-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q2MkUbcKHmJMjKm/K3LCQbNagLg/W+WOQs1OPjQv4tdo1/AemOXgNgbv8GqyvUoS UvG3/iuD0e48913iuszNOA== 0000898430-99-004648.txt : 19991229 0000898430-99-004648.hdr.sgml : 19991229 ACCESSION NUMBER: 0000898430-99-004648 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAILY JOURNAL CORP CENTRAL INDEX KEY: 0000783412 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 954133299 STATE OF INCORPORATION: SC FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-14665 FILM NUMBER: 99781918 BUSINESS ADDRESS: STREET 1: 355 SOUTH GRAND AVENUE 34TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071-1560 BUSINESS PHONE: 2136247715 MAIL ADDRESS: STREET 1: 355 SOUTH GRAND AVENUE 34TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071-1560 FORMER COMPANY: FORMER CONFORMED NAME: DAILY JOURNAL CO DATE OF NAME CHANGE: 19870427 10-K405 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] for the fiscal year ended September 30, 1999 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File No. 0-14665 DAILY JOURNAL CORPORATION (Exact name of registrant as specified in its charter) South Carolina 95-4133299 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 355 South Grand Avenue 34th Floor Los Angeles, California 90071-1560 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 624-7715 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [_] ---------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of December 17, 1999 the approximate aggregate market value of Daily Journal Corporation's voting stock held by nonaffiliates was $23,575,000. As of December 17, 1999 there were outstanding 1,598,413 shares of Common Stock of Daily Journal Corporation. ---------------- Documents incorporated by reference: Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held during February 2000 are incorporated by reference into Part III. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Disclosure Regarding Forward-Looking Statements This Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain statements contained in this document, including but not limited to those in Items 1 and 7 are "forward-looking" statements. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, which include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates", or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company actions, which may be provided by management, are also forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from those in the forward-looking statements are disclosed in this Form 10-K, including without limitation in conjunction with the forward-looking statements themselves. The Company has no specific intention to update these forward-looking statements. PART I Item 1. Business The Company publishes newspapers in California, Washington, Arizona, Colorado and Nevada and the California Lawyer magazine and produces several specialized information services. It also publishes The Code of Colorado Regulations and serves as a newspaper representative specializing in public notice advertising. SUSTAIN Technologies, Inc. ("Sustain") (formerly CHOICE Information Systems, Inc.), an 80% owned subsidiary that was acquired in January 1999, provides the SUSTAIN(R) family of products which consist of technologies and applications to enable justice agencies to automate their operations. Essentially all of the Company's operations are based in California, Arizona, Colorado, Nevada, Washington and Virginia. The financial information of the Company and Sustain is set forth in Item 8 ("Financial Statements and Supplementary Data.") Products Newspapers. The Company publishes 19 newspapers of general circulation. Each newspaper, in addition to news of interest to the general public, has a particular area of in-depth focus with regard to its news coverage, thereby attracting readers interested in obtaining information about that area through a newspaper format. The newspapers are based in the following cities:
Newspaper Base of Publication --------- ------------------- Los Angeles Daily Journal Los Angeles, California Daily Commerce Los Angeles, California California Real Estate Journal Los Angeles, California San Francisco Daily Journal San Francisco, California The Daily Recorder Sacramento, California The Inter-City Express Oakland, California Marin County Court Reporter San Rafael, California San Jose Post-Record San Jose, California Sonoma County Herald-Recorder Santa Rosa, California Orange County Reporter Santa Ana, California San Diego Commerce San Diego, California Business Journal Riverside, California Antelope Valley Journal Palmdale, California Ventura Journal Ventura, California
2
Newspaper Base of Publication --------- ------------------- Arizona Journal Phoenix, Arizona The Record Reporter Phoenix, Arizona Colorado Journal Denver, Colorado Nevada Journal Las Vegas, Nevada Washington Journal Seattle, Washington
The Daily Journals. The Los Angeles Daily Journal and the San Francisco Daily Journal are each published every weekday except certain holidays and were established in 1888 and 1893, respectively. In addition to covering state and local news of general interest, these newspapers focus particular coverage on law and its impact on society. (The Los Angeles Daily Journal and the San Francisco Daily Journal are referred to collectively herein as "The Daily Journals".) Generally The Daily Journals seek to be of special utility to lawyers and judges and to gain wide multiple readership of newspapers sent to law firm subscribers. The Los Angeles Daily Journal and the San Francisco Daily Journal are geared toward their respective regions, but contain much materials and render much services in a common endeavor. The Los Angeles Daily Journal is the largest newspaper published by the Company, both in terms of revenues and circulation. At September 30, 1999, the Los Angeles Daily Journal had approximately 12,300 paid subscribers and the San Francisco Daily Journal had approximately 6,200 paid subscribers as compared with a total paid subscriptions of 18,300 at September 30, 1998. In addition, The Daily Journals are sold on some newsstands. The Daily Journals carry commercial advertising (display and classified) and public notice advertising required or permitted by law to be published in a newspaper of general circulation. The main source of commercial advertising revenue has been local advertisers, law firms and businesses in or wishing to reach the legal professional community. The gross revenues generated directly by The Daily Journals are attributable approximately 44% to subscriptions and 56% to the sale of advertising and other revenues. Revenues from The Daily Journals constituted approximately 46% of the Company's total revenue during fiscal 1999 and fiscal 1998 and 47% during fiscal 1997. The Daily Journals also contain the Daily Appellate Report which provides the full text of all opinions certified for publication and certain unpublished opinions by the California Supreme Court, the California Courts of Appeal, the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit, the U.S. Bankruptcy Appellate Panel for the Ninth Circuit, the State Bar Court and certain opinions of the U.S. District Courts in California and the Federal Circuit Court of Appeals. Inserted in "pull-out" booklet format in the Daily Appellate Report is the monthly Court Directory, a comprehensive list of sitting judges in all California courts as well as courtroom assignments, phone numbers and courthouse addresses. The Court Directory includes "Judicial Transitions" which lists judicial appointments, elevations, confirmations, resignations, retirements and deaths. The Daily Appellate Report, indexed monthly, also includes, when such courts are in session, monthly supplements summarizing all cases pending before the U.S. Supreme Court and the California Supreme Court. The Daily Journals also include several other features or supplements. California Law Business, a weekly supplement, is printed in tabloid format and features in-depth coverage of current topics of interest to lawyers with a focus on the business aspects of the practice of law. Verdicts and Settlements is a weekly tabloid featuring important settlements and verdicts along with the attorneys and experts representing each party. Cyber Esq., a quarterly supplement, is printed in magazine format and features coverage of law firm technology. It is the policy of The Daily Journals (1) to take no editorial position on the legal and political controversies of the day but instead to publish an "op-ed" page consisting of well-written editorial views of others on many sides of a controversy and (2) to try to report on factual events with technical competence and with objectivity and accuracy. It is believed that this policy suits a professional 3 readership of exceptional intelligence and education, which is the target readership for the newspapers. Moreover, The Daily Journals believe that they bear a duty to their readership, particularly judges and justices, as a self- imposed public trust, regardless, within reason, of short-term income penalties. The Company believes that this policy of The Daily Journals is in the long-term interest of the Company's shareholders. The Company publishes the Directory of California Lawyers (the "Directory"), which is updated and published semiannually, in January and July. The Directory includes in a single volume names, addresses, fax and telephone numbers of California lawyers and many informational sections including listings of corporate counsel, private judges and arbitrators, and federal and state courts and governmental offices. In addition, the Directory includes commercial advertising and specialty listings. The Directory is provided as part of normal newspaper service to subscribers of The Daily Journals and The Daily Recorder. In addition, there are about 8,200 directories sold. The regular annual rate is $28. In due course the Company plans to provide an option of subscription service for The Daily Journals at a lower price for subscribers who do not wish to receive the Directory. The Daily Journals are distributed primarily by mail, with subscribers in the Los Angeles and San Francisco areas usually receiving copies the same day. Certain subscribers in Los Angeles, San Francisco, Santa Clara, Alameda, Orange and San Diego counties receive copies by hand delivery, and additional copies are distributed through newsstands and by microfilm subscriptions. The regular yearly subscription rate for each of The Daily Journals is $530. Daily Commerce. Published since 1917, the Daily Commerce, in addition to covering news of general interest, devotes substantial coverage to items designed to serve real estate investors and brokers, particularly those interested in Southern California distressed properties. The nature of the news coverage enhances the effectiveness of public notice advertising in distributing information about foreclosures to potential buyers at foreclosure sales. The features of the paper include default listings, probate estate sales and real estate examination applicants. The Daily Commerce carries both public notice and commercial advertising and is published in the afternoon each business day. It had approximately 1,100 paid subscriptions at September 30, 1999. A subscription to the Daily Commerce is $199 per year, and it is primarily distributed by mail. California Real Estate Journal. The California Real Estate Journal (the "Real Estate Journal") is a monthly newspaper directed primarily to persons interested in the commercial real estate market, including real estate brokers, developers, bankers and real estate lawyers. The Real Estate Journal carries news and features such as the status of commercial projects, financial information and articles on brokers and transactions, including defaults and new financings. It carries display and classified advertising. At September 30, 1999 the California Real Estate Journal had a circulation of approximately 1,700 subscribers. The annual subscription rate is $94. The Real Estate Journal is distributed primarily by mail. The Daily Recorder. The Daily Recorder, based in Sacramento, began operations in 1911. It is published each business day. In addition to general news items, it focuses on the Sacramento legal and real estate communities and on California state government and activities ancillary to it, such as administrative agency developments and lobbying. Among the regular features of The Daily Recorder are news about government leaders and lobbyists, as well as the Daily Appellate Report for those who request it. Advertising in The Daily Recorder consists of both commercial and public notice advertising. The Daily Recorder currently has approximately 1,200 paid subscribers, all of whom receive the paper by mail. The current subscription rate is $246 per year. The Inter-City Express. The Inter-City Express (the "Express") has been published since 1909. Published three days a week, the Express covers general news of local interest and focuses its coverage on news about the real estate and legal communities in the Oakland/San Francisco area. 4 The Express carries both commercial and public notice advertising. The Express is mailed to its approximately 500 subscribers, and the annual subscription rate is $137. Marin County Court Reporter. The Marin County Court Reporter (the "Marin Reporter") began publishing in the mid-1960's. The Marin Reporter covers general news of local interest, emphasizing local and statewide news of interest to the legal and real estate communities in Marin County, and carries primarily public notice advertising. The Marin Reporter is published each Tuesday and Friday. Approximately 200 subscribers presently receive the Marin Reporter, all by mail delivery. The annual subscription rate is currently $99. San Jose Post-Record. The San Jose Post-Record (the "Post-Record") has been published since 1910. In addition to general news of local interest, the Post- Record, which is published three days a week, focuses on legal and real estate news and carries commercial and public notice advertising. A yearly subscription to the Post-Record is $116. The Post-Record has approximately 300 subscribers, all of whom receive it by mail. Sonoma County Herald-Recorder. The Sonoma County Herald-Recorder (the "Herald-Recorder") has been in existence since 1899. The newspaper carries general news of local interest and is designed to be of special interest to members of the legal and real estate professions. Advertising in the newspaper consists of both public notice and commercial advertising. Its approximately 200 subscribers receive the newspaper three days a week by mail, at a rate of $188 annually. Orange County Reporter. The Orange County Reporter ("Orange Reporter") has been an adjudicated newspaper of general circulation since 1922. In addition to general news of local interest, the Orange Reporter reports local and state legal news, including the court calendars and court directories for Orange County, and carries primarily public notice advertising. The Orange Reporter is mailed three days a week to approximately 500 paid and requester subscribers. The annual subscription rate is $83. San Diego Commerce. The San Diego Commerce is a thrice-weekly newspaper which carries general news of local interest and public notice advertising and has been an adjudicated newspaper of general circulation since 1970. The San Diego Commerce also serves the legal and real estate professional in San Diego County. The San Diego Commerce has approximately 200 subscribers. The annual subscription rate is $59, covering distribution by mail. Business Journal. The Business Journal publishes news of general interest and provides coverage of the business and professional communities in Riverside County. It is mailed twice weekly with about 100 paid subscribers. The annual subscription rate is $49. Antelope Valley Journal. Started in 1997, the Antelope Valley Journal is a weekly newspaper carrying general news of local interest. It also serves the real estate professional in north Los Angeles County. It has a small number of paid subscribers, and the annual subscription rate is $40. Ventura Journal. Started in November 1997, the Ventura Journal is a weekly newspaper carrying general news of local interest. It also serves the real estate professional. It has a small number of paid subscribers, and the annual subscription rate is $40. The Record Reporter and Arizona Journal. The Record Reporter was acquired in 1995. In addition to general news of local interest, The Record Reporter, which is published on business days, focuses on real estate news and public record information and carries primarily public notice advertising. It is mailed to approximately 300 paid subscribers. The annual subscription rate is $145 for most subscribers. In 1995 the Company also began publishing the weekly Arizona Journal including the Arizona Appellate Report which provides in a pull-out section of the newspaper summaries of the 5 opinions of the U.S. Supreme Court, 9th U.S. Circuit Court of Appeals, the U.S. Bankruptcy Appellate Panel and summaries and full-text of the opinions of the Arizona Supreme Court and Arizona Court of Appeals. The Arizona Journal seeks to be of special utility to lawyers and judges with news and features somewhat similar to those of The Daily Journals. It carries classified and display advertising, and it is mailed to about 400 paid subscribers. The annual subscription rate is $109. Colorado Journal. During 1995 the Company acquired The Public Record Corporation which published The Brief Times Reporter, The Code of Colorado Regulations and three bankruptcy reporting publications, with the Code and the bankruptcy publications now part of the Company's "Information Services". The Brief Times Reporter provided weekly the full-text and summaries of all opinions of the Colorado Supreme Court and Colorado Court of Appeals. In 1995 the Company also began publishing the weekly Colorado Journal, including the Colorado Appellate Report which provided the full-text and summaries of all the opinions of the U.S. Supreme Court, 10th U.S. Circuit Court of Appeals, and the full-text of the 10th Circuit Orders. In 1997 The Public Record Corporation was merged into the Daily Journal Corporation, and The Brief Times Reporter and the Colorado Appellate Report were consolidated in a "pull-out" booklet format that is inserted into the Colorado Journal. In addition to general news of local interest, the Colorado Journal seeks to be of special utility to lawyers and judges with news and features somewhat similar to those of The Daily Journals. It carries classified, display and public notice advertising. The Colorado Journal is mailed to approximately 700 paid subscribers. The annual subscription price is $271. Nevada Journal. The Company acquired the Nevada Supreme Court Reporter in 1994, and the name was changed to the Nevada Journal. Besides stories of local interest concerning the courts and legal communities, the Nevada Journal features full-text opinions issued by the Nevada Supreme Court and a list of all orders issued. Also included are summaries of federal and state supreme court opinions. Special features include local verdicts and settlements, bar examination results and articles on federal opinions. The semi-monthly Nevada Journal as of September 30, 1999 had approximately 200 subscribers. The yearly subscription rate is $126. Washington Journal. The Company began publishing the weekly Washington Journal in 1992. In addition to providing general news of state and local interest, it seeks to be of special utility to professionals, including lawyers, business and government leaders. Summaries of federal, state and local court cases are included as a pull-out section of the newspaper. The Washington Journal, which is distributed by mail, had approximately 800 paid subscribers at September 30, 1999. The annual subscription rate is $122, and it carries classified and display advertising. Magazines. Since 1988, the Company has published the California Lawyer, a legal affairs magazine formerly produced by the State Bar of California (the "State Bar"). The magazine was published by the Company in cooperation with the State Bar until December 1993 when the agreement was terminated and the State Bar commenced publishing its own monthly newspaper. The magazine is mailed free to the active members of the State Bar of California, and the magazine also has approximately 600 paid subscribers. An annual subscription to California Lawyer is $69. The termination of the contract with the State Bar and the State Bar's new publication has not had a material impact on the Company's operations. In addition, the Company publishes House Counsel, a quarterly magazine. It is mailed free to about 7,000 in-house lawyers and others. Information Services. The specialized information services offered by the Company have grown out of its newspaper operations or have evolved in response to a desire for such services primarily from its newspaper subscribers. The Company has several court rules services. One is Court Rules, a multi- volume, loose-leaf set which had approximately 6,500 subscribers at September 30, 1999 paying $255 per year. Court Rules 6 reproduces court rules for certain state and federal courts in California. The Court Rules appear in two versions, one of which covers Northern California courts (eight volumes) and one of which covers Southern California courts (seven volumes). The Company updates Court Rules on a monthly basis. In addition, the Company publishes a single volume of rules known as Local Rules for major counties of California. Six versions are published for Southern California, each a single bound volume for the rules of: (1) Los Angeles County; (2) Orange County; (3) San Diego County; (4) San Bernardino County; (5) Riverside County; and (6) Ventura, Santa Barbara and San Luis Obispo counties. In addition, the Company publishes single-volume rules for the Federal District Court in the Southern and Central District of California and California Probate Rules. In Northern California, three versions of the Local Rules appear in loose-leaf books for Santa Clara/San Mateo, Alameda/Contra Costa and San Francisco counties. The regular subscription price for Local Rules volumes ranges from $40 to $90 per year and volumes are normally updated or replaced whenever there are rule changes. At September 30, 1999, the Company had approximately 7,700 subscribers for its Local Rules publications. In addition, the Company publishes a two-volume, loose-leaf set of court rules for Colorado. These court rules were first distributed to the subscribers of the Colorado Journal and are now on a subscription basis. The Judicial Profiles services contain biographical and professional information concerning nearly all judges in California, both active and retired, many of whom are available for private judging. Most of the profiles have previously appeared in The Daily Journals as part of a regular feature. The Judicial Profiles include biographical data on judges and information supplied by each judge regarding the judge's policies and views on various trial and appellate procedures and the manner in which appearances are conducted in his or her courtroom. Subscribers may purchase either the five volume set for Southern California or the four volume set for Northern California. The approximately 1,000 subscribers to Judicial Profiles receive updates on a quarterly basis. A subscription is $482 per year. In 1997 the Company assumed certain publishing responsibilities from the King County (Washington) Bar Association Young Lawyers Division for the publishing of Judges Books for King, Pierce and Snohowish counties. The approximately 100 subscribers receive updates yearly. The annual subscription is $125. The Company now has two bankruptcy publications after discontinuing the Fourth Circuit Bankruptcy Court Reporter and the Texas Bankruptcy Court Reporter during the year. The Colorado Bankruptcy Court Reporter and the California Bankruptcy Reporter had an aggregate of approximately 300 subscribers at September 30, 1999. Annual subscription rates range from $131 to $199 a year. Each of these publications contains summaries and full-text bankruptcy rulings by the governing federal court of appeals, district courts, bankruptcy appellate panel and bankruptcy courts. Selected state court opinions are also summarized. Periodic indices are published to assist the bars in referencing applicable case law. The Company publishes the Code of Colorado Regulations pursuant to an agreement that extends through July 2002 with the State of Colorado. The approximately 1,800 subscribers to various sections of the Code receive updates normally on a monthly basis. Annual subscription rates range from $80 to $712. The Company also provides computer online foreclosure information to about 300 customers. This service primarily provides distressed property information, some of which also appear in some of the Company's newspapers, as well as expanded features. Consolidation of both newspapers and online products more effectively utilizes the costs of gathering such information. Advertising and Newspaper Representative. The Company's publications carry commercial advertising, and most also contain public notice advertising. Commercial advertising consists of display and classified advertising. Public notice advertising consists of about 100 different types of legal notices required by law to be published in an adjudicated newspaper of general circulation, including 7 notices of death, fictitious business names, trustee sale notices and notices of governmental hearings. The major types of public notice advertisers are real estate-related businesses and trustees, governmental agencies, attorneys and businesses or individuals filing fictitious business name statements. In 1990 the Company acquired California Newspaper Service Bureau, Inc. ("CNSB"), a statewide newspaper representative (commission-earning selling agent) specializing since 1934 in public notice advertising. CNSB placed notices and other forms of advertising with adjudicated newspapers of general circulation, many of which are not owned by the Company. CNSB was liquidated as of fiscal 1995 year-end with its servicing subsequently provided by a division of the Company. Public notice advertising revenues and related advertising and other service fees for the Company constituted about 30% of the Company's total revenues in fiscal 1999, 30% in fiscal 1998 and 34% in fiscal 1997. In many states, including California, legislatures have considered various proposals which would result in the elimination or reduction of the amount of public notice advertising required by statute. There is a risk that such laws could change in a manner that would have a significant adverse impact on the Company's public notice advertising revenues. The acquisition of CNSB, a marginal and threatened enterprise with a negative book net worth when purchased, improved the Company's ability to protect continued existence of public notice advertising. Information Systems and Services. In January 1999, the Company purchased 80% of the capital stock of Sustain from Sustain and certain of its shareholders who continue to own 20% of Sustain. The Sustain family of products consists of technologies and applications to enable justice agencies to automate their operations. The latest product released from Sustain is the Sustain eCourtTM system which is an electronic commerce platform for the justice community and allows users to file cases electronically and publish information online. Sustain has installations in nine states and three countries, and many of its clients have more than a decade of experience with the Sustain product line. Printing. The Company's main printing facilities are located in Los Angeles, which currently are used primarily to print the Los Angeles Daily Journal including supplements, the Daily Commerce, the Post-Record, The Express, The Daily Recorder, the Orange Reporter, the Herald-Recorder, the Washington Journal, the Marin Reporter, the Real Estate Journal, the Colorado Journal, the Arizona Journal and the monthly updates for the multi-volume sets of Court Rules. The Daily Appellate Report is printed in Los Angeles and shipped to Sacramento and San Francisco for inclusion in The Daily Recorder and the San Francisco Daily Journal. Concurrent with the Company's move to its new Los Angeles facility in 1990, the Company purchased a new printing press with color capabilities. The San Francisco Daily Journal, San Diego Commerce, the Business Journal, the Record Reporter, the Antelope Valley Journal, the Ventura Journal, the Directory, the Judicial Profiles, the Bankruptcy Journals, The Code of Colorado Regulations, and certain Court Rules are printed by outside contractors. The Company has a small offset press for in- house printing of items such as legal advertising forms, letterhead and envelopes, promotional flyers and other material for its publications. This small press is operated by a local printer as an independent contractor. Materials After personnel costs, postage and paper costs are typically the Company's next two largest expenses. The Company is subject to periodic increases in postal rates. During the past several years, the Company has instituted changes in an attempt to mitigate higher postage costs. These changes have included contracting for hand delivery in selected sections of the San Francisco Bay area, San Diego, Orange County and Los Angeles, delivering pre-sorted newspapers to the post office on pallets, which facilitates delivery and improves service, and implementing a method of bundling newspapers which 8 reduces the per piece charges. In addition, the Company has an ink jet labeler which eliminates paper labels and enables the Company to receive bar code discounts from the postal service on some of its newspapers. An adequate supply of newsprint and other paper is important to the Company's operations. The Company currently does not have a contract with paper suppliers. The Company has always been able to obtain sufficient newsprint for its operations, although in the past, shortages of newsprint have sometimes resulted in higher prices. In 1997 and 1999 newsprint prices declined, but in 1998 the price of paper increased moderately. Paper prices may fluctuate substantially in the future, and this could significantly impact income from operations. Marketing The Company actively promotes both its individual newspapers and its multiple newspaper network as well as its other publications. The Company's staff includes a number of employees whose primary responsibilities include attracting new subscribers and advertisers. The specialization of each publication creates both target subscribers and target advertisers. Subscribers are likely to be attracted because of the nature of the information carried by the particular publication, and likely advertisers are those interested in reaching such consumer groups. In marketing products, the Company also focuses on its ancillary products which can be of service to subscribers, such as its specialized information services. The Company receives, on a non-exclusive basis, public notice advertising from a number of agencies. Such agencies ordinarily receive a commission of 15% to 25% on their sales of advertising in Company publications. Recent developments in the foreclosure industry which places trustee sale notices has reduced the role of certain agencies. Commercial advertising agencies also place advertising in Company publications and receive commissions for advertising sales. Sustain's staff includes several employees who provide marketing and consulting services which may also result in the licensing of Sustain products. Third party vendors are not used to license its products. Competition Competition for readers and advertisers is very intense, both by established publications and by new entries into the market. For example, shortly before the Company purchased the San Francisco Daily Journal, Associated Newspapers, the owner of a controlling interest in a number of American law-oriented publications including the American Lawyer, purchased a law-oriented San Francisco newspaper and thereafter pursued subscribers and advertisers with more skill and determination than were employed by the former publisher. In 1989 Associated Newspapers sold a controlling interest to Time Warner Inc., the largest U.S. media company, which continued very aggressive competition, including amazingly low "price-war" type prices for multiple-copy subscriptions. In 1997 these publications were sold by Time Warner Inc. to a group headed by the investment firm of Wasserstein Perella, Inc., which subsequently also purchased National Law Publishing, publishers of the New York Law Journal, among others. All of the Company's real estate and business publications and products face strong competition from other publications and service companies. Readers of specialized newspapers focus on the amount and quality of general and specialized news, amount and type of advertising, timely delivery and price. The Company designs its newspapers to fill niches in the news marketplace that are not covered as well by major metropolitan dailies. The in-depth news coverage which the Company's newspapers provide along with general news coverage attracts readers who, for personal or professional reasons, desire to keep abreast of topics to which a major newspaper cannot devote significant news space. Other newspapers do provide some of the 9 same subject coverage as does the Company, but the Company believes its coverage, particularly that of The Daily Journals, is more complete and therefore attracts more readers. The Company believes that The Daily Journals are the most important newspapers serving California lawyers on a daily basis. The Arizona Journal is beginning to build readership in its market. In attracting commercial advertisers, the Company competes with other newspapers and magazines, television, radio and other media, including electronic network systems for employment-related classified advertising. Factors which may affect competition for advertisers are the cost for such advertising compared with other media, and the size and characteristics of the readership of the Company's publications. The Company competes with anywhere from one serious competitor to several competing newspapers for public notice advertising revenue in all of its markets. Large metropolitan general interest newspapers normally do not carry a significant amount of legal advertising, although recently they too have solicited certain types of public notice advertising. The Company estimates its market share of public notice advertising revenues ranges from 10% to 75% in the various areas where its adjudicated newspapers are published except for Colorado where the Company's marketshare is nominal. CNSB, a division of the Company, faces competition from a number of companies based in California, some of which specialize in placing certain types of notices. Commencing in 1994, the Company's California Lawyer magazine faced additional competition from a new State Bar of California publication that is discussed in the Products-Magazines section above. In 1999 the State Bar started a statewide directory that competes with the Company's Directory. This new publication has not had a material impact on the Company's operations. The Company's court rules publications face competition in both the Southern California market as well as in Northern California. In addition, the Company expects increased competition from online court rules services and the Courts. Subscriptions to the multi-volume Court Rules and Local Rules volumes have declined during fiscal 1999. The Company's Judicial Profile services have direct competition and also indirect competition, since some of the same information is available through other sources. The pricing of the Company's products is reviewed every year. Subscription price increases have in recent years exceeded inflation, as have advertising rate increases. There is significant competition among a limited number of companies to provide services and software to the courts, and some of these companies are much larger than Sustain. Others provide services for a limited number of courts. Normally, the vendor is selected through a bidding process. Many courts now desire Internet solutions to facilitate electronic filing and the publishing of certain information from case management systems. The Sustain product line provides a version of these services, but there are many uncertainties in the process of courts migrating to newer electronic based systems. Employees The Company employs approximately 355 full-time employees and about 65 part- time employees including about 15 employees at Sustain. The Company is not a party to any collective bargaining agreements. Certain benefits, including medical insurance, are provided to all full-time employees. Management considers its employee relations to be good. Working Capital Traditionally, the Company has generated sufficient cash flow from operations to cover all needs including capital expenditures without significant borrowing. To a very considerable extent, the Company benefits in this regard from the fact that subscriptions are generally paid a year in advance. 10 Inflation The effects of inflation are not significantly any more or less adverse on the Company's businesses than they are on other publishing companies. The Company has experienced the effects of inflation primarily through increases in costs of personnel, newsprint, postage and services. These costs have generally been offset by periodic price increases for advertising and subscription rates, but with frequent exceptions during several years when the Company has experienced substantial increases in postage and newsprint expenses and additional costs related to acquisitions. Executive Officers of the Registrant The table below sets forth certain information with regard to the executive officer who is not a director of the Company. All of the executive officers of the Company serve at the pleasure of the Board of Directors.
Principal Occupation Last Name Age Five Years ---- --- ------------------------- Ira A. Marshall, Jr. . . . . . . . . . . . . . . 76 Secretary of the Company since 1977; Mr. Marshall is a private investor and businessman making investments for his own account and is a Trustee of Mesabi Trust, which collects and distributes royalties from the Mesabi Trust's interests in mining properties.
Item 2. Properties The Company owns office and printing facilities in Los Angeles and office and storage facilities in Sacramento and leases space for its other offices under operating leases which expire at various dates through 2004. The Los Angeles property is comprised of a two-story, 34,000 square foot building constructed in 1990, of which approximately 75% is devoted to office space and the remainder to printing and production equipment and facilities. In 1996 the Company purchased about 40,000 square feet of land near the Los Angeles facility which is used, at least in the near term, for additional parking. In 1998 the Company purchased land and an 11,300 square foot building adjacent to the new parking lot. This is currently used for storage. The Company owns two buildings aggregating about 9,500 square feet in Sacramento, which provide space for its offices and storage. In San Francisco the Company has approximately 11,000 square feet of office space under a lease expiring in 2004. This lease may be canceled in 2002 upon the payment of certain fees. In Denver, Sustain has approximately 9,400 square feet of office space under a lease expiring in September 2004. This lease may be canceled in 2002 upon payment of certain fees. In addition, the Company rents facilities in each of the remaining cities where its staff is located on a month-to-month basis or pursuant to leases generally of no longer than four years remaining duration. See Note 5 of Notes to Consolidated Financial Statements for information concerning rents payable under leases. Item 3. Legal Proceedings On August 25, 1995, Jeffrey Barge, an individual, filed a lawsuit captioned Barge v. Daily Journal Corporation, et al., in the Supreme Court of the State of New York. The action subsequently was removed to federal court and transferred to the United States District Court for the Central District of California. The complaint alleges, among other things, that Mr. Salzman, the Company's President, 11 had conversations with Mr. Barge about buying a newspaper Mr. Barge owned in Seattle, Washington prior to the date on which the Company started a competing newspaper in the Seattle area, and that in doing so Mr. Salzman caused the Company to misuse certain confidential information allegedly provided to Mr. Salzman by Mr. Barge and to engage in unfair competition. Mr. Barge also alleges that various present and former employees of the Company caused defamatory statements to be made about Mr. Barge. The complaint seeks, among other things, damages in the amount of approximately $4.6 million. Discovery has been closed in this case, and the Company's motion for summary judgment is scheduled to be heard in January 2000. In the event the summary judgment motion is unsuccessful, a trial date of May 2000 has been set. The Company believes that the action is without merit and is defending it vigorously. On November 22, 1996, Metropolitan News Company ("Metropolitan News"), a Los Angeles company that publishes various small newspapers that rely for revenues mostly on public notice advertising, filed a lawsuit (later amended) against the Company and Charles T. Munger in Los Angeles County Superior Court alleging that the Company violated certain provisions of the California Business and Professions Code. The substance of all claims by Metropolitan News is that the Company's prices for publishing foreclosure notices are too low and that Metropolitan News could make more money if the Company's prices were higher. One Metropolitan News complaint was that the Company had made an agreement with Federal National Mortgage Association ("Fannie Mae") and arrangements with a few other lenders relating to the publication of trustee sales notices. Metropolitan News alleged that the agreements resulted in impermissible sales below cost by the Company. The agreements in questions were entered in response to needs and programs of lenders, some of them chartered by the Federal Government to help increase home ownership. So motivated, the lenders were pushing a wide program of foreclosure-cost reductions, particularly reductions that would prevent some home foreclosures. Under the few arrangements involved, the Company agreed to provide advertising placement services for the publication of notices both in its own and in other newspapers at one standard statewide price. Metropolitan News sued over the Company's business conduct in these arrangements even though such conduct was pro-social in a cost-of-foreclosure-reducing way that improved the general image of service providers in foreclosures. Moreover, Metropolitan News sued even though the Company's action was sure to provide business gains to Metropolitan News. These business gains occurred because the wide foreclosure- practice reforms sought by the lenders were hated by many foreclosure-notice processing providers that had much profited in California's recent recession- caused foreclosure expansion. Therefore the Company's cooperation with cost- reduction efforts of lenders had the consequence, which was predictable, that Metropolitan News enjoyed for a long time an increase in its share of the market in foreclosure notice publications, directed by angry former foreclosure-notice processing customers of the Company. Consequently, the Metropolitan News has suffered no injury from the alleged cost sales. In addition, the average total cost of the placement of a notice under every agreement was less than the standard statewide price charged, making each agreement comply, in the opinion of the Company and its counsel, with laws forbidding sales below cost. Another Metropolitan News complaint challenged as forbidden price discrimination by locality the Company's ordinary practice of charging different prices for publishing trustee sales notices in different newspapers depending upon the geographic locality in which the notices are published. This locality-discrimination challenge was made even though (i) in charging for foreclosure advertising at different prices in its different newspapers, Metropolitan News followed exactly the same practice as the Company, (ii) every other owner of multiple newspapers, not only in California but throughout the nation, also imitates both Metropolitan News and the Company by using different prices in selling advertising service in different newspapers, and (iii) all rational economic definitions of "same product" (used in finding locality discrimination which must involve sale of a "same product" at different prices in different localities) require that "same products" must be products that are substitutable in use, one for the other, whereas foreclosure notice publications can not be substituted, one for the other, across locality-of-publication lines. 12 Metropolitan News sued for injunctive relief and damages. On July 14, 1999, a jury returned a verdict in favor of the Company on claims that the Metropolitan News made for below-cost sales and for locality discrimination in charging prices for trustee sales. In addition, the Court held that Metropolitan News' claims failed as a matter of law. Accordingly, judgment was entered in favor of the Company on each of these claims. Metropolitan News has appealed the judgment, but no hearing date for the appeal has been set. The Company intends to contest the appeal vigorously, but no assurance can be given that on appeal the judgment would be sustained. Item 4. Submission of Matters to a Vote of Security Holders The Securities and Exchange Commission recently amended Rule 14a-4, which governs the use by the Company of discretionary voting authority with respect to shareholder proposals. SEC Rule 14a-14(c)(1) provides that if the proponent of a shareholder proposal fails to notify the company at least 45 days prior to the month and day of mailing the prior year's proxy statement, the proxies of the Company's management would be permitted to use their discretionary authority at the Company's next annual meeting of shareholders if the proposal were raised at the meeting without any discussion of the matter in the proxy statement. No matters were submitted to a vote of shareholders during the last quarter of the Company's fiscal year ended September 30, 1999. 13 PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters The following table sets forth the sales prices of the Company's common stock for the periods indicated. Quotations are as reported by Nasdaq (Small-Cap Issues), the automated quotation system of the National Association of Securities Dealers, Inc.
