U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 33-85664
FIBERSTARS, INC.
(Exact name of small business issuer as specified in its charter)
California 94-3021850
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2883 Bayview Drive, Fremont, CA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 490-0719
Securities registered under Section 12(b) of the Exchange Act:
Title of Name of each exchange on
Each Class which registered
Common Stock Nasdaq National Market
Securities registered under section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendments to
this Form 10-KSB. [ ]
Net sales of the registrant for the fiscal year ended December 31, 1998
were $22,682,000.
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $10,298,464 as of March 19, 1999 based upon the
last trading price of the Common Stock of registrant on the Nasdaq National
Market as of that date. This calculation does not reflect a determination that
any person is an affiliate of the registrant for any other purpose.
As of March 19, 1999, there were 3,982,601 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-KSB incorporates information by
reference from registrant's definitive Proxy Statement to be used in connection
with its 1999 Annual Meeting of Shareholders.
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PART I
This 10-KSB contains forward-looking statements. Such statements generally
concern future operating results, capital expenditures, product development and
enhancements, liquidity and strategy. Specific forward-looking statements in
this report include, without limitation, our remarks concerning the evolution of
the fiber optic lighting market, the future size of the fiber optic lighting
market, our expectations concerning the future performance of our recently
completed acquisitions, our expectations regarding future performance of certain
lamp components of our products that have recently experienced problems, the
rate of adoption of fiber optic lighting in Europe and in the United States,
trends in the price and performance of fiber optic lighting products, the future
performance of our lighting products, our relationship with ADLT and future
technologies expected to result from our relationship with ADLT. We may not
update these forward looking statements, and the occurrence of the events
predicted in these statements is subject to a number of risks and uncertainties,
including those discussed in this report. These risks and uncertainties could
cause our actual results to differ materially from the results predicted in our
forward looking statements. You are encouraged to consider all the information
in this report, and in our Annual Report, along with our other periodic reports
on file with the SEC, prior to investing in our stock.
Item 1. Description of Business
Overview
Fiberstars, Inc. ("Fiberstars" or the "Company"), which was incorporated in
California in 1985, develops and markets fiber optic lighting systems, which are
used in a variety of commercial and residential applications. The Company
pioneered the use of fiber optic technology in lighting. By continuing to
improve the price and performance of its products and by expanding its marketing
efforts, Fiberstars has become the world's leading supplier in this emerging
market.
The Company's products often have advantages over conventional lighting in
areas of efficiency, safety, maintenance and beauty, and thus can be used in
place of conventional lighting in a number of applications. By delivering
special lighting effects which conventional lighting cannot match, fiber optic
lighting systems are especially attractive for a wide range of decorative
applications, such as the lighting of swimming pools and spas, signage, "neon"
decoration, landscaping, and other segments within the commercial and
residential markets.
The Company designs, develops and manufactures its fiber optic lighting
systems and distributes its products worldwide, primarily through independent
sales representatives, distributors and swimming pool builders.
Products
Fiberstars' lighting systems combine three types of products -
illuminators, fiber tubing, and fixtures - in configurations which meet the
needs of specific market segments. The electrically powered illuminators
generate and focus light to enter into the ends of optical fiber. Fiber tubing
products connect to the illuminators and are designed to emit light either at
the end of the tube as a spot source of light, or along the length of the tube,
similar in effect to neon lighting. The systems can also include fixtures and
other accessories designed for specific applications.
Illuminators
The Company manufactures a number of different illuminators for use in
different applications. Most commercial illuminators utilize metal halide high
intensity discharge (H.I.D.) lamps to provide long life and maximum brightness.
Some include patented reflectors which have been designed by Fiberstars to
enhance performance. The Company's lower cost illuminators use quartz halogen
lamps, some of which are custom products manufactured to Fiberstars'
specifications. Illuminator advances in 1998 include the Model 601 which
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was released from engineering for shipment in 1999. It provides up to 33% more
light output than our previous high-end illuminator while costing about 50% less
to build.
Fiberstars also introduced a new pool lighting product line in the November
1998 National Spa and Pool Institute trade show. The new line, System 6000,
offers superior lamp life and other characteristics vs. the Company's previous
line.
Fiber Tubing
Fiber tubing products are manufactured in various lengths and diameters to
meet the requirements of each particular market and application. Fiberstars'
patented BritePak(R) products can maintain reasonably consistent brightness for
side-lit fiber runs up to 100 feet in length. For end-lit applications, several
spotlights are typically connected to a single illuminator and are placed
withinfifty feet from the illuminator.
New fiber products in 1998 include BritePak(R) III Ultra Pure cabled side
light product providing 20% more brightness.
Fixtures and Accessories
Certain fixtures and accessories have been designed by Fiberstars for the
Company's product lines. Other fixtures are supplied by third parties. The
Company's Commercial Lighting Division produces a broad assortment of ceiling
and landscape fixtures from among which lighting designers may choose. The
Company's new patent-pending lightbar, LinearEssence(TM), began shipping toward
the end of 1998. It is targeted at the display case and under cabinet lighting
markets which are new for Fiberstars.
Other Products
In 1997, Fiberstars' Pool and Spa Group introduced Fiberstars Catalyst(TM),
a safe chemical product designed to reduce the usage of chlorine in residential
swimming pools. In 1998, Marketing responsibility for this product was
transferred to a consultant, Barry Nelson, of Water Quality Management, a pool
water systems company.
Applications and End-Users
The Company's fiber optic lighting products are specified by architects,
professional lighting designers, swimming pool builders or end-users.
The Company's products have been installed for commercial lighting
applications in fast food restaurants such as Burger King and McDonald's; retail
stores such as Albertson's, Giant Food and Toys R Us; hotels such as the MGM
Grand and the Stratosphere Tower in Las Vegas; and entertainment facilities such
as theme parks operated by the Walt Disney Company and Universal Studios.
Fiberstars commercial lighting systems also have been used in a number of
specialty applications, including theatrical productions, bridges, theater
aisles and ceilings, the Monterey Bay Aquarium, Marathon Coach, HBO Studios, AMC
theaters, Chevron and New York Life.
The Company's primary products for pool and spa lighting are designed to
provide underwater lighting for newly constructed pools. In addition, Fiberstars
markets pool products for spa lighting, pool perimeter lighting, patios, decks
and landscape lighting. The Company's underwater lighting systems are installed
in pools and spas built by major national pool builders and builder groups, as
well as numerous regional and local pool builders throughout the United States
and Canada.
A series of residential landscape lighting products is being tested in
limited retail distribution. This product was not a material portion of the
Company's business in 1998 and is not expected to be material in 1999.
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Sales, Marketing and Distribution
Commercial Lighting Products
In the commercial lighting market, the Company's marketing efforts are
directed at creating specifications for Fiberstars' systems in plans developed
by architects, professional lighting designers and building owners. The Company
reaches these professionals through approximately 60 independent lighting
representative organizations throughout the United States, approximately 20 of
which account for a substantial majority of the Company's commercial lighting
product sales. The independent lighting representatives assist in the
specification process, directing orders to electrical equipment distributors,
who in turn typically purchase products from Fiberstars. Domestic distributors
of commercial lighting products typically do not engage in marketing efforts or
stock any inventory of the Company's products. The Company's arrangements with
its independent representatives do not prohibit the handling of conventional
lighting products, including products that may be competitive with those of the
Company, although such representatives typically do not handle competing fiber
optic lighting products. Sonic, the Company's largest commercial lighting
customer, accounted for 13% of the Company's net sales in 1998.
In November 1998, the Company acquired the net assets of Crescent Lighting
Ltd., in the United Kingdom and Lichberatung Mann in Germany. Together, these
two companies oversee the sales operations in Europe which include
sub-distributors and sales representatives.
Outside of Europe, Fiberstars' commercial lighting products are sold
internationally by approximately 17 distributors that sell into more than 34
countries, including Mitsubishi in Japan; and Fiberstars Australasia Pty Ltd., a
46.5%-owned joint venture that sells products in Australia, New Zealand,
Indonesia, Malaysia and Fiji. These distributors are primarily responsible for
any marketing activities in their territories.
In August 1998, the Company acquired the net assets of FibreOptics
International Inc., a Seattle company, which is now the Company's sales and
marketing arm for themed entertainment and signs.
Swimming Pool and Spa Products
The Company's underwater lighting products are sold primarily for
installation in new swimming pools and spas. Accordingly, the marketing for the
Company's swimming pool and spa products depends substantially on swimming pool
builders to recommend the Company's products to their customers and to adapt
their swimming pool designs to include Fiberstars lighting systems. The Company
utilizes regional sales representative organizations that specialize in swimming
pool products sold to pool builders and pool product distributors. Each
representative organization typically has the exclusive right to sell the
Company's products within its territory, receiving commissions on sales in its
territory. Regional and national distributors in the swimming pool market stock
the Company's products to fill orders received from swimming pool builders, and
some of these distributors engage in limited marketing activities for the
Company's products.
The Company enters into incentive arrangements to encourage pool builders
to purchase the Company's products. The Company also has entered into agreements
with certain large national pool builders, under which the builders purchase
Fiberstars systems directly from the Company and offer the Company's products
with their swimming pools. The Company provides pool builders and independent
sales representatives with marketing tools, including promotional videos,
showroom displays and demonstration systems. The Company also uses trade
advertising and direct mail in addition to an ongoing program of sales
presentations to pool builders and distributors.
South Central Pools (SCP), the largest Pool distributor in the U.S. and the
Company's largest pool customer, accounted for 10% of the Company's net sales in
1998 and 13% in 1997. The Company expects to maintain its business relationship
with SCP; however, a cessation or substantial decrease in the volume of
purchases by this customer could reduce availability of the Company's products
to end users and could in turn have a material adverse effect on the Company's
net sales and results of operations.
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The majority of sales of the Company's swimming pool lighting systems to
date have been made in the United States and Canada. The Company entered into a
distribution agreement in Europe in 1998 with Astral, a European pool equipment
company. Sales to Astral were not material in 1998.
Backlog
The Company normally ships product within a few days after receipt of an
order and generally does not have a significant backlog of orders. The Company's
backlog at year's end was $952,000 vs. an average of $535,000 per month in 1998,
the Company does not consider backlog to be an indicator of future performance.
Competition
The Company's products compete with a wide variety of lighting products,
including conventional electric lighting in various forms and decorative neon
lighting. The Company has also experienced increasing competition from other
companies offering products containing fiber optic technology. Principal
competitive factors include price, performance (including brightness,
reliability and other factors), aesthetic appeal (including color and color
variation), market presence, installation and maintenance requirements, power
consumption.
The Company believes its products compete favorably against conventional
lighting in such areas as aesthetic appeal, ease of installation and maintenance
and power consumption. The unique characteristics of fiber optic lighting (such
as no heat or electricity at the light, ability to change colors, and remote
lamp replacement) enable the products to be used in some situations where
conventional lighting is not practical. However, the initial purchase price of
the Company's products is typically higher than conventional lighting, and the
Company's products tend to be less bright than conventional alternatives. In the
case of Neon lighting, certain popular neon colors, such as bright red, cannot
be achieved as effectively with the Company's products.
Fiberstars is engaged in ongoing efforts to develop and improve its
products, adapt its products for new applications and design and engineer new
products. The Company expects that its ability to compete effectively with
conventional lighting technologies, other fiber optic lighting products, and new
lighting technologies that may be introduced will depend substantially upon
achieving greater brightness and reducing the cost of the Company's systems. In
1998, the Company redesigned several illuminators and fiber products to improve
performance such as the above mentioned 601 illuminator and the line of Lifetime
Illuminators(TM). In addition to continuing work with a number of outside lamp,
power supply and optic companies, the Company has been working on advanced
product development with Advanced Lighting Technologies, Inc. (ADLT), the world
leader in metal halide lamp technology.
Providers of conventional lighting systems include large lamp manufacturers
and lighting fixture companies, which have substantially greater resources than
the Company. These conventional lighting companies may introduce new and
improved products, which may reduce or eliminate some of the competitive
advantages of the Company's products. In commercial lighting, the Company also
competes primarily with local and regional neon lighting manufacturers and
craftspeople who in many cases are better established in their local markets
than the Company.
Direct competition from other fiber optic lighting products has continued
to increase. Competitive products are offered in the pool market by ESSEF
Company's American Products Division and Hayward Pool Products, two major
manufacturers of pool equipment and supplies. In commercial lighting, fiber
optic lighting products are offered by an increasing number of smaller
companies, some of which compete aggressively on price. These competing products
include a new line of light boxes recently introduced by a small U.S.
manufacturer at very aggressive pricing. Certain of these competitors offer
products with performance characteristics comparable to those of the Company's
products. The Company is aware that several larger companies in the conventional
lighting industry are developing fiber optic lighting systems that may compete
in the near future with the Company's products. In Europe, both Philips and
Schott, a glass fiber company, offer fiber optic lighting systems. Schott has
recently formed an entity to enter the U.S. market. In Europe, Philips
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markets Fiberstars' BritePak(R) fiber tubing on an OEM basis, along with
Philips' own illuminators and other products. Many companies compete with the
Company in Asia, including Mitsubishi, Bridgestone and Toray. 3M recently
entered the market in Japan. Mitsubishi sells Fiberstars BritePak fiber tubing
in Japan, and licenses certain illuminator technology from Fiberstars for
manufacture and sale in Japan. In the U.S., Rohm & Haas and Advanced Lighting
Technologies have a joint venture, Unison, for the sale of fiber optic products.
The Company cannot predict the impact of competition on its business.
Increased competition could result in price reductions, reduced profit margins
and loss of market share, which would adversely affect the Company's operating
results. There can be no assurance that the Company will be able to continue to
compete successfully against current and future competitors. However, the
Company also believes that increased competition may be accompanied by an
increase in the rate of market expansion, and that the Company is well
positioned to participate in any such expansion.
Assembly, Testing and Quality Assurance
The Company's illuminator manufacturing consists primarily of final
assembly, testing and quality control. The Company uses independent contractors
to manufacture some components and subassemblies, and has worked with a number
of its vendors to design custom components to meet Fiberstars' specific needs.
Inventories of domestically produced component parts are managed on a
just-in-time basis when practicable. The Company's quality assurance program
provides for testing of all sub-assemblies at key stages in the assembly process
as well as testing of finished products.
Mitsubishi is the sole supplier of the Company's fiber, under a supply
agreement lasting until March 2001. The Company expects to maintain this
relationship with Mitsubishi; Mitsubishi owns approximately 3.2% of the Company
and distributes Fiberstars' products in Japan. The Company also relies on sole
source suppliers for certain lamps, reflectors, remote control devices and power
supplies. Although the Company cannot predict the effect that the loss of one or
more of such suppliers would have on the Company, such loss could result in
delays in the shipment of products and additional expenses associated with
redesigning products, and could have a material adverse effect on the Company's
operating results.
Research and Product Development
The Company believes that growth in fiber optic lighting will be driven by
improvements in technology to provide increased brightness at lower costs, and
the Company is committing much of its R&D resources to those challenges. In
1998, the Company redesigned its high-end commercial illuminator, improving
brightness by 33%. In the fall of 1998, the Company increased BritePak fiber
tubing brightness by approximately 20%. Pool illuminator lamp life was increased
from a few hundred hours to 6,000 hours by moving to HID technology. Despite its
ongoing development efforts, there can be no assurance that the Company will be
able to achieve future improvements in brightness and cost or that competitors
will not develop lighting technologies that are brighter, less expensive or
otherwise superior to those of the Company.
At the end of 1998, the Company entered into a letter of intent with
Unison, the lighting joint venture between ADLT and Rohm & Haas, which calls for
the development of a low cost illuminator for Fiberstars. ADLT acquired about
18% of the Company's common stock in a private transaction during 1997 and in
the first quarter of 1998 increased that position to approximately 29%.
Additional purchases of the Company's common stock by ADLT require approval of
Fiberstars' Board of Directors. Fiberstars and ADLT plan to work together to
design next generation systems. The Company's goal is to improve the
price/performance of fiber optic lighting systems to compete more directly with
conventional lighting across a much broader spectrum of the general lighting
market.
The Company augments its internal research and development efforts by
involving certain of its component suppliers, independent consultants and other
third parties in the process of seeking improvements in the company's products
and technology. The Company depends substantially on these parties to undertake
research and development efforts necessary to achieve improvements that would
not otherwise be possible given
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the multiple and diverse technologies that must be integrated in the Company's
products and the Company's limited engineering, personnel and financial
resources. These third parties have no material contractual commitments to
participate in these efforts, and there can be no assurance that they will
continue to do so.
Intellectual Property
The Company believes that the success of its business depends primarily on
its technical innovations, marketing abilities and responsiveness to customer
requirements, rather than on patents, trade secrets, trademarks, copyrights and
other intellectual property rights. Nevertheless, the Company has a policy of
seeking to protect its intellectual property through patents, license
agreements, trademark registrations, confidential disclosure agreements and
trade secrets. There can be no assurance, however, that the Company's issued
patents are valid or that any patents applied for will be issued. There can be
no assurance that the Company's competitors or customers will not copy aspects
of the Company's fiber optic lighting systems or obtain information that the
Company regards as proprietary. There also can be no assurance that others will
not independently develop products similar to those sold by the Company. The
laws of some foreign countries in which the Company sells or may sell its
products do not protect the Company's proprietary rights in its products to the
same extent as do the laws of the United States.
The Company is aware that a large number of patents and pending patent
applications exist in the field of fiber optic technology. The Company also
believes that certain of its competitors hold and have applied for patents
related to fiber optic lighting. Although to date the Company has not been
involved in litigation challenging its intellectual property rights, there can
be no assurance that third parties will not assert claims that the Company's
products infringe patents or other intellectual property rights or that, in case
of a dispute, licenses to such technology will be available, if at all, on
reasonable terms. In the event of litigation to determine the validity of any
third-party claims, such litigation, whether or not determined in favor of the
Company, could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel from productive
tasks. Also in the event of an adverse ruling in such litigation, the Company
might be required to expend significant resources to develop non-infringing
technology or to obtain licenses to the infringing technology, which licenses
may not be available on acceptable terms. In the event of a successful claim
against the Company and the Company's failure to develop or license a substitute
technology, the Company's operating results could be adversely affected.
Fiberstars has licensed the rights to manufacture certain of its
illuminators to Mitsubishi for sale in Japan.
Employees
As of December 31, 1998, Fiberstars employed 106 people full time, of whom
28 were involved in sales, marketing and customer service, 12 in research and
product development, 48 in assembly and quality assurance, and 18 in finance and
administration. From time to time the Company also employs part time personnel
in various capacities, primarily assembly and clerical support. The Company has
never had a work stoppage, no employees are subject to any collective bargaining
agreement, and the Company considers its employee relations to be good.
The Company's future success will depend to a large extent on the continued
contributions of certain employees, many of whom would be difficult to replace.
The future success of the Company also will depend on its ability to attract and
retain qualified technical, sales, marketing and management personnel, for whom
competition is intense. The loss of or failure to attract and retain any such
persons could delay product development cycles, disrupt the Company's operations
or otherwise have a material adverse effect on the Company's business.
Item 2. Description of Property
The Company's principal executive offices and manufacturing and assembly
facilities are located in a 31,500 square foot facility in Fremont, California,
under a lease agreement expiring in 1999. The Company
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leases a 9,500 square foot facility in Fremont, California, which it devotes to
fiber processing, under a lease agreement which expires in 1999. The Company
also subleases an approximately 5,200 square foot facility in Fremont,
California under a sublease agreement that expires in 1999. In December 1998,
the Company entered into a new seven year lease for a 60,000 square foot
facility in Fremont, California. It plans to consolidate its Fremont operations
in this new facility during third quarter 1999.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 1998.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock MarketSM under the symbol "FBST". The following table sets forth
the high and low sale prices for the Company's Common Stock, as reported on the
Nasdaq National Market for the periods indicated. These reported prices reflect
interdealer prices without adjustments for retail markups, markdowns or
commissions.
High Low
---- ---
First quarter 1997 5 1/8 4 1/4
Second quarter 1997 5 1/4 3 3/4
Third quarter 1997 6 9/16 4 7/8
Fourth quarter 1997 8 1/2 4 7/8
First quarter 1998 6 9/16 5
Second quarter 1998 6 3/16 4 1/4
Third quarter 1998 5 1/8 3 15/16
Fourth quarter 1998 4 1/2 3 3/8
There were approximately 225 holders of record of the Company's Common
Stock as of March 19, 1998, and the Company estimates that at that date there
were approximately 800 additional beneficial owners.
The Company has not declared or paid any cash dividends and does not
anticipate paying cash dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 6. Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
In August 1998, the Company purchased the net assets of Fiber Optics
International, Inc. (FOI, a Seattle company, for $865,000 consisting of $315,000
in cash and 122,350 in shares of Fiberstars common stock. In November 1998, the
Company acquired the net assets of Crescent Lighting Ltd. (Crescent) and
Lichtberatung Mann (LBM), fiber optic lighting manufacturers and distributors in
Europe. Fiberstars paid $2,875,000 in cash and 282,386 in shares of Fiberstars
common stock, or an aggregate of $4,013,000. In December 1998 the Company sold
the manufacturing and distribution rights of its phototherapy fiber optic
products to Respironics, Inc. for a net gain of $801,000.
Results of Operations
NET SALES
Net sales increased 27% to $22,682,000 in 1998. The increase was primarily a
result of growth in the commercial lighting products. Pools lighting sales also
grew for the year, after starting the year with a decrease due to adverse
weather conditions and product problems with a new line. The acquisitions
contributed to revenue growth in the 4th quarter.
Net sales in 1997 increased to $17,871,000, up 15% from 1996 sales of
$15,576,000. The 1997 increase was due to growth in the commercial and pool
fiber optic lighting markets.
International sales accounted for approximately 17% of net sales in 1998 as
compared to 17% in 1997 and 15% in 1996.
GROSS PROFIT
Gross profit increased to $8,546,000 in 1998, a 9% increase. The gross profit
margin was 38% in 1998, a decline from the 44% gross margin achieved in 1997.
The decrease in gross margin was primarily a result of higher cost of sales for
some of the Company's pools products early in the year along with an increase in
warranty costs associated with a lamp component. The Company has gained
assurances from its lamp supplier that the lamp component involved in the
warranty claims has been fixed and as a result expects gross margins to show
some improvement in 1999.
The Company's gross margin percentage achieved in 1997 was 44% as compared to
42% achieved in 1996. The increase in 1997 was primarily due to lower fiber
processing costs in connection with the Company's fiber processing facility, as
well as higher than average margins from the Fiberstars Catalyst(TM) pool
sanitation product line, which began shipping in 1997.
OPERATING EXPENSES
Research and development expenses were $1,283,000 in 1998, a 10% increase over
1997. The increase is largely due to additional personnel and product
development expenses associated with releasing new products in 1998 and
preparing products to be released in 1999. Sales and marketing expenses were
$5,381,000 in 1998 as compared to $4,393,000 in 1997, an increase of 22%. A
portion of the increase was due to $333,400 in additional expenses from the
acquired companies in 1998 for which there were no expenses in 1997. The balance
of the increase is a result of additional personnel and marketing costs
associated with supporting existing products as well as introduction costs for
new products released during the year. General and administrative costs were
$1,675,000 in 1998, an increase of 18% over 1997 costs. This increase was
largely a result of writing down the value of $200,000 in assets which were
deemed to have no future value, along with goodwill amortization from
acquisitions of $63,000 which was part of general and administrative expense in
1998. Total operating expenses were 37% of sales in 1998 as compared to 39% in
1997 and 38% in 1996.
Research and development expenses increased by 21% to $1,165,000 in 1997. The
increases consisted primarily of increased personnel and project expenses
associated with increased product development activity. Selling and marketing
expenses increased by 18% to $4,393,000 in 1997. Increases occurred in the pool
division and included increases in advertising, sales literature and personnel
related expenses. General and administrative expenses increased by 13% to
$1,419,000 in 1997, primarily due to increases in personnel expenses,
professional fees and other expenses, consistent with growth in the business
during the year. Total operating expenses increased by $1,033,000 to $6,977,000
in 1997, an increase of 17%. As a percentage of sales, total operating expenses
increased to 39% in 1997 from 38% in 1996, as operating expenses increased more
rapidly than sales.
OTHER INCOME AND EXPENSES
Other income and expense includes interest income and expense, income (loss)
from the Company's joint venture as recognized under the equity method, and
income from divestitures. Net interest income was $223,000 in 1998 compared to
$246,000 in 1997. The decrease was due primarily to a use of cash in the 4th
quarter to acquire two companies, along with a general decrease in interest
rates in 1998. The loss from the Company's joint venture was $22,000 in 1998
versus a loss of $12,000 in 1997. This larger loss is mainly due to adverse
exchange rate effects on business in Australia. As highlighted above, the
divestiture income was a result of the Company selling its rights to the
phototherapy fiber optic product to Respironics, Inc.
Net interest income in 1997 was $246,000 or the same as that achieved in 1996.
The Company's investment in joint venture activities yielded a loss of $12,000
in 1997 compared to a profit of $8,000 in 1996.
INCOME TAXES
The income tax rate in 1998 was 37% compared to 40% in 1997 and 40% in 1996. The
lower rate was due to the recognition of certain tax benefits accumulated over
prior years. There is no assurance that the income tax rate in future periods
will be maintained at the level experienced in 1998.
NET INCOME
As a result of the increase in sales in 1998, partially offset by lower gross
margin and higher expenses, and aided by the one time net gain, net income for
the year was $762,000 or 18% above net income achieved in 1997. The Company
recorded net income of $644,000 in 1997, a gain of 26% over net income of
$511,000 achieved in 1996.
Liquidity and Capital Resources
For the year ended December 31, 1998, cash and cash equivalents when combined
with short-term investments were $1,290,000 as compared to $5,120,000 for the
year ended December 31, 1997. Cash in the amount of $3,232,000 was used in the
year to acquire three companies. Additional cash was utilized by operations in
the 4th quarter to fund additions to accounts receivable for purchases of "early
buy" products by customers in the pools market. Cash may decline further during
the 1st quarter of 1999, but then increase in the 2nd quarter as the early buy
season comes to an end.
In June 1998, the Company renewed its $1 million unsecured line of credit for
working capital purposes and its $500,000 term loan commitment to finance
equipment purchases. Both lines expired on June 28, 1998. As of December 31,
1998 the Company had no borrowings outstanding against either of these lines of
credit
The Company also had a total borrowing of $527,700 against a credit facility
held by its German subsidiary. This borrowing is largely held in order to
finance the building of new offices owned by the Company in Basching, Germany.
The Company believes that existing cash balances, together with the Company's
bank lines of credit and funds that may be generated from operations, will be
sufficient to finance the Company's currently anticipated working capital
requirements and capital expenditure requirements for at least the next twelve
months.
Subsequent event
In March, 1999 the company increased its unsecured line of credit for working
capital to $2 million.
Other Factors
This Annual Report contains forward-looking statements. Such statements
generally concern future operating results, capital expenditures, product
development and enhancements, liquidity and strategy. Specific forward-looking
statements in this report include, without limitation, our remarks concerning
the evolution of the fiber optic lighting market, the future size of the fiber
optic lighting market, our expectations concerning the fixture performance of
our recently completed acquisitions, our expectations regarding future
performance of certain lamp components of our products that have recently
experienced problems, the rate of adoption of fiber optic lighting in Europe and
in the United States, trends in the price and performance of fiber optic
lighting products, the future performance of our lighting products, our
relationship with ADLT and future technologies expected to result from our
relationship with ADLT. We may not update these forward looking statements, and
the occurrence of the events predicted in these statements is subject to a
number of risks and uncertainties, including those discussed in this report.
These risks and uncertainties could cause our actual results to differ
materially from the results predicted in our forward looking statements. You are
encouraged to consider all the information in this report, and in our Annual
Report on Form 10-KSB filed with the Securities and Exchange Commission ("SEC"),
along with our other periodic reports on file with the SEC, prior to investing
in our stock.
Basiness Risks and Uncertainties
Our quarterly operating results can vary significantly depending upon a
number of factors. It is difficult to predict the lighting market's acceptance
of our products on a quarterly basis, and the level and timing of orders
received can fluctuate substantially. Our sales volumes also fluctuate.
Historically we have shipped a substantial portion of our quarterly sales in the
last month of each of the second and fourth quarters of the year. Significant
portions of our expenses are relatively fixed in advance based upon our
forecasts of future sales. If sales fail below our expectations in any given
quarter, we will not be able to make any significant adjustment in our operating
expenses and our operating results will be adversely affected, In addition, our
product development and marketing expenditures may vary significantly from
quarter to quarter and are made well in advance of potential resulting revenue.
Sales of our pool and spa lighting products, which currently are
available only with newly constructed pools and spas, depend substantially upon
the level of new construction. Sales of commercial lighting products also depend
significantly upon the level of new building construction. Construction levels
are affected by housing market trends, interest rates, and the weather. Because
of the seasonality of construction, our sales of swimming pool and commercial
lighting products, and thus our overall revenues and income, have tended to be
significantly lower in the first quarter of each year. Various economic and
other trends may alter these seasonal trends from year to year, and we cannot
predict the extent to which these seasonal trends will continue. We believe our
business has been favorably impacted by recent strength in the overall U.S.
economy. If the U.S. economy softens, our operating results will probably
suffer.
In the fourth quarter of 1998, we introduced two major new products. Our
Pool & Spa product called the Fiberstars Lifetime Illuminator(TM) is expected to
outperform similar types of illuminators in the marketplace. The Model 601
illuminator for the Commercial Lighting market will replace and is expected to
outperform and be less costly than our current brightest illuminator Model 501.
We could have difficulties manufacturing these new products as a result of our
inexperience with them. Also, it is difficult to predict whether the market will
accept either of these new products. If either of these new products fails to
meet expectations, our operating results will be adversely affected.
Competition is increasing in a number of our markets. A number of
companies offer directly competitive products, including fiber optic lighting
products for downlighting, display case and water lighting, and neon and other
lighted signs. Our competitors include some very large and well established
companies such as [Philips, Schott, 3M, Bridgestone, Mitsubishi, Osram/Siemens
and Rohm & Haas/Advanced Lighting Technologies]. All of these companies have
substantially greater financial, technical and marketing resources than we do.
We anticipate that any future growth in fiber optic lighting will be accompanied
by continuing increases in competition, which could accelerate growth in the
market for fiber optic lighting, but which could also adversely affect our
operating results to the extent we do not compete effectively.
We were awarded our ninth patent in the fourth quarter of 1998. However,
we believe the success of our business depends primarily on our continued
technical innovation, marketing abilities and responsiveness to customer
requirements, rather than on patents, trade secrets, trademarks, copyrights and
other intellectual property rights. Nevertheless, we have a policy of seeking to
protect our intellectual property through, among other things, the prosecution
of patents with respect to certain of our technologies. There are many issued
patents and pending patent applications in the field of fiber optic technology,
and certain of our competitors hold and have applied for patents related to
fiber optic lighting. Although to date we have not been involved in litigation
challenging our intellectual property rights or asserting intellectual property
rights of others, we have in the past received communications from third parties
asserting rights in our patents or that our technology infringes intellectual
property rights held by such third parties. Based on information currently
available to use we do not believe that any such claims involving our technology
or patents are meritorious. However, we may be required to engage in litigation
to protect our patent rights or to defend against the claims of others. In the
event of litigation to determine the validity of any third party claims or
claims by us against such third party, such litigation, whether or not
determined in our favor, could result in significant expense.
Our business is subject to additional risks that could materially and
adversely affect our future business, including:
o manufacturing risks, including the risks of shortages in materials or
components necessary to our manufacturing and assembly operations, and
the risks of increases in the prices of raw materials and components;
o sales and distribution risks, such as risks of changes in product mix
or distribution channels that result in lower margins;
o risks of the loss of a significant distributor or sales representative;
o risks of the loss of a significant customer or swimming pool builder;
o risks of the effects of volume discounts that we grant from time to
time to our larger customers, including reduced profit margins;
o risks of product returns and exchanges; in this regard, as noted above,
we have increased our warranty reserve in the fourth quarter of 1998 in
response to evidence of defective lamps in certain of our products. We
cannot assure you we will not experience similar component problems in
the future that could also require increased warranty reserves and
manufacturing costs.
o risks associated with product development and introduction problems,
such as increased research, development and marketing expenses
associated with new product introductions; and
o risks associated with delays in the introduction of new products and
technologies, including lost sales and loss of market share.
Year 2000 Compliance
Many currently installed computer systems and software products are not capable
of distinguishing 20th century dates from 21st century dates. As a result, in
less than one year, computers systems and/or software used by many companies in
a very wide variety of applications will experience operating difficulties
unless they are modified or upgraded to adequately process information
involving, related to or dependent upon the century change. Significant
uncertainty exists in the software and information services industries
concerning the scope and magnitude of problems associated with the century
change. In light of the potentially broad effects of the year 2000 on a wide
range of business systems, the Company's products and services may be affected.
The Company utilizes and is dependent upon data processing computer hardware and
software to conduct its business, and in 1998 completed an upgrade of hardware
and software at an approximate cost of $30,000. The Company has completed its
assessment of its own computer systems and based upon this assessment, the
Company believes its computer systems are "Year 2000 compliant;" that is,
capable of adequately distinguishing 21st century dates from 20th century dates.
However, there can be no assurance that the Company has timely identified or
will timely identify and remediate all significant Year 2000 problems in its
own computer systems, that remedial efforts subsequently made will not involve
significant time and expense, or that such problems will not have a material
adverse effect on the Company's business, operating results and financial
condition. If unforeseen internal disruptions occur, the Company believes that
its existing disaster recovery program, which includes the manual processing of
certain key transactions, would significantly mitigate the impact.
The Company has made only limited efforts to determine the extent of and
minimize the risk that the computer systems of the Company's suppliers or
customers are not Year 2000 compliant, or will not become compliant on a timely
basis. The Company expects that the process of making inquiries with these
customers and suppliers will be ongoing through the end of 1999. If Year 2000
problems prevent any of the Company's suppliers from timely delivery of products
or services required by the Company, the Company's operating results could be
materially adversely affected. However, the Company currently estimates that its
costs to address Year 2000 issues relating to its suppliers will not be
material, and that these costs will be funded from its operating cash flows. The
Company has identified and will continue to identify alternative suppliers in
the event its preferred suppliers become incapable of timely delivering products
or services required by the Company. The Company's suppliers are generally
locally or regionally based, which tends to lessen the Company's exposure from
the lack of readiness of any single supplier.
The Company may also face delays in receipt of payments from customers with
unresolved Year 2000 problems, and such delays could materially adversely affect
the Company's operating results. To the extent any such delays are significant
or protracted, the Company's quarterly results would be adversely affected. The
Company intends to continually reassess this risk as it receives communications
about the status of its customers with regard to Year 2000 issues, and if
necessary, adjust its account sales and policies accordingly.
Year 2000 costs relating to the Company's own computer systems including
consulting fees and costs to remediate or replace hardware and software as well
as non-incremental costs resulting from redeployment of internal resources are
estimated to be immaterial. The Company is not able to accurately estimate
potential costs associated with the Year 2000 issues of its customers and
suppliers, and is in the process of verifying that these companies will be year
2000 compliant by the end of 1999. There can be no assurance that the estimated
costs for remediating the Company's own systems as well as estimated costs
associated with the potential non-compliance of its customers and suppliers are
correct, and actual results could differ materially from these estimates.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer costs, and similar
uncertainties.
Item 7. Financial Statements
The financial statements and related notes thereto required by this item
are listed and set forth in a separate section of this report following the
index to exhibits.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
9
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
The information required by this Item regarding directors and nominees is
incorporated herein by reference to the information in the Company's definitive
Proxy Statement for the 1998 Annual Meeting of Shareholders to be held on May
12, 1999 (the "Proxy Statement") under the caption "PROPOSAL NO. 1: ELECTION OF
DIRECTORS."
The executive officers of the Company who are not directors, and their ages
as of December 31, 1998, are as follows:
Name Age Position
---- --- --------
George K. Awai 43 Vice President, Research and Development
Barry R. Greenwald 52 Senior Vice President and General
Manager, Pool Division
J. Arthur Hatley 49 Vice President and General Manager,
Commercial Lighting
J. Steven Keplinger 39 Senior Vice President, Operations
and Retail
Fredrick N. Martin 55 Chief Operating Officer
Robert A. Connors 50 Vice President, Finance, Chief Financial
Officer
- ----------
Mr. Awai joined the Company in October 1986 as Vice President, Engineering.
Prior to joining the Company, Mr. Awai served as Senior Fiber Optics Engineering
Supervisor at Advanced Cardiovascular Systems, Inc., a subsidiary of Eli Lilly
engaged in research and development of medical devices, from August 1985 to
October 1986. From December 1983 to August 1985, Mr. Awai served as Quality
Assurance Optics Manager at Kaptron, Inc., a fiber optics manufacturing company.
Mr. Awai served as Senior Optical Engineering Technician at Siemens
Optoelectronics from August 1982 to December 1983, as Fiber Optics Laboratory
Supervisor at Cooper Medical Devices, Inc. from May 1981 to July 1982, and as
Senior Fiber Optics Technician at Olympus Corporation from September 1979 to May
1981.
Mr. Greenwald joined the Company in October 1989 as General Manager, Pool
Division. He became Vice President in September 1993 and Senior Vice President
in February 1997. Prior to joining the Company, Mr. Greenwald served as National
Sales Manager at Aquamatic, a swimming pool accessory company, from August 1987
to October 1989. From May 1982 to August 1987, Mr. Greenwald served as National
Sales Manager at Jandy Inc., a swimming pool equipment company.
Mr. Hatley joined the Company in July 1995 as National Sales Manager,
Commercial Lighting Division. He was promoted to General Manager in January 1996
and was named Vice President in December 1996. Prior to joining the Company, Mr.
Hatley served in progressive sales management capacities for Reggiani and Capri
Lighting companies. Mr. Hatley was previously a commercial lighting agency
principal and also served at Graybar Electric, a national lighting and
electrical products distributor.
Mr. Keplinger joined the Company in August 1988 as Manager of Operations.
He became Vice President in 1991 and Senior Vice President in February 1997.
From June 1986 to August 1988, Mr. Keplinger was a sales representative at
Leemah Electronics, an electronics manufacturing company. From February 1983
10
<PAGE>
to June 1986, Mr. Keplinger was a sales manager with California Magnetics Corp,
a custom transformer manufacturing company. Mr. Keplinger is also a director of
Fiberstars Australasia Pty. Ltd.
Mr. Martin joined the Company in March 1997 as Senior Vice President
responsible for Engineering, R&D and Commercial Lighting sales and marketing and
was promoted to Chief Operating Officer in 1998. From May 1994 to February 1997,
Mr. Martin was general partner in a retail business. From 1989 to 1993, Mr.
Martin was President and Chief Executive Officer of Progress Lighting. Prior to
that, he served as Executive Vice President of sales & marketing for USI
Lighting, a large lighting fixture and controls company, and as President of
Prescolite, a lighting fixture company.
Mr. Connors joined the Company in July 1998 as Vice President, Finance,
Chief Financial Officer. From 1984 to 1998, Mr. Connors held a variety of
positions for Micro Focus Group Plc, a software company, including Chief
Financial Officer and Chief Operating Officer. Prior to that, he held senior
finance positions with Eagle Computer and W. R. Grace.
Item 10. Executive Compensation
The information regarding executive compensation required by Item 10 is
incorporated herein by reference to the information in the Proxy Statement under
the caption "Executive Compensation."
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information regarding security ownership of certain beneficial owners
and management required by Item 11 is incorporated herein by reference to the
information in the Proxy Statement under the caption "Security Ownership of
Principal Shareholders and Management."
Item 12. Certain Relationships and Related Transactions
The information regarding certain relationships and related transactions
required by Item 12 is incorporated herein by reference to the information in
the Proxy Statement under the caption "Certain Transactions."
Item 13. Exhibits and Reports on Form 8-K
(a) Reference is made to the Index to Exhibits that begins on page 12 of
this report.
(b) Form 8-K filed on December 4, 1998, is included as Exhibit 10.27 and
is included in the Index to Exhibits that begins on page 12 of this
report.
11
<PAGE>
INDEX TO EXHIBITS
(Item 13(a))
Exhibit
Number Document
- ------ --------
3.1 Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.3 in the Registrant's
Registration Statement on Form SB-2 (Commission File No. 33-79116-LA)
which became effective on August 17, 1994).
3.2 Bylaws of Registrant, including all amendments (incorporated by
reference to Exhibit 3.2 in the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1994).
3.3 Amendment to Bylaws of Registrant, dated as of December 1, 1995
(incorporated by reference to Exhibit 3.3 in the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1995).
10.0 Form of warrant issued to the Underwriters in the Company's initial
public offering (incorporated by reference to Exhibit 1.1 in the
Registrant's Registration Statement on Form SB-2 (Commission File No.
33-79116-LA) which became effective on August 17, 1994)
10.1+ Form of Indemnification Agreement for directors and officers of the
Registrant (incorporated by reference to Exhibit 10.1 in the
Registrant's Registration Statement on Form SB-2 (Commission File No.
33-79116-LA) which became effective on August 17, 1994).
10.2+ 1988 Stock Option Plan, as amended, and forms of stock option agreement
(incorporated by reference to Exhibit 10.2 in the Registrant's
Registration Statement on Form SB-2 (Commission File No. 33-79116-LA)
which became effective on August 17, 1994).
10.3+ 1994 Stock Option Plan, as amended, and forms of stock option agreement
(incorporated by reference to Exhibit 10.3 in the Registrant's
Registration Statement on Form SB-2 (Commission File No. 33-79116-LA)
which became effective on August 17, 1994).
10.4+ 1994 Employee Stock Purchase Plan and form of subscription agreement
(incorporated by reference to Exhibit 10.4 in the Registrant's
Registration Statement on Form SB-2 (Commission File No. 33-79116-LA)
which became effective on August 17, 1994).
10.5+ 1994 Directors' Stock Option Plan and form of stock option agreement
(incorporated by reference to Exhibit 10.5 in the Registrant's
Registration Statement on Form SB-2 (Commission File No. 33-79116-LA)
which became effective on August 17, 1994).
10.6 Registration Rights Agreement dated as of June 27, 1990, between the
Registrant and certain holders of the Registrant's capital stock, as
amended by Amendment No. 1 dated as of February 6, 1991 and Amendment
No. 2 dated as of April 30, 1994 (incorporated by reference to Exhibit
10.10 in the Registrant's Registration Statement on Form SB-2
(Commission File No. 33-79116-LA) which became effective on August 17,
1994).
10.7 Amendment No. 3 to Registration Rights Agreement to include Warrant
shares as Registerable Securities (incorporated by reference to Exhibit
1.2 in the Registrant's Registration Statement on Form SB-2 (Commission
File No. 33-79116-LA) which became effective on August 17, 1994).
10.8+ Stock Purchase Agreement and related Promissory Note between David N.
Ruckert and the Registrant dated as of December 9, 1987, as amended
(incorporated by reference to Exhibit 10.14 in the Registrant's
Registration Statement on Form SB-2 (Commission File No. 33-79116-LA)
which became effective on August 17, 1994).
12
<PAGE>
10.9+ Common Stock Purchase Warrant dated as of June 27, 1988 issued by the
Registrant to Philip Wolfson (incorporated by reference to Exhibit 10.15
in the Registrant's Registration Statement on Form SB-2 (Commission File
No. 33-79116-LA) which became effective on August 17, 1994).
10.10 Lease Agreement dated December 20, 1993 between the Registrant and
Bayside Spinnaker Partners IV (incorporated by reference to Exhibit
10.19 in the Registrant's Registration Statement on Form SB-2
(Commission File No. 33-79116-LA) which became effective on August 17,
1994).
10.11 Form of Agreement between the Registrant and independent sales
representatives (incorporated by reference to Exhibit 10.20 in the
Registrant's Registration Statement on Form SB-2 (Commission File No.
33-79116-LA) which became effective on August 17, 1994).
10.12+ Consulting Agreement dated August 25, 1994 between the Registrant and
Philip Wolfson, M.D. (incorporated by reference to Exhibit 10.17 in the
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1994).
10.13* Distribution Agreement dated March 21, 1995 between the Registrant and
Mitsubishi International Corporation (incorporated by reference to
Exhibit 10.18 in the Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1994).
10.14* Three (3) Year Supply Agreement dated March 21, 1995 between the
Registrant and Mitsubishi International Corporation (incorporated by
reference to Exhibit 10.19 in the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1994).
10.15 Stock Purchase Agreement dated March 21, 1995 among the Registrant,
Mitsubishi International Corporation and Mitsubishi Corporation
(incorporated by reference to Exhibit 10.20 in the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1994).
10.16+ Consulting Agreement dated as of December 14, 1995, between Registrant
and Michael D. Ernst (incorporated by reference to Exhibit 10.21 in the
Registrant's Annual Report on Form 10-KSB for the year ended December
31, 1995).
10.17 Distribution Agreement dated as of February 21, 1996, between the
Registrant and Fiberoptic Medical Products, Inc. (incorporated by
reference to Exhibit 10.24 in the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1995).
10.21 Amendment to 1994 Stock Option Plan, effective as of December 6, 1996
(incorporated by reference to Exhibit 10.21 in the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1996).
10.22 Promissory Note dated as of October 7, 1996, issued in favor of the
Registrant by Steve Keplinger (incorporated by reference to Exhibit
10.22 in the Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 1996).
10.23 Promissory Note dated as of March 25, 1997, issued in favor of the
Registrant by Barry Greenwald (incorporated by reference to Exhibit
10.23 in the Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 1996).
10.24* Amended and Restated Three (3) Year Supply Agreement dated March 31,
1998 between the Registrant and Mitsubishi International Corporation
(incorporated by reference in the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1997).
13
<PAGE>
10.25 Rental Agreement dated February 1, 1998 between the Registrant and
Signature Floors.
10.26 Promissory Note dated as of March 15, 1998, issued in favor of the
Registrant by Barry Greenwald
10.27 Consulting Agreement dated November 1, 1997 between the Registrant and
Barry A. Nelson.
10.29 Loan Agreement dated June 28, 1998, between the Registrant and Wells
Fargo Bank.
10.30 Term Commitment Note of the Registrant dated as of June 28, 1998, to
Wells Fargo Bank.
10.31 Revolving Line of Credit Note of the Registrant dated as of June 28,
1998, to Wells Fargo Bank
10.32 Asset Purchase Agreement by and among FibreOptics International, Inc., a
Washington corporation, and the Registrant dated August 31, 1998.
10.33 Sale and Purchase Agreement dated as of November 19, 1998, by and among
Fiberstars, Inc., Hillgate (4) Limited, Crescent Lighting Limited,
Michael Beverly Morrison and Corinne Bertrand.
10.34 Purchase and Take-over Agreement between Frau Claudia Mann, acting for
LBM Lichtleit-Fasertechnik, Claudia Mann and Fiberstars Deutschland GmbH
and Bernhard Mann.
10.35* Asset Purchase Agreement dated as of December 30, 1998, between
Respironics, Inc. and Fiberstars, Inc.
10.36 Lease Agreement dated November 23, 1998 between Registrant and Catellus
Development Corporation.
10.37 Lease Agreement dated September 15, 1998 between Resistrant and Harsch
Investment Corp.
10.38 Memorandum of Understanding between Registrant and Water Quality
Management, Inc. dated January 22, 1999.
10.39 Promissory Note dated June 19, 1998 between Registrant and Fredrick N.
Martin
10.40 Promissory Note dated March 25, 1999 between Registrant and J. Steven
Keplinger
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule
* Confidential treatment requested.
+ Management Compensatory Plan or Arrangement
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereto duly authorized, on the 31st day of March, 1999.
FIBERSTARS, INC.
By: /s/ DAVID N. RUCKERT
---------------------------------
David N. Ruckert
Chief Executive Officer
(Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, this Report has
been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ DAVID N. RUCKERT Chief Executive Officer and March 31, 1999
- ---------------------------- Director (Principal
David N. Ruckert Executive Officer)
/s/ ROBERT A. CONNORS Chief Financial Officer March 31, 1999
- ---------------------------- (Principal Accounting Officer)
Robert A. Connors
/s/ JOHN B. STUPPIN Director March 31, 1999
- ----------------------------
John B. Stuppin
/s/ THEODORE L. ELIOT, JR Director March 31, 1999
- ----------------------------
Theodore L. Eliot, Jr.
/s/ MICHAEL FEUER, PH.D. Director March 31, 1999
- ----------------------------
Michael Feuer, Ph.D.
/s/ B.J. GARET Director March 31, 1999
- ----------------------------
B.J. Garet
/s/ WAYNE R. HELLMAN Director March 31, 1999
- ----------------------------
Wayne R. Hellman
/s/ PHILIP WOLFSON Director March 31, 1999
- ----------------------------
Philip Wolfson
15
<PAGE>
FIBERSTARS, INC.
CONSOLIDATED BALANCE SHEETS, December 31, 1998 and 1997
(amounts in thousands except share and per share amounts)
ASSETS 1998 1997
-------- --------
Current assets:
Cash and cash equivalents $ 1,290 $ 523
Short-term investments 4,597
Accounts receivable, net of allowances for
doubtful accounts of $370 in 1998 and $293 in 1997 5,210 2,525
Notes and other receivables 771 161
Inventories 4,179 3,068
Prepaids and other current assets 369 373
Deferred income taxes 507 677
-------- --------
Total current assets 12,326 11,924
Fixed assets, net 1,522 1,003
Investment in joint venture 18 40
Goodwill 4,403
Other assets 566 103
Deferred income taxes 89 54
-------- --------
Total assets $ 18,924 $ 13,124
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 2,598 $ 1,068
Accrued liabilities 2,198 1,318
Current portion of long-term debt 107 13
-------- --------
Total current liabilities 4903 2,399
Long-term debt, less current portion 667 17
-------- --------
Total liabilities 5,570 2,416
-------- --------
Commitments and contingencies (Note 9)
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.0001 per share:
Authorized:2,000,000 shares in 1998 and 1997
Issued and outstanding :no shares in 1998 and 1997
Common stock, par value $0.0001 per share:
Authorized:30,000,000 shares in 1998 and 1997
Issued and outstanding: 3,952,601 shares in
1998 and 3,509,474 shares in 1997 -- --
Additional paid-in capital 13,930 12,035
Notes receivable from shareholders (86) (75)
Accumulated deficit (490) (1,252)
-------- --------
Total shareholders' equity 13,354 10,708
-------- --------
Total liabilities and shareholders' equity $ 18,924 $ 13,124
======== ========
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
(amounts in thousands except share and per share amounts)
1998 1997 1996
------- ------- -------
Net sales $22,682 $17,871 $15,576
Cost of sales 14,136 10,047 9,032
------- ------- -------
Gross profit 8,546 7,824 6,544
------- ------- -------
Operating expenses:
Research and development 1,283 1,165 962
Sales and marketing 5,381 4,393 3,728
General and administrative 1,675 1,419 1,254
------- ------- -------
Total operating expenses 8,339 6,977 5,944
------- ------- -------
Income from operations 207 847 600
Other income (expense):
Equity in joint ventures' income (loss) (22) (12) 8
Divestiture 801
Interest and other income 224 248 252
Interest expense (1) (2) (6)
------- ------- -------
Income before provision for income taxes 1,209 1,081 854
Provision for income taxes (447) (437) (343)
------- ------- -------
Net income $ 762 $ 644 $ 511
======= ======= =======
Net income per share - basic $ 0.21 $ 0.19 $ 0.15
======= ======= =======
Shares used in per share calculation - basic 3,623 3,446 3,398
======= ======= =======
Net income per share - diluted $ 0.21 $ 0.18 $ 0.14
======= ======= =======
Shares used in per share calculation - diluted 3,695 3,597 3,539
======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Notes
Common Stock Additional Receivable
----------------- Paid-In from Accumulated
Shares Amount Capital Shareholders Deficit Total
------ ------ ------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996 3,381 $ -- $ 11,848 $(75) $(2,407) $ 9,366
Exercise of common stock options 7 9 9
Issuance of common stock under employee
stock purchase plan 9 32 32
Issuance of common stock pursuant to
exercise of warrants 16 14 14
Net Income 511 511
----- ------ -------- ---- ------- -------
Balances, December 31, 1996 3,413 -- 11,903 (75) (1,896) 9,932
Exercise of common stock options 88 97 97
Issuance of common stock under employee
stock purchase plan 9 35 35
Net income 644 644
----- ------ -------- ---- ------- -------
Balances, December 31, 1997 3,510 -- 12,035 (75) (1,252) 10,708
Exercise of common stock options 46 164 164
Issuance of common stock under employee
stock purchase plan 10 35 35
Issuance of common stock pursuant to
exercise of warrants 12 11 (11) 0
Issuance of common stock for acquisitions 405 1,685 1,685
Net income 762 762
----- ------ -------- ---- ------- -------
Balances, December 31, 1998 3,983 $ -- $ 13,930 $(86) $ (490) $13,354
===== ====== ======== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
------- ------- -------
Cash flows from operating activities:
Net income $ 762 $ 644 $ 511
------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 647 453 322
Provision for doubtful accounts receivable 77 76 56
Deferred income taxes 135 407 343
Equity in joint venture 22 12 (8)
Changes in assets and liabilities:
Accounts receivable, trade (1,072) 2 (63)
Inventories (275) (900) (264)
Prepaids and other current assets 36 (192) (5)
Other assets (463) 19 (53)
Accounts payable 240 101 (131)
Accrued liabilities 671 196 145
------- ------- -------
Total adjustments 18 174 342
------- ------- -------
Net cash provided by operating activities 780 818 853
------- ------- -------
Cash flows from investing activities:
Sale of short-term investments 4,597
Purchase of short-term investments (1,282) (869)
Acquisition of business, net of cash acquired (3,232)
Loans made under notes receivable (610) (30) (161)
Acquisition of fixed assets (479) (624) (400)
Sale of investment in joint venture 298
------- ------- -------
Net cash provided by (used in)
investing activities 276 (1,936) (1,132)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuances of common stock 199 132 55
Repayment of long-term debt (488) (11) (12)
------- ------- -------
Net cash provided by (used in) financing
activities (289) 121 43
------- ------- -------
Net increase (decrease) in cash and
cash equivalents 767 (997) (236)
Cash and cash equivalents, beginning of year 523 1,520 1,756
------- ------- -------
Cash and cash equivalents, end of year $ 1,290 $ 523 $ 1,520
======= ======= =======
Supplemental Information:
Interest paid $ 1 $ 2 $ 6
Income taxes paid $ 66 $ 24 $ 38
The Company purchased certain businesses during 1998. In conjunction with the
acquisitions, liabilities were assumed as follows:
Fair value of assets acquired $ 7,649
Cash paid for capital stock (3,232)
Capital stock issued (1,685)
-------
Liabilities assumed $ 2,732
-------
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations:
Fiberstars, Inc. (the Company) develops and assembles lighting products
using fiber optic technology for commercial lighting and swimming pool and
spa lighting applications. The Company markets its products for worldwide
distribution primarily through independent sales representatives,
distributors and swimming pool builders.
