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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 0-23152
@POS.COM, INC.
(Name of small business issuer in its charter)
DELAWARE 33-0253408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3051 NORTH FIRST STREET, SAN JOSE, CALIFORNIA 95134
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (408) 468-5400
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
Common Stock Purchase Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $22,321,275
The aggregate market value of the voting stock held by non-affiliates computed
based on the average bid and asked closing price of the Registrant's Common
Stock on July 30, 1999 was approximately $13,124,000. As of July 28, 1999, there
were approximately 2,019,000 shares of the Registrant's common stock, par value
$.001 per share, outstanding.
Documents incorporated by reference (to the extent indicated herein): Proxy
Statement for Annual Meeting of Stockholders to be held December 10, 1999
(incorporated in Part III of this Form 10-KSB).
Transitional Small Business Disclosure Format [ ] Yes [x] No
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PART I
THIS ANNUAL REPORT ON FORM 10-KSB AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE CONTAIN FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD
LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS
ABOUT @POS.COM'S INDUSTRY, MANAGEMENT'S BELIEFS AND CERTAIN ASSUMPTIONS MADE BY
@POS.COM'S MANAGEMENT. WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS,"
"PLANS," "BELIEVES," "SEEKS," "ESTIMATES," OR VARIATIONS OF SUCH WORDS AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO
CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT;
THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES
INCLUDE THOSE NOTED IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
PARTICULAR ATTENTION SHOULD BE PAID TO THE CAUTIONARY LANGUAGE IN THE SECTIONS
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." UNLESS REQUIRED BY LAW, THE COMPANY TAKES NO OBLIGATION
TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE. HOWEVER, READERS SHOULD CAREFULLY
REVIEW THE RISK FACTORS SET FORTH IN OTHER REPORTS OR DOCUMENTS THE COMPANY
FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
PARTICULARLY THE QUARTERLY REPORTS ON FORM 10-QSB AND ANY CURRENT REPORTS ON
FORM 8-K.
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
MobiNetix Systems, Inc., a Delaware corporation was incorporated in 1992.
Effective June 29, 1999, the Company changed its name from MobiNetix Systems,
Inc. to @POS.com, Inc. ("@POS.com" or "the Company") The Company has developed
certain technologies that allow merchants to web-enable the Point Of Sale
("POS") environment. By web-enabling POS transaction terminals, the Company's
customers will be able to run advertisements, promotions, and surveys at the
POS, retrieve receipts via a personal computer utilizing a consumer-focused
web-site and provide other valuable one-to-one marketing services. It is the
Company's intent to further develop this technology to allow merchants to create
and maintain web-based relationships with its customers. In order to establish a
brand image that is consistent with the aforementioned business strategy, the
Company changed its name to @POS.com, Inc., consistent with the overall
corporate re-branding and marketing strategies.
The Company's wholly owned subsidiary, PenWare, Inc. ("PenWare") was
incorporated in 1983. PenWare now develops and sells products such as the
PenWare 1100, PenWare 1500 signature capture device, the PenWare 3100, an
interactive point-of-transaction terminal for paperless environments and the
iPOS TC, a web-based interactive terminal.
In January 1999, the Company established a software development center in Sri
Lanka in the form of a wholly owned subsidiary.
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BUSINESS OF THE COMPANY
PRINCIPAL PRODUCTS. The mission of @POS.com and its PenWare subsidiary is to
develop and market state-of-the-art interactive e-transaction (electronic
transaction) terminals and consumer-friendly applications to the retail,
hospitality, financial services, medical and healthcare, insurance and
identification/security industries. The Company provides e-transaction
networking solutions for the retail industry and contract-based service
organizations designed to increase efficiency, expand capabilities and be
integrated into the emerging global e-commerce infrastructure. On June 29, 1999,
the Company officially announced the change of its name to @POS.com, Inc. to
reflect its new strategic initiatives that are transforming it from a hardware
company to an Internet company. @POS.com hardware will continue to be designed
by @POS.com, and its subsidiary PenWare, while its manufacturing will be
licensed to others. Hardware will be sold by our licensed hardware
manufacturers, OEM, channel partners and marketed by @POS.com.
Current products include the PenWare 1100 signature capture device, PenWare 1500
signature capture device, and the PenWare 3100 interactive point-of-transaction
terminal which can be used for signature capture, PIN(Personal Identification
Number) input, advertising and promotion, customer surveys and other
applications.
The PenWare 3100 features an integrated triple magnetic stripe reader, a large
pressure-sensitive display/response screen, and an open-platform, expandable
design. Other products include the PenWare 1500 signature capture terminal
featuring a back-lit screen.
On June 8, 1999, the Company announced the availability of a new interactive
point-of-sale terminal computer ("iPOS TC"). This device features the Company's
signature capture technology via a back-lit pressure-sensitive touch screen and
a magnetic stripe reader (MSR) for credit and charge cards. It also runs a HTML
browser and uses JAVA as its programming language. This allows, for the first
time, web-enabling of the point-of-sale/service. Merchants, and others,
deploying iPOS TCs can use it to display on the terminal screen line-item
purchase detail with the simultaneous display of ads, promotions, and surveys
targeted to the individual customer, based on current and/or prior purchase
profiling. The iPOS TC allows for flexibility in how it is used to provide
signature capture and card reading capabilities exclusively, while also offering
the capability to be web-enabled providing richer benefits to both merchants and
consumers.
CUSTOMER BASE. During fiscal 1999, the Company's top 3 customers, IBM, Federated
Department Stores, Inc., and Direct Source, represented approximately 76% of the
Company's net revenues. During fiscal 1998, the Company's top 3 customers,
Federated Department Stores, Inc., Fujitsu and IBM, represented more than 68% of
the Company's net revenues. The Company's largest customer in fiscal 1999,
Federated Department Stores, Inc., accounted for approximately 53% of net
revenues. As a result of the concentration of the Company's customer base, loss
of business or cancellation of orders from any of these customers, significant
changes in scheduled deliveries to any of these customers, or decrease in the
prices of products sold to any of these customers could have a material adverse
effect on the Company's business, financial conditions and results of
operations.
MARKETS AND STRATEGIES. @POS.com intends to focus on the creation, marketing,
and sales of services. These include:
1) eRECEIPTS. eReceipts or electronic receipts automatically and securely
send electronic transactions from the point-of-sale via the Internet to
a secure storage vault. eReceipts enable merchants to eliminate the
costs associated with paper receipts, including their storage and
retrieval, while positioning themselves to embrace emerging payment
options and other innovative applications that reduce the cost of doing
business and build customer intimacy.
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2) RECEIPTCITY.COM. This @POS.com website provides a portal to the @POS.com
secure Internet Receipt Vault, which provides a facility that enables
merchants to outsource receipt storage and benefit from the secure,
confidential, and instantaneous retrieval of receipts that are
accessible only to the merchant issuing the receipt and the consumer to
whom the receipt was issued. As such, ReceiptCity.com offers itself to
merchants as a means for speedy bill presentment resolution and to
consumers as a means for storing and receiving receipts, which are
required for merchandise returns, exchanges, and re-orders and useful
for tracking expenses, budget planning, and filing taxes, since they are
downloadable into tax preparation software such as Quicken. Consumer use
of ReceiptCity.com provides merchants with a means to reach them with
one-to-one marketing in the form of ads, promotions, etc. Merchants can
use such ads to generate increased revenue in at least three ways:
driving consumers to physical stores, enabling consumers to reorder
merchandise online, and selling ReceiptCity.com space to brand managers,
who can now also employ this unique new channel to reach customers.
3) MARKETING SERVICES. @POS.com has formed alliances with several strategic
alliance partners to provide various ready-to-deploy services accessible
via our new iPOS TC or our ReceiptCity.com consumer portal. The
Company's ability to offer a complete suite of services allows merchants
to benefit from its other new offerings quickly and cost-effectively.
The Company's partners include:
AdForce, a leading Internet ad management company, will
integrate the in-store POS color displays served by the @POS.com
Remote Data Center. The Company's ad-filtering infrastructure
assures that only merchant or non-competitive ads are displayed
at the merchant's iPOS TCs.
Prio, a leading Internet promotions company, will generate
paperless coupons designed to target individual customers and
promote specific products/services payable only upon redemption.
User-friendly website design enables easy customer online credit
card registration for promotions, which are automatically
redeemable at the in-store POS transaction.
MarketTools, a leading Internet survey company, provides
participants in the @POS.com services network the opportunity to
create survey questions and schedule them for display during POS
transactions. The surveys, which like other @POS.com services
offerings, are optional to consumers, give merchants and others
an opportunity for gaining valuable customer opinion in real
time that can be used to significantly reduce time-to-market
with products and services responsive to the consumer
preferences expressed in the surveys.
COMPETITION. Competition in the e-transaction market is likely to increase. The
Company competes with a number of companies, including Verifone, Checkmate, and
Hypercom. Some of the competitors have greater financial, technical, and
marketing resources than the Company. The Company believes its ability to
compete successfully depends on a number of factors both within and outside its
control. These factors including product pricing, quality and performance,
success in developing new products, effectiveness of sales and marketing
resources and strategies, strategic relationships with business partners, system
integrators, VARs and major accounts, timing of new product introductions by the
Company and its competitors, general market and economic conditions, and
government actions throughout the world. There can be no assurance that the
Company will be able to compete successfully in the future. The Company depends
to a great extent on certain technologies underlying its products.
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PATENTS. The Company was awarded its first patent in fiscal year 1999 and a
second patent subsequent to June 30,1999. These patents will expire in year
2016. The Company has applied for several other patents in seeking protection
for its intellectual property. However, the Company has no other patents and
relies primarily on trade secret protection of its intellectual property and, in
certain cases, exclusive licensing agreements. While the Company is seeking
certain patent or other similar protection, there is no assurance that it will
be able to protect its trade secrets or that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets. The electronics and
software industries are characterized by frequent litigation regarding patent
and other intellectual property rights, and litigation may be necessary to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets, to determine the validity and scope of the proprietary rights of
others or to defend against claims of patent infringement. The Company received
a letter of inquiry from NCR Corporation ("NCR") accusing the Company of
infringing on certain NCR patents. This matter is under investigation by the
Company's legal counsel. There can be no assurance that the Company will not
receive other such notices in the future. As the number of competing electronic
transaction, data collection and related software products increases and the
functionality of these products further overlaps, manufacturers of such
products, including the Company, could become increasingly subject to patent
infringement claims.
EMPLOYEES. As of June 30, 1999, the Company, through PenWare, and MobiNetix
Systems (Pvt) Ltd. in Sri Lanka, employed 99 full time or part time employees in
sales & marketing, engineering, operations, and administration departments.
RESEARCH AND DEVELOPMENT. The Company spent $4.3 million and $3 million on
research and development in fiscal 1999 and 1998, respectively.
ITEM 2. PROPERTIES
The Company's operations, including engineering, administration and other
internal functions were based in a 7,800 square foot facility in Sunnyvale,
California which lease expired in June 1999. In July 1999, the Company entered
into a new six-year lease agreement for a 23,000 square foot facility in San
Jose, California. The Company occupied this new facility in August 1999.
The Company out-sources its manufacturing and repair work to independent
companies in Fremont and Sunnyvale, California.
The Company also leases a 5,000 square foot facility in Sri Lanka to house its
software development center.
The Company does not currently own any real property.
ITEM 3. LEGAL PROCEEDINGS
The Company was not involved in any material legal proceedings during the
periods covered by this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company was traded on the OTC Bulletin Board under the
symbol NETX, from January 1997 to July 1999. In July 1999, the Company's stock
symbol was changed to EPOS in association with the change of the name of the
Company to @POS.com. The Common Stock continues to be traded on the OTC Bulletin
Board under the new symbol.
The following table sets forth market prices for the Company's Common Stock. The
table reflects the recent two years high and low bid prices for these securities
as reported on the OTC Bulletin Board for the periods.
<TABLE>
<CAPTION>
Year Period Bid prices ($)
High Low
<S> <C> <C>
1998 First Quarter 4.75 3.25
Second Quarter 3.63 1.50
Third Quarter 4.56 1.50
Fourth Quarter 8.50 3.56
1999 First Quarter 5.25 3.25
Second Quarter 3.38 1.63
Third Quarter 4.56 3.00
Fourth Quarter 12.00 2.81
</TABLE>
The quotations set forth above reflect market prices between dealers, without
retail mark-up, mark-down, or commission and may not represent actual
transactions. The Company's Common Stock was held by approximately 750
stockholders of record as of June 30, 1999.
The Company has never paid a dividend and has no plans to do so. The Company
currently intends to retain future earnings, if any, to fund business growth and
development.
In June 1998, the Company sold 1,273,149 shares of Series D Preferred Stock to
an institutional investor in a private placement, receiving net proceeds of
approximately $6.85 million. The Series D Preferred Stock is convertible into
Common Stock at ratio of 1:1.
The Company also sold 894,358 shares of its Series B Preferred Stock to a group
of individual private investors in a series of private placements in late fiscal
1996 and early fiscal 1997, receiving net proceeds of approximately $4.1
million. The Series B Preferred Stock is convertible into Common Stock at the
ratio of 1:2. For the fiscal year ended June 30, 1999 and 1998, 74,419 and
157,602 shares of Series B Preferred Stock were converted into 148,838 shares
and 315,204 shares of Common Stock, respectively.
The proceeds from issuance of these Preferred Stocks have been used to finance
the Company's operations.
The Company has issued certain Common Stock Purchase Warrants from time to time
in connection with certain business transactions. As part of consideration for a
$1.5 million bridge loan in fiscal 1998, the Company granted the lenders
warrants to purchase 225,000 shares of the Company's Common Stock at an exercise
price of $3.50 per share. The Company determined, using a pricing model, that
the value of these warrants was $120,636 and recorded this amount as interest
expenses in fiscal 1998. The Company also granted a lender 46,154 warrants to
purchase the Company's Common Stock at an exercise price of $3.50 in connection
with the establishment of a $3 million line of credit. The Company
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determined, using a pricing model, that the value of these warrants was $16,480
and recorded this amount as interest expenses in fiscal 1999. As part of
consideration for a supplier contract the Company's signed with Federated
Department Stores, Inc. ("Federated"), the Company granted Federated warrants to
purchase 125,000 shares of the Company's Common Stock at an exercise price of
$3.75 per share. The Company determined, using a pricing model, that the value
of these warrants was $108,620 and is amortizing that amount as costs of sales
over the term of the contract.
The Company also granted certain other Common Stock Purchase Warrants to certain
contractors and has recorded the value of these warrants, using a pricing model,
as contract expenses in fiscal 1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the Company's financial condition, capital resources
and operating results should be reviewed in conjunction with the accompanying
Financial Statements, including the notes thereto. The discussion contains
certain forward-looking statements which are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected.
OPERATING RESULTS. Due to continued market acceptance of the Company's signature
capture and interactive transaction devices, revenues increased by 102% to $22
million in fiscal 1999 from $11 million in fiscal 1998. Sales of such devices
now represent the majority of the Company's overall revenues.
Gross margin for fiscal 1999 was 46%, compared to 42% in fiscal 1998. The
increase in margin percentage is primarily attributable to lower component
costs. In addition, gross margins were favorably impacted by reversals of
warranty reserves aggregating $153,000 due to such reserves being considered
excess at June 30, 1999. Without considering the reversal of such excess
reserves, gross margins for fiscal 1999 would have been 45%.
Selling, general and administrative expenses increased to $5.4 million in fiscal
1999 from $3.7 million in fiscal 1998, an increase of 47%. The increase resulted
largely from higher personnel expenses incurred to support business growth and
the transformation of the Company from a hardware manufacturer to a service
company that web-enables the point-of-sale. In fiscal 1999, the Company
increased it targeted hires in such critical areas as executive management,
field sales and channel marketing management in an effort to establish a brand
image that is consistent with the change in business strategy. The Company also
increased its spending on trade show participation and public relations
activities. The Company expects that it will continue to make investments in
selling, general and administrative costs.
Research and development expenses rose to $4.3 million in fiscal 1999 from $3
million in fiscal 1998, an increase of 45%. This increase is primarily
attributable to increases in numbers of personnel, particularly key engineering
talent. Expenses for technology consulting, materials and non-recurring
engineering activities also rose significantly in connection with the Company's
product development and design efforts. Research and development expenses are
generally charged to operations as incurred. In accordance with Statements of
Financial Accounting Standard 86 ("SFAS 86"), the Company capitalizes software
development costs when technological feasibility has been established (see Note
1 to Note of the Consolidated Financial Statements). Costs eligible for
capitalization during fiscal 1999 and 1998 were insignificant, and the Company
expensed all software development costs to research and development.
Interest and other income was in line in fiscal 1999 compared to fiscal 1998.
Interest expense decreased to $82,659 in fiscal 1999 from $253,958 in fiscal
1998, a decrease of 67%. The decrease in interest expense was due to lower
borrowings in fiscal 1999 under its line of credit. In addition, as part
consideration for the bridge loan, the Company granted the lenders warrants to
purchase 225,000 shares of the Company's Common Stock at an exercise price of
$3.50 per share. The Company determined, using a pricing model, that
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the value of these warrants was $120,636 and recorded that amount as interest
expense in fiscal 1998.
Provision for income taxes. As of June 30, 1999, the Company had $19.7
million of Federal and State net operating loss carryforwards to offset future
taxable income. The Federal net operating loss carryforwards begin to expire on
varying dates beginning in 2001 through 2007 and the State operating loss
carryforwards will expire on 2003. Given the Company's limited operating
history, the loss incurred to date and the difficulty in accurately forecasting
the Company's future results, management does not believe that the realization
of the related deferred income tax asset meets the criteria required by
generally accepted accounting principles. Therefore, the Company had recorded
a 100% valuation allowance against the deferred income tax asset. See Note 2 of
Notes to Consolidated Financial Statements for the components of the deferred
income tax asset.
LIQUIDITY AND CAPITAL RESOURCES. During fiscal 1999 and 1998, the Company
financed its operations and capital expenditures primarily from proceeds of the
line of credit from a commercial bank and proceeds of a private placement of
Preferred Stock. The Company sold 1,273,149 shares of its Series D Preferred
Stock in a private placement in June 1998, receiving net proceeds of
approximately $6.85 million.
At June 30, 1999, the Company's principal sources of liquidity included cash and
cash equivalents of $2.2 million and a $3 million line of credit, which will
expire on September 24, 1999. At June 30, 1999, the Company had outstanding
borrowings of $800,000 under the line of credit, which will be due on September
24, 1999. The Company is in negotiation with the Bank to renew this line of
credit for fiscal 2000. There can be no guarantee that the Company will be
successful in renewing this line of credit. The Company had no other long or
short-term debt and no significant capital commitments other than those under
capital leases totaling $.7 million at June 30, 1999.
The Company's financing activities generated $509,808 and $7.8 million in net
cash during fiscal 1999 and 1998, respectively, mainly from borrowings under the
line of credit in fiscal 1999 and from the sale of preferred stock in June 1998.
Operating activities consumed $4.4 million in net cash during fiscal 1999,
compared to $4.5 million in 1998. The net cash used in operating activities are
primarily due to increases in accounts receivable due to increased revenues.
The Company signed a contract with Federated Department Stores, Inc. to supply
transaction terminal devices and received a $5 million prepayment in April 1998.
The prepayments from this contract was being used to help finance operations,
including significant commitments for inventory, and was recorded as deferred
revenue until the product was shipped. As of June 30, 1999, all deferred revenue
has been fully recognized under this contract.
OUTLOOK. With the cash on hand and the existing credit facilities, the Company
believes that it will not require additional financing for fiscal 2000 at the
current rate of expenditure. However, the Company must obtain additional
financing in order to expand its e-commerce strategy. The Company is pursuing
other debt or equity transactions which upon completion, would provide
additional financing for future expansion. There is no assurance that additional
funding will be available.
The Company believes that it has the technical and marketing skills and product
offerings necessary for future success. However, the Company has yet to be
consistently profitable and sales trends are inherently difficult to predict at
this stage of development. Sales forecast shortfalls, delayed product
introductions, and manufacturing and financing constraints, together with other
risk factors, could lead to adverse fluctuations in revenues and profits in any
particular quarter.
RISK FACTORS AFFECTING THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL
CONDITION
In addition to other information in this Form 10-KSB, investors evaluating the
Company and its business should carefully consider the following risk factors,
which may have a significant impact on the Company's business, operating results
and financial condition. The risk factors set forth below and elsewhere in this
Form 10-KSB could cause actual
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results to differ materially from those projected in any forward-looking
statements. These risk factors include but are not limited to the following:
UNPREDICTABLE AND FLUCTUATING OPERATING RESULTS. The Company has yet to sustain
consistent profitability and sales trends are inherently difficult to predict at
this stage of development. Sales forecast shortfalls, delayed product
introductions, and manufacturing and financing constraints, together with other
risk factors, could lead to adverse fluctuations in revenues and profits in any
particular quarter.
HIGHLY COMPETITIVE MARKETS AND RAPIDLY DEVELOPING AND CHANGING TECHNOLOGIES AND
MARKET CONDITIONS. The Point-of-Sale device market is constantly changing. These
changes include, among others: rapid technological advances; evolving industry
standards in electronic fund transfer and point-of-sale products; changes in
customer requirements; and frequent new product introductions and enhancements.
The Company may not successfully keep up with the new products and technological
advances of others. If the Company is not able to develop and market new
products and product enhancements that achieve market acceptance on a timely and
cost effective basis, it could materially and adversely affect the Company's
business, financial condition and results of operations.
DEPENDENCY ON LARGE CUSTOMERS. The Company relies upon large retail customers
with a large number of point-of-sale terminals for a significant percentage of
its revenues. The Company continues to diversify its customer base by developing
strategic alliances and partnerships to open more distribution channels and
limit its reliance on large customers. While the Company continues to conduct
business with its current customers and attract new ones, the Company's revenues
will decrease significantly if it loses a large customer. Furthermore, there are
no assurances the Company will be successful in attracting new customers.
CLAIMS OF INFRINGEMENT ON OTHERS' PROPRIETARY RIGHTS; Although the Company
believes that its services and products do not infringe on the intellectual
property rights of others, the Company can not prevent someone else from
asserting a claim against the Company in the future for violating their
technology rights. Third parties making infringement claims may have
significantly greater resources than the Company does to pursue litigation, and
the Company cannot be certain that it would prevail in an infringement action.
The Company received a letter of inquiry from NCR Corporation ("NCR") accusing
the Company of infringing on certain NCR patents. This matter is under
investigation by the Company's legal counsel.
SINGLE COMPONENT MANUFACTURER/SUPPLIERS; the Company depends on other
manufacturers and suppliers for some of its products and certain components used
in our products. The components it obtains from other manufacturers and
suppliers are only available from a limited number of sources. Certain
components and products are currently purchased from single supplier. While the
Company maintains sufficient inventory of certain products and continually
evaluates alternative sources of supply, the failure of any such single supplier
to meet its commitment on schedule could adversely affect the Company.
ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL; the Company's future performance
depends upon the continued service of a number of senior management and key
technical personnel. The loss or interruption of the services of one or more key
employees could have a material adverse effect on our business, financial
condition and results of operations. The Company's future also will depend upon
its ability to attract and retain highly skilled technical, managerial and
marketing personnel. Competition for qualified personnel is significant and
intense, and is likely to intensify in the future. The Company competes for
qualified personnel against numerous companies, including larger, more
established companies with significantly greater financial resources than the
Company's. Significant competition exists for such personnel. If the Company is
unable to hire and retain qualified personnel in the future, it could materially
and adversely affect its business, financial condition and results of
operations.
