulation, federal, state, or
local, pertaining in any manner whatsoever to claims in Paragraph 6, except to
enforce the terms of this Agreement. The Company also specifically warrants
and represents that it has no pending complaint or charge against Prince and
Prince specifically warrants and represents that he has no pending complaint or
charge against the Company or any of the Company Releasees in any state or
federal court or any local, state or federal agency based on his employment
relationship with the Company, or on any other events occurring prior to the
execution of this Agreement.
8. Prince and the Company warrant and represent that they have not assigned
or transferred to any person not a party to this Agreement any released claim
or portion thereof.
9. The terms of this Agreement are confidential. The parties will disclose
the terms of this Agreement to no one other than their attorneys, tax
advisor(s), or if required by law.
10. Prince acknowledges and agrees that he will not in any way disparage the
Company, or its officers, directors, management, shareholders, employees,
agents, or staff, which shall include, but not be limited to, writing
disparaging articles or making disparaging statements to the Company's
customers, suppliers, employees or prospective employees.
11. Prince acknowledges and agrees that, as a result of serving in his
capacity as Chairman and Chief Executive Officer of the Company, he has
acquired and had access to highly confidential, proprietary and/or
<PAGE>
trade secret information about the Company, its affiliated entities and its or
their clients and potential clients. Prince acknowledges and agrees that his
obligation to preserve the confidentiality of the Company's proprietary
information survives the termination of his employment with the Company.
Prince warrants and represents that he will return to the Company any and all
documents, files, computers, computer diskettes, pagers and other tangible
things in his possession or under his control which were purchased by the
Company, as well as any and all documents, files, computers, computer
diskettes, cell phones, pagers and other tangible things in his possession or
under his control containing confidential, proprietary and/or trade secret
information belonging to the Company or any of its affiliated entities, or its
or their clients, within three (3) days of his execution of this Agreement;
provided, however, that the Company acknowledges and agrees that Prince shall
keep in his possession and under his control the laptop computer and cell phone
provided to him by the Company for such time as he provides the consulting
services described in Paragraph 4 and Prince agrees to return this property to
the Company at the end of the Severance Period, or sooner if so requested by
the Company. Prince further warrants and represents that he shall not use or
disclose in any way to any person any confidential, proprietary or trade secret
information belonging to the Company or any of its affiliated entities except
(1) with the prior written consent of the Board of Directors of the Company,
(2) pursuant to a validly executed subpoena, or (3) pursuant to court order.
Prince agrees to give written notice to the Company within a reasonable time,
or as early as practicable, and in no event later than ten (10) days before the
date for his testimony or production (after receipt of any subpoena or other
court order for testimony relating to or production of confidential,
proprietary and/or trade secret information covered by this Agreement, and
further agrees that he will not testify until the date required by the subpoena
or court order.
12. Prince understands that the Company Releasees believe that they have
acted properly, and not unlawfully in any respect; similarly, the Company
understands that Prince believes that he has acted properly and not unlawfully
in any respect. Nothing in this Agreement is intended to be nor will it be
alleged to constitute evidence of or be an admission by Prince or by any
Company Releasee of any liability, omission, or wrongdoing of any kind
whatever, nor shall this Agreement be offered or received into evidence or
otherwise filed or lodged in any proceeding against Prince or any Company
Releasee, except as may be necessary to prove the terms of this Agreement or to
enforce the same.
13. Prince acknowledges that he is entering into this Agreement, freely,
knowingly, and voluntarily, with a full understanding of its terms.
14. In executing this Agreement, Prince acknowledges that he has had the
opportunity to consult with and be advised by an attorney, and that he has
executed this Agreement after independent investigation, and without fraud,
duress, or undue influence.
15. Any claimed violation of this Agreement must be submitted to binding
arbitration under the applicable rules of the American Arbitration Association
(AAA"), or a reasonably equivalent agency if AAA is not available, with any
such arbitration to be held in San Francisco, California. The arbitrator is to
be selected by the mutual agreement of Prince and the Company. The expense of
the arbitration will be borne equally by the parties. Each party is entitled
to seek injunctive relief in a judicial forum to prevent a material breach of
the Agreement which could lead to immediate harm to that party.
16. This Agreement and its Exhibits A, B, C, D, and E constitute the entire
agreement between Prince and the Company with respect to the subject matter
hereof and supersedes all prior or contemporaneous agreements, representations
or understandings with respect to the subject matter hereof. In entering this
Agreement, neither party has relied on any representations made by the other,
except as expressly set forth herein in writing. This Agreement may not be
changed orally and shall be construed under and governed by the laws of the
State of California, without regard for its conflict of law provisions. If any
part of this Agreement shall be determined to be illegal, invalid or
unenforceable, the remaining parts of the Agreement will not be affected
thereby and any such illegal, invalid or unenforceable part shall not be deemed
to be a part of this Agreement. This Agreement may be signed in counterparts,
each of which shall be deemed an original of one and the same agreement.
17. Prince shall have up to seven (7) days from the date immediately
following the date of his execution of this Agreement during which he may
revoke his acceptance (the "Revocation Period").
<PAGE>
Any such revocation must be communicated to the Company in writing within the
Revocation Period. Prince hereby is advised in writing that this Agreement
shall not become effective or enforceable until the Revocation Period has
expired. The Company will commence providing Prince the benefits described in
Paragraph 3 within three (3) business days after the expiration of the
Revocation Period.
Date: February 29, 2000 /s/ Edward R. Prince, III
------------------------ ------------------------------
EDWARD R. PRINCE, III
Date: March 1, 2000 /s/ Ronald Brown
------------------------ ------------------------------
EFAX.COM, INC.
By Its President
<PAGE>
EXHIBIT 3.23
EFAX.COM, INC.
EXECUTIVE CHANGE IN CONTROL AGREEMENT
THIS EXECUTIVE CHANGE IN CONTROL AGREEMENT (the "Agreement") is made and
entered into this 25th day of January, 2000 between _______________
("Executive") and EFAX.COM, a Delaware corporation (the "Company").
W I T N E S S E T H
In consideration of the mutual promises and covenants contained herein, it
is agreed by and between the parties hereto as follows:
1. Definitions.
-----------
(a) "Cause" means:
-----
(i) conviction of any felony or any crime involving moral turpitude or
dishonesty;
(ii) participation in a fraud or act of dishonesty against the Company;
(iii) willful breach of the Company's policies;
(iv) intentional damage to the Company's property;
(v) conduct that, based upon a good faith and reasonable factual investigation
and determination by the Company, demonstrates gross unfitness to serve;
or
(vi) an intentional, material violation of any agreement with the Company, or
of any statutory duty to the Company, that is not corrected within thirty
(30) days after written notice thereof.
Physical or mental disability shall not constitute "Cause." For purposes of
this definition, "Company" shall include an affiliate of the Company and a
successor to the Company.
(b) "Good Reason" means any of the following undertaken without Executive's
-----------
express written consent:
(i) a change in Executive's status, title, position or responsibilities
(including the person or persons to whom Executive has reporting
responsibilities) that represents a material adverse change from Executive's
status, title, position or responsibilities as in effect immediately prior to a
Change in Control Event, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith that is remedied by the Company
promptly after notice thereof is given by Executive;
(ii) a material reduction in Executive's rate of compensation (including annual
base compensation and incentive compensation) as in effect immediately prior to
the Change in Control, except to the extent that the compensation of other
similarly situated persons are accordingly reduced;
(iii) any failure by the Company to continue in effect any benefit plan or
arrangement, including incentive plans or plans to receive securities of the
Company, in which Executive is participating at the time of a Change in Control
Event (hereinafter referred to as "Benefit Plans"), or the taking of any action
by the Company that would adversely affect Executive's participation in or
reduce Executive's benefits under any Benefit Plans or deprive Executive of any
fringe benefit enjoyed by Executive at the time of a Change in
1
<PAGE>
Control Event, provided, however, that Executive may not terminate for Good
Reason following a Change in Control Event if the Company offers a range of
benefit plans and programs which, taken as a whole, are comparable to the
Benefit Plans;
(iv) the Company's requiring Executive to relocate to any place outside of a
forty-five (45) mile driving distance of Executive's current work site, except
for reasonably required travel on the business of the Company or its affiliates
that is not materially greater than such travel requirements prior to the
Change in Control Event or unless Executive accepts such relocation
opportunity;
(v) any material breach by the Company of any provision of an agreement between
the Company and Executive, other than a breach which is cured by the Company
within thirty (30) days following notice by Executive of such breach; or
(vi) the failure of the Company to obtain an agreement, satisfactory to
Executive, from any successors and assigns to assume and agree to perform the
obligations created under this Agreement.
(c) "Change in Control Event" means:
-----------------------
(i) a dissolution or liquidation of the Company;
(ii) a sale of all or substantially all of the assets of the Company;
(iii) a sale by the stockholders of the Company of the voting stock of the
Company to another corporation or its subsidiaries that results in the
ownership by such corporation and/or its subsidiaries of fifty percent (50%) or
more of the combined voting power of all classes of the voting stock of the
Company entitled to vote;
(iv) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation in which stockholders of the
Company immediately before the merger or consolidation have, immediately after
the merger or consolidation, greater than fifty percent (50%) of the combined
voting power of all classes of the voting stock of the Company entitled to
vote);
(v) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in
the form of securities, cash or otherwise (other than a reverse merger in which
stockholders of the Company immediately before the merger have, immediately
after the merger, greater than fifty percent (50%) of the combined voting power
of all classes of the voting stock of the Company entitled to vote); or
(vi) any transaction or series of related transactions in which in excess of
fifty percent (50%) of the combined voting power of all classes of the voting
stock of the Company entitled to vote is transferred.
(d) "Options" shall mean all stock options granted to Executive by the Company
prior to or after the date of this Agreement.
2. Termination of Employment.
-------------------------
(a) Employment Separation Date. In the event that Executive's employment with
--------------------------
the Company either (i) is involuntarily terminated without Cause or (ii) is
voluntarily terminated for Good Reason within twelve (12) months after a Change
in Control Event, then the date of such termination shall be the "Employment
Separation Date" for purposes of this Agreement.
2
<PAGE>
(b) Procedure for Termination for Cause. The Company may not terminate
-----------------------------------
Executive's employment for Cause unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative
vote of at least a majority of the Board of Directors of the Company at a
meeting of the Board, finding that in the good faith opinion of the Board,
Executive was guilty of the conduct constituting "Cause" and specifying the
particulars thereof in detail.
3. Acceleration of Option Vesting.
------------------------------
(a) Upon the closing of a Change in Control Event, any unvested Options held by
Executive shall have their vesting accelerated by twelve (12) months
immediately prior to such closing.
(b) If Executive is terminated without Cause or voluntary terminates his
employment with the Company for Good Reason within twelve (12) months after a
Change in Control Event, any unvested Options held by Executive shall have
their vesting accelerated in full so as to become one hundred percent (100%)
vested and immediately exercisable in full as of the date of such termination.
4. Accrued Salary and Paid Time Off. The Company will pay Executive all
--------------------------------
accrued salary, and all accrued and unused paid time off earned prior to the
Employment Separation Date, subject to standard payroll deductions and
withholdings. Executive is entitled to this payment regardless of whether
Executive signs this Agreement.
5. Expense Reimbursement. Within thirty (30) business days of the Employment
---------------------
Separation Date, Executive will submit Executive's final documented expense
reimbursement statement reflecting all business expenses Executive incurred
through the Employment Separation Date, if any, for which Executive seeks
reimbursement. The Company shall reimburse Executive's expenses pursuant to
Company policy and regular business practice.
6. Release Agreement; Cessation of Benefits.
----------------------------------------
(a) In order to receive benefits under this Agreement (other than amounts due
under Paragraphs 3 and 4), Executive must execute a general waiver and release
in the form of Exhibit A attached hereto.
(b) If Executive is indebted to the Company on the Employment Separation Date
or at any time thereafter, the Company reserves the right to offset any
payments under this Agreement by the amount of such indebtedness. In no event
shall payment of any benefit hereunder be made prior to the Employment
Separation Date.
7. Parachute Payments. In the event that the acceleration of stock options
------------------
provided for in this Agreement ("Agreement Benefits"), together with benefits
otherwise payable to Executive, (i) constitute a "parachute payment" within the
meaning of Section 280G (as it may be amended or replaced) of the Internal
Revenue Code of 1986, as amended or replaced (the "Code"), and (ii) but for
this Section 7, would be subject to the excise tax imposed by Section 4999 (as
it may be amended or replaced) of the Code (the "Excise Tax"), then Executive's
Agreement Benefits shall be either
(a) provided to Executive in full, or
(b) provided to Executive only as to such lesser extent that would result in no
portion of such Agreement Benefits being subject to the Excise Tax,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by
Executive, on an after-tax basis, of the greatest amount of benefits,
notwithstanding that all or some portion of such Agreement Benefits may be
taxable under the Excise Tax. If clause
3
<PAGE>
(b) above is applicable, then at the option of Executive, Executive and the
Company shall enter into a consulting agreement which shall (i) provide the
Executive with payments and benefits, payable over the term of the agreement,
the present value of which in the aggregate is equal to or greater than the
present value (determined by applying a discount rate equal to the interest
rate provided in Section 1274(b)(2)(B) of the Code) of the amount of the
reduction in Agreement Benefits otherwise payable to Executive, but not in
excess of reasonable compensation for the consulting services, (ii) require
Executive to make his services available to the Company for no more than thirty
(30) hours per month, (iii) have a term of not more than three (3) years
(unless Executive consents to a longer period) and (iv) contain appropriate
provisions restricting Executive from competition with the Company or being
employed by or consulting for a competing business for the duration of the
consulting period.