2. Summary of Significant Accounting Policies:
Basis of Consolidation:
The consolidated financial statements include the accounts of Fiberstars,
Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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 reported period. Actual results could differ from those
estimates.
Cash Equivalents:
The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents.
Short-Term Investments:
Short-term investments consist of debt securities with remaining maturity
of more than three months when purchased. The Company has determined that
all of its debt securities should be classified as available-for-sale. The
difference between the cost basis and the market value of the Company's
investments was not material at December 31, 1998 and 1997. The Company's
investments at December 31, 1998 and 1997 primarily consist of corporate
notes with maturities of one year or less. Short-term investments are held
by one investment bank as of December 31, 1998.
Inventories:
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
F-5
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued:
Investments in Joint Ventures:
The Company records its investments in joint ventures under the equity
method of accounting.
Fair Value of Financial Instruments:
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and other accrued liabilities approximate
fair value due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the
carrying value of long-term debt obligations also approximates fair
value.
Revenue Recognition:
The Company recognizes sales upon shipment.
Depreciation and Amortization:
Fixed assets are stated at cost and depreciated by the straight-line
method over the estimated useful lives of the related assets (two to five
years). Leasehold improvements are amortized on a straight-line basis
over their estimated useful lives or the lease term, whichever is less.
Certain Risks and Concentrations:
The Company invests its excess cash in deposits and high-grade short-term
securities with two major banks.
The Company sells its products primarily to commercial lighting
distributors and residential pool distributors and pool installation
contractors in North America, Europe and the Far East. The Company
performs ongoing credit evaluations of its customers and generally does
not require collateral. Although the Company maintains allowances for
potential credit losses that it believes to be adequate, a payment
default on a significant sale could materially and adversely affect its
operating results and financial condition. At December 31, 1998, one
customer accounted for 22% of accounts receivable and at December 31,
1997, one customer accounted for more than 17% accounts receivable.
One customer accounted for 13%, 13% and 10% of net sales in 1998, 1997
and 1996, respectively.
F-6
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued:
The Company currently buys all of its fiber, the main component of its
products, from one supplier. Although there is a limited number of fiber
suppliers, management believes that other suppliers could provide fiber
on comparable terms. A change in suppliers, however, could cause delays
in manufacturing and a possible loss of sales which would adversely
affect operating results.
Research and Development:
Research and development costs are charged to operations as incurred.
Income Taxes:
The Company accounts for income taxes using the liability method under
which deferred tax assets or liabilities are calculated at the balance
sheet date using current tax laws and rates in effect.
Earnings Per Share:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128")
effective December 31, 1997. SFAS 128 requires the presentation of basic
and diluted earnings per share (EPS). Basic EPS is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS is computed giving
effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of
incremental shares upon exercise of stock options. All prior period
earnings per share amounts have been restated to comply with SFAS 128.
F-7
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued:
Earnings Per Share, continued:
In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and diluted EPS
is provided as follows (in thousands, except per share amounts):
Year Ended December 31,
----------------------------
1998 1997 1996
------ ------ ------
Numerator - Basic and Diluted EPS
Net income $ 762 $ 644 $ 511
Denominator - Basic EPS
Weighted average shares outstanding 3,623 3,446 3,398
------ ------ ------
Basic earnings per share $ 0.21 $ 0.19 $ 0.15
====== ====== ======
Denominator - Diluted EPS
Denominator - Basic EPS 3,623 3,446 3,398
Effect of dilutive securities:
Stock options and warrants 72 151 141
------ ------ ------
3,695 3,597 3,539
------ ------ ------
Diluted earnings per share $ 0.21 $ 0.18 $ 0.14
====== ====== ======
Options and warrants to purchase 584,626 shares, 371,705 shares and
421,095 shares of common stock were outstanding at December 31, 1998,
1997 and 1996, respectively, but were not included in the calculations of
diluted EPS because their exercise prices were greater than the average
fair market price of the common shares.
Recent Pronouncements:
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This
standard requires companies to capitalize qualifying software costs which
are incurred during the application development stage and amortize them
over the software's estimated useful life. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The Company is currently
evaluating the impact of SOP 98-1 on its financial statements and related
disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs
of Start-Up Activities." This standard requires companies to expense the
costs of start-up activities and organization
F-8
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies, continued:
Recent Pronouncements, continued:
costs as incurred. In general, SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. The Company believes the adoption of
SOP 98-5 will not have a material impact on its results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 establishes new standards of accounting and
reporting for derivative instruments and hedging activities. SFAS 133
requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or
losses be reported either in the statement of operations or as a
component of comprehensive income, depending on the type of hedging
relationship that exists. SFAS 133 will be effective for fiscal years
beginning after June 15, 1999. The Company does not currently hold
derivative instruments or engage in hedging activities.
In the first quarter of 1998, the Company adopted statement of financial
accounting standards No. 130, ("SFAS 130"), "Reporting Comprehensive
Income", which specifies the computation, presentation and disclosure
requirements for comprehensive income. There was no impact on the
Company's financial position, results of operation or cash flows as a
result of adoption, and comprehensive and net income are the same.
In 1998, the Company adopted statement of financial accounting standards
No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and
Related Information". SFAS 131 requires publicly held companies to report
financial and other information about key revenue-producing segments of
the entity for which such information is available and utilized by the
Chief Operations decision maker. SFAS 131 also requires revenue
geographic information and revenue with significant customers to be
disclosed. The Company operates in one segment and will not be reporting
product segment information but will report geographic and significant
customer revenue.
3. Inventories (in thousands):
December 31,
--------------------
1998 1997
------ ------
Raw materials $2,780 $2,020
Finished goods 1,399 1,048
------ ------
$4,179 $3,068
====== ======
F-9
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Fixed Assets (in thousands):
December 31,
------------------
1998 1997
------- -------
Equipment $ 2,823 $ 2,197
Furniture and fixtures 250 127
Computer software 452 242
Leasehold improvements 541 101
------- -------
4,066 2,667
Less accumulated depreciation and amortization (2,544) (1,664)
------- -------
$ 1,522 $ 1,003
======= =======
5. Acquisitions:
In August 1998, the Company completed the acquisition of the net assets
of Fibre Optics International, Inc. (FOI) for $865,000 consisting of
$315,000 in cash and 122,350 shares of Fiberstars stock. FOI is a
manufacturer and marketer of fiber optic-lighted signs, based in Seattle,
Washington.
In November 1998, the Company acquired the net assets of Lichberatung
Mann (LBM), fiber optic lighting manufacturers and distributor
headquartered near Munich, Germany. Also in November 1998, the Company
purchased the net assets of Crescent Lighting, Ltd. (Crescent), which is
a fiber optic lighting manufacturer and distributor based in Newbury,
England. The consideration given for both the European acquisitions was
$2,875,000 in cash and 282,386 shares of Fiberstars stock, or an
aggregate of $4,013,000.
All three acquisitions were accounted for as purchases. Accordingly, the
purchase price was allocated to the net assets acquired based on their
estimated fair market values. In connection with the acquisitions, the
Company recorded goodwill of $4,466,000 which is being amortized on a
straight line basis over ten years.
The following table presents the unaudited pro forma results assuming the
Company had acquired FOI, LBM and Crescent at the beginning of fiscal
years 1997 and 1998, respectively. Net income and diluted earnings per
share amounts have been adjusted to include goodwill amortization of
$447,000 for the twelve months ended December 31, 1997 and 1998. This
information may not necessarily be indicative of the future combined
results of the Company.
Year Ended December 31,
-----------------------
1998 1997
------- -------
Revenues $28,240 $24,184
Net income 414 702
Diluted earnings per share $ 0.10 $ 0.18
Basic earnings per share $ 0.10 $ 0.18
F-10
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Joint Venture:
Fiberoptic Medical Products, Inc.
In February 1996, the Company entered into an agreement to sell its
equity in Fiberoptic Medical Products, Inc. (FMP) for the net book value
of approximately $300,000.
Fiberstars Australasia Pty. Ltd:
The Company participates in a joint venture with Fiberstars Australasia
Pty. Ltd., to market lighting products using fiberoptic technology in
Australia and New Zealand. The Company maintains a 46.5% interest in
Fiberstars Australasia.
The Company recorded sales to Fiberstars Australasia totaling $137,000,
$259,000 and $234,000, for the years ended December 31, 1998, 1997 and
1996, respectively. Accounts receivable from Fiberstars Australasia Pty.
Ltd. as of December 31, 1998 and 1997 were $130,887 and $67,752,
respectively.
The following represents condensed financial information (unaudited) of
Fiberstars Australasia as of December 31, 1998 and 1997 and for the years
then ended, and combined information of FMP and Fiberstars Australasia
for the year ended December 31, 1996 (in thousands):
December 31,
------------------
1998 1997
---- ----
Current assets $ 193 $ 208
Property and other assets 64 37
----- -----
$ 257 $ 245
===== =====
Current liabilities $ 227 $ 172
Issued capital 108 108
Accumulated deficit (78) (35)
----- -----
$ 257 $ 245
===== =====
December 31,
----------------------------
1998 1997 1996
---- ---- ----
Revenue $ 569 $ 589 $566
Expenses 620 626 545
----- ----- ----
Net income (loss) $ (51) $ (37) $ 21
===== ===== ====
F-11
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Accrued Liabilities (in thousands):
December 31,
-----------------
1998 1996
---- ----
Sales commissions and incentives $1,003 $ 735
Accrued warranty expense 325 218
Accrued legal and accounting fees 372 99
Other 498 266
------ ------
$2,198 $1,318
====== ======
8. Lines of Credit:
On June 28, 1998, the Company entered into the following borrowing
arrangements with its bank:
a) A $1,000,000 revolving line of credit expiring June 28, 1998,
bearing interest at prime plus 0.125% (8.625% at December 31,
1997). Borrowings under this line are uncollateralized, and the
Company must maintain zero balance for at least 30 consecutive
days during each fiscal year.
b) A $500,000 term loan commitment to finance equipment purchases,
expiring June 28, 1999. Borrowings bear interest at prime plus
0.50% (9% at December 31, 1998). Under this note, the Company may
finance up to 80% of the cost of the new equipment and 75% of the
cost of used equipment. The note is collateralized by a security
interest in all equipment financed with the proceeds. Interest
only is payable monthly until June 28, 1999, after which the
principal plus interest is repayable in 36 monthly installments.
There were no amounts outstanding at December 31, 1998. The
Company is required to maintain certain financial ratios on a
quarterly basis, including specified levels of working capital and
tangible net worth.
c) A (pound) 250,000 bank overdraft agreement with Lloyds Bank Plc
which is reviewed again in November 1999. There were no borrowings
against this facility at December 31, 1999.
d) A DM 1,150,000 bank borrowing facility in Germany with Sparkasse
Newmarket Bank. There was DM 886,497 in borrowings against this
facility as of December 31, 1998. DM 450,000 of this facility
terminates in 2003 and DM 700,000 terminates in 2008.
9. Commitments and Contingencies:
The Company occupies manufacturing and office facilities under operating
leases expiring in 1999 under which it is responsible for related
maintenance, taxes and insurance. Minimum lease commitments under the
leases are as follows (in thousands):
F-12
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Minimum lease commitments
-------------------------
1999 $ 581
2000 701
------
Total minimum lease payments $1,282
------
Rent expense approximated $388,000, $322,000 and $318,000, for the years
ended December 31, 1998, 1997 and 1996, respectively.
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of these actions at this time, management
believes that any liabilities resulting from such proceedings, or claims
which are pending or known to be threatened, will not have a material
adverse effect on the Company's financial position or results of
operations.
10. Shareholders' Equity:
Common Stock:
The notes receivable from shareholders for common stock bear interest at
a rate of 9% and are payable ten years from the date of issuance.
Under the terms of certain agreements with the Company, the holders of
approximately 1,489,000 shares of common stock have certain demand and
piggyback registration rights. All registration expenses generally would
be borne by the Company.
Warrants:
The Company has issued warrants to purchase shares of its common stock to
certain directors and consultants of the Company. These warrants, which
were granted at the fair market value of the common stock at the date of
grant as determined by the Board of Directors, expire on varying dates
through 1999.
In connection with its public offering in August 1994, the Company issued
to the underwriters, RvR Securities Corp. and Van Kasper & Company,
warrants (the Underwriters' warrants) to purchase up to 100,000 shares of
the Company's common stock at an exercise price equal to 120% of the
initial offering price of $4.50 per share. The Underwriters' warrants are
exercisable for a period of five years from the date of the public
offering expiring on August 18, 1999.
F-13
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrant activity comprised:
Warrants Outstanding
-------------------------------
Exercise
Shares Price Amount
------ ----- ------
(in thousands)
Balances, December 31, 1995 12,6666 $0.90-$5.40 $ 564
Warrants exercised (15,625) $0.90 (14)
------- -----
Balances, December 31, 1996 and 1997 111,041 $0.90-$5.40 $ 550
Warrants exercised/cancelled (11,041) $0.90 (10)
------- -----
Balances, December 31, 1998 100,000 $5.40 $ 540
======= =====
At December 31, 1998, 100,000 outstanding warrants were exercisable. The
Company has reserved 100,000 shares of common stock for issuance upon
exercise of the common stock warrants.
1988 Stock Option Plan:
Upon adoption of the 1994 Stock Option Plan (see below), the Company's
Board of Directors determined to make no further grants under the 1988
Stock Option Plan (the 1988 Plan). Upon cancellation or expiration of any
options granted under the 1988 Plan, the related reserved shares of
common stock will become available instead for options granted under the
1994 Stock Option Plan.
1994 Stock Option Plan:
At December 31, 1998, an aggregate of 1,350,000 shares of the Company's
common stock are reserved for issuance under the 1994 Stock Option Plan
to employees, officers, directors and consultants at prices not lower
than the fair market value of the common stock of the Company on the date
of grant. Options granted may be either incentive stock options or
nonstatutory stock options. The plan administrator (the Board of
Directors or a committee of the Board) determines the terms of options
granted under the plan including the number of shares subject to the
option, exercise price, term and exercisability.
1994 Directors' Stock Option Plan:
At December 31, 1998, a total of 200,000 shares of common stock has been
reserved for issuance under the 1994 Directors' Stock Option Plan. The
plan provides for the granting of nonstatutory stock options to
nonemployee directors of the Company.
F-14
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Shareholders' Equity, continued:
Activity Under the Stock Option Plans:
Option activity under all plans comprised:
Options Outstanding
------------------------------
Weighted
Options Average
Available Exercise
for Number Price
Grant of Shares Per Share Amount
----- --------- --------- ------
(in thousands)
Balances, December 31, 1995 200,842 544,203 $3.83 $2,137
Additional shares reserved 500,000
Granted (299,050) 299,050 $4.99 1,455
Canceled 49,892 (49,892) $5.15 (216)
Exercised (7,188) $1.04 (9)
-------- --------- ------
Balances, December 31, 1996 451,684 786,173 $4.10 3,367
Granted (355,600) 355,600 $4.93 1,866
Canceled 22,724 (22,724) $4.83 (114)
Exercised (87,791) $0.99 (97)
-------- --------- ------
Balances, December 31, 1997 118,808 1,031,258 5,022
Additional shares reserved 550,000
Granted (282,500) 282,500 $4.49 1,088
Canceled 18,284 (18,284) $4.74 (90)
Exercised (45,790) $3.54 (164)
-------- --------- ------
Balances, December 31, 1998 404,592 1,249,684 $5,856
======== ========= ======
At December 31, 1998, 1997 and 1996, options to purchase 623,169, 436,497
and 372,818 shares of common stock, respectively were exercisable at
weighted average fair values of $4.78, $4.44 and $3.46, respectively.
F-15
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Shareholders' Equity, continued:
Activity Under the Stock Option Plans:
<TABLE>
<CAPTION>
OPTIONS OPTIONS CURRENTLY
OUTSTANDING EXERCISABLE
------------------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Average
Exercise of Shares Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ----------- -------- ----------- --------
(in thousands) (in years) (in thousands)
<S> <C> <C> <C> <C> <C>
$0.90-$0.90 67 3.3 $0.90 67 $0.90
$3.60-$4.63 377 5.3 $4.99 108 $4.43
$4.75-$4.75 262 3.0 $4.75 111 $4.75
$5.13-$5.88 484 3.1 $5.49 277 $5.51
$6.25-$6.50 60 2.1 $6.49 60 $6.46
</TABLE>
1994 Employee Stock Purchase Plan:
At December 31, 1998, a total of 50,000 shares of common stock has been
reserved for issuance under the 1994 Employee Stock Purchase Plan. The
plan permits eligible employees to purchase common stock through payroll
deductions at a price equal to the lower of 85% of the fair market value
of the Company's common stock at the beginning or ending of the offering
period. Employees may end their participation at any time during the
offering period, and participation ends automatically on termination of
employment with the Company. At December 31, 1998, 39,382 shares had been
issued under this plan.
Stock-Based Compensation:
The Company has adopted the disclosure only provision of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." The Company, however, continues to apply APB
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans. Accordingly, no compensation
cost has been recognized for options granted under the Stock Option Plans
nor for shares issued under the Employee Stock Purchase Plan. Had
compensation cost for these plans been determined based on the fair value
of the options at the grant date for awards in 1998, 1997 and 1996
consistent with the provisions of SFAS 123, the Company's net income and
net income per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share amounts):
F-16
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Shareholders' Equity, continued:
December 31,
-------------------------
1998 1997 1996
---- ---- ----
Net income - as reported $ 762 $ 644 $ 511
===== ===== =====
Net income - pro forma $ 538 $ 480 $ 422
===== ===== =====
Basic earnings per share - as reported $0.21 $0.19 $0.15
===== ===== =====
Basic earnings per share - pro forma $0.15 $0.14 $0.12
===== ===== =====
Diluted earnings per share - as reported $0.21 $0.18 $0.14
===== ===== =====
Diluted earnings per share - pro forma $0.15 $0.13 $0.12
===== ===== =====
As the provisions of SFAS 123 are only applied to stock options granted
after January 1, 1995 in the above pro forma amounts, the impact of the
pro forma stock compensation cost will likely continue to increase, as
the vesting period for the Company's options and the period over which
compensation is charged to expense is generally four years.
The fair value of each option grant is estimated on the date of grant
using a type of Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996:
1998 1997 1996
---- ---- ----
Fair value of options issued $1.72 $2.38 $1.39
Exercise price $3.80 $5.20 $4.80
Expected life of option 3.88 years 3.91 years 3.89 years
Risk-free interest rate 4.82% 6.00% 6.11%
Expected volatility 50% 50% 23%
11. Income Taxes
The components of the provision for income taxes are as follows (in
thousands):
Years Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Current:
Federal $(265) $ (20) $ (23)
State (47) (10) (1)
----- ----- -----
(312) (30) (24)
----- ----- -----
Deferred:
Federal (115) (386) (303)
State (20) (21) (16)
----- ----- -----
(135) (407) (319)
----- ----- -----
Provision for income taxes $(447) $(437) $(343)
===== ===== =====
F-17
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Income Taxes, continued:
The principal items accounting for the difference between income taxes
computed at the United States statutory rate and the provision for income
taxes reflected in the statements of operations are as follows:
Years Ended December 31,
-------------------------
1998 1997 1996
---- ---- ----
United States statutory rate (34.0)% (34.0)% (34.0)%
State taxes (net of federal tax benefit) (5.5) (3.9) (5.5)
Other (2.5) (2.5) (0.6)
----- ----- -----
(37.0)% (40.4)% (40.1)%
===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset are as follows (in thousands):
Years Ended December 31,
------------------------
1998 1997
---- ----
Allowance for doubtful accounts $ 126 $ 117
Accrued expenses and other reserves 606 352
Depreciation and amortization 60 (31)
General business credits 215
Net operating loss carryforwards 95
Installment sales (213)
Other 17 (17)
----- -----
Total deferred tax asset $ 596 $ 731
===== =====
The deferred tax is not reduced by a valuation allowance as management
believes it will fully realize the benefit from its deferred tax assets.
Realization is dependent on generating sufficient taxable income prior to
expiration of the loss carryforwards. Although realization is not
assured, management believes it is more likely than not that all of the
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
F-18
<PAGE>
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Segments and Geographic Sales:
The Company has adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information",
effective for fiscal years beginning after December 31, 1997. SFAS 131
supersedes Statement of Financial Accounting Standards No. 14 ("SFAS
14"), "Financial Reporting for Segments of a Business Enterprise". SFAS
131 changes current practice under SFAS 14 by establishing a new
framework on which to base segment reporting and also requires interim
reporting of segment information.
The Company operates in a single industry segment that manufactures,
markets and sells fiber optic lighting products. The Company markets its
products for worldwide distribution primarily through independent sales
representatives, distributors and swimming pool builders in North
America, Europe and the Far East.
A summary of geographic sales is as follows (in thousands):
Year Ended December 31,
---------------------------------
1998 1997 1996
---- ---- ----
U.S. Domestic $18,912 $14,736 $13,294
European subsidiaries 768 0 0
Export 3002 3,135 2,282
------- ------- -------
$22,682 $17,871 $15,576
======= ======= =======
13. Employee Retirement Plan:
The Company maintains a 401(k) profit sharing plan for its employees who
meet certain qualifications. The Plan allows eligible employees to defer
up to 15% of their earnings, not to exceed the statutory amount per year
on a pretax basis through contributions to the Plan. The Plan provides
for employer contributions at the discretion of the Board of Directors;
however, no such contributions were made in 1998, 1997 and 1996.
14. Related Party Transactions:
During 1998 and 1997, the Company advanced a total of $30,000 in each
year to certain officers by way of promissory notes. The notes are
collateralized by certain issued or potentially issuable shares of the
Company's common stock. The notes bear interest at rates ranging from 6%
to 8% per annum and are repayable at various dates through April, 1999.
At December 31, 1998 and 1997, $196,000 and $161,000 were outstanding and
included with notes receivable.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Fiberstars, Inc.
Fremont, California
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Fiberstars,
Inc. and its subsidiaries (the Company) at December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
San Jose, California
February 4, 1999
F-20
================================================================================
ASSET PURCHASE AGREEMENT
by and among
FIBRE OPTICS INTERNATIONAL, INC.,
(a Washington corporation)
DOUGLAS S. CARVER,
DAVE M. CARVER
and
FIBERSTARS, INC.
(a California corporation)
Dated as of August 31, 1998
================================================================================
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS...................................................................1
1.1 Purchase and Sale of Acquired Assets..........................................................1
1.2 No Buyer Assumption of Liabilities............................................................2
1.3 Purchase Price for Acquired Assets............................................................2
1.4 Closing.......................................................................................2
1.5 Purchase Price Allocation.....................................................................3
1.6 Sales Tax.....................................................................................3
ARTICLE II CERTAIN REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDERS.............................4
2.1 Organization, Standing and Power..............................................................4
2.2 Authority.....................................................................................4
2.3 Subsidiaries..................................................................................5
2.4 Valid Ownership Effective Transfer of Necessary Rights........................................5
2.5 Financial Statements..........................................................................5
2.6 Absence of Certain Changes or Events..........................................................5
2.7 Absence of Liabilities........................................................................6
2.8 Litigation....................................................................................6
2.9 Restrictions on Business Activities...........................................................6
2.10 Real Property.................................................................................6
2.11 Inventory.....................................................................................7
2.12 Capital Equipment and Hard Assets.............................................................7
2.13 Proprietary Rights............................................................................7
2.14 Taxes.........................................................................................8
2.15 Employee Matters..............................................................................8
2.16 Compliance With Laws..........................................................................8
2.17 Environmental Matters.........................................................................9
2.18 Brokers' and Finders' Fees....................................................................9
2.19 Contracts.....................................................................................9
2.20 Insurance....................................................................................10
2.21 Customers....................................................................................10
2.22 Investment in Buyer Shares...................................................................11
2.23 Representations Complete.....................................................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER......................................................12
3.1 Organization, Standing and Power.............................................................12
3.2 Authority....................................................................................12
3.3 Validity of Buyer Shares.....................................................................12
3.4 Litigation...................................................................................12
3.5 Compliance With Laws.........................................................................12
3.6 Public Information...........................................................................13
3.7 Brokers' or Finders' Fees....................................................................13
3.8 Representations Complete.....................................................................13
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE IV COVENANTS OF THE PARTIES.....................................................................14
4.1 Representations and Warranties...............................................................14
4.2 Access to Documents..........................................................................14
4.3 Transition Services Performed by Dave M. Carver..............................................14
4.4 Covenant Not to Compete......................................................................14
4.5 No Publicity; Confidentiality................................................................15
4.6 Employee Matters.............................................................................15
4.7 Trademark Renewal............................................................................15
4.8 Piggyback Registration.......................................................................15
4.9 Post-Closing Buyer Covenants.................................................................16
4.10 Reasonable Best Efforts; Further Assurances..................................................16
ARTICLE V ESCROW; INDEMNIFICATION......................................................................16
5.1 Escrow Fund..................................................................................16
5.2 Indemnification..............................................................................16
5.3 Indemnification Procedure....................................................................17
ARTICLE VI CONDITIONS TO CLOSING........................................................................17
6.1 Buyer's Conditions to Closing................................................................17
6.2 Seller's Conditions to Closing...............................................................19
ARTICLE VII GENERAL PROVISIONS...........................................................................20
7.1 Survival at Closing..........................................................................20
7.2 Specific Performance.........................................................................20
7.3 Notices......................................................................................20
7.4 Interpretation...............................................................................21
7.5 Counterparts.................................................................................22
7.6 Entire Agreement; Nonassignability; Parties in Interest......................................22
7.7 Severability.................................................................................22
7.8 Remedies Cumulative..........................................................................22
7.9 Governing Law................................................................................22
7.10 Rules of Construction........................................................................22
7.11 Amendments and Waivers.......................................................................23
7.12 Expenses.....................................................................................23
</TABLE>
-ii-
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of August 31, 1998, by and among Fibre Optics International, Inc., a
Washington corporation ("Seller"), Douglas S. Carver and Dave M. Carver
(collectively, the "Shareholders"), and Fiberstars, Inc., a California
corporation ("Buyer") (the Seller, Shareholders and Buyer collectively referred
to as the "Parties").
RECITALS
A. Seller has been engaged in the build-to-order manufacturing, sale
and shipping of fiberoptics, lighting and signage business (the "Seller's
Business").
B. Seller wishes to sell to Buyer and Buyer wishes to purchase from
Seller, on the terms and for the consideration provided below, all the assets
relating to the Seller's Business as provided in this Agreement pursuant to the
closing of the transactions contemplated by this Agreement (the "Closing") on
the Closing Date (as defined in Section 1.4) (such transactions contemplated by
this Agreement being referred to as the "Acquisition").
C. The Shareholders and Boards of Directors of Seller and Buyer believe
it is in the best interests of their respective companies and the shareholders
of their respective companies that Seller sell to Buyer for the consideration
set forth below all the Acquired Assets (as defined hereafter) and, in
furtherance thereof, have approved same.
D. Seller and Buyer desire to make certain representations, warranties
and other agreements in connection with the Acquisition.
E. The Shareholders, as inducement for the Buyer to enter into this
Agreement with Seller, desire to make certain representations, warranties and
other agreements in connection with the Acquisition.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the Seller,
Shareholders and Buyer, intending to be legally bound, agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Acquired Assets. Subject to the terms and
conditions contained in this Agreement, Seller agrees to sell, assign, transfer
and deliver to Buyer, and Buyer agrees to purchase and accept from Seller, all
of Seller's right, title and interest in or to the Acquired Assets as set forth
on Schedule 1.1 attached hereto (together, the "Acquired Assets"), free and
clear of all liens, security interests, pledges, charges, claims, options,
rights, defects in title, restrictions or encumbrances of any kind or character
whatsoever ("Encumbrances", each
1
<PAGE>
an "Encumbrance" ) on the Closing Date; other than those permitted Encumbrances
set forth on Section 2.4 of the Seller Disclosure Schedule (as defined
hereafter).
1.2 No Buyer Assumption of Liabilities. Buyer shall not assume any
liabilities or obligations of any nature (matured or unmatured, fixed or
contingent) of Seller pursuant to this Agreement or the transactions
contemplated hereby other than (i) current liabilities accumulated in the normal
course of business which are itemized on the most recent balance sheet provided
in the Most Recent Balance Sheet (as defined in Section 2.5) to the Buyer as
part of Schedule 2.5 to this Agreement or (ii) future obligations under assumed
contracts expressly assumed by the Buyer as set forth on Schedule 1.2 (the
"Assumed Contracts") attached hereto, except payables to any shareholders, if
applicable.
1.3 Purchase Price for Acquired Assets. The Buyer agrees to pay Eight
Hundred Sixty Five Thousand U.S. Dollars ($865,000) (the "Purchase Price"), to
the Seller, at the Closing on the terms and subject to the conditions set forth
in this Agreement, by delivery of:
(i) a cash payment by wire transfer of immediately
available funds to such account as is specified by Seller, in the amount equal
to Three Hundred Fifteen Thousand and 05/100 U.S. Dollars ($315,000.05);
(ii) 103,108 shares of common stock of Buyer (the
"Shares") issued in the name of Fibre Optics International, Inc. and valued in
the aggregate amount of Four Hundred Sixty-Three Thousand Five Hundred One and
39/100 U.S. Dollars ($463,501.39) based upon the average of the closing price
per share on the ten (10) trading days immediately preceding the Closing (such
price being $4.4953 per share, the "Closing Price");
(iii) a deposit into escrow of 19,242 shares of
common stock of Buyer issued in the name of Fibre Optics International, Inc. and
valued in the aggregate amount of Eighty-Six Thousand Four Hundred Ninety-Eight
and 56/100 U.S. Dollars ($86,498.56) based upon the Closing Price (the "Escrow
Shares") in accordance with Section 5.1 below (all Escrow Shares and Shares
collectively the "Buyer Shares").
1.4 Closing.
(a) Closing. The Closing shall be held at the offices of Gray
Cary Ware & Freidenrich LLP, at 100 Congress Avenue, Suite 1440, Austin, Texas
78701 or at such time and place as may be mutually agreed upon by the Parties to
this Agreement, at 10:00 a.m. on August 31, 1998 (the "Closing Date").
2
<PAGE>
(b) Delivery At Closing. At the Closing:
(i) Seller shall deliver to Buyer an Assignment and
Bill of Sale in the form attached hereto as Exhibit A duly transferring the
Acquired Assets to Buyer (the "Bill of Sale").
(ii) Buyer shall deliver to Seller the Purchase Price
as set forth in Section 1.3 above.
(iii) Seller and Buyer shall deliver or cause to be
delivered to one another such other certificates, instruments and documents
necessary or appropriate to evidence the due execution, delivery and performance
of this Agreement as set forth in Sections 6.1(f) and 6.2(e) below.
(iv) Seller shall deliver all books and records of
Seller regarding the Acquired Assets, including, without limitation, such
operating manuals and records necessary for Buyer to own and operate the
Acquired Assets in the ordinary course in Seller's possession or control.
(v) Seller, through its officers, agents and
employees, will put Buyer into full possession and enjoyment of all tangible
Acquired Assets, terms FOB Seller, unless Buyer otherwise specifies in writing
that title and risk of loss pass outside of California.
(c) Taking of Necessary Action; Further Action. If, at any
time after the Closing Date, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest Buyer with full right,
title and possession to all Acquired Assets, the officers and directors of
Seller are fully authorized in the name of Seller or otherwise to take, and will
take all such lawful and necessary and/or desirable action (including without
limitation obtaining any required consents or approvals).
1.5 Purchase Price Allocation. The Seller and Buyer agree to allocate
the Purchase Price (and all other capitalizable costs) among the Acquired Assets
for all purposes (including financial accounting and tax purposes) in accordance
with the allocation schedule attached hereto as Exhibit B.
1.6 Sales Tax. The Seller agrees that it promptly shall pay all sales
or similar taxes required to be paid by reason of the sale by the Seller to the
Buyer of the Acquired Assets pursuant to this Agreement, based upon the
allocation provided for in Exhibit B.
3
<PAGE>
ARTICLE II
CERTAIN REPRESENTATIONS AND WARRANTIES
OF SELLER AND SHAREHOLDERS
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" or "Material Adverse Change" with respect to any entity or group of
entities means any event, change or effect that is materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, business,
operations, results of operations or prospects of such entity and its
subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge. Except as set forth on Schedule 2 (the "Seller
Disclosure Schedule," whereby the exceptions will be arranged in sections
corresponding to the numbered representations and warranties set forth in this
Article II), the Seller and the Shareholders, hereby each jointly and severally
represent and warrant to Buyer the following as of the Closing Date:
2.1 Organization, Standing and Power. Seller is a corporation duly
organized and validly existing under the laws of the State of Washington. Seller
has the corporate power to own its properties and to carry on its business as
now being conducted and is duly qualified to do business in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect on
such entity or the Acquired Assets. Seller has delivered a true and correct copy
of its Articles of Incorporation and Bylaws or other charter documents, as
applicable, each as amended to date, to Buyer. Seller is not in violation of any
of the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents.
2.2 Authority. Seller has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Seller. This Agreement has been duly executed
and delivered by Seller and constitutes the valid and binding obligations of
Seller enforceable against Seller in accordance with its terms. The execution
and delivery of this Agreement by Seller do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the
organizational documents of Seller, or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Seller or any of their respective properties or assets. No
consent, approval, order or authorization of, or registration or declaration
with, any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental
4
<PAGE>
Entity") is required by or with respect to Seller in connection with the
execution and delivery of this Agreement or the consummation of the Acquisition
except for such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws.
2.3 Subsidiaries. Seller does not directly or indirectly own any equity
or similar interest or any interest convertible or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
2.4 Valid Ownership Effective Transfer of Necessary Rights.
(a) Ownership. Seller owns and has good and marketable title
to all of the Acquired Assets free and clear of all Encumbrances, and has the
rights to sell, assign, transfer, and deliver the Acquired Assets.
(b) Effective Transfer of Necessary Rights. Upon the Closing,
by means of this Agreement, together with the documents, instruments and
agreements contemplated hereby, Seller will transfer good and marketable title
to all Acquired Assets (including the Intellectual Property, as defined
hereafter) to Buyer, free and clear of all Encumbrances. The Acquired Assets
transferred to Buyer pursuant to this Agreement, and the documents, instruments
and agreements contemplated hereby will include all necessary assets and
intellectual property rights related to the Seller's Business, free and clear of
all Encumbrances.
2.5 Financial Statements. Seller has delivered to Buyer the following
financial statements for the Seller (collectively the "Financial Statements")
which are attached hereto as Schedule 2.5:
(a) unaudited consolidated balance sheets and statements of
income as of and for the fiscal years ended June 30, 1996, June 30, 1997 and
June 30, 1998 (the "Most Recent Fiscal Year End"); and
(b) unaudited consolidated balance sheet for the purpose of a
Closing balance sheet dated as of August 31, 1998 (the "Most Recent Balance
Sheet").
2.6 Absence of Certain Changes or Events. Since the Most Recent Fiscal
Year End, Seller has conducted the Seller's Business in the ordinary and usual
course and, without limiting the generality of the foregoing, has not:
(i) suffered any Material Adverse Change;
(ii) sold, leased, transferred or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
ordinary course of business;
(iii) suffered any damage, destruction or loss,
whether or not covered by insurance, in an amount exceeding Five Thousand U.S.
Dollars ($5,000);
5
<PAGE>
(iv) granted or agreed to make any increase in
compensation payable to Seller's employees other than those occurring in the
ordinary course of business consistent with Seller's past practices with respect
to the Seller's Business;
(v) permitted or allowed the Acquired Assets to be
subjected to any Encumbrance of any kind;
(vi) made any capital investment in, any loan to, or
any acquisition of the securities or assets of any individual, partnership,
corporation, association, trust, joint venture, unincorporated organization, or
Governmental Entity in an amount exceeding Five Thousand U.S. Dollars ($5,000);
(vii) issued any note, bond or other debt security or
created incurred, assumed, or guaranteed any indebtedness for borrowed money or
capitalized lease obligation either involving more than Five Thousand U.S.
Dollars ($5,000) in the aggregate;
(viii) made any changes in the accounting method or
practices it follows, whether for general financial, or tax purposes, or any
change in depreciation or amortization policy or rates adopted therein;
(ix) made any cash withdrawals or disbursements from
the Seller's accounts outside of its ordinary course of business; or
(x) agreed to take any action described in this
Section 2.6 outside of its ordinary course of business or which would constitute
a breach of any of the representations contained in this Agreement.
2.7 Absence of Liabilities. Seller has no obligations or liabilities of
any nature (matured or unmatured, fixed or contingent) other than as disclosed
on the Most Recent Balance Sheet or as Assumed Contracts, and Buyer shall not
assume any liabilities or obligations of Seller as a result of its purchase of
the Acquired Assets.
2.8 Litigation. There is no private or governmental action, proceeding,
claim, arbitration or investigation pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Seller, threatened
against Seller (with respect to the Seller's Business), or that could prevent,
enjoin, or materially alter or delay any of the transactions contemplated by
this Agreement.
2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Seller which has or could
reasonably be expected to have the effect of prohibiting or impairing Buyer's
future operation of the Seller's Business.
2.10 Real Property. Schedule 1.1 contains descriptions of all real
property owned by Seller or used or held for use in connection with the Seller's
Business and leases or licenses or other rights to possession of any real
property so used or held (collectively the "Real Property"). Seller has
delivered to Buyer correct and complete copies of any leases or subleases
related to
6
<PAGE>
such Real Property. With respect to the Real Property, Seller has good and
marketable title to their interest in such Real Property, free and clear of all
Encumbrances, except for liens to be released prior to or at Closing, if
applicable, or those Encumbrances of record that are usual or customary. With
respect to each lease (i) the leases are in full force and effect, and are
valid, binding and enforceable in accordance with their respective terms, (ii)
all accrued and currently payable rents and other payments required by such
leases have been paid, (iii) Seller is not in default in any respect under any
such leases and no notice of default or termination has been given or received,
and (iv) Seller has not violated any term or condition under any such lease. No
third-party consent or approval is required for the assignment of any such lease
to Buyer, or for the consummation of the transactions contemplated herein. To
the extent that any third-party consent or approval is required, such consent or
approval shall be provided by Seller to Buyer prior to the Closing Date. Seller
shall obtain appropriate estoppel letters with respect to any other persons or
entities with an interest in the Leased Property, in a form reasonably
satisfactory to Buyer.
2.11 Inventory. The inventory included in the Acquired Assets
(including raw materials, work in progress and finished goods) is as set forth
on Schedule 1.1 and constitutes substantially all of the inventory relating to
the Seller's Business. Such inventory is identified as to those items which are
consistent with the current version of the Seller's Business product(s) and
those items which are either inconsistent with such current version or otherwise
obsolete or damaged. Seller has also identified on Schedule 1.1 all inventory
that is on loan or consignment to customers, sales offices or design centers of
the Seller's Business and the location of such inventory.
2.12 Capital Equipment and Hard Assets. All tangible assets listed on
Schedule 1.1 are in substantially good condition and repair and are adequate for
the uses to which they are being put or would be put in the ordinary course of
business consistent with industry standards.
2.13 Proprietary Rights.
(a) Seller neither owns nor is licensed under any patents or
patent applications. Seller owns all rights, titles and interest in and to or
has obtained licenses, whenever necessary and appropriate, to use all
technology, software, software tools, know-how, processes, trade secrets, trade
names, copyrights and other proprietary rights included in the Acquired Assets.
Schedule 2.13 contains an accurate and complete description of (i) all
trademarks and tradenames in or related to the Acquired Assets, and a list of
all licenses and other agreements relating thereto, and (ii) a list of all
licenses and other know-how, or processes that Seller is licensed or otherwise
authorized by such third parties to use, market, distribute or incorporate into
the Acquired Assets (such software, technology, know-how and processes are
collectively referred to as the "Third Party Technology"). No claims have been
asserted against Seller (and Seller is not aware of any claims which are likely
to be asserted against it or which have been asserted against others) by any
person challenging or questioning the validity or effectiveness of any license
or agreement relating thereto. To the best knowledge of Seller, none of the
Acquired Assets nor the use of any trademarks, tradenames, copyrights, software,
technology, know-how or processes contained in the Acquired Assets infringes on
the rights of,
7
<PAGE>
constitutes misappropriation of, or in any way involves unfair competition with
respect to, any proprietary information or intangible property right of any
third person or entity, including without limitation any patent, trade secret,
copyright, trademark or tradename.
(b) Except as set forth in Schedule 2.13, Seller has not
granted any third party any right to manufacture, reproduce, distribute, market
or exploit any of the Acquired Assets or any adaptations, translations, or
derivative works based on the Acquired Assets or any portion thereof.
(c) All designs, drawings, specifications, source code, object
code, documentation, flow charts and diagrams incorporating, embodying or
reflecting any of the Acquired Assets at any stage of their development were
written, developed and created solely and exclusively by employees of Seller
without the assistance of any third party or entity or were created by third
parties who assigned ownership of their rights to Seller in valid and
enforceable consultant confidentiality and invention assignment agreements.
Seller has kept secret and has not disclosed the source code for the software
included within the Acquired Assets to any person or entity other than certain
employees of Seller who are subject to the terms of a binding confidentiality
agreement with respect thereto. Seller has taken all appropriate measures to
protect the confidential and proprietary nature of such software.
2.14 Taxes. Seller has timely filed within the time period for filing
or any extension granted with respect thereto all federal, state, local and
other returns and reports relating to any and all taxes or any other
governmental charges, obligations or fees for taxes and any related interest or
penalties ("Tax" or "Taxes") required to be filed by it with respect to the
Seller's Business and the Acquired Assets and such returns and reports are true
and correct. The Company has withheld and paid all Taxes required to be withheld
and paid, with respect to (i) such returns and reports, (ii) all employees,
independent contractor, shareholder, or other third party related to the
Seller's Business, and (iii) all sales, use and similar Taxes. No income, sales,
use or similar Tax return or report of the Company has been examined or audited
by the Internal Revenue Service or any state taxing authority. There are no
pending or, to the best of the Company's knowledge, threatened audits,
examinations, assessments, asserted deficiencies or claims for additional Taxes.
2.15 Employee Matters. Seller has no employee or consultant benefit
plans or agreements, and to the extent it has had any of the foregoing in the
past, Seller has no liabilities or obligations relating in any way whatsoever to
the same.
2.16 Compliance With Laws. Seller has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation (including, without
limitation, laws and regulations relating to labor matters) with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect on Seller.
Seller has obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a Governmental Entity
(i) pursuant to which Seller currently operates or holds
8
<PAGE>
any interest in any of its properties or (ii) that is required for the operation
of Seller's business or the holding of any such interest (collectively referred
to as "Seller Authorizations"), and all of such Seller Authorizations are in
full force and effect, except where the failure to obtain or have any such
Seller Authorizations could not reasonably be expected to have a Material
Adverse Effect on Seller or the Acquired Assets.
2.17 Environmental Matters.
(a) To the best of Shareholders' knowledge, Seller has
complied in all material respects with all federal, state and local
environmental laws, rules and regulations as in effect on the date hereof
applicable to the Seller's Business and its operations. To the best of Seller's
and Shareholders' knowledge, no hazardous or toxic waste, substance, material or
pollutant (as those or similar terms are defined under the Comprehensive
Environmental Response, Compensation and Liability act of 1980, as amended, 42
U.S.C. ss.ss.9601 et seq., Toxic Substances Control Act, 15 U.S.C. ss.ss.2601 et
seq., or any other applicable federal, state and local environmental law,
statute, ordinance, order, judgment, rule or regulation relating to the
environment or the protection of human health ("Environmental Laws")), have been
released, emitted or discharged or are currently located in, on, under, or about
the real property on which the Acquired Assets are situated or contained in the
tangible personal property included in the Acquired Assets. To the best of
Shareholders' knowledge, the Acquired Assets and Seller's use thereof are not in
violation of any Environmental Laws or any occupational, safety and health or
other applicable law now in effect. Seller shall be, as of the Closing Date and
thereafter, solely responsible for all environmental liabilities, of whatever
kind and nature, arising out of or attributable to the operation or ownership of
the Acquired Assets prior to the Closing Date.
(b) No Notice of Lack of Compliance with Environmental Laws.
Neither Seller nor the Shareholders have been notified by any governmental
authority of any violation by Seller or the Shareholders of any Environmental
Laws.
2.18 Brokers' and Finders' Fees. Seller has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.19 Contracts.
(a) Schedule 2.19 lists all contracts (collectively the
"Contracts", each a "Contract" ) currently in force with any third party,
including but not limited to, (i) agreements, contracts or commitments that call
for fixed and/or contingent payments or expenditures by or to the Seller of more
than Five Thousand Dollars ($5,000); or (ii) agreements, contracts or
commitments with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than thirty (30) days and without liability, penalty or
premium; or (iii) agreement to loan or advance any sums to any person, any line
of credit, standby financing, revolving credit or other similar financing
arrangement of any sort.
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(b) Seller is not restricted by agreement from carrying on its
business anywhere in the world.
(c) Except as set forth on Schedule 2.19, Seller is not under
any liability or obligation, and no such outstanding claim has been made, with
respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers, or other customers, except such
liabilities, obligations and claims as, in the aggregate, do not exceed Five
Thousand Dollars ($5,000).
(d) Seller has not guaranteed any obligations of other persons
or made any agreements to acquire or guarantee any obligations of other persons.
(e) All material contracts, agreements and instruments to
which Seller is a party are valid, binding, in full force and effect, and
enforceable by Seller in accordance with their respective terms. No such
material contract, agreement or instrument contains any material liquidated
damages, penalty or similar provision. To the best of Seller's knowledge, no
party to any such material contract, agreement or instrument intends to cancel,
withdraw, modify or amend such contract, agreement or arrangement. No Contract
requires any third party's consent, approval or waivers in connection with the
execution and delivery of this Agreement or the consummation of the Acquisition.
To the extent that any third-party consent or approval is required, such consent
or approval shall be provided by Seller to Buyer prior to the Closing Date.
(f) Seller is not in default under or in breach or violation
of, nor, to Seller's knowledge, is there any valid basis for any claim of
default by Seller under, or breach or violation by Seller of, any contract,
commitment or restriction to which Seller is a party or to which it or any of
its properties is bound, where such defaults, breaches, or violations would, in
the aggregate, have a Material Adverse Effect on the operations, assets,
financial condition or prospects of Seller. To the best of Seller's knowledge,
no other party is in default under or in breach or violation of, nor is there
any valid basis for any claim of default by any other party under or any breach
or violation by any other party of, any material contract, commitment, or
restriction to which Seller is bound or by which any of its properties is bound,
where such defaults, breaches, or violations would, in the aggregate, have a
Material Adverse Effect on the operations, assets, financial condition or
prospects of Seller.
2.20 Insurance. Seller maintains insurance policies providing general
coverage for full replacement value against risks commonly insured against. All
of such policies are in full force and effect and Seller is not in breach or
default of any provision thereof and no event has occurred which, with notice or
the lapse of time, would constitute such a breach or default, or permit
termination, modification or acceleration, under such policies. Seller has not
received notice from any issuer of any such policies of its intention to cancel,
terminate or refuse to renew any policy issued by it.
2.21 Customers . Seller has provided Buyer with a list of substantially
all customers of the Seller's Business for the last three (3) years, together
with a schedule of such customers' orders and specifying which orders (whether
for revenue or not) have not yet been filled, and of
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those orders which have been filled, those as to which revenue has been
recognized, the amount (if any) of cash collected and the amount of revenue
deferred. Additionally, Seller has provided Buyer, for each listed customer
order, a brief description of the status of that installation and any further
commitments, contingencies, milestones or customer expectations with regard to
that order.
2.22 Investment in Buyer Shares.
(a) Seller (i) understands that the Buyer Shares have not been
and will not be, registered under the Securities Act of 1933, as amended (the
"Securities Act"), or under any state securities laws, and are being acquired in
reliance upon federal and state exemptions from registration requirements
thereof, (ii) is acquiring the Buyer Shares solely for its own account for
investment purposes, and not with a view to the distribution thereof, (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters as to be capable of evaluating the merits and risks of an investment in
Buyer, (iv) acknowledges that it has received all information it desires
concerning Buyer, its common stock and any other matter it deems relevant or
material to evaluating the merits and risks inherent in holding the Buyer
Shares, (v) is able to bear the economic risk of investment and lack of
liquidity inherent in holding the Buyer Shares.
(b) Seller understands that the Buyer Shares may not be sold,
transferred or otherwise disposed of without registration under the Securities
Act or reliance upon an exemption therefrom, and that in the absence of an
effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Buyer Shares must be
held until a transfer or disposition of the Buyer Shares is otherwise permitted
pursuant to the Securities Act or applicable state securities laws. To the
extent applicable, each certificate or other document evidencing any of the
Buyer Shares shall be endorsed with the following restrictive legend:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED
ABSENT AN EFFECTIVE REGISTRATION THEREOF, OR EXEMPTION
THEREUNDER, UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT."
2.23 Representations Complete. None of the representations or
warranties made by Seller herein or in any Schedule hereto, or certificate
furnished by Seller pursuant to this Agreement, when all such documents are read
together in their entirety, contains any untrue statement of a material fact, or
omits any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 Organization, Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Buyer has the corporate power to own its properties and to carry on
its business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Buyer. Buyer is not in violation of any of the provisions of
its Articles of Incorporation or Bylaws or equivalent organizational documents.
3.2 Authority. Buyer has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes the valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms. The execution and
delivery of this Agreement by Buyer does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the Articles of
Incorporation or Bylaws of Buyer or any of its subsidiaries, as amended, or (ii)
any material mortgages indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Buyer or any of its
respective properties or assets. No consent, approval, order or authorization
of, or registration or declaration with, any Governmental Entity is required by
or with respect to Buyer in connection with the execution and delivery of this
Agreement or the consummation of the Acquisition except for such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws.
3.3 Validity of Buyer Shares. The Buyer Shares, when issued and
delivered to Seller in accordance with this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable.
3.4 Litigation. There is no private or governmental action, proceeding,
claim, arbitration or investigation pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Buyer, threatened against
Buyer, or that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement.
3.5 Compliance With Laws. Buyer has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation (including, without
limitation, laws and regulations relating to labor matters) with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not, individually or in the
aggregate, be
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reasonably expected to have a Material Adverse Effect on Buyer. Buyer has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Buyer currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Seller's business or
the holding of any such interest, and all of such authorizations are in full
force and effect, except where the failure to obtain or have any such
authorizations could not reasonably be expected to have a Material Adverse
Effect on Buyer.
3.6 Public Information.
(a) The Buyer shall make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following the effective date
of the first registration of the Company under the Securities Act of an offering
of its securities to the general public.
(b) The Buyer shall file with the Securities Exchange
Commission (the "Commission") in a timely manner all reports and other documents
the Commission may prescribe under Section 13(a) or 15(d) of the Exchange Act at
any time after the Buyer has become subject to such reporting requirements of
the Exchange Act.
(c) The Buyer shall furnish to a holder and/or a prospective
purchaser of such Shares or Escrow Shares (a "Holder"), forthwith upon request
(i) a written statement by the Buyer as to its compliance with the reporting
requirements of Rule 144 under the Securities Act (at any time from and after 90
days following the effective date of the first registration statement of the
Company for an offering of its securities to the general public) and of the
reporting requirements of the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent annual
or quarterly report of the Company, (iii) any other reports and documents
necessary to satisfy the information-furnishing condition to offers and sales
under Rule 144A under the Securities Act, and (iv) such other reports and
documents as a Holder of any Shares or Escrow Shares reasonably requests to
avail itself of any rule or regulation of the Commission allowing such Holder to
sell any such securities without registration.
3.7 Brokers' or Finders' Fees. Buyer is not a party to, or in any way
obligated under, and has no knowledge of, any contract or outstanding claim for
the payment of any broker's or finder's fee in connection with the origin,
negotiation, execution or performance of this Agreement, the nonpayment of which
could result in the placement of a lien or other encumbrance on the Acquired
Assets, or a claim against Buyer or its affiliates.
3.8 Representations Complete. None of the representations or warranties
made by Buyer herein or in any Schedule hereto, or certificate furnished by
Buyer pursuant to this Agreement, when all such documents are read together in
their entirety, contains any untrue statement of a material fact, or omits any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
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ARTICLE IV
COVENANTS OF THE PARTIES
4.1 Representations and Warranties. On or after the Closing, Buyer,
Seller or each of the Shareholders shall give detailed written notice to the
other parties promptly upon learning of any fact which would render untrue any
of the Party's representations or warranties contained in this Agreement or the
information contained in any Schedule to this Agreement.
4.2 Access to Documents. If, after the Closing Date, (i) in order to
properly prepare its tax returns or other documents or reports required to be
filed with governmental authorities or its financial statements; (ii) in
connection with any threatened or pending litigation or claim which involves or
may involve Buyer; or (iii) for any other reasonable purpose, it is necessary
that Buyer be furnished with additional information or documents relating to the
Acquired Assets and such information or documents are in the possession of
Seller or Shareholders, and can reasonably be furnished to Buyer, Seller or
Shareholders shall, upon written request therefor, promptly furnish such
information or documents to Buyer. Buyer shall reimburse the Seller or
Shareholders providing such information or documents for the cost of copying or
shipping any requested documents.
4.3 Transition Services Performed by Dave M. Carver. The Buyer hereby
agrees to pay Dave M. Carver an hourly rate of $50 per hour for work performed
by Dave M. Carver on behalf of the Seller which is (i) reasonable and
appropriate for the transition and continuation of the Seller's Business and
(ii) authorized by the Chief Financial Officer of the Buyer or such officer that
Buyer may designate from time to time prior to the work being performed. Dave M.
Carver shall be responsible for providing a good-faith report of such work
performed and hours worked to such officer of the Buyer.