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YEAR 2000 ISSUE
The Year 2000 issue arises from the fact that most computer software programs
have been written using two digits rather than four to represent a specific
year. Any computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. During fiscal 1999, the
Company has begun to review and assess its internal software, data management,
accounting, manufacturing and operational systems to ensure that they do not
malfunction as a result of the Year 2000 date transition. The review and
corrective measures are proceeding in parallel. These reviews and corrective
measures are intended to encompass all significant categories of internal
systems used by the Company. In addition, the Company is also working with its
significant suppliers to ensure that the products supplied to the Company, and
the products the Company supplies to its customers, are Year 2000-compliant.
The Company has identified all critical systems necessary to the Company's
internal system operations and has asked suppliers to provide assurances that
such systems are Year 2000-compliant, or to identify replacement or upgrade
systems. With respect to Year 2000 compliance of our suppliers' systems, the
Company is in the process of evaluating and assessing the adequacy of responses
from its various suppliers, and requesting further responses and assurances
where appropriate. This process is largely complete and is expected to be fully
completed by the end of calendar 1999. The Company intends to have its Year
2000 assessment, testing, remediation efforts and development of necessary
contingency plans completed by the end of calendar year 1999, the total costs
of which has not yet been determined. To date, however, costs incurred to
address the Year 2000 compliance issues have not been material. Costs related
to Year 2000 compliance issues continue to be funded through operating cash
flow. The Company believes that its Year 2000 compliance project will be
completed on a timely basis, and in advance of the Year 2000 date transition,
and will not have a material adverse effect on the Company's financial
condition. However, there can be no assurance that delays or problems,
including the failure to ensure Year 2000 compliance by systems or products
supplied to the Company by a third party, will not have an adverse effect on the
Company, its financial performance or the competitiveness or customer
acceptance of its products. Further, the Company's current understanding of
expected costs is subject to change as the project progresses, and does not
include potential costs related to actual customer claims or the cost of
internal software and hardware replaced in the normal course of business.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and schedules required by Item 7 are set forth in the
index on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has no change and has no disagreements with its accountant on
accounting and financial disclosure during the periods covered by this report.
<PAGE> 11
PAGE 11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
The information required by Item 9 will be included in the Proxy Statement, to
be filed by October 28, 1999, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by Item 10 will be included in the Proxy Statement, to
be filed by October 28, 1999, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 will be included in the Proxy Statement, to
be filed by October 28, 1999, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 will be included in the Proxy Statement, to
be filed by October 28, 1999, for the Company's annual meeting of stockholders,
and is incorporated herein by reference.
ITEM 13. FINANCIAL STATEMENTS EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report. Audited
financial statements and notes are included in Part II, Item 7, above.
Financial Statements:
<PAGE> 12
@POS.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JUNE 30, 1999, 1998 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR
THE YEARS ENDED JUNE 30, 1999, 1998 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JUNE 30, 1999, 1998 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
</TABLE>
F-1
<PAGE> 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To @POS.com, Inc.:
We have audited the accompanying consolidated balance sheet of @POS.com, Inc. (a
Delaware corporation) and subsidiaries as of June 30, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended June 30, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of @POS.com, Inc. and subsidiaries
as of June 30, 1999, and the results of their operations and their cash flows
for the years ended June 30, 1999 and 1998 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
July 29, 1999
F-2
<PAGE> 14
@POS.COM, INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 2,174,854
Accounts receivable, less allowance for doubtful accounts of $218,262 6,253,113
Inventories, net 1,580,394
Prepaid expenses and other current assets 222,792
------------
Total current assets 10,231,153
Property and equipment, net 1,280,433
------------
Total assets $ 11,511,586
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Capital lease obligations, current 121,524
Notes payable 800,000
Bank overdraft 630,483
Accounts payable 2,077,114
Accrued liabilities 584,521
------------
Total current liabilities 4,213,642
------------
Capital lease obligations, non-current 613,463
------------
Commitments (Note 9)
Shareholders' equity:
Series B Convertible Preferred Stock, par value $0.001, 882,353 shares
authorized; liquidation preference of $7,500,000; 662,337 shares issued
and outstanding 662
Series C Convertible Preferred Stock, par value $0.001
28,125 shares authorized; liquidation preference of
$2,250,000; 28,125 shares issued and outstanding 28
Series D Convertible Preferred Stock, par value $0.001;
Liquidation preference of $7,000,000; 1,273,149 shares authorized,
issued and outstanding 1,273
Common Stock, par value $0.001; 12,000,000 share
Authorized; 2,019,069 shares issued and outstanding 2,019
Additional paid-in capital 15,126,410
(8,445,911)
Accumulated deficit
------------
Total shareholders' equity 6,684,481
------------
Total liabilities and shareholders' equity $ 11,511,586
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE> 15
@POS.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues $ 22,321,275 $ 11,028,374
Cost of revenues 12,095,152 6,383,169
------------ ------------
Gross profit 10,226,123 4,645,205
------------ ------------
Operating expenses:
Selling, general and administrative 5,408,534 3,669,258
Research and development 4,320,247 2,972,425
------------ ------------
Total operating expenses 9,728,781 6,641,683
------------ ------------
Operating income/(loss) 497,342 (1,996,478)
Interest expenses and other (82,659) (253,958)
Interest income 197,075 128,106
------------ ------------
Income/(loss) before income taxes 611,758 (2,122,330)
Provision for income taxes 45,553 --
------------ ------------
Net income/(loss) $ 566,205 $ (2,122,330)
============ ============
Net income/(loss) per share - Basic 0.29 (1.36)
Net income/(loss) per share - Diluted 0.09 (1.36)
Weighted average shares outstanding:
Basic 1,940,774 1,559,860
Diluted 6,235,605 1,559,860
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 16
@POS.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Series B Series C
Preferred Stock Preferred Stock
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balances as of June 30, 1997 894,358 $ 894 28,125 $ 28
Shares issued by private
placement -- -- -- --
Conversions of Series B
Preferred Stock (157,602) (158) -- --
Issuance of Common Stock
Purchase Warrants -- -- -- --
Options exercised -- -- -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balances as of June 30, 1998 736,756 736 28,125 28
Conversions of Series B
Preferred Stock (74,419) (74) -- --
Issuance of Common Stock
Purchase Warrants -- -- -- --
Options exercised -- -- -- --
Net income -- -- -- --
---------- ---------- ---------- ----------
Balances as of June 30, 1999 662,337 $ 662 28,125 $ 28
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Series D
Preferred Stock Common Stock
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balances as of June 30, 1997 -- $ -- 1,339,750 $ 1,340
Shares issued by private
placement 1,273,149 1,273 -- --
Conversions of Series B
Preferred Stock -- -- 315,204 316
Issuance of Common Stock
Purchase Warrants -- -- -- --
Options exercised -- -- 213,971 213
Net loss -- -- -- --
---------- ---------- ---------- ----------
Balances as of June 30, 1998 1,273,149 1,273 1,868,925 1,869
Conversions of Series B
Preferred Stock -- -- 148,838 149
Issuance of Common Stock
Purchase Warrants -- -- -- --
Options exercised -- -- 1,306 1
Net income -- -- -- --
---------- ---------- ---------- ----------
Balances as of June 30, 1999 1,273,149 $ 1,273 2,019,069 $ 2,019
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 17
@POS.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
FOR THE FISCAL YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Total
Paid in Accumulated Stockholders'
Capital Deficit Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balances as of June 30, 1997 $ 7,339,134 $ (6,889,786) $ 451,610
Shares issued by private
placement 6,850,582 -- 6,851,855
Conversions of Series B
Preferred Stock (158) -- --
Issuance of Common Stock Purchase
Warrants 120,636 -- 120,636
Options exercised 640,249 -- 640,462
Net loss -- (2,122,330) (2,122,330)
------------ ------------ ------------
Balances as of June 30, 1998 14,950,443 (9,012,116) 5,942,233
Conversions of Series B
Preferred Stock (75) -- --
Issuance of Common Stock
Purchase Warrants 176,040 -- 176,040
Options exercised 3 -- 3
Net income -- 566,205 566,205
------------ ------------ ------------
Balances as of June 30, 1999 $ 15,126,410 $ (8,445,911) $ 6,684,481
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 18
@POS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 566,205 $(2,122,330)
Adjustments to reconcile net income/(loss) to net
cash used in operating activities:
Depreciation and amortization 207,027 154,594
Provision for bad debts 155,899 3,474
Issuance of Common Stock Purchase Warrants 176,040 120,636
Changes in operating assets and liabilities:
Accounts receivable (5,747,516) (368,036)
Inventories 962,972 (1,184,611)
Prepaid expenses and other current assets (1,430) (101,627)
Accounts payable (194,599) 1,425,319
Accrued liabilities 669,954 77,163
Deferred revenues (1,152,450) (2,539,810)
----------- -----------
Net cash used in operating activities (4,357,898) (4,535,228)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (442,954) (202,875)
----------- -----------
Net cash used in investing activities (442,954) (202,875)
----------- -----------
Cash flows from financing activities:
Borrowings - credit line 800,000 820,195
Repayments - credit line (290,195) (530,000)
Borrowings - notes payable -- 1,500,000
Repayments - notes payable -- (1,500,000)
Issuance of Series D Preferred Stock, net -- 6,851,855
Proceeds from issuance of Common Stock 3 640,462
----------- -----------
Net cash provided by financing activities 509,808 7,782,512
----------- -----------
Net increase/(decrease) in cash (4,291,044) 3,044,409
Cash and cash equivalents at beginning of year 6,465,898 3,421,489
----------- -----------
Cash and cash equivalents at end of year $ 2,174,854 $ 6,465,898
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 45,553 --
Cash paid for interest 47,298 $ 94,216
Non-cash investing and financing activities:
Capital equipment leases 734,988 --
Conversion of Series B Preferred Stock to 74 158
Common Stock
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 19
@POS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
ORGANIZATION AND OPERATIONS
@POS.com, Inc., formerly known as MobiNetix Systems, Inc. ("@POS.com" or the
"Company"),is a Delaware Corporation. The Company develops certain technologies
that allow merchants to web-enable at the Point Of Sales ("POS") environment. By
web-enabling POS transaction terminals, the Company's customers will be able to
run advertisements, promotions, and surveys at the POS, retrieve receipts via a
personal computer utilizing a consumer-focused web-site and provide other
valuable one-to-one marketing services.
The Company's wholly owned subsidiary, PenWare,Inc ("PenWare") was incorporated
in 1983 and develops and sells products such as the PenWare 1100 and PenWare
1500 signature capture devices, the PenWare 3100, an interactive
point-of-transaction terminal for paperless environments and the iPOS TC, the
first Web-enabled, interactive point-of-sale transaction computer for the retail
industry.
In January 1999, The Company established MobiNetix Systems (Pvt.) Ltd, a 100%
owned software research and development center in Sri Lanka, in an effort to
reduce the increasing research and development expenses and to take advantage of
the human resources in software development in the Asian Pacific countries.
The Company is subject to a number of risks common to companies at a similar
stage of development, including the need to obtain adequate financing,
competition from firms that have greater financial resources than the Company,
reliance on contract manufacturers and a history of operating losses.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements are prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All inter-company accounts and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flow, the Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents. Cash equivalents at June 30, 1999 consisted principally of money
market accounts.
F-8
<PAGE> 20
REVENUE RECOGNITION
Revenue from sales of hardware products is recognized upon shipment. A provision
for estimated warranty costs is provided for upon shipment. Software product
revenues are recognized when the related products are shipped, provided there
are no significant post-delivery obligations, payment is probable, and payment
is due within one year. Payments received from customers for which the related
product have not been shipped are recorded as deferred revenues until shipped.
Revenues from services, which are not significant, are generally recognized as
the services are performed.
The Company licenses its software to original equipment manufacturers ("OEMs")
under the terms of development and license agreements. Revenue for the
development of software is generally recognized using the
percentage-of-completion method, on a cost-to-cost basis. If no basis for
determining the percentage of completion exists, the completed contract method
is used. Royalty revenues derived from OEM sales of products to end users are
recognized when the OEM advises the Company that the products have shipped.
Cost of revenues for hardware sales consists mainly of purchased electronic
components and contract assembly labor.
RESEARCH AND DEVELOPMENT
Research and development costs are generally expensed as incurred. Statement of
Financial Accounting Standards ("SFAS") 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. In the Company's case,
capitalization would begin upon completion of a working model. As of June 30,
1999 and 1998, such costs were insignificant. Accordingly, the Company has
charged all such costs to research and development expense in the accompanying
consolidated statements of operations.
INVENTORIES
Inventories are carried at the lower of cost, as determined on a first-in,
first-out basis, or market. At June 30, 1999, the Company's inventories were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $1,394,265
Work in process 253,197
Finished goods --
Inventory reserve (67,068)
----------
Total $1,580,394
==========
</TABLE>
F-9
<PAGE> 21
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the straight
line method over the estimated useful lives of the assets, generally three to
five years. At June 30, 1999, the Company's property and equipment were as
follows:
<TABLE>
<CAPTION>
Costs
-----------
<S> <C>
Office equipment $ 346,775
Engineering and production
equipment 291,403
Computer equipment and
software 1,085,523
Furniture and fixtures 31,048
Leasehold improvement 88,673
-----------
Subtotal 1,843,422
Less Accumulated depreciation (562,989)
-----------
Total $ 1,280,433
-----------
</TABLE>
COMPREHENSIVE INCOME
As of July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income"("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that results from transactions and other
economic events of the period other than transactions with shareholders
("comprehensive income"). Comprehensive income is the total of net income and
all other non-owner changes in equity. For the years ended June 30, 1999 and
1998, the Company's comprehensive income was equal to net income or loss for
each of the two years respectively.
NET INCOME/(LOSS) PER SHARE
Basic net income/(loss) per share is computed by dividing net income/(loss)
available to common stockholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period and excludes the
dilutive effect of stock options and convertible securities. Diluted net
income/(loss) per share gives effect to all dilutive common shares and other
dilutive securities outstanding during the period, including the assumed
conversion of the Preferred Stock into Common Stock using the if converted
method. In computing diluted net income per share, the average stock price for
the period is used in determining the number of shares assumed to be purchased
from exercise of stock options.
F-10
<PAGE> 22
The following table sets forth the computation of basic and diluted earnings per
share for the years ended June 30, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Numerator for basic and diluted earnings per
share - net income/(loss) $ 566,205 $(2,122,330)
----------- -----------
Denominator for basic earnings per share -
weighted average Common shares 1,940,774 1,559,860
Effect of dilutive securities
Series B Preferred Stock 1,444,388 --
Series C Preferred Stock 1,150,307 --
Series D Preferred Stock 1,273,149 --
Employee stock options and
warrants 446,845 --
----------- -----------
Denominator for diluted earnings per share
adjusted weighted average shares 6,235,605 1,559,860
----------- -----------
Income/(loss) per share
Basic $ 0.29 $ (1.36)
Diluted $ 0.09 $ (1.36)
Potentially dilutive securities excluded from
computations as the effect would be
antidilutive -- 3,902,280
</TABLE>
STOCK BASED COMPENSATION
SFAS 123, "Accounting for Stock-Based Compensation," which became effective in
fiscal 1997, establishes a fair value based method of accounting for stock-
based compensation plans, while also permitting an election to continue
following the requirements of APB Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees" with disclosures of pro forma net income and earnings per
share under the new method. The Company has elected to continue to measure
compensation costs for its employee stock compensation plans using the method of
accounting prescribed by APB No. 25 while providing the additional disclosure
requirements set forth in SFAS 123.
SEGMENT INFORMATION
During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 requires a new
basis of determining reportable business segments (i.e., the management
approach). This approach requires that business segment information used by
management to assess performance and manage company resources be the source of
information disclosure. On this basis, the Company is organized and operates as
one business segment, the design, development, manufacture, and marketing of POS
services and solutions.
During the years ended June 30, 1999 and 1998, the Company did not generate
significant revenues in foreign countries.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which the Company will be required to adopt for fiscal year 2000.
This statement establishes a new model for accounting for derivatives and
hedging activities. Under FAS 133, all derivatives must be recognized as assets
and liabilities and measured at fair value. The Company has not determined the
impact of the adoption of this new
F-11
<PAGE> 23
accounting standard on its consolidated financial position or results of
operations.
2. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS 109, "Accounting
for Income Taxes," whereby deferred tax assets and liabilities reflect the
future income tax effects of temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective basis
for taxation. Deferred tax liabilities and assets are determined on the basis of
enacted tax laws and rates applicable to the periods in which the taxes become
payable
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
June 30,
1999 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 4,576,807 $ 5,143,012
Tax credit carryforwards 141,538 187,505
Deferred revenue -- 459,072
Accrued expenses and other 915,121 442,817
----------- -----------
Gross deferred tax asset 5,633,466 6,232,406
Deferred tax liability:
Valuation allowance (5,633,466) (6,232,406)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
A valuation allowance has been established against the deferred tax asset
because such asset does not meet the criteria for recognition included in SFAS
109.
As of June 30, 1999, the Company had net operating loss carryforwards of
approximately $19.7 million for Federal and State tax purposes. A substantial
portion of the Company's net operating loss carryover and tax credit carry
forwards are subject to the Section 382 limitation and the Section 383
limitation, respectively, and may not be utilized. The Federal net operating
loss and other credit carryforwards expire on various dates beginning on 2001
through 2007. The state net operating loss carryforward will expire on 2003.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Federal State Total
------- ------- --------
<S> <C> <C> <C>
Year ended June 30, 1999
Current $27,690 $17,863 $45,553
Deferred -- -- --
------- ------- -------
Net $27,690 $17,863 $45,553
======= ======= =======
</TABLE>
The provision for income taxes differs from the expected tax provision/benefit
amount computed by applying the statutory Federal income rate of 34% to income
(loss) before taxes for the two years ended June 30, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Federal statutory rate 34.0% (34.0)%
State taxes, net of federal benefit 5.8 (5.8)
Change in valuation allowance (32.8) 39.8
-------- --------
7.0% 0.0%
======== ========
</TABLE>
3. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of
credit risk consist primarily of cash and trade receivables. The Company places
its cash with high quality financial institutions.
The Company's accounts receivable are concentrated with a few customers
primarily in the retail, security identification and field sales/services
industries. The Company maintains an allowance for uncollectible accounts based
upon expected collectibility of all accounts receivable. The Company does not
generally require collateral.
F-12
<PAGE> 24
4. PREFERRED STOCK
The Company sold and issued 894,358 shares of Series B convertible Preferred
Stock in a series of private placements and bridge loan conversions during
fiscal 1996 and 1997. Each share of Series B Preferred Stock is convertible into
Common Stock at a rate of 1:2.02864, and is adjustable similar to Series C
shares. In fiscal year 1999 and 1998, 74,419 and 157,602 shares of Series B
Preferred Stock were converted into 148,838 and 315,204 shares of Common Stock,
respectively. The Series B Preferred Stock has the voting rights equal to an
equivalent number of shares of Common Stock into which it is convertible and a
liquidation preference of $7.5 million. Dividends for Series B Preferred Stock
are non-cumulative and payable on upon declaration by the Company's board of
directors.
The Company's Series C Preferred Stock is convertible into Common Stock at a
rate of 1 to 40.8998, which is adjustable in the event of certain issuance of
additional Common Stock, including stock dividends, options, and securities
convertible to Common Stock. Series D Preferred Stock has the voting rights
equal to an equivalent number of shares of Common Stock into which it is
convertible and a liquidation preference of $2.25 million. Dividends for Series
C Preferred Stock are non-cumulative and payable only upon declaration by the
Company's board of directors.
The Company sold and issued 1,273,149 shares of Series D Preferred Stock in a
private placement for net proceeds of $6,851,855 in June 1998. Each share of
Series D Preferred Stock is convertible into Common Stock at a rate of 1:1 and
has the voting rights equal to an equivalent number of shares of Common Stock
into which it is convertible. The Series D Preferred Stock has a liquidation
preference of $7.0 million. Dividends for Series D Preferred Stock are
non-cumulative and payable only upon declaration by the Company's board of
directors.
All Series of the Preferred Stock are subject to automatic conversion into
Common Stock at the current rate upon (1) the closing of the sale of the
Company's Common Stock in an underwritten, public offering registered under the
Securities Act of 1933 with proceeds greater than $6 million, or (2) by written
elections of holders of majority of each Series of Preferred Stock outstanding.
Preferred stockholders have voting rights based on the number of Common shares
into which they can be converted.
5. COMMON STOCK
Approximately 1,084,275 shares were issued to management for cash in December
1995 at a price of $0.001 per share. Fifty percent of these shares vested
immediately and the remaining shares vest on a 1/48 basis for each month
thereafter. As of June 30, 1998, 67,767 shares remain unvested.
As of June 30, 1999, approximately 502,623 Common Stock Purchase Warrants were
outstanding. The exercise price of these warrants range from $1.75 to $3.75 per
share with an average of $3.42 per share. These warrants can be exercised at
various dates through November 2004.
As of June 30, 1999, the Company had reserved the following shares of authorized
but unissued Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Conversion of Series B Preferred Stock 1,343,643
Conversion of Series C Preferred Stock 1,150,307
Conversion of Series D Preferred Stock 1,273,149
Exercise of Common Stock Purchase Warrants 502,623
Stock options outstanding and remaining to
be granted under the Stock Plans 2,819,835
---------
Total shares reserved 7,089,557
=========
</TABLE>
F-13
<PAGE> 25
6. NOTES PAYABLE
In June 1997, the Company entered into a line of credit agreement with a bank
under which the Company may borrow up to $3 million at a rate of prime plus 1%
(8.75% at June 30, 1999). The line of credit was subsequently extended to
September 24, 1999. The Company is currently in negotiation to obtain a long
term extension. The line of credit is collateralized by inventory and
receivables. The credit agreement requires the Company to meet certain financial
ratios and covenants pertaining to net worth and liquidity and imposes
restrictions in such matters as changes in control. The Company granted to
lender 46,154 warrants exercisable to purchase the Company's Common Stock at a
pricing of $3.50 through April 2002. The Company determined, based on the
Black-Scholes price model, that the value of these warrants was $16,480 and
recorded as an expense in July 1998.
The Company has drawn down $800,000 under this credit facility as of June 30,
1999.
7. EMPLOYEE STOCK OPTIONS
Under the terms of the Company's 1992 and 1996 Stock Plans ("the Plans"),
incentive common stock options may be granted at prices not lower than the fair
market value at the date of grant. Nonqualified stock options may be granted at
prices not lower than 85% of the fair market value at the date of the grant.
Options granted under the 1992 Plan generally vest 12.5% after six months with
the remaining options vesting monthly on a pro rata basis over the following 42
months. Options granted under the 1996 Plan generally vest 25% after one year,
with the remaining options vesting monthly on a pro rata basis over the
following 36 months. Options generally expire after 10 years under both Plans.