Unless the Company and Executive otherwise agree in writing, any determination
required under this Section 7 shall be made in writing in good faith by the
Company's independent public accountants (or independent public accountants
selected by the Executive in the event that the independent public accounts of
the entity involved in the Change of Control are the same as those of the
Company) (the "Accountants"). In the event of a reduction in benefits
hereunder, Executive shall be given the choice, subject to approval by the
Company, of which benefits to reduce. For purposes of making the calculations
required by this Section 7, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of the Code. The Company and
Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section 7. The Company shall bear all costs the Accountants may
reasonably incur in connection with any calculations contemplated by this
Section 7.
8. Nonsolicitation. Executive agrees that, for one (1) year following the
---------------
Employment Separation Date, Executive will not, either directly or through
others, solicit or attempt to solicit any employee, consultant, or independent
contractor of the Company to terminate his or her relationship with the Company
in order to become an employee, consultant or independent contractor to or for
any other person or entity.
9. Company Property. Within five (5) business days of the Employment
----------------
Separation Date, Executive agrees to return to the Company all Company
documents (and all copies thereof) and other Company property in Executive's
possession, or Executive's control, including, but not limited to, Company
files, notes, drawings, records, business plans and forecasts, financial
information, specifications, computer-recorded information, tangible property,
credit cards, entry cards, identification badges and keys; and, any materials
of any kind which contain or embody any proprietary or confidential material of
the Company (and all reproductions thereof). Executive agrees that, as of the
Employment Separation Date, Executive will neither use nor possess Company
property, except such property which any officer or the Board specifically
authorizes Executive to use or possess for the sole purpose of performing
Executive's duties under this Agreement. Executive further agrees that
Executive will return all property provided to Executive pursuant to the
preceding sentence, upon completion of the specific project for which Executive
was authorized to possess such property or on the Employment Separation Date,
whichever first occurs.
10. Proprietary Information Obligations. Both during and after Executive's
-----------------------------------
employment, Executive shall acknowledge Executive's continuing obligations
under Executive's Proprietary Information and Inventions Agreement not to use
or disclose any confidential or proprietary information of the Company without
prior written authorization from a duly authorized representative of the
Company. A copy of Executive's Proprietary Information and Inventions
Agreement is attached hereto as Exhibit B.
11. Nondisparagement. Executive and the Company agree that neither party will
----------------
at any time disparage the other in any manner likely to be harmful to the other
party, its business reputation, or the personal or business reputation of its
directors, stockholders, and employees, provided that each party shall respond
accurately and fully to any question, inquiry, or request for information when
required by legal process.
12. Pooling of Interests. In the event that (i) the Company desires to engage
--------------------
in a Change in Control Event and to account for such transaction as a pooling
of interests and (ii) the Board of Directors determines in good
4
<PAGE>
faith, after consulting with its independent public accountants, that such
transaction, but for the terms of this Agreement, could be accounted for as a
pooling of interest, then this Agreement shall be revised to the extent
necessary to permit such transaction to be accounted for as a pooling of
interests.
13. Amendment of Agreement. This Agreement may be changed only upon the mutual
----------------------
written consent of the Company and Executive. The written consent of the
Company to a change of this Agreement must be signed by the Company's Chief
Financial Officer, after such change has been approved by the Compensation
Committee of the Board.
14. Notices. Any notices provided hereunder must be in writing and such
-------
notices or any other written communication shall be deemed effective upon the
earlier of personal delivery (including personal delivery by telex or
facsimile) or the third day after mailing by first class mail, to the Company
at its primary office location and to Executive at Executive's address as
listed in the Company's payroll records. Any payments made by the Company to
Executive under the terms of this Agreement shall be delivered to Executive
either in person or at Executive's address as listed in the Company's payroll
records.
15. Waiver. If either party should waive any breach of any provisions of this
------
Agreement, such party shall not thereby be deemed to have waived any preceding
or succeeding breach of the same or any other provision of this Agreement.
16. Headings. The headings of the paragraphs hereof are inserted for
--------
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
17. Successors and Assigns. This Agreement is intended to bind and inure to
----------------------
the benefit of and be enforceable by Executive and the Company, and their
respective successors, assigns, heirs, executors and administrators, except
that Executive may not assign any of Executive's duties hereunder and Executive
may not assign any of Executive's rights hereunder without the written consent
of the Company, which consent shall not be withheld unreasonably.
18. Attorney Fees. If either party hereto brings any action to enforce such
party's rights hereunder, the prevailing party in any such action shall be
entitled to recover such party's reasonable attorneys' fees and costs incurred
in connection with such action.
19. Arbitration. In order to ensure rapid and economical resolution of any
-----------
dispute which may arise under this Agreement, Executive and the Company agree
that any and all disputes or controversies, arising from or regarding the
interpretation, performance, enforcement or termination of this Agreement shall
be resolved by final and binding arbitration under the procedures set forth in
the Arbitration Procedure attached hereto as Exhibit C and the then existing
Judicial Arbitration and Mediation Services Rules, Inc. ("JAMS") of Practice
and Procedure or the rules of practice and procedure of any successor entity to
JAMS (except insofar as they are inconsistent with the procedures set forth in
the enclosed Arbitration Procedure). BY ENTERING INTO THIS AGREEMENT, THE
COMPANY AND EXECUTIVE ACKNOWLEDGE THAT THEY ARE WAIVING THEIR RIGHT TO JURY
TRIAL OF ANY DISPUTE COVERED BY THIS AGREEMENT.
20. Choice of Law. This Agreement shall be deemed to have been entered into
-------------
and shall be construed and enforced in accordance with the laws of the State of
California as applied to contracts made and to be performed entirely within
California.
21. Construction of Agreement. In the event of a conflict between the text of
-------------------------
the Agreement and any summary, description or other information regarding the
Agreement, the text of the Agreement shall control.
22. Further Execution. The parties agree to take all such further action(s) as
-----------------
may reasonably be necessary to carry out and consummate this Agreement as soon
as practicable, and to take whatever steps may be
5
<PAGE>
necessary to obtain any governmental approval in connection with or otherwise
qualify the issuance of the securities that are the subject of this Agreement.
23. Independent Counsel. Executive acknowledges that this Agreement has been
-------------------
prepared on behalf of the Company by Cooley Godward LLP, counsel to the
Company, and that Cooley Godward LLP does not represent, and is not acting on
behalf of, Executive. Executive has been provided with an opportunity to
consult with Executive's own counsel with respect to this Agreement.
24. Complete Agreement. This Agreement, including Exhibits A, B and C,
------------------
constitutes the entire agreement between Executive and the Company, and it is
the complete, final, and exclusive embodiment of their agreement with regard to
this subject matter. It is entered into without reliance on any promise or
representation, written or oral, other than those expressly contained herein.
Each party has carefully read this Agreement, has been afforded the opportunity
to be advised of its meaning and consequences by such party's respective
attorneys, and signed the same of such party's own free will.
25. Severability. If one or more provisions of this Agreement are held to be
------------
unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
26. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original and all of which together shall
constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year written above.
EFAX.COM, [EXECUTIVE]
a Delaware corporation
By:
------------------------------- ------------------------------------
Title:
-------------------------------
Exhibit A: Agreement and Release
Exhibit B: Proprietary Information and Inventions Agreement
Exhibit C: Arbitration Procedure
6
<PAGE>
EXHIBIT A
AGREEMENT AND RELEASE
Except as otherwise set forth in this Agreement, I hereby release, acquit and
forever discharge the Company, its parents and subsidiaries, and their
officers, directors, agents, servants, employees, attorneys, stockholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts
or conduct at any time prior to and including the date this Agreement is signed
or the Employment Separation Date, whichever is later, including but not
limited to: all such claims and demands directly or indirectly arising out of
or in any way connected with my employment with the Company or the termination
of that employment; claims or demands related to salary, bonuses, commissions,
stock, stock options, or any other ownership interests in the Company, vacation
pay, fringe benefits, expense reimbursements, severance pay, or any other form
of compensation; claims pursuant to any federal, state or local law, statute or
cause of action including, but not limited to, the federal Civil Rights Act of
1964, as amended; the federal Age Discrimination in Employment Act of 1967, as
amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the
California Fair Employment and Housing Act, as amended; tort law; contract law;
wrongful discharge; discrimination; harassment; fraud; defamation; emotional
distress; and breach of the implied covenant of good faith and fair dealing.
I knowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA, as amended. I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled. I
further acknowledge that I have been advised by this writing, as required by
the ADEA, that: (a) my waiver and release do not apply to any rights or claims
that may arise after the execution date of this Agreement; (b) I have been
advised hereby that I have the right to consult with an attorney prior to
executing this Agreement; (c) I have twenty-one (21) days to consider this
Agreement (although I may choose to voluntarily execute this Agreement
earlier); (d) I have seven (7) days following the execution of this Agreement
by the parties to revoke the Agreement; and (e) this Agreement shall not be
effective until the date upon which the revocation period has expired, which
shall be the eighth day after this Agreement is executed by me, provided that
the Company has also executed this Agreement by that date ("Effective Date").
In giving this release, which includes claims which may be unknown to me at
present, I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor." I hereby expressly waive
and relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
By:
-----------------------------------
[Executive Name]
Date:
----------------------------------
1
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
1
<PAGE>
EXHIBIT C
ARBITRATION PROCEDURE
1. The parties agree that any dispute that arises in connection with this
Agreement or the termination of this Agreement shall be resolved by binding
arbitration in the manner described below.
2. A party intending to seek resolution of any dispute under the Agreement by
arbitration shall provide a written demand for arbitration to the other party,
which demand shall contain a brief statement of the issues to be resolved.
3. The arbitration shall be conducted in San Mateo County, California, by a
mutually acceptable retired judge from the panel of Judicial Arbitration and
Mediation Services, Inc. or any entity performing the same type of services
that succeeds to its business ("JAMS"). At the request of either party,
arbitration proceedings will be conducted in the utmost secrecy and, in such
case, all documents, testimony and records shall be received, heard and
maintained by the arbitrator in secrecy under seal, available for inspection
only by the parties to the arbitration, their respective attorneys, and their
respective expert consultants or witnesses who shall agree, in advance and in
writing, to receive all such information confidentially and to maintain such
information in secrecy, and make no use of such information except for the
purposes of the arbitration, unless compelled by legal process.
4. The arbitrator is required to disclose any circumstances that might preclude
the arbitrator from rendering an objective and impartial determination. In the
event the parties cannot mutually agree upon the selection of a JAMS
arbitrator, the President of JAMS shall designate the arbitrator.
5. The party demanding arbitration shall promptly request that JAMS conduct a
scheduling conference within fifteen (15) days of the date of that party's
written demand for arbitration or on the first available date thereafter on the
arbitrator's calendar. The arbitration hearing shall be held within thirty
(30) days after the scheduling conference or on the first available date
thereafter on the arbitrator's calendar. Nothing in this paragraph shall
prevent a party from at any time seeking temporary equitable relief, from JAMS
or any court of competent jurisdiction, to prevent irreparable harm pending the
resolution of the arbitration.
6. It is the intent of the parties that the Federal Arbitration Act ("FAA")
shall apply to the enforcement of this provision unless it is held inapplicable
by a court with jurisdiction over the dispute, in which event the California
Arbitration Act ("CAA") shall apply.
7. The arbitrator shall apply California law, including the California Evidence
Code, and shall be able to decree any and all relief of an equitable nature,
including but not limited to such relief as a temporary restraining order, a
preliminary injunction, a permanent injunction, or replevin of Company
property. The arbitrator shall also be able to award actual, general or
consequential damages.
8. The arbitrator shall have authority to award the payment of such fees and
expenses to the prevailing party, as appropriate in the discretion of the
arbitrator. Except as may otherwise be provided in the Executive Separation
and Consulting Agreement, each party shall pay its own attorneys' fees, witness
fees and other expenses incurred for its own benefit.
9. The arbitrator shall render a written award setting forth the reasons for
his or her decision. The decree or judgment of an award rendered by the
arbitrator may be entered and enforced in any court having jurisdiction over
the parties. The award of the arbitrator shall be final and binding upon the
parties without appeal or review except as permitted by the FAA, or if the FAA
is not applicable, as permitted by the CAA.
2
<PAGE>
EXHIBIT 10.56
GROSS RENT REAL PROPERTY LEASE
(Pacific Technology Center)
THIS LEASE is made and entered into by and between PATTERSON ASSOCIATES,
LLC, California a limited liability company (the 'Landlord') and EFAX.COM,
INC., a Delaware corporation (the "Tenant"), who, intending to be legally
bound, agree as follows:
I. LEASED PREMISES
---------------
The Landlord hereby leases to the Tenant, and the Tenant hereby leases
from the Landlord, those certain premises which consist of approximately 5,188
s.f. of Building 1 located at 5285 Hollister Avenue in the unincorporated area
of Santa Barbara County, California known as Goleta (the "Building"), as
depicted on the Plot Plan attached as Exhibit A (the "Premises"), together with
--------
all fixtures presently located in the Premises, and the improvements, if any,
to be constructed by Landlord in accordance with Exhibit B, upon the terms and
---------
conditions set forth below.
1.1 Acceptance or Condition. Subject to the completion of the
------------------------
improvements to be constructed by Landlord as provided in Exhibit B, if any,
---------
the Premises are accepted 'AS IS' by the Tenant, after the Tenant's inspection,
in the condition in which they exist as at the execution of this Lease. Tenant
acknowledges that there are no warranties, express or implied, made by Landlord
with regard to the Premises.
1.2 Parking. Parking is provided by Landlord for Tenants use on a non-
-------
exclusive basis in common with the other tenants of the Building.
2. TERM
----
2.1 Initial Term. The initial term, of this Lease (the "initial Term")
------------
shall commence on August 1,1999 (the "Commencement Date") and shall expire on
July 31. 2000.