High Low ------- ------ Fiscal 1999 Quarter ended December 31, 1998.......................... 39.50 33.75 Quarter ended March 31, 1999............................. 41.25 36.75 Quarter ended June 30, 1999.............................. 38.75 30 Quarter ended September 30, 1999......................... 37.0625 36.625 High Low ------- ------ Fiscal 1998 Quarter ended December 31, 1997.......................... 43.25 37 Quarter ended March 31, 1998............................. 40.5 32 Quarter ended June 30, 1998.............................. 41.5 35 Quarter ended September 30, 1998......................... 39.5 33.5
As of December 17, 1999 there were approximately 1,700 holders of record of the Company's common stock, and the last trade was at $34.00 per share. The Company did not declare or pay any dividends during fiscal 1999 or 1998. A determination by the Company whether or not to pay dividends in the future will depend on numerous factors, including the Company's earnings, cash flow, financial condition, capital requirements, future prospects, acquisition opportunities, and other relevant factors. The Board of Directors does not expect that the Company will pay any dividends or other distributions to shareholders in the foreseeable future. From time to time, the Company has purchased shares, including treasury shares, of its Common Stock and may continue to do so. See Note 3 to consolidated financial statements. Stock purchases are made primarily to reduce dilution of earnings per share caused by the deferred management incentive plan under which selected employees are paid, subject to certain conditions, supplemental compensation tied to future pre-tax earnings. During fiscal 1999 the Company purchased 19,911 shares of Common and Treasury Stock at an average price per share of $37.10. 14 Item 6. Selected Financial Data The following sets forth selected financial data for the Company as of, and for each of the five years ended September 30, 1999. Such data should be read in conjunction with, and is qualified in its entirety by reference to, the Company's consolidated financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each included herein.
Fiscal Year Ended September 30 --------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- (Dollar amounts in thousands, except per share amounts) Consolidated Statement of Income Data: Revenues Advertising........................ $20,267 $21,109 $21,454 $21,423 $20,254 Information systems and service.... 1,213 -- -- -- -- Circulation........................ 11,675 11,449 11,506 10,951 10,686 Advertising service fees and other............................. 3,696 3,547 3,436 3,595 3,638 ------- ------- ------- ------- ------- 36,851 36,105 36,396 35,969 34,578 ------- ------- ------- ------- ------- Costs and expenses Salaries and employee benefits..... 16,461 15,551 14,749 14,438 14,202 Newsprint and printing expenses.... 3,232 3,377 3,424 3,886 4,084 Commissions and other outside services.......................... 4,508 4,254 4,299 4,793 4,553 Postage and delivery costs......... 2,254 2,266 2,316 2,364 2,461 Depreciation and amortization...... 1,767 1,696 1,897 1,837 2,078 Other, including interest expense.. 5,155 3,553 4,693 4,286 3,759 ------- ------- ------- ------- ------- 33,377 30,697 31,378 31,604 31,137 ------- ------- ------- ------- ------- Income before taxes.................. 3,474 5,408 5,018 4,365 3,441 Provision for income taxes........... 1,550 2,150 2,000 1,800 1,400 ------- ------- ------- ------- ------- Net income, including minority interest............................ 1,924 3,258 3,018 2,565 2,041 Minority interest in net loss of subsidiary (20%).................... 199 -- -- -- -- ------- ------- ------- ------- ------- Net income........................... $ 2,123 $ 3,258 $ 3,018 $ 2,565 $ 2,041 ======= ======= ======= ======= ======= Net income per share................. $ 1.34 $ 2.05 $ 1.89 $ 1.59 $ 1.26 ======= ======= ======= ======= ======= September 30 --------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- ------- ------- Consolidated Balance Sheet Data: Working capital as conventionally reported............................ $ 6,200 $ 8,008 $ 4,763 $ 1,552 $ (166) Working capital before deductions of specified items (1)................. 13,858 14,910 11,165 8,076 5,632 Total assets......................... 31,525 28,965 25,967 22,489 20,752 Long term notes payable.............. -- -- -- -- 725 Shareholders' equity................. 17,668 16,285 13,298 10,728 8,377
- -------- (1) Before deducting for each of the five years the liability for deferred subscription and other revenues which will be earned within one year. 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations 1999 Compared to 1998 Revenues were $36,851,000 and $36,105,000 for the fiscal years ended September 30, 1999 and 1998, respectively. This increase of 2% is primarily attributable to the recent acquisition of 80% of Sustain which accounted for additional revenues of $1,324,000 and to advertising and subscription rate increases, partially offset by the decline in revenues from publishing foreclosure notices. During fiscal 1999, display advertising revenues went down by $54,000 and classified advertising revenues decreased by $132,000. Public notice advertising revenues decreased by $656,000 primarily resulting from decreased foreclosure notices, and the Company anticipates this decline to continue because of a lower volume. The Company's smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals ("The Daily Journals"), accounted for about 91% of the total public notice advertising revenues. Public notice advertising revenues and related advertising and other service fees constituted about 28% of the Company's total revenues. Circulation revenues increased an aggregate of $226,000. The Daily Journals accounted for about 67% of the Company's total circulation revenues, and their circulation levels decreased slightly. The Rule Book and Judicial Profile services generated about 21% of the total circulation revenues, with the other newspapers and services accounting for the balance. Costs and expenses increased by $2,680,000 (9%) from $30,697,000 to $33,377,000. Sustain accounted for additional expenses of $2,714,000, including $566,000 for the amortization of Daily Journal's purchased computer software and goodwill. Total personnel costs were $16,461,000, representing an increase of $910,000 (6%), of which $1,304,000 were from Sustain. Newsprint and printing expenses decreased by $145,000 primarily because of the decrease in newsprint prices. Commissions and other outside services increased by $254,000 primarily because of increased outside printing services, partially offset by fewer agency commissionable foreclosure notice sales. Depreciation and amortization expenses increased by $71,000 as a result of more fully depreciated assets, offset by the amortization of Sustain assets. The increase in other expenses of $1,602,000 included increased legal expenses of about $868,000 primarily to defend the Metropolitan News Company's lawsuit, as discussed in the section of "Legal Proceedings", that resulted in two jury trials this year and a verdict in favor of the Company. Pretax income in the year ended September 30, 1999 decreased by $1,934,000 (36%) to $3,474,000 from $5,408,000 in fiscal 1998, primarily because of Sustain's loss and increased legal fees. The Company's smaller newspapers and its newspaper representative, which specializes in public notice advertising, accounted for about 38% of the Company's pretax income. Net income was $2,123,000 compared to $3,258,000 in the prior fiscal year. Net income per share decreased to $1.34 from $2.05. 1998 Compared to 1997 Revenues were $36,105,000 and $36,396,000 for the fiscal years 1998 and 1997, respectively. This decrease of less than 1% was primarily attributable to a decrease in public notice advertising revenues and a slight decrease in number of subscribers partially offset by increases in display advertising lineage as well as advertising and subscription rate increases. During fiscal 1998, classified advertising revenues increased by $573,000, and display advertising revenues were up by $522,000 including revenues from a legal conference. Public notice 16 advertising revenues decreased by $1,386,000 primarily resulting from decreased foreclosure notices, and the Company anticipates this trend to continue. The Company's smaller newspapers, those other than the Los Angeles and San Francisco Daily Journals ("The Daily Journals"), accounted for about 91% of the total public notice advertising revenues. Public notice advertising revenues and related advertising and other service fees constituted about 30% of the Company's total revenues. Circulation revenues decreased an aggregate of $57,000. The Daily Journals accounted for about 64% of the Company's total circulation revenues, and their circulation levels decreased slightly. The Rule Book and Judicial Profile services generated about 23% of the total circulation revenues, with the other newspapers and services accounting for the balance. Costs and expenses decreased by $681,000 (2%) from $31,378,000 to $30,697,000. Personnel costs increased an aggregate of $802,000 (5%) primarily due to the normal annual salary adjustments. Newsprint and printing expenses decreased by $47,000 primarily because of the reduction of issue volume in the Company's smaller papers, partially offset by the increase in newsprint prices. Commissions and other outside services decreased by $45,000 primarily because of less agency foreclosure notice sales. The decrease in other expenses of $1,140,000 primarily resulted from reduced legal and bad debt expenses. Pretax income in fiscal 1998 increased by $390,000 (8%) to $5,408,000 from $5,018,000 in fiscal 1997. The Company's smaller newspapers and its newspaper representative, which specializes in public notice advertising, accounted for about 32% of the Company's pretax income. Net income was $3,258,000 compared to $3,018,000 in the comparable prior year. Net income per share increased to $2.05 from $1.89. Liquidity and Capital Resources During the fiscal year ended September 30, 1999, the Company's cash and cash equivalent position decreased by $281,000, and the investments in U.S. Treasury Bills decreased by $3,493,000. Cash and cash equivalents were used for the net purchase of capital assets, including acquisitions, of $4,975,000 and to purchase common and treasury stock for an aggregate amount of $740,000. The cash provided by operating activities of $1,701,000 included a net increase in prepayments for subscriptions and others of $916,000. Proceeds from the sale of subscriptions from newspapers, court rule books and other publications and for software maintenance and other services are booked as deferred revenue and are included in earned revenue only when the services are provided. The cash flows from operating activities decreased by $2,591,000 during the year ended September 30, 1999 primarily because of the inclusion of the Sustain financial statements and increased legal fees. As of September 30, 1999, the Company had working capital of $13,858,000 before deducting the liability for deferred subscription and other revenues of $7,818,000 which will be earned within one year. The cash and short-term investments in U.S. Treasury Bills, aggregating about $9.4 million at September 30, 1999, and the current level of cash provided by operating activities appear adequate to meet the obligations of the Company. In January 1999, the Company invested a total of $6.67 million (a) to purchase 80% of the capital stock of SUSTAIN Technologies, Inc. from Sustain and certain of its shareholders, (b) to enable Sustain to purchase substantially all of the assets of QUINDECA Corporation, the consulting and implementation arm of Sustain, and (c) to leave approximately $4 million in working capital at Sustain immediately following these transactions. In addition, Sustain has entered into employment agreements with the former principal owners of Sustain and QUINDECA, and these officers continue to own 20% of Sustain. The Sustain family of products consists of technologies and applications to enable justice agencies to automate their operations. The latest product released is the Sustain eCourt(TM) system which is an electronic commerce platform for the justice community and allows users to file cases 17 electronically and publish information online. Sustain has installations in nine states and three countries, and many of its clients have more than a decade of experience with the Sustain product line. The Company recognizes the need to ensure that its operations are not adversely affected by Year 2000 problems. The Company believes that its major internal systems and equipment, including the systems and equipment used by Sustain, are Year 2000 compliant. The cost of achieving compliance in the Company's software is estimated to be a minor increase over the cost of normal software upgrades and replacements. The Company has sent Year 2000 inquires to its significant suppliers and vendors. Based on the responses to these inquires, the Company expects that Year 2000 issues will pose no significant operational or financial problems to it, and therefore neither the Company nor Sustain have developed any contingency plans. However, due to the general uncertainty inherent in the Year 2000 problem, the Company cannot ensure its ability to timely and cost-effectively resolve unforeseen Year 2000 problems that may affect its operations and business or expose it to third-party liability. To the Company's knowledge, all its current Windows-based Sustain products are Year 2000 compliant, meaning that the use or occurrence of dates on or after January 1, 2000 will not cause the Sustain products to cease to operate substantially in accordance with their specifications. Some of Sustain's customers still operate older DOS-based versions of Sustain products that may not be fully Year 2000 compliant. Sustain and the Company have worked with, and are continuing to work with, the customers using such versions to ensure that these older Sustain products will continue to operate substantially in accordance with their specifications on and after January 1, 2000. The performance of Sustain products could be affected if operated in conjunction with any computer software, computer firmware, computer hardware, or any combination of the foregoing supplied by third parties that are not Year 2000 compliant. Sustain products are used in conjunction with third party systems, some of which the Company believes are not Year 2000 compliant. Sustain does not, however, warrant to its customers such third party systems, and therefore believes it will not itself sustain a material adverse event if such third party systems experience operational failures. If third party systems fail to perform as a result of Year 2000 issues, the Company and Sustain may temporarily be unable to deliver their products and/or provide their services on a timely basis until the Year 2000 problems with such third party systems are corrected. 18 Item 8. Financial Statements and Supplementary Data DAILY JOURNAL CORPORATION CONSOLIDATED BALANCE SHEET
September 30 ------------------------ 1999 1998 ----------- ----------- ASSETS Current assets Cash and cash equivalents........................... $ 181,000 $ 462,000 U.S. Treasury Bills, at cost plus discount earned... 9,175,000 12,668,000 Accounts receivable, less allowance for doubtful accounts of $800,000 and $700,000, respectively.... 8,471,000 6,594,000 Inventories......................................... 45,000 51,000 Prepaid expenses and other assets................... 329,000 113,000 Deferred income taxes............................... 801,000 800,000 ----------- ----------- Total current assets............................... 19,002,000 20,688,000 ----------- ----------- Property, plant and equipment, at cost: Land, buildings and improvements.................... 8,104,000 8,068,000 Furniture, office equipment and computer software... 9,361,000 4,812,000 Machinery and equipment............................. 1,364,000 1,355,000 ----------- ----------- 18,829,000 14,235,000 Less accumulated depreciation....................... (7,170,000) (6,396,000) ----------- ----------- 11,659,000 7,839,000 Deferred income taxes................................ 382,000 438,000 Intangible assets, at cost, less accumulated amortization of $74,000............................. 482,000 -- ----------- ----------- $31,525,000 $28,965,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.................................... $ 3,025,000 $ 2,741,000 Accrued liabilities................................. 1,997,000 2,755,000 Income taxes........................................ 122,000 282,000 Deferred subscription revenue and other revenues.... 7,818,000 6,902,000 ----------- ----------- Total current liabilities.......................... 12,962,000 12,680,000 ----------- ----------- Commitments and contingencies (note 5)............... -- -- Minority Interest.................................... 895,000 -- ----------- ----------- Shareholders' equity Preferred stock, $.01 par value, 5,000,000 shares authorized and no shares issued.................... -- -- Common stock, $.01 par value, 5,000,000 shares authorized; 1,601,816 shares and 1,618,570 shares, respectively, outstanding.......................... 16,000 16,000 Other paid-in capital............................... 2,036,000 2,058,000 Retained earnings................................... 16,233,000 14,708,000 Less 37,544 and 34,387 treasury shares, respectively, at cost.............................. (617,000) (497,000) ----------- ----------- Total shareholders' equity......................... 17,668,000 16,285,000 ----------- ----------- $31,525,000 $28,965,000 =========== ===========
See accompanying notes to consolidated financial statements 19 DAILY JOURNAL CORPORATION CONSOLIDATED STATEMENT OF INCOME
Year ended September 30 ----------------------------------- 1999 1998 1997 ----------- ----------- ----------- Revenues: Advertising.............................. $20,267,000 $21,109,000 $21,454,000 Circulation.............................. 11,675,000 11,449,000 11,506,000 Information systems and services......... 1,213,000 -- -- Advertising service fees and other....... 3,696,000 3,547,000 3,436,000 ----------- ----------- ----------- 36,851,000 36,105,000 36,396,000 ----------- ----------- ----------- Costs and expenses: Salaries and employee benefits........... 16,461,000 15,551,000 14,749,000 Newsprint and printing expenses.......... 3,232,000 3,377,000 3,424,000 Commissions and other outside services... 4,508,000 4,254,000 4,299,000 Postage and delivery expenses............ 2,254,000 2,266,000 2,316,000 Depreciation and amortization............ 1,767,000 1,696,000 1,897,000 Other, including interest expense........ 5,155,000 3,553,000 4,693,000 ----------- ----------- ----------- 33,377,000 30,697,000 31,378,000 ----------- ----------- ----------- Income before taxes....................... 3,474,000 5,408,000 5,018,000 Provision for income taxes................ 1,550,000 2,150,000 2,000,000 ----------- ----------- ----------- Net income, including minority interest... 1,924,000 3,258.000 3,018,000 Minority interest in net loss of subsidiary (20%)......................... 199,000 -- -- ----------- ----------- ----------- Net income................................ $ 2,123,000 $ 3,258,000 $ 3,018,000 ----------- ----------- ----------- Net income per share...................... $ 1.34 $ 2.05 $ 1.89 ----------- ----------- -----------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Other Total Common Paid-in Retained Treasury Shareholders' Stock Capital Earnings Stock Equity ------- ---------- ----------- --------- ------------- Balance at September 30, 1996................... $16,000 $2,082,000 $ 8,981,000 $(351,000) $10,728,000 Net income.............. 3,018,000 3,018,000 Purchase of common stock.................. (20,000) (428,000) (448,000) ------- ---------- ----------- --------- ----------- Balance at September 30, 1997................... 16,000 2,062,000 11,571,000 (351,000) 13,298,000 Net Income.............. 3,258,000 3,258,000 Purchase of common stock.................. (4,000) (121,000) (125,000) Purchase of treasury stock.................. (146,000) (146,000) ------- ---------- ----------- --------- ----------- Balance at September 30, 1998................... 16,000 2,058,000 14,708,000 (497,000) 16,285,000 Net Income.............. 2,123,000 2,123,000 Purchase of common stock.................. (22,000) (598,000) (620,000) Purchase of treasury stock.................. (120,000) (120,000) ------- ---------- ----------- --------- ----------- Balance at September 30, 1999................... $16,000 $2,036,000 $16,233,000 $(617,000) $17,668,000 ======= ========== =========== ========= ===========
See accompanying notes to consolidated financial statements 20 DAILY JOURNAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended September 30 ---------------------------------- 1999 1998 1997 ---------- ---------- ---------- Cash flows from operating activities: Net income............................... $2,123,000 $3,258,000 $3,018,000 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization........... 1,767,000 1,696,000 1,897,000 Minority interest in consolidated subsidiary............................. (199,000) -- -- Deferred income taxes................... 55,000 29,000 (293,000) Discount earned on U.S. Treasury Bills.. (240,000) (129,000) (80,000) Gain on sales of capital assets......... -- (106,000) -- Changes in assets and liabilities: (Increase) decrease in current assets Accounts receivable, net............... (1,877,000) (521,000) (640,000) Inventories............................ 6,000 7,000 (10,000) Prepaid expenses and other assets...... (216,000) 47,000 169,000 Increase (decrease) in current liabilities Accounts payable........... 284,000 (206,000) 172,000 Accrued liabilities.................... (758,000) (291,000) 584,000 Income taxes payable................... (160,000) 8,000 274,000 Deferred subscription and other revenues.............................. 916,000 500,000 (122,000) ---------- ---------- ---------- Cash provided by operating activities........................... 1,701,000 4,292,000 4,969,000 ---------- ---------- ---------- Cash flows from investing activities: Net sales (investments) in U.S. Treasury Bills................................... 3,733,000 (2,707,000) (4,159,000) Capital expenditures, including acquisitions, net of cash acquired...... (4,975,000) (1,125,000) (1,182,000) ---------- ---------- ---------- Net cash used for investing activities........................... (1,242,000) (3,832,000) (5,341,000) ---------- ---------- ---------- Cash flows from financing activities: Purchase of common and treasury stock.... (740,000) (271,000) (448,000) ---------- ---------- ---------- Cash used for financing activities.... (740,000) (271,000) (448,000) ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents............................... (281,000) 189,000 (820,000) Cash and cash equivalents: Beginning of year........................ 462,000 273,000 1,093,000 ---------- ---------- ---------- End of year.............................. $ 181,000 $ 462,000 $ 273,000 ---------- ---------- ---------- Interest paid during year.................. $ -- $ -- $ -- Income taxes paid during year, net......... $1,830,000 $2,112,000 $1,930,000
See accompanying notes to consolidated financial statements 21 DAILY JOURNAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND OPERATIONS The Daily Journal Corporation (the "Company") publishes newspapers in California, Washington, Arizona, Colorado and Nevada and the California Lawyer magazine and produces several specialized information services. It also publishes The Code of Colorado Regulations and serves as a newspaper representative specializing in public notice advertising. SUSTAIN Technologies, Inc., an 80% owned subsidiary and consolidated since it was acquired in January 1999, provides the SUSTAIN(R) family of products (See note 2). Essentially all of the Company's operations are based in California, Arizona, Colorado, Nevada, Washington and Virginia. 2. ACQUISITIONS On January 26, 1999, the Company acquired an 80% equity interest in SUSTAIN Technologies, Inc. for cash of $6.67 million. SUSTAIN Technologies, Inc. provides the SUSTAIN(R) family of products which consist of technologies and applications to enable justice agencies to automate their operations. The results of operations have been included in the financial statements from the date of acquisition. The acquisition was accounted for by the purchase method; accordingly the purchase price in excess of the net assets was about $3.8 million and is being amortized over five years. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The consolidated financial statements include the accounts of the Daily Journal Corporation and its wholly-owned subsidiary which was merged into the Company in 1997. The consolidated financial statements also include the accounts of the Daily Journal's 80% owned subsidiary, SUSTAIN Technologies, Inc., acquired in January 1999. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash equivalents: The Company considers all highly liquid investments, including U.S. Treasury Bills with a maturity of three months or less when purchased, to be cash equivalents. Fair Value of Financial Instruments: The carrying amounts of cash, investments in U.S. Treasury Bills, accounts receivable and accounts payable approximate fair value because of the short maturity of these financial instruments. Inventories: Inventories, comprised of newsprint and paper, are stated at cost, on a first-in, first-out basis, which does not exceed current market value. Income taxes: The Company accounts for income taxes using an asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future consequences of temporary differences between the carrying amounts for financial reporting purposes and the tax basis of the assets and liabilities. Property, plant and equipment: Property, plant and equipment are carried on the basis of cost. Depreciation of assets is provided in amounts sufficient to depreciate the cost of related assets over their estimated useful lives. Assets have been depreciated using an accelerated method for both financial statement and tax purposes. 22 Significant expenditures which extend the useful lives of existing assets are capitalized. Maintenance and repair costs are expensed as incurred. Gains or losses on dispositions of assets are reflected in current earnings. Intangible assets: Intangible assets consist of goodwill acquired in 1999. These assets are being amortized over five years. Deferred subscription and other revenues: Proceeds from the sale of subscriptions for newspapers, court rule books and other publications and for software maintenance and other services are booked as deferred revenue and are included in earned revenue only when the services are provided. Supplemental Employee Compensation Plan: In fiscal 1987 the Company implemented a Plan for Supplemental Employee Compensation that entitles an employee to participate in pre-tax earnings of the Company for the lesser of (i) ten years or (ii) as long as that employee remains employed or is in retirement following employment to age 65. Non-negotiable certificates of employee participant interests entitled employees to receive 11.90% (amounting to about $492,000) of income before taxes and supplemental compensation expenses in fiscal year 1999, 11.75% (amounting to about $720,000) in fiscal 1998 and 11.28% (amounting to about $640,000) in fiscal 1997. In addition, the employee holders of certificates are entitled to receive the same percentage of pre-tax earnings in each of the next nine years subsequent to the year of the grant of the certificate provided they remain employed or are in retirement following employment to age 65. Treasury stock and net income per common share: As of September 30, 1999 and 1998 the Company owned 37,544 and 34,387, respectively, of the 599,409 units of a limited partnership that has no known liabilities and owns as its sole asset 599,409 shares of common stock of Daily Journal Corporation. This investment, at a total cost of $617,000, is considered treasury stock and is excluded from the calculation of weighted average shares. The net income per common share is based on the weighted average number of shares outstanding during each year. The shares used in the calculation were 1,579,251 for 1999, 1,589,971 for 1998 and 1,594,403 for 1997. Use of Estimates: The presentation of the Company's financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Accounting for Long-Lived assets: Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" established accounting standards for long-lived assets to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, SFAS No. 121 requires that certain long-lived assets be reported at the lower of the carrying amount or fair value less cost to sell. The Company has adopted SFAS No. 121 effective October 1, 1996, as required, and there was no significant impact on its financial position or results of operations. 23 4. INCOME TAXES The provision for income taxes consists of the following:
1999 1998 1997 ----------- ----------- ----------- Current: Federal.......................... $ 1,194,000 $ 1,749,000 $ 1,827,000 State............................ 302,000 371,000 459,000 ----------- ----------- ----------- 1,496,000 2,120,000 2,286,000 ----------- ----------- ----------- Deferred: Federal.......................... 71,000 25,000 (234,000) State............................ (17,000) 5,000 (52,000) ----------- ----------- ----------- 54,000 30,000 (286,000) ----------- ----------- ----------- $ 1,550,000 $ 2,150,000 $ 2,000,000 =========== =========== ===========
The deferred income tax provision which results from temporary differences in the basis of assets and liabilities for tax and financial reporting purposes, includes (i) the amounts related to provisions for accrued liabilities not deductible for tax purposes until paid of $19,000, ($223,000) and ($147,000), (ii) the amounts related to the allowance for doubtful accounts not deductible until the accounts receivable become worthless for tax purposes of $0, $0 and ($40,000) in 1999, 1998 and 1997, respectively, plus (iii) the amount of tax depreciation and amortization over (under) book depreciation of $90,000, ($241,000) and ($46,000) in 1999, 1998, and 1997, respectively. At September 30, 1999, the Company had net operating loss carry-forwards of approximately $120,000, a portion of which is available in each of the next six years to reduce future provisions for income taxes. The difference between the statutory federal income tax rate and the Company's effective rate is summarized below:
1999 1998 1997 ---- ---- ---- Statutory federal income tax rate..................... 34.0% 34.0% 34.0% State franchise taxes (net of federal tax benefit).... 5.4 4.6 5.3 Other, net, primarily amortization of goodwill........ 5.2 1.2 0.6 ---- ---- ---- Effective tax rate.................................. 44.6% 39.8% 39.9% ==== ==== ====
24 The Company's deferred income tax assets were comprised of the following at September 30, 1999, 1998 and 1997, respectively:
1999 1998 1997 ---------- ---------- ---------- Deferred tax assets attributable to: Accrued liabilities, including vacation pay accrual and litigation reserves not yet deductible.......................... $ 435,000 $ 416,000 $ 638,000 Bad debt reserves not yet deductible.......................... 303,000 303,000 303,000 Depreciation and amortization........ 338,000 428,000 187,000 Other, net........................... 107,000 91,000 140,000 ---------- ---------- ---------- $1,183,000 $1,238,000 $1,268,000 ========== ========== ==========
5. COMMITMENTS AND CONTINGENCIES The Company owns office and printing facilities in Los Angeles, office and storage facilities in Sacramento and leases space for its other offices under operating leases which expire at various dates through 2004. The Company is responsible for a portion of maintenance, insurance and property tax expenses relating to certain leased property. Future minimum rental payments required under the above operating leases at September 30, 1999 are as follows:
Year ending September 30 Commitment -------------- ---------- 2000................ $ 785,000 2001................ 730,000 2002................ 645,000 2003................ 626,000 2004................ 417,000 ---------- $3,203,000 ==========
Rental expenses for the fiscal years 1999, 1998 and 1997 were $646,000, $481,000 and $460,000, respectively. Management has received information furnished by legal counsel on the current stage of all outstanding legal proceedings and the development of these matters to date. Based upon its review, it is the opinion of management that adequate provision has been made for all reasonably estimable costs and that the ultimate liability, if any, should not materially affect the consolidated financial statements. 25 6. OPERATING SEGMENTS The Company has adopted SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information which became effective for the current fiscal year. As a result of its recent acquisition of SUSTAIN Technologies, Inc., an 80% owned subsidiary, in January 1999, the Company now has two segments of business. The Company's reportable segments are strategic business units that offer different products and/or services. The accounting policies of the reportable segments are the same as those described in Note 3 of Notes to Consolidated Financial Statements. Inter-segment transactions were eliminated, and the reported segment loss of Sustain was net of the minority interest (20%). Summarized financial information concerning the Company's reportable segments is shown in the following table:
Daily Journal Sustain Total ------------ ----------- ------------ 1999 Revenues......................... $ 35,527,000 $ 1,324,000 $ 36,851,000 Segment profit (loss)............ 2,919,000 (796,000) 2,123,000 Total assets..................... 23,771,000 7,754,000 31,525,000 Capital expenditures............. 1,959,000 182,000 2,141,000 Depreciation and amortization.... 1,147,000 620,000 1,767,000 Income tax expenses (benefits)... 1,945,000 (395,000) 1,550,000
7. RESULTS OF OPERATIONS BY QUARTER (UNAUDITED)
First Second Third Fourth quarter quarter quarter quarter ------- ------- ------- ------- (in thousands except per share amounts) 1999 Revenues.................................... $ 8,780 $ 9,313 $ 9,582 $ 9,176 Costs and expenses.......................... 7,528 8,223 8,928 8,698 Income before taxes......................... 1,252 1,090 654 478 Net income, including minority interest..... 752 650 394 128 Minority interest in net loss of subsidiary (20%)...................................... -- 36 56 107 Net income.................................. 752 686 450 235 Net income per share........................ .47 .44 .28 .15 1998 Revenues.................................... $ 8,687 $ 9,029 $ 9,532 $ 8,857 Costs and expenses.......................... 7,470 7,780 7,878 7,569 Income before taxes......................... 1,217 1,249 1,654 1,288 Net income.................................. 732 724 1,019 783 Net income per share........................ .46 .45 .64 .50
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None 26 PART III Item 10. Directors and Executive Officers of the Registrant The information set forth in the tables, the notes thereto, and the paragraphs under the caption "Election of Directors-Directors," in the Company's Proxy Statement for Annual Meeting of Shareholders to be held on or about February 9, 2000 (the "Proxy Statement"), is incorporated herein by reference. The information set forth under Item 1 of this Form 10-K under the caption "Executive Officers of Registrant" is also incorporated herein by reference. Item 11. Executive Compensation The information set forth under the caption "Executive Compensation" in the Proxy Statement is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information set forth under the caption "Executive Compensation- Compensation Committee Interlocks and Insider Participation" in the Proxy Statement is incorporated herein by reference. 27 PART IV Item 14(a). Exhibits, Financial Statements, Financial Statement Schedules, and Reports on Form 8-K The following documents are filed as part of this Report: (1) Consolidated Financial Statements: Report of Independent Accountants Consolidated Balance Sheet at September 30, 1999 and 1998 Consolidated Statement of Income for each of the three years in the period ended September 30, 1999 Consolidated Statement of Changes in Shareholders' Equity for each of the three years in the period ended September 30, 1999 Consolidated Statement of Cash Flows for each of the three years in the period ended September 30, 1999 Notes to Consolidated Financial Statements (2) Consolidated Financial Statement Schedules for the three years ended September 30, 1999: II Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 2.1 Stock Purchase Agreement, dated as of January 22, 1999, by and among Daily Journal Corporation, Choice Information Systems, Inc., Michael W. Payton and Terence E. Hahm. (++) 2.2 Asset Purchase Agreement, dated as of January 22, 1999, by and among Choice Information Systems, Inc., Quindeca Corporation and Jerry L. Short. (++) (3) Exhibits 3.1 Articles of Incorporation of Daily Journal Corporation, as amended. 3.2 Bylaws of Daily Journal Corporation. (+) 10.1 Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Michael W. Payton. (++) 10.2 Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Jerry L. Short. (++) 10.3 Employment Agreement, dated as of January 22, 1999, between Choice Information Systems, Inc. and Terence E. Hahm. (++) 10.4 Shareholder's Agreement, dated as of January 22, 1999, among Choice Information Systems, Inc., Daily Journal Corporation, Quindeca Corporation, Michael W. Payton and Terence E. Hahm. (++) 10.5 Form of Non-Negotiable Certificate Representing an Employee Participant Interest in the Daily Journal Corporation ("DJC") Plan for Supplemental Compensation to an Employee as long as that Employee Remains Employed by DJC, Based on Pre-tax Earnings of Common Shares of DJC. (*) 10.7 Lease dated December 9, 1998 between Daily Journal Corporation and One Trinity Center. 10.8 Lease dated August 26, 1999 between Sustain Technologies, Inc. and The Prudential Insurance Company of America. 21.0 Subsidiary of Daily Journal Corporation. 27.0 Financial Data Schedule. 28 99.1 Press Release of Daily Journal Corporation issued January 27, 1999. (++) (+) Filed as an Exhibit bearing the same number to the Annual Report of Form 10-K on the Company for the year ended September 30, 1994. (++) Filed as an Exhibit bearing the same number to the current Form 8-K dated January 27, 1999. (*) Management Compensatory Plan. Item 14(b). Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the Company's fiscal year ended September 30, 1999. 29 SIGNATURES Pursuant to the requirements of 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, thereunto duly authorized. Daily Journal Corporation By /s/ Gerald L. Salzman ___________________________________ Gerald L. Salzman President Date: December 28, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Charles T. Munger _________________________ Chairman of the Board December 28, 1999 Charles T. Munger /s/ Gerald L. Salzman President, Treasurer, December 28, 1999 _________________________ Chief Financial Officer, Gerald L. Salzman Director Principal Accounting Officer and Director _________________________ Director J.P. Guerin _________________________ Director Donald W. Killian, Jr. /s/ George C. Good Director December 28, 1999 _________________________ George C. Good 30 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders of the Daily Journal Corporation In our opinion, the consolidated financial statements listed in the index appearing under Items 14(a)(1) and (2) on page 28 present fairly, in all material respects, the financial position of the Daily Journal Corporation and its subsidiaries at September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedules listed in the index appearing under Items 14(a)(1) and (2) on page 28 present fairly in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. 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 auditing standards generally accepted in the United States, 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. PRICEWATERHOUSECOOPERS LLP Los Angeles, California December 10, 1999 31 DAILY JOURNAL CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Additions Balance Charged Accounts at to Costs Charged Balance Beginning and off less at End Description of Period Expenses Recoveries of Period - ----------- --------- --------- ---------- --------- 1999 Allowance for doubtful accounts...... $700,000 $186,000 $( 86,000) $800,000 ======== ======== ========= ======== 1998 Allowance for doubtful accounts...... $700,000 $217,000 $(217,000) $700,000 ======== ======== ========= ======== 1997 Allowance for doubtful accounts...... $600,000 $339,000 $(239,000) $700,000 ======== ======== ========= ========
32 EX-3.1 2 ARTICLES OF INC. OF DAILY JOURNAL EXHIBIT 3.1 STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION OF DJC CORPORATION ------------------- (File This Form in This Space For Use By Duplicate Originals) The Secretary of State (Sect. 33-7-30 of 1976 Code) (INSTRUCTIONS ON PAGE 4) For Use By The Secretary of State File No. ................... Fee Paid $.................. R.N. ....................... Date........................ 1. The name of the proposed corporation is DJC Corporation. 2. The initial registered office of the corporation is 2019 Park Street ....................... Street and Number located in the city of Columbia county of Richland and the State of South Carolina and the name of its initial registered agent at such address is The Prentice-Hall Corporation System. 3. The period of duration of the corporation shall be perpetual. 4. The corporation is authorized to issue shares of stock as follows:
Class of Shares Authorized No. of each class Par Value --------------- ---------------------------- --------- Preferred 5,000,000 $.01 Common 5,000,000 $.01
If shares are divided into two or more classes or if any class of shares is divided into series within a class, the relative rights, preferences, and limitations of the shares of each class, and of each series within a class, are as follows: See Attachment A incorporated herein by reference. 5. Total authorized capital stock $100,000 Please see instructions on Page 4. 6. The existence of the corporation shall begin as of the filing date with the Secretary of State. 7. The number of directors constituting the initial board of Directors of the corporation is three and the names and addresses of the persons who are to serve as directors until the first annual meeting of shareholders or until their successors be elected and qualify are: Charles T. Munger 355 South Grand Avenue, 34th Floor ............................. Los Angeles, CA 90071-1560 Name .................................... Address J.P. Guerin 355 South Grand Avenue, 34th Floor .............................. Los Angeles, CA 90071-1560 Name .................................... Address Gerald S. Salzman 355 South Grand Avenue, 34th Floor .............................. Los Angeles, CA 90071-1560 Name .................................... Address ............................. .................................... Name Address ............................. .................................... Name Address 8. The general nature of the business for which the corporation is organized is (it is not necessary to set forth in the purposes powers enumerated Section 33-3-10 of 1976 Code). To engage in any lawful act or activity for which a corporation may be organized under the Business Corporation Act of South Carolina. 9. Provisions which the incorporators elect to include in the articles of incorporation are as follows: See Attachment B incorporated herein by reference 10. The name and address of each incorporator is Name Street & Box No. City County State Ruth E. Fisher, 355 S. Grand Avenue, 36th Fl., Los Angeles, Los Angeles, California
/s/ Ruth E. Fisher .................................... (Signature of Incorporator) Date January 16, 1987 Ruth E. Fisher ......................... .................................... (Type or Print Name) .................................... (Signature of Incorporator) .................................... (Type or Print Name) .................................... (Signature of Incorporator) .................................... (Type or Print Name) ATTACHMENT A The Preferred Stock may be divided into such number of series as the Board of Directors may determine. With respect to any wholly unissued series of Preferred Stock, the Board of Directors is authorized in its unrestricted discretion to determine and alter: (i) Rights, if any, of conversion into common stock or other securities; (ii) Voting rights, absolute and/or contingent; (iii) Dividend and liquidation preferences; (iv) Call and redemption provisions; and (v) Any other rights, preferences, privileges and restrictions, to the extent permitted by law, In addition, the Board of Directors in its unrestricted discretion may fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. ATTACHMENT B Shareholders of this corporation entitled to vote at an election of directors shall be entitled to cumulative voting rights in such election in accordance with Section 33-11-200 of the South Carolina Business Corporation Act. No shareholder of this corporation shall have any preemptive rights with respect to any issue of shares of other securities by this corporation. To the extent permitted by law, amendments to these Articles of Incorporation shall be effective if approved by the holders of a majority of the shares entitled to vote on such an amendment. To the extent permitted by law, a merger, consolidation, share-for-share exchange or any other transaction involving this corporation which must be approved by the shareholders of this corporation pursuant to the South Carolina Business Corporation Act shall be deemed approved if approved by the holders of a majority of the shares entitled to vote on such a transaction. To the extent permitted by law, an officer elected or appointed by the Board of Directors of this corporation may be removed in the discretion of the Board of Directors, with or without cause. STATE OF CALIFORNIA .............................. COUNTY OF LOS ANGELES ............................. The undersigned Ruth E. Fisher ........................................................... .............................................................................. does hereby certify that she is the incorporator of DJC Corporation Corporation and are authorized to execute this verification; that each of the undersigned for himself does hereby further certify that she has read the foregoing document, understands the meaning and purport of the statements therein contained and the same are true to the best of her information and belief. Ruth Fisher .............................. (Signature of Incorporator) .............................. (Signature of Incorporator) .............................. (Signature of Incorporator) (Each Incorporator Must Sign) 11. I, Eric B. Amstutz....., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of chapter 7 of Title 33 of the South Carolina Code of 1976, relating to the organization of corporations, and that in my opinion, the corporation is organized for a lawful purpose. Date January 16, 1987 /s/ Eric B. Amstutz ............................. .............................. (Signature) Eric B. Amstutz .............................. (Type or Print Name) Address P.O. Box 10207 .............................. Greenville, SC 29603 .............................. SCHEDULE OF FEES Payable at time of filing Articles with Secretary of State Fee for filing Articles $ 5.00 In addition to the above $ 10 for each $1,000.00 of the aggregate value of shares which the Corporation is autho- rized to issue, but in no case less than 40.00 nor more than 1,000.00 NOTE illegible STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT To The Articles of Incorporation of - --------------------- For Use By The Secretary of State DJC Corporation This Space For Use By File No. 871789 Secretary of State ----------- ----------------------------------- Fee Paid ----------- (File This Form in Duplicate) C.B. --------------- Date --------------- - --------------------- Pursuant to Authority of Section 33-15-10 the South Carolina Code of 1976 as amended, the undersigned Corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the Corporation is DJC Corporation ---------------------------------------------- 2. The Registered Office of the Corporation is 2019 Park Street --------------------------------- (Street and no.) in the City of Columbia , County of Richland and ------------------------- ----------------------- the State of South Carolina and the name of the Registered Agent at such address is The Prentice-Hall Corporation System ------------------------------------------------------------------ (Complete item 3 of 4 whichever is relevant) 3. a. The following amendment of the Articles of Incorporation was adopted by the shareholders of the Corporation on March 13, 1987 ---------------------------------- (Text of Amendment) Article 1 is amended to read as follows: "The name of this corporation is Daily Journal Corporation." Article 8 is amended to read as follows: "The general nature of the business for which the corporation is organized is to engage in any lawful act or activity for which a corporation may be organized under the Business Corporation Act of South Carolina, including but not limited to owning or publishing newspapers and other publications." b. At the date of adoption of the Amendment, the total number of all outstanding shares of the Corporation was 10 shares The total of such ----------- shares entitled to vote, and the vote of such shares was:
Total Number of Shares Entitled Number of Shares Voted to vote For Against ------- --- ------- 10 10 0
ARTICLES OF AMENDMENT (Continued) c. At the date of adoption of the Amendment, the number of outstanding shares of each class entitled to vote as a class on the Amendment, and the vote of such shares, was: (if inapplicable, insert "none") Number of Shares Number of Shares Voted Class Entitled to Vote For Against ----- ---------------- --- ------- 4. a. Prior to the organizational meeting the Corporation and with the consent of the subscribers, the following Amendment was adopted by the Incorporator(s) on...................................................... (Text of Amendment) b. The number of withdrawals of subscribers, if such be the case is ....... c. The number of Incorporators are ......... and the number voting for the Amendment was ............ and the number voting against the Amendment was................................................................... 5. The manner, if not set forth in the Amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "no change") No change. 6. The manner in which the Amendment effects a change in the amount of stated capital, and amount of stated capital, expressed in dollars, as changed by the Amendment, is a follows: (if not applicable, insert "no change") No change. Date March 13, 1987 DJC Corporation ------------------------------ -------------------------------------- (Name of Corporation) /s/ Gerald L. Salzman ------------------------------------ (Name and Title) Note: Any person signing this form Gerald L. Salzman, President shall either opposite or beneath ------------------------------------ his signature clearly and legibly (Name and Title) state his name and the capacity in whether he signs. Must be signed /s/ Ira A. Marshal, Jr., Secretary in accordance with Section 33-1-40 ------------------------------------ of the 1976 code as amended. (Name and Title) ------------------------------------ (Name and Title) STATE OF California ------------------------ ss: COUNTY OF Los Angeles ----------------------- The undersigned Gerald L. Salzman and Ira A. Marshall, Jr. do hereby certify ----------------- -------------------- that they are the duly elected and acting President and Secretary respectively, --------- --------- of DJC Corporation and are authorized to execute the documents, that each of the --------------- undersigned for himself does hereby further certify that he signed and was so authorized, has read the foregoing document, understands the meaning and purport of the statements therein contained and the same are true to the best of his information and belief. Date at Los Angeles, CA this 13th day of March , 1987 ----------------- ------------ ----------- -- /s/ Gerald L. Salzman ------------------------------------ /s/ Ira A. Marshall, Jr. ------------------------------------ SCHEDULE OF FEES (Payable at time of filing application with Secretary of State) Filing Fee $ 5.00 Taxes 40.00 ------------------- Total Fee $45.00 Note: If the Amendment effects an increase in capital stock, in lieu of the above, the filing fees will be as follows: Fee for filing application..................$ 5.00 In addition to the above, $.40 for each $1,000,00 of the total increase in the ag- gregate value of authorized shares, but in no case less than.................... 40.00 nor more than............................... 1,000.00 CERTIFICATE OF DAILY JOURNAL CORPORATION Under Section 33-17-70(g) of the South Carolina Business Corporation Act To the Secretary of State State of South Carolina It is hereby certified that: 1. Daily Journal Corporation, a business corporation organized under the laws of the State of South Carolina, is the surviving corporation in a merger in which the name of the terminated corporation, a business corporation organized under the laws of the State of California, is Daily Journal Company. 2. The aforesaid merger has become effective under the laws of the jurisdiction of Daily Journal Company. Dated: April 13, 1997 DAILY JOURNAL CORPORATION By: /s/ Gerald L. Salzman ------------------------------- Gerald L. Salzman, President /s/ Ira A. Marshall, Jr. ------------------------------- Ira A. Marshall, Jr., Secretary DAILY JOURNAL COMPANY By: /s/ Gerald L. Salzman ------------------------------- Gerald L. Salzman, President /s/ Ira A. Marshall, Jr. ------------------------------- Ira A. Marshall, Jr., Secretary EX-10.5 3 NON-NEGOTIABLE CERTIFICATE EXHIBIT 10.5 Non-Negotiable Certificate Representing an Employee Participant Interest in the Daily Journal Corporation ("DJC") Plan for Supplemental Compensation to an Employee, as long as that Employee Remains Employed by DJC, based on Pre-tax Earnings of Common Shares of DJC (Date) This non-negotiable certificate represents the right of (Employee Name) to receive, in addition to all other compensation due or awarded: (3) in (Month, Year, units granted/shares) of the pre-tax earnings of DJC for the year ended (M/D/Y); plus (4) in December of each of the following nine years, the same fraction of the pre-tax earnings of DJC for the year ended the preceding September 30th. If more shares of DJC are issued for a consideration (i.e., in a merger), the denominator of the Employee's fractional interest will be increased, effective with the first payment due thereafter, to reflect the share increase, except that issuances made which do not increase shares outstanding over 1,805,053 will be disregarded. Both the numerator and the denominator of the fraction will be increased to reflect any changes in shares outstanding which occur without additional consideration to the corporation, as in stock splits and stock dividends. No additional payments will be made under the Plan after the Employee either (1) shall have left the employ of DJC, prior to the employee's reaching age 65, for any reason whatsoever (including but not limited to being unreasonably fired by DJC prior to reaching age 65) or (2) directly or indirectly enters the mploy (either as a direct or indirect employee or direct or indirect independent contractor) of any competitor of DJC whether such employment occurs before or after the employee reaches age 65. Compensation to employees under this certificate, and other such certificates issued to other employees shall not be deducted in making pre-tax earnings computations for the purpose of the Plan. Pre-tax earnings computations, for purposes of the Plan, shall be reasonable approximations made by DJC to facilitate convenient and economical accounting practices and will be final. Payments to be made under this non-negotiable certificate are in addition to payments to be made under certificates, if any, issued to the Employee in prior years. IN WITNESS WHEREOF, this certificate is executed as of (Date). DAILY JOURNAL CORPORATION By__________________________________ Charles T. Munger, Chairman EX-10.7 4 LEASE DATED DECEMBER 9, 1998 EXHIBIT 10.7 LEASE DATED: December 9, 1998 ---------------- Between ANGELO AND YVONNE SANGIACOMO d.b.a. ONE TRINITY CENTER As Landlord AND DAILY JOURNAL CORPORATION As Tenant OFFICE LEASE This lease is dated for reference purposes only the 9th day of December, 1998 REFERENCE PROVISIONS Landlord: ANGELO AND YVONNE SANGIACOMO d.b.a. ONE TRINITY CENTER Tenant: DAILY JOURNAL CORPORATION, a South Carolina corporation Address: 1145 Market Street, Eighth Floor San Francisco, California Premises: Approximately 11,305 rentable square feet located primarily on the Eighth Floor of the Building Use: General commercial office use Term: Five years, subject to the right of Tenant to extend the Term for one additional period of three (3) years as provided in paragraph 3(b), and subject to the right of Tenant to terminate this Lease provided in paragraph 3(c). Commencement Date: The earlier of (i) the substantial completion of the initial improvements to the Premises described in paragraph 10.1 (subject to the provisions of paragraph 10.1(c)), or (ii) the date Tenant commences business operations in the Premises. Expiration Date: The day immediately preceding the fifth (5th) anniversary of the Commencement Date. Minimum Rent: $327,845.00 per annurn, payable in monthly installments of $27,320.42 Security Deposit: $27,320.42 THE TERMS SET FORTH ABOVE ARE FOR CONVENIENCE ONLY. IN THE EVENT OF CONFLICT BETWEEN THE FOREGOING REFERENCE PROVISIONS AND THE BALANCE OF THIS LEASE, THE LATTER SHALL CONTROL.
TABLE OF CONTENTS 1. Premises........................................................ 1 -------- 2. Use of Premises................................................. 1 --------------- 3. Term............................................................ 1 ---- 4. Possession...................................................... 2 ---------- 5.1 Minimum Rent.................................................... 3 ------------ 5.2 Additional Rent................................................. 3 --------------- 5.3 Payment of Rent................................................. 5 --------------- 5.4 Security Deposit................................................ 5 ---------------- 6. Common Areas.................................................... 5 ------------ 7. Uses Prohibited................................................. 6 --------------- 8. Compliance with Law............................................. 6 ------------------- 9. Certificates of Occupancy....................................... 7 ------------------------- 10.1 Initial Improvements and Alterations............................ 8 ------------------------------------ 10.2 Alterations by Tenant........................................... 8 --------------------- 11. Repair.......................................................... 10 ------ 12. Abandonment..................................................... 10 ----------- 13. Liens........................................................... 10 ----- 14. Assignment and Subletting....................................... 10 ------------------------- 15. Indemnification................................................. 12 --------------- 16. Insurance....................................................... 13 --------- 17. Mutual Waiver of Subrogation.................................... 14 ---------------------------- 18. Services and Utilities.......................................... 14 ---------------------- 19. Inability to Perform............................................ 15 -------------------- 20. Disruption of Services for Repair or Maintenance................ 16 ------------------------------------------------ 21. Life Safety System.............................................. 16 ------------------ 22. Personal Property and Other Taxes and Assessments............... 16 ------------------------------------------------- 23. Rules and Regulations........................................... 16 --------------------- 24. Holding Over.................................................... 16 ----------- 25. Subordination of Lease.......................................... 17 ---------------------- 26. Entry by Landlord............................................... 17 ----------------- 27. Insolvency or Bankruptcy........................................ 18 ------------------------ 28. Default......................................................... 18 ------- 29. No Redemption................................................... 19 ------------- 30. Damage or Destruction of Premises............................... 19 --------------------------------- 31. Eminent Domain.................................................. 20 --------------
32. Default by Landlord........................................... 20 ------------------- 33. Plats and Riders.............................................. 20 ---------------- 34. Sale by Landlord.............................................. 20 ---------------- 35. Estoppel Certificates......................................... 21 --------------------- 36. Right of Landlord to Perform.................................. 21 ---------------------------- 37. Attorney Fees................................................. 21 ------------- 38. Surrender of Premises......................................... 21 --------------------- 39. End of Term................................................... 21 ----------- 40. Quiet Possession.............................................. 21 ---------------- 41. Brokerage..................................................... 22 --------- 42. No Waiver..................................................... 22 --------- 43. Notices....................................................... 22 ------- 44. Defined Terms and Marginal Headings........................... 22 ----------------------------------- 45. Time and Applicable Law....................................... 22 ----------------------- 46. Successors.................................................... 23 ---------- 47. Late Charge and Interest...................................... 23 ------------------------ 48. Authority..................................................... 23 --------- 49. Name of Building.............................................. 23 ---------------- 50. Signage....................................................... 23 ------- 51. Entire Agreement.............................................. 24 ---------------- 52. Partial Invalidity............................................ 24 ------------------ 53. No Offer...................................................... 24 --------
RULES AND REGULATIONS - --------------------- EXHIBIT B LEGAL DESCRIPTION OF PROPERTY - --------- EXHIBIT C DRAWING AND SPECIFICATIONS - --------- EXHIBIT D CERTIFICATE OF ACCEPTANCE OF PREMISES - --------- OFFICE LEASE This LEASE (the "Lease") is made and entered into as of this 9th day of December, 1998 by and between Angelo Sangiacomo & Yvonne Sangiacomo, business persons, residing in California, d.b.a. ONE TRINITY CENTER, and owner of the subject property ("Landlord") and DAILY JOURNAL CORPORATION, a South Carolina corporation ("Tenant"). WITNESSETH: ---------- 1. Premises -------- Landlord, in reliance upon and in consideration of the rents hereinafter reserved and of the covenants and agreements hereinafter mentioned to be kept and performed by Tenant, does by these presents lease and let unto Tenant, and Tenant does hereby hire and take from Landlord approximately 11,305 rentable square feet primarily on the Eighth Floor ("Premises") including the non- exclusive use of certain common areas throughout the building in which the Premises are located (the "Building"), with all of Tenant's usable area located on the Eighth Floor of the Building. The Premises are approximately as shown on the floor plan attached hereto as Exhibit A. The real property on which the Building is situated is located at 1145 Market Street, San Francisco, California, and a legal description thereof is attached hereto as Exhibit B. For the purposes hereof, the square footage of the Premises is composed of any area or areas from the outside face of all walls at the perimeter of such area or areas other than walls separating one leasable space from another, and shall include, but not be limited to, rest rooms, mezzanines, storage areas, clerical or office areas and employee areas. No deduction or exclusion from floor areas shall be made by reason of columns, ducts, stairs, elevators, shafts, or other interior construction or equipment. Landlord further reserves the right at any time, and from time to time, to construct a vertical ventilation flue shaft through the Building, including through the floor and ceiling of the Premises and the common areas of the floor on which the Premises are located, provided such shaft shall be in the approximate location labelled "Flue Shaft" on Exhibit A against a wall and enclosed, insulated, and finished in accordance with the standard of the Building. Tenant acknowledges that such work may cause inconveniences associated with construction work, and Landlord shall use reasonable efforts to cause such work to be done in a manner which will minimize disruption of Tenant's use of the Premises to the extent practicable. Landlord's work as provided herein shall not constitute or be deemed a breach of quiet enjoyment and no abatement of rent shall result from such work. 2. Use of Premises --------------- The Premises shall be used only for general office purposes relating to the use specified in the Reference Provisions and not for any other use or purpose without the prior written consent of Landlord, which may be withheld in Landlord's sole discretion. 3. Term ---- a. The term of this Lease (the "Term") shall commence on the Commencement Date and end on the Expiration Date specified in the Reference Provisions, subject to the right of Tenant to extend the Term set forth below in subparagraph (b), and subject to the cancellation right of Tenant set forth below in subparagraph (c). b. Provided that (i) Tenant is not in default under this Lease (after notice and the expiration of any applicable cure period) at the time of giving notice of exercise of the option to extend the Term herein granted; and (ii) at Landlord's option, Tenant is not in default hereunder (after notice and the expiration of any applicable cure period) at any time after giving such notice and prior to commencement of the extended Term; and (iii) the entity originally named as the Tenant herein shall not have made any assignment of this Lease or sublease or all or part of the Premises (other than an assignment to a "Permitted Transferee" as defined in paragraph 14(g)), Tenant shall have an option to extend the Term for the additional period specified in the Reference Provisions, which option shall be exercised by written notice given by Tenant to Landlord not later than nine months prior to the end of the initial Term. If such option is exercised by Tenant, the Term shall be extended on the following terms and conditions: (i) The lease of the Premises to Tenant during the Term as extended shall be upon all the terms and conditions set forth in this Lease, except that (A) the Minimum Rent shall be in the amount provided in subparagraph (ii) below; (B) the "Base Year" and "Base Tax Year" for purposes of determining Tenant's share of Operating Expenses and Taxes shall adjusted by reference to the calendar year in which the extended Term commences; (C) the Premises shall be retained by Tenant on an "AS-IS" basis during any extended Term, and Landlord shall have no duty or obligation whatsoever to remodel, alter or improve the Premises in connection with the extension, or to pay or reimburse Tenant for any cost or expense incurred in connection therewith; 1 and (D) Tenant shall have no right to extend the Term beyond the end of the Term, as so extended. (ii) The Minimum Rent for the Premises shall be the full "Fair Market Rental Value" of the Premises determined as provided below, provided that in no event shall the Minimum Rent be less than the amount applicable for the last year of the initial Term, as adjusted to reflect the change in the Base Year and Base Tax Year used to determine Tenant's share of Operating Expenses and Taxes. The Fair Market Rental Value of the Premises shall mean and refer to the annual rental then being paid by tenants on leases for general office use, upon the same terms applicable under this Lease to the option period, for space of comparable size, quality, improvements and location to the Premises, commencing on or about the date of the extension term, taking into consideration annual rental rates per rentable square foot, the type of escalation clauses in comparable transactions (including, but without limitation, operating expense stops, real estate tax and CPI adjustments), the length of the relevant term, the date as of which the Fair Market Rental Value is to become effective, rental abatement concessions in comparable transactions, if any, and any tenant improvement allowance granted in a comparable transaction. In determining Fair Market Rental Value, primary consideration shall be given to comparable transactions in the Building, and in all events comparable transactions taken into account shall be for premises in buildings of similar quality and character as the Building. The determination of Fair Market Rental Value shall take into account the change in the Base Year and Base Tax Year. (iii) Landlord and Tenant shall meet and confer and attempt to agree upon the Minimum Rent of the Premises for the Term as extended. If they are not able to agree, either party may give written notice to the other that the Minimum Rent is to be determined by appraisal as provided in this Lease. Within twenty (20) business days following such notice, each party shall by written notice to the other appoint an independent and qualified appraiser. Each of such appraisers shall, within thirty (30) days following appointment, give written notice to both parties of the appraiser's determination of the Minimum Rent for the extended Term. During the ten-day period following the appraisers' determinations, Landlord and Tenant shall again meet and confer and attempt to agree upon Minimum Rent. If they are unable to agree, the two appraisers shall appoint an independent M.A.I. appraiser with not less than five (5) years experience with office leases in the area in which the Building is located. Within thirty (30) days following appointment, the third appraiser shall on written notice to the parties determine the Minimum Rent payable for the extended Term, which determination shall be binding upon the parties. Each party shall pay the fees and expenses of the appraiser appointed by it and one-half of the fees and expenses of the third appraiser, if any. If Minimum Rent has not been determined as of the commencement of the extended Term, Tenant shall continue to pay the Minimum Rent provided herein, as adjusted to reflect the increases payable in respect of Operating Expenses and Taxes, or, if greater, the average of the Minimum Rent amounts specified by the first two appraisers, until Minimum Rent is finally determined. Upon such determination any overpayment or underpayment of Minimum Rent shall be reconciled, within thirty (30) days of invoice therefor. c. Tenant shall have the right to terminate this Lease effective as of the day immediately preceding the third anniversary of the Commencement Date by written notice given to Landlord at least nine (9) months prior to such anniversary. Such notice shall be effective to terminate this Lease only provided, and on condition that, it is accompanied by Tenant's payment to Landlord of an amount equal to the following: (i) a sum equal to the remaining unamortized balance, determined on a straight line basis over the initial Term of this Lease, with interest at ten percent per annurn from Term commencement until the date payment is made to Landlord, of (A) the aggregate amount of the costs and expenses incurred by Landlord in connection with the construction and installation of the initial improvements described in paragraph 10.1 plus (B) the brokerage commissions incurred in connection with this Lease; and (ii) a sum equal to three times the (A) monthly Minimum Rent plus (B) the estimated monthly payments due, as of the date notice is given, in respect of Operating Expenses and Taxes. 4. Possession ---------- a. Subject to the provisions of subparagraph (b) below, if Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant at the commencement of the Term, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but in that event there shall be an abatement of rent for the period between the commencement of the Term and the time when Landlord can deliver possession. b. Landlord contemplates that the work described in paragraph 10.1 will be substantially completed and possession of the Premises tendered to Tenant prior to or upon March 1, 1999. Tenant shall have a right to terminate this Lease as provided below if Landlord shall not have substantially completed such work and tendered possession of the Premises to Tenant by April 1, 1999, unless such failure is the result of a Tenant Delay or force majeure. Tenant shall exercise such right upon thirty days written notice to Landlord, which notice shall state the amount of any "Holdover Premium" (as defined below). Such notice shall be effective to terminate this Lease immediately unless, within three business days following receipt of Tenant's notice of termination, Landlord gives Tenant written notice that 2 Landlord will pay to Tenant or credit against rentals due hereunder the amount of any Holdover Premium attributable to the portion of the period from April 1, 1999 though April 30, 1999 during which Tenant continues to occupy and pay rent in respect of the premises that Tenant currently occupies. If Landlord gives such notice, the termination notice given by Tenant shall not be effective to terminate this Lease if Landlord substantially completes such work and tenders possession of the Premises to Tenant by April 30, 1999, as such date may be extended by any Tenant Delays or force majeure delays; if such work is not so completed and such tender made, this Lease shall terminate pursuant to Tenant's termination notice. The term "Holdover Premium" shall mean the lesser of the following: (i) $27,320.42; or (ii) the amount, if any, by which the rental for the premises currently occupied by Tenant that is due for the month of April, 1999 (determined in accordance with the good faith arrangements in effect between Tenant and its current landlord) exceeds $27,320.42. Subject to the obligation of Landlord to pay any Holdover Premium to Tenant, any termination of this Lease by Tenant pursuant to this subparagraph shall be Tenant's sole and exclusive remedy for Landlord's failure to complete the such work and tender possession of the Premises to Tenant. 5.1 Minimum Rent ------------ Tenant agrees to pay to Landlord in advance on the first day of each and every consecutive month during the Term or any extension thereof, without demand, offset or deduction, except as otherwise expressly provided herein, a minimum monthly rental (the "Minimum Rent") for the Premises, for each and every month, as set forth in the Reference Provisions. Upon execution of this Lease, Tenant shall pay to Landlord one month's Minimum Rent in advance, to be applied against the Minimum Rent due for the first month of the Term. Should the Minimum Rent commence on a day other than the first day of a calendar month, then the Minimum Rent for such first fractional month shall be computed on a daily basis for the period from the day of commencement to the end of such calendar month at an amount equal to one-thirtieth (1/30th) of the Minimum Rent for each such day, and thereafter shall be computed and paid as aforesaid. 5.2 Additional Rent --------------- a. As Additional Rent, Tenant shall pay to Landlord at the times hereinafter set forth, an amount equal to (i) Tenant's Share specified hereinbelow of any increase in "Operating Expenses" (defined below in this paragraph 5.2) paid or incurred by Landlord in any calendar year with respect to the operation, repair, maintenance and management of the Building above such Operating Expenses paid or incurred by Landlord during the Base Year specified herein below and (ii) Tenant's share of any increase in "Taxes" (defined below in this paragraph 5.2) paid or incurred by Landlord in any fiscal year in excess of those paid or incurred in the Base Tax Year specified herein below (all such rentals, charges and sums other than Minimum Rent being sometimes referred to in this Lease as Additional Rent and payable as additional rent hereunder, whether or not the same may be designated "Additional Rent"). If such amounts are not paid at the time provided in this Lease, they shall nevertheless be collectable, together with any interest or late charge provided for herein, as Additional Rent with the next installment of Minimum Rent thereafter falling due, but nothing herein contained shall be deemed to suspend or delay the payment of any amount of money or charge at the time the same becomes due and payable hereunder, or limit any other remedy of Landlord. Landlord's invoice or demand for any Additional Rent hereunder may be made by regular mail, notwithstanding the provisions hereof concerning notices. Where the time for payment of any Additional Rent is not specified herein, the same shall be due and payable twenty (20) days after Landlord's invoice or demand is given. If at any time during the Term, less than ninety-five percent (95%) of the total leasable area of the Building is occupied, the Operating Expenses and Taxes shall be adjusted by Landlord to reasonably approximate the Operating Expenses and Taxes which would have been incurred if the Building had been at least ninety-five percent (95%) occupied. At or after the commencement of any calendar year subsequent to the Base Year Landlord may, but shall not be required to, notify Tenant of Landlord's estimate of the amount of any increase in Operating Expenses for such calendar year over Operating Expenses for the Base Year, the amount of any increase in Taxes over those paid or incurred in the Base Tax Year and of the amount of such estimated increases payable to Tenant. Tenant shall pay to Landlord on the first day of each calendar month one-twelfth (1/12) of the amount of such estimated annual increases in Operating Expenses and Taxes payable by Tenant hereunder. Statements of the amount of actual Operating Expenses for the preceding calendar year, of Taxes for the appropriate fiscal year and of the amount of such increases payable by Tenant shall be given to Tenant following the end of the year. All amounts payable to Tenant as shown on said statement, less any amounts theretofore paid by Tenant on account of Landlord's estimate of increases in Operating Expenses and Taxes made pursuant to this paragraph 5.2 shall be paid by Tenant upon delivery of said statement to Tenant. In the event that Tenant has paid in any given year estimated increases beyond those later determined from actual reconciliation, then such overpayment shall be applied toward the Rent for the following year or, if this Lease has terminated and not been renewed as provided herein, such overpayment shall be promptly refunded to Tenant, If at any time Landlord determines that Operating Expenses or Taxes will materially vary from the then estimated Operating Expenses or Taxes, Landlord may, by written notice to Tenant, revise the amounts of the estimated payments due from Tenant, and Tenant shall thereafter pay such revised payments. 