4.4 Covenant Not to Compete. As of the Closing Date, Dave M. Carver, by
executing this Agreement, hereby agrees to enter into a five (5) year
non-compete agreement covering the geographic territory in which the Seller
currently does business, which agreement shall preclude solicitation or hiring
of former employees of Seller hired by Buyer without Buyer's prior written
consent, and further agrees that for a period of five (5) years from the
Effective Date he will not, directly or indirectly, individually or as an owner,
partner, shareholder, joint venturer, employee, consultant, principal, agent,
trustee or licensor, or in any other similar capacity whatsoever of or for any
person, firm, partnership, company or corporation (other than Buyer), (a) own,
manage, consult with, operate, sell, control or participate in the ownership,
management, operation, sales or control of (i) any business that competes with
the business of Buyer (whether through stand-alone products or broader products
that include equivalent functionality), and/or (ii) any business engaged in the
design, research, development, marketing, sales, manufacturing or licensing of
products that are substantially similar to or competitive with any products of
Buyer (whether through stand-alone products or broader products that include
equivalent functionality); (b) accept to provide consulting services on behalf
of a customer of Buyer with the intent or purpose of depriving Buyer of business
performed by Buyer by transferring such work to a department, division or
affiliate of the customer or to a third party; or (c) request or advise any of
the
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customers, suppliers or other business contacts of Buyer to withdraw, curtail,
cancel or not increase their business with Buyer.
4.5 No Publicity; Confidentiality. Without the consent of the other
party, which consent may be granted by David Ruckert on behalf of Buyer, and
Doug Carver on behalf of Seller, none of the Parties shall reveal the existence
of or contents of this Agreement or make any internal or public announcements
except to their respective professional advisors or as otherwise required by
applicable law. The Parties acknowledge and agree that all confidential material
or information delivered as part of any due diligence performed by the Parties
shall be kept completely confidential by the Parties and the Parties' respective
agents, representatives, or employees to any third party in any manner
whatsoever, in whole or in part, without the prior written consent of the other
party or by order of a court of competent jurisdiction. Each of the Parties
agree to undertake reasonable precautions to safeguard and protect the
confidentiality of all such confidential information, to accept responsibility
for any breach of this Agreement by itself, or representatives or members of its
organization, and at its sole expense to take all reasonable measures (including
but not limited to court proceedings) to restrain its representatives or members
of its organization from prohibited or unauthorized disclosure or uses of
confidential information.
4.6 Employee Matters. At the Closing Date, Buyer agrees to enter into
an employment agreement with Doug Carver in substantially the form attached
hereto as Exhibit C (the "Employment Agreement").
4.7 Trademark Renewal. Within 30 days of the Closing Date, the Seller
on behalf of the Seller or Buyer (as mutually determined by the Parties) shall
have filed or shall have cause to be filed an application for registration for
the trademark as originally issued under Registration Number 1536793 for the
design mark "Fibre Optics International, Inc." with the United States Patent and
Trademark Office (the "Trademark Renewal"); provided that all reasonable costs
(including attorney's fees) associated to such Trademark Renewal shall be borne
by the Seller and the Shareholders.
4.8 Piggyback Registration.
(a) Notice of Registration. If, at any time after the one-year
anniversary and before the two-year anniversary of the Closing Date, Buyer shall
determine to register any of its equity securities, either for its own account
or for the account of a security holder or holders, other than a registration
relating solely to employee benefit plans or a registration relating solely to a
Rule 145 transaction, Buyer will:
(i) promptly give written notice to Seller or the
Shareholders, if applicable, for so long as it continues to hold the
registration rights contained herein (each for the purposes of this Section 4.7,
a "Holder"), and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Buyer
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Shares specified in a written request or requests, made within thirty (30) days
after receipt of such written notice from Buyer, by any Holder.
(b) Right to Terminate Registration. The registration rights
granted under this Section 4.7 are solely piggyback in nature, and the Buyer
shall have the right to terminate or withdraw any registration initiated by it
under this Section 4.7 prior to the effectiveness of such registration, whether
or not any Holder has elected to include securities in such registration.
4.9 Post-Closing Buyer Covenants. In accordance with Buyer's Stock
Option Plan, a copy of which has been provided to Seller, and Buyer's policy for
granting options, Buyer hereby agrees to (i) grant an option to purchase 7,500
shares of common stock of the Buyer to Steve Fancher and (ii) grant options to
Douglas S. Carver under the Employment Agreement at the next meeting of the
Board Compensation Committee of the Buyer to be held as soon as reasonably
practicable after the Closing Date.
4.10 Reasonable Best Efforts; Further Assurances. Each of the Parties
to this Agreement shall use its or their reasonable best efforts to effectuate
the transactions contemplated hereby and to fulfill and cause to be fulfilled
the conditions to closing under this Agreement. Each party hereto, at the
reasonable request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
ARTICLE V
ESCROW; INDEMNIFICATION
5.1 Escrow Fund. As soon as practicable after the Closing, the Escrow
Shares shall be deposited in an escrow with the Bank of San Francisco (or other
institution selected by Buyer with the reasonable consent of Seller) as escrow
agent (the "Escrow Agent"), such deposit to constitute the "Escrow Fund" and to
be governed by the terms set forth herein and in the escrow agreement attached
hereto as Exhibit D (the "Escrow Agreement"). The Escrow Fund shall be available
to compensate Buyer pursuant to the indemnification obligations of Seller set
forth in this Agreement, with respect to Damages (as defined below) arising by
reason of Seller's failures under Section 5.2 hereafter. The Escrow Fund shall
act as partial security for Seller's indemnification obligations set forth in
this Agreement, but shall not serve as Buyer's exclusive remedy with respect
thereto. The Escrow Fund shall be released upon the later of (i) February 28,
1999 and (ii) completion of delivery of all Acquired Assets by Seller to Buyer
(the "Escrow Period"), as provided in and subject to the terms of the Escrow
Agreement.
5.2 Indemnification.
(a) Indemnification by Seller and Shareholders. Subject to the
limitations set forth in this Article V, Seller and Shareholders, jointly and
severally, will defend, indemnify, and
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hold harmless Buyer and its respective officers, directors, agents and
employees, and each person, if any, who controls or may control Buyer within the
meaning of the Securities Act (individually, an "Indemnified Person" and
collectively, "Indemnified Persons"), and shall reimburse Indemnified Persons,
for, from and against any and all losses (which shall include any diminution in
value), costs, damages, liabilities and expenses arising from claims, demands,
actions and causes of action, including, without limitation, reasonable legal
fees, (collectively, "Damages") arising out of (i) any misrepresentation or
breach of or default in connection with any of the representations, warranties,
covenants and agreements given or made by Seller or Shareholders in this
Agreement, or any exhibit or other schedule to this Agreement, or (ii)
transactions, events, acts or omissions of or by Seller or Shareholders relating
to the Seller's Business on or before the Closing.
(b) Indemnification by Buyer. Subject to the limitations set
forth in this Article V, Buyer shall defend, indemnify and hold harmless Seller
and the Shareholders, and shall reimburse Seller and the Shareholders, for, from
and against all Damages arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties, covenants or
agreements given or made by Buyer in this Agreement or any exhibit or other
schedule to this Agreement.
(c) Limitations. In no event shall the liability under
Sections 5.2(a) or (b) exceed the amount of the Purchase Price (such that the
Buyer Shares shall remain valued at the Closing Price); provided, however, to
the extent Buyer Shares are valued less than the Closing Price at the time in
which indemnification is sought, Buyer's remedy as to the amount of the Purchase
Price shall be limited to that amount which takes into account such value of the
Buyer Shares.
(d) Threshold. Buyer will not be entitled to make a claim
against Seller or the Shareholders under Section 5.2(a) and the Seller or
Shareholders will not be entitled to make a claim against the Buyer under
Section 5.2(b) unless and until the aggregate amount of indemnifiable losses
incurred exceeds Ten Thousand U.S. Dollars ($10,000). At such time, such
aggregate threshold amount shall be fully and completely subject to all prior
claims and, for purposes of Buyer's claims, payable from the Escrow Fund subject
to the terms and conditions of the Escrow Agreement.
(e) Indemnification Procedure Proceeding Against the Escrow
Fund. All claims for indemnification asserted against the Escrow Fund shall be
asserted and resolved as set forth in the Escrow Agreement.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Buyer's Conditions to Closing. The obligations of Buyer hereunder
are subject to fulfillment or satisfaction, on and as of the Closing, of each
the following conditions (any one or more of which may be waived by the Buyer):
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(a) Representations and Warranties. Each of the
representations and warranties Seller and Shareholders have set forth in Article
II above shall be true and correct in all material respects at and as of the
Closing Date.
(b) Performance. All of the terms, covenants and conditions of
this Agreement to be complied with and performed by the Seller and Shareholders
at or prior to the Closing shall have been duly complied with and performed in
all material respects.
(c) No Injunction. There shall be no effective injunction,
writ, preliminary restraining order or any order of any nature issued by a court
of competent jurisdiction restraining or prohibiting the consummation of the
transactions contemplated hereby.
(d) No Proceeding or Litigation. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding against any party hereto by or before any governmental entity
requesting or looking toward an order, judgment or decree that (i) restrains or
prohibits the consummation of the transactions contemplated hereby, or (ii)
would have a material adverse effect on Buyer's ability to exercise control over
or manage the Acquired Assets or the Seller's Business after the Closing.
(e) Consents. All material written consents, approvals,
assignments, waivers or authorizations, including Seller Authorizations and
other consents scheduled hereto, that are required to be obtained as a result of
the transactions contemplated by this Agreement or for the continuation in full
force and effect of any of the Contracts shall have been obtained.
(f) Delivery of Deliverables. Seller and Shareholders shall
deliver or cause to be delivered each of the following deliverables, duly
executed and/or reasonably satisfactory in form and substance to Buyer, to Buyer
at the Closing:
(i) the Acquired Assets by making the Acquired Assets
available to Buyer;
(ii) a certificate signed by the President of the
Seller to the effect that each of the conditions specified above in Section
6.1(a)-(d) is satisfied in all material respects;
(iii) all required third party and Governmental
Entity consents in accordance with Section 6.1(e);
(iv) the executed opinion of Bulivant Houser Bailey,
P.C., as Seller's Counsel, dated as of the Closing Date and substantially in the
form attached as Exhibit E hereto;
(v) executed copies of the Bill of Sale, the
Employment Agreement, a Certification of Non Foreign Status completed by the
Seller, and the Escrow Agreement;
(vi) a certificate, signed by the Secretary of
Seller, certifying as to the truth and accuracy of and attaching copies of all
board of directors resolutions adopted in connection with the Acquisition; and
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(vii) completed Schedules to this Agreement, as
applicable to the Seller and/or Shareholders.
(g) Other Matters. All actions required to be taken by Sellers
and Shareholders in connection with consummation of the transactions
contemplated hereby and all certificates, instruments, and other documents
required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to Buyers.
6.2 Seller's Conditions to Closing. The obligations of Seller hereunder
are subject to fulfillment or satisfaction, on and as of the Closing, of each of
the following conditions (any one or more of which may be waived by Seller, but
only in a writing signed by Seller):
(a) Representations and Warranties. Each of the
representations and warranties Buyer has set forth in Article III above shall be
true and correct in all material respects at and as of the Closing Date.
(b) Performance. All of the terms, covenants and conditions of
this Agreement to be complied with and performed by the Buyer at or prior to the
Closing shall have been duly complied with and performed in all material
respects.
(c) No Injunction. There shall be no effective injunction,
writ, preliminary restraining order or any order of any nature issued by a court
of competent jurisdiction restraining or prohibiting the consummation of the
transactions contemplated hereby.
(d) No Proceeding or Litigation. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding against any party hereto by or before any governmental entity
requesting or looking toward an order, judgment or decree that restrains or
prohibits the consummation of the transactions contemplated hereby.
(e) Delivery of Deliverables. Buyer shall deliver each of the
following Deliverables, duly executed and/or reasonably satisfactory in form and
substance to Buyer, to Buyer at the Closing:
(i) the Purchase Price in the form and manner
required under Section 1.3 above;
(ii) the executed opinion of Gray Cary Ware &
Freidenrich LLP, counsel to Buyer, in substantially the form attached hereto as
Exhibit F;
(iii) executed copies of the Escrow Agreement, the
Employment Agreement, and the resale certificate, in substantially the form
attached hereto as Exhibit G (the "Resale Certificate");
(iv) a certificate signed by an authorized officer of
the Buyer to the effect that each of the conditions specified above in Section
6.2(a)-(b) is satisfied in all material respects;
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(v) a certificate, signed by the Secretary of Buyer,
certifying as to the truth and accuracy of and attaching copies of all board of
directors resolutions adopted in connection with the Acquisition; and
(vi) completed Schedules to this Agreement, as
applicable to the Buyer.
(f) Other Matters. All actions required to be taken by Buyer
in connection with consummation of the transactions contemplated hereby and all
certificates, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to Seller.
ARTICLE VII
GENERAL PROVISIONS
7.1 Survival at Closing. The representations, warranties and agreements
set forth in this Agreement shall survive the Closing, except the
representations, warranties and/or agreements set forth in Article II, Article
III and Article IV shall survive until the latest of (i) the second anniversary
of the Closing; (ii) with respect to Section 2.13 (Taxes) the expiration of all
applicable statutes of limitations; and (iii) final resolution of any pending
claim under Article VI (but only as to such pending claim or claims).
7.2 Specific Performance. The Parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Moreover, each party's obligation under this Agreement is unique. If any party
should default in its obligations under this Agreement, the Parties each
acknowledge that it would be extremely impracticable to measure the resulting
damages. It is accordingly agreed that the Parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the U.S. or any
state having jurisdiction, this being in addition to any other remedy to which
they are entitled in law or in equity.
7.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the Parties
at the following address (or at such other address for a party as shall be
specified by like notice):
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(a) if to Seller or any of the Shareholders to:
Fibre Optics International, Inc.
309 S. Cloverdale Street
Bldg. D-2
Seattle, Washington 98108
Attention: Douglas S. Carver, President
Facsimile No.: (206) 762-3503
Telephone No.: (206) 762-2922
with a copy to:
Bulivant Houser Bailey, P.C.
1601 Fifth Avenue, Suite 2400
Seattle, Washington 98101-1618
Attention: Douglas A. Luetjen, Esq.
Facsimile No.: (206) 386-5130
Telephone No.: (206) 292-8930
(b) if to Buyer, to:
Fiberstars, Inc.
2883 Bayview Drive
Fremont, California 94538
Attention: David N. Ruckert, Chief Executive
Officer
Facsimile No.: (510) 490-0947
Telephone No.: (510) 490-0719
with a copy to:
Gray Cary Ware & Freidenrich
100 Congress Avenue, Suite 1440
Austin, Texas 78701
Attention: Paul E. Hurdlow, Esq.
Facsimile No.: (512) 457-7070
Telephone No.: (512) 457-7020
7.4 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning, or interpretation of this Agreement.
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7.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to the other Parties, it being understood that all
Parties need not sign the same counterpart.
7.6 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits and the
Schedules, (a) constitute the entire agreement among the Parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the Parties with respect to the subject matter
hereof, (b) are not intended to confer upon any other person any, rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.
7.7 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the Parties hereto. The Parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
7.8 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
7.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
conflicts of law. Each of the Parties hereto irrevocably consents to the
exclusive jurisdiction of any court located within the State of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
7.10 Rules of Construction. The Parties agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
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7.11 Amendments and Waivers. No amendment of any provisions of this
Agreement shall be valid unless it is in writing and signed by Buyer and Seller.
No waiver by Buyer or Seller of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any such prior or subsequent occurrence.
7.12 Expenses. Whether or not the Acquisition is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of its
advisers, accountants and legal counsel) shall be paid by the party incurring
such expense.
(The remainder of this page is intentionally left blank.)
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IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the date first written above.
FIBRE OPTICS INTERNATIONAL, INC.,
a Washington corporation
By: /s/ DOUGLAS S. CARVER
---------------------------------------------
Douglas S. Carver
President
FIBERSTARS, INC.,
a California corporation
By: /s/ DAVID N. RUCKERT
---------------------------------------------
David N. Ruckert
Chief Executive Officer
SHAREHOLDERS:
---------------------------------------------
/s/ DOUGLAS S. CARVER
DOUGLAS S. CARVER
---------------------------------------------
/s/ DAVE M. CARVER
DAVE M. CARVER
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
Purchase and Take-over Agreement
Between:
Frau Claudia Mann of Am Arzberg 25, 92345 Toging/Altmuhltal, acting for LBM
Lichtleit-Fasertechnik Claudia Mann, registered at the Commercial Register with
the Local Court of Nuremberg HRA 11129
"the Seller"
and
the firm Fiberstars Deutschland GmbH in Munich, represented by its Managing
Director, Herr Bernhard Mann
"the Buyer"
and
Herr Bernhard Mann of Am Arzberg 25, 92345 Toging/Altmuhltal
"the Participant"
Preamble
The Seller conducts business as a sole trader and is principally engaged in the
development and distribution of applications and refinement products in the area
of light and fibre optical cable technology. The business possesses special
know-how acquired over several years in these above business areas. The Buyer is
interested in acquiring from the Seller the goods set out in this Agreement to
be drawn from its capital and going concern assets as well as particular legal
and long-term debt arrangements which are set out in this Agreement In the light
of this the parties agree the following specific terms
Part A
1
Purchase
Purchase and Takeover Property (assets)
1. The subject matter of this Agreement shall be all economic assets set out in
the interim accounts of the Seller as at 31 August 1998 (Appendix 1) and
those acquired up to the Completion Date, except in so far as they have been
disposed of before the Completion Date in the ordinary course of business or
for any other reason ceased to be part of the business assets Excluded from
this Agreement shall
1
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be the property situated at Arzberg 25, 92345 Toging/AltmUhltal, which is
being withdrawn by the Seller and transferred into her private assets.
2. The following items shall be included as business assets in particular:
(a) the business premises in Berching, Gutenbergstraf3e 5, registered with
the local court, Neumarkt i.d. Opf. for Pollanten, Vol. 26, p. 1052,
plot no. 688/11, 0,3369 hectares, including the building in construction
and fixtures and fittings (extract from Land Register at Appendix 2)
(b) all technical equipment and machinery, works and business equipment
including furniture of business offices, tools, spare parts and related
equipment
(c) all raw, ancillary and business materials, unfinished products,
unfinished services, completed products, completed goods and other
similar items
(d) all licences, intellectual property rights, copyrights and similar
rights, regardless whether these are legally protected or not, in
particular design patents, utility patents, marks and trademarks rights,
inventions, trade secrets and technical know-how together with all user
and application rights linked to these business assets and the rights
set out in accordance with the interim accounts as at 31 August 1998
(Appendix 1)
(e) all business assets of a lower economic value in so far as they are not
included in any of the above business assets
(f) all sums due from invoices rendered and performance of agreements, in
particular sums due arising from suspended transactions and orders in
hand, and further all claims arising from income tax, trade tax and
turnover tax + VAT and any social security contributions to be recovered
or made
(g) the customer lists and all business and book keeping documents from the
commencement of the business
The Buyer will keep in safe custody all documents which the Seller has a
legal duty to keep during the prescribed period and the Buyer agrees to
keep these documents readily available for the Seller at any time. The
Buyer shall not make any alterations to the accounting documents without
the Seller's consent.
2
Transfer of Assets
1. Seller and buyer have agreed that possession and legal ownership of the
above business assets, subject to the reservation in particular on the real
property, shall be
2
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transferred by the Seller to the Buyer. The Seller shall transfer to the
Buyer possession and legal ownership of the above business assets.
2. In so far as the Seller is not in possession of the business assets to be
sold, the Seller shall assign all claims for delivery up arising from rights
of ownership or possession. In the event that business assets which are sold
under this Agreement are disposed of subject to retention of title, the
Seller shall assign to the Buyer all rights assigned to her from the sale-on
of the business assets. Similarly all reversionary interests which entitle
the Seller to claim legal business or possession of any business assets
shall be assigned to the Buyer. The Buyer accepts this assignment.
3. The Buyer and Seller have agreed that all other claims and rights to be
acquired by the Buyer shall similarly be transferred to the Buyer. The
Seller therefore assigns these claims and rights to the Buyer. The Buyer
accepts the assignment. Included (but not limited to this) is the assignment
of all rights relating to guarantees, warranties, securities, performance
bonds and other obligations of third parties, in so far as they relate to
the sold capital and going concern assets or are otherwise linked to the
business of the Seller.
4. The Buyer and Seller shall transfer to the Seller the property to be sold
under this Agreement and situated at Berching, Gutenbergstral3e 5,
registered with the local court Neumarkt i.d. Opf. for Pollanten, Vol. 26,
p. 1052, including the building in construction and fixtures and fittings,
by way of a special declaration of conveyance in accordance with part B of
this Agreement (transfer of land). Risk, use and burden of transfer of title
to the land shall pass to the Buyer upon expiry of the Completion Date,
regardless of the registration of change of ownership at the Land Register.
The decisive test for the conveyance shall be the contents and encumbrances
of the Land Register in accordance with the copy at Appendix 2 of this
Agreement. In the event that any other charges are registered, which take
priority over this special declaration of conveyance, which the Buyer has
not expressly agreed to take over under this Agreement, then the Buyer shall
have an extra-ordinary right of rescission from this Agreement in its
entirety.
3
Purchases and Takeover of Liabilities
(Liabilities)
1. The objects of this Agreement shall include only those liabilities set out
below and listed in the interim accounts of the Seller as at 31 August 1998
(Appendix 1), including any special contingency reserves for future or
uncertain liabilities and any adjustments made up to the Completion Date in
the ordinary course of business. The loan (account no 804 63564) with the
Bayerische Vereinsbank for the property Am Arzberg 25, 92345
Toging/Altmuhital which will be transferred to the Seller shall not be
included as a liability. The Buyer shall take over the following:
3
<PAGE>
(a) the Buyer shall take over liabilities from deliveries and performance of
agreements in accordance with the interim accounts of the Seller as at
31 August 1998 (Appendix 1), in so far as these have not been fulfilled
or extinguished up to the Completion Date by payment or in some other
way; and also any new liabilities from such deliveries and performances
of agreement arising up to the Completion Date in the ordinary course of
business
(b) the Buyer shall take over liabilities for trade, turnover and income tax
as well as social security contributions in accordance with the interim
accounts as at 31 August 1998 (Appendix 1) in so far as these have not
been fulfilled or extinguished by the Completion Date either by payment
or in some other way; and also new liabilities in relation to these
taxes and social security contributions arising up to the Completion
Date in the ordinary course of business
(c) the Buyer shall take over all responsibilities and liabilities relating
to the business as a going concern including usual business guarantees
and performances bonds for deliveries and performance of agreements and
releases the Seller from the above, even in so far as these are not
apparent from the interim accounts as at 31 August 1998 (Appendix 1)
(d) the Buyer shall take over all liabilities arising from the erection of
the new building in Berching, including liabilities arising from
contracts and legal obligations and liabilities for planning, developing
and preparing the plot of each arising up to the Completion Date
2. The Buyer shall not take over any liabilities as against credit
institutions. In particular the Buyer does not take over the loan of the
Seller and the Participant as set out in the interim accounts as at 31
August 1998 (Appendix 1), the Deutsche Ausgleichsbank number 20040444,
622435, the Raiffeisenbank number 404444 and the Sparkasse Neumarkt-Parsberg
(total value of the loans as at 31 August 1998 DM 994,598.89). The Buyer
shall hold the Seller and the Participant as well as any third party who
might be liable free from any claims arising from these loans and shall
repay these loans on behalf and on the account of the Seller. This does not
apply to the loan with the Bayerische Vereinsbank, no 80463564 for the
property Am Arzberg 25, Toging/Altmuhltal which will be transferred to the
Seller. The Seller shall hold the Buyer free from any liabilities arising
from this loan. The Seller shall bear any compensation payments made for the
early re-payment of the loan.
3 The Buyer shall not take over any other liabilities of the Seller.
4
Novation of Contracts
1. The Buyer and Seller agree that the following agreements entered into by the
Seller shall be taken over by the Buyer on the expiry of the Day of
Completion and continued with all related rights and obligations:
4
<PAGE>
(a) employment and engagement agreements with employees of the business
(Appendix 3)
(b) agreements with commercial agents; the names of the commercial agents
are listed at Appendix 4 to this Agreement; furthermore Appendix 4
contains a precedent agreement
(c) the customer contracts
(d) the leasing contracts relating to the business motor cars (Appendix 6 to
this Agreement)
(e) agreements concerning the acquisition, planning, development, erection
and completion of the building of the business in Berching (Appendix 7)
(f) agreements with estate agents, trustees and business consultants
(g) the insurance contracts relating to the business, the site, and the
building (Appendix 5)
The Appendices 3, 4, 6, 7 and 5 are attached to this deed for information
purposes only. Only the names of the commercial agents as listed in Appendix
4 are part of this deed, please refer to Appendix 4.
2. In the event that the rights and obligations from the above agreements do
not pass to the Buyer under the general law, the Buyer hereby agrees to
inform the relevant contract partner of the novation and assumption of
liability by the Buyer and to obtain the consent of the contract partner so
such novation. If consent is refused, the Buyer agrees to perform the
contract in place of the Seller or to conduct it in an appropriate manner,
and to hold the Seller free from any claims by the contract partner or third
parties.
5
Completion Date/Legal Effect of commercial transfer
1. For the purposes of this agreement the Completion Date shall be the date of
commercial transfer. The Completion Date for hand over shall be 31 October
1998.
2. The Seller agrees, from this date to permit the buyer unrestricted access to
all business premises, to provide it with keys for the business and to
transfer possession of all business assets and documents intended to pass to
the Buyer.
3. On the Completion Date the risk of accidental damage or destruction of the
business assets shall pass to the Buyer.
5
<PAGE>
4. The Seller agrees to continue to operate the business from the Completion
Date in accordance with usual business practice and to make extra-ordinary
steps in the business management only with the prior consent of the Buyer.
The Seller agrees in particular, other than in the ordinary course of
business, that she shall not dispose of business assets without the consent
of the Buyer and she will refrain from any steps which might impact
negatively on the substance of the business.
5. From the Completion Date the business shall be continued in the name and on
the account of the buyer. The results of the business for 1998 shall be for
the account of the Seller up to Completion Date only; after the Completion
Date they are to be attributed to the Seller.
6
Purchase Price
1. The Buyer agrees to pay to the Seller a total purchase price of
DM2,250,000.00.
2. The basis for determining the purchase price is the assumption that the
capital resources of the owner of the business LBM Lichtleit-Fasertechnik
Claudia Mann amount to DM 0.00 on the balance sheet on the Completion Date.
The total amount of the purchse price shall therefore be paid for the
good-will of the Company. Until the Completion Date the Seller is entitled
to withdrawals and payments which are necessary to ensure that her capital
resources on the balance sheet amount to DM0.00 on the Completion Date. In
doing so the transfer of the property of Am Arzberg 25, Toging/Altmuhital to
the Seller and the mortgage for this property with Bayerische Vereinshank
shall be taken into account.
3. The parties assume that the above agreed performance of the Buyer (purchase
price and extinction of credit arrangements) will not be subject to turnover
tax (VAT), as a transfer of an undertaking (paragraph 1 sub-paragraph 1 a
German VAT Act). If, however, turnover tax becomes payable on the whole or
part of the performance of the Seller, then the purchase price shall be
understood to require statutory turnover tax (VAT) to be added. Turnover tax
is due on the 10th day of the calendar month after the first due date for
the purchase price. Payment shall only become due, if and when the Seller
issues an invoice to the Buyer which is sufficient to entitle it to claim
deduction of advance payment of the tax. The Buyer agrees to assign its
claim for repayment of advance tax to the Seller using the form of
assignment produced for this purpose by the Finanzverwaltung (German Finance
Office). The Seller agrees to notify the relevant finance office about the
assignment and to set off the relevant amount upon a demand for turnover tax
by the Finance Office arising from the sale of the business assets under
this Agreement against the assigned claim to a refund of input tax. The
Buyer shall only be obliged to pay the turnover tax if the Finanzamt
(Finance Office) refuses to allow the set off for reasons which are not the
responsibility of the Seller.
6
<PAGE>
If the Buyer's claim to an input tax refund is lower than the liability to
pay value added tax at the completion date, then the Buyer is liable on
demand to pay the difference to the Seller either directly, or to the
Finanzamt.
4. The purchase price shall be subject to the following adjustments:
(a) if contrary to the assumption of the parties to this contract the
capital resources of the owner of the business on the balance sheet are
not DM 0.00, this will lead to a decrease or increase of the purchase
price depending on the negative or positive amount of capital resources
appearing on the balance sheet. The decisive test for such adjustments
shall be the Completion Accounts of the Seller to be prepared as at the
Completion Date. The Completion Accounts shall be prepared in accordance
with ordinary principles of accounting and the continuation of write-off
and valuation policies used to date by the Seller, at her cost. The
costs of the construction of the building which have arisen until the
Completion Date shall be taken into account. The Buyer shall be entitled
to look at all business papers and have the accounts checked by an
accountant instructed by it. In the event of a dispute as to the
correctness of the accounts, the written opinion of an accountant
engaged by both parties as an arbitrator shall be decisive. If the
parties cannot agree the identity of the arbitrator, then the arbitrator
will be nominated by the Chamber of Industry and Commerce in Nurnberg
(Nuremnberg)
(b) if according to the Completion Accounts there is an increase in the
purchase price, the Seller shall grant to the Buyer an interest-free
loan for this amount to be repaid on or before 31 August 1999. The Buyer
shall use any liquid assets of the purchased business for the redemption
of the loan before the payment falls due, as far as this is in
accordance with the rules of proper business management. Any part of the
loan which has not been paid before 31 August 1999 is due on this date.
(c) the purchase price will be reduced in the event that the annual profit
at the end of the 1999 calendar year does not exceed DM 1,152,000.00.
Annual profit is defined as the profit after deduction of corporation
tax and municipal trade tax. The annual accounts shall be drafted in
accordance with proper accounting principles and in accordance with the
methods for depreciation and evaluation which have been used so far. The
bonus itself and interest on capital replacing loans which have the
effect of reducing the profit shall not be taken into consideration.
Profit related contingency reserves as well as special tax deductions
for depreciation and special allowances, which have a direct effect on
the profit but which are not needed for business reasons, shall also not
be taken into account in calculating the profit. Also excluded from the
calculation are reductions in the profit due to a voluntary revaluation
of the company's stock. The realisation at a profit of reserves,
exceptional items of income and other accounting measures relating to
the balance sheet are not to be taken into consideration when
calculating the profit, provided they do not relate to the calculation
of the profit made from operating business. The same applies to public
subsidies. If the profit for 1999 falls below DM 1,152,000
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<PAGE>
then the purchase price will be reduced by the amount by which the profit
falls short of DM 1,152,000 subject to a maximum reduction of DM 290,000.
5. The Seller shall produce the Completion Accounts together with profit and
loss accounts within 3 months of the Completion Date and to provide a copy
of these to the Buyer. The inventory required for preparation of the
accounts shall be conducted on the Completion Date or on the previous day.
The Buyer shall have the right to be represented by its agent when the
inventory is prepared. The Buyer shall be supplied with all information and
documents required to provide a full explanation.
7
Payment of Purchase Price
The purchase price shall be paid as follows:
1. The sum of DM562,500 (Deutsche Mark: Five hundred and sixty two thousand,
five hundred) shall be paid within 14 banking days after the Completion Date
to the Seller by way of transfer of shares in Fiberstars Incorporated, which
has its registered office in Fremont, California, USA, or by an assignment
of equivalent pre-emption rights in these shares. The value of the shares
will be calculated at the average of the share value on the NASDAQ market in
the last 10 days before the completion date at the conversion rate of the US
dollar to the Deutsche Mark on the completion date.
2. The sum of DM 1,687,500 is payable to the Seller in cash within 14 days of
the Completion Date of this Agreement.
3. If the Buyer is in arrears with the payment or the transfer of the shares,
then the outstanding amount shall be subject to interest without further
demand with effect from the first banking day after the due date at the
FIBOR interest rate (1 month) plus 3%, if no higher or lower damages
attributable to the delay can be proven.
4. The transfer of the shares according to para 7.1 and the payment of the
purchase price according to para 7.2 will be made step by step against a
non-recourse non-recallable guarantee, valid until 30.06.2000 in the sum of
DM 290,000, provided by the Seller from a major German bank or Savings
Institution. The guarantee will secure the Buyer's claims in relation to the
purchase price according to para 6.4 and the guarantees and damages claims
pursuant to para 10 of this contract. Claims under the guarantee must be
made during the limitation period defined by the contract. The Sellers will
be responsible for the costs of providing the guarantee.
8
<PAGE>
8
Assurances by the Seller
The Seller hereby confirms that the following statements are true (objective
test) and complete:
1. Annual Accounts
(a) the annual accounts since 1992 and the interim accounts as at 31 August
1998 with explanatory notes, in so far as there are any, have been
prepared in accordance with the provisions of commercial law and
generally recognised principles of ordinary book keeping and accounting
and convey a view of the assets, finance and earnings position of the
business as at the end of the relevant accounting period which
corresponds to reality
(b) at the relevant accounting dates the business had no liabilities beyond
the liabilities accounted for or set out as contingent liabilities
(c) the business has no direct or indirect obligations to pay pensions,
invalidity benefits, sickness benefits, dependents' benefits or any
other care obligations towards present or former employees or third
parties and has assumed no such liabilities, quite apart from the
question of whether the rights of the persons so entitled arising from
these obligations are forfeitable or not.
2. Real Property and other real proprietary rights
(a) the Seller of the property is the sole beneficial owner with full
authority to dispose and sell the property. Details about the
description of the property and charges in parts 2 and 3 of the relevant
Land Register entry are correct and correspond to details in Land
Register Extract. (Appendix 2)
(b) upon transfer of the property, the Buyer shall acquire complete,
unrestricted and unburdened ownership, apart from registration at parts
2 and 3. Rights arising from Real Estate mortgages registered at part 3
shall be extinguished by payment to the lending bank (see above at 3(2).
The charges will be allowed to be deleted step by step once the
respective mortgages have been redeemed
(c) the Seller has made no application for amendment of the Land Register.
No such amendments have been approved
(d) the premises sold including all buildings, fixtures and fittings and
exterior equipment are in accordance with all necessary planning
permissions and development regulations.
(e) the Seller has confirmed that all, development costs which have fallen
due for payment until 10 November 1998 in the total sum of DM 3 5.000
have been paid in full. The building under construction including all
fixtures and
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<PAGE>
fittings is in the condition as defined in Appendix 7 on the Completion
Date. The most important contracts for the construction of the building
including any development measures by the owner of the site are included
Appendix 7. The contracts have been concluded, and have not been
terminated. The total costs for the acquisition of the land, the
construction of the building to a stage at which it can be moved into
and business can be commenced are estimated by the Seller at DM
1,116,325.00 including the amount already paid but exclusive of the
amount of DM 50,000 for any unforeseen costs which may arise.
(f) there are no unfulfilled requisitions of insurance companies, of the
Technical Standards Authority (TUV), of the professional co-operative
(Berufsgenossenschaft), of the Trade Supervision Office (Local
Authority) or any other authorities; and such requisitions or orders
have not been threatened. The land and related exterior equipment,
buildings and fixtures and fittings have been insured in accordance with
details set out in Appendix 5 of this Agreement
(g) stamp duty and property tax due until the Completion Date have been paid
3. Other assets
(a) The Seller is the sole, unrestricted owner with free power to sell and
dispose of all business assets to be transferred to the Buyer under this
Agreement. This does not include restrictions which are part of the
ordinary course of business such as retention of title by suppliers or
guarantee agreements given to banks as security for loans taken out by
the Seller
(b) the insurance agreements listed in Appendix 5 are valid. They have been
properly concluded and they have not been terminated. In particular
there is a business insurance covering a maximum amount of DM 3,000,000
for each claim for personal injuries and a maximum amount of DM
1,000,000 for each claim for property damages.
(c) the Seller is registered as the owner of the following trademarks and
industrial property rights:
LBM Lichtleitfasertechnik Claudia Mann -R-
The Seller assigns all rights of use and exploitation for the above
trade marks and industrial property rights to the Buyer as far as this
is possible according to German law and grants the right of use to the
Buyer.
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4. Taxes and other deduction
(a) the Seller has made all requisite declarations for tax, contributions
and any public deductions up to the Completion Date, in so far as these
relate to the business in accordance with the proper formalities and
time limits.
(b) all taxes, tax deduction, ancillary claims, interest, surcharges and
penalties, contributions, in particular social security contributions
and other official deductions, which relate to the business and fall
within the period up to the Completion Date, have been paid or will be
paid by the Completion Date fully or covered by reserves or in some
other way.
5. Employees and commercial agents
(a) Appendix 3 of this Agreement contains a complete list of all employees
of the business and a complete summary of their activities, their salary
and any ancillary benefits (including bonus payments, turnover or profit
shares, payments in accordance with the Employee Inventions Act, etc)
and all rights and other payments which exceed the minimum required by
law (including but not restricted to contractual periods and tennination
periods)
(b) apart from the commercial agents set out at Appendix 4 to this
Agreement, there are no commercial agency agreements or distribution
agreements, territorial arrangements or other agreements which relate to
the distribution of products or services of the business. All commercial
agents conduct their own agencies and are not engaged in activities for
the business either openly or in an undisclosed manner.
6. Contracts
With the exception of agreements set out in this agreement and listed at
Appendices 2 to 7, the business has no
(a) contracts entitling the Seller, an employee or any third party to
participate in the turnover or profit of the business; this does not
include commission payable for the introduction of business, which is
individually paid to a third party for arranging contracts.
(b) purchase agreements or framework agreements with suppliers concluded
outside the usual scope of business or with a duration exceeding 12
months
(c) agreements for the purchase or leasing of capital assets with a value of
more than DM 50,000 each
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(d) agreements for the sale of capital assets outside the usual scope of
business
(e) agreements giving any creditor a right of mortgage, security (with the
exception of statutory mortgages and usual retentions of title) or
similar rights over business assets
(f) letters of comfort, performance bonds, guarantees or other agreements
which set up liability for the obligations of third parties, except for
liabilities entered into for reasons of business policy e.g. because
they are favourable to business requirements in the ordinary course of
the business and which do not exceed the total amount of DM 20,000
(g) licensing agreements, know-how agreements or any other agreements for
the use of copyright in which the business is a user or a party
guaranteeing use, in particular agreements for the use or transfer of
business specific computer software and other business specific computer
services
(h) rental, lease, leasing, service, supply, service or other agreements for
a duration of more than 6 months or which can lead to claims against the
business of more than DM 20,000 per annum in each contract, with the
exception of agreements for public services
(i) subsidies, premiums, investment surcharges or any other surcharges by
national, local or other government offices which may be reclaimed from
the Buyer
(j) agreements with estate agents, business consultants
(k) insurance agreements
(1) agreements which exclude or restrict the right of the business to engage
in particular business areas or to enter into agreements with
competitors
7. With the exception of the court proceedings and dispute with public
authorities set out at Appendix 10 to this Agreement, there are no legal
proceedings or disputes involving a claim of more than DM 10,000, including
arbitration proceedings. There are no court or administrative court
proceedings or investigations pending or threatened against the business,
involving a claim of more than DM 10,000, for which the Buyer could be
liable to intervene.
9
Assurances
Furthermore, the Seller guarantees the following to the best of his knowledge
and belief:
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1. To the Seller's knowledge the building which is being constructed has no
material defects, in particular as regards the roofing and structure of the
building or damp related damages.
The Seller has no knowledge of dangerous waste from the past or
contamination of the building concerning the property.
2. Items of capital assets including intangible assets, for example software,
regardless of whether these have been included in the accounts or not, are
to the best knowledge and belief of the Seller in proper, functional
condition ready for operating; excluded, however, is normal wear and tear.
They have been properly and regularly repaired and cared for and inspected.
3. The business has obtained all official and other consents, which are
necessary to conduct business as it is presently being run. Court decisions
or official steps which might result in restrictions or limitations in the
methods or extent of activities of the business, have not been taken and are
not threatened or expected.
4. The Seller has provided to the Buyer complete and accurate information about
the business in the course of the business negotiations.
5. With regard to the transfer of shares in accordance with 7.1 the Seller is
bound to adhere to the obligations contained in the Representation Letter
(Appendix 11) and to confirm this Representation Letter to the Buyer by
signature. Please refer to Appendix 11; the English text has only been
attached for information purposes and is not part of the deed.
10
Warranty and damages
1. Instead of all statutory warranties and claims for damages and in place of
all claims which could arise from a challenge to the validity of this
Agreement because of the absence of an economically material characteristic
or the nullification of the underlying business purpose, the Buyer shall
only be entitled to the following remedies: remedying the defect, claiming a
reduction of the purchase price, or claiming damages. These remedies are
regulated as follows: Reversing this agreement and ss. ss.460 to 464 BGB
shall be excluded with the exception of ss.463 2 nd ence BGB (Liability due
to malicious misrepresentation). All claims for remedying the defect,
claiming a reduction in price or claims for damages shall be made as
follows:
(a) in the event of a breach of or non-compliance with the assurances given
by the Seller, the Buyer shall be obliged -- provided this is in
accordance with para 8 and para 9 not excluded or unreasonable in the
circumstances -- to allow the Seller a reasonable period, but at least
14 days, to remedy the matter
13
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in accordance with this Agreement. Such declaration must be made in writing
and must be delivered to the Seller at latest within 1 month after the Buyer
becomes aware of the breach of this Agreement. For claims of tax liabilities
or fees the time-limit can be extended on application of the Seller,
provided the Buyer can arrange an extension of the time-limit himself
without any detriment to him
(b) if circumstances do not permit correction, or should it be unreasonable,
or if the Seller refuses to correct or fails to act within a reasonable
period agreed, then the Buyer shall be entitled to demand a reduction of
the price or damages in the form of cash
(c) any claims for a reduction in price or damages under para 6.4 and 6.8
shall subsist independent of the fault on the part of the Seller. They
shall be based solely on the difference in value of the purchased
objects which arises to the disadvantage of the Buyer upon non
compliance with warranties and/or negative variation of the business
assets as guaranteed by para 6.4 and 6.8
(d) any claims for a reduction in price or damages which are based on the
warranties given at para 9 depend on proof of liability of the Seller.
Otherwise the liability is to be established in accordance with para
10..1 c) 2nd sentence
2. The Buyer is entitled to choose between the remedy of reduction of the
purchase price and damages. If the Buyer chooses the reduction of the
purchase price, he is entitled to the difference between the value of the
business assets guaranteed by this Agreement and the actual value of the
business reduced by breach of the warranty.
If the Buyer decides to claim damages he may claim damages for an amount
which is necessary, taking into account its duty to mitigate (ss.254 BGB --
German Civil Code) in order to create a condition which accords to this
Agreement, in other words in order to put the Buyer in such a position as it
would have been in if the assurances of the Seller had been complied with in
full. This shall also cover reasonable costs of securing evidence and legal
and tax advice in connection with the claim for damages.
3. With regard to the consequential losses which arise from breach of or
non-compliance with the assurances, the Seller shall be liable in the same
way as for direct losses resulting from assurances which have not been
complied with.
4. Claims for a reduction of the purchase price or damages shall only exist if
the reduction in value of the business assets or the amount of damages
exceeds DM 10,000. Claims are limited to a maximum amount of DM 1,000,000.
5. All claims for damages and reduction in price which the Buyer has under this
Agreement shall be time barred as from 31 December 1999 with the exception
of the claims for the reduction of the purchase price referred to in 6.4.c
which shall be
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time barred as from 30 June 2000. This time limit shall not apply to claims
arising from outstanding tax or fee payments. These are time barred after
the expiry of 12 months from the time notice of the outstanding payment is
given. Time limitation shall be interrupted by any written notice of defect,
complaint of defect or claim of the Seller to the Buyer to bring matters
into line with this Agreement. The limitation period shall be interrupted
whilst the Seller is remedying the defect. For limitation purposes, time
shall restart after the interruption with regard to the defect which has
been complained of if the Buyer has received a declaration of the Seller to
the effect that the remedy has been completed or declined, but at the latest
six months after notification of the defect. If there has been a successful
interruption of the time limit the remainder of the limitation time is a
period of at least 3 months.
6. Circumstances which have been noted when preparing accounts for the
Completion date, including their effect on the purchase price, cannot be
taken into account again when calculating claims for damages or breach of
warranty claims. Circumstances which the Buyer was aware of on Completion
are no basis for claims for damages or claims for reducing the purchase
price.
11
Prohibition of competition for the Participant
The Participant shall cease his business activity as a sole trader for the
business Lichtberatung Mann on the Completion Date.
12
Use of name
The Buyer and its legal successors in title shall be entitled to continue to
use the name of the Seller's firm, namely LBM Lichtleit-Fasertechnik without
adding the words Claudia Mann.
15
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Part B
Conveyance of Real Property
13
Land Register Entries
1. The Seller is registered as the owner of "the property" at the Land Registry
of the Local Court of Neumarkt i. d. Opf. for Pollanten, Vol. 26, p. 1052,
plot no. 688/11, size 0.3369 hectares.
2. The following charges are registered:
S. II no charges
S. III mortgage of DM 700.000- for the Sparkasse Neumarkt i.d. Opf --
Parsberg.
3. The entries at the Land Register are in accordance with Appendix 2 which has
been attached for information purposes only.
14
Conveyance and Land Registry Declarations
1. Subject of the conveyance and the following Land Registry Declaration is the
property described in S. B ss. 1.
2. The Seller and the Buyer agree to register a caution to guarantee the
transfer of the property to the Buyer. They also authorise the discharge of
this entry of notice for the time the change in ownership is registered
provided no entries are made or applied for without the Buyer's consent
prior to the transfer.
3. The charges entered into under s. II and s. III of the Land Register will
subsist and be taken on by the Buyer.
4. All rights of ownership of the property will be transferred to the Buyer.
With regard to the subsisting charges it is referred to Part A para 3.1. The
notary has pointed out that it might be necessary to change the class of
use; the participants agreed to take care of this
5. The right of application for the parties involved is excluded. The notary
shall be authorised to make the application resulting from this document for
entering the caution to guarantee the transfer and the change in ownership
at the Land Registry. The notary shall also be authorised to make restricted
or separate applications or to withdraw the applications.
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6. The notary is instructed to only apply for the change in ownership once
there is proof for the payment of the purchase price in accordance with Part
A para 7 (2) and (2). The change of ownership shall not depend on the
payment of interest on defaulted payment. The Seller shall confirm the
payment of the purchase price to the notary on her own initiative.
Until then deed shall be drafted without the conveyance.
15
Transfer of risks
The possession, use, danger and liabilities arising from the ownership of the
property including all obligations arising from insurance agreements concerning
the property as well as the legal duty to maintain the property safe are
transferred onto the Buyer on the Completion Date in accordance with Part A para
5.
16
Guarantee
1. The ownership of the property is transferred without guaranteeing a specific
size of the area transferred.
2. The Seller guarantees that the property is transferred without any private
liabilities or restrictions which a have not been registered at the Land
Registry other than those stipulated in this Agreement. The Seller also
guarantees that the property free of any interest, tax or other payments.
3. This guarantee is given by the Seller in accordance with the provisions A
paras 8 and 9.
17
Taxes and fees
1. Each party shall bear its own costs and expenses in connection with the
preparation, conclusion and performance of this agreement and the conveyance
of the real property, including all fees and disbursements for courts and
advisors.
2. The property tax payable upon completion of the conveyance shall be paid by
the Buyer.
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3. All other taxes, fees and disbursements, which may arise in connection with
the purchase of the business assets shall be borne by the parties in to the
Agreement in equal shares. Any VAT (turnover tax) is excluded from this.
Para 6 (3) shall apply.
4. The Court with jurisdiction for any disputes arising under this Agreement
shall be at Munich.
18
Confidentiality
The parties agree to treat all information which they have received or exchanged
in connection with this agreement as confidential and shall not pass such
information to any third party.
Part C
19
Miscellaneous
1. This agreement shall be subject to the Law of the Federal Republic of
Germany.
2. The Court with jurisdiction for any disputes arising under this Agreement
shall be at Munich as far as this is can be agreed in this way, otherwise it
shall be at the location of the registered office of the Buyer.
3. If any provision of this Agreement should be invalid partly or as a whole,
this shall not have any impact on the validity or feasibility of the rest of
the provisions. The invalid provision shall be replaced by a valid and
feasible provision which has the same economic purpose as the provision
which was originally agreed without being invalid or not feasible itself.
4. All changes to this Agreement have to be made in writing and shall be
certified by a notary if necessary.
5. All expressions of intent, information or messages which are necessary for
the carrying out of this Agreement shall be notified in writing to the
parties of the contract. Sending messages per telefax, telex or courier
shall be allowed. Declarations, messages or information shall be deemed to
have arrived, if they have been sent to the following address:
6. Claudia Mann, Am Arzberg 25, Toging/Altmuhltal;
7. Fiberstars Incorporated, David Ruckert, 2883 Bayview Drive, Fremont,
California 94538 USA.
EXECUTION VERSION
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ASSET PURCHASE AGREEMENT
by and between
RESPIRONICS, INC.
and
FIBERSTARS, INC.
Dated as of December 30, 1998
RELATING TO FIBER OPTIC PHOTOTHERAPY SYSTEM
AND RELATED ASSETS
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Table of Contents
ARTICLE I Agreements to Sell and Purchase ......................... 1
1.01. Agreement to Sell Assets ................................ 1
1.02. Purchase Price .......................................... 2
1.03. Allocation of Purchase Price ............................ 2
1.04. No Assumption of Any Liabilities by Buyer ............... 2
ARTICLE II The Closing ............................................. 2
2.01. The Closing ............................................. 2
ARTICLE III Representations and Warranties of Seller ................ 3
3.01. Organization ............................................ 3
3.02. Due Authorization of Transaction Documents .............. 3
3.03. Title to Assets, No Liens ............................... 3
3.04. No Conflict ............................................. 3
3.05. No Contracts ............................................ 3
3.06. No Licenses, Permits, Authorizations or Equipment ....... 3
3.07. Taxes, Tax Returns and Audits ........................... 3
3.08. Notice of Violations .................................... 4
3.09. No Litigation ........................................... 4
3.10. No Infringement or Adverse Claims ....................... 4
3.11. No Other Intellectual Property Rights ................... 4
3.12. Year 2000 Compliance .................................... 4
3.13. Liability for Finder's Fees ............................. 4
ARTICLE IV Representations and Warranties of Buyer ................. 4
4.01. Organization ............................................ 4
4.02. Due Authorization of Transaction Documents .............. 5
4.03. Liability for Finder's Fees ............................. 5
4.04. No Conflict 5
ARTICLE V Pre-Closing Covenants of Seller ......................... 5
5.01. Certain Prohibited Transactions ......................... 5
5.02. Access to Premises and Information ...................... 6
5.03. Reasonable Commercial Efforts ........................... 6
ARTICLE VI Pre-Closing Covenants of Buyer .......................... 6
6.01. Reasonable Commercial Efforts ........................... 6
ARTICLE VII Post-Closing Covenants .................................. 6
7.01. Prohibition on Competition by Seller .................... 6
7.02. Consulting and Assistance From Seller ................... 7
7.03. Delivery of Technical Documentation and Other Assets .... 7
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7.04. Existing Purchase Orders; Repair Service Components ..... 7
7.05. Prohibition on Competition by Buyer ..................... 7
ARTICLE VIII Conditions .............................................. 8
8.01. Mutual Conditions ....................................... 8
8.02. Conditions to the Obligations of Buyer .................. 8
8.03. Conditions to the Obligations of Seller ................. 8
ARTICLE IX Indemnification ......................................... 9
9.01. Indemnification by Seller ............................... 9
9.02. Notice and Right to Defend Third Party Claims ........... 9
ARTICLE X Miscellaneous ........................................... 9
10.01. Expenses ................................................ 9
10.02. Survival of Representations, Warranties and Indemnity ... 9
10.03. Further Assurances ...................................... 10
10.04. Notices ................................................. 10
10.05. Postponement and Waiver ................................. 10
10.06. Termination ............................................. 11
10.07. Assignment .............................................. 11
10.08. Entire Agreement ........................................ 11
10.09. Invalidity .............................................. 11
10.10. Captions ................................................ 11
10.11. Counterparts ............................................ 11
10.12. Termination of Existing Distribution Agreement .......... 11
10.13. Governing Law ........................................... 12
EXHIBITS
EXHIBIT A PHOTOTHERAPY SYSTEM/FIBERSTARS
TECHNOLOGY/OPTOBLANKET PORTION
EXHIBIT B BILL OF SALE AND ASSIGNMENT
EXHIBIT C ALLOCATION OF PURCHASE PRICE
EXHIBIT D FIBER OPTIC ILLUMINATOR BY PART NUMBER
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") made and entered into
as of December 30, 1998 by and between RESPIRONICS, INC., a Delaware corporation
("Buyer"), and FIBERSTARS, INC., a California corporation ("Seller").
WITNESSETH:
WHEREAS, Seller wishes to sell, and Buyer wishes to purchase, the fiber
optic phototherapy system described on Exhibit A attached hereto (the
"Phototherapy System") and all the assets of Seller directly relating thereto
(including without limitation all products, technical know-how, intellectual
property rights, technical documentation, inventory and goodwill related
thereto), upon the terms and conditions contained herein, in exchange for the
consideration described herein; and
NOW, THEREFORE, the parties hereto, each intending to be legally bound
hereby, covenant and agree as follows:
ARTICLE I
Agreements to Sell and Purchase
1.01. Agreement to Sell Assets.
(a) Upon the terms and subject to the conditions of this Agreement,
Seller agrees to sell, convey, assign, transfer and deliver to Buyer, and Buyer
agrees to purchase and acquire, the Phototherapy System and all the assets,
properties, rights and interests, tangible and intangible and including all
associated goodwill, of the Seller directly relating thereto (the Phototherapy
System and all such other assets, properties, rights, interests and goodwill
collectively being referred to as the "Assets"). Without limiting the generality
of the foregoing, the Assets shall include the following:
(i) The fiber optic illuminators identified on Exhibit D
attached hereto and contained in the Phototherapy System and any other
devices, products or other developments arising out of the Phototherapy
System, and any improvements thereto (the "Products").
(ii) The optoblanket portion of the Phototherapy System and any
improvements thereto (the "Optoblanket").
(iii) All information and know-how which is used in connection
with the Phototherapy System or relating to the design, tooling,
manufacture, testing, engineering, servicing, marketing, distribution
and use of the Products and the Optoblanket, including without
limitation all confidential information, trade secrets, inventions,
technical data, research and development data, processes and
formulations, manufacturing and production know-how and experience,
management know-how, training programs, engineering and other drawings,
specifications, schemes, guidelines, procedures, policies, performance
criteria, operating instructions, operating and maintenance manuals and
brochures, technology, technical information, software (including all
source code and object code, software design and validation documents),
engineering and functional specifications, promotional literature,
technical rights and information (the "Technical Know-How").