2.2 Options to Extend. Landlord hereby grants to Tenant, on the terms
-----------------
and conditions set forth below, TWO conditional options (the "Options") to
---
extend the term of this Lease for additional periods of one year (the "Renewal
Term"). The Renewal Term shall be subject to all of the provisions of this
Lease. The new rent for the first term, shall be calculated in accordance with
Paragraph 3, herein. The rent for the second renewal term shall be set at $1.35
per square foot. The failure by Tenant to exercise the first Option shall
render any subsequent Option(s) void and of no further force or effect
whatsoever. Landlord has no duty whatsoever to advise or remind Tenant of its
rights hereunder. The right of Tenant to exercise any single Option to extend
the term of the Lease is subject to the satisfaction of the following
conditions precedent:
2.2.1 The Lease shall be In effect at the time notice of exercise is
given and on the last day of the expiring term or the Lease;
2.2.2 Landlord shall not, in good faith, have at any time served Tenant
with a three-day notice to pay rent or quit under California Code of Civil
Procedure Section 1161 during the preceding tern, of the Lease;
2.2.3 Tenant shall not e in default at the time notice of exercise is
given or on the last day of then expiring term of the Lease; and
2.2.4 Tenant shall have given notice of exercise of its Option pursuant
to this Section 2.2 not less than ninety days, nor more than one hundred
eighty days, prior to the expiration of the then-expiring term of this Lease.
2.3 Lease Term. All references herein to "Lease Term" shall refer to
----------
the initial Term, and any Renewal Terms for which an Option was properly
exercised.
2.4 Delay in Possession. If, for any reason, Landlord is not able to
-------------------
deliver possession of the Premises on the Commencement Date, the Commencement
Date shall be delayed, on a day-for-day basis, until such date as Landlord is
able to deliver possession of the Premises to Tenant. In such event, (a)
Landlord shall not be subject to any liability for such delays, nor shall any
such failure affect the validity of this Lease or the obligations of Tenant
hereunder, and (b) Tenant shall not be obligated to pay rent or perform any
other obligation of Tenant under this Lease until Landlord delivers possession
of the Premises to Tenant. If Landlord is not able to deliver possession of the
Premises to Tenant on or before the passage of one hundred eighty days
following the execution hereof, then Tenant shall have the right to terminate
this Lease. This termination right may be exercised only by Tenant's delivery
to Landlord of written notice of termination no later than ten days following
the expiration of such one-hundred-eighty-day period. Following the timely
delivery of any such notice of termination. this Lease shall terminate and any
prepaid rent and security deposit shall be returned to Tenant.
3. RENT
----
Commencing on the earlier of August 1, 1999, or the date upon which Tenant
opens for business in the Premises (the "Rent Commencement Date"), Tenant shall
pay to Landlord the minimum monthly rent provided in Section 3.1,
-----------
and any other payments required under the terms of this Lease, without set-off
or reduction. All such sums owing under this Lease shall be considered
additional rent ("rent") and shall be payable at the office of the Landlord
identified on the signature page hereof. Minimum monthly rent and all
additional rent shall be payable in advance, commencing on the first day of the
first full month following the Rent Commencement Date, and continuing on the
first day of each month hereafter during the term of this Lease. The first full
month's minimum monthly rent wilt be due and payable upon the execution of this
Lease by Tenant. Should the Rent Commencement Date be a date other than the
first day of a month, then the rent due on the Rent Commencement Date shall be
prorated, on the basis of a thirty-day month, for the number of days between
the Rent Commencement Date (including the Rent Commencement Date) and the end
of the month in which the Rent Commencement Pate occurs.
3.1 Minimum Monthly Rent. The minimum monthly rent payable from the Rent
--------------------
Commencement Date through the expiration of the first twelve months of the
initial Term shall be Six Thousand Thirty-One and 06/100 Dollars ($6031.06).
The minimum monthly rent shall be adjusted upon the expiration of the first
year of the initial Term and each year thereafter (including Renewal Terms, if
any). Commencing on the first day of the thirteenth month of the initial Term
(the "Adjustment Date"), the parties shall ascertain from the official
Consumer's Price Index for Urban Wage Earners and Clerical Workers, All Items,
for the Los Angeles, Anaheim-Riverside area, 1982-1984-100 base, as published
by the United States Department of Labor, Bureau of Labor Statistics (the
"index") the index figure for the month four months preceding the Commencement
Date (the "Base Index"), and for the corresponding month prior to the
Adjustment Date (the "Adjustment Index"). The minimum monthly rent payable from
each Adjustment Date until the next date upon which minimum monthly rent is
adjusted as provided in this Lease shall be determined by multiplying the
minimum monthly rent payable at the Rent Commencement Date by a fraction, the
numerator of which shall be the Adjustment Index, and the denominator of which
shall be the Base Index. Notwithstanding the preceding, in no event will the
adjusted minimum monthly rent be less than 3% or more than 7% of the minimum
monthly rent in effect prior to the Adjustment Date.
3.1.1 If the Index is no longer published on the Adjustment Date, then
appropriate reference figures for the Base Index and the Adjustment Index shall
be derived from any successor or comparable index mutually agreed by the
parties to be authoritative. If the parties are unable to agree, then the
substituted Index shall be selected by then presiding judge of the Superior
Court for the county in which the Premises are located upon the application of
either party.
3.1.2 The parties acknowledge that the Adjustment Index may not be
available on the Adjustment Date. In such event, the minimum monthly rent in
effect immediately prior to the Adjustment Data shall continue in effect until
the appropriate index figure is available. At that time, an appropriate
adjustment shall be made (retroactive to the Adjustment Date) between the
Landlord and the Tenant with respect to the minimum monthly rent payable by the
Tenant. Any amounts then determined to be owing the Tenant to Landlord shall be
paid by Tenant within ten days following Landlords delivery to Tenant of
written notice of the appropriate adjustment. No delay by Landlord in the
delivery of any such notice shall constitute a waiver by Landlord of the right
to receive any rent owing.
3.2 Late Payment Charges. Should the Tenant fail to make any payment of
--------------------
rent within three days of the date when such payment first becomes due, or
should any check tendered to the Landlord by the Tenant be returned to the
Landlord by the Tenant's bank for insufficient funds, then the Tenant shall pay
to the Landlord, in addition to such payment, a late charge in the amount of
five percent (5%) of the rent or other payment due. The parties agree this late
payment charge is a reasonable estimate of the amount necessary to reimburse
damages and additional costs not contemplated by this Lease that the Landlord
will incur as a result of the delinquent payment or returned check, including
processing and accounting charges and late charges that may be imposed on the
Landlord by its lender. Upon notice of nonpayment given by the Landlord to the
Tenant, the entire amount then due, including such late charge, shall
thereafter bear interest at the highest rate permitted by law on the due date
for such payment, until paid In full. Acceptance of any payment by the Landlord
shall not constitute waiver of any late charges at interest which may be due.
3.3 Security Deposit. Landlord has on file a security deposit in the
----------------
amount of Five Thousand Three Hundred Forty-One and 6O/100($5,341.60) Dollars
from Tenant. Upon execution of this Lease, Tenant shall deposit with Landlord
an additional Six Hundred Eighty-Nine and 46/100 Dollars ($689.48) for a total
of Six Thousand Thirty-One and 06/100 ($8.03l.06) Dollars to be held as
security deposit (the "Security Deposit") for the performance by Tenant of The
provisions of this Lease. If Tenant is in default, Landlord may use the
Security Deposit, or any portion of it, to cure the default or to compensate
Landlord for all damage sustained by Landlord resulting from Tenant's default.
Tenant shall immediately on demand pay to Landlord any amounts required to
maintain the Security Deposit in the amount required to be deposited with
Landlord. Upon the adjustment of any minimum monthly rent, Tenant shall deposit
with Landlord such sum as necessary to maintain the Security Deposit in the
same proportion to the minimum monthly rent then owing as the original Security
Deposit bore to the initial minimum monthly rent. Landlord's obligations with
respect to the Security Deposit are those or a debtor and not a trustee.
Landlord may maintain the Security Deposit separate and apart from Landlord's
general funds or may commingle the Security Deposit with Landlord's general and
other funds. Landlord shall not be required to pay Tenant interest on the
Security Deposit. In the event of bankruptcy or other debtor-creditor
proceedings against Tenant, the Security Deposit shall be onset against any
unpaid rent. If Tenant is not in default at the termination of this Lease, and
after Tenant has vacated the Premises, then Landlord shall return the Security
Deposit, less any damages, to Tenant (or at Landlord's option, to the last
assignee, if any, of Tenant's interest hereunder).
4. PROPERTY TAXES AND ASSESSMENTS
------------------------------
4.1 Personal Progeny Taxes. The Tenant shall pay before delinquency all
-----------------------
taxes assessed against any personal property of the Tenant installed or located
in or upon the Premises and that are attributable to any period included within
the Lease Term, whether or not such taxes are actually payable during the Lease
Term.
4.2 Real Property Taxes. Landlord shall pay all real property taxes
-------------------
levied and assessed against the Property without reimbursement from Tenant.
5. UTILITIES
---------
The Landlord shall pay for normal water, refuse disposal, gas, and
electric service. The Tenant shall pay when due all utility charges when
separately billed to the Tenant because of separate installation or connection
of service by the Tenant (such as telephone, Internet, and CATV), Any other
utility for which no separate installation or connection can he made for the
Tenant, shall be paid as prorated in the Landlord's discretion among the
tenants of the Building based on either percentage or leased space or estimated
usage, as reasonably determined by the Landlord. The Tenant shall comply with
all applicable laws end regulations and rules regarding utilities. The
suspension or interruption in utility services to the Property for reasons
beyond the ability of the Landlord to control shall not constitute a default by
the Landlord or entitle the Tenant to any reduction or abatement of rent.
6. LANDLORD'S MANAGEMENT OF THE BUILDING
-------------------------------------
6.1 Management of The Building. The Landlord shall have the right, at its
--------------------------
sole cost and expense:
6.1.1 To close the common areas when and to the extent necessary for
maintenance or renovation purposes or to prevent a dedication of any part
thereof or the accrual of any rights therein in favor of the public or any
third person;
6.1.2 To make changes to the common areas, including, without limitation,
changes in the location or nature of entrances and exits;
6.1.3 To remodel or renovate the Property and, in connection therewith,
to install pipes, supports, utilities, conduits, ducts and similar fixtures
beneath or through the Premises, provided that such remodeling or renovation
does not substantially change the size, dimension, configuration or nature of
the Premises or unreasonably interfere with he Tenant's use thereof; and
6.1.4 To change the plan of the Building to the extent necessary for its
expansion, or the remodeling or renovation thereof, so long as the changes do
not substantially interfere with ingress to and egress from the Premises.
6.2 Other Tenants. The Landlord reserves the right to effect such other
-------------
tenancies in the Building as the Landlord, in the exercise of its sole business
judgment, determines will best promote the Landlord's interests. Tenant
acknowledges that Tenant does not rely on the fact, and the Landlord does not
represent, that any specific tenant, or number or type of tenants, shall occupy
any space in the Building.
6.3 Rules and Regulations. The Landlord shall have the right, from time
---------------------
to time, to promulgate, amend and enforce against all occupants of the
Building, reasonable rules and regulations for the safety, care and cleanliness
of the Building, or for the preservation of good order. All such rules and
regulations shall apply without discrimination to all occupants and tenants in
the Building. Tenant agrees to conform in and abide by such rules and
regulations. A violation of any of them shall constitute a default by the
Tenant under this Lease.
6.4 Tenant's Use of Premises. Tenant agrees that the Premises shall be
-------------------------
used and occupied only for office use and for no other purpose whatsoever
without the Landlord's prior written consent. No exclusive rights regarding use
are granted hereby. The Tenant shall neither engage in nor permit others to
engage in any activity or conduct that will cause the cancellation of or an
increase in the premium for any fire or other insurance maintained by the
Landlord.
6.5 Compliance with Law. The Tenant shall, at the Tenant's sole cost
-------------------
and expense, comply promptly and at all times with all laws, requirements,
ordinances, statutes, and regulations of all municipal, state or federal
authorities, or any board of fire insurance underwriters, or other similar
bodies, now in force, or which may hereafter be in force, pertaining to the
Building and the Premises and the occupancy thereof, including, without
limitation, any law that requires alteration, maintenance or improvement of the
Premises as the result of the Tenant's use thereof, provided that Tenant shall
only be required to make capital improvements to the property as a result or
Tenant's particular use of the property.
6.6 Waste, Nuisance. The Tenant shall not commit, or suffer to be
---------------
committed, any waste of the Premises, or any nuisance, annoyance or other
unreasonable annoyance which may disturb the quiet enjoyment of other portions
of the building or the common areas by the owners or occupants thereof.
7. CARE AND MAINTENANCE
--------------------
7.1 Landlord's Maintenance. Except as otherwise provided in this Lease.
----------------------
Landlord agrees to maintain in good condition and repair, at Landlord's cost
and expense, (1) the structural components of the Building, which structural
components are limited to the foundation and the exterior walls; (2) the common
areas and the exterior of the Building, including the roof; and (3) any
heating, ventilating and air conditioning systems furnished by Landlord to the
common areas or to the Building other than the Premises.
7.2 Tenant's Maintenance. Except as otherwise provided in this Lease,
--------------------
Tenant, at its own cost and expense, agrees:
7.2.1 To maintain throughout the Lease Term In good and sanitary order,
condition and repair, all portions of the Premises, including, without
limitation, (1) the Interior of the Premises, including flooring, exposed
plumbing and wiring, paint and finish; (2) any windows, lights or skylights:
(3) any storefront or portion of the Premises fronting on any common area or
the exterior of the Building; (4) any heating, ventilating and air conditioning
which serves only the Premises; and (5) any personal property of Tenant
situated in or upon the Premises;
7.2.2 To notify the Landlord promptly of any damage to the Premises
resulting from or attributable to the acts or omissions of the Tenant, its
invitees or its authorized representatives, or any other party and thereafter
to promptly repair all such damage; and
7.2.3 To keep the storefront, or the front of the Premises adjacent to
any property line or common area, any area adjacent thereto, and the refuse
area used by Tenant clean and neat at all times, and to remove immediately
therefrom any litter, debris or other unsightly or matter placed or deposited
thereon by the agents or customers of the Tenant.