3 b. The amount of any increase in Operating Expenses and Taxes payable by Tenant for the year in which this Lease terminates shall be prorated on the basis which the number of days from and including the commencement of said year to and including the date on which this lease terminates bears to 365 and shall be due and payable when tendered notwithstanding termination of this Lease. c. The term "Operating Expenses" as used herein shall include all costs of operation, repair, maintenance and management of the Building, including the Premises, except those costs which are the exclusive responsibility of Tenant or any other tenant of the Building under this lease or other applicable leases. By way of illustration, but not limitation, Operating Expenses shall include the cost of and charges for the following items: heat, light, water, sewer, power, steam, and other utilities and systems (including without limitation any temporary or permanent utility surcharge or other exaction, whether now or hereafter imposed), waste disposal, janitorial services, guard services, window cleaning, air conditioning, repairs, replacements, materials and supplies, equipment and tools, service agreements on elevators, insurance, licenses, permits and inspections, wages and salaries, employee benefits and payroll taxes, accounting and legal expenses, management fees, depreciation on personal property, including, without limitation, window coverings provided by Landlord and carpeting in public corridors and common areas, and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses. Notwithstanding the foregoing, the following items shall not be included in Operating Expenses: (1) any payments under a ground lease or master lease relating to the Building; (2) expenditures which, under generally accepted accounting principles, are capitalized, except that Landlord may include in Operating Expenses an amortization (in accordance with generally accepted accounting principles) of the amount of any capital expenditures made either for the purpose of reducing Operating Expenses or in order to comply with the requirements of applicable law which take effect with regard to the Building after the Commencement Date; (3) rentals for any improvements and permanently installed fixtures (including HVAC equipment and facilities) which if purchased, rather than rented, would constitute a capital expenditure not permitted to be included in Operating Expenses hereunder (excluding, rentals in connection with normal or emergency repairs and maintenance, and excluding in any event any equipment used in providing janitorial or similar services); (4) all costs and expenses for which Landlord is reimbursed under an "all-risk" policy of insurance or which are covered by condemnation proceeds, to the extent of the net receipts from such insurance or proceeds; (5) costs, including permit, license and inspection costs, directly incurred in the installation of improvements made within the premises and exclusively for the benefit of a particular tenant of the Building, including costs of improving, decorating, painting or redecorating premises for such a tenant; (6) costs incurred exclusively in connection with the leasing of premises in the Building, including but not limited to, leasing commissions, real estate brokerage commissions, and attorneys' fees in connection with the negotiation and preparation of lease proposals, deal memos, letters of intent, leases, subleases and/or assignments, space planning costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions with present or prospective tenants or other occupants of the Building; (7) costs and expenses of providing any service or utility to or within the premises of another tenant of the Building where such service or utility is of a nature which is not Landlord's responsibility to provide pursuant to this Lease, except where Landlord may provide such service or utility both to such other premises and to the Premises; (8) costs and expenses incurred in connection with the negotiation or litigation of disputes with Tenant or another tenant of claims of violation by Landlord of this Lease or any other lease in the Building, including fines, penalties, interest, damages and any legal and other professional fees; (9) the portion of any fee or charge for services paid to a party owned by or under common ownership with Landlord to the extent that the same exceeds the competitive cost for such services were they not so rendered by a party affiliated with Landlord, except that Operating Expenses may, in any event, include a management fee in an amount not to exceed five percent (5%) of gross revenue; (10) any interest, principal payments, attorneys' fees, points, fees or closing or other lender costs on financing secured by a deed of trust or mortgage on the Building; (11) a separate charge for Landlord's general corporate overhead and general and administrative expenses; (12) with regard to any employee who shall devote less than all of his or her time to the operation, management, repair and maintenance of the Building, the labor costs allocable to the portion of his time not so devoted; (13) advertising or promotional expenses with respect to leasing space in the Building; (14) costs incurred to comply with laws relating to the removal, remediation, containment or treatment of Hazardous Materials; (15) costs and expenses incurred by Landlord in performing work necessary to remedy violations of code requirements concerning Building improvements where such code requirements were applicable at the time of the initial installation or construction of such improvements or were otherwise required to be complied with by Landlord in the Building prior to the Commencement Date; (16) all costs and expenses for repairs and maintenance for which Landlord is reimbursed directly by any tenant of any space in the Building (excluding reimbursement under an operating expense provision) or by vendor, contractor or provider of materials or services to Landlord; (17) charitable or political contributions of Landlord; (18) costs attributable to enforcing leases against tenants in the Building or in litigating other disputes with tenants regarding the rights and obligations of Landlord, such as attorneys' fees, court costs, adverse judgments and similar expenses; (19) costs associated exclusively with the operation of the business of the person or entity which constitutes Landlord which are not directly related to the operation of the Building and which relate to the following: the formation of any entity which constitutes Landlord; the internal accounting and legal matters which relate exclusively to preparation of the tax returns and financial statements of such person or entity, together with the gathering of data therefor; the cost of defending any lawsuits with any mortgagee (except as the actions of Tenant may be an issue); the costs of selling, syndication, financing, mortgaging or hypothecating any of Landlord's 4 interest in the real property and improvements constituting the Building; and the costs of any dispute between Landlord and any employee to the extent that the other costs attributable to the employment of such employee are not permitted to be included within Operating Expenses pursuant to this Lease; or (20) reserves for bad debt or lost rent. The term "Taxes" as used herein shall include all real property taxes and assessments, impositions, levies and fees on the Building, the land on which the Building is situated, and the various estates in the Building and the land. Taxes shall also include all personal property taxes levied on the property used in the operation, repair, maintenance and management of the Building; taxes of every kind and nature whatsoever levied and assessed in lieu of, in substitution for, or in addition to, existing or additional real or personal property taxes on the Building, land or personal property, whether or not now customary or within the contemplation of the parties hereto, other than taxes covered by paragraph 22 to the extent that Landlord is reimbursed therefor by Tenant or by any other tenant of the Building; taxes upon the gross or net rental income of Landlord derived from the Building and land (excluding, however, state and federal personal or corporate income taxes measured by the income of Landlord from all sources) and the cost to Landlord of contesting the amount or validity or applicability of any of the aforementioned taxes. In no event shall Taxes include any increase in assessed valuation attributable to a "change in ownership" as defined under the law from time to time applicable regarding reassessment for purposes of property taxation. d. The annual determination and statement of Operating Expenses and Taxes shall be made by an accounting or auditing officer designated by Landlord. A copy of said determination shall be made available to Tenant upon demand. e. The Base Year referred to hereinabove is defined as the calendar year 1999. The Base Tax Year referred to hereinabove is defined as the fiscal tax year, being July 1, 1998 - June 30, 1999. Tenant's Share of Operating Expenses and Taxes, as referred to hereinabove, is 8.32%, which percentage has been determined by Landlord by reference to consistent measurements of the rentable area of the Premises and of the remainder of the Building. f. The Minimum Rent and the Additional Rent are hereinafter sometimes individually or collectively referred to as "Rent." 5.3 Payment of Rent --------------- Tenant agrees to pay Rent to Trinity Management Services, in lawful money of the United States of America at the office of Landlord c/o Trinity Management Services, 1145 Market Street, Twelfth Floor, San Francisco, California 94103, or to such other person or at such other place as Landlord may from time to time designate in writing. No security or guaranty, which may now or hereafter be furnished to Landlord for the payment of the Rent herein reserved or for performance by Tenant of the other covenants or conditions of this Lease, shall in any way be a bar or defense to any action in unlawful detainer, or for the recovery of the Premises, or to any action which Landlord may at any time commence for a breach of any of the covenants or conditions of this Lease. 5.4 Security Deposit ---------------- On execution of this Lease, Tenant shall deposit with Landlord the amount set forth in the Reference Provisions of this Lease to be held by Landlord for the Term or any extension thereof as a security deposit for the performance by Tenant of the provisions of this Lease. If Tenant fails to perform its obligations hereunder, Landlord may, but shall not be obligated to, use the security deposit, or any portion of it, to cure such failure or to compensate Landlord for all damage sustained by Landlord resulting from such failure. Tenant shall immediately on demand pay to Landlord a sum equal to the portion of the security deposit expended or applied by Landlord as provided in this paragraph so as to maintain the security deposit in the sum initially deposited with Landlord. If Tenant has performed all of its obligations at the expiration or termination of this Lease, and has timely vacated and surrendered the Premises free of any damages and in the condition in which the Premises is required to be surrendered, said security deposit will be timely returned to Tenant. Landlord may commingle the security deposit with Landlord's general other funds. Landlord shall not be required to pay Tenant interest on the security deposit. 6. Common Areas ------------ Tenant, its employees and invitees may, except as otherwise specifically provided in this Lease, use the common areas of the Building as such common areas may be designated by Landlord during the Term ("Common Areas"), which use shall be subject to the restrictions set forth in this Lease (including, without limitation, the Rules and Regulations) and any further restrictions promulgated by Landlord from time to time. Landlord shall at all times have the right and privilege of determining the nature and extent of the Common Areas, the maintenance and repair thereof, and of making such changes therein and thereto from time to time which, in its sole discretion, are deemed to be desirable, including, without 5 limitation, the withdrawal of any portion thereof and the relocation of driveways, entrances, exits, corridors, automobile parking spaces (if any), the direction and flow of traffic, installation of prohibited areas, landscape areas, and all other facilities thereof, provided that such facilities shall not be changed in a manner that would result in a material impairment of access to the Premises. Nothing contained herein shall be deemed to create any liability upon Landlord for any injury to or death of persons or for damage to or destruction of property, including, without limitation, for any damage to motor vehicles of Tenant, its customers or employees, or for loss of property from within such motor vehicles. Landlord shall at all times during the Term have the sole and exclusive control of the Common Areas, which also include mechanical and electrical rooms located throughout the Building, which are available for the use or benefit of tenants, and may at any time and from time to time during the Term exclude and restrain any person from use or occupancy thereof excepting, however, bona fide invitees of Tenant and other tenants of Landlord who make use of said Common Areas in accordance with the Rules and Regulations pertaining thereto. Tenant acknowledges that from time to time there may be inconveniences associated with repair, maintenance, construction and renovation of the Common Areas and other premises and other portions of the Building, and Landlord shall use reasonable efforts to cause such work to be done in a manner which will minimize disruption of Tenant's use of the Premises to the extent practicable. The rights of Tenant hereunder in and to the Common Areas shall at all times be subject to the rights of Landlord and other tenants of Landlord who use the same in common with Tenant, and it shall be the duty of Tenant to keep all the Common Areas free and clear of any obstructions created or permitted by Tenant or resulting from Tenant's operation, and to permit the use of any of the Common Areas without interference by reason of the presence of Tenant in the Premises. Tenant, upon demand of Landlord, shall correct such situation by appropriate action or proceedings against all such unauthorized persons. Nothing herein shall affect the right of Landlord at any time to remove any such unauthorized persons from said areas or to prevent the use of any said areas by unauthorized persons. 7. Uses Prohibited --------------- Tenant shall not do or permit anything to be done in or about the Premises, or sell or bring or keep or permit to be kept anything therein, which will in any way increase the rate of or affect any fire or other insurance upon the Building or any of its contents, or cause a cancellation of any insurance policy covering the Building or its contents. Tenant shall, at its sole cost and expense, comply with any and all requirements pertaining to the Premises of any insurance organization or company necessary for the maintenance of the fire and public liability insurance covering the Premises. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them, or use or allow the Premises to be used for any immoral, unlawful or hazardous or objectionable purposes and Tenant shall not cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not change the use of the Premises in any way that will result in a conflict with any other lease of premises in the Building. No loudspeakers or any other similar device, system or apparatus which can be heard or experienced outside the Premises shall, without the prior written approval of Landlord, be used in or at the Premises. Tenant shall not use the Premises for the operation of a store or otherwise for the sale of merchandise to the public. In no event shall Tenant conduct or permit to be conducted in or from the Premises any sale by auction, or any fire, distress, going-out-of-business or bankruptcy sale. Tenant shall not place or install in or about the Premises or the Building any vending machines (other than for use by Tenant's employees), newspaper racks or other coin-operated or similar devices, nor shall Tenant place or permit portable signs or any other objects or devices in or about the Premises or the Building. Tenant shall not in any manner solicit or authorize any solicitation in any portion of the Common Area. Tenant agrees immediately upon the discovery of any unlawful, illegal, disreputable or extra hazardous use, to take all necessary steps, legal and equitable, to compel the discontinuance of such use and to oust and remove any subtenants, occupants or other persons guilty of such unlawful, illegal, disreputable, or extra hazardous use. Tenant shall indemnify, defend and save Landlord harmless against and from all costs, expenses, liabilities, losses, damages, injunctions, suits, fines, penalties, claims and demands, including reasonable legal fees and costs, arising out of, by reason of, or on account of, any violation of or default in the covenants of this paragraph. The provisions of this paragraph are for the benefit of Landlord only and are not nor shall they be construed to be for the benefit of any tenant or occupant of the Building. 8. Compliance with Law ------------------- Tenant shall not use the Premises or do or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule, regulation, or requirement now in force or which may hereafter be enacted or promulgated. Tenant, at its sole cost and expense, shall promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force and with the requirements of any board or fire underwriters or other similar body now or hereafter constituted pertaining to the use and occupancy of the Premises and the Building, and shall obtain all necessary permits and approvals pertaining to the conduct of Tenant's business and its use and occupancy of the Premises. The judgment of any court of competent jurisdiction or the admission of Tenant in an action against Tenant (whether Landlord be a party thereto or not) that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement shall be conclusive of that fact as between Landlord and Tenant. Notwithstanding the foregoing, Tenant shall not be required by this paragraph to make any structural alterations, structural 6 repairs or structural additions to the Building in order to comply with laws, ordinances, orders, rules, regulations or requirements unless such alterations, changes, repairs or additions are made necessary by an act or omission of, or work performed by, Tenant or its agents, employees, invitees, licensees or contractors or by Tenant's particular use of the Premises. Tenant shall, at its sole cost and expense, comply with all Federal, State or local laws from time to time in effect ("Hazardous Materials Laws") concerning the management, use, generation, storage, transportation, presence, discharge or disposal of hazardous, toxic, radioactive or carcinogenic materials, substances or wastes ("Hazardous Materials"). Except for materials normally and customarily used in offices, such as cleaning supplies and the like kept in small quantities and safely stored, neither Tenant nor its agents, employees, contractors, sublessees, assignees or invitees shall use, handle, store, transport, release or dispose of any Hazardous Materials anywhere in, on, under or about the Premises or the Building. Tenant shall cause any and all Hazardous Materials brought onto, used, generated, stored or discharged in the Premises to be removed from the Premises and transported for disposal in accordance with applicable Hazardous Materials Laws. Landlord shall have the right to enter the Premises from time to time to conduct tests, inspections and surveys concerning Hazardous Materials and to monitor Tenant's compliance with its obligations concerning Hazardous Materials and Hazard Materials Laws. Tenant shall immediately notify Landlord in writing of any voluntary clean-up or removal action instituted or proposed by Tenant, any enforcement, clean-up, removal or other governmental or regulatory action instituted or threatened, or any claim made or threatened by any person against Tenant, the Premises, or the Building relating to Hazardous Materials or Hazardous Materials Laws. Tenant shall also supply to Landlord as promptly as possible, and in any event within five (5) business days after Tenant receives or sends same, copies of all claims, reports, complaints, notices, warnings or asserted violations relating in any way to the Premises or Tenant's use thereof and concerning Hazardous Materials or Hazardous Materials Laws. Tenant shall not negotiate or enter into any settlement agreement, consent decree or other compromise with respect to Hazardous Materials or Hazardous Materials Laws affecting the Premises except after giving Landlord prior written notice and a full and fair opportunity to appear, intervene or otherwise assert and protect Landlord's rights and interests. Tenant shall indemnify, defend and hold Landlord harmless from any claims, causes of action, liabilities, losses, damages, injunctions, suits, fines, penalties, costs or expenses (including attorneys' fees and expenses) caused or alleged to have been caused by the presence of Hazardous Materials in or about the Premises, including, without limitation, any personal injury, death, property damage, decrease in value of the Premises or Building, caused or alleged to have been caused by the use, storage, generation, presence or release of Hazardous Materials, whether such claims, causes of action or liabilities are first asserted during the Term or thereafter, and including without limitation, claims made against Landlord with respect to personal injury, death or property damage sustained by third parties caused or alleged to have been caused by the use, storage, generation, presence or release of Hazardous Materials in violation of Tenant's obligations under this Lease. Landlord represents that the Premises will, upon delivery to Tenant, be constructed in compliance with all Hazardous Materials Laws applicable as of the date of delivery, and that Landlord has no actual knowledge that the Premises will, upon delivery of possession thereof to Tenant, contain any Hazardous Materials that will adversely affect Tenant's use of the Premises for the purpose contemplated by this Lease. Landlord shall indemnify, defend and hold Tenant harmless from any claims, causes of action, liabilities, costs or expenses arising from or in connection with personal injury or death or property damage or clean-up costs arising by reason of Landlord's breach of the foregoing representation or by reason of any release, disposal, storage or use of any Hazardous Materials in, on or about the Building or the Premises by Landlord, its employees, agents or contractors after the Commencement Date in violation of applicable Hazardous Materials Laws. 9. Certificates of Occupancy ------------------------- Tenant shall not at any time use or occupy the Premises in violation of the certificates of occupancy or of any present or future governmental orders or directives issued for the Building. In the event that any department of the City or County in which the Building is located, or of the State of California, shall hereafter at any time contend or declare that the Premises are used for a purpose which is in violation of such certificate or certificates of occupancy, Tenant shall, upon five (5) days notice from Landlord or any governmental agency, immediately discontinue such use of the Premises. Failure by Tenant to discontinue such use after such notice shall be considered a default under this Lease and Landlord shall have the right to terminate this Lease immediately, and in addition thereto shall have right to exercise any and all rights and privileges and remedies given to Landlord pursuant to the provisions of paragraph 28 hereof. The statement in this Lease of the nature of the business to be conducted by Tenant in the Premises shall not be deemed or construed to constitute a representation or guaranty by Landlord that such business is lawful or permissible or will continue to be lawful or permissible under any certificate of occupancy issued for the Building, or otherwise permitted by law; provided, however, Landlord represents to Tenant that Tenant's use of the Premises for general office purposes in accordance with the terms and conditions of this Lease is permissible pursuant to the certificate of occupancy for the Building. 7 10.1 Initial Improvements and Alterations ------------------------------------ a. Landlord shall construct and install, at Landlord's expense, initial improvements in the Premises generally as shown in the working drawings and specifications described in the list attached hereto as Exhibit C (the "Drawings and Specifications"). Landlord shall construct such initial improvements substantially in accordance with the Drawings and Specifications, according to standard Building procedures and quality, and in compliance with all governmental laws, statutes, ordinances, rules or regulations applicable to the work to be done pursuant to the Drawings and Specifications. In no event shall Landlord be responsible to supply or install, or pay or reimburse Tenant for the cost of, any trade fixtures, furniture or furnishings, any computer, data, telephone or communications systems or equipment (or related cabling or wiring, except that Landlord shall provide ring and string for Tenant's telephone and data conduit as specified in the Drawings and Specifications), any other business equipment or systems of Tenant, or any decorations or other personal property. b. Tenant shall pay or reimburse to Landlord the amount of any costs and expenses incurred by Landlord for increases in prices and costs resulting from alterations, additions or other changes made at Tenant's request to the Drawings and Specifications attached to this Lease, or resulting from Tenant Delays (as defined below). Landlord may, at its option, require that Tenant advance to Landlord, as a condition to Landlord's obligation to commence or continue with the initial improvements, the anticipated amount of any such increases. At Tenant's request made in connection with a request for a change to the Drawings and Specifications, Landlord shall advise Tenant of the costs and expenses to be incurred for the change. c. In no event shall Landlord be responsible for any delay occurring by reason of any one or more of the following (a "Tenant Delay"): any delay attributable to any design or materials changes requested by Tenant to the Drawings and Specifications; any delay in commencement or completion of the initial improvements attributable to Tenant's failure to make any payment due to Landlord as herein required in respect of the increased cost of the initial improvements; or any delay resulting from a failure of Tenant or Tenant's Representative to give clear and timely advice or direction to Landlord regarding the initial improvements. In the event that a Tenant Delay shall delay the date of the substantial completion of the Premises, the Term of this Lease and the obligation of Tenant to commence to pay rentals and charges hereunder shall commence as of the date that the Premises could have been substantially completed but for such Tenant Delay. Landlord shall give Tenant written advice by mail or facsimile (with formal written notice pursuant to paragraph 43 not being required) of any circumstances that, if not remedied, will constitute a Tenant Delay. Notwithstanding the foregoing provisions of this paragraph, such circumstances shall become a Tenant Delay for purposes of this Lease only if not cured by Tenant within two business days after such advice is received by Tenant. d. Prior to commencement of the Term and occupancy of the Premises, Tenant shall inspect the improvements installed by Landlord, and Tenant shall execute and deliver to Landlord a Certificate of Acceptance of Premises substantially in the form of Exhibit D hereto and thereupon note discrepancies, if any. e. Tenant shall designate in writing a single person ("Tenant's Representative"), as Tenant's authorized representative for all matters relating to the initial improvements and any and all other work done in connection with Tenant's occupancy of and move into the Premises. Landlord may deal exclusively with Tenant's Representative on such matters, and Landlord shall not be required to give advice to or take direction from any other person whatsoever. Prior to substantial completion of the Premises, Landlord will use reasonable efforts to grant Tenant access to the Premises for the installation by Tenant of cabling, wiring and equipment for its telephone, data and other communications and office systems, upon and subject to all of the terms and conditions set forth in this Lease. Landlord will cooperate with Tenant in connection with such work, which shall be done at such time or within such period as Landlord may reasonably specify. 10.2 Alterations by Tenant --------------------- Tenant shall not make or suffer to be made any alterations, additions or improvements to or of the Premises or any part thereof, except as expressly provided in this paragraph 10.2, whether as part of the initial improvements to the Premises or thereafter. Tenant may cause such alterations, additions or improvements to be made only upon the following conditions: a. By a contractor reasonably approved in writing by Landlord in advance (it being understood that Landlord shall have the right to designate the general contractor for the construction of any and all of the initial improvements to the Premises in accordance paragraph 10.1); b. Tenant submits plans, specifications and cost estimates of such work prepared by a licensed architect in accordance with existing applicable federal, state or local laws, ordinances and regulations to Landlord for Landlord's approval which Landlord shall not unreasonably withhold. It shall, 8 however, be deemed reasonable for Landlord to withhold its consent to any alterations, additions or improvements which would (i) affect the structure of the Building or materially increase the load upon or otherwise adversely affect the electrical, HVAC or other systems of the Building, (ii) affect signage or any elevator lobby or be visible from the exterior of the Building, (iii) create or add signage on the entry doors to the Premises, or (iv) result in a use of the Premises for other than general office purposes. Default by Tenant in the payment of any sums agreed to be paid by Tenant for or in connection with alterations, additions, or improvements to the Premises shall entitle Landlord to all the same remedies as for nonpayment of Rent hereunder. Landlord will, from time to time during the Term at Tenant's request, make changes in the name of Tenant as shown on the Building standard identification signage for the Premises, at Tenant's expense. Any alterations, additions or improvements to or of the Premises including, without limitation, the initial improvements and alterations, shall at once become the property of Landlord. Movable furniture, equipment and trade fixtures shall remain the property of Tenant. Landlord may impose, as a condition of its consent to any alterations, additions or improvements, such requirements as Landlord in its sole discretion may deem advisable or desirable, including, but not limited to, the requirement that Tenant will be responsible, at Tenant's expense, for the removal of any such items upon the expiration or any earlier termination of this Lease; provided that Landlord shall, at Tenant's written request made at the time of requesting consent to alterations, advise Tenant whether removal thereof at the end of the Term is required. If Landlord so elects, Tenant shall restore the Premises to the condition of same prior to the making of such alterations, additions or improvements which are so required to be removed at the termination of this Lease, said work of removal and restoration to be performed, at Landlord's sole election, either (i) by Tenant, at Tenant's cost and expense, or (ii) by Landlord at the expense of Tenant and, in the latter election, Tenant shall pay to Landlord, promptly upon Landlord's demand, the amount of Landlord's cost of such removal and restoration. In the event that as a result of any such alterations, additions or improvements, it shall be necessary for Landlord to make other improvements (including, but not limited to, upgrading of installations of life safety systems or compliance with standards for handicapped persons) in the Building, whether within or without the Premises, then Tenant agrees to pay the cost of such other improvements if they are a condition of the building permit or were otherwise made known by Landlord to Tenant prior to the construction by Tenant; c. Upon request, Tenant shall procure and deliver to Landlord evidence of compliance with all applicable laws, ordinances, rules, regulations and requirements for permits and approvals; d. Tenant shall deliver to Landlord evidence that Tenant has procured or caused procurement of (i) worker's compensation insurance covering all persons employed in connection with the work for whom death or bodily injury claims could be asserted against Landlord or the Premises, (ii) a Completion Bond equal to 125% of the cost of said work to be done by Tenant, except that such bonds shall not be required in the case of any work done by Tenant at an aggregate cost of less than $10,000.00, and (iii) the policies of insurance required to be obtained by Tenant under paragraph 16 of this Lease. Tenant or its contractor shall pay all premiums required to maintain the insurance hereinabove described at all times during the performance of the work and shall, prior to commencing any work, deliver to Landlord copies of insurance certificates for the policies required. Such certificates shall be on Form 2010 or its equivalent and shall include an additional named insured endorsement in favor of Landlord and a provision that in the event of cancellation, non-renewal or change in coverage, the insurance carrier will send Landlord a notice thereof at least thirty (30) days preceding the effective date of cancellation, non-renewal or change in coverage; e. Tenant shall give Landlord fifteen (15) days advance written notice of Tenant's intention to commence work or delivery of building materials. The notice shall specify the nature of the work. Landlord shall have the right to post and maintain on the Premises any notices of non-responsibility provided for under applicable law, and to enter the Premises upon twenty-four (24) hour notice, except in the case of emergency, where no notice shall be required, and inspect the construction at all reasonable times; f. If Tenant installs any electrical equipment, that overloads the lines of the Premises or the Building, Landlord may require Tenant to make whatever changes to the lines as may be necessary to render same in good order and repair, and in compliance with all insurance requirements and applicable legal requirements; g. Once begun, Tenant shall diligently prosecute to completion all work in a good and workmanlike manner, in compliance with the plans and specifications approved by Landlord and with all applicable laws, ordinances, rules, regulations and requirements; h. Within thirty (30) days after completion of the work, Tenant shall record a notice of completion; and i. On completion of any work, Tenant shall supply Landlord with the final plans obtained by Tenant, including "as built" drawings, if obtained, which shall accurately reflect all such work as completed. 9 11. Repair ------ Upon completion of a walk-through inspection with Landlord at the commencement of the Term, Tenant acknowledges that Tenant has thoroughly inspected and accepts the Premises subject to all applicable laws, ordinances and regulations and agrees that the Premises are in good, sanitary order, condition and repair, except for any item on the punch list prepared following substantial completion of the Improvements, if any are to be constructed under paragraph 10.1 hereof, by the contractor at that time, and subject to Landlord's obligation to promptly correct any deficiencies in the work required pursuant to Section 10.1 which Tenant may note during such inspection, and further subject to the obligation of Landlord to remedy latent defects in the work done pursuant to the Drawings and Specifications of which Tenant gives Landlord written notice within one year following commencement of the Term. Tenant, at Tenant's sole cost and expense, agrees to keep the Premises and every part thereof (including its own trade fixtures and personal property) in good condition and repair, except that Landlord shall be responsible to maintain and repair the structure of the Building, the Common Areas, the electrical and other utility systems of the Building up to the point of connection with the systems exclusively serving the Premises, and the restrooms of the Demised Premises. Tenant hereby waives all rights to make repairs at the expense of Landlord as provided by law, statute or ordinance now or hereafter in effect, or to offset the cost thereof against Rent. It is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, decorate and paint the Premises or any part thereof and, except as expressly set forth in the Drawings and Specifications and in this paragraph, no representations respecting the condition of the Premises have been made by Landlord to Tenant. If, in an emergency, it shall become necessary to make promptly any repairs or replacements required to be made by Tenant, Landlord may, without notice, enter the Premises and proceed forthwith to have the repairs or replacements made and pay the cost thereof. Within thirty (30) days after Landlord renders a bill therefor, Tenant shall reimburse Landlord for the cost of making the repairs. 12. Abandonment ----------- Tenant shall not abandon the Premises at any time during the Term and, if Tenant does abandon or surrender the Premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Tenant and left on the Premises shall be deemed to be abandoned at the option of Landlord, except such property as may be security for a debt to Landlord. 13. Liens ----- Tenant agrees to keep the Premises, and every part thereof, at all times during the Term, free and clear of mechanics' liens and other liens for labor, services, supplies, equipment or material, furnished to Tenant or the Premises and that it will at all times fully and promptly pay and discharge and wholly protect and save harmless, by bond or otherwise, Landlord, and all and every part of the estate, right, title and interest of Landlord in and to all and every part of the Premises, against any and all such demands or claims which may or could ripen into such liens or claims therefor. A breach by Tenant of any of the foregoing covenants shall entitle Landlord to all the same remedies as for non-payment of Rent hereunder. 14. Assignment and Subletting ------------------------- a. In entering into this Lease for the Term and on the provisions of this Lease, Landlord has relied upon Tenant's business reputation and experience. Accordingly, Tenant may not assign this Lease or sublet all or any portion of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld, as more particularly described below. Should Tenant assign this Lease or sublet all or a portion of the Premises, Tenant will remain primarily liable, and not merely as a surety, for payment of the Rent and performance of the other lease terms, conditions, covenants and duties of this Lease. Tenant shall not sublet all or any portion of the Premises for any period of time extending beyond the period of this Lease or any renewal thereof. If Landlord declines to consent to any proposed assignment or sublease, this Lease shall remain unmodified and in full force and effect as if no request for assignment or subletting had been made by Tenant, subject to the termination rights of Landlord set forth below. Tenant shall not, in any event, mortgage, pledge, hypothecate, encumber or otherwise grant a security interest in this Lease or any rights of Tenant hereunder. b. Following a request from Tenant for consent to any assignment or sublease, Landlord may elect in its sole discretion to terminate this Lease in its entirety, in the event of an assignment or a sublease of the entire Premises, or to terminate this Lease with respect to the portion of the Premises proposed to be subleased, in the event of a sublease of less than all of the Premises, in either case by giving Tenant written notice within thirty (30) days after receipt from Tenant of its written request for Landlord's consent. Following any such termination, Landlord may, at its option, enter into a direct lease with the proposed subtenant or assignee. Notwithstanding the foregoing, Landlord shall not have the termination right set forth in this paragraph 14(b) in respect of an assignment to a "Permitted Transferee" as defined in paragraph 14(g). 