<PAGE>
(iv) All patent and other intellectual property rights, all
copyrights and mask work rights and all marketing, manufacturing and
distribution rights related to the Phototherapy System, including all
improvements thereof and thereto, together with the goodwill associated
therewith and any and all past, present and future legal causes of
action and choses in action related thereto, that Seller has a right to
bring (the "Intellectual Property Rights").
(v) All technical documentation and drawings in any media of
any type, including machine readable and tangible format, embodying
information regarding, or documentation of, the Phototherapy System (the
"Technical Documentation").
(vi) All existing inventory of Products and Optoblankets owned
or held by or on behalf of Seller as well as all work-in-process, parts,
spare parts and raw materials related thereto.
(b) Seller shall retain, and Buyer shall not purchase, any assets,
properties, rights and interests of Seller other than the Assets.
1.02. Purchase Price. In consideration for the sale of the Assets, Buyer
shall pay to Seller the sum of $826,000 (the "Purchase Price"). The Purchase
Price shall be paid to Seller in four (4) equal quarterly installments, with the
first such quarterly installment to be paid on the Closing Date. All payments
shall be made by Buyer by wire transfer to an account designated by Seller in
writing.
1.03. Allocation of Purchase Price. The parties shall agree upon and
jointly prepare and attach to this Agreement as Exhibit C, as of the Closing
Date, an allocation of the Purchase Price reflecting the allocation of the
Purchase Price to the Assets as negotiated by the parties. Within 60 days of the
Closing Date, Buyer shall prepare an IRS Form 8594 reflecting the allocation of
the Purchase Price. The parties shall to use the allocations on Exhibit C and
IRS Form 8594 for all tax purposes, including the preparation of federal and
state income tax returns. For purposes of the preparation of Form 8594, the
name, address and taxpayer identification number of the parties shall be as
listed in Section 10.04.
1.04. No Assumption of Any Liabilities by Buyer. Buyer shall not assume
or be required to pay, perform or discharge any liabilities and obligations of
Seller as a result of the transactions contemplated by this Agreement.
ARTICLE II
Closing
2.01. The Closing. The consummation of the transactions contemplated by
this Agreement shall constitute the "Closing." The Closing shall take place at
such time and place and on such date as shall be mutually agreed upon by Seller
and Buyer, which date shall constitute the "Closing Date."
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ARTICLE III
Representations and Warranties of Seller
Seller represents and warrants to Buyer as follows:
3.01. Organization. Seller is duly organized, validly existing and in
good standing under the laws of the State of California, with all necessary
corporate power and authority to own and lease its properties, to carry on its
business as and where such properties are now owned or leased and such business
is now being conducted, except where the failure to do so would not have a
material adverse effect on Seller.
3.02. Due Authorization of Transaction Documents. Seller has full power
and authority and has taken all necessary action to execute and deliver this
Agreement, the Bill of Sale and Assignment (as defined below) and the Transfer
Instruments (as defined below; individually a "Transaction Document" and
collectively, the "Transaction Documents") to which it is a party, and to
perform all the terms and conditions hereof and thereof to be performed by
Seller. Each Transaction Document to which it is a party is the valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other laws of general application relating to or affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies.
3.03. Title to Assets. No Liens. Seller has good title to all of the
Assets, free and clear of all liens, security interests, charges, claims and
encumbrances of every kind and nature (collectively, "Liens"), and will convey
the same to Buyer free and clear of any Liens. Seller possesses all right and
title to the Assets and all intellectual property rights therein and has the
right to transfer same to Buyer.
3.04. No Conflict. The execution and delivery of each Transaction
Document by Seller, the consummation of the transactions contemplated thereby by
Seller and the fulfillment of and compliance with the terms and provisions
thereof by Seller do not and will not (a) violate any provision of law or
administrative regulation or any judicial or administrative order, award,
judgment or decree applicable to Seller, (b) conflict with, result in a breach
of, constitute a default under or accelerate or permit the acceleration of the
performance required by, any agreement or instrument to which Seller is a party
or by which Seller is bound, (c) result in the creation of any Lien upon any of
the Assets or (d) terminate or give any party thereto the right to terminate any
such agreement or instrument.
3.05. No Contracts. Except for this Agreement and the Distribution
Agreement between Seller and Fiberoptic Medical Products, Inc. ("FMP") dated as
of February 21, 1996 (as amended on June 27, 1996, the "Existing Distribution
Agreement"), Seller is not a party to or subject to any contract or agreement,
whether written or oral, relating to or affecting the Assets.
3.06. No Licenses. Permits. Authorizations or Equipment. There are no
approvals, authorizations, consents, licenses, franchises, orders and other
permits of, and filings with, any governmental authority, whether foreign,
Federal, state or local, nor any equipment, hardware or software not included as
part of the Assets, which are required for the use, manufacture, distribution
and sale of the Assets.
3.07. Taxes. Tax Returns and Audits. All foreign, Federal, state and
local income, use, sales, franchise, employment, real and personal property tax
returns relating to the Assets required to be filed by or on behalf of Seller
have been duly filed, or extensions have been obtained, and all such taxes,
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assessments and levies shown thereon to be due and payable have been duly paid
or are being contested by Seller in good faith.
3.08. Notice of Violations. Seller has not received any written notice
from any governmental authority of any violation of any law, statute, ordinance
or regulation relating to the Assets.
3.09. No Litigation. There is no suit, claim, action or proceeding at
law or in equity (whether or not purportedly on behalf of or against Seller)
pending or, to the knowledge of Seller, threatened relating to the Assets or
which could affect or apply to the Assets.
3.10. No Infringement or Adverse Claims. The Assets do not infringe any
right of any person under any federal, state or foreign patent, copyright,
trademark, trade secret or other intellectual property laws. There are no
adverse claims of ownership in or to any of the Assets or any rights in or to
any of the Assets and, to Seller's knowledge, there do not exist any facts that
would support a claim that Seller's use or practice of any of the Assets has
infringed or violated any intellectual property rights or other rights of any
other person. The use, manufacture, distribution and sale of the Phototherapy
System, including without limitation the Products and the Optoblanket, will not
infringe or violate any intellectual property rights of any person.
3.11. No Patents or Other Intellectual Property Rights. The Intellectual
Property, Technical Know-How and the Technical Documentation constitute all of
the intellectual property rights necessary for the use, manufacture,
distribution and sale of the Phototherapy System, including without limitation
the Products and the Optoblanket. There are no patents on or applicable to the
Phototherapy System, including without limitation the Products or the
Optoblanket, and there are no third party intellectual property rights,
technology, know-how, software or other property rights which are necessary or
material to the use, manufacture, distribution and sale of the Phototherapy
System, including without limitation the Products and the Optoblanket. Seller
does not own or license any patents, trademarks, copyrights or other
intellectual property rights which are used in connection with the Assets or are
necessary for the manufacture, distribution and sale of the Phototherapy System,
including the Products or the Optoblanket.
3.12. Year 2000 Compliance. To Seller's knowledge, the Assets (including
without limitation any computer hardware or software or embedded chips
incorporated in the Assets) are Year 2000 Compliant. As used herein, "Year 2000
Compliant" means all Assets (including without limitation any computer hardware
or software or embedded chips incorporated in the Assets) operate without error
relating to or caused by date data, specifically including any error relating
to, or the product of, date data which represents or references different
centuries or more than one century or leap years.
3.13. Liability for Finder's Fees. No liability for brokerage fees,
finder's fees, agent's commissions or other similar forms of compensation in
connection with this Agreement or any transaction contemplated hereby has been
incurred by Seller.
ARTICLE IV
Representations and Warranties of Buyer
Buyer represents and warrants to Seller as follows:
4.01. Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with all
necessary corporate power and authority to own
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and lease its properties, to carry on its business as and where such properties
are now owned or leased and such business is now being conducted, except where
the failure to do so would not have a material adverse effect on Buyer.
4.02. Due Authorization of Transaction Documents. Buyer has full
corporate power and has taken all necessary corporate action to execute, deliver
and consummate the Transaction Documents to which it is a party and to perform
all the terms and conditions thereof to be performed by it. Each Transaction
Document to which it is a party is the valid and binding obligation of Buyer
enforceable against Buyer in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or other laws of
general application relating to or affecting the enforcement of creditors'
rights or by general principles of equity limiting the availability of equitable
remedies.
4.03. Liability for Finder's Fees. No liability for brokerage fees,
finder's fees, agent's commissions or other similar forms of compensation in
connection with this Agreement or any transaction contemplated hereby has been
incurred by Buyer.
4.04. No Conflict. The execution and delivery of each Transaction
Document by Buyer, the consummation of the transactions contemplated thereby by
Buyer and the fulfillment of and compliance with the terms and provisions
thereof by Buyer do not and will not (a) violate any provision of law or
administrative regulation or any judicial or administrative order, award,
judgment or decree applicable to Buyer or (b) conflict with, result in a breach
of or constitute a default under any agreement or instrument to which Buyer is a
party or by which Buyer is bound.
ARTICLE V
Pre-Closing Covenants of Seller
5.01. Certain Prohibited Transactions.
(a) Except as otherwise agreed to in writing by Buyer, from and after
the date hereof and until the Closing Date, Seller shall:
(i) Maintain the Assets in generally the same repair, order and
condition as on the date hereof consistent with Seller's practice prior
to the date hereof, and deliver such Assets to Buyer on the Closing Date
in such condition, ordinary wear and tear excepted;
(ii) Maintain in force insurance policies with respect to the
Assets in amounts and on terms substantially equivalent to those in
effect on the date hereof; and
(iii) Not enter into any contracts or agreements or other
transactions with respect to the Assets.
(b) Seller shall promptly notify Buyer in writing of the occurrence of
any matter or event prior to the Closing Date which is material and adverse to
the Assets.
(c) Seller shall not solicit, encourage or accept any proposal from any
other person for the acquisition of all or any portion of the Assets (other than
sales of inventory of Products and Optoblankets to FMP under the Existing
Distribution Agreement in the ordinary course of business).
-5-
<PAGE>
5.02. Access to Premises and Information. Seller will permit Buyer and
its authorized representatives to have full access to the premises, officers,
directors, employees and books and records of Seller relating to the Assets as
Buyer may request. No investigation or inquiry made by Buyer pursuant to this
Section 5.02, or made heretofore, shall in any way affect or diminish the
representations and warranties made by Seller in this Agreement.
5.03. Reasonable Commercial Efforts. Seller shall use their reasonable
commercial efforts to cause the conditions of closing set forth in Sections 8.01
and 8.02 to be satisfied as soon as practicable and in any event before December
31, 1998.
ARTICLE VI
Pre-Closing Covenants of Buyer
6.01. Reasonable Commercial Efforts. Buyer will use reasonable
commercial efforts to cause the conditions of closing set forth in Sections 8.01
and 8.03 to be satisfied.
ARTICLE VII
Post-Closing Covenants
7.01. Prohibition on Competition by Seller. (a) For a period of seven
(7) years from the Closing Date (the "Noncompetition Term"), Seller shall not,
directly or indirectly, engage or invest in, own, manage, operate, finance,
control or participate in the ownership, management, operation, financing or
control of, be associated with or in any manner connected with, lend its name
to, lend its credit to or render services or advice to, any business whose
products or activities compete in the medical market in whole or in part with
the Assets worldwide; provided, that Seller may purchase or otherwise acquire up
to (but not more than) one percent (1%) of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934. Seller agrees that this covenant is reasonable with respect to its
duration, geographical area and scope.
(b) During the Noncompetition Term, Seller will not, directly or
indirectly, either for itself or any other Person, solicit the business of any
Person known to Seller to be a customer of Buyer (whether or not Seller had
personal contact with such Person) with respect to products, services or
activities which compete in whole or in part with the Assets.
(c) In the event of a breach of Seller of any covenant set forth in
Sections 7.0 1(a) or (b), the term of such covenant will be extended by the
period of the duration of such breach.
(d) If Seller breaches the covenants set forth in Sections 7.01(a) or
(b), Buyer will be entitled to the following remedies:
(i) Damages from Seller; and
(ii) In addition to its right to damages and any other rights
it may have, to obtain injunctive or other equitable relief to restrain
any breach or threatened breach or otherwise to specifically enforce the
provisions of Sections 7.0 1(a) or (b), it being agreed
-6-
<PAGE>
that money damages alone would be inadequate to compensate Buyer and
would be an inadequate remedy for such breach.
(e) The existence of any claim or cause of action against Buyer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
enforcement by the Buyer of Sections 7.01(a) or (b).
(f) It is the intention of the parties that the provisions of Sections
7.01(a) and (b) hereof shall be enforceable to the fullest extent permissible
under applicable law, but that the unenforceability (or modification to conform
to such law) of any provision or provisions thereof shall not render
unenforceable, or impair, the remainder thereof or of any other provision of
this Agreement. If any provision or provisions of Section 7.01(a) or (b) hereof
shall be deemed invalid or unenforceable, either in whole or in part, this
Agreement shall be deemed amended to delete or modify, as necessary, the
offending provision or provisions and to alter the bounds thereof in order to
render it valid and enforceable.
(g) Notwithstanding the provisions of Sections 7.0 1(a) and (b), Buyer
hereby acknowledges that Seller may manufacture, sell or license fiber optic
products other than the Assets so long as the manufacture, sale and/or licensing
of such other fiber optic products does not violate the provisions of Sections
7.01(a) and (b).
7.02. Consulting and Assistance From Seller. For a period of one (1)
year from and after the Closing, Seller shall provide consulting services and
assistance to Buyer, on a time and materials basis, in connection with the use
of the Assets and the use, manufacture, distribution and sale of the
Phototherapy System, including without limitation the Products and the
Optoblanket, as reasonably requested by Buyer from time to time.
7.03. Delivery of Technical Documentation and Other Assets. No later
than two (2) weeks after the Closing, Seller shall deliver to Buyer, at Seller's
cost, the Technical Documentation and other Assets at such address or addresses
as Buyer shall designate.
7.04. Existing Purchase Orders; Repair Components.
(a) Seller shall fulfill and perform on a timely basis all of its
obligations under existing purchase orders submitted by Buyer on or before the
Closing Date for Products, Optoblankets and/or repair components in accordance
with the terms of such purchase orders.
(b) For a period of one (1) year after the Closing, Seller agrees to
provide repair components with respect to use, manufacture, distribution and
sale of the Phototherapy System, including without limitation the Products and
the Optoblanket, pursuant to purchase orders submitted by Buyer on substantially
the same terms as such components are provided as of the date of this Agreement.
7.05. Prohibition on Competition by Buyer. During the Noncompetition
Term, Buyer shall not manufacture, sell or license the Assets for use in markets
other than the market for medical products worldwide. Buyer agrees that this
covenant is reasonable with respect to its duration, geographical area and
scope.
-7-
<PAGE>
ARTICLE VIII
Conditions
8.01. Mutual Conditions. The obligations of Seller and Buyer to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following condition
precedent:
(a) No Legal Bar. No governmental department, court, agency or
commission shall have instituted or notified Buyer or Seller of its intention to
institute any suit or proceeding to restrain or enjoin the consummation of this
Agreement or the transactions contemplated hereby or to nullify or render
ineffective this Agreement or such transactions if consummated, and no order or
decree so restraining or enjoining such consummation shall be in effect.
8.02. Conditions to the Obligations of Buyer. The obligation of Buyer to
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions
precedent:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Seller herein contained shall have been true when made and, in
addition, shall be true on and as of the Closing Date in all material respects
(provided, that for purposes of indemnification under Section 9.01, such
materiality shall not be applicable) with the same force and effect as though
made on and as of the Closing Date. Buyer shall have received a certificate
dated the Closing Date signed by Seller certifying, in such detail as Buyer may
reasonably request, to the fulfillment of this condition.
(b) Performance of Agreements. Seller shall have performed all
obligations required to be performed by it hereunder at or prior to Closing.
Buyer shall have received a certificate dated the Closing Date signed by Seller
certifying, in such detail as Buyer may reasonably request, to the fulfillment
of this condition.
(c) Instruments of Transfer and Assumption of Liabilities. Seller shall
have executed and delivered to Buyer a Bill of Sale and Assignment annexed
hereto as Exhibit B, and such other bills of sale, assignments, endorsements and
other instruments, reasonably satisfactory to Buyer, as shall be effective to
vest in Buyer all of Seller's right, title and interest in and to the Assets
(collectively, the "Transfer Instruments").
(d) Material Adverse Change. No material adverse change shall have
occurred to the Assets between the date of this Agreement and the Closing Date.
8.03. Conditions to the Obligations of Seller. The obligations of Seller
to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Buyer herein contained shall have been true when made and, in
addition, shall be true on and as of the Closing Date in all material respects
with the same force and effect as though made on and as of the Closing Date.
Seller shall have received a certificate dated the Closing Date signed by Buyer
certifying, in such detail as Seller may reasonably request, to the fulfillment
of this condition.
(b) Performance of Agreements. Buyer shall have performed all
obligations required to be performed by it hereunder at or prior to the Closing.
Seller shall have received a certificate dated the
-8-
<PAGE>
Closing Date signed by Buyer certifying, in such detail as Seller may reasonably
request, to the fulfillment of this condition.
ARTICLE IX
Indemnification
9.01. Indemnification by Seller. Seller hereby indemnifies and holds
Buyer and its directors, officers, employees, corporate affiliates and agents
("Buyer's Indemnified Persons") harmless from and against any and all loss,
cost, damage and expense, including but not limited to reasonable attorneys'
fees and expenses of litigation (collectively, "Losses"), suffered or incurred
by any Buyer's Indemnified Person (a) for nonperformance by Seller of any of its
obligations hereunder, (b) for any breach (not expressly waived in writing) of
the representations, warranties, covenants or agreements made hereunder by
Seller, (c) arising from any liability or obligation of Seller, (d) arising from
Seller's ownership, use and operation of the Assets prior to the Closing Date
and (e) arising from any infringement or alleged infringement of any patent,
copyright, trademark, trade secret or other intellectual property right or law
by any of the Assets. In addition, Seller agrees to indemnify Buyer's
Indemnified Persons, and to hold Buyer's Indemnified Persons harmless from and
against any all claims, loss, damage, liability, cost or expense whatsoever
(including all reasonable attorney's fees and expenses of litigation) resulting
to any Buyer's Indemnified Person by reason of or arising out of noncompliance
with the bulk transfer provisions of the Uniform Commercial Code or any
comparable state law to which the transactions contemplated hereby are subject.
9.02. Notice and Right to Defend Third Party Claims. Promptly, upon
receipt of notice of any claim, demand or assessment or the commencement of any
suit, action or proceeding in respect of which indemnity may be sought, any
Buyer's Indemnified Person seeking indemnification (the "Indemnitee") will give
notice thereof to the party from whom indemnification is sought (the
"Indemnitor"), within sufficient time to enable the Indemnitor to respond to
such claim or answer or otherwise plea in such action. Except to the extent that
the Indemnitor is materially and substantially prejudiced thereby, the omission
of such Indemnitee so to notify promptly the Indemnitor of any such claim,
demand, assessment, suit, action or proceeding shall not relieve the Indemnitor
from any liability which it may have to the Indemnitee. The Indemnitor will be
entitled to participate in and, to the extent that it may elect to do so, to
assume the defense, conduct or settlement thereof, using counsel approved by the
Indemnitee, which approval will not unreasonably be withheld. The Indemnitee
will cooperate with the Indemnitor in connection with any such claim, demand,
assessment, suit, action or proceeding. The Indemnitor shall not settle or
compromise any such claim, demand, assessment, suit, action or proceeding
without the prior written consent of the Indemnitee, unless the Indemnitor
provides the Indemnity with a full release from all adverse parties releasing
the Indemnitee from any liability and the Idemnitee is not required to pay any
amounts or take or refrain from taking any actions as a result thereof.
ARTICLE X
Miscellaneous
10.01. Expenses. Seller and Buyer shall bear all expenses incurred by
each of them in connection with the negotiation, preparation, execution and
performance of this Agreement and the other Transaction Documents.
10.02. Survival of Representations. Warranties and Indemnity. The
representations and warranties of each party hereto which are contained herein
or in any certificate or other document
-9-
<PAGE>
delivered pursuant hereto and the indemnification obligations of Seller
hereunder shall survive the Closing for a period of two (2) years from the
Closing Date, except with respect to Sections 3.03 (which shall survive
indefinitely) and 3.07 (which shall survive for the applicable statute of
limitations).
10.03. Further Assurances. At any time or from time to time after the
Closing, at the Buyer's request, Seller shall execute and deliver to Buyer such
other instruments and take such other actions as are reasonably necessary in
order to more effectively transfer, convey and assign to the Purchaser, and to
confirm the Purchaser's title to, all Assets and to put Buyer in actual
possession and operating control of the Assets. On and after the Closing Date,
Seller and Buyer shall take all appropriate action and execute all documents,
instruments or conveyances of any kind which may be necessary or advisable to
carry out any of the provisions hereof and to consummate the transactions
contemplated hereby.
10.04. Notices, All notices, demands and other communications which may
or are required to be given hereunder or with respect hereto shall be in
writing, shall be given either by personal delivery or by certified mail, return
receipt requested, and shall be deemed to have been given or made when
personally delivered or when received via certified mail, addressed to the
respective parties as follows:
(a) If to Seller:
Fiberstars, Inc.
2863 Bayview Drive
Fremont, CA 94538
Attn: Robert A. Connors
Seller's EN:_______
or to such other address as Seller may from time to time designate by notice to
Buyer with respect tofuture notices, demands and other communications to Seller;
(b) if to Buyer:
Respironics, Inc.
1501 Ardmore Blvd.
Pittsburgh, PA 15221
Attn: General Counsel
Buyer's EN: 25-1304989
or to such other address as Buyer may from time to time designate by notice to
Seller with respect to future notices, demands and other communications to
Buyer.
10.05. Postponement and Waiver. Any postponement or waiver pursuant to
this Agreement shall be in writing and shall be effective only in the specific
instance and for the purpose for which given. No failure or delay on the part of
any party in exercising any right, power or privilege under this Agreement shall
operate as a waiver thereof nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies expressly specified in this Agreement are cumulative and are not
exclusive of any rights or remedies which any party would otherwise have.
-10-
<PAGE>
10.06. Termination. (a) This Agreement may be terminated at any time
prior to the Closing Date:
(i) by mutual agreement of Seller and Buyer; and
(ii) by Buyer, on the one hand, and Seller, on the other hand,
if the Closing shall not have occurred on or before March 31, 1999;
provided, that this Agreement may not be so terminated by Buyer or by
Seller if the party seeking to terminate is in material breach of its
obligations hereunder.
10.07. Assignment. This Agreement shall not be assignable by any party
hereto, except that Buyer may assign this Agreement to any affiliate of Buyer.
10.08. Entire Agreement. This Agreement constitutes the entire agreement
between the parties, and supersedes any and all other agreements between the
parties relating to the subject matter hereof.
10.09. Invalidity. In the event that any one or more of the provisions
contained in this Agreement, or in any other instrument referred to 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 Agreement or any such other instrument.
10.10. Captions. The captions of Articles and Sections hereof are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions of this Agreement.
10.11. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts and upon facsimiles, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
10.12. Termination of Existing Distribution Agreement. Effective as of
the Closing Date, the Existing Distribution Agreement between Seller and FMP be
and it hereby is terminated and no further force and effect, except for these
provisions of the Existing Distribution Agreement which by their terms survive
termination and the right of first refusal contained in Section 16.03 which now
rests with Buyer as FMP's corporate parent.
[Signature Page follows]
-11-
<PAGE>
10.13. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
WITNESS the due execution of this Asset Purchase Agreement as of the day
and year first above written.
RESPIRONICS, INC.,
as Buyer
By
------------------------------
Title SR VP
---------------------------
FIBERSTARS, INC.,
as Seller
By
------------------------------
Title Chief Operating Officer
----------------------------
-12-
<PAGE>
10.13. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
WITNESS the due execution of this Asset Purchase Agreement as of the day
and year first above written.
RESPIRONICS, INC.,
as Buyer
By
-----------------------------------
Title
---------------------------------
FIBERSTARS, INC.,
as Seller
By
-----------------------------------
Title
---------------------------------
-12-
<PAGE>
Exhibit A to Asset Purchase Agreement
PHOTOTHERAPY SYSTEM/FIBERSTARS TECHNOLOGY/OPTOBLANKET PORTION
The Fiber Optic Optoblanket Phototherapy System has been designed for
replacement of belitites in the treatment of hyperbilirubinomia (jaundice). It
has been developed for the purpose of lowering the serumbilirubin in a newborn
child. The optoblanket system utilizes a light to disintegrate the bilirubin so
that it can be easily discharged from the baby's body. The optoblanket system
consists of two parts: the fiber optic illuminator, which acts as the light
source for the system, and the light-emitting fiber optic blanket
("optoblanket"), which spreads the phototherapy light laterally onto the baby's
body for the treatment.
Optoblanket Portion:
The optoblanket is composed of a bundle of fibers whose ends have a
polished finish and are encircled together. The phototherapy can be performed by
wrapping the optoblanket onto the baby's body directly. The optoblanket is
attached to the lightbox.
Fiber Optic Illuminator/Fiberstars Technology:
Fiberstars manufactures several fiber optic illuminator variations which
incorporate Fiberstars patents and/or proprietary technology and are designed
specifically for the Phototherapy System. Engineering designs for the accurate
light alignment, ventilation and cooling, and filtering for the proper light
spectrum have been created for this system. An appropriate light level can thus
be generated and efficiently coupled into the fiber bundle.
The Phototherapy System includes, but is not limited to, products with
the following Specifications:
A-1
<PAGE>
ILLUSTRATIVE SPECIFICATIONS
Illuminator:
Size: 12.13" W X 9.57" D X 4.5"H Weight: 14.8 pounds
Model: MD-1000 and MD-2000
Fiberoptic Cable:
Length: 5ft. from tip to boot
Fiberoptic Panel:
Overall Pad Size - Standard: 4" X 15" (Excluding the Boot)
Illuminated Area - Standard: 3" X 14"
Overall Pad Size - Neonatal: 5" X 7"
Illuminated Area - Neonatal: (Excluding the Boot) 4" X 6"
Optical Filter:
Light Bandwidth: 400 to 550 nanometers
Infrared (590 - 1100 nm) and Ultraviolet (200-370 nm) is reduced to less than 1%
with the help of Dichroic Reflector and Filter.
Irradiance Level:
Standard Panel - Level I Setting: 10uW/cm2/nm*
Standard Panel - Level H Setting: l5uW/cm2/nm*
Neonatal Panel - Level I Setting: 25uW/cm2/nm*
Neonatal panel - Level II Setting: 35uW/cm2/nm*
** Minimum Average Irradiance level of the illuminated area when the
illuminator is operated at 115 V ac.
Illuminator Lamp:
Lamp Type: 150W 21V Quartz Halogen, Fiberoptic Medical Products Part
No. FS-1 10
Lamp Life: 400 hours depending on the Irradiance Level Selector.**
* This is an average lamp life theoretically calculated as per the ANSI
standards when the illuminator is operated at 115 V ac.
Electrical Specification:
Operating Voltage: 110-120 V ac Chassis Leakage Current: Less than 50 ?A
Wattage: 200 W Ground Impedance: Less than 0.1 Ohm
Environmental Operating Temperatures:
15 degrees C to 30 degrees C (59 degrees F to 86 degrees F)
Humidity:
0 - 88 more or less 2% Relative Humidity at 32 more or less 2 degrees C
Storage Temperature:
0 degrees C to 45 degrees C (32 degrees F to 113 degrees F)
Storage Standard:
U.L. listed for the U.S. as Medical and Dental Equipment *UL 544) and
Health Care Applicant (UL 1431) standards; and, for Canada market as per
Electromedical Equipment (C22.2 No: 125) standards.
A-2
<PAGE>
Illuminator:
Model: MD-2000-I
Size: 12.13" WX 9.57" DX4.5" H
Weight: 14.8 pounds
Fiberoptic Panels:
Model: EG-2000 Standard Panel
Overall Pad Size - Standard: 4"X15" (excluding the boot)
Illuminated Area - Standard: 3"X14"
Model: EG-2000N (Neonatal Panel)
Overall Pad Size - Neonatal: F"X7" (excluding the boot)
Illuminated Area - Neonatal: 4"X6"
Fiberoptic Cable: For both the panels
Length: 5 ft. from tip to boot
Optical Filter:
Light Bandwidth: 400 to 550 nanometers
Infrared (590-1100 nm) and Ultraviolet (200-370 nm) is reduced to less
than 1% with the help of Dichroic Reflector and Filter.
Irradiance Level:
Standard Panel - Level I Setting: 1OgW/cm2/nm*
Standard Panel - Level II Setting: 15gW/cm2/nm*
Neonatal Panel - Level I Setting: 2SgW/cm2/nm*
Neonatal Panel - Level II Setting: 35gW/cm2/nm*
*Minimum Average irradiance level of the illuminated area when the
illuminator is operated at 100/120/220/240 V-.
illuminator Lamps:
Lamp Type: 150 W, 2 V Quartz Halogen, Fiberoptic Medical Products
Part No. FS- 110
Lamp Life: 400 hours depending on the Irradiance Level Selector.**
**This is an average lamp life theoretically calculated as per the ANSI
standards when the illuminator is operated as 100/1 20/220/240V-.
Electrical Specifications:
Rated Voltage/Frequency: 100/120/220/240V-, 50/60 H2
Rated Input: 200 Watts
Chassis Leakage Current: Less than 50muA (Meets JEC requirements)
Ground Impedance: Less than 0.1 Ohm
Mode of Operation: Continuous
Fuse Ratings: For 100/120 V-Applications: Use T 2.5A, 250 V fuse
For 200/240 V-Applications: Use T 1.25A, 250 V fuse
Classification:
Protection Class: Class I
Protection Type:
Type BF
A-3
<PAGE>
Environmental Conditions:
Transport & Storage:
1 Ambient Temperature Range: -40a to +700C
2 Relative Humidity Range, including Condensation: 10% to 100%
3 Atmospheric Pressure Range: 500 hPa to 1060 hPa
Operation:
1 Ambient Temperature Range: +150C to +300C
2 Relative Humidity Range: 0 to 88+2% at 32+20C
Protection Against Ingress of Water: Ordinary (IPXO)
Safety Standards:
Product is tested and certified by TUV Product Service Inc. in accordance to:
IEC 601-1:1988
Amendment 1 to IEC 601-1:1990
Med GV
Standard Features:
Dual Lamp Carousel
Dual Irradiance Selector Switch
Light Emission Shutter
Thermal Cut-off Switch
Line Interrupt Switch
Primary and Secondary Fused
Panel Locking Device
A-4
<PAGE>
Exhibit B to Asset Purchase Agreement
BILL OF SALE AND ASSIGNMENT
For good and valuable consideration, receipt of which by FIBERSTARS,
NC., a California corporation ("Seller"), is hereby acknowledged, and pursuant
to the Asset Purchase Agreement dated as of December 30, 1998 (the "Agreement"),
between Seller and RESPIRONICS, NC., a Delaware corporation ("Buyer"), Seller
hereby grants, assigns and transfers to Buyer, its legal successors and assigns,
the Assets, as defined in the Agreement, consisting generally (without limiting
or varying the terms of the Agreement) of the Phototherapy System (as defined in
the Agreement) and all assets (personal, tangible and intangible) and properties
of Seller relating to the Phototherapy System (as more fully defined in the
Agreement, the "Assets"), to have and to hold the same unto Buyer, its
successors and assigns forever.
Seller warrants and represents to Buyer that Seller is the lawful owner
of the Assets, free from any claim of ownership or Lien (as defined in the
Agreement) of any others; Seller will defend Buyer's title to the Assets against
any claims of Liens or ownership whatsoever.
Seller agrees to take any and all such further action and execute and
deliver any and all such further documents as may be reasonably necessary, in
Buyer's reasonable opinion, to vest title to the Assets in Buyer.
Dated: December 30, 1998
FIBERSTARS, INC.
By:
---------------------------------
Title:
---------------------------------
B-l
<PAGE>
Exhibit C to Asset Purchase Agreement
ALLOCATION OF PURCHASE PRICE
[See attached.]
C-1
<PAGE>
<TABLE>
<CAPTION>
Form 8594
<S> <C>
??? No. 1545-1021
(??????????)
Asset Acquisition Statement ------------------------
Under Section 1060
Department of the Treasury Attachement
Internal Revenue Service ??????????? No. 61
- -----------------------------------------------------------------------------------------------------
Name as shown on return Identification number as shown on return
RESPIRONICS, INC. 25-1304989
- -----------------------------------------------------------------------------------------------------
Check the box that identifies you [x]Buyer [ ]Seller
- -----------------------------------------------------------------------------------------------------
Part I General Information - To be completed by filers.
- -----------------------------------------------------------------------------------------------------
1 Name of other party to the transaction Other party's identification number
FIBERSTARS, INC. 94-3021850
- -----------------------------------------------------------------------------------------------------
Address (number, street and room or suite no.)
2883 AVIEW DRIVE
- -----------------------------------------------------------------------------------------------------
City or town, state, and ZIP code
FREMONT, CA 94538
- -----------------------------------------------------------------------------------------------------
2 Date of sale 3 Total Sale Price
DECEMBER 30, 1998 826,000
- -----------------------------------------------------------------------------------------------------
Part II Assets Transferred - To be completed by all filers of an original statement
- -----------------------------------------------------------------------------------------------------
4 Assets Aggregate Fair Market Value (Actual Amount for Class I) Allocation of Sales Price
- -----------------------------------------------------------------------------------------------------
Class I $ $
- -----------------------------------------------------------------------------------------------------
Class II $ $
- -----------------------------------------------------------------------------------------------------
Class III $ $
- -----------------------------------------------------------------------------------------------------
Class IV $ 826,000 $ 826,000
- -----------------------------------------------------------------------------------------------------
Total $ 826,000 $ 826,000
- ------------------------------------------------------------------------------------------------------
5 Did the buyer and seller provide for an allocation of the sales price in the sales contract or in
another written document signed by both parties? .................................... [ ]Yes [ ]No
If "Yes," are the aggregate fair market values listed for each of asset Classes I, II, III and IV the
amounts agreed upon in your sales contracts or in a separate written document? .... [ ]Yes [ ]No
- ------------------------------------------------------------------------------------------------------
6 In connection with the purchase of the group of assets, did the buyer also purchase a license of
a covenant not to compete or enter into a lease agreement, employment contract, management
contract or similar arrangement with the seller (or managers, directors, officers or employees
of the seller)? ..................................................................... [ ]Yes [ ]No
If "Yes," specify (a) the type of agreement, and (b) the maximum amount of consideration (not
including interest) paid or to be paid under the agreement. See the instructions for line 6.
- ------------------------------------------------------------------------------------------------------
a) COVENANT NOT TO COMPETE
- ------------------------------------------------------------------------------------------------------
B) NO SPECIFIED AMOUNT; COVENANT INCLUDED IN SALES CONTRACT
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
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For Paperwork Reduction Act Notice, see instructions. Form 8594 (Rev. 1-96)
<PAGE>
Form 8594 (Rev. 1-96) Page 2
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Part III Supplemental Statement - To be completed only if amending an original statement of
previously filed supplemental statement because of an increase or decrease in consideration.
- ------------------------------------------------------------------------------------------------------
7 Assets Allocation of Sales Price Income or (Decrease) Redetermined Allocation of Sales Price
as Previously Reported
- ------------------------------------------------------------------------------------------------------
Class I $ $ $
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Class II $ $ $
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Class III $ $ $
- ------------------------------------------------------------------------------------------------------
Class IV $ $ $
- ------------------------------------------------------------------------------------------------------
Total $ $ $
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8 Reason(s) for increase or decrease. Attach additional sheets if more space is needed.
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
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9 Tax year and tax return form number with which the original Form 8594 and any supplemental
statements were filed.
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</TABLE>
<PAGE>
Exhibit D to Asset Purchase Agreement
FIBER OPTIC ILLUMINATOR BY PART NUMBER
MD-1000
MD-2000
DM-2000-I
Plus parts therto for waranty replacements
D-1
<TABLE>
MULTI-TENANT INDUSTRIAL TRIPLE NET LEASE
----------------------------------------
<CAPTION>
<S> <C>
Effective Date: November __, 1998
(The date set forth below Landlord's signature.)
BASIC LEASE INFORMATION
-----------------------
Landlord: CATELLUS DEVELOPMENT CORPORATION,
a Delaware corporation
Landlord's Address 201 Mission Street
For Notice: San Francisco, California 94105
Attn: Asset Management
Telephone: (415) 974-4500
Fax: (415) 974-4687
Landlord's Address File #1918
For Payment of Rent: P.O. Box 61000
San Francisco, California 94161-1918
Tenant: FIBERSTARS, INC., a California corporation
Tenant's Address 2883 Bayview Drive
For Notice: Fremont, California 94538
Attn: Chief Financial Officer
Telephone: (510) 490-0719
Fax: (510) 490-0947
Project: Pacific Commons, Fremont, California, a master planned development approved
by the City of Fremont with a maximum development potential of approximately
8.3 million square feet
Building: Building 6 containing approximately 60,000 rentable square feet
Premises: Approximately 60,000 rentable square feet as shown in Exhibit A.
---------
Premises Address:
Street: [To be determined by the Building Department of the City of Fremont]
City and State: Fremont, California 94538
Tax Parcel: [To be determined upon final subdivision]
Term: Seven (7) years
Estimated Commencement July 1, 1999
Date:
<PAGE>
Base Rent Per Month:
Monthly Base
Rent/Rentable
Months of Term Monthly Base Rent Square Foot
-------------- ----------------- -----------
1-12 $49,800.00 $0.83
$0.85
13-24 $51,000.00
25-36 $52,800.00 $0.88
37-48 $55,800.00 $0.93
49-60 $58,800.00 $0.98
61-72 $61,800.00 $1.03
73-84 $64,800.00 $1.08
Tenant's Share of Building 100%
Operating Expenses:
Tenant's Share of Project A fraction, the numerator of which is the number of acres contained in the
Operating Expenses legal parcel on which the Building is situated and the denominator of which
is the number of developed acres in the Project as of any Adjustment date (as
defined in Section 7.2 of the Lease)
Security Deposit: $64,800.00
Broker: Landlord's Broker: Colliers Parrish International, Inc.
Tenant's Broker: Colliers Parrish International, Inc.
Lease Year: Shall refer to each three hundred sixty-five (365) day period during the Term
commencing on the Commencement Date and on each anniversary thereof.
Permitted Uses: Assembly of fiber-optic lighting systems, related storage and distribution
(including storage and distribution of similar items, subject to the provisions of
Section 11 of this Lease), and general office uses; no other uses shall be
permitted without the prior written consent of Landlord
Parking Spaces: Tenant shall have the right to use one hundred sixty-eight (168) parking
spaces within the Project.
Options: One (1) five-year option to renew.
ADDENDUM
EXHIBITS
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<PAGE>
A Premises
B Work Letter
C Commencement Date Memorandum
D Insurance Certificate
E Prohibited Uses
F Rules and Regulations
G Estoppel Certificate
H Nondisturbance Agreement
The Basic Lease Information set forth above and the Addendum and
Exhibits attached hereto are incorporated into and made a part of the following
Lease. Each reference in this Lease to any of the Basic Lease Information shall
mean the respective information above and shall be construed to incorporate all
of the terms provided under the particular Lease paragraph pertaining to such
information. In the event of any conflict between the Basic Lease Information
and the provisions of the Lease, the latter shall control.
LANDLORD (_______) AND TENANT (_______) AGREE.
initial initial
</TABLE>
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<PAGE>
<TABLE>
Table of Contents
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Page
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<S> <C> <C>
1. PREMISES.................................................................................................1
1.1 Premises........................................................................................1
1.2 Common Area.....................................................................................1
1.3 Reserved Rights.................................................................................1
2. TERM.....................................................................................................2
2.1 Commencement Date...............................................................................2
2.2 Possession......................................................................................2
3. RENT.....................................................................................................2
3.1 Rent............................................................................................2
3.2 Late Charge and Interest........................................................................3
3.3 Security Deposit................................................................................3
4. UTILITIES................................................................................................4
5. TAXES....................................................................................................4
5.1 Real Property Taxes.............................................................................4
5.2 Definition of Real Property Taxes...............................................................4
5.3 Personal Property Taxes.........................................................................5
6. OPERATING EXPENSES.......................................................................................5
6.1 Operating Expenses..............................................................................5
6.2 Definition of Operating Expenses................................................................5
7. ESTIMATED EXPENSES.......................................................................................7
7.1 Payment.........................................................................................7
7.2 Adjustment......................................................................................8
7.3 Tenant's Audit Rights...........................................................................8
8. INSURANCE................................................................................................9
8.1 Landlord........................................................................................9
8.2 Tenant..........................................................................................9
8.3 General........................................................................................10
8.4 Indemnity......................................................................................11
8.5 Exemption of Landlord from Liability...........................................................11
9. REPAIRS AND MAINTENANCE.................................................................................12
9.1 Tenant.........................................................................................12
9.2 Landlord.......................................................................................13
10. ALTERATIONS.............................................................................................13
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10.1 Trade Fixtures; Alterations....................................................................13
10.2 Damage; Removal................................................................................14
10.3 Liens..........................................................................................14
10.4 Standard of Work...............................................................................14
11. USE.....................................................................................................14
12. ENVIRONMENTAL MATTERS...................................................................................15
12.1 Hazardous Materials............................................................................15
12.2 Indemnification................................................................................16
13. DAMAGE AND DESTRUCTION..................................................................................17
13.1 Casualty.......................................................................................17
13.2 Tenant's Fault.................................................................................19
13.3 Uninsured Casualty.............................................................................19
13.4 Waiver.........................................................................................19
13.5 Force Majeure..................................................................................20
14. EMINENT DOMAIN..........................................................................................20
14.1 Total Condemnation.............................................................................20
14.2 Partial Condemnation...........................................................................20
14.3 Award..........................................................................................20
14.4 Temporary Condemnation.........................................................................21
15. DEFAULT.................................................................................................21
15.1 Events of Defaults.............................................................................21
15.2 Remedies.......................................................................................22
15.3 Cumulative.....................................................................................23
16. ASSIGNMENT AND SUBLETTING...............................................................................25
17. ESTOPPEL, ATTORNMENT AND SUBORDINATION..................................................................27
17.1 Estoppel.......................................................................................27
17.2 Subordination..................................................................................27
17.3 Attornment.....................................................................................27
18. MISCELLANEOUS...........................................................................................28
18.1 General........................................................................................28
18.2 Signs ........................................................................................29
18.3 Waiver.........................................................................................29
18.4 Financial Statements...........................................................................30
18.5 Limitation of Liability........................................................................30
18.6 Notices........................................................................................30
18.7 Brokerage Commission...........................................................................30
18.8 Authorization..................................................................................31
18.9 Holding Over...................................................................................31
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<PAGE>
18.10 Joint and Several..............................................................................31
18.11 Covenants and Conditions.......................................................................31
18.12 Addenda........................................................................................31
18.13 Parking........................................................................................32
</TABLE>
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<PAGE>
1. PREMISES.
1.1 Premises. Landlord hereby leases to Tenant the Premises as shown on
Exhibit A attached hereto, but excluding the Common Area (defined below) and any
other portion of the Project. Tenant has determined that the Premises are
acceptable for Tenant's use and Tenant acknowledges that, except as set forth in
the Work Letter, neither Landlord nor any broker or agent has made any
representations or warranties in connection with the physical condition of the
Premises or their fitness for Tenant's use upon which Tenant has relied directly
or indirectly for any purpose. By taking possession of the Premises, Tenant
accepts the Premises "AS-IS" and waives all claims against Landlord of defect in
the Premises, except as set forth in the Work Letter.
1.2 Common Area. Tenant may, subject to rules made by Landlord, use the
following areas ("Common Area") in common with Landlord and other tenants of the
Project: refuse facilities, landscaped areas, driveways necessary for access to
the Premises, parking spaces and other common facilities designated by Landlord
from time to time for the common use of all tenants of the Project. Except to
the extent such actions materially adversely affect Tenant's express rights
under this Lease, Landlord shall have the right, in Landlord's sole discretion,
from time to time (i) to make changes to the Common Area, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscape areas, and walkways; (ii) to close
temporarily any of the Common Area for maintenance purposes so long as
reasonable access to the Premises remains available; (iii) to designate other
land outside the boundaries of the Project to be part of the Common Area; (iv)
to install, use, maintain, repair, alter, relocate or replace any Common Area or
to add additional buildings and improvements to the Common Area; (v) to use the
Common Area while engaged in making additional improvements, repairs or
alterations to the Project, or any portion thereof; and (vi) to do and perform
such other acts and make such other changes in, to or with respect to the Common
Area and the Project as Landlord may, in the exercise of sound business
judgment, deem to be appropriate or prudent.
1.3 Reserved Rights. Landlord reserves the right to enter the Premises
for any reason upon reasonable notice to Tenant (except in case of an emergency)
and/or to undertake the following all without abatement of rent or liability to
Tenant: inspect the Premises and/or the performance by Tenant of the terms and
conditions hereof; make such alterations, repairs, improvements or additions to
the Premises as required hereunder; change boundary lines of the Common Areas;
install, use, maintain, repair, alter, relocate or replace any pipes, ducts,
conduits, wires, equipment and other facilities in the Building; grant easements
on the Project, dedicate for public use portions thereof and record covenants,
conditions and restrictions ("CC&Rs") affecting the Project and/or amendments to
existing CC&Rs which do not unreasonably interfere with Tenant's use of the
Premises or impose additional monetary or material nonmonetary obligations on
Tenant; change the name of the Project; affix reasonable signs and displays;
and, during the last nine (9) months of the Term, show the Premises to
prospective tenants.
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<PAGE>
2. TERM.
2.1 Commencement Date. The Term of the Lease shall commence
("Commencement Date") on the first day following the date on which the Premises
are Substantially Complete (as hereinafter defined) and Landlord has delivered
possession of the Premises to Tenant (provided, however, such date shall not be
earlier than June 1, 1999), and the Lease shall continue in full force and
effect for the period of time specified as the Term or until this Lease is
terminated as otherwise provided herein. The Premises shall be deemed to be
"Substantially Complete" on the earliest of the date on which: (1) both of the
following are satisfied: (x) Landlord files or causes to be filed with the City
in which the Premises are located (if required) and delivers to Tenant an
architect's notice of substantial completion, or similar written notice that the
Premises are substantially complete, and (y) a certificate of occupancy (or a
reasonably substantial equivalent such as a signoff from a building inspector or
a temporary certificate of occupancy) is issued for the Premises or (2) Tenant
commences business operations in the Premises. Landlord shall arrange for the
construction of certain Tenant Improvements (as defined in the Work Letter), if
any, in accordance with and subject to the terms of the Work Letter attached
hereto as Exhibit B. Tenant shall, upon demand after delivery of the Premises to
Tenant, execute and deliver to Landlord a Commencement Date Memorandum in the
form attached hereto as Exhibit C, which form shall also be executed by
Landlord, acknowledging (i) the Commencement Date, (ii) the final square footage
of the Premises and (iii) Tenant's acceptance of the Premises. Subject to the
provisions of Paragraph 12 of the Work Letter, if the Premises are not
Substantially Complete on the Estimated Commencement Date as extended by Force
Majeure events and Tenant Delays (as defined in the Lease or Work Letter), this
Lease shall remain in effect, Landlord shall not be subject to any liability,
and the Commencement Date shall be delayed until the date the Premises are
Substantially Complete.
2.2 Possession. Tenant's possession of the Premises during the
period of time, if any, from the date on which Landlord tenders possession of
the Premises to Tenant in a Substantially Completed condition (the "Possession
Date") to the Commencement Date, shall be subject to all the provisions of this
Lease and shall not advance the expiration date. Rent shall be paid for such
period at the rate stated in the Basic Lease Information, prorated on the basis
of a thirty (30) day month, and shall be due and payable to Landlord on or
before the Commencement Date. Tenant shall upon demand acknowledge in writing
the Possession Date in the form attached hereto as Exhibit C.
3. RENT.
3.1 Rent. Prior to the Commencement Date, Landlord will cause its
architect to measure and certify in writing to Landlord the rentable square
footage of the Premises, following which time the Base Rent, Tenant's Share and
other figures based upon the rentable square footage of the Premises shall be
adjusted to reflect the actual rentable square footage of the Premises. Except
in the case of manifest error, the certification from Landlord's architect of
the rentable square footage of the Premises shall be binding upon Landlord and
Tenant. Tenant shall pay to Landlord, at Landlord's Address for Payment of Rent
designated in the Basic Lease Information, or at such other address as Landlord
may from time to time designate in writing to
-2-
<PAGE>
Tenant for the payment of Rent, the Base Rent, without notice, demand, offset or
deduction, in advance, on the first day of each calendar month. Landlord shall
have no obligation to notify Tenant of any increase in Rent and Tenant's
obligation to pay all Rent (and any increases) when due shall not be modified or
altered by such lack of notice from Landlord. Acceptance of a payment of Rent
which is less than the amount then due shall not be a waiver of Landlord's
rights to the balance of such Rent, regardless of Landlord's endorsement of or
deposit of any check so stating. It is intended that this Lease be a "triple net
lease," and that the Rent to be paid hereunder by Tenant will be received by
Landlord without any deduction or offset whatsoever by Tenant, foreseeable or
unforeseeable. Except as expressly provided to the contrary in this Lease,
Landlord shall not be required to make any expenditure, incur any obligation, or
incur any liability of any kind whatsoever in connection with this Lease or the
ownership, construction, maintenance, operation or repair of the Premises or the
Project. Upon the execution of this Lease, Tenant shall pay to Landlord the
first month's Base Rent. If the Term commences (or ends) on a date other than
the first (or last) day of a month, Base Rent shall be prorated on a per diem
basis with respect to the portion of the first month and/or last month within
the Term. All sums other than Base Rent which Tenant is obligated to pay under
this Lease shall be deemed to be additional rent due hereunder, whether or not
such sums are designated "additional rent" and shall be due and payable to
Landlord commencing on the Possession Date. The term "Rent" means the Base Rent
and all additional rent payable hereunder.
3.2 Late Charge and Interest. The late payment of any Rent will cause
Landlord to incur additional costs, including administration and collection
costs and processing and accounting expenses and increased debt service
("Delinquency Costs"). If Landlord has not received any installment of Rent
within five (5) days after written notice that such amount is due, Tenant shall
pay a late charge of five percent (5%) of the delinquent amount, which is agreed
to represent a reasonable estimate of the Delinquency Costs incurred by
Landlord. In addition, all such delinquent amounts shall bear interest from the
date such amount was due until paid in full at a rate per annum ("Applicable
Interest Rate") equal to the lesser of (a) the maximum interest rate permitted
by law or (b) five percent (5%) above the rate publicly announced by Bank of
America, N.A. (or if Bank of America, N.A. ceases to exist, the largest bank
then headquartered in the State of California) ("Bank") as its "Reference Rate."
If the use of the announced Reference Rate is discontinued by the Bank, then the
term Reference Rate shall mean the announced rate charged by the Bank which is,
from time to time, substituted for the Reference Rate. Landlord and Tenant
recognize that the damage which Landlord shall suffer as a result of Tenant's
failure to pay such amounts is difficult to ascertain and said late charge and
interest are the best estimate of the damage which Landlord shall suffer in the
event of late payment. If a late charge becomes payable for any three (3)
installments of Rent within any twelve (12) month period, then the Rent shall
automatically become due and payable quarterly in advance.
3.3 Security Deposit. Upon the execution of this Lease, Tenant shall
pay to Landlord the Security Deposit. The Security Deposit shall secure the full
and faithful performance of each provision of this Lease to be performed by
Tenant. Landlord shall not be required to pay interest on the Security Deposit
or to keep the Security Deposit separate from Landlord's own funds. If Tenant
fails to perform fully and timely all or any of Tenant's covenants and
obligations hereunder, Landlord may, but without obligation, apply all or any
portion of the Security Deposit
-3-
<PAGE>
toward fulfillment of Tenant's unperformed covenants and/or obligations. If
Landlord does so apply any portion of the Security Deposit, Tenant shall
immediately pay Landlord sufficient cash to restore the Security Deposit to the
amount of the then current Base Rent per month. Upon any increase in Base Rent
during the Extension Term (as defined in the Addendum), if any, Landlord may
require the Security Deposit to be increased by the amount of the increase in
Base Rent per month. After Tenant vacates the Premises, upon the expiration or
sooner termination of this Lease, if Tenant is not then in default, Landlord
shall return to Tenant any unapplied balance of the Security Deposit. Should the
Permitted Use be amended to accommodate a change in the business of Tenant or to
accommodate a subtenant or assignee, Landlord shall have the right to increase
the Security Deposit to the extent necessary, in Landlord's reasonable judgment,
to account for any increased risk to the Premises or increased wear and tear
that the Premises may suffer as a result thereof. If a change in control of
Tenant occurs during this Lease and following such change the financial
condition of Tenant is, in Landlord's reasonable judgment, reduced, Tenant shall
deposit such additional monies with Landlord as shall be sufficient to cause the
Security Deposit to be at a commercially reasonable level based on said change
in financial condition.
4. UTILITIES. Tenant shall pay all charges for heat, water, gas, electricity,
telephone and any other utilities used on or provided to the Premises. Landlord
shall not be liable to Tenant for interruption in or curtailment of any utility
service, nor shall any such interruption or curtailment constitute constructive
eviction or grounds for rental abatement. In the event the Premises is not
separately metered, Tenant shall have the option, subject to Landlord's prior
written consent and the terms of this Lease, to cause the Premises to be
separately metered at Tenant's cost and expense. If Tenant does not elect to
cause the Premises to be separately metered, Tenant shall pay a reasonable
proration of utilities, as determined by Landlord.
5. TAXES.
5.1 Real Property Taxes. Tenant shall pay to Landlord Tenant's Share of
the Real Property Taxes in each calendar year (prorated on a per diem basis with
respect to any partial calendar year during the Term); provided, however,
Landlord may, at its election, require that Tenant pay any increase in the
assessed value of the Project based upon the value of the Tenant Improvements
(as defined in the Work Letter) relative to the value of the other improvements
on or to the other buildings in the Project, as reasonably determined by
Landlord. Upon Tenant's request, Landlord shall endeavor to provide Tenant with
a breakdown of Landlord's determination of Tenant's increased share of Real
Property Taxes resulting from the Tenant Improvements.