Activity relating to the plans is as follows:
<TABLE>
<CAPTION>
Shares Number of Average
Available Options Exercisable
For Grant Outstanding Price
<S> <C> <C> <C>
Balances, June 30, 1997 755,302 829,810 $ 1.694
Options granted (606,050) 606,050 $ 3.094
Options exercised -- (213,971) $ 2.984
Options cancelled 71,623 (71,623) $ 2.636
--------- ---------
Balances, June 30, 1998 220,875 1,150,266 $ 2.194
Share authorized 1,450,000 -- --
Options granted (526,966) 526,966 $ 3.328
Options exercised -- (1,306) $ 0.004
Options cancelled 198,585 (198,585) $ 2.636
--------- ---------
Balances, June 30, 1999 1,342,494 1,477,341 $ 2.650
========= =========
</TABLE>
As of June 30, 1999, 639,770 options were exercisable at prices ranging from
$0.004 to $5.75 per share. All options under the 1992 plan were granted by
PenWare and were converted into options to purchase shares of @POS.com. All
options granted during fiscal 1999 were made by @POS.com under the 1996 Plan.
F-14
<PAGE> 26
The following table summarizes additional information with respect to stock
options outstanding as of June 30, 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted Number of Weighted
Number of Average Average Options Average
Exercise Options Contractual Exercise Exercisable Exercisable
Prices at 6/30/99 Life (years) Price at 6/30/99 Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.004 to $0.200 10,701 6 $ 0.118 9,421 $ 0.131
$1.375 to $1.625 543,291 7 1.402 440,118 1.397
$2.220 to $2.880 327,685 8 2.470 67,646 2.240
$3.380 to $4.040 464,131 9 3.658 69,277 3.647
$4.630 to $5.750 131,533 9 4.906 53,308 4.956
--------- -------
$0.004 to $5.75 1,477,341 8.5 $ 2.650 639,770 $ 2.018
========= =======
</TABLE>
The fair value of the grants has been estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants:
<TABLE>
<CAPTION>
Year ended June 30,
1999 1998
------- -------
<S> <C> <C>
Risk-free interest rate 6.0% 6.0%
Expected dividend yield 0% 0%
Expected lives 5 years 5 years
Expected volatility 105% 105%
</TABLE>
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net income/(loss) and net income/(loss)
per share for the fiscal years ended June 30, 1999 and 1998 would approximate
the pro forma disclosures below:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
As reported Pro forma As reported Pro forma
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Net income/(loss) $ 566,205 $ (773,541) $ (2,122,330) $ (2,565,770)
Net income/(loss)
per share 0.09 (0.40) (1.36) (1.64)
</TABLE>
8. SIGNIFICANT CUSTOMERS.
Customers representing more than 10% of total revenues are summarized below for
fiscal 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Fujitsu America, Inc. -- 12%
IBM 11% 33%
Direct Source 12% --
Federated Department Stores, Inc. 53% 23%
</TABLE>
F-15
<PAGE> 27
9. COMMITMENTS & CONTINGENCIES
In July 1999, the Company entered into a lease for office and operating
facilities in San Jose, California, which expires in August 2005. The office
space lease provides for monthly rent payments plus a share of taxes, insurance
and maintenance on the properties. The Company has also entered into certain
other capital leases for computers and equipment. The annual minimum lease
payments under these leases are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Operating Lease Capital Leases
--------------- ---------------
<S> <C> <C>
2000 $ 385,275 $ 185,233
2001 417,051 185,233
2002 433,737 185,233
2003 451,082 185,233
2004 469,131 179,005
Thereafter 528,676 --
----------- -----------
Total minimum lease
Payments $ 2,684,952 919,937
===========
Less imputed interest (184,950)
-----------
Present value of net
Minimum lease payments $ 734,987
===========
</TABLE>
Rent expense was approximately $174,000 and $150,000 for the years ended June
30, 1999 and 1998, respectively.
The Company received a letter of inquiry from NCR Corporation ("NCR") accusing
the Company of infringing on certain NCR patents. This matter is under
investigation by the Company's legal counsel.
F-16
<PAGE> 28
EXHIBITS:
2.1(g) Agreement and Plan of Reorganization dated June 10, 1996 among
PenUltimate, Inc., PenWare, Inc., and the common and preferred
stockholders of PenWare, Inc.
3.1(h) Restated Certificate of Incorporation of the Company.
3.2 Certificate of Amendment of Certification of Incorporation
3.3(a) By-laws of the Company.
4.1(c) Specimen certificate for Common Stock of the Company.
4.2(c) Specimen certificate for Common Stock Purchase Warrants.
4.3(b) Investor Rights Agreement, date April 24, 1998 among the Company and the
purchaser of shares of Series D Preferred Stock.
10.1(a) 1992 Incentive and Statutory Stock Option Plan of the Company.
10.2(a) Form of Incentive Stock Option under 1992 Incentive and Statutory Stock
Option Plan of the Company.
10.3(a) Form of Nonstatutory Stock Option under 1992 Incentive and Statutory
Stock Option Plan of the Company.
10.4(d) Lease agreement for premises located at 500 Oakmead Parkway, Sunnyvale,
California, 94086.
10.5(e) 1996 Stock Option Plan of the Company and related agreements.
10.6(f) Software Development and License Agreement, dated March 16, 1998 between
the Company and Federated Department Stores, Inc,.
10.7(f) Systems Acquisition Agreement, dated March 16, 1998, as amended Marched
20, 1998 between the Company and Federated Department Stores, Inc,.
10.8(f) Common Stock Purchase Warrant Agreement between the Company and
Federated Department Stores, Inc,.
10.9(b) Series D Preferred Stock Purchase Agreement between the Company and
Welch Allyn, Inc. dated April 24, 1998.
10.10 Lease agreement for premises located at 3051 North First Street, San
Jose, California 95134.
27 Financial Data Schedule.
(a) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2, File No. 33-67534-LA, as filed with the Commission on August 16,
1993.
(b) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 29, 1998 and file with the Commission on September 29, 1998.
(c) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on October 1, 1993.
(d) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 30, 1996 and filed with the Commission on September 30, 1996.
(e) Incorporated herein by reference to the Company's Report on Form 10-QSB
dated February 13, 1997 and filed with the Commission on February 14, 1997.
<PAGE> 29
(f) Incorporated herein by reference to the Company's Report on Form 10-QSB
dated May 15, 1997 and filed with the Commission on May 15, 1997.
(g) Incorporated herein by reference to Amendment No. 3 to the Company's Report
on Form 8-KSB dated June 10, 1996 and filed with the Commission on June 25,
1996.
(h) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 30, 1997 and file with the Commission on September 30, 1997.
<PAGE> 30
(2) REPORTS ON FORM 8-K FILED DURING THE THREE MONTHS ENDED JUNE 30, 1999
None.
SIGNATURES
In accordance with of Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
@POS.COM, INC.
Date: September 29, 1999 By: /s/ AZIZ VALLIANI
Aziz Valliani
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Date: September 29, 1999 By: /s/ AZIZ VALLIANI
Aziz Valliani
President, Chief Executive Officer
and Director (principal executive
officer)
Date: September 29, 1999 By: /s/ PAUL DALI
Paul Dali
Chairman of the Board
Date: September 29, 1999 By: /s/ David M Licurse Sr.
David M Licurse Sr.
Chief Financial Officer and Vice
President Operations (principal
accounting officer)
Date: September 29, 1999 By: /s/ _____________
Vivian M. Stephenson
Director
Date: September 29, 1999 By: /s/ _____________
William L. Powar
Director
Date: September 29, 1999 By: /s/ _____________
Kevin Jost
Director
<PAGE> 31
EXHIBIT INDEX
EXHIBITS: DESCRIPTION
2.1(g) Agreement and Plan of Reorganization dated June 10, 1996 among
PenUltimate, Inc., PenWare, Inc., and the common and preferred
stockholders of PenWare, Inc.
3.1(h) Restated Certificate of Incorporation of the Company.
3.2 Certificate of Amendment of Certification of Incorporation
3.3(a) By-laws of the Company.
4.1(c) Specimen certificate for Common Stock of the Company.
4.2(c) Specimen certificate for Common Stock Purchase Warrants.
4.3(b) Investor Rights Agreement, date April 24, 1998 among the Company and the
purchaser of shares of Series D Preferred Stock.
10.1(a) 1992 Incentive and Statutory Stock Option Plan of the Company.
10.2(a) Form of Incentive Stock Option under 1992 Incentive and Statutory Stock
Option Plan of the Company.
10.3(a) Form of Nonstatutory Stock Option under 1992 Incentive and Statutory
Stock Option Plan of the Company.
10.4(d) Lease agreement for premises located at 500 Oakmead Parkway, Sunnyvale,
California, 94086.
10.5(e) 1996 Stock Option Plan of the Company and related agreements.
10.6(f) Software Development and License Agreement, dated March 16, 1998 between
the Company and Federated Department Stores, Inc,.
10.7(f) Systems Acquisition Agreement, dated March 16, 1998, as amended Marched
20, 1998 between the Company and Federated Department Stores, Inc,.
10.8(f) Common Stock Purchase Warrant Agreement between the Company and
Federated Department Stores, Inc,.
10.9(b) Series D Preferred Stock Purchase Agreement between the Company and
Welch Allyn, Inc. dated April 24, 1998.
10.10 Lease agreement for premises located at 3051 North First Street, San
Jose, California 95134.
27 Financial Data Schedule.
(a) Incorporated herein by reference to the Company's Registration Statement on
Form SB-2, File No. 33-67534-LA, as filed with the Commission on August 16,
1993.
(b) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 29, 1998 and file with the Commission on September 29, 1998.
(c) Incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form SB-2, File No. 33-67534-LA, as filed with the
Commission on October 1, 1993.
(d) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 30, 1996 and filed with the Commission on September 30, 1996.
(e) Incorporated herein by reference to the Company's Report on Form 10-QSB
dated February 13, 1997 and filed with the Commission on February 14, 1997.
<PAGE> 32
(f) Incorporated herein by reference to the Company's Report on Form 10-QSB
dated May 15, 1997 and filed with the Commission on May 15, 1997.
(g) Incorporated herein by reference to Amendment No. 3 to the Company's Report
on Form 8-KSB dated June 10, 1996 and filed with the Commission on June 25,
1996.
(h) Incorporated herein by reference to the Company's Report on Form 10-KSB
dated September 30, 1997 and file with the Commission on September 30, 1997.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATION OF INCORPORATION
*****
MobiNetix Systems, Inc., a corporation organized and existing under by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of MobiNetix Systems,
Inc. be amended by changing the First Article thereof so that, as amended, said
Article shall be and read as follows:
"The name of the corporation is @POS.com, Inc."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware, and written notice of the adoption of the amendment has been given as
provided in Section 228 of the General Corporation law of the State of Delaware
to every stockholder entitled to such notice.
<PAGE> 2
THIRD: That the aforesaid amendments was duly adopted in accordance with
the applicable provisions of Section 242 and 228 of the General Corporation Law
of the State of Delaware,
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by Aziz Valliani, its President, this 28th day of June, 1999.
/S/ Aziz Valliani
-----------------------------
By: Aziz Valliani, President
<PAGE> 1
EXHIBIT 10.10
NET LEASE AGREEMENT
(MULTI-TENANT)
For and in consideration of the rentals, covenants, and conditions hereinafter
set forth, Landlord hereby leases to Tenant, and Tenant hereby rents from
Landlord, the following described Premises for the term, at the rental and
subject to and upon all of the terms, covenants and agreements set forth in this
Net Lease Agreement, including Landlord's right to recover the Premises pursuant
to Paragraph 24 below ("Lease"):
1. Summary of Lease Provisions.
1.1 Tenant: @POS.COM, INC., A DELAWARE CORPORATION ("Tenant").
1.2 Landlord: REALTEC PROPERTIES I, L.P., A CALIFORNIA LIMITED
PARTNERSHIP ("Landlord").
1.3 Date of Lease, for reference purposes only: JULY 1, 1999.
1.4 Premises: That certain space hereinafter more particularly
described, situated in that certain building shown
cross-hatched on the site plan attached hereto as Exhibit
A and commonly referred to as 3051 NORTH FIRST STREET and
located in the CITY OF SAN JOSE, County of SANTA CLARA,
State of CALIFORNIA.
(Paragraph 2.1)
1.5 Term: SIX (6) YEARS AND ONE (1) MONTH (Paragraph 1.6,
1.7, and 3)
1.6 Commencement Date: AUGUST 1, 1999 , INITIAL OCCUPANCY AND
RENT ON THE CROSS HATCHED AREA (APPROXIMATELY 11,000 SF)
AS SHOWN ON THE ATTACHED EXHIBIT F BEGINS ON AUGUST 1,
1999. FULL OCCUPANCY AND RENT SHALL BEGIN SEPTEMBER 1,
1999 subject to the provisions of Paragraph 3 below. Upon
execution of this Agreement, Tenant shall be granted
access to the Premises for the purposes of installing
cabling, wiring and performing related work in preparation
for its business operations in the Premises.
1.7 Ending Date: AUGUST 31, 2005, unless sooner terminated
pursuant to the terms of this Lease. (Paragraph 3)
1.8 Rent: (Paragraph 4)
INITIAL OCCUPANCY
$16,500 PER MONTH ($1.50 X 11,000 SF)
RENT UPON FULL OCCUPANCY
$33,525.00 PER MONTH UNTIL 8/31/00 ($1.50 X 22,350 SF)
$34,866.00 PER MONTH 9/1/00 TO 8/31/01
$36,261.00 PER MONTH 9/1/01 TO 8/31/02
$37,711.00 PER MONTH 9/1/02 TO 8/31/03
$39,220.00 PER MONTH 9/1/03 TO 8/31/04
$40,788.00 PER MONTH 9/1/04 TO 8/31/05
Receipt of the first month's Rent is hereby acknowledged
by Landlord.
1.9 Use of Premises: GENERAL OFFICE, RESEARCH AND DEVELOPMENT,
SALES AND MARKETING PURPOSES, AND OTHER LEGAL RELATED USES
(Paragraph 6)
1.10 Tenant's percentage share of Common Area Charges:
SIXTY-SIX AND SIX TENTHS PERCENT
1
<PAGE> 2
(66.6%). (Paragraph 12)
1.11 Security Deposit: FORTY THOUSAND AND NO/100 DOLLARS
($40,000.00) (Paragraph 5)
1.12 Addresses for Notices:
To Landlord:
REALTEC PROPERTIES I, L.P.
3880 SOUTH BASCOM AVENUE, SUITE 210
SAN JOSE, CA 95124
To Tenant: To the Premises, with a courtesy copy to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
1.13 Nonexclusive Right to Use No More Than: NINETY (90)
parking spaces within the Common Area. (Paragraph 11.2)
1.14 Summary Provisions in General. Parenthetical references in
this Paragraph 1 to other paragraphs in this Lease are for convenience of
reference, and designate some of the other Lease paragraphs where applicable
provisions are set forth. All of the terms and conditions of each such
referenced paragraph shall be construed to be incorporated within and made a
part of each of the above referring Summary of Lease Provisions. In the event of
any conflict between any Summary of Lease Provision as set forth above and the
balance of the Lease, the latter shall control.
2. Property Leased.
2.1 Premises. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord upon the terms and conditions herein set forth, those
certain premises ("Premises") referred to in Paragraph 1.4 above and shown
cross-hatched on the floor plan attached hereto as Exhibit B. In addition,
Tenant shall have such rights in and to the Common Area (defined in Paragraph
11.1 below) as are more fully described in Paragraph 11.1 below.
The building in which the Premises are located is referred to herein as
the "Building." The "Land" shall mean and refer to all of the real property
outlined in red on Exhibit A, and shall not be limited to the parcel of real
property on which the Building is located (if the same is a separate legal
parcel). Any reference in this Lease to the "Parcel" shall be deemed a reference
to the Land. The Land, Building and any other building(s) or improvement(s) now
or hereafter located on the Land are referred to herein collectively as the
"Project."
Landlord reserves the right to grant to tenants of the Project, and to
the agents, employees, servants, invitees, contractors, guests, customers and
representatives of such tenants or to any other user authorized by Landlord, the
nonexclusive right to use the Land for pedestrian and vehicular ingress and
egress and vehicular parking (excluding only that portion of the Land designated
herein for Tenant's exclusive use for vehicular parking, if any).
2.2 Improvements. The improvements to be constructed by Landlord
for Tenant's use in the Premises are set forth in detail on the attached Exhibit
C. The work described in Exhibit C includes any additional improvements to the
Premises, the Building and/or the Common Area that may be required pursuant to
Title 24 and Title III of the Americans with Disabilities Act of 1990, 42 U.S.C.
section 12101 et. seq., and the regulations promulgated thereunder (the "ADA")
by reason of the construction of the improvements in the Premises.
In the event of changes to any of the work set forth in Exhibit C (but
only if such changes are required by
2
<PAGE> 3
reason of any error or omission in plans because of information provided to
Landlord by Tenant, or because requested in writing by Tenant and accepted in
writing by Landlord), Tenant shall pay to Landlord Landlord's costs related to
such changes before work in regard to such changes is commenced; provided,
however, in no event shall Landlord's failure to demand such payment before
commencement of work in regard to such changes, or Tenant's failure to pay for
the same before commencement of work in regard to such changes be deemed to be a
waiver of Landlord's right to require or enforce collection of such payment for
changes at any time thereafter. Landlord's costs related to the changes shall
include, without limitation, all architectural, contractor, and engineering
expenses, and the cost of all building and other permits and inspection fees.
Tenant acknowledges that Landlord or a person or entity related to Landlord
and/or controlled by Landlord may serve as Landlord's architect, engineer and/or
contractor in regard to the above-described work and in the event of any
changes, Landlord's costs shall be deemed to include architect, engineering
and/or contractor expenses at the rates charged to third parties by Landlord
and/or such related person or entity for such services, unless otherwise
expressly provided in this Lease.
Since any construction work on the Premises by Tenant prior to
substantial completion of the work required of Landlord pursuant to this
Paragraph 2.2 may interfere with the work required of Landlord or with
Landlord's ability to obtain a certificate of occupancy (or equivalent)
therefor, any such work by Tenant shall be subject to the provisions of
Paragraph 13.1 hereof, and Landlord may in its reasonable discretion withhold
its consent to any such work by Tenant. Notwithstanding the above, upon
execution of this Agreement, Tenant shall be granted access to the Premises for
the purposes of installing cabling, wiring and performing related work in
preparation for its business operations in the Premises. Tenant shall perform
such work in a manner that does not interfere with the work Landlord is required
to perform.
2.3 Acceptance of Premises. By taking possession of the Premises,
Tenant shall be deemed to have accepted the Premises as being in good and
sanitary order, condition and repair and to have accepted the Premises in their
condition existing as of the date Tenant takes possession of the Premises,
subject to all applicable laws, covenants, conditions, restrictions, easements
and other matters of public record and the reasonable rules and regulations from
time to time promulgated by Landlord (and non-discriminatorily applied)
governing the use of any portion of the Project and further, to have accepted
tenant improvements to be constructed by Landlord (if any) as being completed in
accordance with the plans and specifications for such improvements subject only
to completion of items on Landlord's punch list. Tenant acknowledges that
neither Landlord nor Landlord's agents have made any representation or warranty
as to the suitability of the Premises for the conduct of Tenant's business, the
condition of the Building or Premises, or the use or occupancy which may be made
thereof and Tenant has independently investigated and is satisfied that the
Premises are suitable for Tenant's intended use and that the Building and
Premises meet all governmental requirements for such intended use.
Notwithstanding anything to the contrary in this Lease, Landlord represents, to
the best of his current knowledge, to Tenant that the Premises, as of the
Commencement Date, will be in compliance with all federal, state, and local
governmental rules, regulations, codes, and requirements, including but not
limited to the ADA.
Notwithstanding anything to the contrary contained in this Lease,
Tenant's acceptance of the Premises or submission of a "punchlist" shall not be
deemed a waiver of Tenant's right to have defects in the improvements
constructed by Landlord pursuant to Paragraph 2.2 or the Premises repaired at no
cost to Tenant. Tenant shall give notice to Landlord whenever any such defect
becomes reasonably apparent, and Landlord shall repair the defect as soon as
practicable. Landlord also hereby assigns to Tenant all warranties with respect
to the Premises, including warranties that would reduce Tenant's maintenance
obligations under this Lease, and shall cooperate with Tenant to enforce such
warranties. Finally, notwithstanding anything to the contrary contained in this
Lease, as of the Commencement Date, the roof (including roof screens and
membrane), plumbing, electrical (including all outlets), heating and air
conditioning systems in the Premises shall be in good working order and repair.
3. Term.
3.1 Commencement Date. The term of this Lease ("Lease Term") shall
be for the period specified in Paragraph 1.5 above, commencing on the date set
forth in Paragraph 1.6 ("Commencement Date"); provided, however, in the event
any improvements to be constructed by Landlord, as set forth on Exhibit C, are
not completed by the aforesaid Commencement Date or are completed prior to such
Commencement Date, then the Commencement Date shall be deemed to be the date on
which the improvements to be constructed by Landlord are
3
<PAGE> 4
substantially completed. Such improvements shall be deemed to be substantially
completed upon the occurrence of the earlier of the following:
(a) The date on which all improvements to be
constructed by Landlord have been substantially completed except for punch list
items which do not prevent Tenant from using the Premises for its intended use,
and the appropriate governmental approvals for occupancy of the Premises have
been issued; or
(b) The date on which all improvements to be
constructed by Landlord would have been substantially completed except for such
work as Landlord is required to perform but which is delayed because of any of
the following (each, a "Tenant Delay"): (I) fault or neglect of Tenant, acts of
Tenant or Tenant's agents (including without limitation delays caused by work
done on the Premises by Tenant or Tenant's agents or by acts of Tenant's
contractors or subcontractors); (ii) delays caused by change orders requested by
Tenant or required because of any errors or omissions in plans submitted by
Tenant; and (iii) such work as Landlord is required to perform but cannot
complete until Tenant performs necessary portions of construction work it has
elected or is required to do; or
(c) The date Tenant opens for business in the
Premises.
If the improvements to be constructed by Landlord are deemed to be
substantially completed pursuant to Paragraph 3.1(b) above, Tenant acknowledges
that the Commencement Date shall occur, and therefore Tenant's obligation to pay
Rentals shall commence, earlier than the date of actual completion of such
improvements. The improvements to be constructed by Landlord shall be deemed to
be substantially completed one day earlier than the date of actual completion
for each day that actual completion is delayed by reason of a Tenant Delay.
If the Commencement Date is a date other than the date set forth in Paragraph
1.6, then the Ending Date set forth in Paragraph 1.7, the rental adjustment
dates set forth in Paragraph 1.8 and any other certain dates specified herein
shall be adjusted accordingly. When the Commencement Date, Ending Date, rental
adjustment dates, and such other dates become ascertainable, Landlord and Tenant
shall specify the same in writing, in the form of the attached Exhibit D, which
writing shall be deemed incorporated herein. Tenant's failure to execute and
deliver the letter attached hereto as Exhibit D within thirty (30) days after
Tenant receives written request from Landlord to do so (subject to any
legitimate disagreement by Tenant with the terms thereof, which both parties
shall use reasonable efforts to resolve) shall be a Default by Tenant hereunder.
The expiration of the Lease Term or sooner termination of this Lease is referred
to herein as the "Lease Termination."