8. IMPROVEMENT TO LEASED PREMISES
------------------------------
Any improvements to the Premises other than the improvements, if any,
specifically required to be constructed by Landlord pursuant to Exhibit B,
shall be constructed by the Tenant, or its designated agent, at the sole cost
and expense of the Tenant. The Tenant shall pay, prior to delinquency,
absolutely all costs for such improvements.
8.1 Conditions to Commencement of Construction. Before construction of
-------------------------------------------
the improvements is commenced on the Premises, and before any building
materials have been delivered thereto by or pursuant to the authority or
request of the Tenant, the Tenant shall comply with the following conditions,
or obtain the Landlord's prior written waiver thereof:
8.1.1 The Tenant shall prepare and deliver to the Landlord for approval
a complete set of all preliminary and any plans and specifications to be
utilized by the Tenant fur the purpose of constructing the new improvements.
tenant must obtain the written approval of Landlord to the final plans and
specifications prior to the commencement of any construction work. The Tenant
will reimburse the Landlord for the Landlord's architect's or contractors
charges to review these plans. The Landlord shall not unreasonably withhold
approval of the plans and specifications. No review, inspection or approval by
the Landlord, or its architect, shall relieve the Tenant of any liability or
create any obligation or responsibility for the Landlord.
8.1.2 The Tenant shall give the Landlord at least fifteen days' written
notice prior to (a) the commencement of construction of any tenant
improvements, or (b) the delivery of any building materials to the site. The
Landlord, or, upon request. The Tenant, as the agent of the Landlord, shall
post on and affix to the Premises a Notice of Non-Responsibility' in the name
and on behalf of the Landlord, as provided In Sections 3094 and 3129 of the
California Civil Code, and shall cause such Notice to be recorded promptly
following posting in the Office or the County Recorder of the county in which
the Premises are located.
8.1.3 The Tenant shall purchase and maintain in effect, until a Notice
of Completion is tiled and recorded, insurance coverage for all-risk 'Builders'
RIsk' or 'Course of Construction' insurance and 'Worker's Compensation'
insurance coveting all persons employed in connection with the construction of
the improvements and with respect to whom claims could be asserted against the
Landlord, the Building or the Premises. The Tenant shall furnish to the
Landlord oertit9cates of such Insurance, and evidence of the payment of
premiums therefor, and for any other insurance required by the provisions of
this Lease to be furnished by the Tenant.
8.1.4 The Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for the Tenant. Landlord
reserves the right to require Tenant to deliver to Landlord payment and
performance bonds in an amount equal to one hundred fifty percent (150%) of the
estimated cost of the work undertaken by Tenant. Tenant promptly shall cause
the elimination and removal of any mechanic's, material lien's or other liens
arising out of any improvements performed, materials furnished or obligations
Incurred by or on behalf of the Tenant in connection with any tenant
improvements in accordance with Section 9.2.
8.2 Construction of improvements. The Tenant warrants and covenants to
----------------------------
the Landlord that:
8.2.1 The improvements shall be 0% good quality and the development and
construction work shall be performed in a good and workmanlike manner,
consistent with and comparable to standards of practice in the area in which
the Building Is located for similar space of first-class construction;
8.2.2 The Tenant shell secure or cause to be secured all permits end
licenses necessary for the proper construction and completion of the
improvements, arid shall assume foil responsibility for the compliance of
Tenant and the improvements with all governmental laws, codes, ordinances,
regulations and standards applicable thereto; and
8.2.3 The Improvements shall be constructed in accordance with the plans
and specifications. All such improvements shall be completed by the Tenant and
a certificate of occupancy for time Premises shall be obtained by Tenant on or
before the Rent commencement Date. Tenant shall give notice to the Landlord of
the imminent completion of the improvements not less than ten days prior 10
their expected completion. Promptly upon completion of the improvements, Tenant
shall cause a 'Notice of Completion' as described In Section 3093 of the
California Civil Code, to be filed and recorded in the manner provided by such
Section.
8.3 Cooperation by the Landlord. The Landlord agrees, upon the request of
---------------------------
the Tenant, to join with the Tenant to execute and deliver such documents and
instruments as may be necessary or proper for applying for or obtaining any
permits, licenses, approvals or records as may be necessary or appropriate to
the construction of the improvements and operation of the Premises. The
Landlord snail incur no expense and no liability as a result of such
cooperation. The Landlord shall have the right to approve any conditions
Imposed by any governmental agency In connection with obtaining any such
permits, or other documents or approvals, which may impact the Premises
separate and apart from the Tenant's occupancy thereof, which approval shall
not be withheld unreasonably.
8.4 Ownership of Improvements. All of the Tenant's improvements constructed
-------------------------
hereunder, and all Subsequent additions and alterations thereto and
replacements thereof, shall be deemed affixed to, become and remain a part of
the Premises and shall not be removed, encumbered, transferred or materially
altered except as provided by this Lease, Upon the expiration of the Lease
Term, or upon the sooner termination of this Lease, all of the improvements
other than the Tenant's personal property, removable trade fixtures and
equipment, shall become the property of the Landlord without further obligation
to the Tenant.
9. ALTERATIONS; LIENS
------------------
9.1 Changes by the Tenant. Following the completion of the improvements
---------------------
contemplated by Section 8 and Exhibit B, if any, any alterations, additions,
improvements or changes, including any remodeling or redecorating, that the
Tenant may desire to make in, to or upon the Premises, shall be made at the
Tenant's sole cost and expense. Prior to undertaking any such alterations,
Tenant shall first submit the plans and specifications therefor to the Landlord
and obtain Inc consent of the Landlord thereto in writing, The parties' rights
and obligations with respect to such alterations, additions, improvements or
changes shall be Identical to those rights and remedies concerning the Tenant's
construction of improvements, as set forth in Section 8. Should the Landlord so
elect, any such alterations, additions, improvements or changes shall become a
part of the Premises at the expiration or sooner termination of the Lease, and
shell be surrendered to the Landlord upon the expiration of the Lease Term or
the sooner termination of this Lease.
-4-
9.2 Mechanics Liens. The Tenant agrees to keep the Premises, and any
---------------
Improvements thereon, at all times free of mechanic's liens and other liens for
labor, services, supplies, equipment or material purchased by or directly or
indirectly furnished to the Tenant. The Tenant, however, shall have the right
to contest the validity on amount of any such lien as flied upon posting a bond
in an amount equal to one hundred fifty percent (150%) of the dollar amount
sufficient to discharge the lien. Upon the final determination of any such
contest, Tenant shall immediately pay and discharge any judgment rendered,
together with all costs and charges Incidental thereto, and shall cause the
lien thereof to be released from the Premises, Should the Tenant fail, within
thirty days after notice of the filing of any such item, to discharge or cause
the release of such liens or charges cm to contest the same and post bond as
above provided for, then he Landlord, at the Landlord's option, may satisfy
such liens by payment thereof. in such event, the amount of such, payment,
together with interest thereon at the maximum rate permitted by law, from the
time the payment is so made until repayment thereof, shell be payable by the
Tenant at the time installment of rent shall be due and payable. Tenant shall
reimburse Landlord, within ten days following whiten demand, for all costs and
expenses, Including, without limitation, attorneys' fees, incurred by Landlord
in connection with addressing any mechanic's liens or similar claims related to
Tenants occupancy of the Premises.
10. TENANT'S PERSONAL PROPERTY
--------------------------
10.1 Installation of Property. The Landlord shall have no interest In any
------------------------
removable equipment, furniture or' trade fixtures owned by the Tenant or
Installed in or upon the Premises solely at the cost and expense of the Tenant.
Prior to creating or permitting the creation of any lien or security or
reversionary interest in any removable personal property to be placed in or
upon the Premises, the Tenant shall obtain the written agreement of the party
holding such lien or Interest to make such repairs required by the removal of
such property as may be necessary to restore the Premises to good condition and
repair, excepting only reasonable wear and tear, In the event such property Is
thereafter removed from the Premises by such party, or by any agent or
representative thereof or purchaser therefrom, without any cost or expense to
the Landlord,
10.2 Removal of Personal Property. The Tenant shall have the right to
----------------------------
remove at Its own cost and expense upon the expiration of this Lease all
removable equipment, furniture or trade fixtures owned by or Installed at the
expense oh the Tenant on the Premises during the Lease Term. All such personal
property shall be removed prior to the close of business an the last day of the
Lease Term. Tenant shall make such repairs required by the removal of such
property and any damage resulting therefrom as may be necessary to restore the
Premises to good condition and repair, excepting only reasonable wear end tear.
Any such property and so removed shall be deemed to have been abandoned or, at
the option of the Landlord, shall be removed arid placed In storage for the
account and at the cost and expense of the Tenant.
II. WAIVER AND INDEMNITY
--------------------
This Lease is made upon the express condition that the Landlord is to be
free from all liability and claims for damages by reason of any injury to any
person and damage to any property (including the Tenant's), resulting from any
cause whatsoever while in, upon, about, or in any way connected with the
Premises or the Building in which the Premises is located, during the Lease
Term. In no event shall the Landlord be liable for events that occur Ira the
common areas, or for damages at injury caused by fire, utility outage or
Interruption, pipe or sprinkler leakage, or similar causes. The Tenant hereby
waives alt claims against the Landlord for, and agrees to defend with counsel
acceptable to Landlord, and to indemnify and hold the Landlord harmless from,
any loss or liability, and all costs or expenses, including attorneys' lees and
costs of defense, arising from or attributable to any such Injury on damage
from any cause at any time related in any way to the Premises during the term
hereof, other than those caused by the gross negligence or willful misconduct
of the Landlord, to the extent of such gross negligence or willful misconduct.
This Section it shall survive the termination or the Lease.
12. INSURANCE, PUBLIC LIABILITY AND PROPERTY DAMAGE
-----------------------------------------------
12.1 Insurance coverage. The Tenant agrees to maintain in force
------------------
throughout the term hereof, at the Tenant's sole cost and expense,
comprehensive general liability insurance with a broad form general liability
endorsement insuring against any liability to the public for any claim for
damages due to death, bodily injury or property damage related to the use of or
resulting from any accident occurring in or about the Premises, with single
coverage of not less than $1,000.000 per occurrence, and $2,000,000 aggregate,
12.1.1 Such policy shall insure the contingent liability of the Landlord
and the performance by the Tenant or its indemnity obligations under this
Lease. The Landlord shall be named as an additional Insured In such policy, and
such policy shall constitute a cross-liability endorsement.
12.1.2 The Tenant further agrees that the amount of the insurance
coverage shall be reviewed every three years, at least sixty days before the
expiration or a three-year period. If the parties are unable to agree upon the
amount of such coverage, the Tenant shall be required to maintain for the next
three-year period (or prior to the expiration of the Lease Term, whichever Is
less) the amount of coverage reasonably recommended In writing by an insurer
selected by the landlord.
12.2 Tenant's Property Insurance. The Tenant, at its own cost, shall
---------------------------
maintain on all of its personal property and removable fixtures and equipment
situated in, on or about the Premises, a policy of standard fire and extended
coverage insurance, with vandalism and malicious mischief endorsements (and
sprinkler leakage and earthquake sprinkler leakage endorsements, if the
building has sprinklers), to the extent of at least one hundred percent (100%)
of their actual replacement cost. The proceeds of any such policy that become
payable due to damage, loss or destruction of such property shall be used by
the Tenant for the repair or replacement thereof.
12.3 Miscellaneous Insurance Provisions,
----------------------------------
12.3.1 Each policy of Insurance required of the Tenant by this Lease
shall he a primary policy, Issued by an insurance company reasonably
satisfactory to the Landlord, and shall contain an endorsement requiring thirty
days' written notice (or 10 days In the case of non-payment) from the insurer
to the Landlord before cancellation or change in the nature, scope or amount of
coverage. Each policy of insurance maintained by Tenant shall be primary end
noncontributing with any policy maintained by Landlord. Each policy, or a
certificate of the policy, together with evidence of the payment of premiums,
shall be deposited with the Landlord at the commencement of the Initial Term of
this Lease, prior to any expiration of any such policy, and at the commencement
of any Renewal Tern.
12.3.2 The Landlord and the Tenant each release the other, and their
respective agents and representatives, from any claims for damage to any person
or to the Premises and to the fixtures and personal properly situated therein,
resulting from or attributable to any risk Insured under any insurance policies
carded by the pan-flea and in force at the time of the damage. Each party shall
cause any Insurer providing Insurance to it pursuant to this Lease to waive all
rights or recovery by way or subrogation against either party by virtue of the
payment of any loss under such insurance. Such waiver shall be effective as
long as such Insurance is required under the provisions of this Lease.
12.4 Casualty insurance; Damage or Defluction. The Landlord shall, at
all limes during the Lease Term, and at Landlord's cost and expense, keep the
Building and improvements in which the Premises ore situated insured against
loss or damage by fire end the perils covered by a combined single limit bodily
injury and broad form property damage insurance policy, extended coverage, or
an 'all risk' insurance, with inflation, vandalism arid malicious mischief
endorsements, zoning ordinance coverage, and any other endorsements selected by
the Landlord. The Landlord, at its discretion, may purchase (a) an earthquake
policy or insurance and zoning ordinance, in any amount sufficient to prevent
either the Landlord or the Tenant from becoming a co-insured under the
provisions of the policies, (b) a policy of rental value or rent continuation
insurance for a period of one year and (a) any ether Insurance that may be
required from time to time by Landlord's lender. In addition, the Landlord may
purchase any other insurance which it. in its sole discretion, deems necessary
or desirable. All such insurance shall be payable to the Landlord and the
bolder of any encumbrances on the Property as their Interests may appear.