5.2 Definition of Real Property Taxes. "Real Property Taxes" shall be
the sum of the following: all real property taxes, possessory-interest taxes,
business or license taxes or fees, present or future Mello Roos assessments,
service payments in lieu of such taxes or fees, annual or periodic license or
use fees, excises, transit and traffic charges, housing fund assessments, open
space charges, childcare fees, school, sewer and parking fees or any other
assessments, levies, fees, exactions or charges, general and special, ordinary
and extraordinary, unforeseen as well as foreseen (including fees "in-lieu" of
any such tax or assessment) which are assessed,
-4-
<PAGE>
levied, charged, conferred or imposed by any public authority upon the Project
(or any real property comprising any portion thereof) or its operations,
together with all taxes, assessments or other fees imposed by any public
authority upon or measured by any Rent or other charges payable hereunder,
including any gross receipts tax or excise tax levied by any governmental
authority with respect to receipt of rental income, or upon, with respect to or
by reason of the development, possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof, or documentary transfer taxes upon this transaction or any
document to which Tenant is a party creating or transferring an interest in the
Premises, together with any tax imposed in substitution, partially or totally,
of any tax previously included within the aforesaid definition or any additional
tax the nature of which was previously included within the aforesaid definition,
together with any and all costs and expenses (including, without limitation,
attorneys, administrative and expert witness fees and costs) of challenging any
of the foregoing or seeking the reduction in or abatement, redemption or return
of any of the foregoing, but only to the extent of any such reduction,
abatement, redemption or return. All references to Real Property Taxes during a
particular year shall be deemed to refer to taxes accrued during such year,
including supplemental tax bills regardless of when they are actually assessed
and without regard to when such taxes are payable. The obligation of Tenant to
pay for supplemental taxes shall survive the expiration or early termination of
this Lease. Nothing contained in this Lease shall require Tenant to pay any
franchise, corporate, estate or inheritance tax of Landlord, any income, profits
or revenue tax or charge upon the net income of Landlord, any documentary
transfer taxes except as expressly set forth above, or any penalties on any Real
Property Taxes, unless caused by Tenant's failure to timely pay to Landlord
Tenant's Share of the Real Property Taxes pursuant to the terms of this Lease.
5.3 Personal Property Taxes. Prior to delinquency, Tenant shall pay all
taxes and assessments levied upon trade fixtures, alterations, additions,
improvements, inventories and other personal property located and/or installed
on the Premises by Tenant; and Tenant shall provide Landlord copies of receipts
for payment of all such taxes and assessments. To the extent any such taxes are
not separately assessed or billed to Tenant, Tenant shall pay the amount thereof
as invoiced by Landlord.
6. OPERATING EXPENSES.
6.1 Operating Expenses. Tenant shall pay to Landlord Tenant's Share of
the Building Operating Expenses and Tenant's Share of Project Operating Expenses
in each calendar year (prorated on a per diem basis with respect to any partial
calendar year during the Term).
6.2 Definition of Operating Expenses. "Operating Expenses" shall mean
collectively the "Building Operating Expenses" and the "Project Operating
Expenses".
6.2.1 Building Operating Expenses. "Building Operating
Expenses" shall include all reasonable and necessary expenses incurred by
Landlord in the ownership, operation, maintenance, repair and management of the
Building and the legal parcel on which the Building is situated, including, but
not limited to, (a) non-structural repairs to and maintenance of the roof (and
roof membrane), skylights and exterior walls of the Building (including
painting);
-5-
<PAGE>
(b) insurance deductibles (which, with respect to any earthquake insurance which
Landlord may carry, shall not exceed $10,000 with respect to any one insured
event) and the costs relating to the insurance maintained by Landlord with
respect to the Building, including, without limitation, Landlord's cost of any
self insurance deductible or retention; (c) maintenance contracts for heating,
ventilation and air-conditioning (HVAC) systems and elevators, if any; (d)
maintenance, monitoring and operation of the fire/life safety and sprinkler
system; (e) capital improvements made to or capital assets acquired for the
Building after the Commencement Date that are intended to reduce Building
Operating Expenses or are reasonably necessary for the health and safety of the
occupants of the Building or are required under any governmental law or
regulation, which capital costs, or an allocable portion thereof, shall be
amortized over the anticipated useful life of the applicable improvement or
asset as reasonably determined by Landlord, together with interest on the
unamortized balance at the rate as may have been paid by Landlord on funds
borrowed for the purpose of constructing or acquiring such capital improvements
or assets; (f) repair, maintenance, utility costs and landscaping of the legal
parcel on which the Building is situated, including, but not limited to, any and
all costs of maintenance, repair and replacement of all parking areas (including
bumpers, sweeping, striping and slurry coating), loading and unloading areas,
trash areas, common driveways, sidewalks, outdoor lighting, signs, directories,
walkways, parkways, landscaping, irrigation systems, fences and gates and other
costs which are allocable to the legal parcel on which the Building is situated
(provided, however, that if at any time during the Term of this Lease, one or
more buildings in addition to the Building are located on such legal parcel,
Tenant shall be responsible for a pro rata share of the costs described in this
clause (f), which pro rata share shall be equal to a fraction, the numerator of
which is the number of rentable square feet contained in the Building and the
denominator of which is the number of rentable square feet contained in all of
the buildings (including the Building) situated on such legal parcel); and (g)
any other costs incurred by Landlord related to the Building and not related to
the Project as a whole. Building Operating Expenses shall also include an
administrative fee to Landlord for accounting and project management services
relating to the Building in an amount equal to two percent (2%) of the sum of
the gross rents received by Landlord from all of the tenants in the Building
(for purposes of calculating such administrative fee the Building shall be
deemed to be one hundred percent (100%) leased to tenants which are paying gross
rent at the same rate as Tenant). Building Operating Expenses shall not include
(i) replacement of or structural repairs to the roof or the exterior walls or
any other structural repairs to the Building; (ii) repairs to the extent covered
by insurance proceeds, or paid by Tenant or other third parties; (iii)
alterations solely attributable to tenants of the Project other than Tenant;
(iv) costs of abatement or remediation of Hazardous Materials (as defined in
Section 12.1 below) brought upon, stored, used or disposed of in or about the
Building by Landlord or by a particular tenant or occupant of the Project other
than Tenant, its agents, employees, contractors, invitees, sublessees or
assigns; (v) debt service payments related to any indebtedness encumbering the
Building; (vi) costs of services furnished to some tenants of the Building which
are not furnished to Tenant; (vii) legal fees, brokerage commissions or
advertising costs associated with leasing the Building; (viii) legal fees
associated with disputes with other tenants in the Building; (ix) Landlord's
general overhead expenses not related to the Building; or (x) costs of capital
improvements or capital assets except as expressly set forth in Section 6.2.1(e)
above.
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<PAGE>
6.2.2 Project Operating Expenses. "Project Operating Expenses"
shall include all reasonable and necessary expenses incurred by Landlord in the
ownership, operation, maintenance, repair and management of the Project and/or
the Common Area, including, but not limited to, (a) repair, maintenance, utility
costs and landscaping of the Common Area, including, but not limited to, any and
all costs of maintenance, repair and replacement of all parking areas (including
bumpers, sweeping, striping and slurry coating), loading and unloading areas,
trash areas, common driveways, sidewalks, outdoor lighting, signs, directories,
walkways, parkways, landscaping, irrigation systems, fences and gates and other
costs which are allocable to the real property of which the Premises are a part;
(b) insurance deductibles (which, with respect to any earthquake insurance which
Landlord may carry, shall not exceed $10,000 with respect to any one insured
event) and the costs relating to the insurance maintained by Landlord with
respect to the Project including, without limitation, Landlord's cost of any
self insurance deductible or retention; (c) trash collection, security services
and the costs of any environmental inspections; (d) capital improvements made to
or capital assets acquired for the Project after the Commencement Date that are
intended to reduce Project Operating Expenses or are reasonably necessary for
the health and safety of the occupants of the Project or are required under any
governmental law or regulation, which capital costs, or an allocable portion
thereof, shall be amortized over the anticipated useful life of the applicable
improvement or asset as reasonably determined by Landlord, together with
interest on the unamortized balance at the rate as may have been paid by
Landlord on funds borrowed for the purpose of constructing or acquiring such
capital improvements or assets; (e) Real Property Taxes; and (f) any other costs
incurred by Landlord related to the Project as a whole and not related solely to
the Tenant or the Building. Project Operating Expenses shall not include (i)
costs of abatement or remediation of Hazardous Materials (as defined in Section
12.1 below) brought upon, stored, used or disposed of in or about the Project by
Landlord; (ii) debt service payments related to any indebtedness encumbering the
Project; (iii) costs of services furnished to some tenants of the Project which
are not furnished to Tenant; (iv) legal fees, brokerage commissions or
advertising costs associated with leasing the Project; (v) legal fees associated
with disputes with other tenants in the Project; (vi) Landlord's general
overhead expenses not related to the Project; or (vii) costs of capital
improvements or capital assets except as expressly set forth in Section 6.2.2(d)
above. In no event will Landlord or its property manager be required to keep
separate accounting records for the components of the Operating Expenses or to
create any ledgers or schedules not already in existence.
7. ESTIMATED EXPENSES.
7.1 Payment. "Estimated Expenses" for any particular year shall mean
Landlord's estimate of Operating Expenses and Real Property Taxes for a calendar
year. Tenant shall pay Tenant's Share of the Estimated Expenses with
installments of Base Rent in monthly installments of one-twelfth (1/12th)
thereof on the first day of each calendar month during such year. If at any time
Landlord determines that Operating Expenses and Real Property Taxes are
projected to vary from the then Estimated Expenses, Landlord may, by notice to
Tenant, revise such Estimated Expenses, and Tenant's monthly installments for
the remainder of such year shall be adjusted so that by the end of such calendar
year Tenant has paid to Landlord Tenant's Share of the revised Estimated
Expenses for such year.
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7.2 Adjustment. "Operating Expenses and Real Property Taxes Adjustment"
(or "Adjustment") shall mean the difference between Tenant's Share of Estimated
Expenses and Tenant's Share of Operating Expenses and Real Property Taxes for
any calendar year. After the end of each calendar year, Landlord shall deliver
to Tenant a statement of Tenant's Share of Operating Expenses and Real Property
Taxes for such calendar year, itemized by major category of Operating Expenses
and accompanied by a computation of the Adjustment. If Tenant's payments are
less than Tenant's Share, then Tenant shall pay the difference within twenty
(20) days after receipt of such statement. Tenant's obligation to pay such
amount shall survive the termination of this Lease. If Tenant's payments exceed
Tenant's Share, then (provided that Tenant is not in default), Landlord shall
credit such excess amount to future installments of Tenant's Share for the next
calendar year. If Tenant is in default, Landlord may, but shall not be required
to, credit such amount to Rent arrearages.
7.3 Tenant's Audit Rights. Tenant's rights to audit Landlord's books
and records to verify Operating Expenses are set forth as follows:
7.3.1 Audit Rights. In the event of any dispute as to the
amount of Tenant's Share of Operating Expenses (whether such dispute concerns
payment of Building Operating Expenses or Project Operating Expenses), Tenant or
a qualified representative of Tenant will have the right, by prior written
notice ("Audit Notice") given within ninety (90) days ("Audit Period") following
receipt of Landlord's annual reconciliation of Operating Expenses and at
reasonable times during normal business hours, to receive a copy of Landlord's
reasonable "backup" for Operating Expenses and photocopy Landlord's backup with
respect to Operating Expenses relative to the preceding year for the Common Area
and the Building at the offices of Landlord's property manager ("Audit"). In no
event will Landlord or its property manager be required to (i) photocopy any
accounting records or other items or contracts, (ii) create any ledgers or
schedules not already in existence, (iii) incur any costs or expenses relative
to such inspection, or (iv) perform any other tasks other than making available
such accounting and other financial records as are described in this paragraph
or as are reasonably necessary to substantiate Tenant's Share of Operating
Expenses. Landlord agrees to cooperate with such Audit. Tenant must pay Tenant's
Share of Building Operating Expenses and Project Operating Expenses when due
pursuant to the terms of this Lease and may not withhold payment of Operating
Expenses or any other rent pending results of the audit or during a dispute
regarding Operating Expenses. The audit must be completed within thirty (30)
days of the date of Tenant's Audit Notice and the results of such audit shall be
delivered to Landlord within one hundred twenty (120) days after the date of
Tenant's Audit Notice. If Tenant does not deliver its Audit Notice within the
Audit Period, then such annual reconciliation will be conclusively binding on
Tenant in the absence of fraud.
7.3.2 Audit Results. If such audit or review correctly reveals
that Landlord has overcharged Tenant, and Tenant has overpaid Landlord, then
within thirty (30) days after the results of such audit are made available to
Landlord, Landlord agrees to reimburse Tenant the amount of such
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overcharge or overpayment plus interest at the Applicable Interest Rate. If the
audit reveals that Tenant was undercharged, then within thirty (30) days after
the results of the audit are made available to Tenant, Tenant agrees to
reimburse Landlord the amount of such undercharge. Tenant agrees to pay the cost
of such audit. Tenant agrees to keep the results of the audit confidential and
will cause its agents, employees and contractors to keep such results
confidential, except as required by law.
8. INSURANCE.
8.1 Landlord. Landlord shall maintain insurance through individual or
blanket policies insuring the Building against fire and extended coverage
(including, if Landlord elects, "all risk" coverage, earthquake/volcanic action,
flood and/or surface water insurance) for the full replacement cost of the
Building, with deductibles and the form and endorsements of such coverage as
selected by Landlord, together with rental abatement insurance against loss of
Rent in an amount equal to the amount of Rent for a period of at least twelve
(12) months commencing on the date of loss. Landlord may also carry such other
insurance as Landlord may deem prudent or advisable, including, without
limitation, liability insurance in such amounts and on such terms as Landlord
shall determine. Tenant shall pay to Landlord, as a portion of the Operating
Expenses, the costs of the insurance coverages described herein, including,
without limitation, Landlord's cost of any self-insurance deductible or
retention.
8.2 Tenant. Tenant shall, at Tenant's expense, obtain and keep in force
at all times the following insurance:
8.2.1 Commercial General Liability Insurance (Occurrence
Form). A policy of commercial general liability insurance (occurrence form)
having a combined single limit of not less than Two Million Dollars ($2,000,000)
per occurrence and Two Million Dollars ($2,000,000) aggregate per location if
Tenant has multiple locations, providing coverage for, among other things,
blanket contractual liability, premises, products/completed operations, with an
"Additional Insured-Managers or Lessors of Premises Endorsement" and contain the
"Amendment of the Pollution Exclusion endorsement" for damage caused by heat,
smoke or fumes from a hostile fire, personal and advertising injury coverage,
with deletion of (a) the exclusion for operations within fifty (50) feet of a
railroad track (railroad protective liability), if applicable, and (b) the
exclusion for explosion, collapse or underground hazard, if applicable, and, if
necessary, Tenant shall provide for restoration of the aggregate limit and
provided that the policy shall not contain any intra-insured exclusions as
between insured persons or organizations, but shall include coverage for
liability assumed under this Lease as an "insured contract" for the performance
of Tenant's indemnity obligations under this Lease;
8.2.2 [Intentionally Omitted.]
8.2.3 Workers' Compensation and Employer's Liability
Insurance. Workers' compensation insurance having limits not less than those
required by state statute and federal statute, if applicable, and covering all
persons employed by Tenant in the conduct of its operations on the Premises
(including the all states endorsement and, if applicable, the volunteers
endorsement), together with employer's liability insurance coverage in the
amount of at least One Million Dollars ($1,000,000); and
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8.2.4 Property Insurance. "All risk" property insurance
including boiler and machinery comprehensive form, if applicable, covering
damage to or loss of any of Tenant's personal property, fixtures, equipment and
alterations, including electronic data processing equipment (collectively
"Tenant's Property") (and coverage for the full replacement cost thereof
including business interruption of Tenant), together with, if the property of
Tenant's invitees is to be kept in the Premises, warehouser's legal liability or
bailee customers insurance for the full replacement cost of the property
belonging to invitees and located in the Premises.
8.2.5 Business Interruption. Tenant shall obtain and maintain
loss of income and extra expense insurance in amounts as will reimburse Tenant
for direct or indirect loss of earnings attributable to all perils commonly
insured against by prudent lessees in the business of Tenant or attributable to
prevention of access to the Premises as a result of such perils.
8.3 General.
8.3.1 Insurance Companies. Insurance required to be maintained
by Tenant shall be written by companies licensed to do business in the state in
which the Premises are located and having a "General Policyholders Rating" of at
least "A - VIII" (or such higher rating as may be required by a lender having a
lien on the Premises) as set forth in the most current issue of "Best's
Insurance Guide."
8.3.2 Certificates of Insurance. Tenant shall deliver to
Landlord certificates of insurance for all insurance required to be maintained
by Tenant in the form of Exhibit D, attached hereto (or in a form acceptable to
Landlord in its sole discretion), no later than seven (7) days prior to the date
of possession of the Premises. Tenant shall, at least ten (10) days prior to
expiration of the policy, furnish Landlord with certificates of renewal or
"binders" thereof. Each certificate shall expressly provide that such policies
shall not be cancelable or otherwise subject to modification except after sixty
(60) days prior written notice to the parties named as additional insureds in
this Lease (except in the case of cancellation for nonpayment of premium in
which case cancellation shall not take effect until at least ten (10) days'
notice has been given to Landlord). If Tenant fails to maintain any insurance
required to be maintained by Tenant in this Lease, Tenant shall be liable for
all losses and cost resulting from said failure.
8.3.3 Additional Insureds. Landlord, Landlord's lender, if
any, and any property management company of Landlord for the Premises shall be
named as additional insureds on a form approved by Landlord under all of the
policies required by Section 8.2.1. The policies required under Section 8.2.1
shall provide for severability of interest.
8.3.4 Primary Coverage. All insurance to be maintained by
Tenant shall, except for workers' compensation and employer's liability
insurance, be primary, without right of contribution from insurance of Landlord.
Any umbrella liability policy or excess liability policy (which shall be in
"following form") shall provide that if the underlying aggregate is exhausted,
the excess coverage will drop down as primary insurance. The limits of insurance
maintained by Tenant shall not limit Tenant's liability under this Lease.
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8.3.5 Waiver of Subrogation. The parties each waive any right
to recover against the other party for claims for property damages whether or
not such claims are covered by the insurance required to be carried under
Section 8.1 or 8.2.4 above. This provision is intended to waive fully, and for
the benefit of the non-waiving party, any rights and/or claims which might give
rise to a right of subrogation in favor of any insurance carrier. The coverage
obtained by each party under the property insurance requirements of Section 8.1
or 8.2.4 shall include, without limitation, a waiver of subrogation endorsement
attached to the certificate of insurance for the property of the waiving party.
8.3.6 Notification of Incidents. Tenant shall notify Landlord
as soon as reasonably practicable, but in any event within forty-eight (48)
hours after Tenant's knowledge of the occurrence of any accidents or incidents
in the Premises, the Building, Common Areas or the Project which could give rise
to a claim under any of the insurance policies required under this Section 8.
8.4 Indemnity. Tenant shall indemnify, protect, defend (by counsel
reasonably acceptable to Landlord) and hold harmless Landlord and its partners,
directors, officers, employees, shareholders, lenders, agents, contractors and
each of their successors and assigns from and against any and all claims,
judgments, causes of action, damages, penalties, costs, liabilities, and
expenses, including all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon (collectively, "Liabilities"), arising at any time during or after the
Term to the extent caused by or resulting from (i) any default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease, or (ii) Tenant's use of the Premises, the conduct of Tenant's
business or any activity, work or things done, permitted or suffered by Tenant
in or about the Premises, the Building, the Common Area or other portions of the
Project, except for claims caused solely by Landlord's gross negligence or
willful misconduct (including, without limitation, Landlord's breach of this
Lease); provided, however, Tenant's obligation to indemnify Landlord hereunder
for Liabilities resulting from and to the extent of Landlord's negligence shall
be limited to the amount covered under any insurance policy required to be
maintained by Tenant under this Lease (or the amount that would have been
covered under such insurance policy if Tenant had maintained the policies of
insurance required to be maintained by Tenant under this Lease). The obligations
of Tenant under this Section 8.4 shall survive the termination of this Lease
with respect to any claims or liability arising prior to such termination.
8.5 Exemption of Landlord from Liability. Tenant, as a material part of
the consideration to Landlord, hereby assumes all risk of damage to property
including, but not limited to, Tenant's fixtures, equipment, furniture and
alterations or injury to persons in, upon or about the Premises, the Building,
the Common Area or other portions of the Project arising from any cause, and
Tenant hereby waives all claims in respect thereof against Landlord, except to
the extent such claims are caused by Landlord's gross negligence or willful
misconduct (including, without limitation, Landlord's willful breach of this
Lease). Tenant hereby agrees that Landlord shall not be liable for injury to
Tenant's business or any loss of income therefrom or for damage to the property
of Tenant, or injury to or death of Tenant, Tenant's employees, invitees,
customers, agents or contractors or any other person in or about the Premises,
the Building, the
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Common Area or the Project, whether such damage or injury is caused by fire,
steam, electricity, gas, water or rain, or from the breakage, leakage or other
defects of sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises, upon other portions of the Building or
from other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Tenant, except
to the extent caused by Landlord's gross negligence or willful misconduct
(including, without limitation, Landlord's willful breach of this Lease).
Landlord shall not be liable for any damages arising from any act or neglect of
any other tenant, if any, of the Building or the Project or Landlord's failure
to enforce the terms of any agreements with parties other than Tenant. It is
expressly understood and agreed that Tenant's waivers under this section shall
apply to all costs, liabilities, damages, deaths and injuries caused by
Landlord's negligence (other than its gross negligence).
9. REPAIRS AND MAINTENANCE.
9.1 Tenant. Except to the extent of Landlord's obligations pursuant to
the provisions of Section 9.2 below, Tenant, at Tenant's sole cost and expense,
shall keep and maintain the Premises (interior and exterior), including loading
docks, doors and ramps, floors, subfloors and floor coverings, walls and wall
coverings, doors, windows, glass, plate glass, ceilings, skylights, lighting
systems, interior plumbing, electrical and mechanical systems and wiring,
appliances and devices using or containing refrigerants, fixtures and equipment
in good repair and in a clean and safe condition, and repair and/or replace any
and all of the foregoing in a clean and safe condition, in good order, condition
and repair; provided, however, to the extent the necessity for such repair or
replacement is caused by the gross negligence or willful misconduct of Landlord,
its agents, employees or contractors, Landlord shall be responsible for the
actual, reasonable costs of such repair or replacement to the extent such costs
are not covered by the proceeds of insurance required to be maintained by Tenant
under this Lease (or such proceeds as Tenant would have received had Tenant
maintained the insurance required to be maintained by Tenant under this Lease).
Without limiting the foregoing, Tenant shall, at Tenant's sole expense, (a)
immediately replace all broken glass in the Premises with glass equal to or in
excess of the specification and quality of the original glass; and (b) repair
any area damaged by Tenant, Tenant's agents, employees, invitees and visitors,
including any damage caused by any roof penetration, whether or not such roof
penetration was approved by Landlord. In the event Tenant fails, in the
reasonable judgment of Landlord, to maintain the Premises in accordance with the
obligations under the Lease, which failure continues at the end of ten (10) days
following Tenant's receipt of written notice from Landlord stating with
particularity the nature of the failure, Landlord shall have the right to enter
the Premises and perform such maintenance, repairs or refurbishing at Tenant's
sole cost and expense (including a sum for overhead to Landlord). Tenant shall
maintain written records of maintenance and repairs, as required by any
applicable law, ordinance or regulation, and shall use certified technicians to
perform such maintenance and repairs, as so required. Tenant shall deliver full
and complete copies of all service or maintenance contracts entered into by
Tenant for the Premises to Landlord within sixty (60) days after the
Commencement Date.
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9.2 Landlord. Landlord shall, subject to the following limitations,
repair damage to and maintain in good repair the structural portions of the roof
and the roof membrane, the foundation, the load-bearing walls and exterior
portions of exterior walls (excluding wall coverings, painting, glass and
doors), and other structural portions of the Building and the Common Area;
provided, if such damage is caused by an act or omission of Tenant, Tenant's
employees, agents, invitees, subtenants, or contractors, then such repairs shall
be at Tenant's sole expense. Landlord shall not be required to make any repair
resulting from (i) any alteration or modification to the Building or to
mechanical equipment within the Building performed by, for or because of Tenant
or to special equipment or systems installed by, for or because of Tenant, (ii)
the installation, use or operation of Tenant's property, fixtures and equipment,
(iii) the moving of Tenant's property in or out of the Building or in and about
the Premises, (iv) Tenant's use or occupancy of the Premises in violation of
Section 11 of this Lease or in the manner not contemplated by the parties at the
time of the execution of this Lease, (v) the acts or omissions of Tenant and
Tenant's employees, agents, invitees, subtenants, licensees or contractors, (vi)
fire and other casualty, except as provided by Section 13 of this Lease or (vii)
condemnation, except as provided in Section 14 of this Lease. Landlord shall
have no obligation to make repairs under this Section 9.2 until a reasonable
time after receipt of written notice from Tenant of the need for such repairs.
There shall be no abatement of Rent during the performance of such work.
Landlord shall not be liable to Tenant for injury or damage that may result from
any defect in the construction or condition of the Premises, nor for any damage
that may result from interruption of Tenant's use of the Premises during any
repairs by Landlord. Tenant waives any right to repair the Premises, the
Building and/or the Common Area at the expense of Landlord under any applicable
governmental laws, ordinances, statutes, orders or regulations now or hereafter
in effect which might otherwise apply.
10. ALTERATIONS.
10.1 Trade Fixtures; Alterations. Tenant may install necessary trade
fixtures, equipment and furniture in the Premises, provided that such items are
installed and are removable without structural or material damage to the
Premises, the Building, the Common Area or the Project. Tenant shall not
construct, nor allow to be constructed, any alterations or physical additions
in, about or to the Premises without obtaining the prior written consent of
Landlord, which consent shall be conditioned upon Tenant's compliance with
Landlord's reasonable requirements regarding construction of improvements and
alterations; provided, however, Tenant shall have the right, without Landlord's
consent but with written notice to Landlord, to undertake interior,
nonstructural alterations to the Premises that do not affect any Building
systems and the cost of which does not exceed, in any one instance, $7,500.00.
Tenant shall submit plans and specifications to Landlord with Tenant's request
for approval (or with Tenant's notice to Landlord if no approval is required
hereunder) and shall reimburse Landlord for all costs which Landlord may incur
in connection with granting approval to Tenant for any such alterations and
additions requiring Landlord's approval hereunder, including any costs or
expenses which Landlord may incur in electing to have outside architects and
engineers review said matters. If Landlord does not respond to a written request
from Tenant within ten (10) business days, then Landlord shall be deemed to
disapprove such request. In the event Tenant makes any alterations to the
Premises that trigger or give rise to a requirement that the Building
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or the Premises come into compliance with any governmental laws, ordinances,
statutes, orders and/or regulations (such as ADA requirements), Tenant shall be
fully responsible for complying, at its sole cost and expense, with same. Tenant
shall file a notice of completion after completion of such work and provide
Landlord with a copy thereof. Tenant shall provide Landlord with a set of
"as-built" drawings for any such work.
10.2 Damage; Removal. Tenant shall repair all damage to the Premises
and/or the Building caused by the installation or removal of Tenant's fixtures,
equipment, furniture and alterations. Upon the termination of this Lease, Tenant
shall remove any or all alterations, additions, improvements and partitions made
or installed by Tenant and restore the Premises to its condition existing prior
to the construction of any such items (provided that Landlord shall identify
during its approval of any alterations, additions or improvements to be made to
or installed in the Premises by Tenant those items which Landlord reserves the
right to require Tenant to remove); provided, however, Landlord may permit, upon
written notice to Tenant, any such items designated by Landlord to remain on the
Premises, in which event they shall be and become the property of Landlord upon
the termination of this Lease. All such removals and restoration shall be
accomplished in a good and workmanlike manner and so as not to cause any damage
to the Premises, the Building, the Common Area or the Project whatsoever.
10.3 Liens. Tenant shall promptly pay and discharge all claims for
labor performed, supplies furnished and services rendered at the request of
Tenant and shall keep the Premises free of all mechanics' and materialmen's
liens in connection therewith. Tenant shall provide at least ten (10) days prior
written notice to Landlord before any labor is performed, supplies furnished or
services rendered on or at the Premises and Landlord shall have the right to
post on the Premises notices of non-responsibility. If any lien is filed, Tenant
shall cause such lien to be released and removed within ten (10) days after the
date of filing, and if Tenant fails to do so, Landlord may take such action as
may be necessary to remove such lien and Tenant shall pay Landlord such amounts
expended by Landlord together with interest thereon at the Applicable Interest
Rate from the date of expenditure.
10.4 Standard of Work. All work to be performed by or for Tenant
pursuant hereto shall be performed diligently and in a first class, workmanlike
manner, and in compliance with all applicable laws, ordinances, regulations and
rules of any public authority having jurisdiction over the Premises and/or
Tenant and Landlord's insurance carriers. Landlord shall have the right, but not
the obligation, to inspect periodically the work on the Premises and Landlord
may require changes in the method or quality of the work if Tenant's work is not
in compliance with the provisions of this Section 10.
11. USE. The Premises shall be used only for the Permitted Uses set forth in the
Basic Lease Information and for no other uses. Tenant's use of the Premises
shall be in compliance with and subject to all applicable governmental laws,
ordinances, statutes, orders and regulations and any CC&Rs (including payments
thereunder, if any) or any supplement thereto recorded in any official or public
records with respect to the Project or any portion thereof. In the event
Landlord desires to record CC&Rs against the Project after the date of full
execution of this Lease, Landlord shall, at its option, either (a) obtain
Tenant's consent thereto, which consent shall not be
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unreasonably withheld (provided Tenant's material rights and obligations under
the Lease are not impaired but provided that any provisions of such CC&Rs which
require Tenant to pay reasonable assessments such as for common area maintenance
and landscaping shall not be deemed to impair Tenant's material rights and
obligations under this Lease), conditioned or delayed or (b) elect not to obtain
Tenant's consent thereto, in which event the provisions of this Lease shall
prevail over any conflicting provisions of the CC&Rs. In no event shall the
Premises be used for any of the Prohibited Uses set forth on Exhibit E attached
hereto. Tenant, at Tenant's sole cost and expense, shall comply with the rules
and regulations attached hereto as Exhibit F, together with such additional
rules and regulations as Landlord may from time to time prescribe, provided such
additional rules do not materially adversely affect Tenant's rights under this
Lease. Tenant shall not commit waste, overload the floors or structure of the
Building, subject the Premises, the Building, the Common Area or the Project to
any use which would damage the same or increase the risk of loss or violate any
insurance coverage, permit any unreasonable odors, smoke, dust, gas, substances,
noise or vibrations to emanate from the Premises, take any action which would
constitute a nuisance or would disturb, obstruct or endanger any other tenants,
take any action which would abrogate any warranties, or use or allow the
Premises to be used for any unlawful purpose. Tenant agrees that Landlord shall
not be responsible for non-compliance by any other tenant or occupant of the
Project with, or Landlord's failure to enforce, any of the rules or regulations
or CC&Rs or any other terms or provisions of such tenant's or occupant's lease.
Tenant shall promptly comply with the reasonable requirements of any board of
fire insurance underwriters or other similar body now or hereafter constituted.
Tenant shall not do any act which shall in any way encumber the title of
Landlord in and to the Premises, the Building or the Project.
12. ENVIRONMENTAL MATTERS.
12.1 Hazardous Materials. Tenant shall not cause nor permit,
nor allow any of Tenant's employees, agents, customers, visitors, invitees,
licensees, contractors, assignees or subtenants (collectively, "Tenant's
Parties") to cause or permit, any Hazardous Materials to be brought upon,
stored, manufactured, generated, blended, handled, recycled, treated, disposed
or used on, under or about the Premises, the Building, the Common Area or the
Project, except for routine office and janitorial supplies in usual and
customary quantities stored, used and disposed of in accordance with all
applicable Environmental Laws. As used herein, "Hazardous Materials" means any
chemical, substance, material, controlled substance, object, condition, waste,
living organism or combination thereof which is or may be hazardous to human
health or safety or to the environment due to its radioactivity, ignitability,
corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity,
phytotoxicity, infectiousness or other harmful or potentially harmful properties
or effects, including, without limitation, petroleum and petroleum products,
asbestos, radon, polychlorinated biphenyls (PCBs), refrigerants (including those
substances defined in the Environmental Protection Agency's "Refrigerant
Recycling Rule," as amended from time to time) and all of those chemicals,
substances, materials, controlled substances, objects, conditions, wastes,
living organisms or combinations thereof which are now or become in the future
listed, defined or regulated in any manner by any Environmental Law based upon,
directly or indirectly, such properties or effects. As used herein,
"Environmental Laws" means any and all federal, state or local environmental,
health and/or safety-related laws, regulations,
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standards, decisions of courts, ordinances, rules, codes, orders, decrees,
directives, guidelines, permits or permit conditions, currently existing and as
amended, enacted, issued or adopted in the future which are or become applicable
to Tenant, the Premises, the Building, the Common Area or the Project. Tenant
and Tenant's Parties shall comply with all Environmental Laws and promptly
notify Landlord of the violation of any Environmental Law or presence of any
Hazardous Materials, other than office and janitorial supplies as permitted
above, on the Premises. If Landlord has a good faith belief or a reasonable
suspicion that Tenant may have violated its obligations under this Section 12.1
or that Hazardous Materials may exist in, on, under, or about the Premises,
Landlord shall have the right (upon twenty-four (24) hours notice to Tenant,
except that in an emergency situation no such notice shall be required) to enter
upon and inspect the Premises and to conduct tests, monitoring and
investigations. Landlord shall use commercially reasonable efforts to cause such
tests, monitoring and investigations to be conducted without unreasonable
interference with the business of Tenant. If such tests indicate the presence of
any environmental condition which occurred during the Term of this Lease and
which Tenant or Tenant's Parties caused, aggravated, permitted or contributed
to, Tenant shall reimburse Landlord for the cost of conducting such tests. The
phrase "environmental condition" shall mean any release, storage, manufacture,
generation, blending, handling, recycling, treatment, disposal or use of
Hazardous Materials not authorized under this Lease or any violation of
Environmental Laws arising in, on, under, or about the Premises during the Term.
To the extent any such environmental condition is caused, aggravated, knowingly
permitted or contributed to by Tenant or Tenant's Parties, Tenant shall promptly
take any and all steps necessary to rectify the same to comply with
Environmental Laws and the reasonable requirements of any lender having a
secured interest in all or any portion of the Project, and to the satisfaction
of all environmental agencies having jurisdiction over such environmental
condition, or shall, at Landlord's election, reimburse Landlord, upon demand,
for the cost to Landlord of performing rectifying work. The reimbursement shall
be paid to Landlord in advance of Landlord's performing such work, based upon
Landlord's reasonable estimate of the cost thereof; and upon completion of such
work by Landlord, Tenant shall pay to Landlord any shortfall within thirty (30)
days after Landlord bills Tenant therefor or Landlord shall within thirty (30)
days refund to Tenant any excess deposit, as the case may be.
12.2 Indemnification. Tenant shall indemnify, protect, defend (by
counsel acceptable to Landlord) and hold harmless Landlord and its partners,
directors, officers, employees, shareholders, lenders, agents, contractors and
each of their respective successors and assigns (individually and collectively,
"Indemnitees") from and against any and all claims, judgments, causes of action,
damages, penalties, fines, taxes, costs, liabilities, losses and expenses
arising at any time during or after the Term as a result (directly or
indirectly) of or in connection with (a) Tenant and/or Tenant's Parties' breach
of any prohibition or provision of the preceding section, or (b) the presence of
Hazardous Materials on, under or about the Premises or other property as a
result (directly or indirectly) of Tenant's and/or Tenant's Parties' activities,
or failure to act, in connection with the Premises. This indemnity shall include
the cost of any required or necessary repair, cleanup or detoxification, and the
preparation and implementation of any closure, monitoring or other required
plans, whether such action is required or necessary prior to or following the
termination of this Lease. Neither the written consent by Landlord to the
presence of Hazardous Materials on, under or about the Premises, nor the strict
compliance by
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Tenant with all Environmental Laws, shall excuse Tenant from Tenant's obligation
of indemnification pursuant hereto. Tenant's obligations pursuant to the
foregoing indemnity shall survive the termination of this Lease.
13. DAMAGE AND DESTRUCTION.
13.1 Casualty. If the Premises or Building should be damaged or
destroyed by fire or other casualty, Tenant shall give immediate written notice
to Landlord. Within thirty (30) days after receipt from Tenant of such written
notice, Landlord shall notify Tenant whether the necessary repairs can
reasonably be made: (a) within one hundred eighty (180) days; (b) in more than
one hundred eighty (180) days but in less than two hundred seventy (270) days;
or (c) in more than two hundred seventy (270) days after the date of the
casualty event.
13.1.1 Less Than 180 Days. If the Premises or Building should
be damaged only to such extent that rebuilding or repairs can reasonably be
completed within one hundred eighty (180) days after the date of the casualty
event, this Lease shall not terminate and, provided that
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insurance proceeds are available to fully repair the damage, Landlord shall
repair the Premises (including the Tenant Improvements, to the extent of
available insurance proceeds), except that Landlord shall not be required to
rebuild, repair or replace Tenant's Property which may have been placed in, on
or about the Premises by or for the benefit of Tenant. If Tenant is required to
vacate all or a portion of the Premises during Landlord's repair thereof, the
Base Rent payable hereunder shall be abated proportionately on the basis of the
size of the area of the Premises that is required to be and is actually vacated
by Tenant (e.g., the number of square feet of floor area of the Premises that is
required to be and is actually vacated by Tenant compared to the total square
footage of the floor area of the Premises) from the date Tenant vacates all or a
portion of the Premises that was damaged only during the period the Premises are
unfit for occupancy.
13.1.2 Greater Than 180 Days. If the Premises or Building
should be damaged only to such extent that rebuilding or repairs can reasonably
be completed in more than one hundred eighty (180) days but in less than two
hundred seventy (270) days after the date of the casualty event, then Landlord
shall have the option of: (a) terminating the Lease effective upon the
occurrence of such damage, in which event the Rent shall be abated from the date
Tenant vacates the Premises; or (b) electing to repair the Premises (including
the Tenant Improvements), provided insurance proceeds are available to fully
repair the damage (except that Landlord shall not be required to rebuild, repair
or replace Tenant's Property which may have been placed in, on or about the
Premises by or for the benefit of Tenant). If Tenant is required to vacate all
or a portion of the Premises during Landlord's repair thereof, the Base Rent
payable hereunder shall be abated proportionately on the basis of the size of
the area of the Premises that is required to be vacated and is actually vacated
by Tenant (e.g., the number of square feet of floor area of the Premises that is
required to be vacated and is actually vacated by Tenant compared to the total
square footage of the floor area of the Premises) from the date Tenant vacates
all or a portion of the Premises that was damaged only during the period the
Premises are unfit for occupancy. In the event that Landlord should fail to
substantially complete such repairs within two hundred seventy (270) days after
the date of the casualty event (such period to be extended for delays caused by
Tenant or because of any items of Force Majeure, as hereinafter defined) and
Tenant has not re-occupied the Premises, Tenant shall have the right, as
Tenant's exclusive remedy, within ten (10) days after the expiration of such two
hundred seventy (270) day period, to terminate this Lease by delivering written
notice to Landlord as Tenant's exclusive remedy, whereupon all rights hereunder
shall cease and terminate thirty (30) days after Landlord's receipt of such
notice.
13.1.3 Greater Than 270 Days. If the Premises or Building
should be so damaged that rebuilding or repairs cannot be completed within two
hundred seventy (270) days after the date of the casualty event, either Landlord
or Tenant may terminate this Lease by giving written notice within ten (10) days
after notice from Landlord specifying such time period of repair; and this Lease
shall terminate and the Rent shall be abated from the date Tenant vacates the
Premises. In the event that neither party elects to terminate this Lease,
Landlord shall promptly commence and diligently prosecute to completion the
repairs to the Building or Premises (including the Tenant Improvements),
provided insurance proceeds are available to repair the damage (except that
Landlord shall not be required to rebuild, repair or replace Tenant's Property
which may have been placed in, on or about the Premises by or for the benefit
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of Tenant). If Tenant is required to vacate all or a portion of the Premises
during Landlord's repair thereof, the Base Rent payable hereunder shall be
abated proportionately on the basis of the size of the area of the Premises that
is required to be vacated and is actually vacated by Tenant (e.g., the number of
square feet of floor area of the Premises that is required to be vacated and is
actually vacated by Tenant compared to the total square footage of the floor
area of the Premises), from the date Tenant vacates all or a portion of the
Premises that was damaged only during the period that the Premises are unfit for
occupancy.
13.2 Tenant's Fault. If the Premises or any portion of the Building is
damaged resulting from the negligence or breach of this Lease by Tenant or any
of Tenant's Parties, Rent shall not be reduced during the repair of such damage
except to the extent rental abatement insurance proceeds are received by
Landlord, or would have been received had Landlord maintained the rental
abatement insurance required pursuant to Section 8.1 of this Lease, and Tenant
shall be liable to Landlord for the cost of the repair caused thereby to the
extent such cost is not covered by insurance proceeds from policies of insurance
actually maintained or required to be maintained pursuant to the provisions of
this Lease.
13.3 Uninsured Casualty. Tenant shall be responsible for and shall pay
to Landlord any deductible amount payable under the property insurance for the
Building (provided that, with respect to earthquake insurance, Tenant's
responsibility to pay the deductible amount shall not exceed $10,000 with
respect to any one insured event). In the event that the Premises or any portion
of the Building is damaged to the extent Tenant is unable to use the Premises
and such damage is not covered by insurance proceeds received by Landlord or in
the event that the holder of any indebtedness secured by the Premises requires
that the insurance proceeds be applied to such indebtedness, then Landlord shall
have the right at Landlord's option either (i) to repair such damage as soon as
reasonably possible at Landlord's expense, or (ii) to give written notice to
Tenant within thirty (30) days after the date of the occurrence of such damage
of Landlord's intention to terminate this Lease as of the date of the occurrence
of such damage. In the event Landlord elects to terminate this Lease, Tenant
shall have the right within ten (10) days after receipt of such notice to give
written notice to Landlord of Tenant's intention to pay the cost of repair of
such damage (to the extent not covered by insurance proceeds received by
Landlord, including noncoverage as a result of any requirement that such
insurance proceeds be applied to any indebtedness secured by the Premises), in
which event, following the securitization of Tenant's funding commitment in a
form acceptable to Landlord, this Lease shall continue in full force and effect,
Landlord shall make such repairs as soon as reasonably possible and Tenant shall
reimburse Landlord for such repairs (to the extent not covered by insurance
proceeds received by Landlord, including noncoverage as a result of any
requirement that such insurance proceeds be applied to any indebtedness secured
by the Premises) within fifteen (15) days after receipt of an invoice from
Landlord. If Tenant does not give such notice within the ten (10) day period,
this Lease shall terminate automatically as of the date of the occurrence of the
damage.
13.4 Waiver. With respect to any damage or destruction which Landlord
is obligated to repair or may elect to repair, Tenant waives all rights to
terminate this Lease pursuant to rights otherwise presently or hereafter
accorded by law.
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13.5 Force Majeure. "Force Majeure," as used in this Section 13 only
and shall not apply elsewhere unless otherwise specified, means delays resulting
from causes beyond the reasonable control of Landlord, including, without
limitation, any delay caused by any action, inaction, order, ruling, moratorium,
regulation, statute, condition or other decision of any private party or
governmental agency having jurisdiction over any portion of the Project, over
the construction anticipated to occur thereon or over any uses thereof, or by
delays in inspections or in issuing approvals by private parties or permits by
governmental agencies, or by fire, flood, inclement weather, strikes, lockouts
or other labor or industrial disturbance (whether or not on the part of agents
or employees of Landlord engaged in the construction of the Premises), civil
disturbance, order of any government, court or regulatory body claiming
jurisdiction or otherwise, act of public enemy, war, riot, sabotage, blockage,
embargo, failure or inability to secure materials, supplies or labor through
ordinary sources by reason of shortages or priority, discovery of hazardous or
toxic materials, earthquake, or other natural disaster, delays caused by any
dispute resolution process, or any cause whatsoever beyond the reasonable
control (excluding financial inability) of the party whose performance is
required, or any of its contractors or other representatives, whether or not
similar to any of the causes hereinabove stated.
14. EMINENT DOMAIN.
14.1 Total Condemnation. If all of the Premises is condemned by eminent
domain, inversely condemned or sold under threat of condemnation for any public
or quasi-public use or purpose ("Condemned"), this Lease shall terminate as of
the earlier of the date the condemning authority takes title to or possession of
the Premises, and Rent shall be adjusted to the date of termination.
14.2 Partial Condemnation. If any portion of the Premises or the
Building is Condemned and such partial condemnation materially impairs Tenant's
ability to use the Premises for Tenant's business as mutually determined by
Landlord and Tenant, Tenant shall have the option of terminating this Lease as
of the earlier of the date title vests in the condemning authority or as of the
date an order of immediate possession is issued and Rent shall be adjusted to
the date of termination; provided, however, if Landlord shall offer at its
expense to relocate Tenant to comparable space elsewhere, which space is
satisfactory to Tenant in Tenant's sole and absolute discretion, this Lease
shall not terminate but shall continue in full force and effect, except that
this Lease shall be modified, as necessary, to reflect the changes incident to
such relocation. If such partial condemnation does not materially impair
Tenant's ability to use the Premises for the business of Tenant, Landlord shall
promptly restore the Premises to the extent of any condemnation proceeds
recovered by Landlord, excluding the portion thereof lost in such condemnation,
and this Lease shall continue in full force and effect except that after the
date of such title vesting Rent shall be adjusted as reasonably determined by
Landlord.
14.3 Award. If the Premises are wholly or partially Condemned, Landlord
shall be entitled to the entire award paid for such condemnation, and Tenant
waives any claim to any part of the award from Landlord or the condemning
authority; provided, however, Tenant shall have the right to recover from the
condemning authority such compensation as may be separately
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awarded to Tenant in connection with costs in removing Tenant's merchandise,
furniture, fixtures, leasehold improvements and equipment to a new location. No
condemnation of any kind shall be construed to constitute an actual or
constructive eviction of Tenant or a breach of any express or implied covenant
of quiet enjoyment.
14.4 Temporary Condemnation. In the event of a temporary condemnation
not extending beyond the Term, this Lease shall remain in effect, Tenant shall
continue to pay Rent and Tenant shall receive any award made for such
condemnation except damages to any of Landlord's property. If a temporary
condemnation is for a period which extends beyond the Term, this Lease shall
terminate as of the date of initial occupancy by the condemning authority and
any such award shall be distributed in accordance with the preceding section. If
a temporary condemnation remains in effect at the expiration or earlier
termination of this Lease, Tenant shall pay Landlord the reasonable cost of
performing any obligations required of Tenant with respect to the surrender of
the Premises.
15. DEFAULT.
15.1 Events of Defaults. The occurrence of any of the following events
shall, at Landlord's option, constitute an "Event of Default":
15.1.1 Vacation or abandonment of the Premises for a period of
thirty (30) consecutive days; provided, however, vacation of the Premises shall
not constitute a default provided that Tenant at all times is otherwise in
compliance with the terms of this Lease and maintains sufficient security
personnel on site to protect the Premises from vandalism or other damage;
15.1.2 Failure to pay Rent on the date when due and the
failure continuing for a period of five (5) days after written notice that such
payment is due (which notice shall be in lieu of notice required under the
California Code of Civil Procedure Section 1161 or any similar or successor law)
or, notwithstanding the foregoing, any failure by Tenant to pay Rent on the date
when due and the failure continuing for a period of five (5) days after such
payment is due in any calendar year during the Term in which Landlord has
delivered two (2) or more written notices, as described above, to Tenant;
15.1.3 Failure to perform Tenant's covenants and obligations
hereunder (except default in the payment of Rent) where such failure continues
for a period of thirty (30) days after written notice from Landlord; provided,
however, if the nature of the default is such that more than thirty (30) days
are reasonably required for its cure, Tenant shall not be deemed to be in
default if Tenant commences the cure within the thirty (30) day period and
diligently and continuously prosecutes such cure to completion;
15.1.4 The making of a general assignment by Tenant for the
benefit of creditors; the filing of a voluntary petition by Tenant or the filing
of an involuntary petition by any of Tenant's creditors seeking the
rehabilitation, liquidation or reorganization of Tenant under any law relating
to bankruptcy, insolvency or other relief of debtors and, in the case of an
involuntary action, the failure to remove or discharge the same within sixty
(60) days of such filing; the
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appointment of a receiver or other custodian to take possession of substantially
all of Tenant's assets or this leasehold; Tenant's insolvency or inability to
pay Tenant's debts or failure generally to pay Tenant's debts when due; any
court entering a decree or order directing the winding up or liquidation of
Tenant or of substantially all of Tenant's assets; Tenant taking any action
toward the dissolution or winding up of Tenant's affairs; the cessation or
suspension of Tenant's use of the Premises; or the attachment, execution or
other judicial seizure of substantially all of Tenant's assets or this
leasehold;
15.1.5 The making of any material misrepresentation or
omission by Tenant or any successor in interest of Tenant in any materials
delivered by or on behalf of Tenant to Landlord or Landlord's lender pursuant to
this Lease; or
15.1.6 The occurrence of an Event of Default as otherwise
designated as an Event of Default in the Lease.
15.2 Remedies.
15.2.1 Termination. In the event of the occurrence of any
Event of Default, Landlord shall have the right to give a written termination
notice to Tenant (which notice may be the notice given under Section 15.1 above,
if applicable, and which notice shall be in lieu of any notice required by
California Code of Civil Procedure Section 1161, et seq.) and, on the date
specified in such notice, this Lease shall terminate unless on or before such
date all arrears of Rent and all other sums payable by Tenant under this Lease
and all costs and expenses incurred by or on behalf of Landlord hereunder shall
have been paid by Tenant and all other Events of Default at the time existing
shall have been fully remedied to the satisfaction of Landlord.
15.2.1.1 Repossession. Following termination, without
prejudice to other remedies Landlord may have, Landlord may (i) peaceably
re-enter the Premises upon voluntary surrender by Tenant or remove Tenant
therefrom and any other persons occupying the Premises, using such legal
proceedings as may be available; (ii) repossess the Premises or relet the
Premises or any part thereof for such term (which may be for a term extending
beyond the Term), at such rental and upon such other terms and conditions as
Landlord in Landlord's sole discretion shall determine, with the right to make
reasonable alterations and repairs to the Premises; and (iii) remove all
personal property therefrom.
15.2.1.2 Unpaid Rent. Landlord shall have all the
rights and remedies of a landlord provided by applicable law, including the
right to recover from Tenant: (a) the worth, at the time of award, of the unpaid
Rent that had been earned at the time of termination, (b) the worth, at the time
of award, of the amount by which the unpaid Rent that would have been earned
after the date of termination until the time of award exceeds the amount of loss
of rent that Tenant proves could have been reasonably avoided, (c) the worth, at
the time of award, of the amount by which the unpaid Rent for the balance of the
Term after the time of award exceeds the amount of the loss of rent that Tenant
proves could have been reasonably avoided, and (d) any other amount, and court
costs, necessary to compensate Landlord for all detriment proximately caused by
Tenant's default. The phrase "worth, at the time of award," as used in (a) and
(b) above, shall be computed at the Applicable Interest Rate, and as used in (c)
above, shall
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be computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
15.2.2 Continuation. Even though an Event of Default may have
occurred, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession; and Landlord may enforce all of
Landlord's rights and remedies under this Lease, including the remedy described
in California Civil Code Section 1951.4 ("lessor" may continue Lease in effect
after "lessee's" breach and abandonment and recover Rent as it becomes due, if
"lessee" has the right to sublet or assign, subject only to reasonable
limitations) to recover Rent as it becomes due. Landlord, without terminating
this Lease, may, during the period Tenant is in default, enter the Premises and
relet the same, or any portion thereof, to third parties for Tenant's account
and Tenant shall be liable to Landlord for all costs Landlord incurs in
reletting the Premises, including, without limitation, brokers' commissions,
expenses of remodeling the Premises and like costs. Reletting may be for a
period shorter or longer than the remaining Term. Tenant shall continue to pay
the Rent on the date the same is due. No act by Landlord hereunder, including
acts of maintenance, preservation or efforts to lease the Premises or the
appointment of a receiver upon application of Landlord to protect Landlord's
interest under this Lease, shall terminate this Lease unless Landlord notifies
Tenant that Landlord elects to terminate this Lease. In the event that Landlord
elects to relet the Premises, the rent that Landlord receives from reletting
shall be applied to the payment of, first, any indebtedness from Tenant to
Landlord other than Base Rent and Tenant's Share of Operating Expenses and Real
Property Taxes; second, all costs, including maintenance, incurred by Landlord
in reletting; and, third, Base Rent and Tenant's Share of Operating Expenses and
Real Property Taxes under this Lease. After deducting the payments referred to
above, any sum remaining from the rental Landlord receives from reletting shall
be held by Landlord and applied in payment of future Rent as Rent becomes due
under this Lease. In no event, and notwithstanding anything in Section 16 to the
contrary, shall Tenant be entitled to any excess rent received by Landlord. If,
on the date Rent is due under this Lease, the rent received from the reletting
is less than the Rent due on that date, Tenant shall pay to Landlord, in
addition to the remaining Rent due, all costs, including maintenance, which
Landlord incurred in reletting the Premises that remain after applying the rent
received from reletting as provided hereinabove. So long as this Lease is not
terminated, Landlord shall have the right to remedy any default of Tenant, to
maintain or improve the Premises, to cause a receiver to be appointed to
administer the Premises and new or existing subleases and to add to the Rent
payable hereunder all of Landlord's reasonable costs in so doing, with interest
at the Applicable Interest Rate from the date of such expenditure.
15.3 Cumulative. Each right and remedy of Landlord provided for herein
or now or hereafter existing at law, in equity, by statute or otherwise shall be
cumulative and shall not preclude Landlord from exercising any other rights or
remedies provided for in this Lease or now or hereafter existing at law or in
equity, by statute or otherwise. No payment by Tenant of a lesser amount than
the Rent nor any endorsement on any check or letter accompanying any check or
payment as Rent shall be deemed an accord and satisfaction of full payment of
Rent; and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies.