3.2 Delay of Commencement Date. Landlord shall not be liable for
any damage or loss incurred by Tenant for Landlord's failure for whatever cause
to deliver possession of the Premises by a particular date (including the
Commencement Date), nor shall this Lease be void or voidable on account of such
failure to deliver possession of the Premises; provided that if Landlord does
not deliver possession of the Premises to Tenant by the date which is ninety
(90) days from the date this Lease is executed by both parties, Tenant shall
have the right to terminate this Lease by written notice delivered to Landlord
within five (5) days thereafter, and Landlord and Tenant shall be relieved of
their respective obligations hereunder; provided further that said ninety (90)
day period shall be extended by the number of days work on the Premises is
delayed due to fault or neglect of Tenant, acts of Tenant or Tenant's agents, or
due to acts of God, labor disputes, strikes, fires, rainy or stormy weather,
acts or failures to act of public agencies, inability to obtain labor or
materials, earthquake, war, insurrection, riots and other causes beyond
Landlord's reasonable control, excluding, however, delays caused solely by
Landlord, its agents, employees, contractors or invitees.
3.3 Early Occupancy. If Tenant takes possession of the Premises
prior to the Commencement Date, Tenant shall do so subject to all of the terms
and conditions hereof and shall pay the Rentals provided for herein.
3.4 Tenant to Physically Occupy Premises. Tenant shall, no later
than thirty (30) days after the Commencement Date, go into actual physical
occupancy of the Premises and open the Premises for business in accordance with
the uses specified in Paragraph 6 below; provided, however, the date of Tenant's
physical occupancy of the Premises shall in no event extend the Commencement
Date, the Lease Termination date or the date the payment of Rentals hereunder
commences. Time is of the essence.
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4. Rent.
4.1 Rent. Tenant shall pay to Landlord as rent for the Premises
("Rent"), in advance, on the first day of each calendar month, commencing on the
date specified in Paragraph 1.6 and continuing throughout the Lease Term the
Rent set forth in Paragraph 1.8 above. Rent shall be prorated, based on thirty
(30) days per month, for any partial month during the Lease Term. Rent shall be
payable without deduction, offset, prior notice or demand in lawful money of the
United States to Landlord at the address herein specified for purposes of notice
or to such other persons or such other places as Landlord may designate in
writing.
4.2 Late Charge. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent will cause Landlord to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
mortgage or deed of trust covering the Premises. Accordingly, Tenant shall pay
to Landlord, as Additional Rent (as defined in Paragraph 4.3 below), without the
necessity of prior notice or demand, a late charge equal to ten percent (10%) of
any installment of Rent which is not received by Landlord within ten (10) days
after the due date for such installment. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. In no event shall this provision for
a late charge be deemed to grant to Tenant a grace period or extension of time
within which to pay any installment of Rent or prevent Landlord from exercising
any right or remedy available to Landlord upon Tenant's failure to pay such
installment of Rent when due, including without limitation the right to
terminate this Lease. In the event any installment of Rent is not received by
Landlord by the thirtieth (30th) day after the due date for such installment,
such installment shall bear interest at the annual rate set forth in Paragraph
34 below, commencing on the thirty-first (31st) day after the due date for such
installment and continuing until such installment is paid in full.
4.3 Additional Rent. All taxes, charges, costs and expenses and
other sums which Tenant is required to pay hereunder (together with all interest
and charges that may accrue thereon in the event of Tenant's failure to pay the
same), and all damages, costs and reasonable expenses which Landlord may incur
by reason of any Default by Tenant shall be deemed to be additional rent
hereunder ("Additional Rent"). Additional Rent shall accrue commencing on the
Commencement Date. In the event of nonpayment by Tenant of any Additional Rent,
Landlord shall have all the rights and remedies with respect thereto as Landlord
has for the nonpayment of Rent. The term "Rentals" as used in this Lease shall
mean Rent and Additional Rent.
5. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord a security deposit ("Security Deposit") in
the amount set forth in Paragraph 1.11 above. The Security Deposit shall be held
by Landlord as security for the faithful performance by Tenant of each and every
term, covenant and condition of this Lease applicable to Tenant, and not as
prepayment of Rent. If Tenant shall at any time fail to keep or perform any
term, covenant or condition of this Lease applicable to Tenant, including
without limitation, the payment of Rentals or those provisions requiring Tenant
to repair damage to the Premises caused by Tenant or to surrender the Premises
in the condition required pursuant to Paragraph 35 below, Landlord may, but
shall not be obligated to, and without waiving or releasing Tenant from any
obligation under this Lease, use, apply or retain the whole or any part of the
Security Deposit reasonably necessary for the payment of any amount which
Landlord may spend by reason of Tenant's default or as necessary to compensate
Landlord for any loss or damage which Landlord may suffer by reason of Tenant's
default. In the event Landlord uses or applies any portion of the Security
Deposit, Tenant shall, within five (5) business days after written demand by
Landlord, remit to Landlord sufficient funds to restore the Security Deposit to
its original sum. Failure by Tenant to so remit funds shall be a Default by
Tenant. Should Tenant comply with all of the terms, covenants and conditions of
this Lease applicable to Tenant, the balance of the Security Deposit shall be
returned to Tenant within fourteen (14) days after Lease Termination and
surrender of the Premises by Tenant; provided, however, if any portion of the
Security Deposit is to be applied to repair damages to the Premises caused by
Tenant or Tenant's agents, to clean the Premises, or to remove alterations and
restore the Premises pursuant to Paragraph 13.2 below, then the balance of the
Security Deposit shall be returned to Tenant no later than thirty (30) days
after the date Landlord receives possession of the Premises.
6. Use of Premises.
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6.1 Permitted Uses. Tenant shall use the Premises and the Common
Area only in conformance with applicable governmental or quasi-governmental
laws, statutes, orders, regulations, rules, ordinances and other requirements
now or hereafter in effect (collectively, "Laws") for the purposes set forth in
Paragraph 1.9 above, and for no other purpose without the prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed,
provided that such other use is in conformance with applicable Laws. Tenant
acknowledges and agrees that Landlord has selected or will be selecting tenants
for the Building in order to produce a mix of tenant uses compatible and
consistent with the design integrity of the Building and with other uses of the
Building; provided, however, the selection of Building tenants shall be in
Landlord's reasonable discretion and Landlord in making such selection shall not
be deemed to be warranting that any use of the Building made by any such tenant
is compatible or consistent with the design integrity of the Building or other
uses of the Building. Any change in use of the Premises or the Common Area
without the prior written consent of Landlord shall be a Default by Tenant.
Tenant and Tenant's agents shall comply with the provisions of any Declaration
of Covenants, Conditions, and Restrictions affecting the Premises and the Common
Area.
6.2 Tenant to Comply with Legal Requirements. Tenant shall, at its
sole cost, promptly comply with all Laws relating to or affecting Tenant's
particular use or occupancy of the Premises or use of the Common Area, now in
force, or which may hereafter be in force, including without limitation those
relating to utility usage and load or number of permissible occupants or users
of the Premises, whether or not the same are now contemplated by the parties;
with the provisions of all recorded documents affecting the Premises or the
Common Area insofar as the same relate to or affect Tenant's particular use or
occupancy of the Premises or use of the Common Area; and with the requirements
of any board of fire underwriters (or similar body now or hereafter constituted)
relating to or affecting Tenant's particular or occupancy of the Premises or use
of the Common Area. Tenant's obligations pursuant to this Paragraph 6.2 shall
include, without limitation, maintaining or restoring the Premises and making
structural and non-structural alterations and additions in compliance and
conformity with all Laws and recorded documents (including, without limitation,
alterations or additions to the Premises, Building or Common Area that are
required pursuant to the ADA), each relating to Tenant's particular use or
occupancy of the Premises during the Lease Term or alterations made to the
Premises by Tenant. Any alterations or additions undertaken by Tenant pursuant
to this Paragraph 6.2 shall be subject to the requirements of Paragraph 13.1
below. At Landlord's option, Landlord may make the required alteration, addition
or change, and Tenant shall pay the cost thereof as Additional Rent. The
foregoing notwithstanding, Landlord shall make any alteration or addition
required to bring the Premises, the Building or the Common Area into compliance
with legal requirements in effect on the Commencement Date. The cost of any
structural alterations as may be hereafter required due to a change in laws and
unrelated to Tenant's specific use of the Premises shall be the responsibility
of Landlord.
Tenant shall obtain prior to taking possession of the Premises any
permits, licenses or other authorizations required for the lawful operation of
its business at the Premises. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action or proceeding against
Tenant, regardless of whether Landlord is a party thereto or not, that Tenant
has violated such Law or recorded document relating to Tenant's particular use
or occupancy of the Premises or use of the Common Area shall be conclusive of
the fact of such violation by Tenant.
6.3 Prohibited Uses. Tenant and Tenant's agents shall not commit
or suffer to be committed any waste upon the Premises. Tenant and Tenant's
agents shall not do or permit anything to be done in or about the Premises or
Common Area which will in any way obstruct or interfere with the rights of any
other tenants of the Building, other authorized users of the Common Area, or
occupants of neighboring property, or injure or annoy them. Tenant shall not
conduct or permit any auction or sale open to the public to be held or conducted
on or about the Premises or Common Area. Tenant and Tenant's agents shall not
use or allow the Premises to be used for any unlawful, immoral or hazardous
purpose or any purpose not permitted by this Lease, nor shall Tenant or Tenant's
agents cause, maintain, or permit any nuisance in, on or about the Premises.
Tenant and Tenant's agents shall not do or permit anything to be done in or
about the Premises nor bring or keep anything in the Premises which will in any
way increase the rate of any insurance upon any portion of the Project or any of
its contents, or cause a cancellation of any insurance policy covering any
portion of the Project or any of its contents, nor shall Tenant or Tenant's
agents keep, use or sell or permit to be kept, used or sold in or about the
Premises any articles which may be prohibited by a standard form policy of fire
insurance. In the event the rate of any insurance upon any portion of the
Project or any of its contents is
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increased because of Tenant's particular use of the Premises or that of Tenant's
agents, Tenant shall pay, as Additional Rent, the full cost of such increase;
provided, however this provision shall in no event be deemed to constitute a
waiver of Landlord's right to declare a default hereunder by reason of the act
or conduct of Tenant or Tenant's agents causing such increase or of any other
rights or remedies of Landlord in connection therewith. Tenant and Tenant's
agents shall not place any loads upon the floor, walls or ceiling of the
Premises which would endanger the Building or the structural elements thereof or
of the Premises, nor place any harmful liquids in the drainage system of the
Building or Common Area. No waste materials or refuse shall be dumped upon or
permitted to remain upon any part of the Project except in enclosed trash
containers designated for that purpose by Landlord. No materials, supplies,
equipment, finished products (or semi-finished products), raw materials, or
other articles of any nature shall be stored upon, or be permitted to remain on,
any portion of the Project outside the Premises.
6.4 Hazardous Materials. Neither Tenant nor Tenant's agents shall
permit the introduction, placement, use, storage, manufacture, transportation,
release or disposition (collectively "Release") of any Hazardous Material(s)
(defined below) on or about any portion of the Project without the prior written
consent of Landlord, which consent may be withheld in the sole and absolute
discretion of Landlord without any requirement of reasonableness in the exercise
of that discretion. Notwithstanding the immediately preceding sentence to the
contrary, Tenant may use de minimis quantities of the types of materials which
are technically classified as Hazardous Materials but commonly used in domestic
or office use to the extent not in an amount, which, either individually or
cumulatively, would be a "reportable quantity" under any applicable Law. Tenant
covenants that, at its sole cost and expense, Tenant will comply with all
applicable Laws with respect to the Release by Tenant, its agents, employees,
contractors or invitees of such permitted Hazardous Materials. Any Release
beyond the scope allowed in this paragraph shall be subject to Landlord's prior
consent, which may be withheld in Landlord's sole and absolute discretion, and
shall require an amendment to the Lease in the event Landlord does consent which
shall set forth the materials, scope of use, indemnification and any other
matter required by Landlord in Landlord's sole and absolute discretion. Tenant
shall indemnify, defend and hold Landlord and Landlord's agents harmless from
and against any and all claims, losses, damages, liabilities, or expenses
arising in connection with the Release of Hazardous Materials in violation of
Hazardous Materials Laws by Tenant, Tenant's agents or any other person using
the Premises with Tenant's knowledge and consent or authorization. Tenant's
obligation to defend, hold harmless and indemnify pursuant to this Paragraph 6.4
shall survive Lease Termination.
The foregoing indemnity shall not apply to, and Tenant shall not be
responsible for, the presence of Hazardous Materials on, under, or about the
Premises, Building or Common Area to the extent caused by any third parties or
by Landlord or Landlord's employees, agents, contractors or invitees.
Notwithstanding anything to the contrary contained in this Lease,
Landlord hereby represents and warrants to Tenant that, to the best of
Landlord's knowledge, (i) the Premises, the Building, and Project are in
compliance with all laws regarding Hazardous Materials ("Hazardous Materials
Laws"); (ii) no asbestos-containing materials exist in or on the Premises, the
Building, or Project; and (iii) any handling, transportation, storage or use of
Hazardous Materials that occurred in the Premises, the Building, or Project
prior to the Commencement Date is now in compliance with all Hazardous Materials
Laws. Landlord further represents and warrants that, to the best of Landlord's
knowledge, no litigation has been brought or threatened, nor any settlements
reached with any governmental or private party, concerning the actual or alleged
presence of Hazardous Materials on or about the Premises, Building, or Project,
nor has Landlord received any notice of any violation, or alleged violation, of
any Hazardous Materials laws, pending claims or pending investigations with
respect to the presence of Hazardous Materials on or about the Premises,
Building, or Project. Landlord's representations and warranties set forth in
this paragraph shall survive termination of this Lease.
As used in this Lease, the term "Hazardous Materials" means any chemical,
substance, waste or material which has been or is hereafter determined by any
federal, state or local governmental authority to be capable of posing risk of
injury to health or safety, including without limitation, those substances
included within the definitions of "hazardous substances," "hazardous
materials," "toxic substances," or "solid waste" under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Hazardous Materials
Transportation Act, as amended, and in the regulations promulgated pursuant to
said laws; those substances defined as "hazardous wastes" in section 25117 of
the California Health & Safety Code, or as "hazardous substances" in section
25316 of the California Health & Safety Code, as amended, and in the regulations
promulgated pursuant to said laws; those substances listed in the United States
Department of Transportation Table (49
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CFR 172.101 and amendments thereto) or designated by the Environmental
Protection Agency (or any successor agency) as hazardous substances (see, e.g.,
40 CFR Part 302 and amendments thereto); such other substances, materials and
wastes which are or become regulated or become classified as hazardous or toxic
under any Laws, including without limitation the California Health & Safety
Code, Division 20, and Title 26 of the California Code of Regulations; and any
material, waste or substance which is (i) petroleum, (ii) asbestos, (iii)
polychlorinated biphenyls, (iv) designated as a "hazardous substance" pursuant
to section 311 of the Clean Water Act of 1977, 33 U.S.C. sections 1251 et seq.
(33 U.S.C. Section 1321) or listed pursuant to section 307 of the Clean Water
Act of 1977 (33 U.S.C. Section 1317), as amended; (v) flammable explosives; (vi)
radioactive materials; or (vii) radon gas.
Landlord shall have the right, upon reasonable advance notice to Tenant,
to inspect, investigate, sample and/or monitor the Premises, the Building and
Common Area, including any soil, water, groundwater, or other sampling, to the
extent reasonably necessary to determine whether Tenant is complying with the
terms of this Lease with respect to Hazardous Materials. Unless a previous
inspection has disclosed a violation by Tenant of the covenants contained in
this Paragraph 6.4, such inspections, investigations, sampling and/or monitoring
shall be performed not more often than semi-annually. In connection therewith,
Tenant shall provide Landlord with reasonable access to all portions of the
Premises; provided, however, that Landlord shall avoid any unreasonable
interference with the operation of Tenant's business on the Premises. All costs
incurred by Landlord in performing such inspections, investigation, sampling
and/or monitoring shall be reimbursed by Tenant to Landlord as Additional Rent
within ten (10) days after Landlord's demand for payment.
7. Taxes.
7.1 Personal Property Taxes. Tenant shall cause Tenant's trade
fixtures, equipment, furnishings, furniture, merchandise, inventory, machinery,
appliances and other personal property installed or located on the Premises
(collectively the "personal property") to be assessed and billed separately from
the Land and the Building. Tenant shall pay before delinquency any and all
taxes, assessments and public charges levied, assessed or imposed upon or
against Tenant's personal property. If any of Tenant's personal property shall
be assessed with the Land or the Building, Tenant shall pay to Landlord, as
Additional Rent, the amounts attributable to Tenant's personal property within
thirty (30) days after receipt of a written statement from Landlord setting
forth the amount of such taxes, assessments and public charges attributable to
Tenant's personal property. Tenant shall comply with the provisions of any Law
which requires Tenant to file a report of Tenant's personal property located on
the Premises.
7.2 Other Taxes Payable Separately by Tenant. Tenant shall pay (or
reimburse Landlord, as Additional Rent, if Landlord is assessed), prior to
delinquency or within thirty (30) days after receipt of Landlord's statement
thereof, any and all taxes, levies, assessments or surcharges payable by
Landlord or Tenant and relating to this Lease or the Premises (other than
Landlord's net income, succession, transfer, gift, franchise, estate or
inheritance taxes, and Taxes, as that term is defined in Paragraph 7.3(a) below,
payable as a Common Area Charge), whether or not now customary or within the
contemplation of the parties hereto, whether or not now in force or which may
hereafter become effective, including but not limited to taxes:
(a) Upon, allocable to, or measured by the area of
the Premises or the Rentals payable hereunder, including without limitation any
gross rental receipts, excise, or other tax levied by the state, any political
subdivision thereof, city or federal government with respect to the receipt of
such Rentals;
(b) Upon or with respect to the use, possession
occupancy, leasing, operation and management of the Premises or any portion
thereof;
(c) Upon this transaction or any document to which
Tenant is a party creating or transferring an interest or an estate in the
Premises; or
(d) Imposed as a means of controlling or abating
environmental pollution or the use of energy or any natural resource (including
without limitation gas, electricity or water), including, without limitation,
any parking taxes, levies or charges or vehicular regulations imposed by any
governmental agency. Tenant shall also pay, prior to delinquency, all privilege,
sales, excise, use, business, occupation, or other taxes, assessments,
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license fees, or charges levied, assessed or imposed upon Tenant's business
operations conducted at the Premises.
In the event any such taxes are payable by Landlord and it shall not be
lawful for Tenant to reimburse Landlord for such taxes, then the Rentals payable
hereunder shall be increased to net Landlord the same net Rental after
imposition of any such tax upon Landlord as would have been payable to Landlord
prior to the imposition of any such tax.
7.3 Common Taxes.
(a) Definition of Taxes. The term "Taxes" as used
in this Lease shall collectively mean (to the extent any of the following are
not paid by Tenant pursuant to Paragraphs 7.1 and 7.2 above) all real estate
taxes and general and special assessments (including, but not limited to,
assessments for public improvements or benefit); personal property taxes; taxes
based on vehicles utilizing parking areas on the Land; taxes computed or based
on rental income or on the square footage of the Premises or the Building
(including without limitation any municipal business tax but excluding federal,
state and municipal net income taxes); environmental surcharges; excise taxes;
gross rental receipts taxes; sales and/or use taxes; employee taxes; water and
sewer taxes, levies, assessments and other charges in the nature of taxes or
assessments (including, but not limited to, assessments for public improvements
or benefit); and all other governmental, quasi-governmental or special district
impositions of any kind and nature whatsoever; regardless of whether any of the
foregoing are now customary or within the contemplation of the parties hereto
and regardless of whether resulting from increased rate and/or valuation, or
whether extraordinary or ordinary, general or special, unforeseen or foreseen,
or similar or dissimilar to any of the foregoing and which during the Lease Term
are laid, levied, assessed or imposed upon Landlord and/or become a lien upon or
chargeable against any portion of the Project under or by virtue of any present
or future laws, statutes, ordinances, regulations, or other requirements of any
governmental, quasi-governmental or special district authority whatsoever. The
term "environmental surcharges" shall include any and all expenses, taxes,
charges or penalties imposed by the Federal Department of Energy, Federal
Environmental Protection Agency, the Federal Clean Air Act, or any regulations
promulgated thereunder, or imposed by any other local, state or federal
governmental agency or entity now or hereafter vested with the power to impose
taxes, assessments or other types of surcharges as a means of controlling or
abating environmental pollution or the use of energy or any natural resource in
regard to the use, operation or occupancy of the Project. The term "Taxes" shall
include (to the extent the same are not paid by Tenant pursuant to Paragraphs
7.1 and 7.2 above), without limitation, all taxes, assessments, levies, fees,
impositions or charges levied, imposed, assessed, measured, or based in any
manner whatsoever upon or with respect to the use, possession, occupancy,
leasing, operation or management of the Project or in lieu of or equivalent to
any Taxes set forth in this Paragraph 7.3(a). In the event any such Taxes are
payable by Landlord and it shall not be lawful for Tenant to reimburse Landlord
for such Taxes, then the Rentals payable hereunder shall be increased to net
Landlord the same net Rental after imposition of any such Tax upon Landlord as
would have been payable to Landlord prior to the imposition of any such Tax.
Notwithstanding anything to the contrary contained in this Lease, Tenant
shall not be required to pay any portion of any tax or assessment (i) in excess
of the amount which would be payable if the tax or assessment were paid in
installments over the longest possible term; or (ii) imposed on land and
improvements other than the Project.
(b) Common Area Charge. All Taxes which are levied
or assessed or which become a lien upon any portion of the Project or which
become due or accrue during the Lease Term shall be a Common Area Charge, and
Tenant shall pay as Additional Rent each month during the Lease Term 1/12th of
its annual share of such Taxes, based on Landlord's estimate thereof, pursuant
to Paragraph 12 below. Tenant's share of Taxes during any partial tax fiscal
year(s) within the Lease Term shall be prorated according to the ratio which the
number of days during the Lease Term or of actual occupancy of the Premises by
Tenant, whichever is greater, during such year bears to 365.
8. Insurance; Indemnity; Waiver.
8.1 Insurance by Landlord. Landlord shall, during the Lease Term,
procure and keep in force the following insurance, the cost of which shall be a
Common Area Charge, payable by Tenant pursuant to Paragraph 12 below:
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(a) Property Insurance. "All risk" property
insurance, including, without limitation, boiler and machinery (if applicable);
sprinkler damage; vandalism; malicious mischief; full coverage plate glass
insurance; and demolition, increased cost of construction and contingent
liability from change in building laws on the Building and the Land, including
any improvements or fixtures constructed or installed in the Building and on the
Land by Landlord. Such insurance shall be in the full amount of the replacement
cost of the foregoing, with reasonable deductible amounts, which deductible
amounts shall be a Common Area Charge, payable by Tenant pursuant to Paragraph
12. Such insurance shall also include rental income insurance, insuring that one
hundred percent (100%) of the Rentals (as the same may be adjusted hereunder)
will be paid to Landlord for a period of up to twelve (12) months if the
Premises are destroyed or damaged, or such longer period as may be required by
any beneficiary of a deed of trust or any mortgagee of any mortgage affecting
the Premises. Such insurance shall not cover any leasehold improvements
installed in the Premises by Tenant at its expense, or Tenant's equipment, trade
fixtures, inventory, fixtures or personal property located on or in the
Premises;
(b) Liability Insurance. Comprehensive general
liability (lessor's risk) insurance against any and all claims for personal
injury, death or property damage occurring in or about the Building or the Land.