10 c. Landlord and Tenant agree that it shall be deemed to be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed assignment or sublease where one or more of the following apply, without limitation as to other reasonable grounds for withholding consent: (i) In Landlord's reasonable judgment, the use of the Premises by the proposed assignee or subtenant (the "Transferee") would not be comparable to the types of use by other tenants in the Building, would entail any alterations which would lessen the value of the leasehold improvements in the Premises, would result in more than a reasonable number of occupants per floor, or would require substantially increased services by Landlord or would alter the tenant mix in the Building so as to adversely affect the economic viability, marketability or reputation of the Building (Tenant acknowledging that Landlord's leasing policy for the Building is based, in material part, on Landlord's determination of a successful mix of tenant uses, density of use of space by and methods of operation of tenants); (ii) The Transferee is either a governmental agency or instrumentality thereof (unless similar governmental tenants are then in occupancy in the Building); (iii) The Transferee's intended use of the Premises (a) is inconsistent with the use of the Premises permitted pursuant to this Lease or (b) would violate any applicable laws, ordinances, codes or governmental regulations or requirements; (iv) In Landlord's reasonable judgment, the financial worth of the Transferee does not meet the credit standards applied by Landlord for other tenants under leases with comparable terms, or the character, reputation, or business of the proposed assignee or sublessee is not consistent with the quality of the other tenancies in the Building; (v) The proposed assignment or sublease would cause Landlord to be in violation of another lease or agreement to which Landlord is a party, or would give an occupant of the Building a right to cancel its lease; (vi) Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (a) occupies space in the Building at the time of the request for consent and Landlord has available for lease in the Building space comparable to that which the Transferee may lease from Tenant, or (b) is negotiating with Landlord to lease space in the Building at such time; (vii) The Transferee does not intend to occupy the entire Premises and conduct its business therefrom for a substantial portion of the term of the assignment or sublease; (viii) Landlord has experienced previous defaults by, or is in litigation with, the Transferee; (ix) The proposed sublease or assignment fails to include all of the terms and provisions required to be included therein pursuant to this Article 14; or (x) At the time consent is requested or at any time prior to the granting of consent, Tenant is in default under this Lease or would be in default under this Lease but for the pendency of any applicable cure period. d. In the case of a sublease all or a portion of the Premises, the permitted subtenant shall not be permitted to further assign or sublease its interest in the Premises, other than to assign its entire interest in the sublease with the prior written consent of Landlord as herein provided, and each proposed sublease shall contain appropriate restrictions satisfactory to Landlord in furtherance of the foregoing. Any mortgage, pledge, hypothecation, encumbrance or other grant of a security interest in this Lease or any rights of Tenant hereunder, or any assignment or subletting, occupation or use of this Lease or the Premises without the consent of Landlord as aforesaid, shall be void and, at the option of Landlord, constitute a default entitling Landlord to terminate this Lease and give rise to all other remedies available to Landlord for breach of this Lease. For purposes of this paragraph 14, the following events shall be deemed an assignment of this Lease or a sublease, as appropriate: (i) the issuance of equity interests in Tenant or any subtenant (whether stock or partnership interests or otherwise) to any person or group of persons in a single transaction or a series of related or unrelated transactions, such that, following such issuance, such person or group shall have control of Tenant or such subtenant; or (ii) a transfer of control of Tenant or of any subtenant in a single transaction, or a series of related or unrelated transactions (including, without limitation, by consolidation, merger or reorganization), except that the transfer of the outstanding capital stock of any corporate Tenant or subtenant (by persons or parties other than "insiders" within the meaning of the Securities Exchange Act of 1934, as amended) through the "over-the-counter" market or any recognized national or international securities exchange shall not be included in the determination of whether control has been transferred. "Control" shall mean ownership of 50% or more of all of the voting stock of such corporation or 50% or more of the legal and equitable interest or voting rights or control in any other business entity. If this Lease is assigned, whether or not in violation of the 11 terms of this Lease, Landlord may collect rent from the assignee. If the Premises or any part thereof is sublet or is used or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from such subtenant or occupant. In either event, Landlord may apply the next amount collected to the rents herein reserved. The consent by Landlord to an assignment, transfer, encumbering or subletting pursuant to any provision of this Lease shall not relieve Tenant or any assignee or subtenant from obtaining the express prior written consent of Landlord to any other or further assignment, transfer, encumbering or subletting. Neither any assignment of this Lease or any interest created hereby or any interest of Tenant in any sublease, nor any subletting, occupancy or use of the Premises or any part thereof by any person other than Tenant, nor any collection of rent by Landlord from any person other than Tenant, nor any application of any such rent as provided in this subparagraph (a) shall be deemed a waiver of any of the provisions of this subparagraph, or (b) relieve, impair, release or discharge Tenant of its obligation fully to perform the terms of this Lease on Tenant's part to be performed, and Tenant shall remain fully and primarily liable hereunder. e. Tenant agrees to pay to Landlord the amount of Landlord's cost of processing every proposed subletting or assignment (including, without limitation, the costs of attorneys' and other professional fees and administrative, accounting and clerical time of Landlord) in an amount not to exceed $1,000.00 per proposed assignment or sublease, and the amount of all direct expenses incurred by Landlord arising from any assignee or sublessee taking occupancy (including, without limitation, expenses associated with signage, freight elevator operation for moving furnishings and trade fixtures, security service, janitorial and cleaning service and rubbish removal service). Notwithstanding anything herein to the contrary, Landlord shall have no obligation to process any request for such consent prior to Landlord's receipt of payment by Tenant of the amount of Landlord's estimate of the processing costs and expenses and all other direct and indirect costs and expenses of Landlord and its agents arising from such proposed transaction. f. In the event of (i) any permitted subletting or assignment at a greater rental rate than the Rent payable by Tenant hereunder or (ii) any permitted subletting or assignment providing for payment of any consideration (including, without limitation, "key money" and the like, and payment for leasehold improvements) by the sublessee or assignee to Tenant, the amount of all such sublease rental and/or consideration which is in excess of the Rent payable by Tenant hereunder shall be paid to Landlord. Tenant shall be entitled to offset against any such excess rentals or consideration received by Tenant the reasonable out-of-pocket brokerage commissions, tenant improvement costs or allowances and legal fees incurred in connection with the transfer, amortized over the term of the transferee's occupancy of the Premises. Notwithstanding the foregoing, in respect of an assignment to a "Permitted Transferee" as defined in paragraph 14(g), the amount payable to Landlord pursuant to this paragraph 14(f) shall not exceed the amount allocated to this Lease by the parties to such transaction, either in the agreements between them regarding the transaction or in their tax or financial filings or reports. g. Notwithstanding anything to the contrary contained in this paragraph 14, Tenant shall have the right upon the terms set forth in this subparagraph to do any one or more of the following: (i) to assign the Lease or sublease all or a portion of the Premises to an entity which controls, is controlled by, or is under common control with, Tenant; (ii) to assign the Lease or sublease all or a portion of the Premises to an entity which merges or consolidates with Tenant; (iii) to assign the Lease or sublease all or a portion of the Premises to an entity which acquires all or substantially of the assets of the business operated from the Premises; or (iv) to sell or permit the sale of a controlling interest in the stock of the Daily Journal Corporation or such other single corporation or entity as may succeed to the assets and businesses held and operated by the Daily Journal Corporation as of the date of this Lease (with the transferee under any such assignment, sublease or sale being referred to herein as a "Permitted Transferee"). Landlord's consent shall not be required but Tenant shall give Landlord prior written notice of the transfer and shall deliver to Landlord, within five (5) days following the effective date of the transaction, a duly executed assignment and assumption agreement in form reasonably acceptable to Landlord, in the case of an assignment, or a true and correct copy of any sublease. No assignment or sublease described in this subparagraph (g) shall affect the terms and conditions of this Lease or relieve Tenant from any liability under this Lease. For purposes of this subparagraph, the term "control" shall mean the ownership, directly or indirectly, of at least fifty percent (50%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, at least fifty percent (50%) of the voting interest in a person or entity. 15. Indemnification --------------- a. Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any loss, cost, damage, injury, illness or death suffered by any person or damage to any property in or about the Premises or the real property of which the Premises are a part by or from any cause whatsoever and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the Premises of said real property or caused by gas, fire, electricity or any cause whatsoever, in, on or about the Premises or said real property or any part thereof. b. Tenant shall indemnify, defend and hold Landlord, the respective individuals or partners therein, and the respective shareholders thereof (as applicable), and all of Landlord's agents, officers, 12 directors and employees (hereinafter collectively called the "Indemnitees") harmless from and against any and all loss, cost, liability, claim, damage and expense including, without limitation, penalties, fines and attorneys' fees and costs, incurred in connection with or arising from any default by Tenant hereunder or from any loss, cost, damage, injury, illness or death suffered by any person or damage to any property or from any other cause whatsoever: (i) occurring in, on or about the Premises or any part thereof arising at any time and from any cause whatsoever or (ii) arising at any time and occurring in, on or about any part of the Building, or the land upon which the Building is situated (together, the "Property") other than the Premises (including, without limitation, any facilities of the Property, such as elevators, stairways, passageways, hallways, plaza areas or adjacent sidewalks the use of which Tenant may have in common with other tenants of the Building), to the extent such injury, illness, death or damage shall be caused by any intentional misconduct, neglect or default or omission of any duty with respect to the same by Tenant or its agents or employees. The provisions of this paragraph 15(b) shall survive the termination of this Lease with respect to any claim, cost, expense, liability, injury, illness, death or damage occurring prior to such termination. In case any action or proceeding be brought against any of the Indemnitees by reason of any such matter, Tenant upon notice from Landlord covenants to resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord. Tenant, as a material part of the consideration to Landlord for this Lease, hereby assumes all risks of damage to property (to whomever belonging) in, upon or about the Premises from any source, and Tenant hereby waives all claims in respect thereof against the Indemnitees. Notwithstanding any contrary provision of this paragraph 15, the waivers set forth in this paragraph 15 and Tenant's indemnification obligations set forth in this paragraph 15(b) shall not be applicable to any matters occurring outside of the Premises and arising from the negligence or willful misconduct of Landlord, its employees or agents. Landlord shall indemnify, defend and hold Tenant, its agents, officers, directors, employees and affiliates harmless from and against any and all loss, cost, liability, claim, damage and expense, including, without limitation, penalties, fines and attorneys' fees and costs, incurred either in connection with matters occurring within the Premises and arising from the active negligence or wilful misconduct of Landlord or in connection with matters occurring outside of the Premises and arising from the active or passive negligence or willful misconduct of Landlord, its employees or agents. 16. Insurance --------- a. Tenant agrees to keep in force during the Term, at Tenant's expense, comprehensive general liability insurance, including contractual liability insurance, with a minimum combined single limit of liability of One Million Dollars and No/100 ($1,000,000.00) per occurrence for injuries to or death of persons and damage to property occurring in or about the Premises and its appurtenances. Said policy shall name Landlord and any other parties designated by Landlord as additional insureds and the policy shall contain cross liability endorsements; shall insure Tenant's indemnification obligations under this Lease; shall be issued by an insurance company licensed to do business in the State of California with a Best Rating of not less than "A" with Best Financial size Class VII or better and approved by Landlord, which approval Landlord shall not unreasonably withhold; shall specifically include the liability assumed by Tenant under this Lease (provided, however, that such contractual liability coverage shall not be deemed to satisfy Tenant's indemnity obligations under this Lease); shall provide that said insurance shall not be cancelled or coverage thereof changed unless thirty (30) days written notice from the insurer to Landlord is given first. Landlord reserves the right to increase the foregoing amount of insurance from time to time as Landlord's insurance broker determines is required to adequately protect Landlord and the other parties designated by Landlord from the matters insured against, provided that such increase shall be consistent with industry standards for comparable buildings in San Francisco. b. Said policy or a certificate thereof on Form CG2010 or its equivalent shall be delivered to Landlord by Tenant upon commencement of the Term, and thereafter there shall be delivered to Landlord by Tenant renewal policies or certificates at least thirty (30) days in advance of the expiration dates of expiring policies. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at its option, but without obligation to do so, procure the same for the account of Tenant, and the cost thereof shall be paid to Landlord by Tenant upon demand. Landlord shall give Tenant five (5) business days prior written notice of intention to procure such insurance, except that notice shall not be required if coverage has lapsed or threatens to lapse. c. Tenant agrees additionally to keep in force during the entire Term, at Tenant's expense, Property Insurance, including Special Form coverage on any and all improvements and alterations installed in the Premises by or for Tenant and all Tenant's furnishings and equipment, and personal property in the Premises, which insurance shall be in an amount of not less than full replacement value naming Landlord as additional insured and a loss payee on improvements to the Premises. Landlord agrees to use the proceeds relating to Premises improvements from any such policy to replace personal property and restore improvements or alterations. d. Tenant shall, throughout the Term, procure and keep in effect Workers' Compensation Insurance as required by law. e. Landlord shall keep in force during the Term all-risk property insurance covering the structure and common areas of the Building and the interior leasehold improvements existing in the 13 Premises upon delivery of possession thereof to Tenant at Term commencement, and commercial general liability insurance coverage, in such amounts and with such coverages as Landlord may from time to time determine to be appropriate. 17. Mutual Waiver of Subrogation ---------------------------- Landlord waives any and all rights of recovery against Tenant for or arising out of damage to or destruction of the Building, or Premises, from causes then included under standard fire and extended coverage insurance policies or endorsements, whether or not such damage or destruction shall have been caused by the negligence of Tenant, its agents, servants, employees, contractors, visitors or licensees, but only to the extent that Landlord's insurance policies then in force permit such waiver and only to the extent of actual recovery from the insurance company. Tenant also waives any and all rights of recovery against Landlord for or arising out of damage to or destruction of any property of Tenant, from causes then included under standard fire and extended coverage insurance policies or endorsements, whether or not caused by the negligence of Landlord, its agents, servants, employees, contractors, visitors or licensees, but only to the extent that Tenant's insurance policies then in force permit such waiver and only to the extent of actual recovery from the insurance company. Landlord and Tenant represent that their present insurance policies now in force permit such waiver. If, at any time during the Term, either party shall give no less than fifteen (15) days prior notice to the other certifying that any insurance carrier which shall have issued any such policy covering any of the property above mentioned shall refuse to consent to the aforesaid waiver of subrogation, or such carrier shall revoke a consent previously given or shall cancel or threaten to cancel any policy previously issued and then in force and effect, because of such waiver of subrogation, then, in any of such events, the waiver in this paragraph shall thereupon be of no further force or effect as to the loss, damage or destruction covered by such policy; provided, however, that if at any time thereafter such consent shall be obtained therefor, the waiver hereinabove provided for shall again become effective. 18. Services and Utilities ---------------------- a. Landlord shall furnish to the Premises, subject to the Rules and Regulations of the Building and to federal, state and local codes and directives of governmental agencies or the public utility company furnishing the service, the following: (i) during the period from 8:00 A.M. to 6:00 P.M. on business days Monday through Friday, excepting federal and state holidays recognized in comparable buildings in San Francisco, heat and air conditioning required in Landlord's judgment for the comfortable use and occupancy of the Premises; (ii) electricity, along with water for rest room, lunch room and drinking purposes; (iii) elevator service for use in common by all tenants by nonattended automatic elevators for general pedestrian usage; and (iv) janitorial services comprised of the following: emptying and removing general office refuse; vacuuming carpeted floors, with minor spot cleaning; dust mopping and cleaning resilient and composition floors; dusting desks and office furniture; spot cleaning doors, windows and glass partitions; restocking restroom supplies; washing and sanitizing toilets, urinals and sinks; and mopping restroom floors. b. Landlord shall not be liable for any loss or damage suffered by Tenant or others, by reason of Landlord's failure to furnish any of the services or utilities referred to in paragraph 18(a) when such failure is caused by Acts of God, accidents, breakage, repairs, strikes, lockouts or other labor disputes, the making of repairs, alterations or improvements to the Premises or the Building, the inability to obtain an adequate supply of fuel, water, electricity, labor or other supplies or any other condition beyond Landlord's reasonable control including, without limitation, any governmental energy conservation program, and any such failure shall not constitute or be construed as a constructive or other eviction of Tenant. Landlord shall not be liable under any circumstances for loss of business or injury: to property however occurring, through or in connection with or incidental to failure to furnish any of the services or utilities referred to in paragraph 18(a). In the event any governmental entity promulgates or revises any statute, ordinance or building, fire or other code, or establishes mandatory or voluntary controls or guidelines applicable to the Property or the Premises or any part thereof or appurtenances thereto, relating to the use or conservation of energy, water, gas, light or electricity, or the reduction of automobile or other emissions, or the provision of any other utility or service provided with respect to this Lease, or in the event Landlord is required or elects to make alterations to the Building or any other party of the Property in order to comply with such mandatory or voluntary controls or guidelines, or make such alterations to the Building or any other part of said property related thereto, such compliance and the making of such alterations shall in no event entitle Tenant to any damages, relieve Tenant of the obligation to pay the full monthly Rent reserved hereunder, or constitute or be construed as a constructive or other eviction of Tenant. Landlord shall not be obligated to provide or maintain any security patrol or security system. Should Landlord elect to provide such patrol or system, Landlord shall not be responsible for the quality of any such patrol or system which may be provided hereunder, or for damage or injury to Tenant, its employees, invitees or others due to failure, action or inaction of such patrol or system. If utilities provided by Landlord are interrupted for a period of more than three consecutive days and such interruption is due to Landlord's fault or the failure of equipment under Landlord's control, and if the Premises are thereby rendered untenantable, then during the period of utility interruption, the rentals and charges payable hereunder shall be abated. 14 c. Without the prior written consent of Landlord, which Landlord will not unreasonably withhold, Tenant will not use any equipment in the Premises (including, without limitation, air conditioning equipment, condenser pumps and condenser water, electronic data processing machines, punch card machines, CRT (cathode ray tubes) and related equipment, supplementary heating equipment, coffee makers, microwave ovens, fans or copy machines) if and to the extent the same will cause the amount of electricity, water, heating, air conditioning or ventilation furnished to the Premises to exceed the amount thereof required for use of the Premises for general office purposes or to exceed any limits established in paragraph 18(a), or connect the electrical system (except through existing outlets in the Premises) or water pipes any equipment for the purpose of using electricity or water. Landlord hereby consents to the use by Tenant at the Premises of the equipment described in the Drawings and Specifications, and Landlord agrees that use of such equipment shall not constitute a use of electricity in excess of the limits established in paragraph 18(a) or this paragraph 18(c). With regard to any and all supplemental HVAC equipment existing in the Premises upon delivery of possession to Tenant, and as a condition to any approval of any equipment subsequently installed at Tenant's expense, Tenant shall arrange for direct service from a local utility company or service provider for any electricity or other service necessary for an such equipment, and Tenant shall pay directly for the cost of operation of such service and equipment. d. Tenant shall pay for all services and utilities not required to be furnished by Landlord pursuant to paragraph 18(a). If Tenant shall require electricity, water, heat, security, air conditioning, elevator, janitorial or any other service in excess of that required to be furnished by Landlord as specified in paragraph 18(a), Tenant must first obtain the written consent of Landlord to the use thereof, which Landlord will not unreasonably withhold. If Landlord consents to an excess use of electricity or water, Landlord, at its election, may cause an electrical or water meter (including, without limitation, any additional wiring, conduit or panel required therefor) to be installed in the Premises in order to measure the amount of excess electricity or water consumed by Tenant. Tenant agrees to pay to Landlord upon demand, in addition to the amounts set forth in paragraph 5.1 through 5.4 of this Lease, the following: the cost of any and all water, heat, air conditioning, electricity, janitorial, elevator or other services or utilities required by and furnished to Tenant in excess of the services and utilities required to be furnished by Landlord as provided in paragraph 18(a); the cost of any meter installed in the Premises and the cost of the installation, maintenance and repair thereof; and any cost incurred by Landlord in keeping account of or determining such excess utilities or services furnished to Tenant. The cost of the foregoing shall be determined by methods (which may or may not include installation of separate meters as allowed above) and in accordance with rates established by Landlord. HVAC services provided to the Premises after the hours specified above in paragraph 18(a) will be monitored (pursuant to a device that will be in place upon delivery of the Premises to Tenant), and Tenant shall pay for such services at the rates generally in effect for tenants of the Building, including increases in such rates generally adopted by Landlord to cover increases in costs incurred by Landlord for providing HVAC services. e. Landlord makes no representation with respect to the adequacy or fitness of the heating, air conditioning or ventilation equipment in the Building to maintain temperatures which may be required for, or because of, any equipment of Tenant other than normal fractional horsepower office equipment, and Landlord shall have no liability for loss or damage suffered by Tenant or others in connection with any such equipment. Landlord shall, however, put the supplemental HVAC existing in the Premises as of the date of this Lease in good working order as part of the work done by Landlord pursuant to paragraph 10.1. If the temperature otherwise maintained in any portion of the Premises by the heating, air conditioning or ventilation systems is affected as a result of (i) any lights, machines or equipment in addition to those described in the Drawings and Specifications, (ii) the occupancy of the Premises by more than one person per one hundred (100) square feet of net rentable area thereof or, if greater, the initial occupancy level of the Premises described in the Drawings and Specifications, or (iii) an electrical load for lighting and power in excess of that required for general office purposes, Landlord shall have the right to install any machinery and equipment which Landlord deems necessary to restore temperature balance, including, without limitation, modification to the standard air conditioning equipment, and the cost thereof including, without limitation, the cost of installation and any additional cost of operation, maintenance or repair incurred thereby, shall be paid by Tenant to Landlord upon demand. f. Tenant shall comply with the non-discriminatory conservation and use policies from time to time established by Landlord for the use of utility services supplied by Landlord, and the utility charges payable by Tenant hereunder may include such excess usage penalties or surcharges as may, from time to time, be established by the utilities provider or, on a non- discriminatory basis, by Landlord. Landlord may reduce the utility supply to the Premises and the Common Areas as required by mandatory water, energy or other conservation statute, regulation, or allocation or other program or, to the extent Tenant's operations are not materially impaired, as permitted by any voluntary program established on a nondiscriminatory basis for tenants of the Building. 19. Inability to Perform -------------------- This Lease and the obligation of Tenant to pay Rent hereunder and to keep, observe and perform all of the other terms, covenants, conditions, provisions and agreements of this Lease on the part of Tenant to be kept, observed or performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or to make or supply, or is delayed or 15 curtailed in making or supplying, any service expressly or impliedly to be supplied, any repairs, alterations, decorations, additions or improvements, or any equipment or fixtures, if Landlord is prevented, delayed or curtailed from so doing by reason of any cause beyond Landlord's reasonable control, including, but not limited to, Acts of God, strike or labor troubles, fuel or energy shortages, governmental preemption or curtailment in connection with a national emergency or in connection with any rule, order, guideline or regulation of any department or governmental agency, or by reason of the conditions of supply and demand which have been or are affected by a war or other emergency. Any such prevention, delay or curtailment shall be deemed excused and Landlord shall not be subject to any liability resulting therefrom. 20. Disruption of Services for Repair or Maintenance ------------------------------------------------ Landlord shall repair and maintain or cause to be repaired and maintained those portions of the Building outside of the Premises and the structural portions of the Building, but only those portions of the Building which are not required to be maintained by Tenant hereunder. Landlord shall also perform its maintenance and repair obligations expressly set forth in paragraph 11. Subject to the provisions of paragraph 18(b) of this Lease, Landlord reserves the right to stop service of the elevator, plumbing, heating, ventilating, air conditioning and electrical or other mechanical systems, or cleaning services, when necessary, by reason of accident or emergency or for inspection, repairs, alterations, decorations, additions or improvements which, in the judgment of Landlord, are desirable or necessary to be made, until same shall have been completed, and shall further have no responsibility or liability for failure to supply any of such services in such instance. Landlord shall use reasonable efforts to minimize the inconvenience to Tenant from such disruptions or interruptions of services. 21. Life Safety System ------------------ If there now is or shall be installed in the Building a sprinkler system, heat or smoke detection system, or any other so-called life-safety system, and any such system or any of its components or appliances shall be damaged or injured or not in proper working order by reason of any act or omission of Tenant, Tenant's agents, servants, employees, contractors, visitors or licensees, Tenant shall forthwith, at its sole cost, restore the same to good working condition. If the Insurance Services Offices or any other similar body or any bureau, department or official of the state, county or city government, or any governmental authority having jurisdiction, require or recommend that any changes, modifications, alterations or additional equipment be made or supplied in or to any such system by reason of Tenant's business or equipment, or the location of partitions, trade fixtures, or other contents or the Premises, or if any such changes, modifications, alterations, or additional equipment become necessary to prevent the imposition of a penalty or change against the full allowance for any such system in the insurance rate as fixed by said Office, or by any insurance company, Tenant shall, at Tenant's expense, promptly make and supply such changes, modifications, alterations or additional equipment provided that Tenant's obligations shall be limited to expenses for such damages, modifications, alterations, or additional equipment made or located within the Premises. 22. Personal Property and Other Taxes and Assessments ------------------------------------------------- Tenant shall pay, before delinquency, any and all taxes levied or assessed and which become payable during the Term upon Tenant's equipment, furniture, fixtures and other personal property located in the Premises, including any carpeting installed by Tenant, even though said carpeting has become a part of the Premises. In the event said taxes are charged to or paid or payable by Landlord, then Tenant, forthwith upon demand therefor, shall pay to Landlord the amount of all of such taxes payable by Landlord. 23. Rules and Regulations --------------------- Tenant agrees faithfully to observe and comply with the Rules and Regulations printed on or annexed to this Lease and incorporated herein as though fully set forth, and all modifications of and additions thereto which Landlord imposes and communicates to all tenants of the Building from time to time. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any said Rules and Regulations. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant, 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, or prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all tenants of the Building, Landlord reserves the right to adopt other reasonable and non-discriminatory rules and regulations as it may determine in its judgment are needed from time to time for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by such Rules and Regulations and any additional reasonable and non-discriminatory Rules and Regulations which are adopted. 24. Holding Over ------------ Provided that Tenant gives Landlord written notice of its intention to hold over, and gives such notice at least sixty (60) days prior to the expiration of this Lease and provided further that Tenant 16 continues to pay Rent and fulfill all of its obligations under this Lease, and Landlord consents in writing to such holding over, the same shall be a month to month tenancy. If Tenant shall remain in possession of the Premises or any part thereof after expiration of the Term with Landlord's consent, Tenant agrees to pay to Landlord for each month of such retention a Minimum Rent of 150% of the Minimum Rent required to be paid by Tenant under this Lease for the last full month period prior to the date of such expiration, and such continuing tenancy shall otherwise be under the terms and conditions herein specified so far as applicable, including the payment of Additional Rent as herein provided. In such event, and in addition to the payment of the foregoing increased rentals, Tenant agrees to indemnify, defend and hold Landlord harmless against all losses, costs, claims, liabilities and expenses (including without limitation attorneys' fees and expenses) sustained by Landlord by reason of such continuing tenancy (including, without limitation, claims for damages by any other person to whom Landlord may have leased or have proposed to lease or sold or have proposed to sell all or any part of the Premises). This provision is in addition to, and does not affect or waive, Landlord's right of reentry or any other right or remedy available to Landlord on account of conflicts of such holding over. Any holding over without Landlord's written consent shall entitle Landlord to recover possession of the Premises and exercise any and all rights provided Landlord by this Lease and by applicable law. 25. Subordination of Lease ---------------------- This Lease shall be subject and subordinate at all times to all ground or underlying leases which may now exist or hereafter be executed affecting the Property, or any part thereof, and to the lien of any mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against the Property, or any part thereof, or on or against Landlord's interest or estate therein, or on or against any ground or underlying lease (any of the foregoing being a "Superior Interest"), without the necessity of having further instruments on the part of Tenant to effectuate such subordination. Notwithstanding the foregoing, Tenant covenants and agrees to execute and deliver, within 15 days after demand, without charge, such further instruments evidencing such subordination of this Lease to such ground or underlying leases and to the lien of any such mortgages or deeds of trust as may be requested by Landlord. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to irrevocably execute and deliver any such instrument or instruments for or in the name of Tenant. In the event of foreclosure or exercise of any power of sale under any mortgage or deed of trust superior to this Lease or to which this Lease is subject or subordinate, Tenant shall upon demand attorn to the lessor under said ground or underlying lease, or to the purchaser at any foreclosure sale or sale pursuant to the exercise of any power of sale under any mortgage or deed of trust. Notwithstanding anything to the contrary contained this Lease, this Lease shall not be subordinate to any hereafter placed mortgage, deed of trust or lease, unless the holder thereof shall be willing to enter into a non-disturbance agreement or subordination agreement with Tenant on commercially reasonable terms pursuant to which, so long as Tenant is not in default of any of Tenant's obligations under this Lease after notice and expiration of the applicable cure periods, Tenant's possession of the Premises and its rights under this Lease shall not be disturbed nor terminated as a result of any default by Landlord under any mortgage, deed of trust or lease or as a result of foreclosure or termination of such mortgage, deed of trust or lease. Landlord represents and warrants to Tenant that, as of the date of this Lease, there is no indebtedness secured by a deed of trust or mortgage on the Building. 26. Entry by Landlord ----------------- Upon 24 hour notice to Tenant (except in the case of an emergency where no notice shall be required), Landlord reserves and shall at any and all reasonable times have the right to enter the Premises to inspect the same, to show the Premises to prospective brokers, agents, purchasers or tenants (but with respect to leasing brokers or prospective tenants, only during the last eighteen (18) months of the Term or while Tenant is in default hereunder), to post notices of non-responsibility, sale or other notices, and to alter, improve or repair the Premises and any portion of the Building without abatement of rent, and may for those purposes erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing the entrance to the Premises shall not be blocked thereby. Tenant hereby waives any claim for damages for any injury, nuisance or other inconvenience to or interference with Tenant's business, any loss of occupancy, business or quiet enjoyment of the Premises, and other loss occasioned by such entry. For each of the aforesaid purposes, Tenant agrees that Landlord shall at all times have and retain a key with which to unlock all of the doors in and about the Premises, excluding Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises, and any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises, or an eviction of Tenant from the Premises or any portion thereof. Landlord shall use reasonable and good faith efforts to do any work permitted pursuant to this paragraph in a manner that will minimize to the extent practicable the disruption of Tenant's business in the Premises. In the event that the Premises are rendered untenantable for a period in excess of three days by reason of work done by Landlord under this paragraph that is not made necessary by reason of Tenant's default, by the requirements of any insurer or by the provisions of applicable laws or rules of law, the rentals and charges payable by Tenant hereunder shall abate from the date the Premises become untenantable until Landlord's work is sufficiently completed that Tenant may resume operations. 17 27. Insolvency or Bankruptcy ------------------------ Tenant hereby agrees that neither this Lease nor any interest herein shall be assignable or transferable by operation of law, and it is mutually agreed, covenanted and understood by and between the parties hereto that in the event any proceedings under the Bankruptcy Code or any amendment thereto, whether commenced by or against Tenant (provided that if such proceeding be involuntary, Tenant shall have sixty (60) days to dismiss the same), or in the event Tenant be adjudged insolvent, or if Tenant makes an assignment for the benefit of its creditors, or if a writ of attachment or execution be levied on the leasehold estate created hereby or the business of Tenant operated upon the Premises or the assets of Tenant situated thereon and be not released or satisfied within thirty (30) days thereafter, or if any receiver be appointed in any proceeding or action to which Tenant is a party, with authority to take possession or control of the Premises or the business conducted thereon by Tenant and such receiver not be dismissed within sixty (60) days after appointment, this Lease, at the option of Landlord (a) shall continue in existence as long as (i) the payment of all Rent agreed to herein is paid or assured to Landlord's satisfaction, in its sole discretion, and (ii) that in the event this Lease is assigned or assumed, no covenants in this Lease will be breached, or (b) shall immediately end and terminate and shall in no way be treated as an asset of Tenant after the exercise of the aforesaid option; and Landlord shall have the right, after the exercise of said option, to forthwith re-enter the Premises as its original estate. 28. Default ------- It is expressly understood and agreed that the default by Tenant in the prompt and full performance of any promise, covenant or agreement contained in this Lease shall be deemed to be a breach by Tenant entitling Landlord to avail itself of all remedies available to Landlord pursuant to the terms hereof; and without limitation, the occurrence of any of the following shall constitute a default by Tenant: 1. Failure to pay Rent when due which continues for more than five (5) days after written notice from Landlord to Tenant; and 2. Failure to perform any other provision of this Lease which continues for more than twenty (20) days after written notice from Landlord to Tenant or, if the nature of the failure is such that the same is not reasonably susceptible of cure within such period, Tenant's failure to commence to cure immediately following notice and diligently pursue cure to completion. Any notice given by Landlord pursuant to this paragraph may be the notice required or permitted pursuant to Section 1161 et seq. of the California Code of ------ Civil Procedure or successor statutes, and the provisions of this Lease shall not require the giving of a notice in addition to such statutory notice to terminate this Lease and Tenant's right to possession of the Premises. The periods herein specified within which Tenant is permitted to cure any default following notice from Landlord shall run concurrently with any cure period provided by applicable laws. In the event of any default of this Lease by Tenant, then Landlord, in addition to any other rights and remedies of Landlord at law or equity, shall have the right either to terminate Tenant's right to possession of the Premises and thereby terminate this Lease or to have this Lease continue in full force and effect with Tenant at all times having the right to possession of the Premises. Should Landlord elect to terminate Tenant's right to possession of the Premises and terminate this Lease, Landlord shall have the immediate right of entry and may remove all persons and property from the Premises. Tenant agrees that such property so removed may be stored in a public warehouse or elsewhere at the cost and for the account of Tenant. Upon such termination, Landlord shall have all the rights and remedies of a landlord provided by Section 1951.2 of the Civil Code of the State of California, which provides that Landlord may recover from Tenant the following: (i) the worth at the time of the award of the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of the award of the amount by which the unpaid Rent which would have been earned after termination until the time of the award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the 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; and (iv) any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in (i) and (ii) of this subsection shall be computed by allowing interest at the Interest Rate specified in this Lease. The "worth at the time of award" of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%). As used herein, the term "time of award" shall mean either the date upon which Tenant pays to Landlord the amount recoverable by Landlord as hereinabove set forth or the date of entry of any determination, order or judgment of any court or other legally constituted body, whichever first occurs. No 18 act by Landlord other than giving written notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Premises or Landlord's appointment of a receiver to protect Landlord's interest shall not constitute a termination of Tenant's right to possession. Should Landlord, following any breach or default of this Lease by Tenant, elect to keep this Lease in full force and effect, with Tenant retaining the right to possession of the Premises (notwithstanding the fact Tenant may have abandoned the Premises), then Landlord, in addition to all other rights and remedies Landlord may have at law or equity, shall have the right to enforce all of Landlord's rights and remedies under this Lease including, but not limited to, the right to recover the installments of Rent as they become due under this Lease. Notwithstanding any such election to have this Lease remain in full force and effect, Landlord may at any time thereafter elect to terminate Tenant's right to possession of the Premises and thereby terminate this Lease for any previous breach or default which remains uncured, or for any subsequent breach or default. Any and all sums in addition to the Rent payable by Tenant to Landlord pursuant to the provisions of this Lease or arising from Tenant's use and occupancy of the Premises shall be deemed Additional Rent under this Lease and default by Tenant in the payment of any such sums shall entitle Landlord to all the same remedies as would be applicable in the case of nonpayment of Rent hereunder. Landlord shall have the remedy, described in California Civil Code 1951.4 (Landlord may continue the 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). 