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15.4 Landlord's Default. In the event Landlord should default in its
repair or maintenance obligations hereunder, Tenant shall simultaneously give
Landlord and Landlord's mortgagee (provided Tenant has been provided written
notice of the address of such mortgagee) written notice specifying such default
and Landlord shall thereupon have thirty (30) days in which to cure any such
default, provided that if the default is not reasonably capable of being cured
in thirty (30) days, Landlord shall be deemed to be in compliance with this
Lease if Landlord commences to cure the default within such thirty (30) day
period and diligently and continuously prosecutes such cure to completion. In
addition, Landlord's mortgagee shall have the right (but not the obligation) to
cure or remedy such default during the period that is permitted to Landlord
hereunder, and Tenant will accept such curative or remedial action taken by
Landlord's mortgagee with the same effect as if such action had been taken by
Landlord; provided, however, if Landlord's default is of a nature which, if not
cured immediately, poses an imminent risk of harm to persons or property and/or
will have an immediate, material, adverse effect on the conduct of Tenant's
business operations at the Premises, Tenant shall have the right to cure such
default immediately, with only such prior notice (if any) to Landlord and
Landlord's mortgagee as is reasonable under the circumstances. Upon the failure
of Landlord or Landlord's mortgagee to cure such default in accordance with the
provisions of this Section 15.4, and following an additional written notice to
Landlord which contains the following phrase on page 1 of the notice in all
capital letters and boldface type (or it shall not be deemed validly delivered
to Landlord) "YOUR FAILURE TO COMMENCE THE CURE OF THE DEFAULT SET FORTH IN THIS
NOTICE WITHIN TEN (10) DAYS SHALL ENTITLE THE UNDERSIGNED TO CURE SUCH DEFAULT
AT LANDLORD'S EXPENSE WITHOUT FURTHER NOTICE" and an additional ten (10) day
period to commence such cure (the "Second Default Notice") and the failure of
Landlord to undertake such cure, Tenant shall be authorized and empowered to
cure any such default for and on behalf of Landlord, and the cost of any item
paid by Tenant in curing such default for and on behalf of Landlord, shall be
payable on demand by Landlord to Tenant. If Landlord fails to pay to Tenant the
cost of such cure within twenty (20) days following Landlord's receipt of
Tenant's demand therefor, then Tenant may provide to Landlord a second written
demand therefor ("Second Demand") which contains the following phrase on page 1
of the notice in all capital letters and boldface type (or it shall not be
deemed validly delivered to Landlord) "YOUR FAILURE TO REIMBURSE TENANT AS
REQUIRED HEREIN WITHIN THIRTY (30) DAYS SHALL ENTITLE THE UNDERSIGNED TO
EXERCISE CERTAIN OFFSET RIGHTS AS SET FORTH IN THE LEASE WITHOUT FURTHER
NOTICE." If Landlord fails to pay to Tenant the amount due to Tenant within
thirty (30) days following Landlord's receipt of the Second Demand, then Tenant
may offset from the next installments of rent and other charges coming due under
this Lease the amount owed by Landlord to Tenant (together with all accrued
interest at the Applicable Rate), provided, however, that (i) the amount of
offset during any month shall not exceed the greater of (A) fifteen percent
(15%) of the total Base Rent payable by Tenant to Landlord for such month or (B)
the amount necessary to fully amortize Tenant's cost of cure from the date of
completion of such cure to the expiration date of the Lease Term (without regard
to any unexercised renewal options), but in no event greater than thirty percent
(30%) of the total monthly Base Rent for any one month; and (ii) Landlord is not
then contesting such right of offset or the amount thereof by court action or by
mediation or arbitration proceeding mutually approved by Landlord and Tenant (or
having contested same, a
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judgment, decision or ruling in such action, mediation or arbitration has been
rendered in favor of Tenant).
16. ASSIGNMENT AND SUBLETTING.
16.1 Tenant shall not assign, sublet or otherwise transfer, whether
voluntarily or involuntarily or by operation of law, the Premises or any part
thereof without Landlord's prior written approval, which shall not be
unreasonably withheld; provided, however, Tenant agrees it shall be reasonable
for Landlord to disapprove of a requested sublease or assignment, if the
sublessee or assignee does not have a tangible net worth (as determined in
accordance with generally accepted accounting principles consistently applied)
equal to or greater than that of Tenant as of the date of the Lease as shown in
the financial information provided to Landlord. The merger of Tenant with any
other entity or the transfer of any controlling or managing ownership or
beneficial interest in Tenant, or the assignment of a substantial portion of the
assets of Tenant, whether or not located at the Premises, shall constitute an
assignment hereunder. If Tenant desires to assign this Lease or sublet any or
all of the Premises, Tenant shall give Landlord written notice thereof, which
notice shall include a description of the portion of the Premises to be
transferred (the "Subject Space"), with copies of all related documents and
agreements associated with the assignment or sublease, including without
limitation, the financial statements of any proposed assignee or subtenant
(collectively, the "Transfer Notice"), thirty-five (35) days prior to the
anticipated effective date of the assignment or sublease. Tenant shall pay
Landlord's reasonable attorneys' fees incurred in the review of such
documentation plus an administrative fee of Five Hundred Dollars ($500.00) for
each proposed transfer. Landlord shall have a period of thirty (30) days
following receipt of such notice and all related documents and agreements to
notify Tenant in writing of Landlord's approval or disapproval of the proposed
assignment or sublease. If Landlord fails to notify Tenant in writing of such
election, Landlord shall be deemed to have disapproved such assignment or
subletting. This Lease may not be assigned by operation of law. Any purported
assignment or subletting contrary to the provisions hereof shall be void and
shall constitute an Event of Default hereunder. If Tenant receives rent or other
consideration for any such transfer in excess of the Rent, or in case of the
sublease of a portion of the Premises, in excess of such Rent that is fairly
allocable to such portion, after appropriate adjustments to assure that all
other payments required hereunder are appropriately taken into account, Tenant
shall pay Landlord fifty percent (50%) of the difference between each such
payment of rent or other consideration received by Tenant and the Rent required
hereunder, after first deducting brokerage commissions, reasonable attorneys'
fees, and costs of improvements installed at Tenant's cost, which costs are
incurred by Tenant in connection with any such transfer, if reasonably
acceptable evidence of such costs is delivered to Landlord. Landlord may,
without waiving any rights or remedies, collect rent from the assignee,
subtenant or occupant and apply the net amount collected to the Rent herein
reserved and apportion any excess rent so collected in accordance with the terms
of the preceding sentence. Such acceptance of Rent shall in no event be deemed
to imply that Landlord is approving a subtenant or assignee which Landlord has
not approved in writing pursuant to the requirements of this Section 16. Tenant
shall continue to be liable as a principal and not as a guarantor or surety to
the same extent as though no assignment or subletting had been made. Landlord
may consent to subsequent assignments or subletting of this Lease or amendments
or modifications to the Lease
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by assignees of Tenant without notifying Tenant or any successor of Tenant and
without obtaining their consent. No permitted transfer shall be effective until
there has been delivered to Landlord a counterpart of the transfer instrument in
which the transferee agrees to be and remain jointly and severally liable with
Tenant for the payment of Rent pertaining to the Premises and for the
performance of all the terms and provisions of this Lease relating thereto
arising on or after the date of the transfer. Notwithstanding anything to the
contrary contained in this Section 16, Landlord shall have the option, by giving
written notice to Tenant within thirty (30) days after receipt of any Transfer
Notice, to recapture the Subject Space (provided that, with respect to a
sublease, Landlord shall have no recapture right unless the Subject Space
constitutes more than twenty percent (20%) of the rentable square footage of the
Premises, and provided further that the term of such sublease is for
substantially the balance of the Term of this Lease). Such recapture notice
shall cancel and terminate this Lease with respect to the Subject Space as of
the date stated in the Transfer Notice as the effective date of the proposed
assignment or sublease until the last day of the proposed term of the assignment
or sublease as set forth in the Transfer Notice. If this Lease shall be canceled
with respect to less than the entire Premises, (a) Landlord shall be
responsible, at Landlord's cost, to construct a demising wall separating the
Subject Space from the remainder of the Premises and to separately meter the
utilities for the Subject Space, (b) the Rent reserved herein shall be prorated
on the basis of the number of rentable square feet retained by Tenant in
proportion to the number of rentable square feet contained in the Premises, and
(c) this Lease as so amended shall continue thereafter in full force and effect,
and upon request of either party, the parties shall execute written confirmation
of the same. If Landlord declines, or fails to elect in a timely manner to
recapture the Subject Space under this Section 16, then, provided Landlord has
consented to the proposed assignment or sublease, Tenant shall be entitled to
proceed to transfer the Subject Space to the proposed assignee or sublessee
named in the Transfer Notice upon all of the terms set forth in the Transfer
Notice.
16.2 Tenant may, without the consent of, but with written notice to,
Landlord, and without invoking Landlord's recapture rights, assign the Lease, or
any part thereof or sublease the Premises, in whole or in part, to any of the
following (collectively, "intracorporate transfers"): (i) any corporation,
person or entity which has the power to direct Tenant's management and
operation, or any corporation whose management and operation is controlled by
Tenant, or (ii) any corporation, a majority of whose voting stock is owned by
Tenant; or (iii) any corporation in which or with which Tenant, its corporate
successors or assigns, is merged or consolidated, in accordance with applicable
statutory provisions for merger or consolidation of corporations; or (iv) any
corporation, person or entity acquiring this Lease and all or substantially all
(which for purposes hereof shall mean not less than 75% of such assets) of
Tenant's assets; or (v) any corporation, person or entity acquiring all or
substantially all (which for purposes hereof shall mean not less than 75% of
such outstanding shares of stock) of the outstanding shares of stock of Tenant
or of Tenant's parent corporations, so long as (A) the obligations of Tenant
under this Lease are assumed by the surviving corporation, person or entity or
the corporation or entity created by such merger or consolidation; and (B) the
tangible net worth of the surviving corporation, person or entity or the entity
created by such merger or consolidation is no less than that of Tenant as of the
date hereof determined in accordance with "Generally Accepted Accounting
Principles" consistently applied, or, if the foregoing net worth test is not
satisfied,
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the tangible net worth of the surviving corporation, person or entity, or the
entity created by such merger or consolidation shall, in Landlord's sole and
absolute discretion, be sufficient to meet the obligations of Tenant under this
Lease. Tenant shall notify Landlord in writing and the assignment or subletting
shall not become effective until Tenant has provided Landlord with such
corporate resolutions and corporate documentation evidencing the existence of,
the authority of and the assumption of lease obligations by such assignee or
subtenant and financial statements verifying the continued net worth of the
surviving Tenant. In addition, the selling or trading of the shares of Tenant on
any national securities exchange (as defined in the Securities Exchange Act of
1934, as amended) shall not be deemed an assignment or subletting under this
Lease.
17. ESTOPPEL, ATTORNMENT AND SUBORDINATION.
17.1 Estoppel. Within ten (10) days after written request by Landlord,
Tenant shall deliver an estoppel certificate duly executed (and acknowledged if
required by any lender), in the form attached hereto as Exhibit G, or in such
other form as may be acceptable to the lender and reasonably acceptable to
Tenant, which form may include some or all of the provisions contained in
Exhibit G, to any proposed mortgagee, purchaser or Landlord. Tenant's failure to
deliver said statement in such time period shall be an Event of Default
hereunder and shall be conclusive upon Tenant that (a) this Lease is in full
force and effect, without modification except as may be represented by Landlord;
(b) there are no uncured defaults in Landlord's performance and Tenant has no
right of offset, counterclaim or deduction against Rent hereunder; and (c) no
more than one month's Base Rent has been paid in advance. If any financier
should require that this Lease be amended (except for changes which would (i)
materially and adversely affect the rights of Tenant, including, without
limitation, any changes to the Premises, the Term, the Permitted Use or the
Rent, or (ii) increase the monetary obligations of Tenant under this Lease),
Landlord shall give written notice thereof to Tenant, which notice shall be
accompanied by a Lease supplement embodying such amendments. Tenant shall,
within ten (10) days after the receipt of Landlord's notice, execute and deliver
to Landlord the tendered Lease supplement.
17.2 Subordination. Subject to Tenant's receipt of an agreement from
the holder of a deed of trust or mortgage or from a ground lessor or master
lessor not to disturb Tenant's rights to possession of the Premises so long as
Tenant is not in breach of this Lease and so long as Tenant attorns to the
record owner of the Premises, this Lease shall be subject and subordinate to all
ground leases, master leases and the lien of all mortgages and deeds of trust
which affect the Premises or the Project or Landlord's interest therein, and all
amendments thereto. If requested, Tenant shall execute and deliver to Landlord
within ten (10) days after Landlord's request a Subordination, Nondisturbance
and Attornment Agreement in the form attached hereto as Exhibit H, or in such
other form as may be acceptable to the ground lessor, master lessor or lender
and reasonably acceptable to Tenant, which form may include some or all of the
provisions contained in Exhibit H.
17.3 Attornment. In the event of a foreclosure proceeding, the exercise
of the power of sale under any mortgage or deed of trust or the termination of a
ground lease, Tenant shall, if requested, attorn to the purchaser thereupon and
recognize such purchaser as Landlord under this
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Lease; provided, however, Tenant's obligation to attorn to such purchaser shall
be conditioned upon Tenant's receipt of a non-disturbance agreement.
18. MISCELLANEOUS.
18.1 General.
18.1.1 Entire Agreement. This Lease sets forth all the
agreements between Landlord and Tenant concerning the Premises; and there are no
agreements either oral or written other than as set forth herein.
18.1.2 Time of Essence. Time is of the essence of this Lease.
18.1.3 Attorneys' Fees. In any action or proceeding which
either party brings against the other to enforce its rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party,
including reasonable attorneys' fees, which amounts shall be a part of the
judgment in said action or proceeding.
18.1.4 Severability. If any provision of this Lease or the
application of any such provision shall be held by a court of competent
jurisdiction to be invalid, void or unenforceable to any extent, the remaining
provisions of this Lease and the application thereof shall remain in full force
and effect and shall not be affected, impaired or invalidated.
18.1.5 Law. This Lease shall be construed and enforced in
accordance with the laws of the state in which the Premises are located.
18.1.6 No Option. Submission of this Lease to Tenant for
examination or negotiation does not constitute an option to lease, offer to
lease or a reservation of, or option for, the Premises; and this document shall
become effective and binding only upon the execution and delivery hereof by
Landlord and Tenant.
18.1.7 Successors and Assigns. This Lease shall be binding
upon and inure to the benefit of the successors and assigns of Landlord and,
subject to compliance with the terms of Section 16, Tenant.
18.1.8 Third Party Beneficiaries. Nothing herein is intended
to create any third party benefit.
18.1.9 Memorandum of Lease. Tenant shall not record this Lease
or a short form memorandum hereof without Landlord's prior written consent which
Landlord can withhold in its sole discretion.
18.1.10 Agency, Partnership or Joint Venture. Nothing
contained herein nor any acts of the parties hereto shall be deemed or construed
by the parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture by the parties hereto
or any relationship other than the relationship of landlord and tenant.
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18.1.11 Merger. The voluntary or other surrender of this Lease
by Tenant or a mutual cancellation thereof or a termination by Landlord shall
not work a merger and shall, at the option of Landlord, terminate all or any
existing subtenancies or may, at the option of Landlord, operate as an
assignment to Landlord of any or all of such subtenancies.
18.1.12 Headings. Section headings have been inserted solely
as a matter of convenience and are not intended to define or limit the scope of
any of the provisions contained therein.
18.1.13 Auctions. Tenant shall not conduct, nor permit to be
conducted, any auction upon the Premises without Landlord's prior written
consent. Landlord shall not be obligated to exercise any standard of
reasonableness in determining whether to permit an auction.
18.1.14 Consents. Except as otherwise provided elsewhere in
this Lease, Landlord's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Tenant for any
Landlord consent, including but not limited to consents to an assignment, a
subletting or the presence or use of a Hazardous Substance, shall be paid by
Tenant upon receipt of an invoice and supporting documentation therefor.
Landlord's consent to any act, assignment or subletting shall not constitute an
acknowledgment that no Event of Default or breach by Tenant of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Event of
Default or breach, except as may be otherwise specifically stated in writing by
Landlord at the time of such consent. Except as otherwise set forth herein, the
failure to specify herein any particular condition to Landlord's consent shall
not preclude the imposition by Landlord at the time of consent of such further
or other conditions as are then reasonable with reference to the particular
matter for which consent is being given.
18.1.15 Security Measures. Tenant hereby acknowledges that
Landlord shall have no obligation to provide a guard service or other security
measures whatsoever. Tenant assumes all responsibility for the protection of the
Premises, Tenant, its agents and invitees and their property from the acts of
third parties.
18.2 Signs. All signs and graphics of every kind visible in or from
public view or corridors, the Common Areas or the exterior of the Premises shall
be subject to Landlord's prior written approval and shall be subject to any
applicable governmental laws, ordinances, and regulations and in compliance with
Landlord's signage program. Tenant shall remove all such signs and graphics
prior to the termination of this Lease. Such installations and removals shall be
made in such manner as to avoid injury or defacement of the Premises; and Tenant
shall repair any injury or defacement, including without limitation,
discoloration caused by such installation or removal. Subject to Tenant's
receipt of all applicable governmental approvals therefor (including, without
limitation, the approval of the City of Fremont), signage permitted under this
Section 18.2 may be, at Tenant's election, lighted signage.
18.3 Waiver. No waiver of any default or breach hereunder shall be
implied from any omission to take action on account thereof, notwithstanding any
custom and practice or course of dealing. No waiver by either party of any
provision under this Lease shall be effective unless in
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writing and signed by such party. No waiver shall affect any default other than
the default specified in the waiver and then such waiver shall be operative only
for the time and to the extent therein stated. Waivers of any covenant shall not
be construed as a waiver of any subsequent breach of the same.
18.4 Financial Statements. Tenant shall provide to any lender,
purchaser or Landlord, within ten (10) days after request, a current, accurate,
certified financial statement for Tenant and Tenant's business and financial
statements for Tenant and Tenant's business for each of the three (3) years
prior to the current financial statement year prepared under generally accepted
accounting principles consistently applied; provided, however, that to the
extent Tenant is prohibited by law from disclosing non-public financial
information, Tenant shall only be required to disclose such financial
information that is deemed to be public information. Tenant shall also provide
within said 10-day period, subject to the foregoing limitation on non-public
financial information, such other certified financial information or tax returns
as may be reasonably required by Landlord, purchaser or any lender of either.
18.5 Limitation of Liability. The obligations of Landlord under this
Lease are not personal obligations of the individual partners, directors,
officers, shareholders, agents or employees of Landlord; and Tenant shall look
solely to the Building (which shall be deemed to include the net proceeds of any
sale thereof by Landlord), for satisfaction of any liability of Landlord and
shall not look to other assets of Landlord nor seek recourse against the assets
of the individual partners, directors, officers, shareholders, agents or
employees of Landlord. Whenever Landlord transfers its interest, Landlord shall
be automatically released from further performance under this Lease and from all
further liabilities and expenses hereunder and the transferee of Landlord's
interest shall assume all liabilities and obligations of Landlord hereunder from
the date of such transfer (including, without limitation, the obligation to
return the Security Deposit in accordance with Section 3.3 above).
18.6 Notices. All notices to be given hereunder shall be in writing and
mailed postage prepaid by certified or registered mail, return receipt
requested, or delivered by personal or courier delivery, or sent by facsimile
(immediately followed by one of the preceding methods), to Landlord's Address
and Tenant's Address, or to such other place as Landlord or Tenant may designate
in a written notice given to the other party. Notices shall be deemed served
upon the earlier of receipt or refusal of delivery.
18.7 Brokerage Commission. Landlord shall pay a brokerage commission to
Landlord's Broker specified in the Basic Lease Information in accordance with a
separate agreement between Landlord and Landlord's Broker. Landlord shall have
no further or separate obligation for payment of any commissions or fees to any
other broker or finder. Tenant warrants to Landlord that Tenant's sole contact
with Landlord or with the Premises in connection with this transaction has been
directly with Landlord, Landlord's Broker and Tenant's Broker specified in the
Basic Lease Information, and that no other broker or finder can properly claim a
right to a commission or a finder's fee based upon contacts between the claimant
and Tenant. Any commissions or fees payable to Tenant's Broker with respect to
this transaction shall be paid by Landlord's Broker, and neither Landlord nor
Tenant shall have any obligation with respect
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thereto. Subject to the foregoing, Tenant agrees to indemnify and hold Landlord
harmless from any claims or liability, including reasonable attorneys' fees, in
connection with a claim by any person for a real estate broker's commission,
finder's fee or other compensation based upon any statement, representation or
agreement of Tenant, and Landlord agrees to indemnify and hold Tenant harmless
from any such claims or liability, including reasonable attorneys' fees, based
upon any statement, representation or agreement of Landlord.
18.8 Authorization. Each individual executing this Lease on behalf of
Tenant represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of Tenant and that such execution is binding upon
Tenant.
18.9 Holding Over; Surrender.
18.9.1 Holding Over. If Tenant holds over the Premises or any
part thereof after expiration of the Term, such holding over shall, at
Landlord's option, constitute a month-to-month tenancy, at a rent equal to one
hundred fifty percent (150%) of the Base Rent in effect immediately prior to
such holding over for the first three (3) months of such holding over, and at a
rent equal to two hundred percent (200%) of the Base Rent in effect immediately
prior to such holding over thereafter, and shall otherwise be on all the other
terms and conditions of this Lease. This paragraph shall not be construed as
Landlord's permission for Tenant to hold over. Acceptance of Rent by Landlord
following expiration or termination shall not constitute a renewal of this Lease
or extension of the Term except as specifically set forth above. If Tenant fails
to surrender the Premises upon expiration or earlier termination of this Lease,
Tenant shall indemnify and hold Landlord harmless from and against all loss or
liability resulting from or arising out of Tenant's failure to surrender the
Premises, including, but not limited to, any amounts required to be paid to any
tenant or prospective tenant who was to have occupied the Premises after the
expiration or earlier termination of this Lease and any related attorneys' fees
and brokerage commissions.
18.9.2 Surrender. Upon the termination of this Lease or
Tenant's right to possession of the Premises, Tenant will surrender the Premises
broom clean, together with all keys, in good condition and repair, reasonable
wear and tear excepted. Tenant shall patch and fill all holes within the
Premises and all penetrations of the roof shall be resealed to a watertight
condition. In no event may Tenant remove from the Premises any mechanical or
electrical systems or any wiring or any other aspect of any systems within the
Premises. Conditions existing because of Tenant's failure to perform
maintenance, repairs or replacements shall not be deemed "reasonable wear and
tear."
18.10 Joint and Several. If Tenant consists of more than one person,
the obligation of all such persons shall be joint and several.
18.11 Covenants and Conditions. Each provision to be performed by
Tenant hereunder shall be deemed to be both a covenant and a condition.
18.12 Addenda. The Addenda attached hereto, if any, and identified with
this Lease are incorporated herein by this reference as if fully set forth
herein.
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18.13 Parking. Tenant shall have the right, at no cost or expense to
Tenant, to use one hundred sixty-eight (168) unreserved parking spaces (2.8
unreserved parking spaces per each one thousand (1,000) rentable square feet of
the Premises), as shown on Exhibit A attached hereto, throughout the term of
this Lease. Tenant's continued right to use the parking spaces is conditioned
upon Tenant abiding by all rules and regulations which are prescribed from time
to time for the orderly operation and use of the parking facility and upon
Tenant's cooperation in seeing that Tenant's employees and visitors also comply
with such rules and regulations. Tenant agrees not to overburden the parking
facilities and agrees to cooperate with Landlord and other tenants in the use of
parking facilities. Tenant further agrees that Landlord shall not be responsible
for enforcing any parking rights in the Project. Landlord specifically reserves
the right to change the size, configuration, design, layout, location and all
other aspects of the Project's parking facility and Tenant acknowledges and
agrees that Landlord may, without incurring any liability to Tenant and without
any abatement of Rent under this Lease, from time to time, close-off or restrict
access to the Project's parking facility or relocate Tenant's parking passes to
other parking structures and/or surface parking areas within a reasonable
walking distance of the Building. Landlord may delegate its responsibilities
hereunder to a parking operator in which case such parking operator shall have
all the rights of control attributed hereby to the Landlord.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
set forth above.
"Landlord" "Tenant"
CATELLUS DEVELOPMENT
CORPORATION, a Delaware corporation FIBERSTARS, INC., a California corporation
By: /s/ Don Little By: /s/ Robert A. Connors
------------------------------- --------------------------------------
Name: Don Little Name: Robert A. Connors
------------------------ --------------------------------
Its: Vice President Its: CFO
------------------------ --------------------------------
Date: 12/1/98 Date: 11/23/98
---------------------------- --------------------------------
By: /s/ Fred N. Martin
----------------------------------
Name: Fred N. Martin
----------------------------
Its: COO
----------------------------
Date: 11/23/98
----------------------------
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ADDENDUM TO LEASE
THIS ADDENDUM TO LEASE ("Addendum") is attached to and
constitutes an integral part of the Lease between CATELLUS DEVELOPMENT
CORPORATION, a Delaware corporation, as Landlord, and FIBERSTARS, INC., a
California corporation, as Tenant. The terms of this Addendum shall be
incorporated in the Lease for all purposes. In the event of a conflict between
the provisions of the Lease and the provisions of this Addendum, this Addendum
shall control.
<TABLE>
1. Notwithstanding anything to the contrary contained in the
Lease, during the first twenty-four (24) months of the Term of the Lease only,
Tenant shall pay to Landlord a fixed monthly amount of Operating Expenses (and
the provisions of Sections 6.1 and 7 of the Lease shall be inapplicable thereto)
as follows:
<CAPTION>
Monthly Operating
-----------------
Monthly Expenses/Rentable Monthly Base Rent
------- ----------------- and Operating
Months of Term Operating Expenses Square Foot Expenses
-------------- ------------------ -----------
<S> <C> <C> <C>
1-12 $10,200.00 $0.17 $60,000.00
13-24 $10,800.00 $0.18 $61,800.00
</TABLE>
2. The following new Section is hereby added to the Lease
which states in its entirety as follows:
19. Option to Extend.
19.1 Terms of Option. Provided (i) Tenant is not in default under the
terms of this Lease beyond any applicable cure period at the time this renewal
option is exercised or at the commencement of the Extension Term (as hereinafter
defined), (ii) Tenant is occupying the entire Premises, and (iii) Landlord has
not given more than two (2) notices of default in any twelve (12) month period
for nonpayment of monetary obligations, Tenant shall have one (1) option to
renew this Lease for an additional period of sixty (60) months ("Extension
Term"). The lease of the Premises by Tenant during the Extension Term shall be
on all the terms and conditions of this Lease, except that Landlord shall have
no additional obligation for free rent, leasing commissions, leasehold
improvements or for any other tenant inducements for the Extension Term. Base
Rent shall be increased (but not decreased) to the fair market rental rate
("Market Rent") as set forth below. There shall be no additional extension terms
beyond the Extension Term set forth herein. Tenant must exercise its option to
extend this Lease by giving Landlord written notice of its election to do so no
later than two hundred ten (210) nor earlier than two hundred seventy (270) days
prior to the expiration of the initial Term. Any notice not
ADDENDUM TO LEASE
<PAGE>
given in a timely manner shall be void, and Tenant shall be deemed to have
waived its extension rights. The extension option set forth herein is personal
to Tenant and shall not be included in any assignment of this Lease.
19.2 Determination of Base Rent During Extension Term.
19.2.1 Agreement on Base Rent. Landlord and Tenant shall have
thirty (30) days after Landlord receives the exercise notice in which to
negotiate in good faith and attempt to agree on the Base Rent during the
Extension Term. Notwithstanding anything in this Section 19 to the contrary, in
no event shall the Base Rent for the Extension Term be less than the Base Rent
in effect immediately prior to the Extension Term.
19.2.2 Appraisal. If Landlord and Tenant are unable to agree
upon the fair market rental rate for Base Rent for the Extension Term within
such thirty (30)-day period, despite each party's exercise of its good faith
efforts, then within ten (10) days after the expiration of the thirty (30)-day
period, each party, by giving notice to the other party together with their
proposed fair market rental rate, shall appoint a real estate appraiser who is a
current member of the American Institute of Real Estate Appraisers, with at
least five (5) years of experience appraising building space comparable to the
Premises in the city and county where the Premises is located to determine the
Market Rent. Market Rent shall mean the monthly amount per rentable square foot
in the Premises that a willing, non-equity new tenant would pay and a willing
landlord would accept at arm's length for space in a comparable building or
buildings (considering age, quality and condition), in a comparable location,
giving appropriate consideration to the then-current monthly rental rates per
rentable square foot, the presence or absence of rent escalation clauses such as
operating expense and tax pass-throughs, length of lease term, size and location
of premises being leased and other generally applicable terms and conditions of
tenancy for a similar building or buildings. If the two (2) appraisers are
unable to agree on whether to use Landlord's or Tenant's proposed fair market
rental rate within fifteen (15) days, they shall select a third appraiser
meeting the qualifications stated in this Section within five (5) days after the
last day the two (2) appraisers are given to select the Market Rent for the
Extension Term. Failure to agree upon such third appraiser shall result in such
selection being made by a California Superior Court judge with jurisdiction. The
third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either party. Within fifteen (15) days after the
selection of the third appraiser, a majority of the appraisers shall select
either Landlord's or Tenant's proposed fair market rental rate as the Market
Rent for the Extension Term. The non-prevailing party shall be responsible for
the costs, charges and fees of the prevailing party for such appraisal process.
19.2.3 Amendment of Lease. Immediately after the Base Rent is
determined pursuant to this Section 19, Landlord and Tenant shall execute an
amendment to this Lease stating the new Base Rent in effect.
ADDENDUM TO LEASE
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EXHIBIT A
PREMISES
Nobel Drive
[GRAPHIC OMITTED]
MAP OF BUILDING SIX PREMISES
<PAGE>
EXHIBIT B
WORK LETTER
THIS WORK LETTER ("Work Letter") is entered into as of this
______ day of November, 1998, by and between CATELLUS DEVELOPMENT CORPORATION, a
Delaware corporation ("Landlord"), and FIBERSTARS, INC., a California
corporation ("Tenant").
R E C I T A L S :
A. Landlord and Tenant have entered into that certain
Multi-Tenant Industrial Triple Net Lease (the "Lease") dated as of the date
hereof, covering certain premises (the "Premises") more particularly described
in the Lease. This Work Letter is attached to the Lease as Exhibit B. The Lease
is hereby incorporated into this Work Letter by this reference. Capitalized
terms not defined in this Work Letter shall have the meanings given to such
terms in the Lease.
B. In consideration of the mutual covenants contained in the
Lease and this Work Letter, Landlord and Tenant hereby agree as follows:
A G R E E M E N T :
1. Definitions. As used in this Work Letter and in the Lease,
the term "Shell" shall mean those improvements set forth on the "Final Landlord
Plans" (defined in Section 5(b) of this Work Letter), which shall include a
concrete, multi-tenant tilt up office and light industrial building to contain
approximately 60,000 square feet of rentable area (the "Building"), which
Building is currently under construction. As used in this Work Letter and in the
Lease, the term "Tenant Improvements" shall mean those improvements set forth on
the "Final Tenant Plans" (defined in Section 5(b) of this Work Letter). As used
in this Work Letter and in the Lease, "Improvements" shall mean the Shell and
the Tenant Improvements. The construction and installation of the Improvements
is sometimes referred to herein as the "Work".
2. Completion of Improvements. Subject to the terms of the
Lease and this Work Letter and any "Tenant Delay" or "Force Majeure Delay" as
provided herein, Landlord shall use its commercially reasonable and diligent
efforts to cause the "Contractor" (defined in Section 7 of this Work Letter) to
complete the construction and installation of the Improvements in accordance
with the terms of this Work Letter.
3. Designation of Representatives. With respect to the
planning, design and construction of the Improvements, Landlord hereby
designates Allen Burkes as "Landlord's Representative" and Tenant hereby
designates Donna Prunetti as "Tenant's Representative." Tenant hereby confirms
that Tenant's Representative has full authority to act on behalf of and to
B-1
<PAGE>
bind Tenant with respect to all matters pertaining to the planning, design and
construction of the Improvements. Landlord hereby confirms that Landlord's
Representative has limited authority to act on behalf of Landlord with respect
to matters pertaining to the planning, design and construction of the
Improvements. Either party may change its designated representative upon five
(5) days prior written notice to the other party.
4. Architect. The architectural firm of Ware and Malcomb
("Architect"), which is serving as the architect for the design and construction
of the Shell, shall also act as the architect with respect to the design and
construction of the Tenant Improvements. Landlord has previously entered into a
contract with Architect for the Shell and will enter into either a separate
contract for Architect's services related to the design and construction of the
Tenant Improvements (the "Tenant Improvement Services") or an amendment to the
existing contract for the Tenant Improvement Services (the "Architect
Contract"). The parties acknowledge and agree that the Architect Contract
entered into with the Architect will obligate the Architect to issue to both
Landlord and Tenant an architect's certificate ("Architect's Certificate") upon
Substantial Completion (as hereinafter defined) of the Improvements certifying
the Substantial Completion of the Improvements in accordance with the Final
Plans (as hereinafter defined).
5. Improvement Plans.
(a) Preliminary Plans. That certain space plan
prepared by the Architect and dated November 4, 1998 shall for purposes hereof
constitute the preliminary plans for the Tenant Improvements (the "Preliminary
Plans").
(b) Final Plans. Attached hereto as Schedule 1 is a
description of the final plans and specifications for the Shell (the "Final
Landlord Plans"). Within one hundred twenty (120) days following the Effective
Date of the Lease, the parties shall agree upon final plans and specifications
for the Tenant Improvements ("Final Tenant Plans") which shall be consistent
with the Preliminary Plans, except for the changes, if any, mutually agreed to
be made thereto by the parties. Included in the Final Tenant Plans will be the
civil, architectural and structural plans for the Tenant Improvements. When the
Final Tenant Plans have been approved by Tenant and Landlord, Architect shall
submit the Final Tenant Plans to the appropriate governmental agency for plan
checking and the issuance of a building permit for the Tenant Improvements.
Architect shall make any and all changes to the Final Tenant Plans required by
any applicable governmental entity to obtain a building permit for the Tenant
Improvements; provided, however, that if, in Architect's reasonable discretion,
such changes will materially affect the Tenant Improvements, Tenant shall have
three (3) business days to approve such changes, which approval shall not be
unreasonably withheld. The Final Tenant Plans and the Final Landlord Plans are
hereinafter collectively referred to as the "Final Plans."
(c) Work Cost Estimate. Prior to the commencement of
construction of any of the Tenant Improvements, Landlord shall submit to Tenant
a written estimate of the cost to complete the Tenant Improvements, which
written estimate will be based upon the Final Tenant Plans taking into account
any modifications which may be required to reflect changes in the Final Tenant
Plans required by the appropriate governmental authorities in connection with
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the issuance of a building permit (the "Work Cost Estimate"). Tenant will either
approve the Work Cost Estimate, or disapprove specific items, and submit to
Landlord revisions to the Final Tenant Plans in the form of a Change Order.
Submission and approval of the Work Cost Estimate will proceed in accordance
with the work schedule provided by Landlord. Upon Tenant's approval of the Work
Cost Estimate (the "Work Cost Statement"), Landlord will have the right to
purchase materials and to commence the construction of the items included in the
Work Cost Statement. If the total costs reflected in the Work Cost Statement
exceed the Allowance (as defined in Section 9 below), Tenant shall pay such
excess to Landlord in cash or by wire transfer of funds, in three (3) equal
installments as follows: (i) the first installment shall be paid within five (5)
days after Tenant's approval of the Work Cost Statement; (ii) the second
installment shall be paid within five (5) days after notice from Landlord to
Tenant that the Tenant Improvements are fifty percent (50%) complete; and (iii)
the third installment shall be paid within five (5) days following Substantial
Completion of the Tenant Improvements.
(d) No Representations. Notwithstanding anything to
the contrary contained in the Lease or herein, Landlord's participation in the
preparation of the Preliminary Plans, the Final Plans, the cost estimates for
the Improvements and the construction thereof shall not constitute any
representation or warranty, express or implied, that the Improvements, if built
in accordance with the Preliminary Plans and/or the Final Plans, will be
suitable for Tenant's intended purpose. Tenant acknowledges and agrees that the
Improvements are intended for use by Tenant and the specifications and design
requirements for such Improvements are not within the special knowledge or
experience of Landlord. Landlord's sole obligation shall be to arrange the
construction of the Improvements in accordance with the requirements of the
Final Plans; and any additional costs or expense required for the modification
thereof to more adequately meet Tenant's use, whether during or after Landlord's
construction thereof, shall be borne entirely by Tenant except as otherwise
provided in this Work Letter. Notwithstanding the foregoing, Landlord agrees to
assign to Tenant the benefit of all construction warranties pertaining to the
Tenant Improvements (and, on a nonexclusive basis, the Shell) to the extent that
they do not relate to structural or other portions of the Improvements that
Landlord is required to maintain and repair under the Lease.
6. Change Orders.
(a) Processing and Cost of Change Orders. After the
parties approve the Final Plans and a building permit for the Shell and/or the
Tenant Improvements is issued, any further changes to the Final Plans and/or the
base building specifications for the Shell shall require the prior written
approval of Tenant and Landlord (not to be unreasonably withheld or delayed),
provided that Landlord shall not need the consent or approval of Tenant for
changes to the Final Plans that do not affect the Tenant Improvements and/or the
Premises or materially alter the character of the Building. If Tenant desires
any change in the Final Plans relative to the Tenant Improvements which is
reasonable and practical (which shall be conclusively determined by the
Architect in Architect's reasonable discretion), such changes may only be
requested by the delivery to Landlord by Tenant of a proposed written "Change
Order" specifically setting forth the requested change. Landlord shall have five
(5) business days from the receipt of the proposed Change Order to provide
Tenant with the Architect's disapproval of the proposed
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change stating the reason(s) for such disapproval, or if the Architect approves
the proposed change, the following items: (i) a summary of any increase in the
cost caused by such change (the "Change Order Cost"), (ii) a statement of the
number of days of any delay caused by such proposed change (the "Change Order
Delay"), and (iii) a statement of the cost of the Change Order Delay (the
"Change Order Delay Expense"), which Change Order Delay Expense shall be the
product of the number of days of delay multiplied by the estimated daily Base
Rent rate. Tenant shall then have three (3) business days to approve the Change
Order Cost, the Change Order Delay and the Change Order Delay Expense. If Tenant
approves these items, Landlord shall promptly execute the Change Order and cause
the appropriate changes to the Final Plans to be made. If Tenant fails to
respond to Landlord within said three (3) business day period, the Change Order
Cost, the Change Order Delay and the Change Order Delay Expense shall be deemed
disapproved by Tenant and Landlord shall have no further obligation to perform
any Work set forth in the proposed Change Order. The Change Order Cost shall
include all costs associated with the Change Order, including, without
limitation, architectural fees, engineering fees and construction costs, as
conclusively determined by the Architect and the Contractor (defined in Section
7), respectively. The Change Order Delay shall include all delays caused by the
Change Order, including, without limitation, all design and construction delays,
as conclusively determined by the Architect and the Contractor (defined in
Section 7), respectively.
7. Contractor. Landlord shall competitively bid the
construction of the Tenant Improvements to no fewer than three (3) general
contractors. Tenant shall have the right to submit to Landlord, within fifteen
(15) days following the Effective Date of the Lease, the name of a general
contractor which, subject to Landlord's reasonable approval, shall be included
as one of the three (3) general contractors which shall bid on construction of
the Tenant Improvements. After adjustments for any inconsistent assumptions
among bids, Landlord shall select the lowest responsible and responsive bidder
to construct the Tenant Improvements, provided that, upon mutual agreement of
Landlord and Tenant, a contractor which was not the lowest price bidder may be
selected to construct the Tenant Improvements. The general contractor selected
pursuant to the foregoing procedure is referred to herein as the "Contractor."
8. Construction of the Improvements. Landlord will enter into
a contract with the Contractor for the construction and installation of the
Tenant Improvements in accordance with the Final Plans, which contract shall
include a guaranteed maximum price, shall require that the major subcontracts be
competitively bid to no fewer than three (3) subcontractors, and shall otherwise
be on a form reasonably acceptable to Landlord and Tenant (the "Construction
Contract").
9. Payment for Cost of the Tenant Improvements.
(a) Allowance. Landlord hereby grants to Tenant a
tenant improvement allowance for the work described on the Final Tenant Plans of
Six Hundred Sixty Thousand Dollars ($660,000.00) (based on $11.00 per rentable
square foot of the Premises) (the "Allowance"). The Allowance is to be used only
for the following costs approved by Landlord:
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(i) Payment of the cost of preparing the
Preliminary Tenant Plans relative to the Tenant Improvements and the Final
Tenant Plans, including mechanical, electrical, plumbing and structural drawings
and of all other aspects necessary to complete the Final Tenant Plans.
(ii) The payment of plan check, permit and
license fees relating to construction of the Tenant Improvements.
(iii) Construction of the Tenant
Improvements as provided in the Final Tenant Plans, including without
limitation, the following:
(aa) Installation within the
Premises of all partitioning, doors, demising walls, floor coverings, ceilings,
wall coverings and painting and similar items;
(bb) All electrical wiring, lighting
fixtures, outlets and switches, and other electrical work necessary for the
Premises;
(cc) The furnishing and installation
of all HVAC units, duct work, terminal boxes, diffusers and accessories
necessary for the heating, ventilation and air conditioning systems within the
office portions of the Premises;
(dd) Any additional improvements to
the Premises required for Tenant's use of the Premises including, but not
limited to, odor control, special heating, ventilation and air conditioning,
noise or vibration control or other special systems or improvements;
(ee) All fire and life safety
control systems such as fire walls, sprinklers, halon, fire alarms, including
piping, wiring and accessories, necessary for the Premises;
(ff) All plumbing, fixtures, pipes
and accessories necessary for the Premises;
(gg) Testing and inspection costs;
and
(hh) Fees for the Contractor and
tenant improvement coordinator including, but not limited to, fees and costs
attributable to general conditions associated with the construction of the
Tenant Improvements, provided Tenant has approved such fees (such approval not
to be unreasonably withheld, delayed or conditioned).
(iv) An administrative and coordination fee
charged by Landlord against the Allowance equal to three percent (3%) of the
total cost to complete the design, permit process and construction of the Tenant
Improvements, including, without limitation, Change Orders.
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In no event will the Allowance be used to pay for Tenant's moving expenses or
for furniture, artifacts, equipment, telephone systems or any other item of
personal property which is not affixed to the Premises.
(b) Costs in Excess of Allowance. The cost of each item
referenced in Section 9(a) above shall be charged against the Allowance. If the
cost of the constructing the Tenant Improvements exceeds the Allowance, such
costs shall be paid for by Tenant in accordance with Paragraph 5(c) above.
(c) Unused Allowance Amounts. Any unused portion of
the Allowance upon completion of the Tenant Improvements will not be refunded to
Tenant or monies to which Tenant is entitled, but shall be available for Change
Order Costs.
10. Payment for Cost of the Shell. Landlord shall pay the cost
of designing and constructing the Shell as provided in the Final Landlord Plans;
provided, however, that Tenant shall pay for all costs associated with changes
to the Final Landlord Plans, if any, which are necessary as a result of the
construction of the Tenant Improvements.
11. Financing of Construction of Improvements. Landlord may
elect to finance the construction of the Improvements with the proceeds of a
loan ("Project Loan") from a third party lender ("Lender") at the then
prevailing market rate and market terms for similar projects. The documents
securing or given in connection with the Project Loan, if any, are herein
collectively called "Loan Documents." Any Project Loan may be secured by the
lien of a deed of trust encumbering the Land and Improvements. Tenant agrees to
execute and/or provide all documents reasonably required by any Lender in
connection with any Project Loan, including, without limitation, estoppel
certificates, subordination agreements (subject to a commercially reasonable
non-disturbance agreement), consents to the assignment of this Agreement,
written confirmation of the satisfaction of closing conditions, and evidence of
the due execution and validity of this Agreement.
12. Substantial Completion; Target Completion Date. The
parties estimate that Substantial Completion (as defined in Section 2.1 of the
Lease) will be achieved on or before July 1, 1999 (the "Target Completion
Date"). Landlord agrees to use its commercially reasonable efforts to cause the
Improvements to be Substantially Completed on or before the Target Completion
Date. If there is any delay in the Substantial Completion of the Improvements
beyond the Target Completion Date and such delay results from a Tenant Delay,
then the Commencement Date shall be accelerated by the number of days of delay
caused by the Tenant Delay(s). Notwithstanding anything set forth above, in the
event that Substantial Completion is not achieved on or before the date that is
nine (9) months following the Effective Date of the Lease (the "Outside
Completion Date") for reasons other than Tenant Delays and Force Majeure Delays
(which delays shall extend the Outside Completion Date), then Tenant, as
Tenant's sole and exclusive remedy at law or in equity for such delay in
Substantial Completion, shall be entitled to one (1) day of free Base Rent for
each day Substantial Completion is delayed beyond the Outside Completion Date.
In addition, if the parties at any time prior to Substantial Completion mutually
agree that Substantial Completion will not be achieved on or before the
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<PAGE>
date that is twelve (12) months following the Effective Date of the Lease for
reasons other than Tenant Delays and Force Majeure Delays, then the parties may
mutually agree in writing to terminate this Lease. Further, if Substantial
Completion has not been achieved on or before the date that is eighteen (18)
months following the Effective Date of the Lease for reasons other than Tenant
Delays and Force Majeure Delays (the "Tenant's Outside Date"), Tenant shall have
the right to terminate the Lease at any time after Tenant's Outside Date upon
thirty (30) days prior written notice to Landlord; provided, however, if
Substantial Completion is achieved at any time during such 30-day period, this
Lease shall not terminate and shall remain in full force and effect.
13. Tenant Delays; Force Majeure Delays. As used herein,
"Tenant Delays" means any delay in the completion of the Improvements resulting
from any or all of the following: (1) Tenant's failure to timely perform any of
its obligations pursuant to this Work Letter, including any failure to complete,
on or before the due date therefor, any action item which is Tenant's
responsibility pursuant to this Work Letter, including Tenant's failure to grant
approvals within the time frames described herein; (2) Tenant's requested
modifications to the Final Plans or any Tenant-initiated Change Orders; (3)
Tenant's request for materials, finishes, or installations which are not readily
available, (4) any delay in any way whatsoever arising from Tenant's right to
conduct "Inspections" under Section 14 below, (5) Change Order Delays, or (6)
any other act or failure to act by Tenant, Tenant's Representative, Tenant's
employees, agents, independent contractors, consultants and/or any other person
performing or required to perform services on behalf of Tenant, including
interference with Landlord, or its contractors, during Tenant's early entry
under Section 2.3 of the Lease. "Force Majeure Delays" as used herein means
delays resulting from causes beyond the reasonable control of Landlord or the
Contractor, including, without limitation, any delay caused by any action,
inaction, order, ruling, moratorium, regulation, statute, condition or other
decision of any private party or governmental agency having jurisdiction over
any portion of the project, over the construction of the Improvements or over
any uses thereof, or by delays in inspections or in issuing approvals by private
parties or permits by governmental agencies, or by fire, flood, inclement
weather, strikes, lockouts or other labor or industrial disturbance (whether or
not on the part of agents or employees of either party hereto engaged in the
construction of the Improvements), civil disturbance, order of any government,
court or regulatory body claiming jurisdiction or otherwise, act of public
enemy, war, riot, sabotage, blockage, embargo, failure or inability to secure
materials, supplies or labor through ordinary sources by reason of shortages or
priority, discovery of hazardous or toxic materials, earthquake, or other
natural disaster, delays caused by any dispute resolution process, or any cause
whatsoever beyond the reasonable control (excluding financial inability) of the
party whose performance is required, or any of its contractors or other
representatives, whether or not similar to any of the causes hereinabove stated.
14. Tenant's Inspection Rights. Landlord shall schedule and
attend monthly progress meetings, walk-throughs and any other meetings with the
Architect, the Contractor and Tenant to discuss the progress of the construction
of the Improvements ("Meetings"). Landlord shall give Tenant at least
twenty-four (24) hours prior notice (written or telephonic) of all such
Meetings. Tenant shall designate in writing the person or persons appointed by
Tenant to attend the Meetings and such designated party shall be entitled to be
present at and to participate in the
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discussions during all Meetings; but Landlord may conduct the Meetings even if
Tenant's appointees are not present. In addition to the foregoing and to
Tenant's early entry rights as provided in Section 2.3 of the Lease, Tenant or
its agents shall have the right at any and all reasonable times to conduct
inspections, tests, surveys and reports of work in progress ("Inspections") for
the purpose of reviewing whether the Improvements are being constructed in
accordance with the Final Plans, as amended by any approved Change Orders or
other agreed upon changes. Tenant agrees to protect, hold harmless and indemnify
Landlord from all claims, demands, costs and liabilities (including reasonable
attorneys' fees) arising from Tenant's or Tenant's agents entry onto the Land
for the purpose of conducting Inspections.
15. Walk-Through and Punch List. Upon Substantial Completion
of the Improvements, Tenant, Landlord and the Architect shall jointly conduct a
walk-through of the Improvements and shall jointly prepare a punch list ("Punch
List") of items needing additional work ("Punch List Items"); provided, however,
the Punch List shall be limited to items which are required by the Construction
Contract, the Final Plans, Change Orders and any other changes agreed to by the
parties. Landlord shall diligently prosecute to completion all Punch List Items.
16. Miscellaneous Construction Covenants.
(a) Coordination with Lease. Nothing herein contained
shall be construed as (i) constituting Tenant as Landlord's agent for any
purpose whatsoever, or (ii) a waiver by Landlord or Tenant of any of the terms
or provisions of the Lease. Any default by either party with respect to any
portion of this Work Letter, shall be deemed a breach of the Lease for which
Landlord and Tenant shall have all the rights and remedies as in the case of a
breach of the Lease by the other party.
(b) Cooperation. Landlord and Tenant agree to
cooperate with one another and to cause their respective employees, agents and
contractors to cooperate with one another to coordinate any work being performed
by Landlord and/or Tenant under this Work Letter, and their respective
employees, agents and contractors so as to avoid unnecessary interference and
delays with the completion of the Work.
17. No Representations. Landlord does not warrant that the
Building or any component thereof will be free of latent defects or that it will
not require maintenance and/or repair within any particular period of time,
except as expressly provided herein. Tenant acknowledges and agrees that it
shall rely solely on the warranty or guaranty, if any, from Landlord's
Contractor, Tenant's Architect or other material and/or service providers
relative to the proper design and construction of the Improvements or any
component thereof and, to the extent that they do not relate to structural or
other portions of the Improvements that Landlord is required to maintain and
repair under the Lease, Landlord agrees to assign to Tenant, on a nonexclusive
basis, the benefit of any such warranties or guaranties.
18. Tenant's Entry Into the Premises Prior to Substantial
Completion. Provided that Tenant and its agents do not interfere with, or delay,
Contractor's work in the Building and the Premises, Contractor shall allow
Tenant access to the Premises prior to the Substantial Completion of the
Premises for the purpose of Tenant installing overstandard
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equipment or fixtures (including Tenant's data and telephone equipment) in the
Premises. Prior to Tenant's entry into the Premises as permitted by the terms of
this Section 18, Tenant shall submit a schedule to Landlord and Contractor, for
their approval, which schedule shall detail the timing and purpose of Tenant's
entry. Tenant shall hold Landlord harmless from and indemnify, protect and
defend Landlord against any loss or damage to the Building or Premises and
against injury to any persons caused by Tenant's actions pursuant to this
Section 18.
IN WITNESS WHEREOF, this Work Letter is executed as of the
date first written above.
"Landlord" "Tenant"
CATELLUS DEVELOPMENT CORPORATION, FIBERSTARS, INC., a California corporation
a Delaware corporation
By: /s/ Robert A. Connors
--------------------------------------
By: /s/ Don Little
------------------------ Print Name: Robert A. Connors
-----------------------------
Its: Vice President
------------------- Print Title: CFO
-----------------------------
By: /s/ Fred N. Martin
--------------------------------------
Print Name: Fred N. Martin
-----------------------------
Print Title: COO
----------------------------
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<PAGE>
Schedule 1
----------
Pacific Commons Building 6
Fiberstars
November 19, 1998
Index of Drawings for Shell Building
ARCHITECTURAL
- -------------
A-0 Title Sheet
A-0.1 Title 24, Fires Safety Notes, Fire Dept. Notes
A-1.1 Site Plan
A-1.2 Site Detailsd
A-2.1 Floor Plan
A-3.1 Building Elevations
A-3.2 Enlarged Reveal Study
A-4.1 Roof Plan
A-4.2 Roof Details
A-5.1 Wall Sections
A-5.2 Wall Sections
A-6.1 Door Schedule, Types, Details
A-6.2 Details
STRUCTURAL
- ----------
S-1.1 Foundation Plan
S-2.1 Roof Framing Plan
S-3.1 Roof Nailing Diagram and Notes
S-4.1 Panel Elevations
S-4.2 Panel Elevations
S-5.1 Wall Section
SD-0 General Notes
SD-1 Columns Schedule and Details
SD-2 Panel at Footings Details
SD-3 Panel Details
SD-4 Roof Framing Details
SD-5 Miscellaneous Details
SD-6 Steel Stair - Loading Dock
SD-7 Electric Room Details
PLUMBING PLAN
- -------------
P-1 Plumbing Plan
ELECTRICAL
- ----------
E-1 Symbols, Notes, Schedules and Details
E-2 Site Electrical Plan
E-3 Details
LANDSCAPE
- ---------
L1.1 Landscape Construction Plan
L2.1 Landscape Irrigation Plan
L3.1 Landscape Irrigation Details
L4.1 Landscape Planting Plan
L5.1 Landscape Planting Details
L6.1 Landscape Specifications
L6.2 Landscape Specifications
L6.3 Landscape Specifications
<PAGE>
EXHIBIT C
---------
COMMENCEMENT DATE MEMORANDUM
----------------------------
With respect to that certain lease ("Lease") dated ___, 1998, between
______________________________, a _____________________ ("Tenant"), and Catellus
Development Corporation, a Delaware corporation ("Landlord"), whereby Landlord
leased to Tenant and Tenant leased from Landlord approximately __________
rentable square feet of the building located at __________________________
("Premises"), Tenant hereby acknowledges and certifies to Landlord as follows:
(1) Landlord delivered possession of the Premises to Tenant in
a Substantially completed condition on _____________________ ("Possession
Date");
(2) The Lease commenced on _______________________
("Commencement Date");
(3) The Premises contain _________ square feet of space; and
(4) Tenant has accepted and is currently in possession of the
Premises and the Premises are acceptable for Tenant's use.
IN WITNESS WHEREOF, this Commencement Date Memorandum is executed this
___ day of ______________________.
"Tenant"
_________________________________,
a __________________________
By: _____________________________
Its: ________________________
By: _____________________________
Its: ________________________
AGREED AND ACKNOWLEDGED:
"Landlord"
CATELLUS DEVELOPMENT CORPORATION,
a Delaware corporation
By: _____________________________
Its: ________________________
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EXHIBIT D
---------
FORM OF INSURANCE CERTIFICATE
-----------------------------
[See attached.]