Such insurance shall have a combined single limit of not less than Three Million
Dollars ($3,000,000) per occurrence and Five Million Dollars ($5,000,000)
aggregate; and
(c) Other. Such other insurance as Landlord deems
necessary and prudent.
8.2 Insurance by Tenant. Tenant shall, during the Lease Term, at
Tenant's sole cost and expense, procure and keep in force the following
insurance:
(a) Personal Property Insurance. "All risk"
property insurance, including, without limitation, coverage for boiler and
machinery (if applicable); sprinkler damage; vandalism; malicious mischief; and
demolition, increased cost of construction and contingent liability from changes
in building laws on all leasehold improvements installed in the Premises by
Tenant at its expense (if any), and on all equipment, trade fixtures, inventory,
fixtures and personal property located on or in the Premises, including
improvements or fixtures hereinafter constructed or installed on the Premises.
Such insurance shall be in an amount equal to the full replacement cost of the
aggregate of the foregoing and shall provide coverage comparable to the coverage
in the standard ISO all risk form, when such form is supplemented with the
coverages required above.
(b) Liability Insurance. Comprehensive general
liability insurance for the mutual benefit of Landlord and Tenant, against any
and all claims for personal injury, death or property damage occurring in or
about the Premises and Common Area or arising out of Tenant's or Tenant's
agents' use of the Common Area, use or occupancy of the Premises or Tenant's
operations on the Premises. Such insurance shall have a combined single limit of
not less than One Million Dollars ($1,000,000) per occurrence and Three Million
Dollars ($3,000,000) aggregate. Such insurance shall contain a cross-liability
(severability of interests) clause and an extended ("broad form") liability
endorsement, including blanket contractual coverage. The minimum limits
specified above are the minimum amounts required by Landlord, and may be revised
by Landlord from time to time to meet changed circumstances, including without
limitation to reflect (I) changes in the purchasing power of the dollar, (ii)
changes indicated by the amount of plaintiffs' verdicts in personal injury
actions in the State of California, or (iii) changes consistent with the
standards required by other landlords in the county in which the Premises are
located. Such liability insurance shall be primary and not contributing to any
insurance available to Landlord, and Landlord's insurance (if any) shall be in
excess thereto. Such insurance shall specifically insure Tenant's performance of
the indemnity, defense and hold harmless agreements contained in Paragraph 8.4,
although Tenant's obligations pursuant to Paragraph 8.4 shall not be limited to
the amount of any insurance required of or carried by Tenant under this
Paragraph 8.2(b). Tenant shall be responsible for insuring that the amount of
insurance maintained by Tenant is sufficient for Tenant's purposes.
(c) Other. Such other insurance as required by law,
including, without limitation, workers' compensation insurance.
(d) Form of the Policies. The policies required to
be maintained by Tenant pursuant to Paragraphs 8.2(a), (b), and (C) above shall
be with companies, on forms, with deductible amounts (if any),
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and loss payable clauses reasonably satisfactory to Landlord, shall include
Landlord and the beneficiary or mortgagee of any deed of trust or mortgage
encumbering the Premises and/or the Land as additional insureds, and shall
provide that such parties may, although additional insureds, recover for any
loss suffered by Tenant's negligence. Certified copies of policies or
certificates of insurance shall be delivered to Landlord prior to the
Commencement Date; a new policy or certificate shall be delivered to Landlord at
least ten (10) business days prior to the expiration date of the old policy.
Tenant shall have the right to provide insurance coverage which it is obligated
to carry pursuant to the terms hereof in a blanket policy, provided such blanket
policy expressly affords coverage to the Premises and Common Area and to Tenant
as required by this Lease. Tenant shall obtain a written obligation on the part
of Tenant's insurer(s) to notify Landlord and any beneficiary or mortgagee of a
deed of trust or mortgage encumbering the Premises and/or the Land in writing of
any delinquency in premium payments and at least thirty (30) days prior to any
cancellation or modification of any policy. Tenant's policies shall provide
coverage on an occurrence basis and not on a claims made basis. In no event
shall the limits of any policies maintained by Tenant be considered as limiting
the liability of Tenant under this Lease.
8.3 Failure by Tenant to Obtain Insurance. If Tenant does not take
out the insurance required pursuant to Paragraph 8.2 or keep the same in full
force and effect, Landlord may, but shall not be obligated to, take out the
necessary insurance and pay the premium therefor, and Tenant shall repay to
Landlord, as Additional Rent, the amount so paid promptly upon demand. In
addition, Landlord may recover from Tenant and Tenant agrees to pay, as
Additional Rent, any and all reasonable expenses (including reasonable
attorneys' fees) and damages which Landlord may sustain by reason of the failure
of Tenant to obtain and maintain such insurance, it being expressly declared
that the expenses and damages of Landlord shall not be limited to the amount of
the premiums thereon.
8.4 Indemnification. Tenant shall indemnify, hold harmless, and
defend Landlord with competent counsel reasonably satisfactory to Landlord
(except for Landlord's negligence or willful misconduct, or that of its agents,
employees, contractors or invitees) against all claims, losses, damages,
expenses or liabilities for injury or death to any person or for damage to or
loss of use of any property arising out of any occurrence in, on or about the
Building, Common Area or Land, if caused or contributed to by Tenant or Tenant's
agents, or arising out of any occurrence in, upon or at the Premises or on
account of the use, condition, occupational safety or occupancy of the Premises.
Tenant's indemnification, defense and hold harmless obligations under this Lease
shall include and apply to reasonable attorneys' fees, investigation costs, and
other costs actually incurred by Landlord. Tenant shall further indemnify,
defend and hold harmless Landlord from and against any and all claims, losses,
damages, liabilities or expenses arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease. The provisions of this Paragraph 8.4 shall survive Lease
Termination with respect to any damage, injury, death, breach or default
occurring prior to such termination. Except as set forth in this Paragraph 8.4,
this Lease is made on the express condition that Landlord shall not be liable
for, or suffer loss by reason of, injury to person or property, from whatever
cause, in any way connected with the condition, use, occupational safety or
occupancy of the Premises specifically including, without limitation, any
liability for injury to the person or property of Tenant or Tenant's agents,
unless caused by Landlord's willful misconduct or negligence, or that of its
agents, employees, contractors or invitees.
8.5 Claims by Tenant. Except as expressly provided in Paragraph
8.4, Landlord shall not be liable to Tenant, and Tenant waives all claims
against Landlord, for injury or death to any person, damage to any property, or
loss of use of any property in any portion of the Project by and from all
causes, including without limitation, any defect in any portion of the Project
and/or any damage or injury resulting from fire, steam, electricity, gas, water
or rain, which may leak or flow from or into any part of the Premises, or from
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, whether the damage
or injury results from conditions arising upon the Premises or upon other
portions of the Project or from other sources. Neither Landlord nor Tenant shall
be liable for any damages arising from any act or negligence of any other tenant
or user of the Project. Tenant or Tenant's agents shall immediately notify
Landlord in writing of any known defect in the Project. The provisions of this
Paragraph 8.5 shall not apply to any damage or injury caused by Landlord's
willful misconduct or negligence, or that of its agents, employees, contractors
or invitees.
8.6 Mutual Waiver of Subrogation. Landlord hereby releases Tenant,
and Tenant hereby releases Landlord, and their respective officers, agents,
employees and servants, from any and all claims or demands
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of damages, loss, expense or injury to the Project, or to the furnishings,
fixtures, equipment, inventory or other property of either Landlord or Tenant
in, about or upon the Project, which is caused by or results from perils, events
or happenings which are the subject of insurance carried by the respective
parties pursuant to this Paragraph 8 and in force at the time of any such loss,
whether due to the negligence of the other party or its agents and regardless of
cause or origin; provided, however, that such waiver shall be effective only to
the extent permitted by the insurance covering such loss, to the extent such
insurance is not prejudiced thereby, and to the extent insured against.
9. Utilities. Tenant shall pay during the Lease Term and prior to
delinquency all charges for water, gas, light, heat, power, electricity,
telephone or other communication service, janitorial service, trash pick-up,
sewer and all other services supplied to Tenant or consumed by Tenant on the
Premises (collectively the "Services") and all taxes, levies, fees or surcharges
therefor. Tenant shall arrange for Services to be supplied to the Premises and
shall contract for all of the Services in Tenant's name prior to the
Commencement Date. The Commencement Date shall not be delayed by reason of any
failure by Tenant to so contract for Services. In the event that any of the
Services are not separately billed or metered to the Premises, or if any of the
Services are not separately metered as of the Commencement Date, the cost of
such Services shall be a Common Area Charge and Tenant shall pay, as Additional
Rent, Tenant's proportionate share of such cost to Landlord as provided in
Paragraph 12 below, except that if any meter services less than the entire
Building, Tenant's proportionate share of the costs measured by such meter shall
be based upon the square footage of the gross leasable area in the Premises as a
percentage of the total square footage of the gross leasable area of the portion
of the Building serviced by such meter. If Landlord determines that Tenant is
using a disproportionate amount of any commonly metered Services or an amount in
excess of the customary amount of any Services ordinarily furnished for use of
the Premises in accordance with the uses set forth in Paragraph 6 above, then
Landlord may elect to periodically charge Tenant, as Additional Rent, a sum
equal to Landlord's estimate of the cost of Tenant's excess use of any or all
such Services. The lack or shortage of any Services due to any cause whatsoever
(except for a lack or shortage proximately caused by the negligent acts or
willful misconduct Landlord or that of its agents, employees, contractors or
invitees) shall not affect any obligation of Tenant hereunder, and Tenant shall
faithfully keep and observe all the terms, conditions and covenants of this
Lease and pay all Rentals due hereunder, all without diminution, credit or
deduction.
10. Repairs and Maintenance.
10.1 Landlord's Responsibilities. Subject to the provisions of
Paragraph 15 below, Landlord shall maintain in reasonably good order and repair
the structural roof, roof membrane, structural and exterior walls (including
painting thereof) and foundations of the Building. In addition, Landlord shall
maintain the service contract (covering periodic inspection and servicing) for
the heating and air conditioning systems of the Premises. Tenant shall give
prompt written notice to Landlord of any known maintenance work required to be
made by Landlord pursuant to this Paragraph 10.1. The costs of (I) repairs and
maintenance of the roof membrane, (ii) periodic inspection and regular servicing
of the heating and air conditioning systems of the Premises, and (iii) painting
the exterior of the Premises which are the obligation of Landlord hereunder
shall be a Common Area Charge and Tenant shall pay, as Additional Rent, Tenant's
share of such costs to Landlord as provided in Paragraph 12 below. The costs of
maintenance, repair, and replacement of the structural parts of the Premises and
the Building (including foundations, floor slab, load bearing walls and roof
structure) which are the obligation of Landlord hereunder shall be at the cost
and expense of Landlord and shall not be a Common Area Charge, except for any
repairs required because of the wrongful act of Tenant or Tenant's agents, which
repairs shall be made at the expense of Tenant and as Additional Rent.
10.2 Tenant's Responsibilities. Except as expressly provided in
Paragraph 10.1 above, and subject to the provisions of Paragraph 2.3 above,
Tenant shall, at its sole cost, maintain the entire Premises and every part
thereof, including without limitation, windows, skylights, window frames, plate
glass, freight docks, doors and related hardware, interior walls and partitions,
and the electrical, plumbing, lighting, heating and air conditioning systems in
good order, condition and repair. Tenant's obligations with respect to the
heating and air conditioning systems of the Premises shall include the
replacement of components thereof. If Tenant fails to make repairs or perform
maintenance
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work required of Tenant hereunder within fourteen (14) days after written notice
from Landlord specifying the need for such repairs or maintenance work, Landlord
or Landlord's agents may, in addition to all other rights and remedies available
hereunder or by law and without waiving any alternative remedies, enter into the
Premises and make such repairs and/or perform such maintenance work. If Landlord
makes such repairs and/or performs such maintenance work, Tenant shall reimburse
Landlord upon demand and as Additional Rent, for the cost of such repairs and/or
maintenance work. Landlord shall use reasonable efforts to avoid causing any
inconvenience to Tenant or interference with the use of the Premises by Tenant
or Tenant's agents during the performance of any such repairs or maintenance.
Landlord shall have no liability to Tenant for any damage, inconvenience or
interference with the use of the Premises by Tenant or Tenant's agents as a
result of Landlord performing any such repairs or maintenance (except for the
negligent acts or willful misconduct Landlord or that of its agents, employees,
contractors or invitees). Tenant shall reimburse Landlord, on demand and as
Additional Rent, for the cost of damage to the Project caused by Tenant or
Tenant's agents. Tenant expressly waives the benefits of any statute now or
hereafter in effect (including without limitation the provisions of subsection 1
of Section 1932, Section 1941 and Section 1942 of the California Civil Code and
any similar law, statute or ordinance now or hereafter in effect) which would
otherwise afford Tenant the right to make repairs at Landlord's expense (or to
deduct the cost of such repairs from Rentals due hereunder) or to terminate this
Lease because of Landlord's failure to keep the Premises in good and sanitary
order.
11. Common Area.
11.1 In General. Subject to the terms and conditions of this Lease
and such rules and regulations as Landlord may from time to time prescribe,
Tenant and Tenant's agents shall have, in common with other tenants of the
Building and other permitted users, the nonexclusive right to use during the
Lease Term the access roads, parking areas, sidewalks, landscaped areas and
other facilities on the Land or in the Building designated by Landlord for the
general use and convenience of the occupants of the Building and other
authorized users, which areas and facilities are referred to herein as the
"Common Area." This right to use the Common Area shall terminate upon Lease
Termination. Landlord reserves the right to promulgate such reasonable rules and
regulations relating to the use of all or any portion of the Common Area and to
amend such rules and regulations from time to time with or without advance
notice, as Landlord may deem appropriate for the best interests of the occupants
of the Building and other authorized users. Any amendments to the rules and
regulations shall be effective as to Tenant, and binding on Tenant, upon
delivery of a copy of such rules and regulations to Tenant. Tenant and Tenant's
agents shall observe such rules and regulations and any failure by Tenant or
Tenant's agents to observe and comply with the rules and regulations shall be a
Default by Tenant. Landlord shall not be responsible for the nonperformance of
the rules and regulations by any tenants or occupants of the Building or other
authorized users, nor shall Landlord be liable to Tenant by reason of the
noncompliance with or violation of the rules and regulations by any other tenant
or user.
11.2 Parking Areas. Tenant is allocated and Tenant and Tenant's
employees and invitees shall have the nonexclusive right to use not more than
the number of parking spaces set forth in Paragraph 1.13, the location of which
may be designated from time to time by Landlord. Neither Tenant nor Tenant's
agents shall at any time use more parking spaces than the number so allocated to
Tenant or park or permit the parking of their vehicles in any portion of the
Land not designated by Landlord as a nonexclusive parking area. Tenant and
Tenant's agents shall not have the exclusive right to use any specific parking
space. Notwithstanding the number of parking spaces designated for Tenant's
nonexclusive use, in the event by reason of any Law relating to or affecting
parking on the Land, or any other cause beyond Landlord's reasonable control,
Landlord is required to reduce the number of parking spaces on the Land,
Landlord shall have the right to proportionately reduce the number of Tenant's
parking spaces and the nonexclusive parking spaces of other tenants in the
Building. Landlord reserves the right to promulgate such reasonable rules and
regulations relating to the use of such parking areas on the Land as Landlord
may deem appropriate. Landlord furthermore reserves the right, after having
given Tenant reasonable notice, to have any vehicles owned by Tenant or Tenant's
agents which are parked in violation of the provisions of this Paragraph 11.2 or
in violation of Landlord's rules and regulations relating to parking, to be
towed away at Tenant's cost. In the event Landlord elects or is required by any
law to limit or control parking on the Land, by validation of parking tickets or
any other method, Tenant agrees to participate in such validation or other
program under such reasonable rules and regulations as are from time to time
established by Landlord. Provided that Tenant's use, occupancy and enjoyment of
the Premises or access to the Premises is not unreasonably interfered with,
Landlord shall have the right to close, at reasonable times, all or any portion
of the parking areas for any reasonable purpose, including without limitation,
the prevention of a dedication thereof, or the accrual of rights of any person
or public therein. Tenant and Tenant's agents shall not at any time park or
permit the parking of (I) trucks or other vehicles (whether owned by Tenant or
other persons) adjacent to any loading areas so as to interfere in any manner
with the use of such areas, (ii) Tenant's or Tenant's agents' vehicles or
trucks, or the vehicles or trucks of Tenant's suppliers or others, in any
portion of the Common Area not designated by Landlord for such use
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by Tenant, or (iii) any inoperative vehicles or equipment on any portion of the
Common Area.
11.3 Maintenance by Landlord. Landlord shall maintain the Common
Area in good repair and condition and shall manage the Common Area to reasonable
and customary standards. The expenditures for such maintenance shall be at the
reasonable discretion of Landlord. The cost of such maintenance, operation and
management shall be a "Common Area Charge," and Tenant shall pay to Landlord, as
Additional Rent, Tenant's share of such costs as provided in Paragraph 12 below.
12. Common Area Charges.
12.1 Definition. "Common Area Charge" or "Common Area Charges" as
used in this Lease shall mean and include all items identified in other
paragraphs of this Lease as a Common Area Charge and the total cost paid or
incurred by Landlord for the operation, maintenance, repair, and management of
the Project which costs shall include, without limitation: the cost of Services
and utilities supplied to the Project (to the extent the same are not separately
charged or metered to tenants of the Building); water; sewage; trash removal;
fuel; electricity; heat; lighting systems; professional management fee (not to
exceed three percent (3%) of the Premises' gross rental income); fire protection
systems; storm drainage and sanitary sewer systems; periodic inspection and
regular servicing of the heating and air conditioning systems of the Premises;
maintaining, repairing and replacing the roof membrane; property and liability
insurance covering the Building and the Land and any other insurance carried by
Landlord pursuant to Paragraph 8 above; window cleaning; cleaning, sweeping,
striping, resurfacing of parking and driveway areas; cleaning the Common Area
following storms or other severe weather; cleaning and repairing of sidewalks,
curbs, stairways; costs related to irrigation systems and Project signs; fees
for licenses and permits required for the operation of the Project; the cost of
complying with Laws, including, without limitation, maintenance, alterations and
repairs required in connection therewith (subject to the provisions of Paragraph
12.3 hereof); costs related to landscape maintenance; and the cost of contesting
the validity or applicability of any governmental enactments which may affect
Common Area Charges. If the Project contains more than one (1) building at any
time during the Lease Term, then the term "Common Area Charges" shall mean and
include all of the Common Area Charges allocable to the Building and a
proportionate share (based on the square footage of gross leasable area in the
Building as a percentage of the total of square footage of gross leasable area
of the buildings in the Project at the time in question) of all Common Area
Charges which are related to the Project in general and are not allocated to any
one building in the Project. The cost of (I) capital repair items (i.e., items
which Landlord is required to capitalize and not expense in the current year for
federal income tax purposes), (ii) replacement of the roof membrane, (iii)
resurfacing the parking lot, and (iv) repainting the exterior of the Building,
shall be amortized at ten percent (10%) over the useful life of the repair or
item, and be paid monthly by Tenant from the date of installation or repair
through Lease Termination.
The specific examples of Common Area Charges stated in this Paragraph
12.1 are in no way intended to and shall not limit the costs comprising Common
Area Charges, nor shall such examples be deemed to obligate Landlord to incur
such costs or to provide such services or to take such actions except as
Landlord may be expressly required in other portions of this Lease, or except as
Landlord, in its reasonable discretion, may elect. All reasonable costs incurred
by Landlord in good faith for the operation, maintenance, repair and management
of the Project shall be deemed conclusively binding on Tenant.
Notwithstanding anything to the contrary contained in this Lease, within
thirty (30) days after receipt by Tenant of Landlord's statement of Common Area
Charges prepared pursuant to Paragraph 12.2 hereof for any prior annual period
during the Lease Term, Tenant or its authorized representative shall have the
right to inspect the books of Landlord during the business hours of Landlord at
Landlord's office or, at Landlord's option, such other location as Landlord
reasonably may specify, for the purpose of verifying the information contained
in the statement. Unless Tenant asserts specific errors within thirty (30) days
after receipt of the statement, the statement shall be deemed correct as between
Landlord and Tenant, except as to individual components subsequently determined
to be in error by future audit.
12.2 Payment of Common Area Charges by Tenant. Prior to the
Commencement Date, and annually thereafter, Landlord shall deliver to Tenant an
estimate of Common Area Charges for the succeeding year. Tenant's payment of
Common Area Charges shall be based upon Landlord's estimate of Common Area
Charges and shall be payable in equal monthly installments in advance on the
first day of each calendar month commencing on the
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date specified in Paragraph 1.6 and continuing throughout the Lease Term. Tenant
shall pay to Landlord, as Additional Rent and without deduction or offset, an
amount equal to Tenant's percentage share (stated in Paragraph 1.10 above) of
the Common Area Charges.
Landlord shall revise its estimate of Common Area Charges on an annual
basis, and Landlord may adjust the amount of Tenant's monthly installment in the
event of a material change in Common Area Charges during any year. Landlord
shall furnish Tenant an annual statement (and a statement within one hundred
eighty (180) days after Lease Termination) showing the actual Common Area
Charges for the period to which Landlord's estimate pertains and shall
concurrently either bill Tenant for the balance due (payable upon demand by
Landlord) or credit Tenant's account for the excess previously paid.
Alternatively, Common Area Charges actually incurred or paid by Landlord
but not theretofore billed to Tenant, as invoiced by Landlord shall be payable
by Tenant within ten (10) days after receipt of Landlord's invoice, but not more
often than once each calendar month.
Notwithstanding the foregoing provisions of this Paragraph 12, Landlord
and Tenant agree that if Landlord incurs any costs for insurance, Services,
repairs or maintenance exclusively for or to the Premises or for less than all
the tenants of the Building and such costs are Common Area Charges, or if any
improvements installed in the Premises by Tenant or Landlord are valued by the
assessor disproportionately higher than those of any other tenants in the
Building, then Tenant's share of such Common Area Charges shall be equitably
increased by Landlord to reflect the portion of any such costs or taxes incurred
by Landlord in regard to the Premises, and Tenant shall pay the same to Landlord
as Additional Rent.
12.3 Exclusions From Common Area Charges. Notwithstanding anything
to the contrary contained in this Lease, in no event shall Tenant have any
obligation to perform, to pay directly, or to reimburse Landlord for, all or any
portion of the following repairs, maintenance, improvements, replacements,
premiums, claims, losses, fees, commissions, charges, disbursements, attorneys'
fees, experts' fees, costs and expenses (collectively, "Costs").
(a) Losses Caused by Others and Construction
Defects. Costs occasioned by the act, omission or violation of Law by Landlord,
any other occupant of the Project, or their respective agents, employees or
contractors, or Costs to correct any construction defect in the Premises (other
than alterations constructed by Tenant), Building or Project, or costs arising
out of the failure to construct the Building, Premises, tenant improvements
installed by Landlord pursuant to Paragraph 2.2, or Common Areas in accordance
with Laws and private restrictions applicable at the time of construction
thereof.
(b) Condemnation and Insurance Costs. Costs
occasioned by the exercise of the power of eminent domain, or increases in
insurance Costs caused by the activities of other occupant(s) of the Project.