29. No Redemption ------------- Tenant hereby expressly waives any and all rights of redemption and relief from forfeiture granted by or under any present or future laws in event of any judgment declaring a forfeiture of or terminating this lease for any cause, or in the event of Landlord obtaining possession of the Premises by reason of the violation by Tenant of any of the covenants and conditions of this Lease or otherwise. The rights given to Landlord hereunder are in addition to any rights that may be given to Landlord by statute or otherwise. 30. Damage or Destruction of Premises --------------------------------- If, during the Term, the Premises or the Building and other improvements in which the Premises are located are totally or partially destroyed from any cause, rendering the Premises totally or partially inaccessible or unusable, and at least one (1) year of the Term remains, Landlord shall restore the Premises or the Building and other improvements in which the Premises are located to substantially the same condition as they were in immediately before destruction, if the restoration can be made under the existing laws and can be completed within 180 working days after obtaining all necessary permits therefore (Landlord shall use due diligence in applying for said permits) and if the cost of such repairs does not exceed the amount of insurance proceeds received by Landlord on account of such damages. Such destruction shall not terminate this Lease. If Landlord determines in good faith that restoration is not susceptible of completion within the time stated in this paragraph, or if the insurance proceeds received (plus any applicable deductible) are not sufficient to cover the cost of the required repairs and by reason thereof Landlord declines to restore the Premises and the Building, then Tenant shall have the right to terminate this Lease immediately by giving written notice to Landlord. Landlord shall, at Tenant's request, promptly advise Tenant in writing of Landlord's good faith estimate of the time to restore and of the sufficiency of insurance proceeds (and whether Landlord elects to decline to restore by reason of any insufficiency), and Tenant shall exercise its right to terminate not later than thirty (30) days after receipt of Landlord's notice showing that Tenant has a right to terminate by reason either of time to restore or failure to restore due to insufficiency of insurance proceeds. If Tenant fails to terminate this Lease and if restoration is permitted under the existing laws, Landlord, at its election, can either terminate this Lease or restore the Premises or the Building and other improvements in which the Premises are located within a reasonable time and this Lease shall continue in full force and effect. If the existing laws do not permit the restoration, either party can terminate this Lease immediately by giving notice to the other party. In the event of the giving of such notice of termination by Landlord or Tenant as provided herein, this Lease and all interest of Tenant in the Premises shall terminate fifteen (15) days after receipt of such notice by the other party. Except if Landlord receives insurance proceeds from Tenant's insurance as provided in paragraph 16(c) hereof specifically therefor, Landlord shall not be required to repair any injury or damage, by fire or other cause, to the property of Tenant, or to make repairs or replacements of any decorations, or any improvements installed on the Premises by or for Tenant, except that in the event Landlord is otherwise required to restore casualty damage under this Lease, Landlord shall be required to restore the interior leasehold improvements existing in the Premises upon delivery thereof to Tenant at Term commencement. 19 In case of destruction, there shall be an abatement or reduction of Rent, between the date of destruction and the date of completion of restoration if restoration takes place, based on the extent to which the destruction actually interferes with Tenant's use of the Premises. Tenant hereby waives the provisions of Sections 1932, Subdivision 2, and 1933, Subdivision 4, of the Civil Code of California. In the event that Landlord fails to complete the restoration of any damage to the Premises (or damage to portions of the Building providing access to the Premises) by the end of the one hundred eighty (180) day period described in this paragraph 30, and if Landlord is not then diligently and in good faith pursuing restoration to completion, then Tenant shall have the right to terminate this Lease upon sixty (60) days prior written notice to Landlord and Landlord's failure to complete restoration within such sixty day period. In the event that the Premises shall be damaged or destroyed to the extent of more than $100,000.00 during the last one (1) year of the Term, then either Tenant or Landlord shall have the right to terminate this Lease. Notwithstanding any contrary provision of this Section 30, Landlord shall not have the right during the first three years of the Term to terminate this Lease for a casualty that affects areas of the Building other than the Premises unless Landlord also terminates the leases of any other tenants in the Building whose, premises are affected by such casualty to the same or greater extent as the Premises. 31. Eminent Domain -------------- If all or any part of the Building of which the Premises are a part shall be taken or appropriated by any public or quasi-public authority under any power of eminent domain (which shall include a sale in lieu thereof to a public body) Landlord may terminate this Lease, and if all or any part of the Premises are so taken or appropriated, Tenant may terminate this Lease. In such event, Landlord shall be entitled to, and Tenant upon demand of Landlord shall assign to Landlord, any rights of Tenant to any and all income, rent, award, or any interest therein whatsoever, which may be paid or made in connection with such public or quasi-public use or purpose, and Tenant shall have no claim against Landlord for the value of any unexpired Term. Notwithstanding anything to the contrary contained in this paragraph, Tenant may keep any award made directly to Tenant as compensation for loss of Tenant's business, equipment, merchandise, inventory or other personal property or for Tenant's relocation expenses, if and to the extent that such award to Tenant does not diminish the aggregate compensation payable in respect of the fair market value of the property taken, which compensation shall be paid to Landlord. If a part of the Premises shall be so taken or appropriated and neither Landlord nor Tenant elects to terminate this Lease, the Rent thereafter to be paid shall be reduced on a pro-rata square footage basis. 32. Default by Landlord ------------------- The liability of Landlord to Tenant under or with respect to this Lease, the Premises or the Property shall be limited to action by Tenant for any damages actually sustained by Tenant as a direct result of Landlord's breach of an obligation specified herein, and it is expressly understood and agreed that any money judgment resulting from any default or other claim arising under or with respect to this Lease shall be satisfied solely out of Landlord's interest in the Property and the rents, profits and other income ("Income" for the purposes of this paragraph 32 only) actually received from the operation of the subject property in which the Premises are located, and no other real, personal or mixed or any other property of Landlord wherever situated shall be subject to levy on any such judgment obtained against Landlord, and if Landlord's interest in the Property and the Income is insufficient for the payment of such judgment, Tenant will not institute any further action, suits, claim or demand, in law or in equity, against Landlord for or on account of such deficiency. Tenant hereby waives any rights to otherwise satisfy said money judgment against Landlord (or to take any action whatsoever against Landlord) except from and to the extent of Landlord's interest in the Property and the Income received by Landlord from the operation of the Property as specified herein. 33. Plats and Riders ---------------- Clauses, plats and riders, if any, signed by Landlord and Tenant and endorsed on or affixed to this Lease are a part hereof and, in the event of variation or discrepancy, the duplicate original hereof, including such clauses, plats and riders, if any, held by Landlord shall control. 34. Sale by Landlord ---------------- In the event of a sale or conveyance by Landlord of the Building, the same shall operate to release Landlord from any liability thereafter accruing upon any of the covenants or conditions, express or implied, herein contained in favor of Tenant, and in such event Tenant agrees to look solely to the responsibility of the successor in interest of Landlord in and to this Lease. If any security is given by Tenant to secure the faithful performance of all or any of the covenants of this Lease on the part of Tenant, Landlord may 20 transfer and/or deliver the security, as such, to the successor in interest of Landlord, and thereupon Tenant agrees that Landlord shall be discharged from any further liability in reference thereto. Except as set forth in this paragraph 34, this Lease shall not be affected by any such sale or conveyance. 35. Estoppel Certificates --------------------- At any time and from time to time, within a time period of ten (10) days after request by Landlord, Tenant agrees to execute, acknowledge and deliver to Landlord a statement certifying the date of commencement of this Lease, stating that this Lease is unmodified and in full force and effect (or if there have been modifications) and the dates to which the Rent has been paid, and setting forth such other matters as may be requested by Landlord. Landlord and Tenant intend that any such statement delivered pursuant to this paragraph may be relied upon by any mortgagee or the beneficiary of any deed of trust or by any purchaser or prospective purchaser of the Building. Tenant's failure to deliver such statement within such time period shall be and constitute the confirmation by Tenant that (i) this Lease is in full force and effect, without modification, except as may be represented by Landlord; (ii) there are no uncured defaults in Landlord's performance and Tenant has no right of offset, counterclaim or deduction against Rent hereunder; and (iii) no more than one month's Minimum Rent has been paid in advance. 36. Right of Landlord to Perform ---------------------------- All covenants and agreements to be kept or performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any offset or abatement of Rent. If Tenant shall fail to pay any sum of money, other than 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 fifteen (15) days after notice thereof by Landlord, Landlord may, but shall not be obligated to, and without waiving any default of Tenant or releasing Tenant from any obligations of Tenant hereunder, make any such payment or perform any such other act on Tenant's part to be made or performed as in this lease provided. All sums so paid or incurred by Landlord and all necessary incidental costs, together with interest thereon at the Interest Rate herein specified from the date of such payment by Landlord, shall be paid to Landlord forthwith on demand, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of nonpayment thereof by Tenant as in the case of default by Tenant in the payment of Rent. 37. Attorney Fees ------------- If Landlord, without fault on Landlord's part, be made a party to any litigation instituted by or against Tenant, Tenant shall pay to Landlord all costs and expenses incurred by Landlord, including attorney's fees. In the event that Landlord should be required to retain counsel for the collection of rent or the enforcement of any provision hereof, and such collection of rent or enforcement hereof does not necessitate the bringing of an action at law or equity, then Landlord shall be entitled to any and all costs and attorney's fees incurred by Landlord, and the same shall be paid by Tenant within five (5) days after receipt by Tenant of written demand by Landlord for the same. Tenant agrees to indemnify, defend and hold harmless Landlord from and against any liability arising from any breach by Tenant hereof, including attorney's fees and costs incurred in connection therewith, whether such claim arises before or after the expiration or termination of this Lease. 38. Surrender of Premises --------------------- The voluntary or other surrender of this Lease by Tenant or a mutual cancellation thereof shall not work a merger and, at the option of Landlord, shall terminate all or any existing subleases or subtenancies or, at the option of Landlord, shall operate as an assignment to Landlord of any or all such subleases of subtenancies. 39. End of Term ----------- Upon the expiration or other termination of the Term, Tenant shall quit and surrender to Landlord the Premises, broom clean, in as good order, condition and repair as it now is or may hereafter be placed, ordinary wear and tear excepted. Tenant shall remove all property of Tenant, as directed by Landlord. Any property left on Premises at the expiration or other termination of this Lease, or after the happening of any of the events of default, at the option of Landlord, shall be placed in storage at a public warehouse in the name of and for the account of and at the expense and risk of Tenant, or otherwise disposed of by Landlord in the manner provided by law. Tenant expressly releases Landlord of and from any and all claims and liability with respect thereto. 40. Quiet Possession ---------------- Landlord covenants and agrees with Tenant that, upon Tenant's paying said Rent and observing and performing all of the terms, covenants, conditions, provisions and agreements of this Lease on Tenant's part to be observed or performed, Tenant shall have quiet possession of the Premises hereby leased for the Term, subject, however, to the terms of this Lease and of any ground leases, underlying 21 leases, mortgages and deeds of trust affecting all or any portion of the Building or any of the areas used in connection with the operation of the Building. 41. Brokerage --------- Each party represents to the other that it has not dealt with any broker(s), finder(s) or agents(s) in connection with this Lease other than Cushman & Wakefield and CB Richard Ellis (the "Brokers") and that no other broker, finder or other person on its behalf negotiated this lease or is entitled to a commission, fee or other compensation in connection herewith. Each party hereby indemnifies, defends, protects and holds the other party harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying party's dealings with any real estate broker or agent other than the Brokers. Landlord shall be responsible to pay any commission due to Cushman & Wakefield, and CB Richard Ellis shall look to Cushman & Wakefield for any commission due to it in respect of this Lease. 42. No Waiver --------- No delay or omission in the exercise of any right or remedy of Landlord on any default by Tenant shall impair such a right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent Rent shall not constitute a waiver of any other default. Such acceptance shall be effective only if made in writing, and such acceptance shall, in any event, constitute only a waiver of timely payment for the particular Rent payment involved. No act or conduct of Landlord, including, without limitation, the acceptance of the keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the Term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this Lease. No covenant or condition of this Lease can be waived except by the written consent of Landlord, and forbearance or indulgence by Landlord in any regard whatsoever shall not constitute a waiver of the covenant or condition to be performed by Tenant to which the same may apply, and until complete performance by Tenant of said covenant or condition, Landlord shall be entitled to invoke any remedy available unto it under this Lease or by law, despite said forbearance or indulgence. The subsequent acceptance of rental hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant or any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rental. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval must be in writing and such consent or approval shall not be deemed to waive or render unnecessary Landlord's, consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must also be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Lease. 43. Notices ------- All notices and demands which may or are required to be given by Landlord to Tenant hereunder shall be delivered personally or sent by United States certified or registered mail, postage prepaid, addressed to Tenant at the Premises, or to such other place as Tenant may from time to time by like notice designate. All notices and demands by Tenant to Landlord shall be sent by United States certified mail or registered mail, postage prepaid, addressed to Landlord at 1145 Market Street, San Francisco, California 94103 or to such other place as Landlord may from time to time by like notice designate. 44. Defined Terms and Marginal Headings ----------------------------------- The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there is more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. The marginal headings and titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 45. Time and Applicable Law ----------------------- Time is of the essence of this Lease and each and all of its provisions. This Lease shall in all respects be governed by the laws of the State of California. 22 46. Successors ---------- Except as otherwise provided herein, the covenants and conditions herein contained shall be binding upon and inure to the benefit of the heirs, successors, executors, administrators and assigns of the parties hereto. 47. Late Charge and Interest ------------------------ It is agreed between the parties hereto that late payment by Tenant of Minimum Rent, Additional Rent, or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease. Such costs include, without limitation, processing and accounting charges, loss of use of funds, and unforeseen advancement by Landlord for mortgages and other financing costs. In the event of any such default by Tenant (i) it would be impracticable or extremely difficult to fix the actual damages suffered by Landlord, and (ii) the charges hereinbelow set forth are, as of the date hereof, a fair and reasonable estimate of Landlord's damages. For the second and each subsequent time in any calendar year that Landlord not receive any payment within five (5) days when due, Tenant agrees to pay Landlord forthwith a late charge for each such late payment in an amount equal to five percent (5%) of the delinquent sum. Acceptance of any late charge shall not constitute a waiver of the default with respect to the overdue amount, and shall not prevent Landlord from exercising any of its rights and remedies under this Lease, or applicable law. In addition to such late charge, Tenant shall pay interest to Landlord on any and all sums not paid hereunder when due at the rate of 1% per month or, if less, the maximum rate permissible under applicable laws (the "Interest Rate"), from the date due until paid in full. 48. Authority --------- If Tenant is a corporation, partnership, trust, association or other entity, Tenant and each person executing this lease on behalf of Tenant does hereby covenant and warrant that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in California, (c) Tenant has full corporate, partnership, trust, association or other power and authority to enter into this Lease and to perform all Tenant's obligations hereunder, and (d) each person (and all of the persons if more than one signs) signing this lease on behalf of Tenant is duly and validly authorized to do so. Upon execution hereof, Tenant shall provide Landlord with a written certification of its Corporate Secretary or other appropriate authorizing officer or partner attesting that at a duly noticed meeting of its Board of Directors or other governing body a resolution has been unanimously adopted approving Tenant's execution hereof, thereby binding itself to the terms of this Lease and identifying the person(s) authorized to execute this Lease on behalf of Tenant. 49. Name of Building ---------------- Tenant shall not use the name from time to time used by Landlord for the Building without Landlord's consent. Tenant shall not have or acquire any property right or interest in the such name. 50. Signage ------- No signage shall be permitted on the exterior or the windows of the Premises or the Building without Landlord's express advance written approval in its sole and absolute discretion in all respects. If Tenant fails to remove any signage or plaques upon termination or expiration of this Lease, or any earlier termination of rights provided in this Section, then Landlord may perform such removal and restoration of all affected areas, and Tenant shall immediately reimburse Landlord for all costs and expenses associated therewith. Tenant shall be solely responsible for obtaining all necessary approvals (including any necessary governmental approvals) for all such signage or plaques, and all costs related to the design, installation, maintenance and repair, and, upon expiration or earlier termination of the Lease or of termination as provided in this Section of Tenant's rights to any such signage or plaques, removal and restoration of affected areas, shall be borne solely by Tenant. Tenant shall submit to Landlord detailed plans and specifications for all signage or plaques, and any and all signage or plaques shall be subject to Landlord's express advance written approval in its sole and absolute discretion in all respects, including, without limitation, form, content, size, placement, materials and color of all plaques, banners, signage and displays. Notwithstanding any contrary provision of this Lease, Landlord shall install, as part of the initial improvements described in paragraph 10.1 of this Lease, building standard identification signage for Tenant in the elevator lobby on the floor of the Building on which the Premises. Tenant shall not have the obligation to pay for the cost of the removal of such signage at the end of the Term. At Tenant's option, and provided and on condition that Tenant Shall obtain and keep in force all necessary and appropriate governmental authorizations and approvals, a satellite dish for Tenant's operations will be installed and maintained on the roof of the Building at a location on the roof of the Building approved by Landlord in its discretion. The work of the installation and maintenance of such dish shall be done by Landlord or a contractor designated by Landlord, in accordance with plans and specifications prepared by Tenant and approved by Landlord, which approval shall not be unreasonably withheld or delayed. Tenant will pay to Landlord, as additional rental, the reasonable costs and expenses 23 incurred by Landlord in connection with such installation and maintenance. Landlord may require that such satellite dish be within and screened by an enclosure with dimensions not greater than three feet by three feet by three feet or if greater the smallest dimensions reasonably available to newspaper to receive newswire and photo services. Any satellite dish installed as provided above shall be removed by Landlord at Tenant's sole cost and expense at the end of the Term or at any time that Tenant ceases to use the same or maintain required governmental authorizations and approvals therefor. 51. Entire Agreement ---------------- Tenant expressly acknowledges that it has not entered into this Lease in reliance on any representations, warranty, agreement or understanding, either oral or written, which is not specifically set forth herein. This Lease is and shall be considered to be the entire and only agreement between the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and have been included herein. This Lease shall not be modified by any oral agreement, either express or implied, and all modifications hereof shall be in writing and signed by both Landlord and Tenant. 52. Partial Invalidity ------------------ It is agreed that if any provisions of this Lease shall be determined to be void by any court of competent jurisdiction, then such determination shall not affect any other provisions of this Lease and all such other provisions shall remain in full force and effect. It is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall be determined to have the meaning which renders it valid. 53. No Offer -------- Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and year first above written. LANDLORD: ANGELO & YVONNE SANGIACOMO d.b.a. ONE TRINITY CENTER By: /s/ Angelo Sangiacomo ---------------------------------- Angelo Sangiacomo TENANT: DAILY JOURNAL CORPORATION, a South Carolina corporation By: /s/ Gerald L. Salzman -------------------------------- Gerald L. Salzman -------------------------------- (Type or Print Name) Title: President ------------------------------- 24 RULES AND REGULATIONS 1. Except as provided, required or permitted by Landlord in accordance with the Building standards, no sign, placard, picture, advertisement, name or notice shall be inscribed, displayed, painted or affixed by Tenant on or to any part of the Building or exterior of the Premises leased to tenants or to the doors or door thereof without the written consent of Landlord (which may be withheld in Landlord's sole discretion) first obtained as to all matters pertaining thereto, including without limitation dimensions, material, content, location and design, and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. In no event whatsoever shall Tenant install any signage on any exterior or interior door of the Premises; if Tenant shall nonetheless do so, Tenant shall replace or, at Landlord's option, pay Landlord for the replacement of each door on which any signage has been installed. 2. Except as provided, required or permitted by Landlord in accordance with Building standards, no draperies, curtains, blinds, shades, screens or other devices shall be hung at or used in connection with any window or exterior door or doors of the Premises. 3. The bulletin board or directory of the Building, if any, shall be used primarily for display of the name and location of tenants and Landlord reserves the right to exclude any other names therefrom, to limit the number of names associated with tenants to be placed thereon and to charge for names associated with tenants to be placed thereon at rates applicable to all tenants. Landlord shall provide to Tenant free of charge spaces for three listings on the Building directory. Landlord shall supply to Tenant free of charge one directory strip in Building standard format for such directory; additional or changed directory strips shall be at Tenant's expense. 4. The sidewalks, doorways, vestibules, halls, passages, exits, entrances, elevators and stairways of the Building shall not be obstructed by Tenant or used by it for any purpose other than for ingress to and egress from the Premises. Landlord in all cases reserves the right to control the halls, passages, exits, entrances, elevators, stairways and balconies of the Building and prevent access thereto by all persons whose presence, in the judgment of Landlord, is or may be prejudicial to the safety, character, reputation or interests of the Building and its tenants. No person shall go upon the roof of the Building unless expressly so authorized by Landlord. 5. Tenant shall not alter any lock nor install any new or additional locks or any bolts on any interior or exterior door of the Premises, except for interior locks which (i) do not interfere with the security system of the Building, if any, (ii) have been approved by Landlord and a key thereof has been provided to Landlord, and (iii) comply with all fire and other governmental requirements. Tenant shall be responsible for the cost of restoring any locks, and the repair of any damage to doors and the like associated with restoring the doors and locks, upon expiration or earlier termination of this Lease. Tenant may install a locking device for the computer room located in the Premises, in accordance with the standards of the Building and applicable fire and other statutes, codes and regulations. 6. The doors, windows, light fixtures and any lights or skylights that reflect or admit light into the halls or other places of the Building shall not be covered or obstructed. The toilet rooms, toilets, urinals, wash bowls and other plumbing facilities shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown or placed therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by Tenant if it or its employees or invitees caused such expense. 7. Tenant shall not mark, drive nails, screw or drill into the walls, woodwork or plaster of or in any way deface the Building or the Premises, except that within the Premises Tenant may affix to nonsupporting partitions pictures, paintings and other similar solely decorative items. 8. Furniture, freight, equipment or merchandise of every kind shall be moved into or out of the Building only at such times and in such manner as Landlord shall designate. Landlord may prescribe and limit the hours of access to, and appropriate uses of the freight elevator, and the weight, size and position of all equipment to be carried in the elevator or used by Tenant in the Premises. Tenant shall not place a load on any floor exceeding the floor load per square foot which such floor was designed to carry. Tenant shall not install, operate or maintain any heavy item or equipment in the Premises, except in such manner as to achieve a proper distribution of weight. Landlord hereby consents to the installation by Tenant of the equipment described in the Drawings and Specifications, and Landlord agrees that such installation is not prohibited by this rule. All damage to the Building or the Premises caused by moving or maintaining any property of Tenant shall be repaired at the expense of Tenant. 9. Tenant shall not employ any person, other than the janitor provided by Landlord, for the purpose of cleaning the Premises unless otherwise agreed to by Landlord. Landlord shall not unreasonably withhold approval of Tenant's use of such a person; however, Tenant acknowledges that non-union status is a basis upon which Landlord may withhold approval. Except with the written consent of Landlord, no person shall be permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference in the preservation of good order and cleanliness. Janitor service shall not include shampooing of carpets or rugs, moving of furniture or other special services. Janitor service will not be furnished when rooms are occupied during the regular hours when the janitor service is provided. Window cleaning shall be done only at the regular and customary times determined by Landlord for such services. 10. Tenant shall not sweep or throw or permit to be swept or thrown any dirt or other substance into any of the corridors, halls or elevators or out of the doors or stairways of the Building; use or keep or permit to be used or kept any foul or noxious gas or substance; permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord, other tenants or guests of the Building by reason of noise, odors or vibrations; use any advertising medium which may be heard or experienced outside the Premises; interfere in any way with other tenants or persons having business in the Building; or bring or keep or permit to be brought or kept in the Building any animal life form, other than human, except seeing-eye dogs when in the company of their masters. 11. Tenant shall not permit the accumulation (unless in concealed metal containers) or burning of any rubbish or garbage in, on or about any part of the Premises or the Building. Further, Tenant shall permit supplies and equipment required to operate the Premises and any rubbish or other waste to be disposed of from the Premises to be transported only through the rear door to the Premises and to the area designated by Landlord for trash disposal service. The designated area is subject to change by Landlord. 12. No coin- or token-operated vending machine or similar device for the sale of any merchandise or services (including, without limitation, pay lockers, pay toilets, scales, amusement devices and machines for the sale of beverages, foods, candy, cigarettes or other commodities) may be operated in the Premises, other than those installed in locations approved by Landlord for use by Tenant's employees. 13. With the exception of coffee pots and two microwave ovens, no cooking or preparation of food shall be done or permitted by Tenant in the Premises, nor shall the Premises be used for the storage of merchandise, washing clothes, lodging, or any improper, objectionable or immoral purposes. Tenant shall not conduct any restaurant, luncheonette or cafeteria for the sale or service of food or beverages to its employees or to others. 14. Tenant shall not use or keep in the Building any kerosene, gasoline or inflammable or combustible fluid or material. 15. No boring or cutting for telephone, data or electric wires shall be allowed without the consent of Landlord and any such wires permitted shall be introduced at the place and in the manner prescribed by Landlord. The location of telephones, utilities outlets, speakers, fire extinguishers and all other equipment affixed to the Premises shall be subject to the approval of Landlord. Tenant shall pay all expenses incurred in connection with the installation, and, upon expiration or earlier termination hereof, the removal, of its equipment, including any telephone, data and electricity distribution equipment, and repair and replacement, as necessary, of any parts of the Premises and the Building affected thereby. In no event whatsoever shall Landlord be responsible to do any cabling or installation or other work for Tenant's telephone and data systems. 16. Two keys (and two card-keys if and at such time as the Building installs a card-key access system) will be furnished by Landlord for the Premises, and any additional keys or key cards initially required by Tenant must be obtained from Landlord at a cost of $5 per key and $5 per card-key. Tenant shall pay a charge of $20.00 per key or key card for any keys or card keys lost at any time or not returned at expiration of this Lease; provided, however, that Landlord agrees to cap the amount Tenant is to pay for lost keys or key cards upon termination or expiration of the Lease at $150.00. Tenant shall immediately report to Landlord any lost keys or card-keys as soon as known by Tenant's office manager, and shall bear the cost of any lost keys and card-keys and any lock changes or repairs required by Tenant. No keys or key cards shall be copied without Landlord's written consent. Upon termination of occupancy of the Building, Tenant shall deliver to Landlord all keys and key cards furnished by Landlord, and any reproductions thereof made by or at the direction of Tenant. 17. Tenant shall not affix any floor covering in any manner except as approved by Landlord. The expense of repairing any damage caused by removal of any such floor covering shall be borne by Tenant if it or its contractors, employees or invitees caused the damage. 18. No mail, furniture, packages, supplies, equipment, merchandise or deliveries of any kind will be received in the Building or carried up or down in the elevators except between such hours and in such elevators as shall be reasonably designated by Landlord. 19. Landlord reserves the right to close and keep locked all entrances and existing doors of the Building at all hours and to provide for access during regular business hours by Tenant and its employees by means of a card-key or other access system, and to provide for access by Tenant's invitees and guests by an intercom or other access system. Use of the Building daily between 6:00 P.M. and 8:00 A.M. or at any time during Saturdays, Sundays and legal holidays shall be available to Tenant's employees and agents to which Tenant has provided access card keys, subject to force majeure, and subject to the rules and regulations Landlord may reasonably prescribe on a non-discriminatory basis for tenants of the Building. Tenant, Tenant's employees, agents or associates, or other persons entering or leaving the 2 Building at any time, when it is so locked, may be required to sign the Building register, and any security guard or other person designated by Landlord (if posted by Landlord in its discretion) shall have the right to refuse admittance to any person into the Building without satisfactory identification showing such person's right to access to the Building at such time. Landlord assumes no responsibility and shall not be liable for any loss or damage resulting from the granting or refusing of admission to any authorized or unauthorized person to the Building. Tenant shall be responsible for the cost of any false discharge of Building security alarm system caused by Tenant, its agents, employees or invitees. 20. Tenant shall see that the exterior doors of the Premises are closed and securely locked on Saturdays, Sundays, legal holidays and after 6:00 P.M. daily. Tenant shall exercise care and caution that all water faucets or water apparatus are entirely shut off each day before the Premises are left unoccupied and that all electricity or gas shall likewise be carefully shut off so as to prevent waste or damage to Landlord or to other tenants of the Building. 21. Landlord may exclude or expel from the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building. 22. The requirements of Tenant will be attended to only upon application to Landlord. Employees of Landlord shall not perform any work outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord shall be required to admit any person (Tenant or otherwise) to the Premises or the Building. 23. Landlord, without notice and without liability to Tenant, at any time may change the name or the street address of the Building. 24. The word "Building" as used in these rules and regulations means the building in which the Premises are located. Tenant shall be liable to Landlord and to each other tenant of the Building for any loss, cost, expense, damage or liability, including attorney fees, caused or occasioned by the failure of Tenant to comply with these rules, but Landlord shall have no liability for such failure or for failing or being unable to enforce compliance therewith by any other tenant. 3 EXHIBIT B --------- LEGAL DESCRIPTION OF PROPERTY ----------------------------- The following described real property in the City and County of San Francisco, State of California: PARCEL I: BEGINNING at a point on the southeasterly line of Market Street, distant thereon 330 feet and 2-3/4 inches southwesterly from the southwesterly line of 7th Street; running thence southwesterly along said southeasterly line of Market Street 44 feet; thence at a right angle southeasterly 165 feet and 1 inch to the northwesterly line of Stevenson Street; thence northeasterly along said line of Stevenson Street 44 feet to the intersection of a line drawn from the point of beginning at a right angle to said line of Market Street; thence at a right angle northwesterly 165 feet and 1 inch to the point of beginning. BEING a portion of 100 Vara Block No. 406. PARCEL II: BEGINNING at a point on the southeasterly line of Market Street, distant thereon 374 feet and 2-3/4 inches southwesterly from the southwesterly line of 7th Street; running thence southwesterly along said southeasterly line of Market Street 44 feet to a point distant northeasterly thereon 407 feet from the northeasterly line of 8th Street; thence southeasterly at a right angle to said line of Market Street 165 feet and 1 inch to the northwesterly line of Stevenson Street; thence northeasterly along said line of Stevenson Street 44 feet to a line drawn from the point of beginning at a right angle to said line of Market Street; thence at a right angle northwesterly 165 feet and 1 inch to the point of beginning. BEING a portion of 100 Vara Block No. 406. EXHIBIT C --------- DRAWING AND SPECIFICATIONS -------------------------- The following drawings and specifications prepared by Fitschen & Associates, Inc. for Daily Journal, 1145 Market Street, Eighth Floor, San Francisco, CA: Demolition Plan A1.1 as revised 12/2/98 Floor Plan A2.1 as revised 12/2/98 Power and Signal Plan A3.1 as revised 12/2/98 Finish Plan A4.1 as revised 12/2/98 Reflected Ceiling Plan A5.1 as revised 12/2/98 EXHIBIT D --------- CERTIFICATE OF ACCEPTANCE OF PREMISES ------------------------------------- Angelo Sangiacomo and Yvonne Sangiacomo d.b.a. One Trinity Center c/o Trinity Management Services 1145 Market Street San Francisco, CA 94103 RE: Office Suite ____ One Trinity Center 1145 Market Street San Francisco California This Certificate is made with respect to that certain lease ("Lease") dated _________, 19____ between Angelo Sangiacomo and Yvonne Sangiacomo d.b.a. One Trinity Center ("Landlord") and ____________________, a ____________________ ("Tenant") concerning those premises known as Suite No. ____ within the building located at 1145 Market Street, San Francisco, California (the "Premises"). The undersigned hereby certifies as follows: 1. The Lease sets forth certain tenant improvement work to the Premises to be undertaken by Landlord, all such work to be performed pursuant to paragraph 10.1 thereof and Exhibit C attached thereto. 2. Landlord has complied with and performed all of its obligations for the construction of tenant improvement work to the Premises required under the Lease and Tenant hereby accepts the same as being done in a first class, workmanlike manner in accordance with the terms of the Lease, specifically, as set forth in paragraph 10.1 thereof and Exhibit C attached thereto, except for: _____________________________________________________________________________ _____________________________________________________________________________. 3. The completed Premises (subject to the exceptions noted above), were delivered by Landlord and accepted by Tenant on ____________________, 19____. 4. The Commencement Date of the Term of the Lease as specified in paragraph 3.1, shall be ____________________, 19____. 5. The Lease is in full force and effect and that the same represents the entire agreement between Landlord and Tenant concerning the Lease. 6. There are no existing defenses which Tenant has against enforcement of the Lease by Landlord, and there are no off-sets or credits against rentals. By: _________________________ [FLOOR PLAN FOR DAILY JOURNAL APPEARS HERE] - -------------------------------------------------------------------------------- 1-23-98 GF 1145 MARKET STREET SAN FRANCISCO - ---------------------------------------------------------------------------- 8 NTS EIGHT FLOOR - DAILY JOURNAL 98140201 EXHIBIT A Page 1 of 1 Page EX-10.8 5 LEASE DATED AUGUST 26, 1999 EXHIBIT 10.8 LEASE THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation (as Landlord) and SUSTAIN TECHNOLOGIES, INC., a Virginia corporation (as Tenant) LEASE THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation (as Landlord) and SUSTAIN TECHNOLOGIES, INC., a Virginia corporation (as Tenant) TABLE OF CONTNETS