12.5 Insurable Casually Loss.
-----------------------
12.5.1 Except as provided in Section 12.5.2, it the Premises, or the
Building in which the Premises are situated, is damaged or destroyed as the
result of arty risk required to be insured against by this Section 12, then the
Landlord shall forthwith restore the Premises or the Building to substantially
the same condition as existed Immediately prior to such damage or destruction.
Any insurance proceeds remaining after the completion of such work shall belong
to the Landlord.
12.5.2 If, at any time during the Lease Term, the Premises are totally
destroyed, or are sufficiently damaged to render them unusable without
substantial repair or reconstruction, due to a casualty required to be Insured
against as provided herein, or should then applicable laws or zoning ordinances
preclude the restoration or repair of the Premises, or should the casts of
restoration exceed five percent (5%) or the amount of the insurance proceeds,
then the Landlord shall have the option, exercisable by giving at least ten
days' prior written notice to the Tenant within one hundred twenty days after
the occurrence of any such casualty, to terminate this Lease.
12.6 Uninsured Casualty Loss.
-----------------------
12.6.1 If, during the Lease Tent the Premises or the Building are
damaged 01' partially destroyed from a risk not required to be insured against
by this Beefing 12, the Landlord shall restore the Premises to substantially
the same condition as existed immediately prior to such damage or destruction.
12.6.2 If the costs of repair or restoration necessitated by an
uninsured casualty loss exceed hive percent (5%) of the then replacement value
of the Premises, then the Landlord shall have the option, exercisable by giving
at least ten days' prior written notice to the Tenant within one hundred twenty
days after the occurrence of any such casualty, to terminate this Lease.
12.7 Termination: Abatement of Rent. This Lease shall not be
------------------------------
terminated by any damage to or destruction of the Premises or other
improvements of which the Premises era a part, unless notice of termination is
given by the Landlord to the Tenant as provided by this Section 12. The Tenant
hereby valves the provisions of Section 1932(2) and 1933(4) of the California
Civil Code with respect to any such damage or destruction.
12.7.1 Should the Premises be damaged or destroyed at any lime during
the Lease Term, there shall be an abatement or reduction or the minimum monthly
rent, between the date of destruction and the date of completion of
restoration, based on the extent to which the destruction Interferes with the
Tenant's use of the Premises.
12.8 Notice; Tenant's Right to Terminate. Notwithstanding any
-----------------------------------
provision of this Lease to the contrary, if Landlord determines in good faith
that the repair and restoration of the Premises to be made by the Landlord
pursuant to this Section 12 reasonably cannot be made within six months
following the occurrence of any casualty, Landlord shall give written notice of
such determination to Tenant within ninety days Following the occurrence of the
casualty. Tenant may terminate this Lease only by written notice given to
Landlord within thirty days after receipt by Tenant of Landlord's notice of
such determination.
13. CONDEMNATION
------------
13.1 Entire Premises. Should title or possession of the whole of the
Premises or the Building be taken by duly constituted authority in condemnation
proceedings under the exercise of the right or eminent domain, or should a
partial taking render the remaining portion or the Premises wholly unacceptable
for occupation, then this Lease shall terminate upon the vesting of title or
taking succession.
13.2 Partial Taking.
--------------
13.2.1 The Landlord shall have the right to terminate this Lease upon
such thirty days' notice if title to a portion of the Premises is taken in
connection with, or by deed In lieu at any condemnation proceedings under the
exercise or the right of eminent domain, and Is such as to prevent the Tenant
from using the Premises, or the remaining portion thereof, in substantially the
same manner as they were used prior to such taking. If the Landlord tines not
terminate this Lease as provided herein, then this Lease shall remain in full
force and effect in such event, the Landlord snail promptly make any necessary
repels or restoration at the cost and expense of the Landlord. The minimum
monthly rent from and after the date of the taking shall be reduced In the
proportion that the value of the sea of the portion of the Premises taken bears
lathe total value of the Premises Immediately prior to the date of such taking
or conveyance.
13.2.2 Each party waives the provisions of Code of Civil Procedure
Section 1265.130 allowing either party to petition the Superior Court to
terminate this Lease In the event of a partial taking or the Premises. Any
dispute between the parties concerning the extent to which a partial taking by
eminent domain Interferes with the use and occupancy of the Premises by the
Tenant shall be settled by arbitration in the city in which the Premises are
located, In accordance with the rules of the American Arbitration Association
then in effect.
13.3 Conveyance Under Threat of Condemnation. Any Sale or conveyance
by the Landlord to any person or entity having the power of eminent domain,
either under threat of condemnation or while condemnation proceedings are
pending, shall be deemed to be a taking by eminent domain under this Section
13.
13.4 Awards and Damages. All payments made on account of any taking by
------------------
eminent domain shall be made by the Landlord, except that the Tenant shall be
entitled to any payment or await made for or attributable to the reasonable
removal and relocation costs of any removable property that the Tenant has the
right to remove, or for loss and damage to any such property that the Tenant
elects or Is not required to remove.
14. AUCTIONING, MORTGAGING. SUBLETTING OR CHANGE IN OWNERSHIP
---------------------------------------------------------
14.1 Limitation. The Tenant shall not transfer, assign, sublet,
----------
mortgage, hypothecate, share rights in this Lease or the Tenant's interest in
the Premises. or permit any other person or entity to use the Premises
(collectively, a Transfer), without first procuring the written consent of the
Landlord. The Tenant shall pay to the Landlord an amount equal to ten percent
(10%) of the then-applicable minimum monthly rent with each such request for
consent to cover the Landlord's expenses in connection with processing each
such request, Any attempted Transfer without the Landlord's written consent
shall be void end shall constitute a material default under this Lease. The
Tenant also agrees to reimburse the Landlord for the Landlord's attorneys fees
(if any) incurred in connection with any requested Transfer by the Tenant or
the Tenant's rights hereunder, which reimbursement shall be in addition to, and
not a part of, the processing fee referred to above.
14.2 Deemed Transfer. If the Tenant is a nonpublicly traded
---------------
corporation, or an unincorporated association or partnership, any direct or
Indirect cumulative transfer, assignment or hypothecation of any stock or
interest in such corporation, association or partnership in the aggregate in
excess of thirty percent (30%) of the beneficial ownership hereof (or. in the
case of a partnership, or the beneficial ownership thereof or of the general
partner interest thereof) shall be deemed a Transfer within the meaning and
provisions or this Section 14 and subject to the provisions hereof.
14.3 Standard for Consent. If Tenant desires at any time to assign
--------------------
this Lease or to sublease the Premises. or any portion thereof, it shall first
notify Landlord of its desire to do so and shall submit in writing to Landlord:
(I) the name of the proposed subtenant or assignee and the proposed guarantors
of such subtenant's or assignee's obligations:
(ii) the nature of the proposed subtenant's or assignee's business to be
carded on in the Premises; (iii) the tents and provisions of the proposed
Transfer of Tenant's business and leasehold interest, including the price, rent
and terms of payment; and (v) any other information required by Landlord.
Landlord shall not unreasonably withhold its consent provided: (1) the use of
the Premises remains the same as provided In this Lease (unless Landlord, for
reasonable cause, decides that the use and/or the location or the use Is
Incompatible with Landlord's present or future plans for operation of the
Property): (2) the proposed subtenant or assignee and their respective
guarantors demonstrate that it is financially responsible by submission to
Landlord of such reasonable Information as Landlord may request concerning the
proposed subtenant or assignee, including, but not limited to, a balance sheet
of the proposed subtenant or assignee as of a date within ninety days of the
request for Landlord's consent, and statements of Income or profit and loss of
the proposed subtenant or assignee and guarantor for the two year period
preceding the request for Landlord's consent; (3) the proposed subtenant or
assignee demonstrates a record of successful experience in operating the same
type of business by submission to Landlord of such reasonable Information as
Landlord may request concerning the proposed subtenant or assignee, Including,
but not limited 10, a written statement In reasonable detail as to the business
experience or the proposed subtenant or assignee during the five years
preceding the request for Landlord's consent; and (4) the proposed subtenant or
assignee has a reputation for honesty and is of good moral character. No
subletting or assignment, even with the consent of Landlord, shall relieve
Tenant of Its obligation to pay the rent and to perform all of the other
obligations to be performed by Tenant hereunder.
14.4 Conditions. Each Transfer to which there has been consent shall
---------
be by an Instrument in writing, in a form satisfactory to the Landlord. Such
instrument shall be executed by the transferor, assignor, Sublessor,
hypothecation or mortgagor and the transferee, assignee, subleases. mortgagee
or other person or entity, as the case may be. Each transferee, assignee,
Sublessee, mortgagee or other person or entity shall agree in writing for the
benefit of the Landlord to assume, to be bound by, and to perform the terms,
covenants and conditions of this Lease to be performed by the Tenant, inducing
the payment of all amounts due, or to become due, under this Lease. In
addition, as conditions precedent to the Landlord's consent to any transfer of
this Lease. the Landlord may require any or all of the following:
14.4.1 The Tenant shall provide the Landlord with evidence reasonably
satisfactory 10 the Landlord that ma value of the Landlord's interest under
this Lease will not thereby be diminished or reduced, which evidence shall
include, but not need be limited to, evidence respecting the relevant business
expense and financial responsibility and status of the third party concerned;
14.4.2 If the Transfer provides for the receipt by. on behalf of, or
on account or the Tenant of any consideration or any kind whatsoever
(including, but not by way of imitation, a pren1iun~ rental for the sublease or
lump sum payment for an assignment) in excess of the rent due the Landlord
under this Lease, the Tenant shall pay seventy five percent (75%) of such
excess, less the Tenant's reasonable costs (not to exceed twenty-five percent
(25%) of such excess) to the Landlord, which payment(s) to the Landlord shad be
made upon receipt of any such payment(s) by the Tenant:
14.4.3 The Tenant shall not be then in default hereunder in any
respect;
14.4.4 The Tenant shall deliver to the Landlord one executed copy of
all written instruments evidencing or relating to the Tenants assignment,
Transfer or sharing of the Premises; and
14,4.5 The Tenant shall provide a written agreement from any third party
concerned that, in the event the Landlord gives such third party notice that
the Tenant is in default under this Lease, such third panty shall Thereinafter
make alt payments otherwise clue the Tenant directly to the Landlord. Any such
payments will be received by the Landlord without the imposition of any
liability on the Landlord, except to credit such payments against those due
under the Lease, any such third party shall agree to attom to the Landlord, or
its successors and assigns, should this Lease be terminated for any reason;
provided, however, that in no event shall the Landlord, or its successors or
assigns, be obligated to accept such attomment.
14.5 Limitation on Consent.
i4&1 The Tenant hereby agrees and acknowledges that the conditions permitted to
be imposed upon grant of its consent hereunder are reasonable and the
Landlord's Imposition of such conditions shall under no circumstances impair or
limit the Landlord's tights and remedies under California Civil Code Section
1051.4, or any Successor statute.
14.5.2 The Landlord's consent to the Tenant Transfer on any one
Occasion shall apply only to the specific transaction thereby authorized. Such
consent shall not be construed as a waiver of the duty of the Tenant, or any
transferee, to obtain the Landlord's consent to any other or subsequent
Transfer, or as modifying or limiting the Landlord's rights hereunder In any
way. Tine Landlord's acceptance of raid, or any other payment directly from any
third party, shall not be construed as a waiver of any or the Landlords rights
or as the Landlord's agreement to accept the attormient of any third party, in
the event of a termination of this Lease. In no event shall the Landlord's
enforcement of any provision of this Lease against any party be deemed a waiver
of the Landlord right to enforce any provision of this Lease against the Tenant
or any other person.
14.6 Transferability to Successors. If the Landlord gives consent to a
Transfer, such third panty in respect of such consent was given may in
turn apply to the Landlord for its consent to subsequent Transfers. In such
case, the provisions of this Section 14 shall apply as fully as possible to
such third party (including this Section 14.5 In the case of more remote
transfers). Any such transfers shall be subject to all the terms and Conditions
of this Lease, and each such successive transfer shall be made only upon like
conditions. Tenant, and each successor to the Tenant's interest In the
Premises, shall agree to remain fully responsible to Landlord for the
performance of all of the Tenant's obligations under this Lease,
15. DEFAULT BY TENANT: LANDLORD'S REMEDIES
In Event of Default. Each of the following shall constitute a materiel ~4efault
and breach by Tenant under
this Lease;
15.1.1 If Tenant Is at any time In default of its obligations to pay any
rent or other charges, and such default continues for more than five days after
the date upon which the obligation to pay Is due;
15.1.2 If Tenant is in default in the prompt and full performance of any
other of Its obligations under this Lease and such default continues more than
thirty days after Landlord's delivery of written notice specifying the
particulars or such default, unless such default cannot be cured within thirty
days, In which case Tenant shall be In default if Tenant (a) dues not commence
the cure of such default within such thirty-day period, and (b) actually cures
such default within sixty days of Landlord's delivery of written notice of such
default;
15.1.3 If Tenant vacates or abandons tire Premises or otherwise fails to
occupy and operate the Premises in accordance with the terms of this Lease;
15.1.4 If Tenant or any guarantor of this Lease makes a general assignment
or general arrangement for the benefit of creditors; or Ira petition for
adjudication of bankruptcy am for reorganization or rearrangement is flied by
or against Tenant or any guarantor and is not dismissed within thirty days: or
if a trustee or receiver Is appointed to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease and possession Is not restored t Tenant within sixty days; or If
substantially all of Tenant's assets located at the Premises or Tenant's
interest in this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within sixty days. If a court of competent
jurisdiction determines that any of the acts described in this Section 15.1.4
is not a default under this Lease and a trustee is appointed to take possession
of Tenant's assets or it Tenant remains a debtor in possession and such trustee
or Tenant transfers Tenant's interest in this Lease, then Landlord shall
receive, as additional rent, the excess, If any, of the rent (or any other
consideration) paid in connection with such assignment or sublease over the
rent payable by Tenant hereunder; or
15.1.5 1 any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty or all or any portion
of Tenant's obligations under this Lease.