(c) Reimbursable Expenses. Costs for which Landlord
has a right of reimbursement from others, or Costs which Tenant pays directly to
a third person.
(d) Utilities or Services. Costs (I) arising from
the disproportionate use of any utility or service supplied by Landlord to any
other occupant of the Project; or (ii) associated with utilities and services of
a type not provided to Tenant.
(e) Leasing Expenses. Costs incurred in connection
with negotiations or disputes with other occupant(s) of the Project, and Costs
arising from the violation by Landlord or any occupant of the Project (other
than Tenant) of the terms and conditions of any lease or other agreement.
(f) Reserves. Depreciation, amortization or other
expense reserves.
(g) Mortgages. Interest, charges and fees incurred
on debt, payments or mortgages and rent under ground leases.
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(h) Hazardous Materials. Costs incurred to
investigate the presence of any Hazardous Material, Costs to respond to any
claim of Hazardous Material contamination or damage, Costs to remove any
Hazardous Material from the Premises, Building or Project or to remediate any
Hazardous Material contamination, and any judgments or other Costs incurred in
connection with any Hazardous Material exposure or release, except to the extent
such Costs are incurred by Landlord in accordance with Paragraph 6.4 or incurred
by Landlord or caused by reason of the storage, use or disposal of the Hazardous
Material in question by Tenant, its agents, employees, contractors or invitees.
(i) Management. Wages, salaries, compensation and
labor burden for any employee not stationed on the Project on a full-time basis,
or any fee, profit or compensation retained by Landlord or its affiliates for
management and administration of the Project in excess of the management fee and
accounting fee specified in Paragraph 12.1.
(j) Capital Improvements Required by Law. Costs for
structural alterations required by Law that do not relate solely to Tenant's
particular use or occupancy of the Premises, and Costs of retrofitting any part
of the Project, other than the Premises, in order to comply with the ADA in
connection with the leasing or alteration of portions of the Project other than
the Premises.
13. Alterations and Improvements.
13.1 In General. Tenant shall not make, or permit to be made, any
alterations, removals, changes, enlargements, improvements or additions
(collectively "Alterations") in, on, about or to the Premises, or any part
thereof, including Alterations required pursuant to Paragraph 6.2, without the
prior written consent of Landlord (which consent shall not be unreasonably
withheld or delayed) and without acquiring and complying with the conditions of
all permits required for such Alterations by any governmental authority having
jurisdiction thereof. The term "Alterations" as used in this Paragraph 13 shall
also include all heating, lighting, electrical (including all wiring, conduit
outlets, drops, buss ducts, main and subpanels), air conditioning and
partitioning in the Premises made by Tenant regardless of how affixed to the
Premises. As a condition to the giving of its consent, Landlord may impose such
reasonable requirements as Landlord reasonably may deem necessary, including
without limitation, the manner in which the work is done; a right of approval of
the contractor by whom the work is to be performed; the times during which the
work is to be accomplished; the requirement that Tenant post a completion bond
in an amount and form reasonably satisfactory to Landlord; and the requirement
that Tenant reimburse Landlord, as Additional Rent, for Landlord's actual costs
for outside consultants incurred in reviewing any proposed Alteration, whether
or not Landlord's consent is granted. In the event Landlord consents to the
making of any Alterations by Tenant, the same shall be made by Tenant at
Tenant's sole cost and expense, in accordance with the plans and specifications
approved by Landlord and in a manner causing Landlord and Landlord's agents and
other tenants of the Building the least interference and inconvenience
practicable under the circumstances. Tenant shall give written notice to
Landlord five days prior to employing any laborer or contractor to perform
services related to, or receiving materials for use upon the Premises, and prior
to the commencement of any work of improvement on the Premises. Any Alterations
to the Premises made by Tenant shall be made in accordance with applicable Laws
and in a first-class workmanlike manner. In making any such Alterations, Tenant
shall, at Tenant's sole cost and expense, file for and secure and comply with
any and all permits or approvals required by any governmental departments or
authorities having jurisdiction thereof and any utility company having an
interest therein. In no event shall Tenant make any structural changes to the
Premises or make any changes to the Premises which would weaken or impair the
structural integrity of the Building.
13.2 Removal Upon Lease Termination. At the time Tenant requests
Landlord's consent, Tenant shall request a decision from Landlord in writing as
to whether Landlord will require Tenant, at Tenant's expense, to remove any such
Alterations and restore the Premises to their prior condition at Lease
Termination. In the event Tenant fails to earlier obtain Landlord's written
decision as to whether Tenant will be required to remove any Alteration, then no
less than ninety (90) nor more than one hundred twenty (120) days prior to the
expiration of the Lease Term, Tenant by written notice to Landlord shall request
Landlord to inform Tenant whether or not Landlord desires to have any of such
Alterations removed at Lease Termination. Following receipt of such notice,
Landlord may elect to have all or a portion of such Alterations removed from the
Premises at Lease Termination, and Tenant shall, at its sole cost and expense,
remove at Lease Termination such Alterations designated by Landlord for removal
and
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repair all damage to the Project arising from such removal. In the event Tenant
fails to so request Landlord's decision or fails to remove any such Alterations
designated by Landlord for removal, Landlord may remove any Alterations made to
the Premises by Tenant and repair all damage to the Premises and Common Area
arising from such removal, and may recover from Tenant all reasonable costs and
expenses incurred thereby. Tenant's obligation to pay such costs and expenses to
Landlord shall survive Lease Termination. Unless Landlord elects to have Tenant
remove (or, upon Tenant's failure to obtain Landlord's decision, Landlord
removes) any such Alterations, all such Alterations, except for moveable
furniture, personal property and equipment, and trade fixtures of Tenant not
affixed to the Premises, shall become the property of Landlord upon Lease
Termination (without any payment therefor) and remain upon and be surrendered
with the Premises at Lease Termination.
13.3 Landlord's Improvements. All fixtures, improvements or
equipment which are installed, constructed on or attached to the Premises,
Building or Common Area by Landlord shall be a part of the realty and belong to
Landlord.
14. Default and Remedies.
14.1 Events of Default. The term "Default by Tenant" as used in
this Lease shall mean the occurrence of any of the following events:
(a) Tenant's failure to pay when due any Rentals;
(b) Commencement and continuation for at least sixty
(60) days of any case, action or proceeding by, against or concerning Tenant
under any federal or state bankruptcy, insolvency or other debtor's relief law,
including without limitation, (I) a case under Title 11 of the United States
Code concerning Tenant, whether under Chapter 7, 11, or 13 of such Title or
under any other Chapter, or (ii) a case, action or proceeding seeking Tenant's
financial reorganization or an arrangement with any of Tenant's creditors;
(c) Voluntary or involuntary appointment of a
receiver, trustee, keeper or other person who takes possession for more than
sixty (60) days of substantially all of Tenant's assets or of any asset used in
Tenant's business on the Premises, regardless of whether such appointment is as
a result of insolvency or any other cause;
(d) Execution of an assignment for the benefit of
creditors of substantially all assets of Tenant available by law for the
satisfaction of judgment creditors;
(e) Commencement of proceedings for winding up or
dissolving (whether voluntary or involuntary) the entity of Tenant, if Tenant
is a corporation or a partnership;
(f) Levy of a writ of attachment or execution on
Tenant's interest under this Lease, if such writ continues for a period of
thirty (30) days;
(g) Transfer or attempted Transfer of this Lease or
the Premises by Tenant contrary to the provisions of Paragraph 24 below; or
(h) Breach by Tenant of any term, covenant,
condition, warranty, or other provision contained in this Lease or of any other
obligation owing or due to Landlord.
14.2 Remedies. Upon any Default by Tenant, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by
law, to which Landlord may resort cumulatively, or in the alternative:
14.2.1 Termination. Upon any Default by Tenant,
Landlord shall have the obligation to give written notice to Tenant of such
default and shall have the right (but not the obligation) to terminate this
Lease and Tenant's right to possession of the Premises if (I) such default is in
the payment of Rentals and is not
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cured within seven (7) days after such notice, or, (ii) with respect to the
defaults referred to in subparagraphs 14.1(d), (e), (g) and (h), such default is
not cured within thirty (30) days after such notice (or if a default under
subparagraph 14.1(h) cannot be reasonably cured within thirty (30) days, if
Tenant does not commence to cure the default within the thirty (30) day period
or does not diligently and in good faith prosecute the cure to completion), or,
(iii) with respect to the defaults specified in subparagraphs 14.1(b), (c) and
(f) such default is not cured within the respective time periods specified in
those subparagraphs. The parties agree that the notice given by Landlord to
Tenant pursuant to this Paragraph 14.2.1 shall be sufficient notice for purposes
of California Code of Civil Procedure Section 1161 and Landlord shall not be
required to give any additional notice in order to be entitled to commence an
unlawful detainer proceeding. Upon termination of this Lease and Tenant's right
to possession of the Premises, Landlord shall have the right to recover from
Tenant:
(a) The worth at the time of award of the
unpaid Rentals which had been earned at the time of termination;
(b) The worth at the time of award of the
amount by which the Rentals which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided;
(c) The worth at the time of award (computed
by discounting at the discount rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent) of the amount by which the Rentals for
the balance of the Lease Term after the time of award exceed the amount of such
rental loss that Tenant proves could be reasonably avoided;
(d) Any other amounts necessary to compensate
Landlord for all detriment proximately caused by the Default by Tenant or which
in the ordinary course of events would likely result, including without
limitation the following:
(i) Expenses in retaking possession of
the Premises;
(ii) Expenses for cleaning, repairing or
restoring the Premises;
(iii) Any unamortized real estate brokerage
commission paid in connection with this Lease;
(iv) Expenses for removing, transporting,
and storing any of Tenant's property left at the Premises (although Landlord
shall have no obligation to remove, transport, or store any such property);
(v) Expenses of reletting the Premises,
including without limitation, brokerage commissions and reasonable attorneys'
fees;
(vi) Reasonable attorneys' fees and court
costs; and
(vii) Costs of carrying the Premises such
as repairs, maintenance, taxes and insurance premiums, utilities and security
precautions (if any).
(e) The "worth at the time of award" of the
amounts referred to in subparagraphs (a) and (b) of this Paragraph 14.2.1 is
computed by allowing interest at an annual rate equal to the greater of: ten
percent (10%); or five percent (5%) plus the rate established by the Federal
Reserve Bank of San Francisco, as of the twenty-fifth (25th) day of the month
immediately preceding the Default by Tenant, on advances to member banks under
Sections 13 and 13(a) of the Federal Reserve Act, as now in effect or hereafter
from time to time amended, not to exceed the maximum rate allowable by law.
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14.2.2 Continuance of Lease. Upon any Default by
Tenant and unless and until Landlord elects to terminate this Lease pursuant to
Paragraph 14.2.1 above, this Lease shall continue in effect after the Default by
Tenant and Landlord may enforce all its rights and remedies under this Lease,
including without limitation, the right to recover payment of Rentals as they
become due. Neither efforts by Landlord to mitigate damages caused by a Default
by Tenant nor the acceptance of any Rentals shall constitute a waiver by
Landlord of any of Landlord's rights or remedies, including the rights and
remedies specified in Paragraph 14.2.1 above.
15. Damage or Destruction.
15.1 Definition of Terms. For the purposes of this Lease, the
term: (a) "Insured Casualty" means damage to or destruction of the Premises from
a cause actually insured against, or required by this Lease to be insured
against, for which the insurance proceeds paid or made available to Landlord are
sufficient to rebuild or restore the Premises under then existing building codes
to the condition existing immediately prior to the damage or destruction; and
(b) "Uninsured Casualty" means damage to or destruction of the Premises from a
cause not actually insured against, or not required to be insured against, or
from a cause actually insured against but for which the insurance proceeds paid
or made available to Landlord are for any reason insufficient to rebuild or
restore the Premises under then existing building codes to the condition
existing immediately prior to the damage or destruction, or from a cause
actually insured against but for which the insurance proceeds are not paid or
made available to Landlord within ninety (90) days of the event of damage or
destruction.
15.2 Insured Casualty.
15.2.1 Rebuilding Required. In the event of an Insured
Casualty where the extent of damage or destruction is less than twenty-five
percent (25%) of the then full replacement cost of the Premises, Landlord shall
rebuild or restore the Premises to the condition existing immediately prior to
the damage or destruction, provided the damage or destruction was not a result
of a negligent or willful act of Tenant, and that there exist no governmental
codes or regulations that would interfere with Landlord's ability to so rebuild
or restore.
15.2.2 Landlord's Election. In the event of an Insured
Casualty where the extent of damage or destruction is equal to or greater than
twenty-five percent (25%) of the then full replacement cost of the Premises,
Landlord may, at its option and at its sole discretion, rebuild or restore the
Premises to the condition existing immediately prior to the damage or
destruction, or terminate this Lease. Landlord shall notify Tenant in writing
within sixty (60) days after the event of damage or destruction of Landlord's
election to either rebuild or restore the Premises or terminate this Lease.
15.2.3 Continuance of Lease. If Landlord is required
to rebuild or restore the Premises pursuant to Paragraph 15.2.1 or if Landlord
elects to rebuild or restore the Premises pursuant to Paragraph 15.2.2, this
Lease shall remain in effect and Tenant shall have no claim against Landlord for
compensation for inconvenience or loss of business during any period of repair
or restoration.
15.3 Uninsured Casualty.
15.3.1 Landlord's Election. In the event of an Uninsured
Casualty, Landlord may, at its option and at its sole discretion (I) rebuild or
restore the Premises as soon as reasonably possible at Landlord's expense
(unless the damage or destruction was caused by a negligent or willful act of
Tenant, in which event Tenant shall pay all costs of rebuilding or restoring),
in which event this Lease shall continue in full force and effect or (ii)
terminate this Lease, in which event Landlord shall give written notice to
Tenant within sixty (60) days after the event of damage or destruction of
Landlord's election to terminate this Lease as of the date of the event of
damage or destruction, and if the damage or destruction was caused by a
negligent or willful act of Tenant, Tenant shall be liable therefor to Landlord.
15.3.2 Tenant's Ability to Continue Lease. If Landlord
elects to terminate this Lease and the extent of damage or destruction is less
than twenty-five percent (25%) of the then full replacement cost of the Premises
or the proceeds paid or made available to Landlord are for any reason
insufficient to rebuild or restore
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the Premises under then existing building codes to the condition existing
immediately prior to the damage or destruction, and if there exist no
governmental codes or regulations that would interfere with Landlord's ability
to so repair or restore, then Tenant may nevertheless cause the Lease to
continue in effect by (I) notifying Landlord in writing within ten (10) days
after Landlord's notice of termination of Tenant's agreement to pay all costs of
rebuilding or restoring not covered by insurance, and (ii) providing Landlord
with reasonable security for or assurance of such payment. Tenant shall pay to
Landlord in cash no later than thirty (30) days prior to the date of
commencement of construction the reasonable estimated cost of rebuilding or
restoring. In the event Tenant fails to pay such cost to Landlord by the date
specified, Landlord may immediately terminate the Lease and recover from Tenant
all reasonable costs incurred by Landlord in preparation for construction. If
the actual cost of rebuilding or restoring exceeds the estimated cost of such
work, Tenant shall pay the difference to Landlord in cash upon notification by
Landlord of the final cost. If the cost of rebuilding or restoring is less than
the estimated cost of such work, Tenant shall be entitled to a refund of the
difference upon completion of the rebuilding or restoring and determination of
final cost.
15.4 Tenant's Election. Notwithstanding anything to the contrary
contained in this Paragraph 15, Tenant may elect to terminate this Lease in the
event the Premises are damaged or destroyed and, in the reasonable opinion of
Landlord's architect or construction consultants, the restoration of the
Premises cannot be substantially completed within one hundred eighty (180) days
after the event of damage or destruction. Tenant's election shall be made by
written notice to Landlord within ten (10) days after Tenant receives from
Landlord the estimate of the time needed to complete repair or restoration of
the Premises. If Tenant does not deliver said notice within said ten (10) day
period, Tenant may not later terminate this Lease even if substantial completion
of the rebuilding or restoration occurs subsequent to said one hundred eighty
(180) day period, provided that Landlord is proceeding with diligence to rebuild
or restore the Premises. If Tenant delivers said notice within said ten (10) day
period, this Lease shall terminate as of the date of the event of damage or
destruction.
15.5 Damage or Destruction Near End of Lease Term. Notwithstanding
anything to the contrary contained in this Paragraph 15, in the event the
Premises are damaged or destroyed in whole or in part (regardless of the extent
of damage) from any cause during the last twelve (12) months of the Lease Term,
Landlord or Tenant may, at its option, terminate this Lease as of the date of
the event of damage or destruction by giving written notice to the other of its
election to do so within thirty (30) days after the event of such damage or
destruction. For purposes of this Paragraph 15.5, if Tenant has been granted an
option to extend or renew the Lease Term pursuant to another provision of this
Lease, then the damage or destruction shall be deemed to have occurred during
the last twelve (12) months of the Lease Term if Tenant fails to exercise its
option to extend or renew within twenty (20) days after the event of damage or
destruction.
15.6 Termination of Lease. If the Lease is terminated pursuant to
this Paragraph 15, the unused balance of the Security Deposit shall be refunded
to Tenant. The current Rent shall be proportionately reduced during the period
following the event of damage or destruction until the date on which Tenant
surrenders the Premises, based upon the extent to which the damage or
destruction interferes with Tenant's business conducted in the Premises, as
reasonably determined by Landlord and Tenant, to the extent such loss is covered
as an insured peril by the insurance carried by Landlord pursuant to Paragraph
8.1. All other Rentals due hereunder shall continue unaffected during such
period. The proceeds of insurance carried by Tenant pursuant to Paragraph 8.2
shall be paid to Landlord and Tenant, as their interests appear.
15.7 Abatement of Rentals. If the Premises are to be rebuilt or
restored pursuant to this Paragraph 15, the then current Rentals shall be
proportionately reduced during the period of repair or restoration, based upon
the extent to which the making of repairs interferes with Tenant's business
conducted in the Premises, as reasonably determined by Landlord and Tenant, to
the extent such loss is covered as an insured peril by the insurance carried, or
required to be carried, by Landlord pursuant to Paragraph 8.1.
15.8 Liability for Personal Property. Except for the negligent
acts or willful misconduct Landlord or that of its agents, employees,
contractors or invitees, in no event shall Landlord have any liability for, nor
shall it be required to repair or restore, any injury or damage to any
Alterations to the Premises made by Tenant, trade fixtures, equipment,
merchandise, furniture, or any other property installed by Tenant or at the
expense of Tenant. If Landlord or Tenant do not elect to terminate this Lease
pursuant to this Paragraph 15, Tenant shall be obligated to promptly rebuild or
restore the same to the condition existing immediately prior to the damage or
destruction in
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accordance with the provisions of Paragraph 13.1.
15.9 Waiver of Civil Code Remedies. Landlord and Tenant
acknowledge that the rights and obligations of the parties upon damage or
destruction of the Premises are as set forth herein; therefore Tenant hereby
expressly waives any rights to terminate this Lease upon damage or destruction
of the Premises, except as specifically provided by this Lease, including
without limitation any rights pursuant to the provisions of Subdivision 2 of
Section 1932 and Subdivision 4 of Section 1933 of the California Civil Code, as
amended from time to time, and the provisions of any similar law hereinafter
enacted, which provisions relate to the termination of the hiring of a thing
upon its substantial damage or destruction.
15.10 Damage or Destruction to the Building. The foregoing
notwithstanding, in the event the Building is damaged or destroyed to the extent
of more than thirty-three and one-third percent (33 1/3%) of the then
replacement cost thereof, Landlord may elect to terminate this Lease, whether or
not the Premises are injured.
16. Condemnation.
16.1 Definition of Terms. For the purposes of this Lease, the
term: (a) "Taking" means a taking of the Premises, Common Area or Building or
damage related to the exercise of the power of eminent domain and includes,
without limitation, a voluntary conveyance, in lieu of court proceedings, to any
agency, authority, public utility, person or corporate entity empowered to
condemn property; (b) "Total Taking" means the Taking of the entire Premises or
so much of the Premises, Building or Common Area as to prevent or substantially
impair the use thereof by Tenant for the uses herein specified; provided,
however, that in no event shall the Taking of less than twenty percent (20%) of
the Premises or fifty percent (50%) of the Building and Common Area be
considered a Total Taking; (C) "Partial Taking" means the Taking of only a
portion of the Premises, Building or Common Area which does not constitute a
Total Taking; (d) "Date of Taking" means the date upon which the title to the
Premises, Building or Common Area or a portion thereof, passes to and vests in
the condemnor or the effective date of any order for possession if issued prior
to the date title vests in the condemnor; and (e) "Award" means the amount of
any award made, consideration paid, or damages ordered as a result of a Taking.
16.2 Rights. The parties agree that in the event of a Taking all
rights between them or in and to an Award shall be as set forth herein.
16.3 Total Taking. In the event of a Total Taking during the Lease
Term: (a) the rights of Tenant under this Lease and the leasehold estate of
Tenant in and to the Premises shall cease and terminate as of the Date of
Taking; (b) Landlord shall refund to Tenant any prepaid Rent and the unused
balance of the Security Deposit; (C) Tenant shall pay Landlord any Rentals due
Landlord under the Lease, prorated as of the Date of Taking; (d) to the extent
the Award is not payable to the beneficiary or mortgagee of a deed of trust or
mortgage affecting the Premises, Tenant shall receive from the Award those
portions of the Award attributable to trade fixtures of Tenant; and (e) the
remainder of the Award shall be paid to and be the property of Landlord. Nothing
contained in this Paragraph 16.3 shall be deemed to deny Tenant its right to
recover awards made by the condemning authority for moving costs, relocation
costs, and costs attributable to goodwill and leasehold improvements installed
by Tenant.
16.4 Partial Taking. In the event of a Partial Taking during the
Lease Term: (a) the rights of Tenant under the Lease and the leasehold estate of
Tenant in and to the portion of the Premises taken shall cease and terminate as
of the Date of Taking; (b) from and after the Date of Taking the Rent shall be
an amount equal to the product obtained by multiplying the then current Rent by
the quotient obtained by dividing the fair market value of the Premises
immediately after the Taking by the fair market value of the Premises
immediately prior to the Taking; (C) to the extent the Award is not payable to
the beneficiary or mortgagee of a deed of trust or mortgage affecting the
Premises, Tenant shall receive from the Award the portions of the Award
attributable to trade fixtures of Tenant; and (d) the remainder of the Award
shall be paid to and be the property of Landlord. Each party waives the
provisions of California 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. Nothing contained in this Paragraph 16.4 shall be deemed to
deny Tenant its right to recover awards made by the condemning authority for
moving costs, relocation costs, and costs attributable to goodwill and leasehold
improvements installed by Tenant.
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17. Liens.
17.1 Premises to Be Free of Liens. Tenant shall pay for all labor
and services performed for, and all materials used by or furnished to Tenant,
Tenant's agents, or any contractor employed by Tenant with respect to the
Premises. Tenant shall indemnify, defend and hold Landlord harmless from and
keep the Project free from any liens, claims, demands, encumbrances, or
judgments, including all costs, liabilities and attorneys' fees with respect
thereto, created or suffered by reason of any labor or services performed for,
or materials used by or furnished to Tenant or Tenant's agents or any contractor
employed by Tenant with respect to the Premises. Landlord shall have the right,
at all times, to post and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper for the protection of
Landlord and the Premises, Building, Common Area and Land, and any other party
having an interest therein, from mechanics' and materialmen's liens, including
without limitation a notice of nonresponsibility. In the event Tenant is
required to post an improvement bond with a public agency in connection with any
work performed by Tenant on or to the Premises, Tenant shall include Landlord as
an additional obligee.