Page ---- Paragraph --------- 1. PREMISES............................................................. 1 2. TERM................................................................. 1 3. RENT................................................................. 1 4. COMPLETION OR REMODELING OF THE PREMISES............................. 1 5. OPERATING EXPENSES................................................... 2 6. SERVICES............................................................. 6 7. QUIET ENJOYMENT...................................................... 8 8. DEPOSIT.............................................................. 8 9. CHARACTER OF OCCUPANCY............................................... 8 10. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.................... 9 11. ALTERATIONS AND REPAIRS BY TENANT................................... 9 12. MECHANICS' LIENS.................................................... 10 13. SUBLETTING AND ASSIGNMENT........................................... 10 14. DAMAGE TO PROPERTY.................................................. 12 15. INDEMNITY TO LANDLORD............................................... 13 16. SURRENDER AND NOTICE................................................ 13 17. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES.................... 13 18. CONDEMNATION........................................................ 14 19. DEFAULT BY TENANT................................................... 14 20. DEFAULT BY LANDLORD................................................. 18 21. SUBORDINATION AND ATTORNMENT........................................ 18 22. REMOVAL OF TENANT'S PROPERTY........................................ 18 23. HOLDING OVER: TENANCY MONTH-TO-MONTH................................ 19 24. PAYMENTS AFTER TERMINATION.......................................... 19 25. STATEMENT OF PERFORMANCE............................................ 19 26. MISCELLANEOUS....................................................... 20 27. AUTHORITIES FOR ACTION AND NOTICE................................... 21 28. RULES AND REGULATIONS............................................... 22 29. PARKING............................................................. 22 30. SUBSTITUTE PREMISES................................................. 22 31. BROKERAGE........................................................... 22 32. ERISA............................................................... 23 33. TIME OF ESSENCE..................................................... 23
EXHIBITS/ATTACHMENTS LIST ------------------------- Exhibit A Floor Plan Exhibit B Legal Description Exhibit C Commencement Certificate Exhibit D Rules and Regulations Exhibit E Work Letter OFFICE BUILDING LEASE --------------------- THIS LEASE is made this 21st day of August, 1999, by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Landlord") and SUSTAIN TECHNOLOGIES, INC., a Virginia corporation ("Tenant"). W I T N E S S E T H : 1. PREMISES. In consideration of the payment of rent and the keeping and -------- performance of the covenants and agreements by Tenant, as hereinafter set forth, Landlord hereby leases and demises unto Tenant the premises located on the 27th floor of the Building, known as Suite 2710 comprised of approximately 9,435 rentable square feet (hereinafter referred to as the "Premises"), as depicted on the plat hereto attached as Exhibit A, and being a part of the building known as Johns Manville, located at 717 - 17th Street, Denver, Colorado (the "Building"), together with a non-exclusive right, subject to the provisions hereof, to use all appurtenances thereto, including, but not limited to, any plazas, common areas, or other areas on the real property (described more , particularly on Exhibit B "Real Property") designated by Landlord for the exclusive or non- exclusive use of the tenants of the Building. The Building, Real Property, plazas, common areas, other areas, and appurtenances are hereinafter collectively sometimes called the "Building Complex." 2. TERM. The term of the Lease shall commence at 12:01 a.m. on the 1st ---- day of October, 1999, and shall terminate at 12:00 midnight on the 30th day of September 2004 (said 5-year term is referred to herein as the "Primary Lease Term"). 3. RENT. Tenant shall pay the annual rental for the Primary Lease Term ---- of Two Hundred Fifty-Two Thousand Seven Hundred Sixty-Three and 68/100 Dollars ($252,763.68), in equal monthly installments of Twenty-One Thousand Sixty-Three and 64/100 Dollars $21,063.64 (the "Base Rent"), commencing October 1, 1999, and continuing on the first day of each month thereafter during the term hereof. All rents shall be paid in advance, without notice, set off, abatement, or diminution, at the office of Landlord in Denver, Colorado, or at such place as Landlord from time to time designates in writing. 4. COMPLETION OR REMODELING OF THE PREMISES. ---------------------------------------- A. Provisions regarding any remodeling of or tenant finish work to be completed in the Premises, if any, shall be set forth in a work letter attached to this Lease as an exhibit (the "Work Letter"). Except as set forth in the Work Letter, Landlord shall have no obligations for the completion or remodeling of the Premises, and Tenant shall accept the Premises in their "as is" condition on the date the Primary Lease Term commences. If Landlord is delayed in delivering the Premises to Tenant due to the failure of a prior occupant to vacate the same, then the obligation for the payment of rent and the commencement of the Primary Lease Term hereof shall be postponed until Landlord delivers the Premises to Tenant -whereupon all of the covenants conditions, and agreements contained herein shall be in full force and effect. The postponement of Tenant's obligation to pay rent and other sums hereunder shall be in full settlement of all claims which Tenant may otherwise have by reason of such delay of delivery. B. If the commencement of the Primary Lease Term is delayed pursuant to subparagraph A above or any provision of the Work Letter, and such commencement date would otherwise occur on other than the first day of the month, the commencement date of the Primary Lease Term shall be further delayed until the first day of the following month and Tenant shall pay proportionate rent at the same monthly rate set forth herein (also in advance) for such partial month. In the event said commencement date is so delayed, the expiration of the term hereof shall be extended so that the Primary Lease Term will continue for the full period set forth in Paragraph 2 hereof. As soon as the Primary Lease Term commences, Landlord and Tenant shall execute a commencement certificate in the form attached hereto as Exhibit C, which may be requested by either party, setting forth the exact date on which the Primary Lease Term commenced and the expiration date of the Primary Lease Term. C. Except as provided in the Work Letter attached hereto, taking possession Of the Premises by Tenant shall be conclusive evidence as against Tenant that the Premises were in the condition agreed upon between Landlord and Tenant and acknowledgment of satisfactory completion of any fixup or remodeling, as the case may be, which Landlord has agreed in writing to perform. 5. OPERATING EXPENSES. ------------------ A. Definitions. In addition to terms hereinabove defined, the ----------- following terms shall have the following meanings with respect to the provisions of this Lease: (1) "Base Operating Expenses" shall mean an amount equal to the Operating Expenses (as hereinafter defined) for the calendar year 1999, as determined by Landlord following the end of such year, in accordance with this Paragraph 5. It is understood and acknowledged by Tenant that Landlord has not made any representation or given Tenant any assurances that the Base Operating Expenses will equal any specified amounts (any estimate provided by Landlord being deemed non-binding estimates only). (2) "Landlord's Accountants" shall mean that individual or firm employed by Landlord from time to time to keep the books and records for the Building Complex, and/or to prepare the federal and state income tax returns for Landlord with respect to the Building Complex, all of which books and records shall be certified to by an appropriate representative of Landlord. (3) "Building Standard" means the level of tenant finish improvements or the level of Building services, as the context may require, customarily offered from time to time by Landlord to all tenants of the Building. (4) "Rentable Area" shall mean 672,343 rentable square feet. If there is a significant change in the aggregate Rentable Area as a result of an addition to the Building, partial destruction thereof, modification to building design, or similar cause which causes a reduction or increase thereto on a permanent basis, Landlord's Accountants shall make such adjustments in the computations as shall be necessary to provide for any such change. (5) "Tenant's Pro Rata Share" shall mean, subject to the limitations hereinafter set forth, a fraction, the numerator of which is the rentable square feet comprising the Premises and the denominator of which is the Rentable Area. In the event Tenant, at any time during the Primary Lease Term, or any extensions thereof, leases additional space in the Building, Tenant's Pro Rata Share shall be recomputed by dividing the total rentable square footage of space then being leased by Tenant (including any additional space) by the Rentable Area and the resulting figure shall become Tenant's Pro Rata Share. (6) "Operating Expense Year" shall mean each calendar year during the term of this Lease, except that the first Operating Expense Year shall begin on the date the Primary Lease Term commences and end on December 31 of such year and the last Operating Expense Year shall begin on January 1 of the year in which this Lease expires or is terminated and end on the date of such expiration or termination. In the case of an Operating Expense Year of less than twelve (12) months, Operating Expenses for such year shall be prorated. (7) "Operating Expenses" shall mean all operating expenses of any kind or nature which are necessary, ordinary, or customarily incurred in connection with the operation and maintenance of the Building Complex as determined by Landlord's Accountants. Operating Expenses shall include, but not be limited to: (a) All real property taxes and assessments levied against the Building Complex by any governmental or quasi-governmental authority. The foregoing shall include any taxes, assessments, surcharges, or service or other fees of a nature not presently in effect which shall hereafter be levied on the Building Complex as a result of the use, ownership or operation of 2 the Building Complex or for any other reason, whether in lieu of or in addition to, any current real estate taxes and assessments; provided, however, any taxes which shall be levied on the rentals of the Building Complex shall be determined as if the Building Complex were Landlord's only property and, provided, further, that in no event shall the term "taxes or assessments," as used herein, include any net federal or state income taxes levied or assessed on Landlord, unless such taxes are a specific substitute for real property taxes. Such term shall, however, include gross taxes on rentals. Expenses incurred by Landlord for tax consultants and in contesting the amount or validity of any such taxes or assessments shall be included in such computations (all of the foregoing are collectively referred to herein as the "Taxes") . "Assessment" shall include so-called special assessments, license tax, business license fee, business license tax, commercial rental tax, levy, charge penalty or tax, imposed by any authority having the direct power to tax, including any city, county, state or federal government, or any school, agricultural, lighting, water, drainage or other improvement or special district thereof, against the Premises, the Building or Building Complex or any legal or equitable interest of Landlord therein. For the purposes of this Lease, any special assessments shall be deemed payable in such number of installments as is permitted by law, whether or not actually so paid and shall include any applicable interest on such installments; (b) Costs of supplies, including, but not limited to, the cost of relamping and replacing ballasts in all Building Standard tenant lighting as the same may be required from time to time; (c) Costs incurred in connection with obtaining and providing energy for the Building Complex, including, but not limited to, costs of propane, butane, natural gas, steam, electricity, solar energy and fuel oils, coal or any other energy sources; (d) Costs of water and sanitary and storm drainage services; (e) Costs of janitorial and security services and systems; (f) Costs of general maintenance and repairs, including costs under HVAC and other mechanical maintenance contracts, carpet replacement and painting in Common Areas; and repairs and replacements of equipment used in connection with such maintenance and repair work; (g) Costs of maintenance and replacement of landscaping; (h) insurance premiums, including fire and all-risk or multi- peril coverage, together with loss of rent endorsement, if applicable; the part of any claim required to be paid under the deductible portion of any insurance policy carried by Landlord in connection with the Building Complex (where Landlord is unable to obtain insurance without such deductible from a major insurance carrier at reasonable rates); public liability insurance; and any other insurance carried by Landlord on the Building Complex or any component parts thereof (all such insurance shall be in such amounts as may be required by any Mortgagee [as defined in Paragraph 20 hereof] or as Landlord may reasonably determine); (i) Labor costs, including wages and other payments, costs to Landlord of workmen's compensation and disability insurance, payroll taxes, welfare fringe benefits, and all legal fees and other costs or expenses incurred in resolving any labor dispute; (j) Professional building management fees, costs and expenses, including costs of office space and storage space 3 and leasing or amortized costs of acquisition of office furniture and equipment required by management for performance of its services as contemplated herein; (k) Legal, accounting, inspection, and other consultation fees (including, without limitation, fees charged by consultants retained by Landlord for services that are designed to produce a reduction in Operating Expenses or to reasonably improve the operation, maintenance or state of repair of the Building Complex) incurred in the ordinary course of operating the Building Complex; (l) The costs of capital improvements and structural repairs and replacements made in or to the Building Complex in order to conform to changes subsequent to the date of issuance of the certificate of occupancy for the Building Complex in any applicable laws, ordinances, rules, regulations, or orders of any governmental or quasi -governmental authority having jurisdiction over the Building Complex or parts and supplies therein (herein "Required Capital Improvements"); and the costs of any capital improvements and structural repairs and replacements that reduce Operating Expenses (herein "Cost Savings Improvements"). The expenditures for Required Capital Improvements and Cost Savings Improvements shall be amortized at a market rate of return over the useful life of such capital improvement or structural repair or replacement (as determined by Landlord's Accountants); provided that the amortized amount of any Cost Savings Improvement in any year will be equal to the estimated reduction in Operating Expenses as a result thereof; (m) Costs incurred by Landlord's Accountants in engaging experts or other consultants to assist them in making the computations required hereunder; and (n) Rent payable by Landlord under any ground lease affecting the Real Property or any portion thereof. "Operating Expenses" shall not include: --- (1) Costs of work, including painting and decorating and tenant change work, which Landlord performs for any tenant or in any tenant's space in the Building other than work of a kind and scope which Landlord would be obligated to furnish to all tenants whose leases contain a rental adjustment provision similar to this one; (2) Costs of repairs or other work occasioned by fire, windstorm or other insured casualty to the extent of insurance proceeds received; (3) Leasing commissions, advertising expenses, and other costs incurred in leasing space in the Building; (4) Costs of repairs or rebuilding necessitated by condemnation; (5) Any interest on borrowed money or debt amortization, except as specifically set forth above; or (6) Depreciation on the Building. Notwithstanding anything contained herein to the contrary, if any lease entered into by Landlord with any tenant in the Building is on a so-called "net" basis, or provides for a separate basis of computation for any Operating Expenses with respect to its leased premises, then, to the extent that Landlord's Accountants determine that an adjustment- should be made in making the computations herein provided for, Landlord's Accountants shall be permitted to modify the computation of Base Operating Expenses, Rentable Area, and Operating Expenses for a particular Operating Expense Year in order to eliminate or otherwise modify any such expenses which are paid for in whole or in part by such tenant. Furthermore, in making any computations contemplated hereby, Landlord's Accountants shall also be permitted to make such adjust- 4 ments and modifications to the provisions of this Paragraph 5 as shall be reasonably necessary to achieve the intention of the parties hereto. B. If any increase occurs in Operating Expenses during any Operating Expense Year during the Primary Lease Term, or any extension thereof, including the first Operating Expense Year, in excess of the Base Operating Expenses, Tenant shall pay to Landlord Tenant's Pro Rata Share of the amount of such increase. All amounts required to be paid by Tenant as a result of any such increase shall be paid within thirty (30) days following billing therefor by Landlord. In addition to the foregoing, it is agreed that, during each Operating Expense Year beginning with the first month of the second Operating Expense Year and continuing each month thereafter during the Primary Lease Term, or any extension thereof, Tenant shall pay to Landlord, at the same time as the Base Rent is paid, an amount equal to one-twelfth (1/12) of Landlord's estimate (as determined by Landlord's Accountants) of Tenant's Pro Rata Share of any projected increases in the Operating Expenses for the particular Operating Expense Year in excess of the Base Operating Expenses, with a final adjustment to be made between the parties at a later date for said operating Expense Year. In computing the increase in the monthly rental payments based upon Tenant's Pro Rata Share of the estimated increase of Operating Expenses for any particular Operating Expense Year, Landlord's Accountants shall take into account any prior increases in the monthly rental payments attributable to Tenant's Pro Rata Share of previously estimated increases. If, during any Operating Expense Year, Landlord's projected increase in Operating Expenses for said year over the Base Operating Expenses is less than the projected increase for the previous Operating Expense Year on which Tenant's monthly rental payments for said year were based, the rental payments to be paid by Tenant for the new Operating Expense Year shall be decreased accordingly; provided, however, in no event will the rental to be paid by Tenant hereunder ever be less than the Base Rent. As soon as practicable following the end of each Operating Expense Year during the Primary Lease Term, or any extension thereof, including the first Operating Expense Year, Landlord shall submit to Tenant a statement prepared by a representative of Landlord setting forth the exact amount of Tenant's Pro Rata Share of the increase, if any, of the Operating Expenses for the Operating Expense Year just completed over the Base Operating Expenses. Beginning with said statement for the second Operating Expense Year, it shall also set forth the difference, if any, between Tenant's actual Pro Rata Share of the increase in operating Expenses for such Operating Expense Year just completed and the estimated amount of Tenant's Pro Rata Share of such increase on the basis of which Tenant's monthly rent was computed for such particular Operating Expense Year. Each such statement shall also set forth the projected increase, if any, in operating Expenses for the new Operating Expense Year over the Base Operating Expenses and the corresponding increase or decrease in Tenant's monthly rent for such new Operating Expense Year above or below the rental paid by Tenant for the immediately preceding Operating Expense Year computed in accordance with the foregoing provisions. To the extent that Tenant's Pro Rata Share of the increase in Operating Expenses for the period covered by such statement is different from the estimated amount upon which Tenant paid rent during the Operating Expense Year just completed, Tenant shall pay to Landlord the difference in cash within thirty (30) days following receipt by Tenant of such statement from Landlord or receive a credit on the next months' rental owing hereunder, as the case may be. Until Tenant receives such statement, Tenant's monthly rent for the new Operating Expense Year shall continue to be paid at the rate paid for the particular operating Expense Year just completed, but Tenant shall commence payment to Landlord of the monthly installments of rent on the basis of said statement beginning on the first day of the month following the month in which Tenant receives such statement. Moreover, Tenant shall pay to Landlord or deduct from the rent, as the case may be, on the date required for the first payment of rent, as adjusted, the difference, if any, between the monthly installments of rent so adjusted for the new Operating Expense Year and the monthly installments of rent actually paid during the new Operating Expense Year. In addition to the above, if, during any particular Operating Expense Year, there is a change in the information on which Landlord's Accountants based the estimate upon which Tenant is then making its estimated rental payments so that such estimate furnished to Tenant is no longer accurate, Landlord shall be permitted to revise such estimate by notifying Tenant and there shall be such adjustments made in the monthly rental on the first day of the month following the serving of such statement on Tenant as shall be necessary by either increasing or decreasing, as the case may be, the amount of monthly rent then being paid by Tenant for 5 the balance of the Operating Expense Year (but in no event shall any such decrease result in a reduction of the rent below the Base Rent), as well as an appropriate adjustment in cash based upon the amount theretofore paid by Tenant during such particular Operating Expense Year pursuant to the prior estimate. Landlord's and Tenant's responsibilities with respect to the Operating Expense adjustment described herein shall survive the expiration or early termination of this Lease. In the event the Rentable Area is not fully occupied during any particular operating Expense Year, Landlord's Accountants may adjust those operating Expenses which are affected by the occupancy rates for the particular Operating Expense Year, or portion thereof, as the case may be, to reflect an occupancy of ninety-five percent (95%) of all such Rentable Area. C. If Tenant shall dispute the amount of an adjustment submitted by Landlord's Accountants or the proposed estimated increase or decrease on the basis of which Tenant's rent is to be adjusted as provided in subparagraph B above, Tenant shall give Landlord written notice of such dispute within thirty (30) days after Landlord's Accountants advise Tenant of such adjustment or proposed increase or decrease. If Tenant does not give Landlord such notice within such time, Tenant shall have waived its right to dispute the amounts so determined. If Tenant timely objects, Tenant shall have the right to engage its own certified public accountants ("Tenant's Accountants") for the purpose of verifying the accuracy of the statement complained of or the reasonableness of the estimated increase or decrease. If Tenant's Accountants determine that an error has been made, Landlord's Accountants and Tenant's Accountants shall endeavor to agree upon the matter, failing which the parties shall submit such matter to an independent certified public accountant selected by Landlord and reasonably acceptable to Tenant, for a determination which shall be final, conclusive and binding upon Landlord and Tenant. All costs incurred by Tenant in obtaining its own accountants shall be paid for by Tenant unless Tenant's Accountants disclose an error, acknowledged by Landlord's Accountants (or found to have occurred in a judicial action), of more than five percent (5%) in the computation of the total amount of Operating Expenses as set forth in the statement submitted by Landlord's Accountants which is challenged, in which event Landlord shall pay the reasonable costs incurred by Tenant in obtaining such audit. Notwithstanding the pendency of any dispute over any particular statement, Tenant shall continue to pay Landlord the amount of the adjusted monthly installments of rent determined by Landlord's Accountants until the adjustment has been determined to be incorrect as aforesaid. If it shall be determined that any portion of the Operating Expenses were not properly chargeable to Tenant, then Landlord shall promptly credit or refund the appropriate sum to Tenant. Delay by Landlord or Landlord's Accountants in submitting any statement contemplated herein for any operating Expense Year shall not affect the provisions of this Paragraph 5 or constitute a waiver of Landlord's rights as set forth herein for said Operating Expense Year or any subsequent Operating Expense Years during the Primary Lease Term and any extensions thereof. 6. SERVICES. -------- A. Subject to the provisions of subparagraph D below, Landlord, without charge, except as provided herein, and in accordance with standards from time to time prevailing for the Building, agrees: (1) to furnish running water at those points of supply for general use of tenants of the Building; (2) to furnish to public areas of the Building Complex heated or cooled air (as applicable) , electrical current, janitorial services, and maintenance to the extent Landlord deems necessary; (3) to furnish, during Ordinary Business Hours, as hereinafter defined, such heated or cooled air to the Premises as may, in the judgment of Landlord, be reasonably required for the comfortable use and occupancy of the Premises, provided that the recommendations of Landlord's engineer regarding occupancy and use of the Premises are complied with by Tenant and, with respect to cooled air, provided the same is used only for standard office use; (4) to furnish, subject to availability and capacity of building systems, unfiltered treated cooling tower water for use in Tenants' packaged HVAC systems, provided that such systems are equipped with Landlord-approved strainers, pumping systems and controls, and that such systems are connected only after approval of Landlord's engineer; (5) to provide, during ordinary Business Hours, the general use of passenger elevators for ingress and egress to and from the Premises (at least one such elevator shall 6 be available at all times, except in the case of emergencies or repair); (6) to provide janitorial services for the Premises to the extent of the Building Standard tenant finish work items contained therein (including such window washing of the outside of exterior windows as may, in the judgment of Landlord, be reasonably required), but unless and until the Building Standard changes, such janitorial services shall be provided after Ordinary Business Hours on Monday through Thursday and Sunday only, except for Legal Holidays; and (7) to cause electric current to be supplied to the Premises for all of Tenant's Standard Electrical Usage, as hereinafter defined. "Tenant's Standard Electrical Usage", as used herein, shall mean and refer to weekly electrical consumption in an amount equal to multiplying three and one-half (3.5) watts/square foot by fifty-nine (59) hours and by then multiplying the product thereof by the number of rentable square feet in the Premises. "Ordinary Business Hours" as used herein shall mean and refer to 7:00 a.m. to 6:00 p.m. Monday through Friday and 9:00 a.m. to 12:00 p.m. on Saturdays, Legal Holidays excepted. "Legal Holidays," as used herein, shall mean New Year's Day, Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and such other national holidays as may be hereafter established by the United States Government. B. "Excess Usage" shall be defined as any usage of electricity (1) during other than Ordinary Business Hours; or (2) in an amount in excess of Tenant's Standard Electrical Usage; or (3) for "Special Equipment"; or (4) for any requirement for standard HVAC services during other than Ordinary Business Hours. "Special Equipment," as used herein, shall mean (a) any equipment consuming more than 0.5 kilowatts at rated capacity, (b) any equipment requiring a voltage other than 120 volts, single phase, or (c) equipment that requires the use of self-contained HVAC units. Tenant shall reimburse Landlord for reasonable costs incurred by Landlord in providing services for Excess Usage, which costs are subject to change from time to time. Such reasonable costs will include Landlord's costs for materials, additional wear and tear on equipment, utilities, and labor (including fringe and overhead costs). Computation of Landlord's cost for providing such services will be made by Landlord's engineer, based on his engineering survey of Tenant's Excess Usage. Tenant shall also reimburse Landlord for all costs of supplementing the Building HVAC System and/or extending or supplementing any electrical service, as Landlord may determine is necessary, as a result of Tenant's Excess Usage. Prior to installation or use by Tenant of any equipment which will result in Excess Usage or operation of the Premises for extended hours on an ongoing basis, Tenant shall notify Landlord of such intended installation or use and obtain Landlord's consent therefor. In addition to the foregoing, Tenant, at Tenant's option, upon such notice or at any time thereafter, may request Landlord, at Tenant's sole cost and expense, to install a check meter and/or flow meter to assist in determining the cost to Landlord of Tenant's Excess Usage. If Tenant desires electric current and/or heated or cooled air to the Premises during periods other than Ordinary Business Hours, Landlord will use reasonable efforts to supply the same, but at the expense of Tenant, at Landlord's standard rate as established by it, from time to time, for such services. Not less than forty- eight (48) hours, prior notice shall be given by Tenant to Landlord of Tenant's desire for such services. It is also understood and agreed that Tenant shall pay the cost of replacing light bulbs and/or tubes. and ballast used in all lighting in the Premises other than Building Standard lighting. C. If Tenant requires janitorial services other than those required to be provided to other tenants of the Building Complex generally, Tenant shall separately pay for such services monthly upon billings by Landlord, or Tenant shall, at Landlord's option, separately contract for such services with the same company furnishing janitorial services to Landlord. Notwithstanding the foregoing, Tenant shall have the right, subject to Landlord's prior written consent and such rules, regulations and requirements as Landlord may impose (including but not limited to the requirement that such janitors belong to a trade union), to employ janitors, other than those employed by Landlord, to perform such additional services. D. Tenant agrees that Landlord shall not be liable for failure to supply any such heating, air conditioning, elevator, electrical, janitorial, lighting or other services, or during any period Landlord is required to reduce or curtail such services pursuant to any applicable laws, rules, or regulations, including regulations of any utility now or hereafter in force or effect, it being understood that Landlord may discontinue, reduce, or curtail such services, or any of them (either temporarily or permanently), at such 7 times as it may be necessary by reason of accident, repairs, alterations, improvements, strikes, lockouts, riots, acts of God, application of applicable laws, statutes, or rules and regulations or due to any other happening beyond the control of Landlord. In the event of any interruption, reduction, or discontinuance of Landlord's services (either temporary or permanent), Landlord shall not be liable for damages to person or property as a result thereof nor shall the occurrence of any such event in any way be construed as an eviction of Tenant; or cause or permit an abatement, reduction or setoff of rent; or operate to release Tenant from any of Tenant's obligations hereunder. E. Tenant agrees to notify promptly the Landlord or its representative of any accidents or defects in the Building of which Tenant becomes aware including defects in pipes, electric wiring, and HVAC equipment. In addition, Tenant shall provide Landlord with prompt notification of any matter or condition which may cause injury or damage to the Building or any person or property therein. 7. QUIET ENJOYMENT. So long as Tenant is not in default under this --------------- Lease, Tenant shall be entitled to the quiet enjoyment and peaceful possession of the Premises, subject to the terms and provisions of the Lease. 8. DEPOSIT. [INTENTIONALLY DELETED -- SEE ADDENDUM] ------- 9. CHARACTER OF OCCUPANCY. Tenant covenants and agrees to occupy the ---------------------- Premises as general business offices (the "Permitted Use") and for no other purpose, and to use them in a careful, safe, and proper manner; to pay on demand for any damage to the Premises caused by misuse or abuse thereof by Tenant, Tenant's agents or employees, or of any other person entering upon the Premises under express or implied invitation of Tenant. Tenant, at Tenant's expense, shall comply with all laws, codes, rules, and regulations of the United States, the State of Colorado, or of the City and County of Denver ("Applicable Laws") now in effect, or which may hereafter be in effect, which shall impose any duty upon Landlord or Tenant with respect to the occupation or alteration of the Premises. Tenant shall not commit waste or suffer or permit waste to be committed or permit any nuisance on or in the Premises. Tenant agrees that it will not store, keep, use, sell, dispose of or offer for sale in, upon or from the Premises any article or substance which may be prohibited by any insurance policy in force from time to time covering the Building nor shall Tenant keep, store, produce or dispose of on, in or from the Premises or the Building any substance which may be deemed a hazardous 8 substance or infectious waste under any state, local or federal rule, statute, law, regulation or ordinance as may be promulgated or amended f from time to time. 10. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD. ------------------------------------------------ A. Unless otherwise expressly provided herein, Landlord shall not be required to make any improvements or repairs of any kind or character to the Premises during the Primary Lease Term, or any extension thereof, except: (i) such repairs to HVAC, mechanical, life safety and electrical systems in the Premises (to the extent such systems are Building Standard) as may be deemed necessary by Landlord for normal maintenance operations of the Building Complex; and (ii) upkeep, maintenance, and repairs to all Common Areas in the Building Complex so long as the need for any such repair is not the result of Tenant's negligence. B. Tenant covenants and agrees to permit Landlord at any time to enter the Premises to examine and inspect the same or, if Landlord so elects, to perform any obligations of Tenant hereunder which Tenant shall fail to perform or to perform such cleaning, maintenance, janitorial services, repairs, additions, or alterations as Landlord may deem necessary or proper for the safety, improvement, or preservation of the Premises or of other portions of the Building Complex or as may be required by governmental authorities through any code, rule, regulation, ordinance, and/or law. Any such reentry shall not constitute an eviction or entitle Tenant to abatement of rent. Furthermore, Landlord shall at all times have the right at Landlord's election to make such alterations or changes in other portions of the Building Complex as Landlord may from time to time deem necessary and desirable as long as such alterations and changes do not unreasonably interfere with Tenant's use and occupancy of the Premises. Landlord may use one or more of the street entrances to the Building Complex and such public areas thereof as may be necessary, in Landlord's determination to complete such alterations or changes. 