15.1.5 If the Tenant is in default under any other Lease with the Landlord
or any affiliate of the Landlord,
15.2 Remedies Upon Breach at Lease, On the o~1nence of any breach of
this Lease by Tenant, Landlord may, at any time thereafter, with or without
notice or demand and without limiting Landlord In the exercise of any right or
remedy which Landlord may have;
15.2.1 Terminate Tenant's right to possession of the Premises and re-
enter the Premises by any lawful means. In such case, Tenant shall immediately
surrender possession of the Premises to Landlord. If Landlord re-enters the
Premises under the provisions of this Sections Landlord shall not be deemed to
have terminated this Lease, or the liability of Tenant to pay any rent or other
charges that are due or thereafter accruing, or Tenant's liability for damages
under any of the provisions hereof. In the event any such entry articling
possession of the Premises, Landlord shall have the right, but not the
obligation, to remove from the Premises any personal property located therein
and to place it in storage at a public warehouse at the expense and risk of
Tenant;
15.2.2 Maintain Tenant's right to possession of the Premises, in which
case this Lease shall continue in effect whether or not Tenant has abandoned
the premises. In such event, Landlord shall be entitled to enforce alt of
Landlord's rights and remedies under this Lease. including the right to recover
the rent as it becomes due, and Landlord shall have the right to occupy or
relet the whole or any pail of the Premises for the account of Tenant; or
15.2.3 Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State of California.
15.3 Termination, Notwithstanding any other (any or provision hereof
to the contrary, this Lease shall terminate on the occurrence of any act Which
affirms Landlord's intention to terminate this Lease as provided in this
Section 15.3, including the filing of an unlawful detainer action against
Tenant. Acts of maintenance or preservation, efforts to relet the Premises, or
the appointment of a receiver at the initiative of Landlord shall not
constitute a termination of Tenant's right to possession unless written notice
of termination is Given. On any such termination, Landlord's damages for
default shall include at casts and fees, Including reasonable attorneys' fees,
incurred by Landlord in connection with filing, commencing, pursuing or
defending any action in any bankruptcy court or other court with respect to the
Lease, obtaining relief from any stay In bankruptcy restraining any action to
evict Tenant or pursuing any action with respect to Landlord's right to
possession of the Premises. All such damages suffered (apart from minimum
monthly rent and other rent payable hereunder) shall constitute pecuniary
damages which must be reimbursed to Landlord prior to assumption of the Lease
by Tenant or any successor to Tenant in any bankruptcy or other proceeding.
15.4 Cumulative Rights. The rights and remedies given to Landlord in
this Section shall be In addition and supplemental to all other rights or
remedies which Landlord may have under the laws in forte when the default
occurs. Landlord's exercise of any light or remedy shall not prevent it from
exercising any other right or remedy.
15.6 Landlord's Damages,
15.5.1 If Landlord elects to terminate this Lease and Tenant's rights
to possession or the Premises in accordance with the provisions of this Lease,
Landlord may recover from Tenant as damages all of the following:
A. The worth at the time of award of any unpaid rent and other charges
which has been earned at the time of such termination; plus
B. The worth at the time of award of the amount by which the unpaid
rent and other charges which would have been earned after termination until the
time of award exceeds the amount of such rental loss Tenant proves Landlord
could have reasonably avoided; plus
C. The at the lime of award of the amount by which the unpaid rent and all
other charges which Tenant would have paid for the balance of the term of the
Lease after the time of award exceeds the amount of such rental loss that
Tenant proves Landlord could have reasonably avoided; plus
8. Any other amount necessary to compensate Landlord for WI of the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which In the ordinary course of things would be likely to
result therefrom. Including, without limitation, any costs or expenses incurred
by Landlord In (a) maintaining or preserving the Premises after such default,
(b) recovering possession of the Premises. Including reasonable attorneys' lees
therefor (c) expenses of renting the Premises to a new tenant, including
necessary renovations or alterations of the Premises, reasonable attorneys'
fees incurred, and leasing commission incurred; plus
9. Such other amounts in addition to such lieu foregoing as may be permitted
from time to time by the laws of the State of California.
15.5,2 Mused In Subsections A and 8. above, the 'worth at the time or
award is computed by allowing interest on unpaid amounts at the rate of ten
percent (10%) per annum. As used in Subsection C. above, (ho 'worth at the time
of award' is computed by discounting such amount at the discount rate of the
Federal Reserve sank located to the Building in effect at the time of award,
plus one percent (1%).
15.5.3 For purposes of this Section 11, all rent other than minimum monthly
rent shall. far purposes of calculating any amount due under the provisions of
Subsection C, above, be computed on the basis of the average monthly amount of
rent, other than minimum monthly rent, payable by Tenant during the immediately
preceding thirty-six' month period, except that if it becomes necessary to
compute such rental before such thirty-six-month period has expired, than such
rent shall be computed on the basis of the avenge monthly amount of rent
payable during such shorter period.
15.6 No Waiver. The waiver by Landlord of any breach by Tenant of any
provision, covenant or condition
contained in this Lease shall not be deemed to be a waiver of such provision,
covenant or condition, of any subsequent breach thereof, or of any other
provision, covenant or condition of this Lease.
15.6.1 The subsequent acceptance of rent hereunder by Landlord snail not be
deemed to be a waiver of any preceding breach by Tenant of any provision,
covenant or condition of this Lease or of any tight of Landlord to a forfeiture
of the Lease by reason of such breach, regardless of Landlords knowledge of
such preceding breach at the time of acceptance of such rent. No provision,
covenant or condition of this Lease shall be deemed to have been waived by
Landlord unless such waiver is In writing and signed by Landlord.
15.6.2 Landlord Is entitled to, receive end cash or deposit any payment
made by Tenant for any reason purpose or in any amount whatsoever, arid apply
the same at Landlord's Option to any obligation of Tenant and the same shall
not constitute payment of any amount owed, except that to which Landlord has
applied the same. No endorsement or statement on any check or letter of Tenant
shall be deemed an accord and satisfaction or otherwise recognized for any
purpose whatsoever. The acceptance of any such check or payment shall be
without prejudice to Landlord's right to leaner any and all amounts owed by
Tenant hereunder and Landlord's right to pursue a~ other available remedy.
15.7 Power of Receiver. Upon a default by Tenant, Landlord shall have
the sight to obtain the appointment of a receiver to the possession of the
Premises and/or to collect the rents or profits derived therefrom. Tenant
irrevocably agrees that any such receiver may, if necessary or convenient in
order to collect such rents and profits, conduct the business then being
carried on by Tenant on the Premises and that the receiver may take possession
of any personal property belonging to Tenant and used in the conduct of such
business, and may use the same in conducting such business on the Premises
without compensation to Tenant for such use, neither the application for nor
the appointment of such a receive, shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such
intention is given by Landlord.
15.8 Landlords Right to Cure Defaults. The Landlord, at anytime after the
Tenant commits a default in the performance of any or the Tenant's obligations
under this Lease, shall be entitled (but is not obligated) to cure such
default, or to cause such default to be cured, at the sole cost and expense of
the Tenant. If. by reason of any default by the Tenant, the Landlord incurs any
expense or pays any sum, or performs any Act requiring the Landlord to incur
any expense or to pay any sum, including reasonable fees and expenses paid or
incurred by the Landlord in order to prepare and post or Sliver any notice
permitted or required by the provisions of this Lease, or otherwise permitted
or contemplated by law, then the amount so paid or Incurred by the Landlord
shall be immediately due end payable to the Landlord by the Tenant as
additional rent, The Tenant hereby authorizes the Landlord to deduct such sums
from any Security Deposit held by the Landlord, if there is no Security
deposit, such sums shall be paid by the Tenant Immediately upon demand by the
Landlord, and shall beer interest at the rate of ten percent (10%) per annum,
or such greater sum as may be permitted by law from the dale of such demand
until paid in full.
16. DEFAULTS BY LANDLORD
If Landlord fails to perform any covenant, condition or agreement contained In
this Lease within thirty days after receipt of written notice from Tenant
specifying such failure (or if such failure cannot reasonably be cured within
thirty days, if Landlord does not commence to cure the failure within that
thirty-day period), then such failure shall constitute a default by Landlord
hereunder. In such cats, Landlord shall be liable to Tenant for any damages
sustained by Tenant as a result of Landlord's default.
18.1 Liability Limitation. Tenant and Landlord expressly agree that if
Tenant obtains a money judgment against Landlord resulting from any default or
other claim arising under this Lease, that judgment shell be satisfied only the
rents, issues, profits, and other income, including insurance proceeds, if any,
actually received on account of Landlord's right, Utle and Interest in the
Property. No other real, personal or mixed property of Landlord (or of any of
the partners which comprise Landlord, or of partners or principals of such
partners comprising Landlord, if any, or of the officers, shareholders or
directors, if any, of any such entity) wherever situated, shall be subject to
levy. attachment or execution, or otherwise used to satisfy any such judgment.
Tenant hereby waives any right to satisfy a Judgment against Landlord except
from the rents, Issues, profits and other Income, including insurance proceeds,
if any, actually received on account of Landlord's right, title and Interest In
the Property.
16.2 Notice to Landlord of default. Landlord falls to cure the default as
provided below, then subject to the provisions of this Lease, Tenant shall have
the sight to cure that default at the landlord's expense. In such case,
Landlord shall pay the reasonable cost of such cure promptly following receipt
of a bill from Tenant itemizing the cost of such cure. Tenant shall not have
the right to terminate this Lease or to withhold, reduce or offset any cost of
such cure against any payments of runt or other charges due and payable to
Landlord under this Lease, except as otherwise specifically provided in this
Lease.
16.3 Waiver of Code Previsions, Tenant hereby agrees that Civil Code
Sections 1932(2), 1935(4), 1941 and
1942 shall not be Applicable to this Lease and Tenant hereby waives any right
It may have under any of said Code Sections,
17. ENVIRONMENTAL MATTERS
The Landlord does not have actual knowledge of the presence of any
Hazardous Substances, as defined below, on the Property not in conformance with
applicable law- The Tenant has had sufficient opportunity to satisfy itself of
the condition or the Premises prior to the execution hereof,
17.1 Compliance. The Tenant shall at all times and in all respects
comply with alt federal, state and local laws, ordinances and regulations
(collectively, 'Hazardous Substances Laws relating to Industrial hygiene,
environmental protection or he use, analysis, generation, manufacture, storage,
disposal or transportation of any oil, flammables, explosives, asbestos,
radioactive materials or wastes or other hazardous, toxic, contaminating or
polluting materials, substances or wastes, including, without limitation, any
hazardous substances which are the subject of any laws, ordinances or
regulations intend to protect the environment or health, safety and welfare
(collectively, the "Hazardous Substances",
17.2 Licenses and Permits. The Tenant shall, at its own expense,
protect, maintain in effect, and comply with all conditions of any and all
permits, licenses and other governmental and regulatory approval required for
the Tenants use of the Premises, including, without limitation, discharge of
appropriately treated materials or wastes which may be discharged into or
through any sanitary sewer serving the Premises. 'TFIO Tenant shall, in all
respects, deal with the Hazardous Substances in conformity with the Hazardous
Substances Laws.
11.3 Indemnification, The Tenant shall Indemnify, defend, by counsel
reasonably acceptable to the Landlord, protect, and hold the Landlord and each
of the Landlord's partners, employees, agents, attorney's, successors and
assigns, free and harmless from and against any and all claims, liabilities,
penalties, forfeitures, losses or expenses (including attorneys' fees), damages
or 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, by the
Tenant's failure to comply with any Hazardous Substances Law, or other
environmental, health or safety law, regulation or ordinance. The Tenant's
Obligations hereunder shall include, without limitation, whether foreseeable
or unforeseeable, all costs of any kind whatsoever related in any way In the
repair, clean-up or remedtadcrl of the Premises, and the preparation and
implementation of any closure, remedial action or other required plans In
connection therewith. The Tenant's obligations hereunder shall survive the
expiration at early termination of the Lease Term but shall in no event apply
to any events prior to Tenants tenancy. For purposes of this indemnity
provision, any acts or omission of the Tenant, or by employees, agents,
assignees, contractors or subcontractors of the Tenant, or others acting for or
on behalf of the Tenant (whether or not they are negligent, intentional.
willful or unlawful) shall be strictly attributable to the Tenant.
18. SUBORDINATION OP LEASE
18.1 Sttb~i'dirwfion Agreement. The Tenant agrees to execute,
acknowledge and deliver to the Landlord within ten days following Landlord's
written request, such documents and instruments that may be necessary to
subordinate this Lease to (1) any mortgages or trust deeds that now exist or
may hereafter be placed upon the Premises by the Landlord, (2) to any and all
advances made or to be made thereunder, (3) to the Interest on all obligations
secured thereby, (4) to all renewals, modifications, consolidations,
replacements and wdensions thereof, and (5) any easements, covenants,
conditions or restrictions executed by Landlord provided that they do not
materially Interfere with Tenants use, enjoyment and occupancy of the premises.