17.2 Notice of Lien; Bond. Should any claims of lien be filed
against, or any action be commenced affecting the Premises, Tenant's interest in
the Premises or any other portion of the Project, Tenant shall give Landlord
notice of such lien or action within five (5) business days after Tenant
receives notice of the filing of the lien or the commencement of the action. In
the event that Tenant shall not, within twenty (20) days following the
imposition of any such lien, cause such lien to be released of record by payment
or posting of a proper bond, Landlord shall have, in addition to all other
remedies provided herein and by law, the right, but not the obligation, to cause
the same to be released by such means as Landlord shall deem proper, including
payment of the claim giving rise to such lien or posting of a proper bond. All
such sums paid by Landlord and all expenses incurred by Landlord in connection
therewith, including attorneys' fees and costs, shall be payable to Landlord by
Tenant as Additional Rent on demand.
18. Landlord's Right of Access to Premises. Landlord reserves and shall
have the right and Tenant and Tenant's agents shall permit Landlord and
Landlord's agents to enter the Premises at any reasonable time during normal
business hours (except in the event of an emergency) and subject to any security
measures of Tenant that are applied to visitors to the Premises on a
non-discriminatory basis for the purpose of (I) inspecting the Premises, (ii)
performing Landlord's maintenance and repair responsibilities set forth herein,
(iii) posting notices of nonresponsibility, (iv) placing upon the Premises at
any time "For Sale" signs, (v) placing on the Premises ordinary "For Lease"
signs at any time within one hundred eighty (180) days prior to Lease
Termination, or at any time Tenant is in uncured default hereunder, or at such
other times as agreed to by Landlord and Tenant, (vi) protecting the Premises in
the event of an emergency and (vii) exhibiting the Premises to prospective
purchasers or lenders at any reasonable time or to prospective tenants within
one hundred eighty (180) days prior to Lease Termination. In the event of an
emergency, Landlord shall have the right to use any and all means which Landlord
reasonably may deem proper to gain access to the Premises. Any entry to the
Premises by Landlord or Landlord's agents in accordance with this Paragraph 18
or any other provision of this Lease shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of
the Premises, or an eviction of Tenant from the Premises or any portion thereof
nor give Tenant the right to abate the Rentals payable under this Lease. Except
to the extent caused by the negligence or willful misconduct of Landlord, its
agents, employees, contractors or invitees, Tenant hereby waives any claims for
damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned by Landlord's or Landlord's agents' entry into the
Premises as permitted by this Paragraph 18 or any other provision of this Lease.
Notwithstanding anything to the contrary contained in this Lease, Landlord and
Landlord's agents, except in the case of emergency, shall provide Tenant with
twenty-four (24) hours' notice prior to entry of the Premises. Any entry by
Landlord and Landlord's agents shall not impair Tenant's operations more than
reasonably necessary, and Tenant shall have the right to have an employee
accompany Landlord at all times that Landlord is present on the Premises.
19. Landlord's Right to Perform Tenant's Covenants. Except as otherwise
expressly provided herein, if Tenant shall at any time fail to make any payment
or perform any other act required to be made or performed by Tenant under this
Lease, Landlord may upon ten (10) days written notice to Tenant, but shall not
be obligated to and without waiving or releasing Tenant from any obligation
under this Lease, make such payment or perform such other act to the extent that
Landlord may deem desirable, and in connection therewith, pay expenses and
employ counsel.
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All reasonable sums so paid by Landlord and all penalties, interest and
reasonable costs in connection therewith shall be due and payable by Tenant as
Additional Rent upon demand.
20. Lender Requirements.
20.1 Subordination. This Lease, at Landlord's option, shall be
subject and subordinate to the lien of any mortgages or deeds of trust
(including all advances thereunder, renewals, replacements, modifications,
supplements, consolidations, and extensions thereof) in any amount(s) whatsoever
now or hereafter placed on or against or affecting the Premises, Building or
Land, or Landlord's interest or estate therein without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination. If any mortgagee or beneficiary shall elect to
have this Lease prior to the lien of its mortgage or deed of trust, and shall
give written notice thereof to Tenant, this Lease shall be deemed prior to such
mortgage or deed of trust, whether this Lease is dated prior or subsequent to
the date of such mortgage or deed of trust or the date of the recording thereof.
20.2 Subordination Agreements. Tenant shall execute and deliver,
without charge therefor, such further instruments evidencing subordination of
this Lease to the lien of any mortgages or deeds of trust affecting the
Premises, Building or Land as may be required by Landlord within ten (10) days
following Landlord's request therefor; provided that such mortgagee or
beneficiary under such mortgage or deed of trust agrees in writing that this
Lease shall not be terminated or modified in any material way in the event of
any foreclosure if Tenant is not in default under this Lease. Failure of Tenant
to execute such instruments evidencing subordination of this Lease shall
constitute a Default by Tenant hereunder.
20.3 Approval by Lenders. Tenant recognizes that the provisions of
this Lease may be subject to the approval of any financial institution that may
make a loan secured by a new or subsequent deed of trust or mortgage affecting
the Premises, Building or Land. If the financial institution should require, as
a condition to such financing, any modifications of this Lease in order to
protect its security interest in the Premises including without limitation,
modification of the provisions relating to damage to and/or condemnation of the
Premises, Tenant agrees to negotiate in good faith with Landlord and such
financial institution to agree on mutually acceptable modifications and execute
the appropriate amendments; provided, however, that no modification shall
substantially change the size, location or dimension of the Premises, or
increase the Rentals payable by Tenant hereunder. If Tenant refuses to execute
any such amendment, Landlord may, in Landlord's reasonable discretion, terminate
this Lease.
20.4 Attornment. In the event of foreclosure or the exercise of
the power of sale under any mortgage or deed of trust made by Landlord and
covering the Premises, Building or Land, Tenant shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease, provided such purchaser expressly agrees in writing to be
bound by the terms of the Lease, including, but not limited to, the quiet
enjoyment provisions of Paragraph 40.
20.5 Estoppel Certificates and Financial Statements.
(a Delivery by Tenant. Tenant shall, within ten
(10) business days following request by Landlord therefor and without charge,
execute and deliver to Landlord any and all documents, estoppel certificates,
and current financial statements of Tenant reasonably requested by Landlord in
connection with the sale or financing of the Premises, Building or Land, or
requested by any lender making a loan affecting the Premises, Building or Land.
Landlord may require that Tenant in any estoppel certificate shall (I) certify
that this Lease is unmodified and in full force and effect (or, if modified,
state the nature of such modification and certify that this Lease, as so
modified, is in full force and effect) and has not been assigned, (ii) certify
the date to which Rentals are paid in advance, if any, (iii) acknowledge that
there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specify such defaults if claimed, (iv) evidence the
status of this Lease as may be required either by a lender making a loan to
Landlord to be secured by a deed of trust or mortgage covering the Premises,
Building or Land or a purchaser of the Premises, Building or Land from Landlord,
(v) warrant that in the event any beneficiary of any security instrument
encumbering the Premises, Building or Land forecloses on the security instrument
or sells the Premises, Building or Land pursuant to any power of sale contained
in such security instrument, such beneficiary shall not be liable for the
Security Deposit, unless the Security Deposit actually has been received by the
beneficiary from
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Landlord, (vi) certify the date Tenant entered into occupancy of the Premises
and that Tenant is conducting business at the Premises, (vii) certify that all
improvements to be constructed on the Premises by Landlord have been
substantially completed except for punch list items which do not prevent Tenant
from using the Premises for its intended use, and (viii) certify such other
matters relating to the Lease and/or Premises as may be reasonably requested by
a lender making a loan to Landlord or a purchaser of the Premises, Building or
Land from Landlord. Any such estoppel certificate may be conclusively relied
upon by any prospective purchaser or encumbrancer of the Premises, Building or
Land. Any financial statements of Tenant shall include an opinion of a certified
public accountant (if available) and a balance sheet and profit and loss
statement for the most recent fiscal year, or a reasonable substitute for the
form of such financial information, all prepared in accordance with generally
accepted accounting principles consistently applied.
(b Nondelivery by Tenant. Tenant's failure to
deliver an estoppel certificate as required pursuant to Paragraph 20.5(a) above
shall be conclusive upon Tenant that (I) this Lease is in full force and effect,
without modification except as may be represented by Landlord and has not been
assigned, (ii) there are now no uncured defaults in Landlord's performance,
(iii) no Rentals have been paid in advance except those that are set forth in
this Lease, (iv) no beneficiary of any security instrument encumbering the
Premises, Building or Land shall be liable for the Security Deposit in the event
of a foreclosure or sale under such security instrument, unless the Security
Deposit actually has been received by the beneficiary from Landlord, (v) the
improvements to be constructed on the Premises by Landlord have been
substantially completed except for punch list items which do not prevent Tenant
from using the Premises for its intended use, and (vi) Tenant has entered into
occupancy of the Premises on such date as may be represented by Landlord and is
open and conducting business at the Premises. Tenant's failure to deliver any
financial statements, estoppel certificates or other documents as required
pursuant to Paragraph 20.5(a) above shall be a Default by Tenant.
21. Holding Over. This Lease shall terminate without further notice at
the expiration of the Lease Term. It is the desire of Landlord either to enter
into a new lease with Tenant for the Premises prior to the expiration of the
Lease Term, or to have Tenant vacate the Premises upon expiration of the Lease
Term pursuant to Paragraph 35 below. Therefore, any holding over by Tenant after
Lease Termination shall not constitute a renewal or extension of the Lease Term,
nor give Tenant any rights in or to the Premises except as expressly provided in
this Lease. Any holding over after Lease Termination with the consent of
Landlord shall be construed to be a tenancy from month to month, at one hundred
fifty percent (150%) of the monthly Rent for the month preceding Lease
Termination in addition to all Additional Rent payable hereunder, and shall
otherwise be on the terms and conditions herein specified insofar as applicable.
If Tenant remains in possession of the Premises after Lease Termination without
Landlord's consent, Tenant shall indemnify, defend and hold Landlord harmless
from and against any loss, damage, expense, claim or liability resulting from
Tenant's failure to surrender the Premises, including without limitation, any
claims made by any succeeding tenant based on delay in the availability of the
Premises.
22. Notices. Any notice required or desired to be given under this Lease
shall be in writing, and all notices shall be given by personal delivery or
mailing. All notices personally given on Tenant must be delivered to a corporate
officer, if available, of Tenant if Tenant is a corporation, or on any one
signatory party if more than one party signs this Lease on behalf of Tenant; any
notice so given shall be binding upon all signatory parties as if served upon
each such party personally. Any notice given pursuant to this Paragraph 22 shall
be deemed to have been given when personally delivered, or if mailed, when three
(3) business days have elapsed from the time when such notice was deposited in
the United States mail, certified or registered mail and postage prepaid,
addressed to the party at the last address given for purposes of notice pursuant
to the provisions of this Paragraph 22. At the date of execution of this Lease,
the addresses of Landlord and Tenant are set forth in Paragraph 1.12 above.
23. Attorneys' Fees. In the event either party hereto shall bring any
action or legal proceeding for damages for an alleged breach of any provision of
this Lease, to recover Rentals, to enforce an indemnity, defense or hold
harmless obligation, to terminate the tenancy of the Premises, or to enforce,
protect, interpret, or establish any term, condition, or covenant of this Lease
or right or remedy of either party, the prevailing party shall be entitled to
recover, as a part of such action or proceeding, reasonable attorneys' fees and
court costs, including reasonable attorneys' fees and costs for appeal, as may
be fixed by the court or jury. Notwithstanding anything to the contrary
contained in this Lease, "prevailing party" as used in this paragraph shall
include the party who dismisses an action for recovery hereunder in exchange for
sums allegedly due, performance of covenants allegedly breached or
considerations substantially equal to the relief sought in the action.
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24. Assignment, Subletting and Hypothecation.
24.1 In General. Tenant shall not voluntarily sell, assign or
transfer all or any part of Tenant's interest in this Lease or in the Premises
or any part thereof, sublease all or any part of the Premises, or permit all or
any part of the Premises to be used by any person or entity other than Tenant or
Tenant's employees, except as specifically provided in this Paragraph 24.
24.2 Voluntary Assignment and Subletting.
(a Notice to Landlord. Tenant shall, by written
notice, advise Landlord of Tenant's desire on a stated date (which date shall
not be less than fifteen (15) days nor more than ninety (90) days after the date
of Tenant's notice) to assign this Lease or to sublet all or any part of the
Premises for any part of the Lease Term. Said notice shall state that the notice
constitutes an offer to terminate the Lease pursuant to Paragraph 24.2(b) if the
notice applies to a proposed assignment of the Lease or Tenant's interest
herein. Tenant's notice shall state the name, legal composition and address of
the proposed assignee or subtenant, and Tenant shall provide the following
information to Landlord with said notice: a true and complete copy of the
proposed assignment agreement or sublease; a financial statement of the proposed
assignee or subtenant prepared in accordance with generally accepted accounting
principles within one year prior to the proposed effective date of the
assignment or sublease; the nature of the proposed assignee's or subtenant's
business to be carried on in the Premises; the payments to be made or other
consideration to be given on account of the assignment or sublease; a current
financial statement of Tenant; and such other pertinent information as may be
requested by Landlord, all in sufficient detail to enable Landlord to evaluate
the proposed assignment or sublease and the prospective assignee or subtenant.
Tenant's notice shall not be deemed to have been served or given until such time
as Tenant has provided Landlord with all information reasonably requested by
Landlord pursuant to this Paragraph 24.2. Tenant shall immediately notify
Landlord of any modification to the proposed terms of such assignment or
sublease. Tenant may withdraw its notice at any time prior to or after exercise
by Landlord of Landlord's right to terminate as described in Paragraph 24.2(b).
(b Offer to Terminate. If Tenant notifies Landlord
of its desire to assign this Lease or Tenant's interest herein, Tenant's notice
shall constitute an offer to terminate this Lease and Landlord shall have the
right, to be exercised by giving written notice to Tenant within fifteen (15)
days after receipt of Tenant's notice, to terminate the Lease. If Landlord
elects to terminate, then within ten (10) days after receipt of Landlord's
election, Tenant shall have the right to rescind its request to assign, and this
Lease shall continue in full force and effect. If Tenant does not rescind its
request, this Lease shall terminate on the date stated in the notice given by
Tenant pursuant to Paragraph 24.2(a), subject to any obligations which have
accrued and are unfulfilled as of such date.
(c Landlord's Consent. If Landlord does not
exercise its right to terminate pursuant to Paragraph 24.2(b) within fifteen
(15) days after receipt of Tenant's notice or if Tenant proposes a sublease,
Landlord shall not unreasonably withhold or delay its consent to the proposed
assignment or subletting, on the terms and conditions specified in said notice.
If Tenant's notice fails to state that it constitutes an offer to terminate the
Lease as may be required pursuant to Paragraph 24.2(a), such notice shall be
deemed insufficient for the purposes of this Paragraph 24.2, and Landlord may
withhold its consent to the proposed assignment in Landlord's absolute
discretion. Without otherwise limiting the criteria upon which Landlord may
withhold its consent to any proposed assignment or sublease, if Landlord
withholds its consent where Tenant is in default at the time of the giving of
Tenant's notice or at any time thereafter, or where the net worth of the
proposed assignee (according to generally accepted accounting principles) is
less than the greater of (I) the net worth of Tenant immediately prior to the
assignment (ii) or the net worth of Tenant at the time this Lease is executed,
such withholding of consent shall be presumptively reasonable. Fifty percent
(50%) of any and all rent paid by an assignee or subtenant in excess of the
Rentals to be paid under this Lease (prorated in the event of a sublease of less
than the entire Premises), after Tenant's deduction therefrom of all reasonable
costs to effect the assignment or subletting, including without limitation,
brokerage commissions, attorneys' fees, and the cost of leasehold improvements
or alterations installed or redecorating performed by Tenant for the sublessee,
shall be paid directly to Landlord, as Additional Rent, at the time and place
specified in this Lease. For the purposes of this Paragraph 24, the term "rent"
shall include any consideration of any kind received, or to be received, by
Tenant from an assignee or subtenant, if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not
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limited to key money, bonus money, and payments (in excess of the fair market
value thereof) for Tenant's assets, fixtures, trade fixtures, inventory,
accounts, goodwill, equipment, furniture, general intangibles, and any capital
stock or other equity ownership interest of Tenant. Any assignment or subletting
without Landlord's consent shall be voidable at Landlord's option, and shall
constitute a Default by Tenant. Landlord's consent to any one assignment or
sublease shall not constitute a waiver of the provisions of this Paragraph 24 as
to any subsequent assignment or sublease nor a consent to any subsequent
assignment or sublease; further, Landlord's consent to an assignment or sublease
shall not release Tenant from Tenant's obligations under this Lease, and Tenant
shall remain jointly and severally liable with the assignee or subtenant.
(d Assumption of Obligations. In the event
Landlord consents to any assignment, such consent shall be conditioned upon the
assignee expressly assuming and agreeing to be bound by each of Tenant's
covenants, agreements and obligations contained in this Lease, pursuant to a
written assignment and assumption agreement in a form reasonably approved by
Landlord. Landlord's consent to any assignment or sublease shall be evidenced by
Landlord's signature on said assignment and assumption agreement or on said
sublease or by a separate written consent. In the event Landlord consents to a
proposed assignment or sublease, such assignment or sublease shall be valid and
the assignee or subtenant shall have the right to take possession of the
Premises only if an executed original of the assignment or sublease is delivered
to Landlord, and such document contains the same terms and conditions as stated
in Tenant's notice to Landlord given pursuant to Paragraph 24.2(a) above, except
for any such modifications to which Landlord has consented in writing.
24.3 Collection of Rent. Tenant hereby irrevocably gives to and
confers upon Landlord, as security for Tenant's obligations under this Lease,
the right, power and authority to collect all rents from any assignee or
subtenant of all or any part of the Premises as permitted by this Paragraph 24,
or otherwise, and Landlord, as assignee of Tenant, or a receiver for Tenant
appointed on Landlord's application, may collect such rent and apply it toward
Tenant's obligations under this Lease; provided, however, that until the
occurrence of any Default by Tenant, subject to applicable cure periods, or
except as provided by the provisions of Paragraph 24.2(C) above, Tenant shall
have the right to collect such rent. Upon the occurrence of any Default by
Tenant, Landlord may at any time without notice in Landlord's own name sue for
or otherwise collect such rent, including rent past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
reasonable attorneys' fees, toward Tenant's obligations under this Lease.
Landlord's collection of such rents shall not constitute an acceptance by
Landlord of attornment by such subtenants. In the event of a Default by Tenant,
Landlord shall have all rights provided by this Lease and by law, and Landlord
may, upon re-entry and taking possession of the Premises, eject all parties in
possession or eject some and not others, or eject none, as Landlord shall
determine in Landlord's sole discretion.
24.4 Corporations and Partnerships. If Tenant is a partnership,
any withdrawal or substitution (whether voluntary, involuntary, or by operation
of law and whether occurring at one time or over a period of time) of any
partner(s) owning fifty percent (50%) or more (cumulatively) of the partnership,
any assignment(s) of fifty percent (50%) or more (cumulatively) of any interest
in the capital or profits of the partnership, or the dissolution of the
partnership shall be deemed an assignment of this Lease requiring the prior
written consent of Landlord. If Tenant is a corporation, any dissolution,
merger, consolidation or other reorganization of Tenant, any sale or transfer
(or cumulative sales or transfers) of the capital stock of Tenant in excess of
fifty percent (50%), or any sale (or cumulative sales) of all of the assets of
Tenant shall be deemed an assignment of this Lease requiring the prior written
consent of Landlord. Any such withdrawal or substitution of partners or
assignment of any interest in or dissolution of a partnership tenant, and any
such sale of stock or assets of a corporate tenant without the prior written
consent of Landlord shall be a Default by Tenant hereunder. The foregoing
notwithstanding, the sale or transfer of any or all of the capital stock of a
corporation, the capital stock of which is now or hereafter becomes publicly
traded, shall not be deemed an assignment of this Lease.
Notwithstanding anything to the contrary contained in this Lease, Tenant,
without Landlord's prior written consent (but with notice to Landlord), may
sublet the Premises or assign this Lease to (I) a subsidiary, affiliate,
division or corporation controlled by or under common control with Tenant; (ii)
a successor corporation related to Tenant by merger, consolidation,
non-bankruptcy reorganization or government action; or (iii) a purchaser of
substantially all of Tenant's assets located at the Premises, provided that in
either of the latter two instances the successor or purchaser, after the
transaction, has a net worth not less than the net worth of Tenant at the time
that Tenant executes this Lease (each,
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a "Permitted Assignee"). Notwithstanding that a Transfer is made to a Permitted
Assignee, Tenant shall not be released from any of its obligations under this
Lease and such Permitted Assignee shall be required to assume all of Tenant's
obligations hereunder as a condition to such transfer being permitted without
Landlord's prior written consent.
24.5 Reasonable Provisions. Tenant expressly agrees that the
provisions of this Paragraph 24 are not unreasonable standards or conditions for
purposes of Section 1951.4(b)(2) of the California Civil Code, as amended from
time to time, under bankruptcy laws, or for any other purpose.
24.6 Attorneys' Fees. Tenant shall pay, as Additional Rent,
Landlord's reasonable attorneys' fees, not to exceed $3,000, for reviewing,
investigating, processing and/or documenting any requested assignment or
sublease, whether or not Landlord's consent is granted.
24.7 Involuntary Transfer. No interest of Tenant in this Lease
shall be assignable involuntarily or by operation of law, including, without
limitation, the transfer of this Lease by testacy or intestacy. Each of the
following acts shall be considered an involuntary assignment:
(a If Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or a proceeding under any
bankruptcy law is instituted in which Tenant is the bankrupt; or, if Tenant is a
partnership or consists of more than one person or entity, if any partner of the
partnership or other person or entity is or becomes bankrupt or insolvent, or
makes an assignment for the benefit of creditors;
(b Levy of a writ of attachment or execution on
this Lease;
(c Appointment of a receiver with authority to take
possession of the Premises in any proceeding or action to which Tenant is a
party; or
(d Foreclosure of any lien affecting Tenant's
interest in the Premises, which lien was not consented to by Landlord
pursuant to Paragraph 24.9.
An involuntary assignment shall constitute a Default by Tenant and Landlord
shall have the right to terminate this Lease, in which case this Lease shall not
be treated as an asset of Tenant. In the event the Lease is not terminated, the
provisions of Paragraph 24.2(C) regarding rents paid by an assignee or subtenant
shall apply. If a writ of attachment or execution is levied on this Lease, or if
any involuntary proceeding in bankruptcy is brought against Tenant or a receiver
is appointed, Tenant shall have sixty (60) days in which to cause the attachment
or execution to be removed, the involuntary proceeding dismissed, or the
receiver removed.
24.8 Hypothecation. Tenant shall not hypothecate, mortgage or
encumber Tenant's interest in this Lease or in the Premises or otherwise use
this Lease as a security device in any manner without the consent of Landlord,
which consent Landlord may withhold in its sole and absolute discretion. Consent
by Landlord to any such hypothecation or creation of a lien or mortgage shall
not constitute consent to an assignment or other transfer of this Lease
following foreclosure of any permitted lien or mortgage.