D-1
<PAGE>
EXHIBIT E
---------
PROHIBITED USES
---------------
The following types of operations and activities are expressly
prohibited on the Premises:
1. automobile/truck maintenance, repair or fueling;
2. battery manufacturing or reclamation;
3. ceramics and jewelry manufacturing or finishing;
4. chemical (organic or inorganic) storage, use or manufacturing;
5. drum recycling;
6. dry cleaning;
7. electronic components manufacturing;
8. electroplating and metal finishing;
9. explosives manufacturing, use or storage;
10. hazardous waste treatment, storage, or disposal;
11. leather production, tanning or finishing;
12. machinery and tool manufacturing;
13. medical equipment manufacturing and hospitals;
14. metal shredding, recycling or reclamation;
15. metal smelting and refining;
16. mining;
17. paint, pigment and coating operations;
18. petroleum refining;
19. plastic and synthetic materials manufacturing;
20. solvent reclamation;
21. tire and rubber manufacturing;
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22. above-and/or underground storage tanks; and
23. residential use or occupancy.
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<PAGE>
EXHIBIT F
---------
RULES AND REGULATIONS
---------------------
1. No automobile, recreational vehicle or any other type of vehicle or
equipment shall remain upon the Common Area longer than 24 hours and no
vehicle or equipment of any kind shall be dismantled or repaired or
serviced on the Common Area. All vehicle parking shall be restricted to
areas designated and marked for vehicle parking. The foregoing
restrictions shall not be deemed to prevent temporary parking for
loading or unloading of vehicles in designated areas.
2. Signs will conform to sign standards and criteria established from time
to time by Landlord. No other signs, placards, pictures,
advertisements, names or notices shall be inscribed, displayed or
printed or affixed on or to any part of the outside or inside of the
building without the written consent of Landlord and Landlord shall
have the right to remove any such non-conforming signs, placards,
pictures, advertisements, names or notices without notice to and at the
expense of Tenant.
3. No antenna, aerial, discs, dishes or other such device shall be erected
on the roof or exterior walls of the Premises, or on the grounds,
without the written consent of the Landlord in each instance. Any
device so installed without such written consent shall be subject to
removal without notice at any time.
4. No loud speakers, televisions, phonographs, radios or other devices
shall be used in a manner so as to be heard or seen outside of the
Premises without the prior written consent of the Landlord.
5. The outside areas immediately adjoining the Premises shall be kept
clean and free from dirt and rubbish by the Tenant to the satisfaction
of Landlord and Tenant shall not place or permit any obstruction or
materials in such areas or permit any work to be performed outside the
Premises.
6. No open storage shall be permitted in the Project.
7. All garbage and refuse shall be placed in containers placed at the
location designated for refuse collection, in the manner specified by
Landlord.
8. No vending machine or machines of any description shall be installed,
maintained or operated upon the Common Area.
9. Tenant shall not disturb, solicit, or canvass any occupant of the
building and shall cooperate to prevent same.
10. No noxious or offensive trade or activity shall be carried on upon any
units or any part of the Common Area nor shall anything be done thereon
which would in any way interfere with the quiet enjoyment of each of
the other tenants of the Project or which would
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increase the rate of insurance or overburden utility facilities from
time to time existing in the Project.
11. Landlord reserves the right to make such amendments to these rules and
regulations from time to time as are nondiscriminatory and not
inconsistent with the Lease.
F-2
<PAGE>
EXHIBIT G
---------
TENANT ESTOPPEL CERTIFICATE
---------------------------
To: __________________________ ("Bank")
Real Estate Industries Division No. __________________________
______________________________________________________________
______________________________________________________________
Attn: ________________________________________________________
Re: Lease Dated: ________________________________________
Current Landlord: ____________________________________________
Current Tenant: ______________________________________________
Square Feet: Approximately: _________________________________
Floor(s): ____________________________________________________
Located at: __________________________________________________
("Tenant") hereby certifies that as of_________________________, 199__:
1. Tenant is the present owner and holder of the tenant's interest
under the lease described above, as it may be amended to date (the "Lease") with
________________________ Landlord (who is called "Borrower" for the purposes of
this Certificate). (USE THE NEXT SENTENCE IF THE LANDLORD OR TENANT NAMED IN THE
LEASE IS A PREDECESSOR TO THE CURRENT LANDLORD OR TENANT.) [The original
landlord under the Lease was__________________, and the original tenant under
the Lease was_________________.] The Lease covers the premises commonly known
as__________________ (the "Premises") in the building (the "Building") at the
address set forth above.
(CHOOSE ONE OF THE FOLLOWING SECTION 2(a)s BELOW)
[2. (a) A true, correct and complete copy of the Lease (including all
modifications, amendments, supplements, side letters, addenda and riders of and
to it) is attached to this Certificate as Exhibit A.]
[2 (a) The attached Exhibit A accurately identifies the Lease and all
modifications, amendments, supplements, side letters, addenda and riders of and
to it.]
(b) (IF APPLICABLE) [The Lease provides that in addition to
the Premises, Tenant has the right to use or rent ___________
assigned/unassigned] parking spaces near the Building or in the garage portion
of the building during the term of the Lease.]
(c) The term of the Lease commenced on _______________, 199___
and will expire on _______________, 199___ including any presently exercised
option or renewal term. (CHOOSE ONE OF THE FOLLOWING TWO SENTENCES.) [Tenant has
no option or right to renew, extend or cancel the Lease, or to lease additional
space in the Premises or Building, or to use any parking (IF APPLICABLE) [other
than that specified in Section 2(b) above].] [Except as
G-1
<PAGE>
specified in Paragraph(s) ______________ of the Lease (copy attached), Tenant
has no option or right to renew, extend or cancel the Lease, or to lease
additional space in the Premises or Building, or to use any parking (IF
APPLICABLE) [other than that specified in Section 2(b) above].]
(CHOOSE ONE OF THE FOLLOWING SECTION 2(d)s)
[(d) Tenant has no option or preferential right to purchase
all or any part of the Premises (or the land of which the Premises are a part).
Tenant has no right or interest with respect to the Premises or the Building
other than as Tenant under the Lease.]
[(d) Except as specified in Paragraph(s) ______________ the
Lease (copy attached), Tenant has no option or preferential right to purchase
all or any part of the Premises (or the land of which the Premises are a part).
Except for the foregoing, Tenant has no right or interest with respect to the
Premises or the Building other than as Tenant under the Lease.]
(e) The annual minimum rent currently payable under the Lease
is $__________ and such rent has been paid through _______________, 199__. (IF
APPLICABLE) [The annual percentage rent currently payable under the Lease is at
the rate of _____________ such rent has been paid through ______________,
199__.]
(f) (IF APPLICABLE) [Additional rent is payable under the
Lease for (i) operating, maintenance or repair expenses, (ii) property taxes,
(iii) consumer price index cost of living adjustments, or (iv) percentage of
gross sales adjustments (i.e., adjustments made based on underpayments of
percentage rent). Such additional rent has been paid in accordance with
Borrower's rendered bills through _______________, 199__. The base year amounts
for additional rental items are as follows: (1) operating, maintenance or repair
expenses $___________, (2) property taxes $___________, and (3) consumer price
index ________________ (please indicate base year CPI level).]
(g) Tenant has made no agreement with Borrower or any agent,
representative or employee of Borrower concerning free rent, partial rent,
rebate of rental payments or any other similar rent concession (IF APPLICABLE)
[except as expressly set forth in Paragraph(s) _____ of the Lease (copy
attached)].
(h) Borrower currently holds a security deposit in the amount
of $____________ which is to be applied by Borrower or returned to Tenant in
accordance with Paragraph(s) ____ of the Lease. Tenant acknowledges and agrees
that Bank shall have no responsibility or liability for any security deposit,
except to the extent that any security deposit shall have been actually received
by Bank.
3. (a) The Lease constitutes the entire agreement between Tenant and
Borrower with respect to the Premises, has not been modified changed, altered or
amended and is in full force and effect in the form (CHOOSE ONE) [attached
as/described in] Exhibit A. There are no other agreements, written or oral,
which affect Tenant's occupancy of the Premises.
G-2
<PAGE>
(b) All insurance required of Tenant under the Lease has been
provided by Tenant and all premiums have been paid.
(c) To the best knowledge of Tenant, no party is in default under
the Lease. To the best knowledge of Tenant, no event has occurred which, with
the giving of notice or passage of time, or both, would constitute such a
default.
(d) The interest of Tenant in the Lease has not been assigned or
encumbered. Tenant is not entitled to any credit against any rent or other
charge or rent concession under the Lease except as set forth in the Lease. No
rental payments have been made more than one month in advance.
4. All contributions required to be paid by Borrower to date for
improvements to the Premises have been paid in full and all of Borrower's
obligations with respect to tenant improvements have been fully performed.
Tenant has accepted the Premises, subject to no conditions other than those set
forth in the Lease.
5. Neither Tenant nor any guarantor of Tenant's obligations under the
Lease is the subject of any bankruptcy or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships.
6. (a) As used here, "Hazardous Substance" means any substance,
material or waste (including petroleum and petroleum products) which is
designated, classified or regulated as being "toxic" or "hazardous" or a
"pollutant" or which is similarly designated, classified or regulated, under any
federal, state or local law, regulation or ordinance.
(b) Tenant represents and warrants that it has not used, generated,
released, discharged, stored or disposed of any Hazardous Substances on, under,
in or about the Building or the land on which the Building is located (IF
APPLICABLE) [, other than Hazardous Substances used in the ordinary and
commercially reasonable course of Tenant's business in compliance with all
applicable laws]. (IF APPLICABLE) [Except for such commercially reasonable use
by Tenant,] Tenant has no actual knowledge that any Hazardous Substance is
present, or has been used, generated, released, discharged, stored or disposed
of by any party, on, under, in or about such Building or land.
7. Tenant hereby acknowledges that Borrower (CHOOSE ONE) [intends to
encumber/has encumbered] the property containing the Premises with a Deed of
Trust in favor of Bank. Tenant acknowledges the right of Borrower, Bank and any
and all of Borrower's present and future lenders to rely upon the statements and
representations of Tenant contained in this Certificate and further acknowledges
that any loan secured by any such Deed of Trust or further deeds of trust will
be made and entered into in material reliance on this Certificate.
8. Tenant hereby agrees to furnish Bank with such other and further
estoppel as Bank may reasonably request.
___________________________________
G-3
<PAGE>
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
G-4
<PAGE>
EXHIBIT H
---------
[See attached.]
<PAGE>
EXHIBIT H
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
[LENDER]
Real Estate Group (AU #[AU#])
[OFFICE ADDRESS]
Attention: [LOAN ADMIN'S NAME]
Loan No. [LOAN #]
================================================================================
(Space Above For Recorder's Use)
SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL,
ATTORNMENT AND NON-DISTURBANCE AGREEMENT
(Lease To Deed of Trust)
NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR LEASE BECOMING
SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF THE DEED OF TRUST
(DEFINED BELOW).
THIS SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL,
ATTORNMENT AND NON-DISTURBANCE AGREEMENT ("Agreement") is made [DATE OF
DOCUMENTS] by and between [TRUSTOR] ("Owner"), [NAME OF LESSEE] ("Lessee") and
[LENDER] ("Lender").
RECITALS:
A. Pursuant to the terms and provisions of a lease dated [DATE OF LEASE]
("Lease"), Owner, as "Lessor", granted to Lessee a leasehold estate in and
to a portion of the property described on Exhibit A attached hereto and
incorporated herein by this reference (which property, together with all
improvements now or hereafter located on the property, is defined as (the
"Property").
B. [If applicable: The Lease contains provisions and terms granting Lessee an
option to purchase the Property (the "Option To Purchase").]
C. Owner has executed, or proposes to execute, a deed of trust with absolute
assignment of leases and rents, security agreement and fixture filing
("Deed of Trust") securing, among other things, a promissory note ("Note")
in the principal sum of [LOAN AMOUNT IN WORDS]/100THS DOLLARS ($[LOAN
AMOUNT IN #'S]), dated [DATE OF DOCUMENTS], in favor of Lender, which Note
is payable with interest and upon the terms and conditions described
therein ("Loan"). The Deed of Trust is to be recorded concurrently
herewith.
D. As a condition to making the Loan secured by the Deed of Trust, Lender
requires that the Deed of Trust be unconditionally and at all times remain
a lien on the Property, prior and superior to all the rights of Lessee
under the Lease and the Option To Purchase and that the Lessee
specifically and unconditionally subordinate the Lease and the Option To
Purchase to the lien of the Deed of Trust.
<PAGE>
Loan No. [LOAN #]
E. Owner and Lessee have agreed to the subordination, attornment and other
agreements herein in favor of Lender.
NOW THEREFORE, for valuable consideration and to induce Lender to make the Loan,
Owner and Lessee hereby agree for the benefit of Lender as follows:
1. SUBORDINATION. Owner and Lessee hereby agree that:
1.1 Prior Lien. The Deed of Trust securing the Note in favor of Lender,
and any modifications, renewals or extensions thereof, shall
unconditionally be and at all times remain a lien on the Property
prior and superior to the Lease [and the Option To Purchase];
1.2 Subordination. Lender would not make the Loan without this agreement
to subordinate; and
1.3 Whole Agreement. This Agreement shall be the whole agreement and
only agreement with regard to the subordination of the Lease [and
the Option To Purchase] to the lien of the Deed of Trust and shall
supersede and cancel, but only insofar as would affect the priority
between the Deed of Trust and the Lease [and the Option To
Purchase], any prior agreements as to such subordination, including,
without limitation, those provisions, if any, contained in the Lease
which provide for the subordination of the Lease [and the Option To
Purchase] to a deed or deeds of trust or to a mortgage or mortgages.
AND FURTHER, Lessee individually declares, agrees and acknowledges for the
benefit of Lender, that:
1.4 Use of Proceeds. Lender, in making disbursements pursuant to the
Note, the Deed of Trust or any loan agreements with respect to the
Property, is under no obligation or duty to, nor has Lender
represented that it will, see to the application of such proceeds by
the person or persons to whom Lender disburses such proceeds, and
any application or use of such proceeds for purposes other than
those provided for in such agreement or agreements shall not defeat
this agreement to subordinate in whole or in part;
1.5 Waiver, Relinquishment and Subordination. Lessee intentionally and
unconditionally waives, relinquishes and subordinates all of
Lessee's right, title and interest in and to the Property to the
lien of the Deed of Trust and understands that in reliance upon, and
in consideration of, this waiver, relinquishment and subordination,
specific loans and advances are being and will be made by Lender
and, as part and parcel thereof, specific monetary and other
obligations are being and will be entered into which would not be
made or entered into but for such reliance upon this waiver,
relinquishment and subordination.
2. ASSIGNMENT. Lessee acknowledges and consents to the assignment of the
Lease by Lessor in favor of Lender.
3. ESTOPPEL. Lessee acknowledges and represents that:
3.1 Lease Effective. The Lease has been duly executed and delivered by
Lessee and, subject to the terms and conditions thereof, the Lease
is in full force and effect, the obligations of Lessee thereunder
are valid and binding and there have been no modifications or
additions to the Lease, written or oral;
-2-
<PAGE>
Loan No. [LOAN #]
3.2 No Default. To the best of Lessee's knowledge, as of the date
hereof: (i) there exists no breach, default, or event or condition
which, with the giving of notice or the passage of time or both,
would constitute a breach or default under the Lease; and (ii) there
are no existing claims, defenses or offsets against rental due or to
become due under the Lease;
3.3 Entire Agreement. The Lease constitutes the entire agreement between
Lessor and Lessee with respect to the Property, Lessee claims no
rights with respect to the Property other than as set forth in the
Lease [and Lessee acknowledges that the Lease does not contain any
option to purchase the Property or any right of first refusal with
respect to the Property]; and
3.4 No Prepaid Rent. No deposits or prepayments of rent have been made
in connection with the Lease, except as follows: (if none, state
"None") ____________________________________________________________
____________________________________________________________________
4. ADDITIONAL AGREEMENTS. Lessee covenants and agrees that, during all such
times as Lender is the Beneficiary under the Deed of Trust:
4.1 Modification, Termination and Cancellation. Lessee will not consent
to any modification, amendment, termination or cancellation of the
Lease (in whole or in part) without Lender's prior written consent
and will not make any payment to Lessor in consideration of any
modification, termination or cancellation of the Lease (in whole or
in part) without Lender's prior written consent;
4.2 Notice of Default. Lessee will notify Lender in writing concurrently
with any notice given to Lessor of any default by Lessor under the
Lease, and Lessee agrees that Lender has the right (but not the
obligation) to cure any breach or default specified in such notice
within the time periods set forth below and Lessee will not declare
a default of the Lease, as to Lender, if Lender cures such default
within fifteen (15) days from and after the expiration of the time
period provided in the Lease for the cure thereof by Lessor;
provided, however, that if such default cannot with diligence be
cured by Lender within such fifteen (15) day period, the
commencement of action by Lender within such fifteen (15) day period
to remedy the same shall be deemed sufficient so long as Lender
pursues such cure with diligence;
4.3 No Advance Rents. Lessee will make no payments or prepayments of
rent more than one (1) month in advance of the time when the same
become due under the Lease; and
4.4 Assignment of Rents. Upon receipt by Lessee of written notice from
Lender that Lender has elected to terminate the license granted to
Lessor to collect rents, as provided in the Deed of Trust, and
directing the payment of rents by Lessee to Lender, Lessee shall
comply with such direction to pay and shall not be required to
determine whether Lessor is in default under the Loan and/or the
Deed of Trust.
4.5 Insurance and Condemnation Proceeds. Lessee agrees that the
provisions of the Deed of Trust shall control the disposition and
application of any insurance proceeds and condemnation awards with
respect to the Property.
5. ATTORNMENT. In the event of a foreclosure under the Deed of Trust, Lessee
agrees for the benefit of Lender (including for this purpose any
transferee of Lender or any transferee of Lessor's title in and to the
Property by Lender's exercise of the remedy of sale by foreclosure under
the Deed of Trust) as follows:
-3-
<PAGE>
Loan No. [LOAN #]
5.1 Payment of Rent. Lessee shall pay to Lender all rental payments
required to be made by Lessee pursuant to the terms of the Lease for
the duration of the term of the Lease;
5.2 Continuation of Performance. Lessee shall be bound to Lender in
accordance with all of the provisions of the Lease for the balance
of the term thereof, and Lessee hereby attorns to Lender as its
landlord, such attornment to be effective and self-operative without
the execution of any further instrument immediately upon Lender
succeeding to Lessor's interest in the Lease and giving written
notice thereof to Lessee;
5.3 No Offset. Lender shall not be liable for, nor subject to, any
offsets or defenses which Lessee may have by reason of any act or
omission of Lessor under the Lease, nor for the return of any sums
which Lessee may have paid to Lessor under the Lease as and for
security deposits, advance rentals or otherwise, except to the
extent that such sums are actually delivered by Lessor to Lender;
and
5.4 Subsequent Transfer. If Lender, by succeeding to the interest of
Lessor under the Lease, should become obligated to perform the
covenants of Lessor thereunder, then, upon any further transfer of
Lessor's interest by Lender, all of such obligations shall terminate
as to Lender.
6. NON-DISTURBANCE. In the event of a foreclosure under the Deed of Trust, so
long as there shall then exist no breach, default, or event of default on
the part of Lessee under the Lease, Lender agrees for itself and its
successors and assigns that the leasehold interest of Lessee under the
Lease shall not be extinguished or terminated by reason of such
foreclosure, but rather the Lease shall continue in full force and effect
and Lender shall recognize and accept Lessee as tenant under the Lease-
subject to the terms and provisions of the Lease except as modified by
this Agreement; provided, however, that Lessee and Lender agree that the
following provisions of the Lease (if any) shall not be binding on Lender:
any option to purchase with respect to the Property; any right of first
refusal with respect to the Property; any provision regarding the use of
insurance proceeds or condemnation proceeds with respect to the Property
which is inconsistent with the terms of the Deed of Trust.
7. MISCELLANEOUS.
7.1 Heirs, Successors, Assigns and Transferees. The covenants herein
shall be binding upon, and inure to the benefit of, the heirs,
successors and assigns of the parties hereto.
7.2 Notices. All notices or other communications required or permitted
to be given pursuant to the provisions hereof shall be deemed served
upon delivery or, if mailed, upon the first to occur of receipt or
the expiration of three (3) days after deposit in United States
Postal Service, certified mail, postage prepaid and addressed to the
address of Lessee or Lender appearing below; provided, however, any
party shall have the right to change its address for notice
hereunder by the giving of written notice thereof to the other party
in the manner set forth in this Agreement:
"OWNER" "LENDER"
__________________________________ [LENDER]
__________________________________ Real Estate Group (AU #[AU #])
__________________________________ [OFFICE ADDRESS]
Attn: [LOAN ADMIN'S NAME]
Loan No. [LOAN #]
-4-
<PAGE>
Loan No. [LOAN #]
"LESSEE"
__________________________________
__________________________________
__________________________________
7.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute and be construed as one and the same
instrument.
7.4 Remedies Cumulative. All rights of Lender herein to collect rents on
behalf of Lessor under the Lease are cumulative and shall be in
addition to any and all other rights and remedies provided by law
and by other agreements between Lender and Lessor or others.
7.5 Paragraph Headings. Paragraph headings in this Agreement are for
convenience only and are not to be construed as part of this
Agreement or in any way limiting or applying the provisions hereof.
8. INCORPORATION. Exhibit A and Lease Guarantor's Consent are attached hereto
and incorporated herein by this reference.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE
OWNER TO OBTAIN A LOAN, THE PROCEEDS OF WHICH MAY BE EXPENDED FOR PURPOSES
OTHER THAN THE IMPROVEMENT OF THE PROPERTY.
IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF THIS AGREEMENT, THE
PARTIES CONSULT WITH THEIR ATTORNEYS WITH RESPECT HERETO.
"OWNER" "LENDER"
[TRUSTOR SIGNATURE BLOCK] [LENDER SIGNATURE BLOCK]
______________________________________ ___________________________________
By:___________________________________ By:________________________________
Name:____________________________ Name:_________________________
Title:___________________________ Title:________________________
"LESSEE"
[LESSEE SIGNATURE BLOCK]
______________________________________
By:___________________________________
Name:____________________________
Title:___________________________
-5-
<PAGE>
Loan No. [LOAN #]
(ALL SIGNATURES MUST BE ACKNOWLEDGED)
-6-
<PAGE>
Loan No. [LOAN #]
LEASE GUARANTOR'S CONSENT
The undersigned ("Lease Guarantor") consents to the foregoing Subordination
Agreement; Acknowledgment of Lease Assignment, Estoppel, Attornment and
Non-Disturbance Agreement and the transactions contemplated thereby and
reaffirms its obligations under the Lease Guaranty ("Lease Guaranty") dated
[DATE OF LEASE GUARANTY]. Lease Guarantor further reaffirms that its obligations
under the Lease Guaranty are separate and distinct from Lessee's obligations.
AGREED:
Dated as of: [DATE OF DOCUMENTS] "LEASE GUARANTOR"
_________________________________
-7-
<PAGE>
Loan No. [LOAN #]
DESCRIPTION OF PROPERTY
EXHIBIT A to Subordination Agreement; Acknowledgement of Lease Assignment,
Estoppel, Attornment and Non-Disturbance Agreement dated as of [DATE OF
DOCUMENTS], executed by [NON-BORROWER TRUSTOR] as "Owner", [NAME OF LESSEE], as
"Lessee", and [LENDER], as "Lender".
All that certain real property located in the County of [PROPERTY LOCATION
COUNTY], State of [STATE], described as follows:
APN
-8-
<PAGE>
Loan No. [LOAN #]
STATE OF_______________________)
) ss.
COUNTY OF______________________)
On __________________________, before me, _________________________, a Notary
Public in and for said state, personally appeared ________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument, the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
________________________________________
Notary Public in and for said State
-9-
MULTI-TENANT INDUSTRIAL LEASE AGREEMENT
(MODIFIED GROSS)
Harsch Investment Corp., as Agent for
MacArthur Broadway Center, Inc.
Landlord
and
Fiberstars, Inc.,
a California Corporation
dba Fibre Optics International, Inc.
Cloverdale Business Park
Seattle, WA
<PAGE>
TABLE OF CONTENTS
Page
1 Basic Lease Terms .................................... 2
2 Premises ............................................. 3
3 Lease Term ........................................... 3
4 Possession ........................................... 3
5 Rent ................................................. 4
6 Additional Rent ...................................... 4
7 Prepaid Rent ......................................... 5
8 Security Deposit ..................................... 5
9 Use of Premises and Project Facilities ............... 5
10 Surrender of Premises; Holding Over .................. 6
11 Signage .............................................. 6
12 Personal Property Taxes .............................. 6
13 Parking .............................................. 6
14 Utilities ............................................ 6
15 Maintenance .......................................... 6
16 Alterations .......................................... 7
17 Release and Indemnity ................................ 7
18 Insurance ............................................ 7
19 Destruction .......................................... 8
20 Condemnation ......................................... 8
21 Assignment or Sublease ............................... 9
22 Default .............................................. 9
23 Landlords Remedies ................................... 9
24 Default by Landlord .................................. 10
25 Entry of Premises and Performance by Tenant .......... 10
26 Subordination ........................................ 10
27 Notice ............................................... 10
28 Waiver ............................................... 11
29 Limitation of Liability .............................. 11
30 Force Majeure ........................................ 11
31 Professional Fees .................................... 11
32 Examination of Lease ................................. 12
33 Estoppel Certificate ................................. 12
34 Rules and Regulations ................................ 12
35 Liens ................................................ 12
36 Miscellaneous Provisions ............................. 12
EXHIBITS
A Building Floor Plan Showing Premises ......................... A-1
B Project Site Plan and Legal Description ...................... B-1
C Work Letter Agreement - Intentionally Omitted ................ C-1
D Notice of Lease Term Dates - Intentionally Omitted ........... D-1
E Tenant Estoppel Certificate - Intentionally Omitted .......... E-1
F Rules and Regulations ........................................ F-1
G Project Signage Criteria ..................................... G-1
H Hazardous Materials Addendum - Intentionally Omitted ......... H-1
I Hazardous Materials Questionnaire - Intentionally Omitted .... I-1
Rider 1
1
<PAGE>
LEASE AGREEMENT
BASIC LEASE TERMS This Paragraph 1 represents a summary of
the basic terms of this Lease. In the event
of any inconsistency between the terms
contained in this Paragraph 1 and any
specific provision of this Lease, the terms
of the more specific provision shall
prevail.
a. DATE OF LEASE EXECUTION: September 15,1998
b TENANT: Fiberstars, Inc., a California Corporation
Trade Name: dba Fibre Optics Intenational, Inc.
Address (Leased Premises): 309 South Cloverdale, Seattle WA 98108
Building/Unit D1-4, 46
c. LANDLORD: MacArthur Broadway Center, Inc.
Address (FOR RENT/ NOTICES): C/O Harsch Investment Corp.,
309 South Cloverdale, Suite B14,
Seattle, WA 98108
Copy To: C/O Harsch Investment Corp.,
P.O. Box 2708, Portland OR, 97208
d. PREMISES: Those Certain Premises Defined in PARAGRAPH
2 Below
e. TENANT'S PERMITTED USE OF
PREMISES: Administration offices and warehouse for
short run of assembly of fibre optics
signage and for no other purposes
whatsoever.
f. PREMISES AREA: Approximately 6,000 Rentable Square Feet
g. PROJECT AREA: Approximately 195,150 Rentable Square Feet
h. PREMISES PERCENT OF
PROJECT: 3.0746% on a Rentable Square Foot Basis
i. TERM: Commencement Date: March 1, 1999
Expiration Date: February 28, 2000
Total Number of Months: 12 months
j. MONTHLY BASIC RENT: Four Thousand Seven Hundred Eighty-Five
Dollars ($4,785.00) March 1, 1999--February
28, 2000
k. ANNUAL BASIC RENT: Fifty Seven Thousand, Four Hundred Twenty
Dollars ($57,420.00) March 1,
1999--February 28, 2000
l. RENT ADJUSTMENT:
m. TENANT ANNUAL EXPENSE
ALLOWANCE: None
n. PREPAID RENT: (for last month of term): zero Dollars
o. TOTAL SECURITY DEPOSIT: Four Thousand Seven Hundred Eighty-Five
Dollars ($4,785.00)
p. BROKER(S): None.
q. GUARANTOR(S):
r. TENANT IMPROVEMENTS: None. Space "as-is".
s. TENANT IMPROVEMENT
ALLOWANCE: None.
t. PARKING: Not more than 5 unreserved vehicle parking
spaces, which includes Tenant's prorata
share of visitor parking spaces for the
building
u. ADDITIONAL SECTIONS: None.
v. RIDERS: Riders numbered 1 through 1 are attached
hereto and made a part hereof. If none, so
state in the following space _____________.
w. EXHIBITS: Exhibits lettered A, B, F and G are
attached hereto and made a part hereof, C.
D, E, H and I are intentionally omitted.
2
<PAGE>
2. PREMISES.
(a) Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the premises referenced in Paragraph 1 and
outlined in Exhibit A (the "Premises"), located in the
building (the "Building") which is part of the project
described on Exhibit B (the "Project"). Landlord reserves the
right to modify Tenant's percentage of the Project as set
forth in Paragraph 1 if the Project size is increased through
the development of additional property or decreased through
the sale or other transfer of a portion of the Project.
Subject to the provisions of Paragraph 4(c) below, if
applicable, Tenant acknowledges that it has examined the
Premises and accepts the Premises in their present condition.
(b) The parties agree that the letting and hiring of the Premises
is upon and subject to the terms, covenants and conditions
herein set forth and Tenant covenants as a material part of
the consideration for this Lease to keep and perform each and
all of said terms, covenants and conditions by it to be kept
and performed and that this Lease is made upon the condition
of such performance.
(c) The term "Rentable Square Feet" as used in this Lease shall
include a portion of the total square feet contained in any
lobby or building common areas of the Building, such portion
to approximate Tenant's Percentage (as shown in Subparagraph
1(h) of said total square feet. Such portion shall be
determined by Landlord by measuring the area within the bounds
of the inside surface of the glass in the outer wall of the
Building and the surface facing the Premises of all partitions
separating the Premises from the building core, adjoining
tenant space and public corridors and other "Common Areas" as
defined in this Lease. No deductions shall be made for space
occupied by structural or functional columns or other
projections. For purposes of establishing the initial Tenant's
Percentage, Annual Expense Allowance and Annual Basic Rent as
shown in Paragraph 1 of this Lease, the number of Rentable
Square Feet of the Premises is deemed to be as set forth in
Subparagraph 1(f) and the number of Rentable Square Feet of
the Project is deemed to be set forth in Subparagraph 1(g).
(d) Landlord reserves the right from time to time without
unreasonable interference with Tenant's use of the Premises to
do and perform such acts and make such changes in, to or with
respect to the Common Areas, the Building or the Project as
Landlord may, in the exercise of sound business judgment, deem
to be appropriate.
3. LEASE TERM.
The term of this Lease shall be for the period designated in
Subparagraph 1(i) commencing on the Commencement Date, and ending on
the Expiration Date as set forth in said Subparagraph 1(i), unless the
term hereby demised shall be sooner terminated as herein provided
("Term"). Notwithstanding the foregoing, if the Commencement Date falls
on any day other than the first day of a calendar month then the Term
of this Lease shall be measured from the first day of the month
following the month in which the Commencement Date occurs.
4. POSSESSION.
(a) Delivery of Possession, If Landlord is required to perform any
additional work or to construct any Tenant Improvements in or
about the Premises, such obligations shall be set forth in the
Work Letter Agreement attached hereto as Exhibit C. The
Premises shall be delivered to Tenant upon substantial
completion of any such additional work or Tenant Improvements,
as shall be determined by Landlord's architect or space
planner. The Commencement Date set forth in Subparagraph 1(i)
is the contemplated date of substantial completion of any such
additional work or Tenant Improvements; or, it none be
required, the date delivery of the Premises to Tenant is
otherwise contemplated. Notwithstanding the foregoing,
Landlord shall not be obligated to deliver possession of the
Premises to Tenant until Landlord has received from Tenant all
of the following: (i) the Security Deposit and the first
monthly installment of Annual Basic Rent; (ii) executed copies
of policies of insurance or certificates thereof as required
under Paragraph 18 of this Lease; (iii) copies of all
governmental permits and authorizations required in connection
with Tenant's operation of its business upon the Premises; and
(iv) an executed original of the Hazardous Materials
Questionnaire in the form attached hereto as Exhibit I. Except
for any additional work or Tenant improvements set forth in
Exhibit C, Tenant accepts the Premises "as is." Tenant
acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the
Premises, the Building or the Project, including, without
limitation, any representation or warranty with respect to the
suitability of the same for the conduct of Tenant's business.
(b) Late Delivery. Tenant agrees that if Landlord is unable to
deliver possession of the Premises to Tenant on or prior to
the Commencement Date specified in Subparagraph 1(i), this
Lease shall not be void or voidable, nor shall Landlord be
liable to Tenant for any loss or damage resulting therefrom,
nor shall the Expiration Date of the Term be in any way
extended, unless such late delivery shall be due solely to the
gross negligence or willful misconduct of Landlord, in which
event, as Tenant's sole remedy, the Commencement Date and the
Expiration Date of the Term shall be extended one (1) day for
each day Landlord delays in delivering possession of the
Premises to Tenant due solely to Landlord's gross negligence
or willful misconduct. Neither Landlord nor its agents shall
be liable to Tenant for any damages caused by delay in
delivery of the Premises, nor shall this Lease be void or
voidable, but Tenant will not be liable for payment of Rent
until such date as Landlord tenders possession of the Premises
to Tenant. All other terms and conditions of this Lease shall
remain in full force and effect. Notwithstanding the
foregoing, in the event that the Landlord has not delivered
possession of the Premises within six (6) months after the
effective date hereof, this Lease shall terminate and be of no
further force or effect.
(c) Condition of Premises. In accordance with the Work Schedule to
be prepared by Landlord and Tenant pursuant to the Work Letter
Agreement attached hereto as Exhibit C, if any, and prior to
the Commencement Date, Landlord and Tenant shall jointly
conduct a walk-through inspection of the Premises and shall
jointly prepare a Punch-List (the "Punch-List") of items
needing additional work; provided, however, the Punch-List
shall be limited to items required to be installed by Landlord
under the Work Letter Agreement, and any such Punch-List will
not include any items of damage to the Premises caused by
Tenant's move-in or early entry, if permitted. Damage caused
by Tenant will be connected or repaired by Landlord, at
Tenant's expense. Other than the items specified in the
Punch-List, by taking possession of the Premises, Tenant will
be deemed to have acknowledged that Landlord has installed the
Tenant Improvements as required by the Work Letter Agreement
and that there are no additional items needing work or repair.
Landlord shall cause all items set forth in the Punch-List to
be repaired or connected within thirty (30) days following the
preparation of the Punch-List or as soon as reasonably
practicable after the preparation of the Punch-List. Tenant
acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the
Premises, the Building, the Project or any portions thereof or
with respect to the suitability of same for the conduct of
Tenant's business. Without limiting the foregoing, if the
Building is newly constructed or renovated, Tenant
acknowledges and accepts the various start-up inconveniences
that may be associated with the use of the Project and the
Common Areas
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such as certain construction obstacles including scaffolding,
uneven air conditioning services and other typical conditions
incident to recently constructed or renovated buildings.
5. RENT.
(a) Basic Rent. Tenant agrees to pay Landlord as Annual Basic Rent
for the Premises the Annual Basic Rent designated in
Subparagraph 1(k) (adjusted as hereinafter provided) in twelve
(12) equal monthly installments as designated in Subparagraph
1(j), each in advance on the first day of each and every
calendar month during the Term, except that one month's rent
shall be paid upon the execution of this Lease. If the Term of
this Lease commences on a day other than the first day of a
calendar month or ends on a day other than the last day of a
calendar month, then the rent for such periods shall be
prorated in the proportion that the number of days this Lease
is in effect during such periods bears to thirty days (30),
and such rent shall be paid at the commencement of such
period. The Annual Basic Rent, any additional rent payable
pursuant to the provisions of this Lease, and any rental
adjustments shall be paid to Landlord, without any prior
demand therefor, and without any deduction or offset
whatsoever in lawful money of the United States of America,
which shall be legal tender at the time of payment, at the
address of Landlord designated in Subparagraph 1(c) or to such
other person or at such other place as Landlord may from time
to time designate in writing. Further, all charges to be paid
by Tenant hereunder, including, without limitation, payments
for real property taxes, insurance, repairs, and parking, if
any, shall be considered additional rent for the purposes of
this Lease, and the word "rent" in this Lease shall include
such additional rent unless the context specifically or
clearly implies that only the Annual Basic Rent is referenced.
Annual Basic Rent shall be adjusted as provided in
Subparagraph 1(l).
(b) Late Payments. Tenant acknowledges that late payment by Tenant
to Landlord of any rent or other sums due under this Lease
will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely
difficult and impracticable to ascertain. Such costs include,
without limitation, processing and accounting charges and late
charges that may be imposed on Landlord by the terms of any
encumbrance or note secured by the Premises. Therefore, if any
rent or other sum due from Tenant is not received within five
(5) business days of its due date, Tenant shall also pay to
Landlord no later than ten (10) calendar days after the rental
due date an additional sum equal to 10% of such overdue
payment. Landlord and Tenant hereby agree that such late
charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of any such late payment.
Additionally, all such delinquent rent or other sums, plus
this late charge, shall bear interest at the then maximum
lawful rate permitted to be charged by Landlord. Any payments
of any kind returned for insufficient funds will be subject to
an additional handling charge of $50.00.
6. ADDITIONAL RENT.
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7. PREPAID RENT.
Upon execution of this Lease, Tenant shall pay to Landlord the Prepaid
Rent set forth in Subparagraph 1(n), and if Tenant is not in default of
any provisions of this Lease, such Prepaid Rent shall be applied toward
the rent due for the last month of the Term. Landlord's obligations
with respect to the Prepaid Rent are those of a debtor and not of a
trustee, and Landlord can commingle the Prepaid Rent Landlord shall not
be required to pay Tenant interest on the Prepaid Rent. Landlord shall
be entitled to immediately endorse and cash Tenant's Prepaid Rent;
however, such endorsement and cashing shall not constitute Landlord's
acceptance of this Lease. In the event Landlord does not accept this
Lease, Landlord shall return said Prepaid Rent, If Landlord sells the
Premises and deposits with the purchaser the Prepaid Rent, Landlord
shall be discharged from any further liability with respect to the
Prepaid Rent.
8. SECURITY DEPOSIT.
Upon execution of this Lease, Tenant shall deposit the Security
Deposit set forth in Subparagraph 1(o) with Landlord, in part as
security for the performance by Tenant of the provisions of this Lease
and in part as an administrative fee. If Tenant is in default,
regardless if such default is monetary or non-monetary, Landlord can
use the Security Deposit or any portion of it to cure the default or
to compensate Landlord for any damages sustained by Landlord resulting
from Tenant's default. Upon demand, Tenant shall immediately pay to
Landlord a sum equal to the portion of the Security Deposit expended
or applied by Landlord to maintain the Security Deposit in the amount
initially deposited with Landlord. If Tenant is not in default at the
expiration or termination of this Lease, Landlord shall return the
unused portion of the Security Deposit to Tenant. Landlord's
obligations with respect to the Security Deposit are those of a debtor
and not of a trustee, and Landlord can commingle the Security Deposit
with Landlord's general funds. Landlord shall not be required to pay
Tenant interest on the Security Deposit. Landlord shall be entitled to
immediately endorse and cash Tenant's Security Deposit; however, such
endorsement and cashing shall not constitute Landlord's acceptance of
this Lease. In the event Landlord does not accept this Lease, Landlord
shall return said Security Deposit, If Landlord sells the Premises and
deposits with the purchaser the then amount of the Security Deposit,
Landlord shall be discharged from any further liability with respect
to the Security Deposit.
9. USE OF PREMISES AND PROJECT FACILITIES.
(a) Tenant's Use of the Premises. Tenant shall use the Premises
for the use or uses set forth in Subparagraph 1(d) above, and
shall not use or permit the Premises to be used for any other
purpose without the prior written consent of Landlord, which
consent Landlord may withhold in its sole and absolute
discretion. Nothing contained herein shall be deemed to give
Tenant any exclusive right to such use in the Project.
(b) Compliance. At Tenant's sole cost and expense, Tenant shall
procure, maintain and hold available for Landlord's
inspection, all governmental licenses and permits required for
the proper and lawful conduct of Tenant's business from the
Premises. Tenant shall maintain the Premises in compliance
with all laws, statutes, zoning restrictions, ordinances or
governmental laws, rules, regulations or requirements of any
duly constituted public authority having jurisdiction over the
Premises now or hereafter in force, the requirements of the
Board of Fire Underwriters or any other similar body now or
hereafter constituted, or of the Certificate of Occupancy
issued for the Building. Tenant shall not use or occupy the
Premises in violation of any of the foregoing Tenant shall,
upon written notice from Landlord, discontinue any use of the
Premises which is declared by any authority having
jurisdiction over the Premises, governmental or otherwise, to
be a violation of law or of said Certificate of Occupancy.
Tenant shall comply with all rules, orders, regulations and
requirements of any insurance authority having jurisdiction
over the Project or any present or future insurer relating to
the Premises or the Project. Tenant shall promptly, upon
demand, reimburse Landlord for any additional premium charged
for any existing insurance policy or endorsement required by
reason of Tenant's failure to comply with the provisions of
this Paragraph 9 Tenant shall not do or permit anything to be
done in or about the Premises which will in any manner
obstruct or interfere with the rights of other tenants or
occupants of the Project, or injure or annoy them, or use or
allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant
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cause, maintain or permit any nuisance in, on or about the
Premises. Tenant shall conduct no auctions, distress, or
"going out of business" sales in or from the Premises. Tenant
shall comply with all restrictive covenants and obligations
created by private contracts which affect the use and
operation of the Premises, the Common Areas or the Project
including, without limitation, the Rules and Regulations
referred to in Paragraph 34 and attached hereto as Exhibit F.
Tenant shall not commit or suffer to be committed any waste in
or upon the Premises and shall keep the Premises in first
class repair and appearance. Further, Tenant's business
machines and mechanical equipment which cause vibration or
noise that may be transmitted to the Building structure or to
any other space in the Building shall be so installed,
maintained and used by Tenant as to eliminate or minimize such
vibration or noise. Tenant shall be responsible for all
structural engineering required to determine structural load,
as well as the expense thereof.
10. SURRENDER OF PREMISES; HOLDING OVER.
Upon expiration of the Term of this Lease, Tenant shall surrender to
Landlord the Premises and all Tenant Improvements and alterations in
good condition, except for ordinary wear and tear from reasonable and
normal use and except for alterations Tenant has the right or is
obligated to remove under the provisions of Paragraph 16 herein. Tenant
shall remove all personal property including, without limitation, all
wallpaper, paneling and other decorative improvements or fixtures and
shall perform all restoration made necessary by the removal of any
alterations or Tenant's personal property before the expiration of the
Term, including for example, restoring all wall surfaces to their
condition prior to the commencement of this Lease. Landlord can elect
to retain or dispose of in any manner Tenant's personal property not
removed from the Premises by Tenant prior to the expiration of the
Term. Tenant waives all claims against Landlord for any damage to
Tenant resulting from Landlord's retention or disposition of Tenant's
personal property. Tenant shall be liable to Landlord for Landlord's
costs for storage, removal or disposal of Tenant's personal property
If Tenant, with Landlord's consent, remains in possession of the
Premises after expiration or termination of the Term, such possession
by Tenant shall be deemed to be a month-to-month tenancy terminable on
written 30-day notice at any time by either party. All provisions of
this Lease, except those pertaining to term and rent, shall apply to
the month-to-month tenancy. Tenant shall pay monthly rent in an amount
equal to 125% of the Basic Rent last in effect under the Lease, subject
to increases as provided in Subparagraph 5(c), if applicable, plus 100%
of the last month's estimate of Tenant's share of Expenses pursuant to
Paragraph 6, subject to increase as provided therein. If Tenant,
without Landlord's consent, shall fail to surrender the Premises after
expiration or termination of the Term, Tenant shall pay monthly rent in
an amount equal to 150% of the Monthly Basic Rent last in effect under
the Lease, plus 100% of the last month's estimate of Tenant's share of
Expenses pursuant to Paragraph 6, for the period Tenant remains in
possession of the Premises until the date Tenant shall have surrendered
the Premises to Landlord. Tenant acknowledges and agrees that said 150%
increase in Basic Rent is a reasonable basic rental for the Premises
where Tenant has failed to surrender the same in violation of this
Lease. In addition, if Tenant fails to surrender the Premises as
aforesaid, Tenant shall indemnify, defend and hold Landlord harmless
from all loss or liability, including without limitation, any toss or
liability resulting from any claim against Landlord made by any
succeeding tenant founded on or resulting from Tenant's failure to
surrender the Premises and losses to Landlord due to lost opportunities
to lease any portion of the Premises to succeeding tenants, together
with, in each case, actual attorneys' fees and costs,
11. SIGNAGE.
Landlord shall designate the location on the Building and/or the
Premises, if any, for one or more exterior Tenant identification
sign(s). Tenant shall install and maintain its identification sign(s)
in such designated location in accordance with this Paragraph 11 and
Exhibit G. Tenant shall have no right to install or maintain Tenant
identification signs in any other location in, on or about the Premises
or the Project and shall not display or erect any other signs, displays
or other advertising materials that are visible from the exterior of
the Building. The size, design, color and other physical aspects of
permitted sign(s) shall be subject to: (i) Landlord's written approval
prior to installation, which approval may be withheld in Landlord's
discretion, (ii) any covenants, conditions or restrictions encumbering
the Premises, and (ill) any applicable municipal or governmental
permits and approvals. The cost of the sign(s), including the
installation, maintenance and removal thereof shall be at Tenant's sole
cost and expense. If Tenant fails to install or maintain its sign(s),
or if Tenant fails to remove same upon termination of this Lease and
repair any damage caused by such removal including, without limitation,
repainting the Building (if required by Landlord, in Landlord's sole
but reasonable judgment), Landlord may do so at Tenant's expense.
Tenant shall reimburse Landlord for all costs incurred by Landlord to
effect such installation, maintenance or removal, which amount shall be
deemed additional rent, and shall include, without limitation, all sums
disbursed, incurred or deposited by Landlord including Landlord's
costs, expenses and actual attorney's fees with interest thereon at the
maximum interest rate permitted by law from the date of Landlord's
demand until payment. Any sign rights granted to Tenant under this
Lease are personal to Tenant and may not be assigned, transferred or
otherwise conveyed to any assignee or subtenant of Tenant without
Landlord's prior written consent, which consent Landlord may withhold
in its sole and absolute discretion.
12. PERSONAL PROPERTY TAXES.
Tenant shall pay before delinquency all taxes, assessments, license
fees and public charges levied, assessed or imposed upon its business
operations as well as upon all trade fixtures, leasehold improvements,
merchandise and other personal property in or about the Premises.
13. PARKING.
Landlord grants to Tenant and Tenant's customers, suppliers, employees
and invitees, a non-exclusive license to use vehicle parking spaces as
set forth in Subparagraph 1(t) within the designated parking areas in
the Project for the use of motor vehicles during the Term of this
Lease. Landlord reserves the right at any time to grant similar
non-exclusive use to other tenants, to promulgate rules and regulations
relating to the use of such parking areas, including reasonable
restrictions on parking by tenants and employees, to designate specific
spaces for the use of any tenant, to make changes in the parking layout
from time to time, and to establish reasonable time limits on parking.
Overnight parking is prohibited and any vehicle violating this or any
other vehicle regulation adopted by Landlord is subject to removal at
the owner's expense.
14. UTILITIES,
Tenant shall pay for all water, gas, heat, light, power, sewer,
electricity, telephone or other service metered, chargeable or provided
to the Premises. Landlord reserves the right to install separate meters
for any such utility and to charge Tenant for the cost of such
installation.
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15. MAINTENANCE.
Landlord shall maintain, in good condition, the structural parts of the
Premises, which shall include only the foundations, bearing and
exterior walls (excluding glass), subflooring and roof (excluding
skylights), the unexposed electrical, plumbing and sewerage systems,
including, without limitation, those portions of the systems lying
outside the Premises, gutters and downspouts on the Building, provided,
however, the cost of all such maintenance shall be considered
"Expenses" for purposes of Subparagraph 6(a). Except as provided above,
Tenant shall maintain and repair Premises in good condition, including,
without limitation, maintaining the heating, ventilation and air
conditioning system serving the Premises, maintaining the warehouse and
baseboard heaters, maintaining and repairing all walls, floors,
ceilings, interior and exterior doors, including roll up doors,
exterior and interior windows and fixtures, as well as damage caused by
Tenant, its agents, employees or invitees. Upon expiration or
termination of this Lease, Tenant shall surrender the Premises to
Landlord in the same condition as existed at the commencement of the
Term, except for reasonable wear and tear or damage caused by fire or
other casualty for which Landlord has received all funds necessary for
restoration of the Premises from insurance proceeds. Except as provided
in Paragraph 19, there shall be no abatement of rent and no liability
of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or
improvements in or to any portion of the Project or the Premises.
16. ALTERATIONS.
Tenant shall not make any alterations to the Premises, or to the
Project, including any changes to the existing landscaping, without
Landlord's prior written consent. If Landlord gives its consent to such
alterations, Landlord may post notices in accordance with the laws of
the state in which the Premises are located. Any alterations made shall
remain on and be surrendered with the Premises upon expiration of the
Term, except that Landlord may, within 30 days before or 30 days after
expiration of the Term, elect to require Tenant to remove any
alterations which Tenant may have made to the Premises. If Landlord so
elects, Tenant shall, at its own cost, restore the Premises to the
condition designated by Landlord in its election, before the last day
of the Term or within 30 days after notice of its election is given,
whichever is later.
Should Landlord consent in writing to Tenant's alteration of the
Premises, Tenant shall contract with a contractor approved by Landlord
for the construction of such alterations, shall secure all appropriate
governmental approvals and permits, and shall complete such alterations
with due diligence in compliance with plans and specifications approved
by Landlord, and in compliance with all applicable laws, statutes and
regulations. All such construction shall be performed in a manner which
will not interfere with the quiet enjoyment of other tenants of the
Project. Tenant shall pay all costs for such construction and shall
keep the Premises and the Project free and clear of all mechanics'
liens which may result from construction by Tenant.
17. RELEASE AND INDEMNITY.
As material consideration to Landlord, Tenant agrees that Landlord, its
agents, and its employees shall not be liable to Tenant, its agents,
employees, invitees, licensees and other persons claiming under Tenant
for (i) any damage to any property entrusted to employees of the
Project, (ii) loss or damage to any property by theft or otherwise,
(iii) consequential damages arising out of any loss of the use of the
Premises or any equipment or facilities therein; or (iv) any injury or
damage to person or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, water or rain which may leak from any
part of the Project or from pipes, appliances or plumbing work therein
or from the roof, street, sub-surface or from any other place or
resulting from dampness or any other cause whatsoever. Landlord or its
agents shall not be liable for interference with light or other
incorporeal hereditaments, nor shall Landlord be liable for any latent
defects in the Premises or the Project. Tenant shall give prompt notice
to Landlord in case of fire or accidents in the Premises or in the
Project, and of defects therein or in the fixtures or equipment located
therein.
To the fullest extent permitted by law, Tenant agrees to indemnify,
defend (with counsel satisfactory to Landlord) and hold harmless
Landlord, its agents, successors in interest with respect to the
Building and their directors, officers, partners, employees,
shareholders, agents and representatives and the directors, officers,
partners, employees, shareholders, agents and representatives of the
partners of Landlord from (i) all claims, actions, liabilities, and
proceedings arising from Tenant's use of the Premises or the conduct of
its business or from any activity, work or thing done, permitted or
suffered by Tenant, its agents, contractors, employees or invitees, in
or about the Premises, the Building, or the Project and any breach or
default in the performance of any obligation to be performed by Tenant
under the terms of this Lease, or arising from any act, neglect, fault
or omission of Tenant, or of its agents, contractors, employees or
invitees, and (ii) any and all costs, attorneys' fees, expenses and
liabilities incurred with respect to any such claims, actions,
liabilities, or proceedings, and in the event any actions or
proceedings shall be brought against Landlord by reason of any such
claims, Tenant, upon notice from Landlord, shall defend the same at
Tenant's expense by counsel approved in writing by Landlord. Tenant
hereby assumes all risk of damage to property or injury to person in,
upon or about the Premises from any cause whatsoever except that which
is caused by the failure of Landlord to observe any of the terms and
conditions of this Lease where such failure has persisted for an
unreasonable period of time after Landlord receives written notice of
such, and Tenant hereby waives all its claims in respect thereof
against Landlord.
As used herein, the term "liabilities" shall include all suits,
actions, claims and demands and all expenses (including attorneys' fees
and costs of defense) incurred in or about any such liability and any
action or proceeding brought thereon. If any claim shall be made or any
action or proceeding brought against Landlord on the basis of any
liability described in this Paragraph, Tenant shall, upon notice from
Landlord defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord. It is understood that payment shall not be a
condition precedent to recovery upon the foregoing indemnity.
18. INSURANCE.
Tenant, at its cost, shall pay for and keep in full force and effect
throughout the Term of this Lease:
(a) COMPREHENSIVE GENERAL LIABILITY OR COMMERCIAL GENERAL
LIABILITY insurance with respect to the Premises and the
operations of or on behalf of Tenant, in, of or about the
Premises, including, but not limited to, personal injury,
product liability (if applicable), blanket contractual,
owner's protective, broad form property damage liability,
liquor liability (if applicable) and owned and non-owned
automobile liability in amounts not less than $1,000,000 per
occurrence on the commencement date of this Lease. The
insurance policy or policies shall contain the following
provisions (1) severability of interest, (2) cross liability,
(3) an endorsement naming Landlord, Landlord's Mortgagees and
any other parties in interest designated by Landlord as
additional insureds, (4) an endorsement stating "such
insurance as is afforded by this policy for the benefit of the
Landlord and any other additional insured shall be primary as
respects any liability or claims arising out of the occupancy
of the Premises by the Tenant, or Tenant's operations and any
insurance carried by Landlord, or any other additional insured
shall be non-contributory," (5) with respect to improvements
or alterations permitted under this Lease, contingent
liability and builder's risk insurance, (6) an
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endorsement allocating to the Premises the full amount of
liability limits required by this Lease, and (7) coverage must
be on an "occurrence basis". "Claims-Made" forms are not
acceptable.