In each case the mortgagee or beneficiary named in any Suoli mortgage or trust
deed shall agree in writing that, as long as the Tenant performs its
obligations under this Lease, no foreclosure or deed in the of foreclosure. or
sale under the encumbrance or other procedures to enforce the rights incident
thereto, shall affect the Tenant's rights under this Lease.
15.2 Attornrment The Tenant shall attorn to any purchaser at any
foreclosure sale or to any grantee or transferee designated In any deed given
in lieu of foreclosure.
18,3 gstennep certificate. Wrthin ten days alter receipt of a written
request therefor, the Tenant shall deliver
recordable form a wrilten statement certIfying (if such is the case) that
this Lease is in full force and effect and that there are no deFenses or
offsets thereto, or slatIng those claimed to exIst and such other infomiatlon
asthe Landlord may reasonably request be included In such statement. The
failure of the Tenant to deliver such certtticate within such tIme period shall
constitute conclusive affirmation by Tenant forthe benefit of the Landlord, its
lender, mortgagee or assignee, and their respective successors In Interest,
that this Lease is In full force and effect and has not been modified except as
may be represented by the Landlord in its written request for such statement.
19. LANDLORD'S FNTRYON PREMISES
19.1 Right of En-v. The Landlord and its authorized represantal Wet
shall have the right without liability and without abatement of tent to enter
the Premises at all reasonable times for, without limitation, any of the
following
purposes:
19.t1 To detem~ne whether tile Premises and/cr the Building are ki good
conditIon, and whether the
Teneni is complying with its obligaticns under this Lease;
19,1.2 To do any necessary maintenance, repairs, restoration or remodeling
to the Premises anwor the
Building that the Landlord has the right or obligation to perfon~
19.1.3 To serve, post, or keep posted any notices required or allowed
under the provisions of this Lease, including 'for rent' or br iease notices
during the last six months of this Lease, or during any period while the Tenant
Is in default, and any notices provided by law forthe protection of the
Landlord's interest in the Premises;
19,1,4 To shore the foundatIons, footings and walls of the BuildIng, and
to erect scaffolding and
protcctr~e barricades around and about the Building, but not so as to prevent
entry to the Premises, and to do any ether eel or thing necessary for the
safety or preservation of the Premises or the BuildIng; and
19.1.5 To show the Premises and/or the BuIlding to prospective
purchasers, lenders, tenants, brokers arrd others for business purposes, and
for such other purposes as the Landlord may deem appropriate.
1 9.2 Exercise of Rioht Tile Landlord shall exercise Its rights of
entry In a manner that will not interfere unreasonably with the Tenant's use
and occupancy of the Premises; provided that the Landlord's entry and
activities do not result from the Tenant's default The Landlord shall not be
liable in any other manner for any Inconvenience, disturbance, loss of
business, nuisance, or other damage arising out of the Landlord's entry on the
Premises as provIded herein, except damage resulting from the acts or omissions
of Ihe Landlord or Its authorized representatives.
20. SALE OR TRANSFER OF PREMISES
If the Landlord sells or transfers at or any portion of the Premises, the
Building, or the improvements and land of which the Premises and the Building
are a part, then the Landlord shalt be released from any liability thereafter
accruing tinder this Lease upon (a) the consummation and (b) the Landlord
accountIng to any such Iranereree for any Security Deposit and prepald rent of
the Tenant hereunder.
21. SURRENDER ON 1ERMINA11ON~ HOLDING OyER
21.1 Surrender. On the last day of the Lease Term, or upon
socnertenninatlon of this Lease, the Tenant shall surrender to the Landlord the
Premises and all Tenant's improvements and adoration, broom dean, maIntained
and repaired in accordance with the terms hereof. and otherwIse in the same
condition ~ when received, except for reasonable wear and tear. Any damage to
or deterioration of the Pfefnlsea will not be deemed reasonable wear and lear
(the same could have been prevented by good maintenance practices of Tenant.
The Tenant shail also remove nIl of Its personal properly on or prior to such
last-day. The Tenant shall promptly repair any physIcal damage to the Premises
arising as a result of the Tenant's vacation of the Premises. The Landlord may
elsa to retain-or dispose of In any manner any improvements or alterations or
the Tenant's personal property that the Tenant does not remove from the
PromIses on expiration or termination of the Lease Term as allowed or required
bythls Lease by giving at least ten days' written notice to the Tenant, litle
to any such improvements or alterations or the Tenant's personal property that
the Landlord elects to retain or dispose of on expiration of the ten~day period
shall vest in the Landlord, The Tenant waives all claims against the Landlord
forany damage to the Tenant resulting from the Landlord's retention or
disposition of any such alterations or the Teiant's personal property.
21.2 HoldIng over. if the Tenant, with the Landlord's consent, remains
In possession of the Premises altar expiration or termination of the Lease
Term, or after the date in any notice given by the Landlord to the Tenant
terminating this Lease, such possession by the Tenant shall be deemed to be a
month-tc.mcnth tenancy temitnable on thirty days' notice given at any belle by
either party. Tile minimum monthly rent for any such tenancy snail be equal to
one hundred fifty percent (150%) he aggregate or the monthly minimum rent in
eftect on the date of such expiration. Such minimum rent shall be Sut~ect to
adjustment as provided hereunder. Such tenancy shall otherwise be subject to
all of the terms and conditIons of this Lease, except those pertaining to Lease
Term and Option to extend, If any. Any holding over without the Landlord's
consent shall not give the Tenant tenure hereunder.
22. GENERAL PROVISIONS
224 Notices. Any and all notices by the Landlord to the Tenant, or by the
Tenant to the Landlord, ehall be in writing and delivered personally or by U.S.
certified mail, return receipt requested, addressed to the patties at the
addresses specified on the signature page hereof. Either party may. at any
time, change the address by written notice to the other party in accordance
with this SectIon. If notice is mailed, it shall be deemed received on the
third business day following the date on which it is mailed.
22.2 BindIng Effect Complete Agreement. The Landlord and the Tenant
agree that each of the provisions, cond'rtions and obligations of this Lease
shall extend to and bind, or Inure to the benefIt of (as the case may require),
the respective parties hereto, and etch and every one of their respective
heirs, executors, administrators, representatives, successors and assigns. This
Lease, and the exhibits hereto, constItute the entIre agreement between the
parties and may not be altered, amended, modified or extended, except by an
instnrnlent in writing signed by all parties. The parties respectively
acknowledge arid agree that neither has made any representations or wnn'antles
to the other not expressly set forth herein. This Lease supersedes any
proposals regarding the leasing of the Premises, whether written or oral. Any
such proposals will be terminated, anti of no force or effect, effective upon
the execution of this Lease,
22.3 Attorneys' Fees, If any legal action is instituted by either
otthe parties to enforce or construe any of the previsions, conditions or
covenants of this Lease, or the validity thereof, the party prevailing In any
such action shall be entitled to recover from the other party all court costs
end reasonable attomeys' fees to be set by the court, and the costs end fees
Incurred In enforcing any judgment entered therein. Attomeys' fees and costs,
whenever mentioned in this Lease, shall include those Incurred with respect to
arbitration proceedIngs, If any.
22.4 Partial Invalidity. If any term or provision, In whole or In pad,
of this Lease or the application thereof to any person or circumstance shall,
to any extent, be Invalid, unenforceebte, or Inappicable in the stated
circumstances or fcr stated purposes, in any jurisdIction, then the remainder
of this Lease, or the application of such tenn or provision to persons or
circumstances other than those to which it is held invalid, unenforceable or
inapplicable, shall not be affected thereby. Each term and provision of this
Lease shall be valid end be enforceable to the fulest extent permitted by law.
22.5 Recerdation: Qultclaim. Neither party shall record this Lease.
Upon the request of Landlord, in Landlord's sole discretion, Tenant shafl
execute and acknowledge in recordable form a~Klenlorandum of Lease In content
agreeable to Landlord. The reasonable costs and expenses, includIng attorneys'
fees, incurred by Landlord In preparing, filing and recording 11w Memorandum of
Lease shall be bome by Landlord, concurrently with the execution of any
Memorandum of Lease, the Tenant shall execute and deliver to the Landlord for
filing and recording, upon the expiratIon or termination of this Lease, a
quitclalm deed designating the Landlord, its successors and assIgns, as the
transferee of the Premises.
22.6 Broker. The Tenant represents that It has not incurred an
obligation to pay any real estate broKer~s, agent's, or leasing commisdon, or
other sums In connection with the relationship conternpisted hereby, crlf the
Tenant nas incurred any such obtigatlon, the payment of such obligation will be
the Tenant's responsibIlity. The Tenant hereby indemnities the Landlord from
and against any such liabitity. Landlord shall pay any oemmission owing to
Landlord's broker(s). if any.
22.1 consent of Party. If this Lease requires the consent of a party
hereto, such consent shall not be unreasonably withheld or delayed.
22.3 Corporate Authority. If the Tenant is a corporatIon, each
indMdual executing this Lease on beholr of such corporation represents and
warrants that he or she Is duly authorized to execute and deliver this Lease on
behalf of such corporation, In accordance with a duly adopted resolution or the
Board of Directors, orin accordance with the Bylaws of such corporation; that
this Lease Is binding upon such corporation In accordance with its terms; that
the Tenant is a duly qualIfied corporation and all steps have been taken prior
to the date hereof to quallry the Tenant to do busIness in the State in which
the Premises are siluated. if the Tenant isa foreign corporation; that all
franchise and corporate taxes have been paid to date; and that all future
forms, reports, fees and other documents necessary to comply with applicatle
laws will be flied when due. -
22.9 IUDQ Time Is of the essence cr this Lease and each and evel'~f term,
covenant and conditIon hereof.
22.10 ~isna. The Tenant shell not place, or cause jo be placed or
maintsined, on any exterior door. wall or window of tIle PreMses or in a
location within the PremIses readily visible from the exterior of the PremIses
any sign, awning or canopy, Cr other advertising or display matter, and will
not place or maIntain any decoration, lettering or advertising matter on the
glass of any window or door of the Preuilses, without first obtaining the
Landlord's prior written approval and consent In each instance. The Tenant
further agrees to maintain at all limes any such sign, awning, canopy,
decoration, lettering, advertising matter or otherttling as may be approved, in
good condition, and in full compliance with all applicable governmental
regulations and the sign Criteria forthe Building established frem time to
time. Tenant shall be solely responsible for complying with any applicable
governmental regulations and obtaining all requisite governmental consents.
Landlord reserves tne right to place signage (or the BuIlding and otherteflants
In the Building on the exterior of the Building.
22.11 Financial Statements. Tenant snail refer to Landlord to annual
financial statements of Tenantwlthln nInety days afterthe end of Tenant's
fiscal year,which shall be Certified by Tenant astrue and con'eot. Such
financial statements shall be based span generally accepted accountIng
principles applied on a consistent basis. They shaH clearly snow sufficient
infcrmatlcn to accurately depict the financial Condition or Tenant as of the
date thereof. If Tenant is a partnership orjoinl venture, such finandel
statements shall, upon Landlords request, be accompanied by similar finanoal
statements of each general partner Or joint venturer of Tenant. Such similar
statements shall be certified to be true and correct by tile subject thereof
Within thIs days following written request by Landlord delivered after (a)
request by Landlord's lender or any prospective purchaser of the Building, or
Ib) any default by Tenant in the payment of any sums awing under this Lease,
whether or not any time period allowed for the cure of such default has
expired, Tenant shall provide Landlord with copies of Tenant's financial
statement forthe end of the 'float recent quarter of Tenant's fiscal year, and
Tenant's financial stetement (including year-to-date informatIon) forthe end of
the month preceding such dnfauh. In each case, such finandal statement shalt
meet all of the preceding requIrements for annual financial statements. Tenants
railure to deliver the financial statements contemplated hereby within the time
specified, or Landlcrd's dIscovery ci any misstatemenl. omisslcn or
misrepresentation in any financial statement supplied, shall constitute a
material default by Tenant Lirider this Lease.
22.12 Contideptiallty of Lease. Tenant acknowledges and agrees that
the terms of this Lease are confidential and constitute proprietary
Infotmatlori of Landlord. Disclosure of the terms hereof could adversely aired
the abfllty of the Landlord to negotiate other leases with respect to the
Building and impair the Landlord's relationship with other tenants or the
Building. The Tenant agrees that it, its partners, officers, directors,
employees and attorneys, shall not disclose Ihe lenns and conditions of this
Lease to any other person without the prior wyitten consent of the Landlord. A
breach of this covenant by Tenant shell constItute a material default under
this Lease that, by its nature, is not susceptible to curs by the Tenant, It is
understood and agreed that damages, alone, would be an Inadequate remedy for
the breach of this provision by Tenant, Landlord therefore shall have the right
to specific performance of this provisIon and to injunctIve relIef to prevent
its breach or continued breach, as well as all other remedIes avaliable at law
or In equity.
22.13 SecurIty Measures. Tenant hereby acknowledges that Landlord
shall have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Building, Tenant assumes all
responsibility for Ihe protection Of Tenant Arid its agants, employees and
irivitees, and the property ol Tenant, and its agents, employees and invitess,
from acts of third panties. Nothing herein contained shall prevent Landlord, at
Landlord's sale option, from providing security protection for the Building or
any part thereof, In which event the cost thereot shall be tncluded as en
Operating Cost.
22.14 Constucbon ef Lease. 'the language In all pails ofthis Lease
shall In all cases be construed as a whole according to its fair meaning and
not strictly for nor against the Landlord or the Tenant.
22.1 S Negation of Joint Venture. Nothing in this Lease shall cause the
Landlord tn any way to he construed as an employer, employee. Ictudaty, a
partner, a joint venturer, or otherwise associated In any way with the Tenant
In the operation of the Premises. Morning contained herein shall subject the
Landlord to any obligation, loss, charge or expense connected with or arising
from the Tenant's operatIon in Of use of the Premises.