24.9 Binding on Successors. The provisions of this Paragraph 24
expressly apply to all heirs, successors, sublessees, assignees and transferees
of Tenant.
25. Successors. Subject to the provisions of Paragraph 24 above and
Paragraph 30.2(a) below, the covenants, conditions, and agreements contained in
this Lease shall be binding on the parties hereto and on their respective heirs,
successors and assigns.
26. Landlord Default; Mortgagee Protection. Landlord shall not be in
default under this Lease unless Tenant shall have given Landlord written notice
of the breach and, within thirty (30) days after notice, Landlord has not cured
the breach or, if the breach is such that it cannot reasonably be cured under
the circumstances within thirty (30) days, has not commenced diligently to
prosecute the cure to completion. Any money judgment obtained by Tenant based
upon Landlord's breach of this Lease shall be satisfied only out of the proceeds
of the sale or disposition of
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Landlord's interest in the Premises (whether by Landlord or by execution of
judgment). In the event of any default on the part of Landlord under this Lease,
Tenant shall give notice by registered or certified mail to any beneficiary of a
deed of trust or any mortgagee of a mortgage affecting the Premises, Building or
Land whose address shall have been furnished to Tenant, and shall offer such
beneficiary or mortgagee a reasonable opportunity to cure the default, including
time to obtain possession of the Premises by power of sale or judicial
foreclosure, if such should prove necessary to effect a cure.
27. Exhibits. All exhibits attached to this Lease shall be deemed to be
incorporated herein by the individual reference to each such exhibit, and all
such exhibits shall be deemed to be a part of this Lease as though set forth in
full in the body of the Lease.
28. Surrender of Lease Not Merger. The voluntary or other surrender of
this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger
and shall, at the option of Landlord, terminate all or any existing subleases or
subtenants, or may, at the option of Landlord, operate as an assignment to
Landlord of any or all such subleases or subtenants.
29. Waiver. The waiver by Landlord of any breach of any term, covenant or
condition herein contained (or the acceptance by Landlord of any performance by
Tenant after the time the same shall become due) shall not be deemed to be a
waiver of such term, covenant or condition or any subsequent breach thereof or
of any other term, covenant or condition herein contained, unless otherwise
expressly agreed to by Landlord in writing. The acceptance by Landlord of any
sum less than that which is required to be paid by Tenant shall be deemed to
have been received only on account of the obligation for which it is paid (or
for which it is allocated by Landlord, in Landlord's reasonable discretion, if
Tenant does not designate the obligation as to which the payment should be
credited), and shall not be deemed an accord and satisfaction notwithstanding
any provisions to the contrary written on any check or contained in any letter
of transmittal. The acceptance by Landlord of any sum tendered by a purported
assignee or transferee of Tenant shall not be deemed a consent by Landlord to
any assignment or transfer of Tenant's interest herein. No custom or practice
which may arise between the parties hereto in the administration of the terms of
this Lease shall be construed as a waiver or diminution of Landlord's right to
demand performance by Tenant in strict accordance with the terms of this Lease.
30. General.
30.1 Captions and Headings. The captions and paragraph headings
used in this Lease are for convenience of reference only. They shall not be
construed to limit or extend the meaning of any part of this Lease, and shall
not be deemed relevant in resolving any question of interpretation or
construction of any paragraph of this Lease.
30.2 Definitions.
(a Landlord. The term Landlord as used in this
Lease, so far as the covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner at the time in
question of the fee title to the Premises. In the event of any transfer(s) of
such interest, the Landlord herein named (and in case of any subsequent
transfers or conveyances, the then grantor) shall have no further liability
under this Lease to Tenant except as to matters of liability which have accrued
and are unsatisfied as of the date of such transfer, it being intended that the
covenants and obligations contained in this Lease on the part of Landlord shall
be binding on Landlord and its successors and assigns only during and in respect
of their respective periods of ownership of the fee; provided that any funds in
the possession of Landlord or the then grantor and as to which Tenant has an
interest, less any deductions permitted by law or this Lease, shall be turned
over to the grantee. The covenants and obligations contained in this Lease on
the part of Landlord shall, subject to the provisions of this Paragraph 30.2(a),
be binding upon each Landlord and such Landlord's heirs, personal
representatives, successors and assigns only during its respective period of
ownership. Except as provided in this Paragraph 30.2(a), this Lease shall not be
affected by any transfer of Landlord's interest in the Premises, and Tenant
shall attorn to any transferee of Landlord provided that all of Landlord's
obligations hereunder are assumed in writing by such transferee.
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(b Agents. For purposes of this Lease and without
otherwise affecting the definition of the word "agent" or the meaning of an
"agency," the term "agents" shall be deemed to include the agents, employees,
officers, directors, servants, invitees, contractors, successors,
representatives, subcontractors, guests, customers, suppliers, partners,
affiliated companies, and any other person or entity related in any way to the
respective party, Tenant or Landlord.
(c Interpretation of Terms. The words "Landlord"
and "Tenant" as used herein shall include the plural as well as the singular.
Words in the neuter gender include the masculine and feminine and words in the
masculine or feminine gender include the neuter.
30.3 Copies. Any executed copy of this Lease shall be deemed an
original for all purposes.
30.4 Time of Essence. Time is of the essence as to each and every
provision in this Lease requiring performance within a specified time.
30.5 Severability. In case any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein. However, if Tenant's obligation to pay the Rentals is
determined to be invalid or unenforceable, this Lease at the option of Landlord
shall terminate.
30.6 Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
30.7 Joint and Several Liability. If Tenant is more than one
person or entity, each such person or entity shall be jointly and severally
liable for the obligations of Tenant hereunder. If Tenant is a husband and wife,
the obligations hereunder shall extend to their sole and separate property as
well as community property.
30.8 Construction of Lease Provisions. Although printed provisions
of this Lease were prepared by Landlord, this Lease shall not be construed
either for or against Tenant or Landlord, but shall be construed in accordance
with the general tenor of the language to reach a fair and equitable result.
30.9 Tenant's Financial Statements. Tenant hereby warrants that
all financial statements delivered by Tenant to Landlord are true, correct, and
complete in all material respects, and prepared in accordance with generally
accepted accounting principles, except that all footnotes required by GAAP may
not be included. Tenant acknowledges and agrees that Landlord is relying on such
financial statements in accepting this Lease, and that a breach of Tenant's
warranty as to such financial statements shall constitute a Default by Tenant.
Notwithstanding anything to the contrary contained in this Lease, Landlord shall
keep confidential all such financial information received from Tenant, except
that Landlord may provide such financial information to Landlord's lenders or
prospective lenders with respect to the Premises, subject to their agreement to
maintain the information as confidential.
30.10 Withholding of Landlord's Consent. Notwithstanding any other
provision of this Lease where Tenant is required to obtain the consent (whether
written or oral) of Landlord to do any act, or to refrain from the performance
of any act, Tenant agrees that if Tenant is in default with respect to any term,
condition, covenant or provision of this Lease, then Landlord shall be deemed to
have acted reasonably in withholding its consent if said consent is, in fact,
withheld.
31. Signs. Tenant shall not place or permit to be placed any sign or
decoration on the Land or the exterior of the Building or that would be visible
from the exterior of the Building or Premises, without the prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed. Tenant
may place "for lease" signs in connection with efforts to assign or sublease the
Premises, subject to the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed; provided that all such signs shall be
removed not later than the one hundred eightieth (180th) day prior to Lease
Termination. In no event shall any such sign revolve, rotate, move or create the
illusion of revolving, rotating or moving or be internally illuminated and there
shall be no exterior
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spotlighting or other illumination on any such sign. Tenant, upon written notice
by Landlord, shall immediately remove any of Tenant's signs or decorations that
are visible from the exterior of the Building or Premises or that Tenant has
placed or permitted to be placed on the Land or the exterior of the Building
without the prior written consent of Landlord, or which remain beyond the one
hundred eightieth (180th) day prior to Lease Termination. (The sign displaying
Tenant's name should be permitted to remain for the duration of the term of the
lease.) If Tenant fails to so remove such sign or decoration within five (5)
days after Landlord's written notice, Landlord may enter the Premises and remove
such sign or decoration and Tenant shall pay Landlord, as Additional Rent upon
demand, the cost of such removal. All signs placed on the Premises, Building or
Land by Tenant shall comply with all recorded documents affecting the Premises,
including but not limited to any Declaration of Conditions, Covenants and
Restrictions; the sign criteria attached hereto as Exhibit E if applicable (as
the same may be amended from time to time); and applicable statutes, ordinances,
rules and regulations of governmental agencies having jurisdiction thereof. At
Landlord's option, Tenant shall at Lease Termination remove any sign which it
has placed on the Premises, Land or the Building, and shall, at its sole cost,
repair any damage caused by the installation or removal of such sign.
32. Landlord as Party Defendant. If, by reason of any act or omission by
Tenant or Tenant's agents, Landlord is made a party defendant concerning this
Lease, or any portion of the Project, Tenant shall indemnify Landlord against
all liability actually incurred (or threatened against) Landlord as a party
defendant, including all damages, costs and reasonable attorneys' fees.
33. Landlord Not a Trustee. Landlord shall not be deemed to be a trustee
of any funds paid to Landlord by Tenant (or held by Landlord for Tenant)
pursuant to this Lease, including without limitation the Security Deposit.
Landlord shall not be required to keep any such funds separate from Landlord's
general funds or segregated from any funds paid to Landlord by (or held by
Landlord for) other tenants of the Building. Any funds held by Landlord pursuant
to this Lease shall not bear interest.
34. Interest. Any payment due from Tenant to Landlord, except for Rent
received by Landlord within thirty (30) days after the same is due, shall bear
interest from the date due until paid, at an annual rate equal to the greater
of: ten percent (10%); or five percent (5%) plus the rate established by the
Federal Reserve Bank of San Francisco, as of the twenty-fifth (25th) day of the
month immediately preceding the due date, on advances to member banks under
Sections 13 and 13(a) of the Federal Reserve Act, as now in effect or hereafter
from time to time amended. In addition, Tenant shall pay all costs and
reasonable attorneys' fees incurred by Landlord in the collection of such
amounts.
35. Surrender of Premises. On the last day of the Lease Term or upon the
sooner termination of this Lease, Tenant shall, to the reasonable satisfaction
of Landlord, surrender the Premises to Landlord in good condition (reasonable
wear and tear, acts of God, casualty, condemnation, Hazardous Materials other
than those stored, used or disposed of by Tenant, its agents, employees,
contractors or invitees, and alterations concerning which Landlord has not
reserved the right to require removal excepted) with all originally painted
interior walls washed, or re-painted if marked or damaged, and other interior
walls cleaned and repaired or replaced, all carpets cleaned and in good
condition, the air conditioning, ventilating and heating equipment inspected,
serviced and repaired by a reputable and licensed service firm (unless Landlord
has elected to maintain heating and air conditioning systems pursuant to
Paragraph 10.1 above), and all floors cleaned and waxed. Tenant shall remove all
of Tenant's personal property and trade fixtures from the Premises, and all
property not so removed shall be deemed abandoned by Tenant. Furthermore, Tenant
shall immediately repair all damage to the Project caused by any such removal.
If the Premises are not so surrendered at Lease Termination, Tenant shall
indemnify, defend and hold Landlord harmless from and against any loss, damage,
expense, claim or liability resulting from delay by Tenant in so surrendering
the Premises including, without limitation, any claims made by any succeeding
tenant or losses to Landlord due to lost opportunities to lease to succeeding
tenants.
36. Labor Disputes. In the event Tenant shall in any manner be involved
in or be the object of a labor dispute which subjects the Premises or any part
of the Project to any picketing, work stoppage or other concerted activity which
in the reasonable opinion of Landlord is detrimental to the operation of the
Project or its tenants, Landlord shall have the right to require Tenant, at
Tenant's own expense and within a reasonable period of time, to use Tenant's
best efforts to either resolve such labor dispute or terminate or control any
such picketing, work stoppage or other concerted activity to the extent
necessary to eliminate any interference with the operation of the Project. To
the extent such labor
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dispute interferes with the performance of Landlord's duties hereunder, Landlord
shall be excused from the performance of such duties. Failure by Tenant to use
its best efforts to so resolve such dispute or terminate or control such
picketing, work stoppage or other concerted activity within a reasonable period
of time shall constitute a Default by Tenant hereunder. Nothing contained in
this Paragraph 36 shall be construed as placing Landlord in an employer/employee
relationship with any of Tenant's employees or with any other employees who may
be involved in such labor dispute.
37. No Partnership or Joint Venture. Nothing in this Lease shall be
construed as creating a partnership or joint venture between Landlord, Tenant,
or any other party, or cause Landlord to be responsible for the debts or
obligations of Tenant or any other party.
38. Entire Agreement. Any agreements, warranties, or representations not
expressly contained herein shall in no way bind either Landlord or Tenant, and
Landlord and Tenant expressly waive all claims for damages by reason of any
statement, representation, warranty, promise or agreement, if any, not contained
in this Lease. This Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements and understandings, whether
written or oral, between Landlord and its agents and Tenant and its agents with
respect to the Project or this Lease. This Lease constitutes the entire
agreement between the parties hereto and no addition to, or modification of, any
term or provision of this Lease shall be effective until and unless set forth in
a written instrument signed by both Landlord and Tenant.
39. Submission of Lease. Submission of this instrument for Tenant's
examination or execution does not constitute a reservation of space nor an
option to lease. This instrument shall not be effective until executed by both
Landlord and Tenant. Execution of this Lease by Tenant shall constitute an offer
by Tenant to lease the Premises, which offer shall be deemed accepted by
Landlord when this Lease is executed by Landlord and delivered to Tenant.
40. Quiet Enjoyment. Landlord covenants and agrees with Tenant that upon
Tenant paying Rentals and performing its covenants and conditions under the
Lease, Tenant shall and may peaceably and quietly have, hold and enjoy the
Premises for the Lease Term, subject, however, to the terms of this Lease and of
any mortgages or deeds of trust affecting the Premises, and the rights reserved
by Landlord hereunder. Any purchaser upon any foreclosure or exercise of the
power of sale under any mortgage or deed of trust made by Landlord and covering
the Premises, Building or Land to whom Tenant attorns pursuant to Paragraph 20.4
above shall be bound by the terms of this Paragraph 40.
41. Authority. The undersigned parties hereby warrant that they have
proper authority and are empowered to execute this Lease on behalf of the
Landlord and Tenant, respectively. If Tenant is a corporation (or partnership),
each individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of said corporation in accordance with a duly
adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation (or on behalf of said
partnership in accordance with the partnership agreement of such partnership),
and that this Lease is binding upon said corporation (or partnership) in
accordance with its terms. If Tenant is a corporation, and this Lease is not
executed by two corporate officers, Tenant shall, upon execution of this Lease,
deliver to Landlord evidence of the authority of the individual executing this
Lease on behalf of Tenant to execute this Lease on behalf of Tenant. In the
event Tenant should fail to deliver such evidence to Landlord upon execution of
this Lease, Landlord shall not be deemed to have waived its right to require
delivery of such evidence, and at any time during the Lease Term Landlord may
request Tenant to deliver the same, and Tenant agrees it shall thereafter
promptly deliver such evidence to Landlord. If Tenant is a corporation, Tenant
warrants that:
(a Tenant is a valid and existing corporation;
(b Tenant is qualified to do business in California;
(c All fees and all franchise and corporate taxes are paid
to date, and will be paid when due;
(d All required forms and reports will be filed when due;
and
31
<PAGE> 32
(e The signers of this Lease are properly authorized to
execute this Lease.
42. Addendum. Paragraphs 43 through 44 are added hereto and made a
part of this Lease.
IN WITNESS WHEREOF, the parties have executed this Lease effective as of
the date set forth below.
LANDLORD: TENANT :
Realtec Properties I, L.P. @Pos.Com, Inc.
By /s/ Thomas Masters By /s/ Aziz Valliani
------------------------------ --------------------------------
General Partner
Title CEO
-------------------------------
By /s/ Larry Russell By /s/ David Licurse Sr.
------------------------------ --------------------------------
General Partner
Title CFO
-------------------------------
Date 7/7/1999 Date 7/6/1999
------------------------------ --------------------------------
32
<PAGE> 33
ADDENDUM to the certain Lease Agreement dated July 1, 1999, by and between
REALTEC PROPERTIES I, L.P., as Landlord, and @POS.COM, INC. A DELAWARE
CORPORATION, as Tenant, for the premises commonly known as 3051 North First
Street, San Jose, CA 95030
43. OPTION TO EXTEND LEASE TERM. In consideration for Tenant not having been in
default under this Lease more than twice within any one (1) year period during
the Lease Term, Landlord hereby grants to Tenant one (1) option to extend the
Lease Term for a period of five (5) years ("Extended Term"), on the following
terms and conditions:
(a) Tenant must give Landlord notice in writing of its exercise of the
option to extend the Lease Term no earlier than nine (9) months nor later than
six (6) months before the date the Lease Term would end but for said exercise.
Time is of the essence.
(b) Tenant may not extend the Lease Term pursuant to the option granted by
this Paragraph 43 if Tenant has been in default in the performance of any of the
terms and conditions of the Lease more than twice within any one (1) year period
during the Lease Term, or if Tenant shall have assigned or otherwise transferred
its interest in this Lease and/or the Premises whether or not Landlord's consent
to such assignment or transfer has been given. If Tenant is in default under
this Lease on the date that the Extended Term is to commence, then Landlord may
elect to terminate this Lease, notwithstanding any notice given by Tenant of an
exercise of its option to extend.
(c) All terms and conditions of this Lease shall apply during the Extended
Term, except that the Rent for the Extended Term shall be determined in
accordance with Paragraph 44 below.
(d) Once Tenant delivers notice of its exercise of the option to extend
the Lease Term, Tenant may not withdraw such exercise and, subject to the
provisions of this Paragraph 43, such notice shall operate to extend the Lease
Term. Upon the extension of the Lease Term pursuant to this Paragraph 43, the
term "Lease Term" as used in this Lease shall thereafter include the Extended
Term and the Lease Termination date shall be the expiration date of the Extended
Term.
44. RENT DURING THE EXTENDED TERM. If Tenant elects to extend the Lease Term
pursuant to Paragraph 43 above, the annual Rent for the first year of the
Extended Term shall be an amount equal to 100% of the fair market value of the
Premises (together with any applicable cost of living or other rental
adjustments) in relation to market conditions at the time of the extension
(including, but not limited to, rental rates for comparable space with
comparable tenant improvements and taking into consideration any adjustments to
rent based upon direct costs (operating expenses) and taxes, load factors,
financing charges, and/or cost of living or other rental adjustments; the
relative strength of the tenants; the size of the space; and any other factors
which affect market rental values at the time of extension); and provided
further, that the annual Rent for the Extended Term shall in no event be lower
than the Rent for the last Lease Year of the original term. There will be annual
increases of three percent (3%) per annum. Tenant acknowledges that Landlord
shall not be obligated or requested to pay any leasing commissions during or for
the Extended Term. The Rent for the Extended Term shall be determined as
follows:
(a) Mutual Agreement. After timely receipt by Landlord of Tenant's notice
of exercise of the option to extend the Lease Term, Landlord and Tenant shall
have a period of thirty (30) days in which to agree on the Rent for the Extended
Term. If Landlord and Tenant agree on said Rent during that period, they shall
immediately execute an amendment to this Lease stating the Rent for the Extended
Term. If Landlord and Tenant are unable to agree on the Rent for the Extended
Term as aforesaid, Tenant shall have the right to withdraw its election to
extend the Lease Term by written notice to Landlord given five (5) days after
the expiration of said thirty (30) day period, in which event the Lease shall
terminate on the expiration date of the Lease Term.
1
<PAGE> 34
ADDENDUM to the certain Lease Agreement dated July 1, 1999, by and between
REALTEC PROPERTIES I, L.P., as Landlord, and @POS.COM, INC. A DELAWARE
CORPORATION, as Tenant, for the premises commonly known as 3051 North First
Street, San Jose, CA 95030
(b) Appraisal. If Tenant does not withdraw its election to extend the
Lease Term within five (5) days after the expiration of the thirty (30) day
period described in Paragraph 44(a) above, each party, at its cost and by giving
notice to the other party, shall appoint an M.A.I. real estate appraiser, with
at least five (5) years full-time commercial appraisal experience in the area in
which the Premises are located to appraise and set the fair market rental value
of the Premises. If a party does not appoint an appraiser within five (5) days
after the other party has given notice of the name of its appraiser, the single
appraiser appointed shall be the sole appraiser and shall set the fair market
rental value. The cost of such appraiser shall be borne equally by the parties.
If two appraisers are appointed by the parties as provided in this paragraph,
the two appraisers shall meet promptly and attempt to set the fair market value
rental value. If they are unable to agree within twenty (20) days after the last
appraiser has been appointed, then the two appraisers shall attempt to select a
third appraiser meeting the qualifications stated in Paragraph 44(b) above
within ten (10) working days after the last day the two appraisers are given to
set the fair market rental value. If they are unable to agree on the third
appraiser, either of the parties to this Lease, by giving ten (10) days notice
to the other party, may apply to the presiding judge of the Superior Court of
Santa Clara County for a selection of a third appraiser who meets the
qualifications stated above. Each of the parties shall bear one-half (1/2) of
the cost of appointing the third appraiser's fee. The third appraiser, however
selected, shall be a person who has not previously acted in any capacity for
either party. Within twenty (20) days after the selection of the third
appraiser, the majority of the appraisers shall set the fair market rental
value. If the majority of the appraisers are unable to set the fair market
rental value within said twenty (20) day period, the three appraisals shall be
added together and the total divided by three; the resulting quotient shall be
the fair market rental value and shall be deemed incorporated herein, provided,
however, that if any appraisal differs from the median appraisal by amount equal
to more than ten percent (10%) of such median appraisal, that appraisal shall be
disregarded, and the average of the remaining appraisals (or the remaining
appraisal) shall be the fair market rental value. In establishing the fair
market rental value, the appraiser or appraisers shall consider the reasonable
market rental value for the highest and best use of the Premises (including, but
not limited to, rental rates for comparable space with comparable tenant
improvements and any adjustments to rent based upon direct costs (operating
expenses) and taxes, load factors, financing charges, and/or cost of living or
other rental adjustments; the relative strength of the tenants; and of size of
the space); without regard to the existence of this Lease but taking into
consideration the absolute nature of this Lease.
2
<PAGE> 35
ADDENDUM to the certain Lease Agreement dated July 1, 1999, by and between
REALTEC PROPERTIES I, L.P., as Landlord, and @POS.COM, INC. A DELAWARE
CORPORATION, as Tenant, for the premises commonly known as 3051 North First
Street, San Jose, CA 95030
EXHIBITS
A Site Plan Paragraph 1.4 (Building shown cross-hatched
and the Land outlined in red pursuant to
Paragraph 2.1)
B Floor Plan Paragraph 2.1 (Premises shown cross-hatched)
C Improvements Paragraph 2.2
D Commencement Paragraph 3.1
Date Letter
E Sign Criteria Paragraph 31
F Early Occupancy Plan Paragraph 1.6
3
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
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<RECEIVABLES> 6,471,375
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