(b) WORKERS COMPENSATION COVERAGE as required by law.
(c) TENANT'S PROPERTY INSURANCE: Tenant shall at all times during
the Term hereof and at its cost and expense, maintain in
effect policies of insurance covering (1) all Tenant
Improvements on the Premises installed by Tenant, (2) all
personal property of Tenant located in or at the Premises
including, but not limited to, fixtures, furnishings,
equipment and furniture, in an amount not less than their full
replacement value, and (3) loss of income or business
interruption insurance. These policies shall provide
protection against any peril included within the
classification "All Risk" including, but not limited to
insurance against sprinkler leakage, vandalism and malicious
mischief. The proceeds of such insurance shall be used to
repair or replace the Tenant Improvements and personal
property so insured. Tenant shall, slits cost, maintain rental
abatement insurance assuring that the rental payable hereunder
will be paid to Landlord for a period of not less than twelve
(12) months if rent is to abate under any provision of this
Lease. Such coverage shall include a sixty-day extended period
of indemnity endorsement.
All policies of insurance required hereunder shall include a clause or
endorsement denying the insurer any rights of subrogation against the
other party to the extent rights have been waived by the insured before
the occurrence of injury or loss, if same are obtainable without
unreasonable cost. Landlord and Tenant each hereby waive any rights of
recovery against the other for injury or loss to such waiving party or
to its property or the property of others under its control, arising
from any other or cause insured against under any policy of insurance
required to be carried by such waiving party under this Lease. The
foregoing waiver shall be effective whether or not the waiving party
shall actually obtain and maintain the insurance which such waiving
party is obligated to obtain and maintain under this Lease.
All insurance required to be provided by Tenant under this Lease: (a)
shall be issued by insurance companies authorized to do business in the
state in which the Premises are located and holding a General
Policyholders Rating of "A" and a Financial Rating of "X" or better, as
set forth in the most recent edition of Best's Insurance Reports; (b)
shall contain an endorsement requiring at least 30 days prior written
notice to Landlord and Landlord's lender, before cancellation or change
in coverage scope or amount of any policy. Tenant shall deliver a
certificate or copy of such policy together with evidence of payment of
all current premiums to Landlord within 30 days of execution of this
Lease and within fifteen (15) days of expiration of each policy.
Tenant's failure to provide evidence of such coverage to Landlord shall
constitute a default under this Lease.
Landlord shall insure the Building (excluding all property which
tenants of the Building are obligated to insure) against damage with
"All Risk" insurance and public liability insurance, all in such
amounts and with such deductibles as Landlord considers appropriate.
The cost of any insurance maintained by Landlord hereunder shall be
included as part of "Expenses" under Subparagraph 6(a). Notwithstanding
any contribution by Tenant to the cost of insurance premiums as
provided herein, Tenant acknowledges that it has no right to receive
any proceeds from any insurance policies carried by Landlord.
19. DESTRUCTION.
If during the Term of this Lease, any portion of the Premises, access
to the Premises or any part of the Building which is essential to the
use of the Premises is damaged or destroyed and such damage or
destruction can, in Landlord's reasonable estimation, be repaired
within 180 days following such damage or destruction, this Lease shall
remain in full force and effect and Landlord shall promptly commence to
repair and restore the damage or destruction to substantially the same
condition as existed prior to such damage and shall complete such
repair and restoration with due diligence in compliance with all then
existing laws. If (1) such damage or destruction cannot, in Landlord's
reasonable estimation, be repaired within 160 days following such
damage or destruction; or (2) more than forty percent (40%) of the
Building is damaged or destroyed (regardless of its impact on the
Premises); or (3) any mortgagee of the Building will not allow the
application of insurance proceeds to be applied to repair and
restoration; or (4) the damage or destruction is not covered in full by
Landlord's insurance required by Paragraph 18, or (5) the damage or
destruction occurs within the last twelve (12) months of the Term of
this Lease or any extension hereof, then Landlord may, in its sole
discretion, terminate this Lease by delivery of notice to Tenant within
30 days of the date Landlord learns of the damage.
In the event of repair, reconstruction and restoration by Landlord as
herein provided, the rent payable under this Lease shall be abated
proportionately with the degree to which Tenant's use of the Premises
is impaired during the period of such repair, reconstruction or
restoration; provided that there shall be no abatement of rent if such
damage is the result of Tenant's negligence or intentional wrongdoing.
Tenant shall not be entitled to any compensation or damages for loss of
the use of the whole or any part of the Premises, damage to Tenant's
Personal Property and/or any inconvenience or annoyance occasioned by
such damage, repair, reconstruction or restoration.
If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall be obligated to make repair or restoration
only to those portions of the Building and the Premises which were
originally provided at Landlord's expense, and the repair and
restoration of items not provided at Landlord's expense shall be the
obligation of Tenant. Tenant agrees to coordinate the restoration and
repair of those items it is required to restore or repair with
Landlord's repair and restoration work and in coordination with a work
schedule prepared by Landlord, or Landlord's contractor. Further,
Tenant's work shall be performed in accordance with the terms,
standards and conditions contained in Paragraph 16 above,
20. CONDEMNATION.
(a) Definitions. The following definitions shall apply: (1)
"Condemnation" means (a) the exercise of any governmental
power of eminent domain, whether by legal proceedings or
otherwise by condemnor and (b) the voluntary sale or transfer
by Landlord to any condemnor either under threat of
condemnation or while legal proceedings for condemnation are
proceeding; (2) "Date of Taking" means the date the condemnor
has the right to possession of the property being condemned;
(3) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation;
and (4) "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having a
power of condemnation.
(b) Obligations to be Governed by Lease. If during the Term of
this Lease there is any taking of all or any part of the
Premises or the Project, the rights and obligations of the
parties shall be determined pursuant to this Lease.
(c) Total or Partial Taking. If the Premises are totally taken by
condemnation, this Lease shall terminate on the date of
taking. If any portion of the Premises is taken by
condemnation, this Lease shall remain in effect, except that
Tenant can elect to terminate this Lease if the remaining
portion of the Premises is rendered unsuitable for Tenant's
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use of the Premises. If Tenant elects to terminate this Lease,
Tenant must exercise its right to terminate by giving notice
to Landlord within 30 days after the nature and extent of the
taking have been finally determined. If Tenant elects to
terminate this Lease, Tenant shall also notify Landlord of the
date of termination, which date shall not be earlier than 30
days nor later than 90 days after Tenant has notified Landlord
of its election to terminate; except that this Lease shall
terminate on the date of taking if the date of taking falls on
a date before the date of termination as designated by Tenant.
If any portion of the Premises is taken by condemnation and
this Lease remains in full force and effect, on the date of
taking the rent shall be reduced by an amount in the same
ratio as the total number of rentable square feet in the
portion of the Premises taken bears to the total number of
rentable square feet in the Premises immediately before the
date of taking. In the case where a portion of the Premises is
taken and the Lease remains in full force and effect Landlord
shall, as its own cost and expense, make all alterations or
repairs to the Premises so as to make the portion of the
Premises not taken a complete architectural unit. Such work
shall not, however, exceed the scope of work done by Landlord
in originally constructing the Premises, If any portion of the
Building other than the Premises is taken and in Landlord's
reasonable opinion the Building should be restored in a manner
that materially alters the Premises, or if severance damages
from the condemning authority are not available to Landlord in
sufficient amounts to permit such restoration, Landlord may
terminate this Lease upon written notice to Tenant. Basic
Monthly Rent due and payable hereunder shall be temporarily
abated during such restoration period in proportion to the
degree to which there is substantial interference with
Tenant's use of Premises, as reasonably determined by Landlord
or Landlord's architect.
If the Premises are totally or partially taken by
condemnation, Tenant shall not assert any claim against
Landlord or the taking authority for any compensation because
of such taking, and Landlord shall be entitled to receive the
entire amount of the award without any deduction for any
estate or interest of Tenant; provided, however, that Tenant
shall be entitled to pursue separately any available claims
against the taking authority for Tenant's moving expenses or
loss of business so long as any award based thereon shall not
diminish the Landlord's recovery.
21. ASSIGNMENT OR SUBLEASE.
Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any part of the Premises or allow any other
person or entity (except Tenant's authorized representatives,
employees, invitees, or guests) to occupy or use all or any part of the
Premises without first obtaining Landlord's consent which Landlord
shall not unreasonably withhold. Landlord shall be deemed reasonable in
withholding its consent if it determines in its sole discretion that:
(i) the financial net worth of the proposed assignee or sublessee is
not equal to or greater than Tenant's financial net worth as of the
date of this Lease as increased by the increase in the Consumer Price
Index, if any, between the date of this Lease and the date of the
assignment or sublease; (ii) the intended use of the Premises by the
proposed assignee or sublessee is inconsistent, incompatible or
competes with other uses in the Project; (iii) the intended use of the
Premises by the proposed assignee or sublessee will require more than
insignificant alteration of the Premises; (iv) the intended use of the
Premises by the proposed assignee or sublessee will constitute a
violation of this Lease or any governmental law, rule, ordinance or
regulation governing the Premises or would involve the storage, use or
keeping of Hazardous Materials in, on or about the Premises, the Common
Areas or any other portion of the Project; or if (v) the proposed rent
for the proposed assignee or sublessee is less than the Rent then in
effect under the Lease; or (vi) the proposed assignee or sublessee is a
tenant in the Project or has negotiated to be a tenant in the Project
any time in the six (6) months just preceding Tenant's request for
Landlord's consent. Any assignment, encumbrance or sublease without
Landlord's written consent shall be voidable and at Landlord's
election, shall constitute a default. Landlord's waiver or consent to
any assignment or subletting shall not relieve Tenant or any assignee
or sublessee from any obligation under this Lease whether or not
accrued.
If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law of any partner, or the dissolution
of the partnership, shall be deemed a voluntary assignment. If Tenant
is a corporation, any dissolution, merger, consolidation or other
reorganization of Tenant, or sale or other transfer of a controlling
percentage of the capital stock of Tenant, or the sale of at least 50%
of the value of the assets of Tenant shall be deemed a voluntary
assignment. The phrase "controlling percentage" means ownership of and
right to vote stock possessing at least 50% of the total combined
voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for election of directors. The
preceding two sentences of this paragraph shall not apply to
corporations the stock of which is traded through a public exchange. If
Landlord shall consent to any assignment or sublease of this Lease,
three-quarters (3/4) of all sums and other consideration payable to or
for the benefit of the Tenant from its assignees or subtenants in
excess of the rent payable by Tenant to Landlord under this Lease shall
be paid to Landlord, as and when such sums are due and payable. If
Tenant requests Landlord to consent to a proposed assignment or
subletting Tenant shall pay to Landlord, whether or not consent is
ultimately given, $100 or Landlord's reasonable attorneys' fees
incurred in connection with such request, whichever is greater.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through 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 institutes proceedings under the Bankruptcy Act 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; or (b) If a writ of attachment
or execution is levied on this Lease; or (c) If in any proceeding or
action to which Tenant is a party, a receiver is appointed with
authority to take possession of the Premises. An involuntary assignment
shall constitute a default by Tenant and Landlord shall have the right
to elect to terminate this Lease, in which case this Lease shall not be
treated as an asset of Tenant.
22. DEFAULT.
The occurrence of any of the following shall constitute a default by
Tenant: (a) A failure to pay rent or any other charge when due; (b)
Abandonment of the Premises (failure to occupy and operate the Premises
for ten consecutive days shall be deemed an abandonment); (c) The
making by Tenant or any guarantor of this Lease ("Guarantor") of any
general assignment for the benefit of creditors; the filing by or
against Tenant or any Guarantor of a petition to have Tenant or such
Guarantor adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case
of a petition filed against Tenant or a Guarantor, the same is
dismissed within thirty (30) days); the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, or of
substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, or of substantially all of Guarantor's
assets, where possession is not restored to Tenant or such Guarantor,
as the case may be, within thirty (30) days; the attachment, execution
or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease where
such seizure is not discharged within (30) days; or if this Lease
shall, by operation of law or otherwise, pass to any person or persons
other than Tenant except as provided in Paragraph 21 herein; (d) The
failure of Tenant to timely comply with the provisions of Paragraph 26
or Paragraph 33 of this Lease regarding, respectively, Subordination
and Estoppel Certificates; or (e) The failure to perform any other
provision of this Lease.
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23. LANDLORD'S REMEDIES.
Landlord shall have the remedies described in this Paragraph 23 if
Tenant is in default. These remedies are not exclusive; they are
cumulative and in addition to any remedies now or later allowed by law.
Landlord may terminate Tenant's right to possession of the Premises at
any time. No act by Landlord other than giving notice to Tenant shall
terminate this Lease. Acts of maintenance efforts to relet the
Premises, or the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this Lease shall not constitute a
termination of Tenant's right to possession. Upon termination of
Tenant's right to possession, Landlord has the right to recover from
Tenant: (1) The worth at the time of award of any unpaid rent which had
been earned at the time of termination of Tenant's right to possession;
(2) The worth at the lime of award of the amount by which the unpaid
rent which would have been earned after the date of termination of
Tenant's right to possession until the lime of award exceeds the amount
of such rental loss that Tenant proves could have been reasonably
avoided; (3) The worth at the time of award of the amount by which the
unpaid rent for the balance of the Term after the time of award exceeds
the amount of such rental loss that Tenant proves could be reasonably
avoided; (4) Any other amount, including court, attorney and collection
costs, necessary to compensate Landlord for all detriment proximately
caused by Tenant's default. "The worth", as used for Items (1) and (2)
in this Paragraph 23 is to be computed by allowing interest at the
lesser of the maximum rate an individual is permitted to charge by law
or 12%. "The worth" as used for Item (3) in this Paragraph 23 is to be
computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of termination plus one
percent (1%).
In the event of any default by Tenant, Landlord shall also have the
right, with or without terminating this Lease, to re-enter the Premises
and remove all persons and property from the Premises; such property
may be removed and stored in a public warehouse or elsewhere at the
cost of and for the account of Tenant or disposed of in a reasonable
manner by Landlord. No re-entry or taking possession of the Premises by
Landlord pursuant to this Paragraph 23 shall be construed as an
election to terminate this Lease unless a written notice of such
intention is given to Tenant or unless the termination thereof is
decreed by a court of competent jurisdiction.
24. DEFAULT BY LANDLORD.
Landlord shall not be in default hereunder unless Landlord fails to
perform the obligations required of Landlord within a reasonable lime,
but in no event later than forty-five (45) days after written notice by
Tenant to Landlord, writing specifying wherein Landlord has failed to
perform such obligation; provided, however, that if the nature of
Landlord's obligation is such that more than forty-five (45) days is
required for performance, then Landlord shall not be in default if
Landlord commences performance within such forty-five (45) day period
and thereafter diligently prosecutes the same to completion. In no
event shall Tenant have the right to terminate this Lease as a result
of Landlord's default; Tenant's remedies shall be limited to any other
remedy available at law or in equity. Nothing herein contained shall be
interpreted to mean that Tenant is excused from paying rent due
hereunder as a result of any default by Landlord.
25. ENTRY OF PREMISES AND PERFORMANCE BY TENANT.
Landlord and its authorized representatives shall have the right to
enter the Premises at all reasonable times for any of the following
purposes: (a) To determine whether the Premises are in good condition
and whether Tenant is complying with its obligations under this Lease;
(b) To do any necessary maintenance and to make any restoration to the
Premises or the Project that Landlord has the right or obligation to
perform; (c) To post "for sale" signs at any time during the Term, to
post "for rent" or "for lease" signs during the last 90 days of the
Term, or during any period while Tenant is in default; (d) To show the
Premises to prospective brokers, agents, buyers, tenants or persons
interested in an exchange, at any time during the Term; (e) To repair,
maintain or improve the Project and to erect scaffolding and protective
barricades around and about the Premises but not so as to prevent entry
to the Premises and to do any other act or thing necessary for the
safety or preservation of the Premises or the Project, or (f) To
discharge Tenant's obligations hereunder when Tenant has failed to do
so in accordance with the terms of this Lease. Landlord shall not be
liable in any manner for any inconvenience, disturbance, toss of
business, nuisance or other damage arising out of Landlord's entry onto
the Premises as provided in this Paragraph 25. Tenant shall not be
entitled to an abatement or reduction of rent if Landlord exercises any
rights reserved in this Paragraph 25. Landlord shall reasonably attempt
to conduct his activities on the Premises as provided herein in a
manner that will cause the least inconvenience, annoyance or
disturbance to Tenant. For each of these purposes, Landlord shall at
all times have and retain a key with which to unlock all the doors in,
upon and about the Premises, excluding Tenant's vaults and safes.
Tenant shall not alter any lock or install a new or additional lock or
bolt on any door of the Premises without the prior written consent of
Landlord. If Landlord gives its consent. Tenant shall furnish Landlord
with a key for any such lock.
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost
and expense without any abatement of rent. If Tenant shall fail to pay
any sum of money, other than Monthly Basic Rent, required to be paid by
it hereunder or shall fail to perform any other act on its part to be
performed hereunder, and such failure shall continue for ten (101 days
after notice thereof by Landlord (or such other period as specifically
provided herein), Landlord may, without waiving or releasing Tenant
from any obligations of Tenant, but shall not be obligated to, make any
such payment or perform any such other act on Tenant's part to be made
or performed in this Lease; provided, however, all sums so paid by
Landlord and all necessary incidental costs together with interest
thereon at the lesser of 12% or the maximum rate an individual is
permitted to charge by law from the date of such payment by Landlord,
shall be payable to Landlord on demand. Tenant covenants to pay any
such sums, and Landlord shall have (in addition to all other rights or
remedies of Landlord) the same rights and remedies in the event of the
nonpayment thereof by Tenant as in the case of default by Tenant in the
payment of the rent. Further, following each second consecutive late
payment of rent, Landlord shall have the option to require that Tenant
increase the amount of the Security Deposit required under Paragraph 8
by one hundred percent (100%), which additional Security Deposit shall
be retained by Landlord and may be applied by Landlord in the manner
provided in Paragraph 8.
26. SUBORDINATION.
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and unless
otherwise elected by Landlord or any mortgagee or any beneficiary of a
Deed of Trust with a lien on the Project or any ground lessor with
respect to the Project (or any part thereof), this Lease shall be
subject and subordinate at all times to (a) all ground leases or
underlying leases which may now exist or hereafter be executed
affecting the Project, or the land upon which the Project is situated,
or both, and (b) the lien of any mortgage or deed of trust which may
now exist or hereafter be executed in any amount for which the Project,
ground leases or underlying leases, or Landlord's interest or estate in
any of said items is specified as security. Notwithstanding the
foregoing, Tenant acknowledges that Landlord shall have the right to
subordinate or cause to be subordinated this Lease to any such ground
leases or underlying leases or any such liens to this Lease. In the
event
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that any ground lease or underlying lease terminates for any reason or
any mortgage or Deed of Trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the tenant of the successor in
interest to Landlord, at the option of such successor in interest.
Tenant covenants and agrees to execute and deliver, upon demand by
Landlord and in the form requested by Landlord any additional documents
evidencing the priority or subordination of this Lease with respect to
any such ground lease or underlying leases or the lien of any such
mortgage or Deed of Trust. Tenant hereby irrevocably appoints Landlord
as attorney-in-fact of Tenant to execute, deliver and record any such
document in the name and on behalf of Tenant.
27. NOTICE.
Any notice, demand, request, consent, approval or communication desired
by either party or required to be given, shall be in writing and served
either personally or sent by prepaid certified first class mail, return
receipt requested, addressed as set forth in Subparagraph 1(b) and
1(c). Either party may change its address by notification to the other
party. Notice shall be deemed to be communicated 48 hours from the time
of mailing, or at the time of service as provided in this Paragraph 27.
28. WAIVER.
No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver. No act
or conduct of Landlord, including, without limitation, acceptance of
the keys to the Premises, shall constitute acceptance of the surrender
of the Premises by Tenant before the expiration of the Term. Only
written notice from Landlord to Tenant shall constitute acceptance of
the surrender of the Premises and accomplish termination of this Lease.
Either party's consent to or approval of any act by the other requiring
the party's consent or approval shall not be deemed to waive or render
unnecessary that party's consent to or approval of any subsequent act
by the other. Any waiver by Landlord of any default must be in writing
and shall not be a waiver of any other default concerning the same or
any other provision of this Lease.
29. LIMITATION OF LIABILITY.
In consideration of the benefits accruing hereunder, Tenant and all
successors and assigns of Tenant covenant and agree that, in the event
of any actual or alleged failure, breach or default hereunder by
Landlord:
(a) The sole and exclusive remedy against Landlord shall be
against the Landlord's interest in the Building;
(b) No partner of Landlord shall be sued or named as a party in
any suit or action (except as may be necessary to secure
jurisdiction of the partnership);
(c) No service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of
the partnership);
(d) No partner of Landlord shall be required to answer or
otherwise plead to any service of process;
(e) No judgment may be taken against any partner of Landlord;
(f) Any judgment taken against any partner of Landlord may be
vacated and set aside at any time after the fact;
(g) No writ of execution will ever be levied against the assets of
any partner of Landlord;
(h) The obligations under this Lease do not constitute personal
obligations of the individual partners, directors, officers or
shareholders of Landlord, or the partners, directors, officers
or shareholders of the partners of Landlord, and Tenant shall
not seek recourse against any such persons or entities of
Landlord or any of their personal assets for satisfaction of
any liability in respect to this Lease; and
(i) These covenants and agreements are enforceable both by
Landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing provisions shall be applicable
to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
30. FORCE MAJEURE.
Landlord shall have no liability whatsoever to Tenant on account of (a)
the inability or delay of Landlord in fulfilling any of Landlord's
obligations under this Lease by reason of strike, other labor trouble,
governmental controls in connection with a national or other public
emergency, or shortages of fuel, supplies or labor resulting therefrom
or any other cause, whether similar or dissimilar to the above, beyond
Landlord's reasonable control; or (b) any failure or defect in the
supply, quantity or character of electricity or water furnished to the
Premises, by reason of any requirement, act or omission of the public
utility or others furnishing the Project with electricity or water, or
for any reason, whether similar or dissimilar to the above, beyond
Landlord's reasonable control. If this Lease specifies a time period
for performance of an obligation of Landlord, that time period shall be
extended by the period of any delay in Landlord's performance caused by
any of the events of force majeure described above.
31. PROFESSIONAL FEES.
(a) If Landlord should engage any professional including, without
limitation, attorneys, appraisers, accountants, environmental
or other consultants for the purpose of bringing suit for
possession of the Premises, for the recovery of any sum due
under this Lease, or because of the breach of any provisions
of this Lease, or for any other relief against Tenant
hereunder, or in the event of any other litigation between the
parties with respect to this Lease, then all costs and
expenses including, without limitation, actual professional
fees such as appraisers', accountants', attorneys' and other
consultants' fees, incurred by the prevailing party therein
shall be paid by the other party, which obligation on the part
of the other party shall be deemed to have accrued on the date
of the commencement of such action and shall be enforceable
whether or not the action is prosecuted to judgment. If
Landlord employs a collection agency to recover delinquent
charges, Tenant agrees to pay all collection agency fees
charged to Landlord in addition to rent, late charges,
interest and other sums payable under this Lease.
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(b) If Landlord is named as a defendant in any suit brought
against Tenant in connection with or arising out of Tenant's
occupancy hereunder, Tenant shall pay to Landlord its costs
and expenses incurred in such suit including, without
limitation, its actual professional fees such as appraisers',
accountants' and attorneys' fees,
32. EXAMINATION OF LEASE.
Submission of this instrument for examination or signature by Tenant
shall not create a binding agreement between Landlord and Tenant nor
shall it constitute a reservation or option to lease on the part of
Tenant and this instrument shall not be effective as a lease and shall
not create any obligations on the part of Landlord or Tenant until this
Lease has been validly executed by both Landlord and Tenant.
33. ESTOPPEL CERTIFICATE.
(a) Within ten (10) days following any written request which
Landlord may make from time to time, Tenant shall execute and
deliver to Landlord a statement. ("Estoppel Certificate") in a
form substantially similar to the form of Exhibit E attached
hereto or in such other form as Landlord's lender or purchaser
may require, certifying: (i) the date of commencement of this
Lease; (ii) the fact that this Lease is unmodified and in full
force and effect (or, if there have been modifications,
stating the nature and date of such modifications), (iii) the
date to which the rent and other sums payable under this Lease
have been paid; (iv) that there are no current defaults under
this Lease by either Landlord or Tenant except as specified in
Tenant's statement; and (v) such other matters requested by
Landlord. Landlord and Tenant intend that any statement
delivered pursuant to this Paragraph 33 may be relied upon by
any mortgagee, beneficiary, purchaser or prospective purchaser
of the Project or any interest therein.
(b) Tenant's failure to deliver such statement within such time
shall be conclusive upon Tenant (i) that this Lease is in full
force and effect, without modification except as may be
represented by Landlord, (ii) that there are no uncured
defaults in Landlord's performance, and (iii) that not more
than one (1) month's rent has been paid in advance, Tenant's
failure to deliver said statement to Landlord within ten (10)
days of receipt shall constitute a default under this Lease
and Landlord may, at Landlord's option, terminate this Lease.
(c) Tenant hereby irrevocably appoints Landlord as Tenant's
attorney-in-fact, which appointment is coupled with an
interest, to act in Tenant's name, place and stead to execute
such Estoppel Certificate on Tenant's behalf.
34. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the "Rules and
Regulations", a copy of which is attached hereto and marked Exhibit F,
and all reasonable and nondiscriminatory modifications thereof and
additions thereto from time to time put into effect by Landlord,
Landlord shall not be responsible to Tenant for the violation or
non-performance by any other tenant or occupant of the Project of any
of said Rules and Regulations.
35. LIENS.
Tenant shall, within ten (10) days after receiving notice of the filing
of any mechanic's lien for material or work claimed to have been
furnished to the Premises on Tenant's behalf or at Tenant's request,
discharge the lien or post a bond equal to the amount of the disputed
claim with a bonding company reasonably satisfactory to Landlord. If
Tenant posts a bond, it shall contest the validity of the lien with all
due diligence. Tenant shall indemnify, defend and hold Landlord
harmless from any and all losses and costs incurred by Landlord as a
result of any such liens attributable to Tenant. If Tenant does not
discharge any lien or post a bond for such lien within such ten (10)
day period, Landlord may discharge such lien at Tenant's expense and
Tenant shall promptly reimburse Landlord for all costs incurred by
Landlord in discharging such lien including, without limitation,
attorney's fees and costs and interest on all sums expended at the
maximum interest rate permitted by law. Tenant shall provide Landlord
with not less than ten (10) days written notice of its intention to
have work performed at or materials furnished to the Premises so that
Landlord may post appropriate notices of non-responsibility.
36. MISCELLANEOUS PROVISIONS.
(a) Time of Essence. Time is of the essence of each provision of
this Lease.
(b) Successor. This Lease shall be binding on and inure to the
benefit of the parties and their successors, except as
provided in Paragraph 21 herein.
(c) Landlord's Consent. Any consent required by Landlord under
this Lease must be granted in writing and may be withheld by
Landlord in its sole and absolute discretion, unless otherwise
expressly provided herein.
(d) Commissions. Each party represents that it has not had
dealings with any real estate broker, finder or other person
with respect to this Lease in any manner, except for the
broker identified in Subparagraph 1(p). If Tenant has dealt
with any other person or real estate broker with respect to
leasing or renting space in the Project, Tenant shall be
solely responsible for the payment of any fees due said person
or firm and Tenant shall hold Landlord free and harmless and
indemnify and defend Landlord from any liabilities, damages or
claims with respect thereto, including attorney's fees and
costs.
(e) Landlord's Successors. In the event of a sale or conveyance by
Landlord of the Project, the same shall operate to release
Landlord from any liability under this Lease, and in such
event Landlord's successor in interest shall be solely
responsible for all obligations of Landlord under this Lease.
(f) Prior Agreement or Amendments. This Lease contains all of the
agreements of the parties hereto with respect to any matter
covered or mentioned in this Lease, and no prior agreement or
understanding pertaining to any such matter shall be effective
for any purpose. No provisions of this Lease may be amended or
added to except by an agreement in writing signed by the
parties hereto or their respective successors-in-interest.
(g) Recording. Tenant shall not record this Lease nor a short form
memorandum thereof without the consent of Landlord. Landlord
may record a short form memorandum of this Lease and Tenant
shall execute and acknowledge such form if requested to do so
by Landlord.
(h) Separability. Any provision of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or
invalidate any other provision hereof, and all other
provisions of this Lease shall remain in full force and
effect.
Landlord ????
Tenant ????
12
<PAGE>
(i) No Partnership or Joint Venture. Nothing in this Lease shall
be deemed to constitute Landlord and Tenant as partners or
joint venturers, It is the express intent of the parties
hereto that their relationship with regard to this Lease and
the Premises be and remain that of lessor and lessee.
(j) Interpretation. This Lease shall be construed and interpreted
in accordance with the laws of the state in which the Premises
are located. This Lease constitutes the entire agreement
between the parties with respect to the Premises and the
Project, except for such guarantees or modifications as may be
executed in writing by parties from time to time. When
required by the context of this Lease, the singular shall
include the plural, and the masculine shall include the
feminine and/or neuter. "Party" shall mean Landlord or Tenant,
If more than one person or entity constitutes Landlord or
Tenant, the obligations imposed upon that party shall be joint
and several as to all persons or entities constituting such
party. The enforceability, invalidity or illegality of any
provision shall not render the other provisions unenforceable,
invalid or illegal.
(k) Mortgagee Protection. In the event of any default on the part
of Landlord, Tenant will give notice by registered or
certified mail to any beneficiary of a deed of trust,
mortgagee, or ground lessor covering the Premises, and shall
offer such beneficiary, mortgagee, or ground lessor, a
reasonable opportunity to cure the default, including time to
obtain possession of the Premises by power of sale or a
judicial foreclosure, or in the event of a ground lessor, by
appropriate judicial action, if such should prove necessary to
effect a cure.
(l) Governing Law. This Lease shall be governed by and construed
pursuant to the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
Landlord: Harach Investment Corp., as Agent for
MacArthur/Broadway Center, Inc.
By /s/ ????????????????????? Date 11-16-98
----------------------------------- --------------
Its
-----------------------------------
Tenant: Fiberstars, Inc., a California Corporation
Dba Fibre Optics International, Inc.
By /s/ Robert A. Connors Date 10/20/98
----------------------------------- --------------
Its CFO
-----------------------------------
Landlord ????
Tenant ????
13
<PAGE>
NOTARY
STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )
THIS IS TO CERTIFY that on this 16 day of NOV, 1998, before me, the undersigned,
a notary public in and for the state of Oregon, duly commissioned and sworn,
personally appeared Kathleen Schultz, to me known to be the Vice President of
HARSCH INVESTMENT CORP., as agent for MacArthur/Broadway Center, Inc., the
corporation that executed the within and foregoing instrument, and acknowledged
the said instrument to be the free and voluntary act and deed of said
corporation for the uses and purposes therein mentioned, and on oath stated that
he was authorized to execute said instrument, and that the seal affixed is the
corporate seat of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
JENNIFER MC BLAINE /s/ Jennifer Mc Blaine
(Notary Seal) ----------------------------------------------------
Print Name: Jennifer Mc Blaine
-----------------------------------------
Notary Public, in and for the State and County above
residing at: Portland, Oregon
---------------------------------------
My commission expires: 1/8/02
------------------------------
STATE OF California )
) ss.
COUNTY OF Alameda )
THIS IS TO CERTIFY that on this 20th day of October, 1998, before me, the
undersigned, a notary public in and for the state of California duly
commissioned and sworn, personally appeared Robert A. Connors, to me known to be
the CFO of Fiberstars, Inc., a California Corporation dba Fibre Optics
International, Inc., the corporation that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation for the uses and purposes therein mentioned,
and on oath stated that he was authorized to execute said instrument, and that
the seal affixed is the corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
DONNA M. PRUNETTI /s/ Donna M. Prunetti
(Notary Seal) ----------------------------------------------------
Print Name Donna M. Prunetti
-----------------------------------------
Notary Public, in and for the State and County above,
residing at: 4120 Twin Peaks Terrace, Fremont, CA
---------------------------------------
My commission expires 8/13/99
------------------------------
Landlord ????
Tenant ????
14
<PAGE>
Exhibit A
BUILDING FLOOR PLAN SHOWING PREMISES
PREMISE FOR:
Fibre Optics International,
[Graphic Omitted] Inc.
309 Cloverdale, D-1, 2, 3,
4, 46
Seattle WA 98108-4500
EXISTING PLAN BUILDING D
Truck Door Legend
- -----------------
^ On-Grade
[ ] Dock-High
A-1
<PAGE>
Exhibit B
PROJECT SITE PLAN AND LEGAL DESCRIPTION
That portion of the southwest quarter of the northwest quarter of section 32.
Township 24 north, range 4 east, W.M., in King County, Washington, as described
as follows:
Beginning at the intersection of the south margin of the south Cloverdale Street
with the east line of government lot 3, said section 32; thence north 89 degrees
046'11" west along said south margin 120.00 feet; thence south 0 degrees 36'58"
west a distance of 20.00 feet; thence north 89 degrees 46'11" west along the
margin established by deed recorded under auditor's file No. 5647272, a distance
of 177.00 feet to the true point of beginning; thence south 0 degrees 36'58"
west a distance of 419.79 feet; thence north 89 degrees 23'02 " west a distance
of 100.00 feet; thence south 0 degrees 36'58" west a distance of 225.97 feet to
the south line of said northwest quarter; thence south 89 degrees 30'03" west
along said south line a distance of 725.56 feet, more or less, to the east
margin of "S" line, secondary state highway No. 1-K (Burien to Junction PSH No.
1) as established by deed recorded under auditor's file No. 5647272, and as
established by superior court cause no. 66456, and a point on the arc of a curve
the center of which bears north 86 degrees 05'06" east; thence northerly along
said margin along the arc of a curve to the right, said curve having radius of
5655.00 feet through a central angle of 0 degrees 21'41" a distance of 35.66
feet; thence north 17 degrees 32'03" east a distance of 70.54 feet to a point on
the arc of a curve the center of which bears north 87 degrees 03'15" east;
thence northerly along the arc of a curve to the right, said curve having a
radius of 340.80 feet through a central angle of 14 degrees 09'18" a distance 9F
81.52 feet; thence north 19 degrees 58'02" east a distance of 194.57 feet;
thence north 42 degrees 55'29" east a distance of 386.99 feet to a point that
bears north 89 degrees 46'11" west from the true point of beginning, said point
also being the south margin of South Cloverdale Street as established by deed
recorded under auditor's file No. 5647272; thence south 89 degrees 46'11" east
along said margin a distance of 477.33 feet, more or less, to the true point of
beginning;
Excepting therefrom that portion of the southwest quarter of the northwest
quarter of section 32, township 24 north, range 4 east, W.M., in King County,
Washington, described as follows:
Beginning at the intersection of the south margin of south Cloverdale Street
with the east tine of government lot 3, said section 32; thence north 8904611"
west along said south margin 120.00m feet; thence south 0degrees36 58" west a
distance of 20.00 feet; thence north 09 degrees 46'10" west along the margin
established by deed recorded under auditor's file No. 5647272, a distance of
177.00 feet; thence south 0 degrees 36'58" west a distance of 419.79 feet;
thence north 89 degrees 23'02" west a distance of 100.00 feet; thence south 0
degrees 36'58" west 225.97 feet to the south line of said subdivision and the
true point of beginning of this description; thence south 89 degrees 30'03" west
along said south tine 505.00 feet; thence north 0 degrees 36'58" east 5.50 feet;
thence north 89 degrees 55'00" east 264.96 feet; thence north 87 degrees 51'57"
east
175.30 feet to a point 8.50 feet north of the south line of said subdivision;
thence north 86 degrees 47'70 east 65.00 feet to a point distant north 0 degrees
36'58" east 11.58 feet from the true point of beginning thence south 0 degrees
36'58" west 11.58 feet to the true point of beginning;
Being that certain parcel conveyed to the City of Seattle by deed recorded under
auditor's file No. 8012040449.
[Graphic Omitted]
B-1
<PAGE>
Exhibit F
RULES AND REGULATIONS
This Exhibit is hereby attached to and made a part of the Lease, by and between
MacArthur/Broadway Center, Inc., as Landlord and Fiberstars, Inc. a California
Corporation dba Fibre Optics International, Inc., as Tenant for the Premises
known as Cloverdale Business Park, 309 South Cloverdale, Seattle, Washington
98108-4575.
1. Tenant and the operations and activities of Tenant shall not cause
or permit any disturbing noises or objectionable odors to be produced upon or to
emanate from the Premises.
2. Tenant shall not block or obstruct any of the entries, passages,
doors, or sidewalks of the Project, or place, empty, or throw any rubbish,
litter, pallets, or material of any nature into such areas, or permit such areas
to be used at any time except for the ingress and egress of Tenant. Tenant shall
refrain from parking its vehicles in front of other tenants' roll up doors or
store fronts.
3. All trash, rubbish or litter removed from the Premises by Tenant
shall be placed only in such areas and/or receptacles as may be designated or
provided by Landlord. No dumpsters shall be placed outside of the Premises
without the prior written consent of Landlord.
4. Tenant shall not store any materials, equipment, products, pallets.
etc., outside the Premises without the prior written consent of Landlord.
5. Tenant shall have the nonexclusive use in common with Landlord,
other tenants, their guests and invitees, of the automobile surface parking
areas, subject to reasonable rules and regulations for the use thereof as
prescribed from time to lime by Landlord. Landlord shall have the right to
designate parking areas for use of the Projects tenants and their employees.
6. Tenant shall not leave vehicles parked in the Project's parking area
overnight. Landlord reserves the right to tow any vehicle parked overnight,
without prior approval, at the vehicle owner's expense.
7. No sign, placard, picture, advertisement, name or notice shall be
displayed, painted, or affixed by Tenant in or on any part of the Building or
the Premises without the prior written consent of Landlord and then only of such
color, size, character, style, material, installation and in such places as
shall be approved and designated by Landlord.
8. Tenant shall not use the Project or the Premises for housing,
lodging, or sleeping purposes. No immoral or unlawful purpose will be allowed in
or on any portion of the Project.
9. No birds, fowl, or animals shall be brought into or kept in or about
the Premises without the prior written consent of Landlord.
10. Landlord shall have the right to control and operate the common
areas of the Project, as well as facilities and areas furnished for the common
use of the tenants, in such manner as it deems best for the benefit of the
tenants generally.
11. If Tenant requires telegraphic, telephonic, burglar alarm or
similar services, it shall first obtain, and comply with, Landlord's
instructions in their installation.
12 Canvassing, soliciting, distribution of handbills or any other
written material and peddling on or about Project are prohibited, and each
tenant shall cooperate to prevent the same.
13. The only window treatment permitted for the windows in the Premises
is that installed by or approved in writing by Landlord. If Landlord objects to
any curtains, blinds, shades, screens, hanging plants or other similar objects
attached to or used in connection with any window or door of the Premises,
Tenant shall immediately discontinue such use. Tenant shall install no awnings
on any part of the Premises. Tenant shall not place anything against or near
glass partitions or doors or windows which may appear unsightly from outside the
Premises.
14. Tenant shall not do or permit anything to be done in any Premises,
or bring or keep anything therein which will in any way increase the rate of
fire insurance on the Building or Project or on property kept therein or
obstruct or interfere with the use of the Premises for their intended purposes
or with the rights of other tenants, or in any way injure or annoy them, or
conflict with the laws relating to fires, or with the regulations of the Fire
Department or with any insurance policy upon the Building or Project or any part
thereof, or cause a cancellation of or otherwise affect any fire or other
insurance on the Building or Project or conflict with any of the rules and
ordinances of the Department of Health. Unless approved by Landlord, no
kerosene, gasoline, oil, acids, caustics or any other inflammable or combustible
fluid, explosive or hazardous material shall be used or kept in or about any
premises, nor shall any method or heating or air conditioning be used for any
premises other than that approved by Landlord. In the event any use or activity
shall lead to an increase in fire or other insurance premiums payable on the
insurance obtained by Landlord, or insurance procured by an individual tenant,
the party causing such increase shall be liable for payment of the same to
Landlord or such individual tenant, as the case may be. Tenant understands and
agrees that the vehicle of any tenant, or a vehicle belonging to any employee,
licensee, invitee, agent, client or visitor of a tenant or occupant, obstructing
any unauthorized area, particularly in areas designated by specially painted
curbs such as fire lane areas, may be towed away at the Tenant's risk and
expense.
15. No tenant shall install any radio or television antenna,
loudspeaker or other devise on the roof or exterior walls of the Building. No
television, radio or recorder shall be played in such a manner as to cause a
nuisance to any other tenant.
16. Landlord will not be responsible for lost, stolen or damaged
personal property, equipment, money, merchandise or any article from the
Premises or common areas regardless of whether loss, theft, or damage occurs
when the Premises are locked against entry or not.
Landlord ????
Tenant ????
F-1
<PAGE>
17. Any damage done to the Project or the Premises in any way by the
movement of furniture, equipment, or merchandise within, into or out of the
Project or the Premises by Tenant's servants, agents, employees, visitors or
invitees shall be the responsibility of and paid by Tenant.
18. Landlord reserves the right to exclude or expel from the Project
any person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation or any of the Rules and Regulations of
the Project.
19. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name or street address of the
Building or the Project.
20. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements, and conditions of any lease of premises in the Project.
21. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in favor
of any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all of the tenants of the Project.
22. Landlord reserves the right to amend or repeal these Rules and
Regulations and to make such other Rules and Regulations as in its judgment may
from time to time be needed for the safety, care and cleanliness of the Project
and for the preservation of good order therein.
23. Tenant shall be responsible for the observance of all the foregoing
rules by Tenants employees, agents, clients. customers, invitees and guests.
24. For the purposes of the foregoing Rules and Regulations, the term
"Tenant" shall include Tenant's agents, employees. servants, licensees,
invitees, clients and visitors.
25. Vehicle washing, steam cleaning, or repair is not permitted in the
common area of the Park.
Landlord ????
Tenant ????
F-2
<PAGE>
Exhibit G
PROJECT SIGNAGE CRITERIA
(Cloverdale Business Park)
PURPOSE
The significance of this Criteria is to insure a continuity in the graphic
elements throughout the Business Park. It is the intent of this Criteria to
provide individual tenants maximum signing exposure, without visual clutter and
in a manner that will enhance the overall image of the project. It is not the
intent of this criteria to limit individual identity or corporate expression.
Whether attached to the Lease Agreement as an exhibit or provided to the Tenant
under separate cover letter, the tenant shall be responsible for fulfillment of
all requirements of the Sign Criteria. Landlord reserves the right to amend,
alter or vary from this criteria at Landlord's sole discretion.
GENERAL CONDITIONS
Each Tenant is responsible for providing his own sign at Tenant's expense.
Each Tenant is also responsible for obtaining all required building permits and
approvals for any sign proposed and copies shall be submitted to Landlord.
This Criteria will be strictly enforced and any sign not conforming shall be
considered in violation of the Lease Agreement and will be brought into
conformance or removed at the expense of the Tenant.
All signs and their installations must comply with the applicable building and
safety codes.
No additional advertisements or temporary banners, flags, painted window glass,
or similar devices are permitted unless provided herein.
DESIGNATED SIGN CONTRACTORS
In order to implement all signing throughout the project, to minimize the cost
to the Tenant of completing the sign, and to insure safe and quality workmanship
and materials, the Landlord shall designate the contractor authorized to design
and construct the signs. All signs must be prepared and installed by any such
designated contractor. The contractor will be responsible to provided a written
cost estimate for the Tenant's approval. The sign contractor shall promptly
repair any damage to the premises caused by his/her work.
APPROVALS
The drawings for all Tenant signs must be submitted to the Landlord for approval
prior to construction. The drawings to be submitted must clearly indicate sign
size, letter size, color, construction material, location and sign message.
INSURANCE
The contractor or manufacturer shall carry Worker's Compensation and Public
Liability Insurance against all damages suffered or done to any and all person's
and/or property while engaged in the construction or installation of the signs,
in the amounts of $500,000.00/$1,000,000.00.
PERMISSIBLE SIGNS
Major Tenant Identification Sign
Each Tenant will be allowed one major tenant identification sign, the graphic
panel will contain the company name and logo only.
Sign is centered in the entrance opening and is mounted to the center of the
underside of fads wall.
Tenant Window Identification
In addition to the major tenant identification sign, each tenant will be allowed
to have the company name, hours of operation, and secondary information applied
directly to the glass, adjacent to their entry door, Refer to the tenant Window
Identification Specifications Exhibit for details.
Material: Vinyl die-cut letters
Color: White
Letter Style: Helvetica Medium
Location/Layout: 3 1/2" from opening side of door frame.
All copy will align with this margin.
See specifications below for details.
32 1/4" from Top of Window
- --------------------------
1" Lettering / 3/4" Spacing COMPANY NAME
SECONDARY INFORMATION
1-"Spacing
3/4" Lettering / 3/8" Spacing HOURS:
8am - 12pm and lpm-5pm
Monday - Friday
TELEPHONE: 763-6200
Landlord ????
Tenant ????
G-1
[FIBERSTARS LETTERHEAD]
December 10, 1998
PERSONAL AND CONFIDENTIAL
-------------------------
Mr Barry Nelson
Water Quality Management
Toronto, Canada
Re: Memorandum of Understanding for Catalyst(TM) product
----------------------------------------------------
Dear Barry,
This memorandum is designed to capture the understanding between the parties
with respect to the on-going operations of the Fiberstars Catalyst(TM)
("Catalyst") product line. The following has been agreed by Fiberstars, Inc.
("Fiberstars") and Water Quality Management ("WQM"):
1. Catalyst Operations
(a) As soon as practical, Fiberstars will ship all existing
inventory for the productline from its current location at Magic Plastics or
Fiberstars to a facility run by WQM in Toronto, Canada. All inventory will
continue to be owned by Fiberstars. Fiberstars will purchase additional
inventory as requested by WQM in order to meet projected customer demand. WQM
will order materials, with Fiberstars approval. PO's will have the "ship to" as
WQM and will be invoiced to Fiberstars. WQM will maintain the inventory in good
order so that it may be counted from time to time by Fiberstars. WQM will
provide Fiberstars with a physical count of the Catalyst inventory by the 3rd
working day after each calendar quarter. Inventory will be managed by WQM so as
to minimize inventory levels, but still meet demand. After the transfer of
inventory to WQM, Fiberstars and WQM will agree on the starting inventory
balance as of January 1, 1999. From that date, WQM will take responsibility for
any inventory items which are agreed by both parties to have been lost, damaged,
or are otherwise unaccounted for while WQM is responsible for Catalyst
operations.
(b) WQM will take over the inventory control, materials orders
(to be approved by Fiberstars) assembly, shipping and processing of orders for
the Catalyst product by January 1, 1999. Orders will be processed in a timely
fashion, consistent with good business practices. WQM will insure that product
shipped is of the best quality possible and is consistent with product
specifications.
(c) WQM will provide customer support to Catalyst customers
after January 1, 1999.
<PAGE>
Memorandum of Understanding
December __, 1998
Page 2
(d) Fiberstars will record sales and invoice customers for the
Catalyst product. Fiberstars will copy WQM on all customer invoices and
correspondence. All returns must follow a Returns Goods Authorization (RGA)
procedure. Customer returns with a value less than or equal to $3,000 will be
approved by WQM support personnel. Customer returns with a value greater than
$3,000 must be approved by Fiberstars. All authorized returned products will be
received and inventoried by WQM. WQM will advise Fiberstars Customer Support of
any product returns both upon authorization and upon receipt of returned items.
(e) Fiberstars will pay WQM per month for the above services
based on the Plan attached to this memo, on to following schedule:
January 1998 $12,000
February 1998 13,000
March 1998 14,000
Thereafter 14,000
This includes the costs for Offsite operation and for the Labor component of
Indirect costs. It is expected that all other costs itemized in the plan will be
paid by Fiberstars. In the event that revenues are running significantly short
of the planned amount, Fiberstars and WQM agree to take such action as necessary
to reduce the costs of the productline. This will include reducing the WQM
operations charge to Fiberstars, by up to $6,000 per month, so as to maintain a
profitable Catalyst operation. WQM and Fiberstars agree to review the charge for
services rendered periodically so as to provide the best possible cost to
Fiberstars with a reasonable profit earned by WQM. A cost sheet from WQM is
attached.
2. Future sale or business combination.
(a) If Fiberstars decides to sell the Catalyst productline,
WQM will have a first right to negotiate a reasonable buyout of this business.
Fiberstars will decide either to sell or not to sell the Catalyst productline
within 2 years of this agreement. If Fiberstars decides it will not sell the
Calalyst productline, then Fiberstars agrees to negotiate reasonable terms with
WQM to form a joint venture with or acquire WQM. Both parties recognize the
synergies that exist between the Catalyst and WQM products, and will be working
together to improve these synergies as of the date of this memorandum.
Fiberstars recognizes that WQM will be making an investment in the success of
Catalyst and the combined products of the two companies and will not
unreasonably put WQM in a position of having to walk away from this investment.
3. Term.
(a) The parties will review the business terms of the Catalyst
Operation in Q4 of 1999, and agree any changes to the terms by December 1, 1999.
This memorandum will no longer be in effect ater December 31, 2000, with the
exception that item 2 above will remain in
<PAGE>
Memorandum of Understanding
December ___, 1998
Page 3
effect if their are substantive discussions going on between Fiberstars and WQM
on December 31, 2000.
<PAGE>
Memorandum of Understanding
December ___,1998
Page 4
4. Consulting agreement
(a) The consulting agreement between Fiberstars and Barry
Nelson continues in effect and is outside the services and payments agreed in
this memorandum. In the attached p1an, these costs are part of the Marketing
expense.
Very truly yours,
FIBERSTARS, INC.
By: /s/ David Ruckert
--------------------------------------------
David Ruckert, Chief Executive Officer
AGREED TO AND ACCEPTED:
WATER QUALITY MANAGEMENT
By: /s/ Barry Nelson
--------------------------
Barry Nelson, President
Dated: December __, 1998
January 22, 1999
PROMISSORY NOTE
$30,000.00 June 19, 1998
FOR VALUE RECEIVED, the undersigned promises to pay Fiberstars, Inc., a
California corporation (the "Company"), the principal sum of thirty thousand
dollars ($30,000). Such principal sum shall bear interest from the date hereof
at a rate of eight percent (8%) per annum on the unpaid balance of this
promissory note (the "Note") compounded monthly. Upon demand by the Company,
principal and accrued interest shall be paid by the undersigned to the Company.
This Note shall be paid in full no later than one year from the date first
written above. Each payment shall be credited first to interest then due and the
remainder to principal.
Principal and interest are payable in lawful money of the United States
of America. The undersigned may prepay any amount due hereunder, without premium
or penalty.
In the event the Company incurs any costs or fees in order to enforce
payment of this Note or any portion hereof, the undersigned agrees to pay to the
Company, in addition to such amounts as are owed pursuant to this Note, such
costs and fees, including, without limitation, a reasonable sum for attorneys'
fees.
As security for the full and timely payment of this Note, the
undersigned pledges and grants to the Company a security interest in the
undersigned's personal residence located at 3411 Bernese Court, Carson City, NV
89705.
Notwithstanding the foregoing, the undersigned acknowledges that this
Note is a full recourse note and that the undersigned is liable for full payment
of this Note without regard to the value at any time or from time to time of the
personal residence. In the event of any default in the payment of this Note, the
Company shall have and may exercise any and all remedies of a secured party
under the California Commercial Code, and any other remedies available at law.
As used herein, the undersigned includes the successors, assigns and
distributes of the undersigned.
As used herein, the Company includes the successors, assigns and
distributees of the Company, as well as a holder in due course of this Note.
This Note is made under and shall be construed in accordance with the
laws of the Sate of California, without regard to the conflict of law provisions
thereof.
/s/ Fredrick N. Martin
----------------------
Fredrick N. Martin
1401 Red Hawk Circle, N116
Fremont, CA 94538
Fiberstars, Inc., a California Corporation, hereby approves the terms
of the above promissary note, effective as of October 7, 1996.
Dated: June 19, 1998 FIBERSTARS, INC.
------------------ A California Corporation
/s/ David N. Ruckert
--------------------
David N. Ruckert
President, CEO
AMENDED AND RESTATED
PROMISSORY NOTED
$35,188.00 Fremont, California
March 25, 1999
For value received, the undersigned promises to pay to FIBERSTARS,
INC., a California corporation (the "Company"), to order, at its principal
office the principal sum of Thirty-Five Thousand One-Hundred Eighty-Eight
Dollars (%35,188.00) with interest thereon at the rate of nine percent (6%) per
annum on the unpaid balance of the principal sum. Said principal and interest
shall be due five (5) years from the date of this Note. This Noted amends,
restates and supersedes that certain Promissory Note, dated October 7, 1996 made
by the undersigned to the order of the Company.
This Note shall be immediately due and payable, at the option of the
Company, upon any termination of the undersigned's employment with the Company
for any reason.
The principal is payable in lawful money of the United States of
America. THE PRIVILEGE IS RESERVED TO PREPAY THE NOTE IN WHOLE OR IN PART.
All payments under this Note shall first be applied to interest due
hereunder with the balance, if any, applied to reduce the unpaid principal sum.
Should suit be commenced to collect this Note or any portion thereof,
each sum as the Court may deem reasonable shall be added hereto as attorneys'
fees. The maker waives presentment for payment, protest, notice of protest, and
notice of non-payment of this Note.
As security for the full and timely repayment of the principal and
interest due under this Note, the undersigned hereby pledges and grants to the
Company a first priority security interest in certain shares of the Company's
stock acquired by the undersigned pursuant to the terms of the Company's 1994
Employee Stock Purchase Plan and the Company's 1988 Stock Option Plan and 1994
Stock Option Plan, as well as shares of the Company's stock which are issuable
or potentially issuable to the undersigned pursuant to the 1988 Stock Option
Plan and 1994 Stock Option Plan (the "Pledged Stock").
The holder of this Note shall have full recourse against the maker, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
------------------------
J. STEVEN KEPLINGER
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Fiberstars, Inc. on Form S-8 (File No. 33-85664) of our reports dated February
4, 1999, on our audits of the consolidated financial statements and financial
statement schedules of Fiberstars, Inc. as of December 31, 1998 and 1997, and
for each of the three years in the period ended December 31, 1998, which report
is included in this Annual Report on Form 10-KSB.
PricewaterhouseCoopers, LLP
San Jose, California
February 4, 1999
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