22.18 Personal Guaranty, If Tenant Is not a sole proprietorship or a
publidy traded corporation, the shareholders or partners of the Tenant shall
execute the form of personal Guaranty attached hereto as Exhibit C.
Linuidated Damnaaes.
BY INITIALLING IN THE SPACES PROVIDED BELOW, THE PARTIES AGREE THAT A LATE
OPENING OF
THE PREMISES, LATE OR INSUFFICIENT PAYMENT OF RENT OR OTHER CHARGES PAYABLE
HEIEUNDER, OR
TENANTS HOLDING OVER. WILL CAUSE LANDLORD TO INCUR COSTS NOT COt.ITEMpLA.TED BY
THIS LEASE,
THE EXACT AMOUNT OF SUCH COSTS BEING EXTREMELY DIFFICULT AND IMPRACTICABLE TO
ASCERTAIN.
SUCH COSTS INCLUDE ADMINISTRATIVE EXPENSES AND LOST GOOD WILL TO THE BUILDING.
THEREFORE,
THIS LEASE PROVIDES FOR CERTAIN LATE CHARGES AND OTHER LIQUIDATED DAMAGES. SUCH
LATE
CHARGES AND DAMAGES REPRESENT FAIR AND REASONABLE ESTIMATES OF THE COSTS AND/OR
DAMAGES THAT LANDLORD WILL INCUR UNDER THE CIRCUMSTANCES. ACCEPTANCE OF ANY
SUCH LATE
CHARGE OR DAMAGES SHALL CONSTITUTE NEIThER A WAIVER OF TENANT'S DEFAULT NOR AN
ELECTION
OF REMEDY,
(2/il ___
&ORD TENANT
(Signatures appear on the following page.)
IN WITNESS WHEREOF, the parties hereto have executed this Lease an this _____
day of __th. at the location of the Premises.
'LANDLORD':
PATTERSON ASSOCIATES, LLC,
Name:
Title:
Ad s:
Patterson Associates, LW
a/a Bermant Development Company
538 Holfister Avenue Santa Barbara, California 03111
Attn: Director of Asset Management
"TENANT":
EFAX.COM, INC.
a Delaware Corporation
By ____________________
Name:
Title:
Address:
EXHIBIT A
----------
PLOT PLAN OP PREMISES
----------------------
EXHIBIT B
---------
PREPARATION OF TENANT'S SPACE
------------------------------
1. GENERAL
1.1 Landlord's Work. The work described in Section 2 will be performed
by the Landlord (the 'Landlord's Work'). The Landlord will coordinate its work
with the Tenant's Work insofar as the schedule and prudent construction
practice allow. The Landlord's contractor shall make the Premises available to
contractors retained by the Tenant in connection with the Tenant's Work
provided that such contractors shall be required In coordinate such access and
work with the Landlord's contractor,
1.2 Tenant's Work. The work described in Sections will be performed
and completed by the Tenant in accordance with the Tenant's plans and
specifications (the 'Tenant's Work'). Tenant acknowledges end agrees that
Landlord will be performing the Landlord's Work in the Premises at the same
time as the Tenant Is performing the Tenant's Work. Tenant agrees to cause its
contractors (the 'Contractors') to cooperate with Landlord and Landlord's
contractors so as not to interfere with the Landlord's Work.
l.3 Tenant Improvement Allowance. Landlord shell bear the cost of all
of the LandI~d's Work.
Except as provided herein, Tenant shall bear the cost of all of the Tenant's
Work. Landlord shall remburso Tenant for a portion of the costs of the Tenant's
Work in an amount equal to _________NONE__________ Dollars ($_N/A ) (the
'Tenant Improvement Allowance'). The Tenant Improvement Allowance shall be paid
to Tenant upon the satisfaction of the following conditions:
1.3.1 A Certificate of Occupancy shall have been Issued by Santa
Barbara county, and Tenant shall be operating Its business open to the public
in the Premises:
1.3.2 Tenant shell have supplied Landlord with documentation shown
that Tenant's actual expenses in performing the Tenant's Wont exceed tine
amount of the Tenant Improvement Allowance sought to be released;
1.3.3 Tenant shall provide Landlord with all appropriate lien releases
by Its Contractors, subcontractors arid vendors; and
1.3.4 All of the improvements to be constructed by Tenant in the
Premises shall be completed in strict compliance with the approved plans and
specifications for the Tenant's Work,
Landlord reserves the right to offset against the Tenant Improvement Allowance
any sums Landlord has previously advanced to Tenant on the behalf of Tenant or
costs Landlord has incurred on behalf of Tenant in connection with the Tenant's
Work.
2. LANDLORD'S WORK
2.1 Landlord's Work in the Premises. The Landlord shall perform the
following work in the Premises:
Landlord will relocate and install in Tenant's suite, a portable window-mounted
air Conditioner. The air conditioner shall be either one that is now property
of the premises and en site in another vacant office, or if an existing unit Is
not available, a new unit,
2.2 Condition. By its execution hereof, Tenant acknowledges and agrees
that Tenant has inspected the Premises and accepts them in the condition in
which they exist, subject lathe performance of the Landlord's work. Tenant
understands that the Premises contain columns, sprinklers, risers, drains,
braces, shafts, ducts end pipes serving portions of the Building other than the
Premises. Landlord reserves the right to use all such shafts, ducts, drains,
pipes and etharfaduities In connection with other areas of the Rulldin8.
Landlord, Independent contractors, or authorized utility companies, as the case
may be, shall have the right to run, install, maintain, replace and repair
utility lines, pipes, wiring, conduits or duct work, where necessary or
desirable, through the ceiling space, shafts, ducts and other parts of the
Premises, and to repair, alter, replace or remove the same, all Iii a manner
which does not interfere unnecessarily with the Tenant's use thereof.
2.3 Limitation. Other than as specifically set forth In this Section
2, Landlord shall not be required to perform any wont whatsoever in connection
with the preparation of the Premises fur Tenant's occupancy. All work required
in connection with the preparation of the Premises for Tenant's occupancy other
than as expressly set forth in Section 2 shall be performed by Tenant as part
of tire Tenant's Work.
3. TENANT'S
All construction and installation of Tenant's leasehold Improvements other
than as specified in Section 2, shall be provided at Tenant's expense (subject
to the Tenant Improvement Allowance payable by Landlord in accordance with
Section 1.3),
3.1 Permits and Plans. All building and other permits required In
connection with the construction and completion of the Tenant's Work the
Permits') shall be obtained by Tenant. The Permits shall be posted in a
conspicuos location on the Premises, No part of the Tenants Work shall commence
until the Permits are received. One complete set of the plans and
specifications for the Tenant's Work, as approved by Landlord, shall be kept in
the Premises throughout the construction process. All construction shall be in
strict compliance with the approved Tenant's plans and specifications.
require the Contractors to procure labor and material payment performance bonds
for the benefit of Tenant and Landlord. Tenants Contractors shell notify
Landlord at least five business days prior to the start of construction of
Tenants Work.
3.3 Utilities. Tenant shall directly arrange for and procure at
Tenant's expanse all utility connections required for Tenant's operation in the
Premises. Tenant shall also directly arrange for and procure temporary
utilities, including transformers and electrical distribution during the
construction or Tenant's Improvements, and pay all charges incurred in
connection therewith,
34 compliance. All of the Tenants Work shall comply with all applicable
provisions of the Uniform, Building Code adopted by the cognizant governmental
agencies, all conditions of approval placed upon the operation of Tenant's
business in the Premises as a part of the cognizant governmental agencies'
approval of Tenant's plans and specincatlons, and all other applIcable laws,
condItions. approvals, ordinances, rules and regulations
4. PROCEDURES
LI performance of Tenant's Work. The construction and Instalifition of
Tenant's Wart shall be
completed In accordance with the following provisions of tflts SectIon 4,1
4.1.1 Tenant shall be responsible for obtaining all necessary
approvals from all local agencies or governmental departments having
Jurisdiction.
4.1.2 All construction work Shall be performed behind barricades and
temporary plywood storefronts or barricades installed by Tenant. All such
construction wont shall be confined to the Premises.
4.1.3 Tenant shall promptly deposit all trash arid debris in
appropriate trash receptacles, which Tenant proctires and bears all expenses
of, and shall keep the area Clean and picked up during construction.
4.1.4 Tenant shall store its coistrucilan malenaIs and supplies within
the confines of the Premises, or In such ether area as may be assigned by
Landlord,
4.1.5 Tenant shall perform Its Tenants Work at times and ins manner
which do fbi impede or deiay Landlord in the completion of the Other
constRIction wont being Canted out by Landlord or its contractors.
4,1.6 Tenant shall notify Landlord of any planned work to be done on
weekends cr other than normal job hours, Such work may be performed only In
accordance with all applicable rules and regulations.
4.1.7 Tenant shell be responsible for the repair, replacement or
clean-up of any damage caused by Tenant or Its agents or Contractors and
subcontractors to other portions or the Building or Property ri which the
construction of leasahold improvements is underway or has been completed,
Including specifically accessways to Tenant's Premises thai may be used
concurrently by others.
4.1.8 Tenant shell requIre Its Contractor to inspect and accept the
Premises prIor to starting any Tenants Work.
4,1.9 Tenant shall not post signs on any part of the Building or On
the premises other than such signs as have been authorized pursuant to the
Lease or are otherwise authorized in writing in advance by Landlord,
4.1.10 Tenant shall record a Notice of completion promptly after the
completion of Tenants Work, and shall promptly furnish Landlord a conformed
copy of such Notice, as recorded.
4.1.11 Tenant shalt perform Its work in a manner so as to avoid any
labor dispute which results in a work stoppage or a disruption in the delivery
of materials or services at the Job site. Should there be any such work
stoppage or disruption caused by any such a labor dispute, Tenant shall
kumedlately undertake those actions necessary to resoive the dispute, including
(a) removal of all diaputante from the job sIte until such time as the dispute
no longer exists, (b) seeking injunctFve relief, arid/or (C) filing appropriate
unfair labor practice charges.
4.1.12 Tenant shall indemni4'. defend and hold Landlord free and
harmless from and against any liabilities, claims, damages, losses, causes of
action, costs or expenses, Including attomeys' fees, resulting from or
attributable to any injury to persons or damage to property occuning during the
course of performing Tenant's Work.
4.2 As-Built Plans. Within thIrty days after the completion of the
Tenant's Work, Tenant shall furnish Landiord with one complete sat of sepia as-
built plans rortha Premises, prepared from Tenant's approved plans and
specifications. If Tenant fails to provide such as-built plans, Landlord may
obtain such plans from the local jurisdictional building or planning
authoritIes or otheiwise at Tenant's cost, payable within ten days following
additional demand therefor. Such amount shall be deemed to be additional rent
under this Lease,
4.3 plan Check and Auildincr Code Pas'yrft Aoollcation. The Tenant
shail subn,il to the cognizant governmental agency Tenant's plans and
specifications and building pennit appllcation at such time as is reasonatily
necessary to obtain a building permit for and complete the Tenant's Work prior
to the Rent commencement Data. The Tenant shall be solely responsible for
coordinating the timing of Its st~bmittaI to the governmental agencies to avoid
delays in start of construction.
4.4 Tenant's niesnonsibility for Tenant's Plans arid Soeciflcadons.
Landlord's approval of all Tenant's plans and specifications shall be made in
accordance with the applicable Section of the Lease. Alter the Landlord's
approval of Tenant's plans and specifications, no changes shall be made to such
Tenant's plans and specilicatlcns without the prior written consent of the
Landlord. During all phases of plan development and prior to
biddIng Tonont's plans end specllloallcna and/Or commencing consInrOtlon, the
Tenant shatl make a physicalsite inspection at the Premises, and(or cause the
Tenant's architect and/or englneer(s~ to do so, to verity the as-built
location, conditions arid physical dimensions of the Premises, and conformance
of Tenant's plans and speciflc~tions thereto. Failure to do so shall be at the
sole risk and expense of the Tenant. The Landlord's review arid/or approval of
pl4flsaS herein specified is for compliance with the Landlord's criteria only,
and such ~pprcvaI dOes not relieve the Tenant of responsittlity for compliance
with this Lease and any documents relened to thereIn, any conditions of
approval or other restriollons affecting the Building, field verification of
dimensIons and existing conditions, discrepancies between Tenant's plans and
specifications and the as-built cond&ions of the Premises, coordination with
other trades anc job conditions, or compliance with all codes and regulations
applIcable to the Tenant's Work. No responsibility for proper archItecture,
engineering, safety and/or design of facilities or compbanoa with applicable
codes anc regulations is implied or Inferred from the Landlord's approval of
the Tenant's plans.
<PAGE>
EXHIBIT A
[GRAPHIC DEPICTING FLOOR PLAN]
<PAGE>
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS <F1>
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,601
<SECURITIES> 0
<RECEIVABLES> 2,180 <F2>
<ALLOWANCES> 0
<INVENTORY> 671
<CURRENT-ASSETS> 4,794
<PP&E> 2,295 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,920
<CURRENT-LIABILITIES> 8,041
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 2,723
<TOTAL-LIABILITY-AND-EQUITY> 10,920
<SALES> 3,294
<TOTAL-REVENUES> 5,512
<CGS> 2,458
<TOTAL-COSTS> 3,843
<OTHER-EXPENSES> 1,368 <F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,369)
<INCOME-TAX> 61
<INCOME-CONTINUING> (5,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,379)
<EPS-BASIC> (0.43) <F4>
<EPS-DILUTED> (0.43)
<FN>
<F1> The 13-week period from January 1, 2000 to April 1, 2000 is referred to
herein as the three months ended March 31, 2000.
<F2> Item shown net of allowance, consistent with the balance sheet
presentation.
<F3> Item consists of research and development.
<F4> Item consists of basic earnings per share.
</FN>
</TABLE>