11. ALTERATIONS AND REPAIRS BY TENANT. --------------------------------- A. Tenant covenants and agrees not to make any Alterations in or additions to the Premises (subsequent to the work in the Premises performed by Landlord pursuant to the Work Letter), including installation of any equipment or machinery therein which requires modification of or additions to any existing electrical outlet or which would increase Tenant's usage of electricity beyond Tenant's Standard Electrical Usage (all such alterations are referred to herein collectively as "Alterations") without in each such instance first obtaining the written consent of Landlord. Landlord's consent to any Alterations by Tenant or Landlord's approval of the plans, specifications and working drawings for Tenant's Alterations shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities now in effect or which may hereafter be in effect. Tenant, at its expense, shall pay all engineering and design costs incurred by Landlord attributable to the Alterations and obtain all necessary governmental permits and certificates required for any Alterations to which Landlord has consented and shall cause such alterations to be completed in compliance therewith and with all applicable laws and requirements of public authorities and all applicable requirements of Landlord's insurance carriers. All Alterations which Tenant is permitted to make shall be performed in a good and workmanlike manner, using new materials and equipment at least equal in quality to the original installations in the Premises. All repair and maintenance work required to-be performed by Tenant pursuant to the provisions of subparagraph B below and any Alterations permitted by Landlord pursuant to the provisions hereof, including, but not limited to, any installations desired by Tenant for Tenant's telegraphic, telephonic or electrical connections, shall be done at Tenant's expense by Landlord's employees or, with Landlord's consent, by persons requested by Tenant and authorized in writing by Landlord; provided, however if such work is performed by persons who are not employees of Landlord, Tenant shall pay to Landlord, upon receipt of billing therefor, the costs for supervision and control of such persons as Landlord may determine to be necessary. If Landlord authorizes persons requested by Tenant to perform such work, prior to the commencement of any such work, on request, Tenant shall deliver to Landlord certificates issued by insurance companies qualified to do business in the State of Colorado, evidencing that workmen's compensation, public liability insurance, and property damage insurance, all in the amounts, with companies and on forms 9 satisfactory to Landlord, are in force and effect and maintained by all contractors and subcontractors engaged by Tenant to perform such work. All such policies shall name Landlord and any Mortgagee (as defined in Paragraph 20) as an additional insured. Each such certificate shall provide that the same may not be canceled or modified without ten (10) days' prior written notice to Landlord and such Mortgagee. Further, Landlord and such Mortgagee shall have the right to post notices in the Premises in locations which will be visible by parties performing any work on the Premises stating that Landlord is not responsible for the payment for such work and setting forth such other information as Landlord may deem necessary. Alterations, repair, and maintenance work shall be performed in a manner which will not unreasonably interfere with, delay, or impose any additional expense upon Landlord in the maintenance or operation of the Building or upon other tenants' use of their premises. B. Tenant shall keep the Premises in as good order, condition, and repair and in an orderly state, as when they were entered upon, loss by fire or other casualty or ordinary wear excepted. Subject to Landlord's obligation to make repairs in the event of certain casualties, as set forth in Paragraph 17 below, Landlord shall have no obligation for the repair or replacement of any portion of the interior of the Premises which is damaged or wears out during the term hereof regardless of the cause therefor, including but' not limited to, carpeting, draperies, window coverings, wallcoverings, painting or any of Tenant's property or betterments in the Premises. C. All Alterations and permanent fixtures installed in the Premises, including, by way of illustration and not by limitation, all partitions, paneling, carpeting, drapes or other window coverings, and light fixtures (but not including movable office furniture not attached to the Building), shall be deemed a part of the real estate and the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof without molestation, disturbance, or injury at the end of the Primary Lease Term, or any extension thereof, whether by lapse of time or otherwise, unless Landlord by notice given to Tenant no later than fifteen (15) days prior to the end of the term shall elect to have Tenant remove all or any of the Alterations, and in such event, Tenant shall promptly remove at Tenant's expense the Alterations specified by Landlord and restore the Premises to their condition prior to the making of the same, reasonable wear and tear excepted. 12. MECHANICS' LIENS. Tenant shall pay or cause to be paid all costs for ---------------- work done by Tenant or caused to be done by Tenant on the Premises (including work performed by Landlord or its contractor at Tenant's request following the commencement of the Primary Lease Term) of a character which will or may result in liens on Landlord's interest therein and Tenant will keep the Premises free and clear of all mechanics, liens, and other liens on account of work done for Tenant or persons claiming under it, excluding any Tenant Finish Work performed by Landlord pursuant to the Work Letter. Tenant hereby agrees to indemnify, defend, and save Landlord harmless of and from all liability, loss, damage, costs, or expenses, including attorneys' fees, on account of any claims of any nature whatsoever including claims or liens of laborers or materialmen or others for work performed for or materials or supplies furnished to Tenant or persons claiming under Tenant. Should any liens be filed or recorded against the Premises or any action affecting the title thereto be commenced as a result of such work (which term includes the supplying of materials), Tenant shall cause such liens to be removed of record within five (5) days after notice from Landlord. If Tenant desires to contest any claim of lien, Tenant shall furnish to Landlord adequate security of at least one hundred fifty percent (150%) of the amount of the claim, plus estimated costs and interest and, if a final judgment establishing the validity or existence of any lien for any amount is entered, Tenant shall pay and satisfy the same at once. If Tenant shall be in default in paying any charge for which a mechanic's lien or suit to foreclose the lien has been recorded or filed and shall not have given Landlord security as aforesaid, Landlord may (but without being required to do so) pay such lien or claim and any costs, and the amount so paid, together with reasonable attorney's fees incurred in connection therewith, shall be immediately due from Tenant to Landlord. 13. SUBLETTING AND ASSIGNMENT. ------------------------- A. Tenant shall neither sublet any part of the Premises except to Daily Journal Corporation, parent of Tenant nor assign this Lease or any interest herein without the written consent of Landlord first being obtained, which consent, as to any subletting of less than 10 twenty-five percent (25%) of the Premises, will not be unreasonably withheld provided that: (1) Tenant has complied with the provision of subparagraph D below and Landlord has declined to exercise its rights thereunder; (2) the proposed subtenant or assignee is engaged in a business and the Premises will be used in a manner which is in keeping with the then standards of the Building and does not conflict with any exclusive use rights granted to any other tenant; (3) the proposed subtenant or assignee has a reputation and standing in the business community consistent with the image of tenants in a first-class office building and has reasonable financial worth in light of the responsibilities involved and Tenant shall have provided Landlord with reasonable proof thereof; (4) Tenant is not in default hereunder at the time it makes its request for such consent; (5) the proposed subtenant or assignee is not a governmental or quasi-governmental agency; (6) the proposed subtenant or assignee is not a tenant under, or is not currently negotiating, a lease with Landlord in any Building owned by Landlord in downtown Denver (including the Building); (7) the rent under such sublease or assignment is not less than the rent to be paid by Tenant for such space under the Lease and is not less than 85% of the rental rate then being offered by Landlord for similar space in the Building; or (8) such subletting or assignment does not result in a violation or create a prohibited transaction under ERISA (as defined herein). Notwithstanding anything contained herein to the contrary, Tenant acknowledges that if the use of the Premises by any proposed subtenant or assignee would require compliance by Landlord and the Building with any current or future laws to a greater extent than that required prior to the proposed occupancy by such subtenant or assignee, Landlord, at its sole option, may refuse to grant such consent, unless, as an express condition thereof, Tenant and/or such assignee or subtenant bears the entire cost of such greater compliance. B. If this Lease is assigned, or if the Premises or any part thereof is sublet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect the rent from the assignee, subtenant, or occupant and apply the net amount collected to the rent herein reserved, but no such assignment, subletting, occupancy, or collection shall be deemed an acceptance of the assignee, subtenant, or occupant as the Tenant hereof or a release of Tenant from further performance by Tenant of covenants on the part of Tenant herein contained. A sale by Tenant of all or substantially all of its assets or all or substantially all of its stock if Tenant is a publicly traded corporation, a merger of Tenant with another corporation, the transfer of twenty-five percent (25%) or more of the stock in a corporate tenant whose stock is not publicly traded, or transfer of twenty-five percent (25%) or more of the beneficial ownership interests in a partnership tenant shall constitute a prohibited assignment hereunder. Consent by Landlord to any one Assignment or sublease shall not in any way be construed as relieving Tenant from obtaining the Landlord's express written consent to any further Assignment or sublease. Notwithstanding the consent of Landlord to any sublease or Assignment, Tenant shall not be relieved from its primary obligations hereunder to Landlord, including, but not limited to the payment of all Base Rent and Tenant's Pro Rata Share of increases in Operating Expenses. Landlord's consent to any requested sublease or Assignment shall not waive Landlord's right to refuse to consent to any other such request or to terminate this Lease if such request is made, all as provided herein. If Tenant collects any rental or other amounts from a subtenant or assignee in excess of the Base Rent and Tenant's Pro Rata Share of increases in Operating Expenses for any monthly period, Tenant shall pay to Landlord on a monthly basis, as and when Tenant receives the same, all such excess amounts received by Tenant. C. Notwithstanding anything contained in this Paragraph 13 to the contrary, in the event Tenant requests Landlord's consent to sublet twenty-five percent (25%) or more of the Premises or to assign twenty-five percent (25%) or more of its interest in this Lease, Landlord shall have the right to: (1) consent to such sublease or Assignment in its sole discretion; (2) refuse to grant such consent in Landlord's sole discretion; or (3) refuse to grant such consent and terminate this Lease as to the portion of the Premises with respect to which such consent was requested; provided, however, if Landlord refuses to grant such consent and elects to terminate the Lease as to such portion of the Premises, Tenant shall have the right within fifteen (15) days after notice of Landlord's exercise of its right to terminate to withdraw Tenant's request for such consent and remain in possession of the Premises under the terms and conditions hereof. In the event the Lease is terminated as set forth herein, such termination shall be effective as of the date set forth in a written notice from Landlord to Tenant, which date shall in no event be more than thirty (30) days following such notice. 11 D. Tenant hereby agrees that in the event it desires to sublease all or any portion of the Premises or assign this Lease to any party, in whole or in part, (herein "Assignment"), Tenant shall notify Landlord not less than ninety (90) days prior to the date Tenant desires to sublease such portion of the Premises or assign this Lease ("Tenant's Notice"). Tenant's Notice shall set forth the description of the portion of the Premises to be so sublet or assigned and the terms and conditions on which Tenant desires to sublet the Premises or assign this Lease. Landlord shall have sixty (60) days following receipt of Tenant's Notice within which to attempt to sublet the Premises or assign this Lease on Tenant's behalf (or to exercise Landlord's rights pursuant to subparagraph C above if Tenant's Notice discloses that twenty-five percent (25%) or more of the Premises is involved) . In the event that the space covered by Tenant's Notice is leased by Landlord, rent and other sums due from the subtenant in accordance with the sublease shall be paid to Tenant for Tenant's account and Landlord shall have no responsibility whatsoever for the observance and performance by such subtenant of its obligations under its sublease with Tenant. Landlord shall be under no obligation to find a prospective subtenant or assignee. If Landlord is unwilling or unable to locate a subtenant or assignee (and, if applicable, declines to exercise its rights pursuant to subparagraph C above) , Landlord will notify Tenant not later than sixty (60) days after the date Landlord receives Tenant's Notice and Tenant shall be free to sublet the portion of the Premises in question or assign the applicable portion of its interest in this Lease to any third party on terms substantially identical to those described in Tenant's Notice, subject to Landlord's consent as set forth in subparagraph A above. If Tenant is unable to sublet said portion of the Premises or assign the applicable portion of its interest in this Lease on said terms and conditions within one hundred twenty (120) days following its original notice to Landlord, Tenant agrees to reoffer the Premises to Landlord in accordance with the provisions hereof prior to leasing or assigning the same to any third party. E. All documents utilized by Tenant to evidence any subletting or assignment to which Landlord has consented shall be subject to prior approval by Landlord or its counsel. Tenant shall pay on demand all of Landlord's costs and expenses, including reasonable attorneys' fees, incurred in determining whether or not to consent to any requested sublease or Assignment and in reviewing and approving such documentation. F. Landlord and Tenant understand that notwithstanding certain provisions to the contrary contained herein, a trustee or debtor in possession under the Bankruptcy Code of the United States may have certain rights to assume or assign this Lease. If a trustee in bankruptcy is entitled to assume control over Tenant's rights under this Lease and assigns such rights to any third party, the Base Rent to be paid hereunder by such party shall be increased to the then current Base Rent (if greater than then being paid for the Premises) which Landlord would charge for comparable space in the Building as of the date of such third party's occupancy of the Premises. Landlord and Tenant further understand that in any event Landlord is entitled under the Bankruptcy Code to Adequate Assurance of future performance of the terms and provisions of this Lease. For purposes of any such assumption or assignment, the parties hereto agree that the term "Adequate Assurance" shall include at least the following: (1) In order to assure Landlord that the proposed assignee will have the resources with which to pay the rent called for herein, any proposed assignee must have as demonstrated to Landlord's satisfaction a net worth (as defined in accordance with generally accepted accounting principles consistently applied) at least as great as the net worth of Tenant on the date this Lease became effective increased by seven percent (7%), compounded annually, for each year from the Lease Commencement Date through the date of the proposed assignment. The financial condition and resources of Tenant were a material inducement to Landlord in entering into this Lease. (2) Any proposed assignee of this Lease must assume and agree to be personally bound by the terms, provisions, and covenants of this Lease. 14. DAMAGE TO PROPERTY. Tenant shall neither hold nor attempt to hold ------------------ Landlord liable for any injury or damage, either proximate or remote, occurring through or caused by fire, water, steam, or any repairs, alterations, injury, accident, or any other cause to the Premises, to any furniture, fix- 12 tures, Tenant improvements, or other personal property of Tenant kept or stored in the Premises, or in other parts of the Building Complex not herein demised, whether by reason of the negligence or default of the owners or occupants thereof or any other person or otherwise and the keeping or storing of all property of Tenant in the Building Complex and/or Premises shall be at the sole risk of Tenant. Tenant shall obtain and maintain throughout the term of this Lease "all risk" or "multi-peril" insurance on and for the full cost of replacement of all of Tenant's property and betterments in the Premises, including, without limitation all furniture, fixtures, personal property and all tenant finish in excess of Building Standard items. 15. INDEMNITY TO LANDLORD. --------------------- A. Tenant hereby agrees to indemnify, defend, and save Landlord harmless of and from all liability, loss, damages, costs, or expenses, including attorneys' fees, on account of injuries to the person or property of Landlord or of any other tenant in the Building Complex or to any other person rightfully in said Building Complex for any purpose whatsoever, where the injuries are caused by the negligence, misconduct or breach of this Lease by the Tenant, Tenant's agents, servants, or employees or of any other person entering upon the Premises under express or implied invitation of Tenant or where such injuries are the result of the violation of the provisions of this Lease by any of such persons. This indemnity shall survive termination or earlier expiration of this Lease. B. In addition to the above, Tenant shall obtain and maintain throughout the term of this Lease a commercial general liability policy, including protection against death, personal injury and property damage, issued by an insurance company qualified to do business in the State of Colorado with an AM Best rating of no less than A-, VII, with a single limit of not less than One Million Dollars ($1,000,000.00). All such policies shall name Landlord as an additional insured. Each such policy shall provide that the same may not be cancelled or modified without at least twenty (20) days' prior written notice to Landlord and any mortgagee (as defined in Paragraph 20). Prior to occupancy of the Premises, and thereafter from time to time, Tenant shall deliver certificates evidencing that such insurance, as required under Paragraph 14 above and this Paragraph 15, is in force and effect. The limits of said insurance shall not, under any circumstances, limit the liability of Tenant hereunder. 16. SURRENDER AND NOTICE. Upon the expiration or other termination of the -------------------- term of this Lease, Tenant shall promptly quit and surrender to Landlord the Premises broom clean, in good order and condition, ordinary wear and tear and loss by fire or other casualty excepted unless due to the negligence of Tenant, and Tenant shall remove all of its movable furniture and other effects and such Alterations, as Landlord shall require Tenant to remove pursuant to Paragraph 11 hereof. In the event Tenant fails to vacate the Premises on a timely basis as required, Tenant shall be responsible to Landlord for all costs incurred by Landlord as a result of such failure, including, but not limited to, any amounts required to be paid to third parties who were to have occupied the Premises. 17. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES. ------------------------------------------------ A. Landlord shall maintain casualty insurance on the shell and core of the Building, on the Premises to the extent of the base tenant finish per the then-current standard allowance provided by Landlord to tenants in the Building therein and in the Building Complex, in such amounts, from such companies, and on such terms and conditions, including loss of rental insurance for such period of time as Landlord deems appropriate, from time to time. B. If the Premises or the Building shall be so damaged by fire or other casualty as to render the Premises wholly untenantable and if such damage shall be so great that a competent architect, in good standing, selected by Landlord shall certify in writing to Landlord and Tenant within sixty (60) days of said casualty that the Premises, with the exercise of reasonable diligence, cannot be made fit for occupancy within one hundred eighty (180) working days from the happening thereof, then this Lease shall cease and terminate from the date of the occurrence of such damage and Tenant shall thereupon surrender to Landlord the Premises and all interest therein hereunder and Landlord may reenter and take possession of the Premises and remove 13 Tenant therefrom. Tenant shall pay rent, duly apportioned, up to the time of such termination of this Lease. If, however, the damage shall be such that said architect shall certify within said sixty (60) day period that the Premises can be made tenantable within said one hundred eighty (180) day period, then, except as hereinafter provided, Landlord shall repair the damage so done (to the extent of the base tenant finish per the then-current standard allowance provided by Landlord to tenants in the Building) with all reasonable speed. C. If the Premises shall be slightly damaged by fire or other casualty, but not so as to render the same wholly untenantable or to require a repair period in excess of one hundred eighty (180) days, then, Landlord, after receiving notice in writing of the occurrence of the casualty, except as hereafter provided, shall cause the same to be repaired to the extent of the base tenant finish per the then-current standard allowance provided by Landlord to tenants in the Building with reasonable promptness. If the estimated repair period as established in accordance with the provisions of subparagraph B above exceeds one hundred eighty (180) days, then the provisions of subparagraph B shall control notwithstanding the fact that the Premises are not wholly untenantable. D. In case the Building throughout shall be so injured or damaged, whether by fire or otherwise (though said Premises may not be affected, or if affected, can be repaired within said one hundred eighty (180) days), that, within sixty (60) days after the happening of such injury, Landlord shall decide not to reconstruct or rebuild said Building, then, notwithstanding anything contained herein to the contrary, upon notice in writing to that effect given by Landlord to Tenant within said sixty (60) days, Tenant shall pay the rent, properly apportioned up to such date, this Lease shall terminate from the date of delivery of said written notice, and both parties hereto shall be freed and discharged of all further obligations hereunder. E. Landlord and Tenant hereby waive any and all rights of recovery against the other, their officers, agents, and employees occurring out of the use and occupancy of the Premises for loss or damage to their respective real and/or personal property arising as a result of a casualty or condemnation contemplated by this Paragraph 17. Each of the parties shall, upon obtaining the policies of insurance required by this Lease, notify the insurance carrier that the foregoing waiver is contained in this Lease and shall require such carrier to include an appropriate waiver of subrogation provision in the policies. F. Provided that the casualty is not the fault of Tenant, Tenant's agents, servants, or employees, Tenant's rent shall abate during any such period of repair and restoration, but only to the extent of any recovery by Landlord under its rental insurance related to the Premises in the same proportion that the part of the Premises rendered untenantable bears to the whole. 18. CONDEMNATION. If the entire Premises or substantially all of the ------------ Premises or any portion of the Building Complex which shall render the Premises untenantable shall be taken by right of eminent domain or by condemnation or shall be conveyed in lieu of any such taking, then this Lease, at the option of either Landlord or Tenant exercised by either party giving notice to the other of such termination within thirty (30) days after such taking or conveyance, shall forthwith cease and terminate and the rent shall be duly apportioned as of the date of such taking or conveyance. Tenant thereupon shall surrender the Premises and all interest therein under this Lease to Landlord and Landlord may reenter and take possession of the Premises or remove Tenant therefrom. In the event less than all of the Premises shall be taken by such proceeding, Landlord shall promptly repair the Premises as nearly as possible to its condition immediately prior to said taking, unless Landlord elects not to reconstruct or rebuild as described in subparagraph D of Paragraph 17 above. In the event of any such taking or conveyance, Landlord shall receive the entire award or consideration for the portion of the Building so taken. 19. DEFAULT BY TENANT. ----------------- A. Each one of the following events is herein referred to as an "Event of Default": 14 (1) Any failure by Tenant to pay the rent or any other monetary sums required to be paid hereunder on the date such sums are due shall be deemed as default. Notwithstanding the foregoing, Tenant may cure a default under this provision at any time prior to five (5) business days after written notice of such default is given by Landlord exercising its remedies as to such default under this Lease; provided, however, Tenant shall not be entitled to more than two (2) notices of a delinquency in payment during any calendar year and, if thereafter during such calendar year any rent or other amounts owing hereunder are not paid when due, an Event of Default shall be deemed to have occurred immediately even though no notice thereof is given; (2) Tenant shall vacate or abandon the Premises; (3) This Lease or the estate of Tenant hereunder shall be transferred to or shall pass to or devolve upon any other person or party except in the manner set forth in Paragraph 13; (4) This Lease or the Premises or any part thereof shall be taken upon execution or by other process of law directed against Tenant or shall be taken upon or subject to any attachment at the instance of any creditor of or claimant against Tenant and said attachment shall not be discharged or disposed of within fifteen (15) days after the levy thereof; (5) The filing of any petition or the commencement of any case or proceeding by the Tenant under any provision or chapter of the Federal Bankruptcy Act, the Federal Bankruptcy Code, or any other federal or state law relating to insolvency, bankruptcy, or reorganization or the adjudication that the Tenant is insolvent or bankrupt or the entry of an order for relief under the Federal Bankruptcy Code with respect to Tenant; (6) The filing of any petition or the commencement of any case or proceeding described in subparagraph (5) above against the Tenant, unless such petition and all proceedings initiated thereby are dismissed within sixty (60) days from the date of such filing; the filing of an answer by Tenant admitting the allegations of any such petition; the appointment of or taking possession by a custodian, trustee or receiver for all or any assets of the Tenant, unless such appointment is vacated or dismissed within sixty (60) days from the date of such appointment; (7) The insolvency of the Tenant or the execution by the Tenant of an assignment for the benefit of creditors; the convening by Tenant of a meeting of its creditors, or any class thereof, for purposes of effecting a moratorium upon or extension or composition of its debts; or the failure of the Tenant generally to pay its debts as they mature; (8) The admission in writing by Tenant, or any partner of Tenant if Tenant is a partnership, that he is unable to pay his debts as they mature or he is generally not paying his debts as they mature; (9) Tenant shall fail to take possession of the Premises on the date the Primary Lease Term commences; (10) Tenant shall fail to perform any of the other agreements terms, covenants, or conditions hereof on Tenant's part to be performed and such non-performance shall continue for a period of thirty (30) days after written notice thereof by Landlord to Tenant or, if such performance cannot be reasonably had within such thirty (30) day period, Tenant shall not in good faith have commenced such performance within such thirty (30) day period and shall not diligently proceed therewith to completion; provided, however, if Tenant fails to perform any of the other agreements, covenants or conditions hereof repeatedly during the term of this Lease, Tenant shall no longer have the opportunity to cure any subsequent failure and an Event of Default shall be deemed to have occurred immediately upon such failure. B. Remedies of Landlord. If any one or more Event of Default shall -------------------- happen, then Landlord shall have the right at Landlord's election, then or at any time thereafter, either: (1) (a) Without demand or notice, to reenter and take possession of the Premises or any part thereof and repossess the same as of Landlord's former estate and expel Tenant and those claiming through or under Tenant and remove the effects of both or either, without being deemed guilty 15 of any manner of trespass and without prejudice to any remedies for arrears of rent or preceding breach of covenants or conditions. Should Landlord elect to reenter, as provided in this subparagraph (1), or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided for by law, Landlord may, from time to time, without terminating this Lease, relet the Premises or any part thereof, either alone or in conjunction with other portions of the Building of which the Premises are a part, in Landlord's or Tenant's name but for the account of Tenant, for such term or terms (which may be greater or less than the period which would otherwise have constituted the balance of the term of this Lease) and on such conditions and upon such other terms (which may include concessions of free rent and alteration and repair of the Premises) as Landlord, in its uncontrolled discretion, may determine and Landlord may collect and receive the rents therefor. Landlord shall in no way be responsible or liable for any failure to relet the Premises, or any part thereof, or for any failure to collect any rent due upon such reletting. No such reentry or taking possession of the Premises by Landlord shall be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention be given to Tenant. No notice from Landlord hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Landlord reserves the right following any such reentry and/or reletting to exercise its right to terminate this Lease by giving Tenant such written notice, in which event the Lease will terminate as specified in said notice. (b) If Landlord elects to take possession of the Premises as provided in this subparagraph (1) without terminating the Lease, Tenant shall pay to Landlord (i) the rent and other sums as herein provided, which would be payable hereunder if such repossession had not occurred, less (ii) the net proceeds, if any, of any reletting of the Premises after deducting all of Landlord's expenses incurred in connection with such reletting, including, but without limitation, all repossession costs, brokerage commissions, legal expenses, attorneys' fees, expenses of employees, alteration, remodeling, and repair costs and expenses of preparation for such reletting. If, in connection with any reletting, the new lease term extends beyond the existing term or the premises covered thereby include other premises not part of the Premises, a fair apportionment of the rent received from such reletting and the expenses incurred in connection therewith, as provided aforesaid, will be made in determining the net proceeds received from such reletting. In addition, in determining the net proceeds from such reletting, any rent concessions will be apportioned over the term of the new lease. Tenant shall pay such amounts to Landlord monthly on the days on which the rent and all other amounts owing hereunder would have been payable if possession had not been retaken and Landlord shall be entitled to receive the same from Tenant on each such day; or (2) To give Tenant written notice of intention to terminate this Lease on the date of such given notice or on any later date specified therein and, on the date specified in such notice, Tenant's right to possession of the Premises shall cease and the Lease shall thereupon be terminated, except as to Tenant's liability hereunder as hereinafter provided, as if the expiration of the term fixed in such notice were the end of the term herein originally demised. In the event this Lease is terminated pursuant to the provisions of this subparagraph (2), Tenant shall remain liable to Landlord for damages in an amount equal to the rent and other sums which would have been owing by Tenant hereunder for the balance of the term had this Lease not been terminated less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to such termination, after deducting all Landlord's expenses in connection with such reletting, including, but without limitation, the expenses enumerated above. Landlord shall be entitled to collect such damages from Tenant monthly on the days on which the rent and other amounts would have been payable hereunder if this Lease had not been terminated and Landlord shall be entitled to receive the same from Tenant on each such day. Alternatively, at the option of Landlord, in the event this Lease is terminated, Landlord shall be entitled to recover forthwith against Tenant as damages for loss of the bargain and not as a penalty an amount equal to the worth at the time of termination of the excess, if any, of the amount of rent reserved in this Lease for the balance of the term hereof over the then Reasonable Rental Value of the Premises for the same period plus all amounts incurred by Landlord in order to obtain possession of the Premises and relet the same, including attorneys' fees, reletting expenses, alterations and repair costs, brokerage commissions and all other like amounts. It is agreed 16 that the "Reasonable Rental Value" shall be the amount of rental which Landlord can obtain as rent for the remaining balance of the term. C. Cumulative Remedies. Suit or suits for the recovery of the rents ------------------- and other amounts and damages set forth hereinabove may be brought by Landlord, from time to time, at Landlord's election, and nothing herein shall be deemed to require Landlord to await the date whereon this Lease or the term hereof would have expired had there been no such default by Tenant or no such termination, as the case may be. Each right and remedy provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise, including, but not limited to, suits for injunctive relief and specific performance. The exercise or beginning of the exercise by Landlord of any one or more of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. All such rights and remedies shall be considered cumulative and non-exclusive. All costs incurred by Landlord in connection with collecting any rent or other amount and damages owing by Tenant pursuant to the provisions of this Lease, or to enforce any provision of this Lease, shall also be recoverable by Landlord from Tenant. Further, if an action is brought pursuant to the terms and provisions of the Lease, the prevailing party in such action shall be entitled to recover from the other party any and all reasonable attorneys' fees incurred by such prevailing party in connection with such action. D. No Waiver. No failure by Landlord to insist upon the strict --------- performance of any agreement, term, covenant or condition hereof or to exercise any right or remedy consequent upon a breach thereof and no acceptance of full or partial rent during the continuance of any such breach shall constitute a waiver of any such breach or of such agreement, term, covenant, or condition. No agreement, term, covenant, or condition hereof to be performed or complied with by Tenant and no breach thereof shall be waived, altered, or modified, except by written instrument executed by Landlord. No waiver of any breach shall affect or alter this Lease but each and every agreement, term, covenant, and condition hereof shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. Notwithstanding any termination of this Lease, the same shall continue in force and effect as to any provisions which require observance or performance by Landlord or Tenant subsequent to such termination. E. Bankruptcy. Nothing contained in this Paragraph 19 shall limit ---------- or prejudice the right of Landlord to prove and obtain as liquidated damages in any bankruptcy, insolvency, receivership, reorganization, or dissolution proceeding an amount equal to the maximum allowed by any statute or rule of law governing such a proceeding and in effect at the time when such damages are to be proved, whether or not such amount be greater, equal to, or less than the amounts recoverable, either as damages or rent, referred to in any of the preceding provisions of this Paragraph. Notwithstanding anything contained in this Paragraph to the contrary, any such proceeding or action involving bankruptcy, insolvency, reorganization, arrangement, assignment for the benefit of creditors, or appointment of a receiver or trustee, as set forth above, shall be considered to be an Event of Default only when such proceeding, action, or remedy shall be taken or brought by or against the then holder of the leasehold estate under this Lease. F. Late Payment Charge. Any rents or other amounts owing hereunder ------------------- which are not paid within five (5) days after the date they are due shall thereafter bear interest at the rate of three percentage points over the Prime Rate then being charged by Wells Fargo Bank, N.A., or its successor, to its most credit-worthy customers on an unsecured basis for short term loans (the "Prime Rate") or the highest rate permitted by applicable usury law, whichever is lower, until paid. Further, in the event any rents or other amounts owing hereunder are not paid within five (5) days after written notice, Landlord and Tenant agree that Landlord will incur additional administrative expenses, the amount of which will be difficult if not impossible to determine. Accordingly, Tenant shall pay to Landlord an additional, one-time late charge for any such late payment in the amount of five percent (5%) of such payment. Any amounts paid by Landlord to cure any defaults of Tenant hereunder, which Landlord shall have the right but not the obligation to do, shall, if not repaid by Tenant within five (5) days of demand by Landlord, 17 thereafter bear interest at the rate of three percentage points over the Prime Rate or the highest rate permitted by applicable usury law, whichever is lower, until paid. G. Waiver of Jury Trial. Tenant and Landlord hereby waive (to the -------------------- extent allowed by law) any and all rights to a trial by jury in suit or suits brought to enforce any provision of this Lease or arising out of or concerning the provisions of this Lease. 20. DEFAULT BY LANDLORD. In the event of any alleged default on the part ------------------- of Landlord hereunder, Tenant shall give written notice to Landlord in the manner herein set forth and shall afford Landlord a reasonable opportunity to cure any such default. Notice to Landlord of any such alleged default shall be ineffective unless notice is simultaneously delivered to any holder of a Mortgage and/or Trust Deed affecting all or any portion of the Building Complex ("Mortgagees"), as hereafter provided. Tenant agrees to give all Mortgagees, by certified mail, return receipt requested, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified, in writing (by way of notice of Assignment of Rents and Leases, or otherwise), of the address of such Mortgagees. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Mortgagees shall have an additional thirty (30) days within which to cure such default or, if such default cannot be cured within that time, then such additional time as may be necessary, if, within such thirty (30) days, any Mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of foreclosure proceedings, if necessary to effect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued. In no event will Landlord or any Mortgagee be responsible for any consequential damages incurred by Tenant as a result of any default, including, but not limited to, lost profits or interruption of business as a result of any alleged default by Landlord hereunder. 21. SUBORDINATION AND ATTORNMENT. ---------------------------- A. This Lease, at Landlord's option, shall be subordinate to any mortgage or deed of trust (now or hereafter placed upon the Building Complex, or any portion thereof), including any amendment, modification, or restatement of any of such documents, and to any and all advances made under any mortgage or deed of trust and to all renewals, modifications, consolidations, replacements, and extensions thereof. Tenant agrees that with respect to any of the foregoing documents, no documentation, other than this Lease, shall be required to evidence such subordination. B. If any holder of a mortgage or deed of trust shall elect to have this Lease superior to the lien of the holder's mortgage or deed of trust and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage or deed of trust, whether this Lease is dated prior or subsequent to the date of said mortgage or deed of trust or the date of recording thereof. C. In confirmation of such subordination or superior position, as the case may be, Tenant agrees to execute such documents as may be required by Landlord or its Mortgagee to evidence the subordination of its interest herein to any of the documents described above, or to evidence that this Lease is prior to the lien of any mortgage or deed of trust, as the case may be, and failing to do so within ten (10) days after written demand, Tenant does hereby make, constitute, and irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name, place, and stead, to do so. D. Tenant hereby agrees to attorn to all successor owners of the Building Complex, whether or not such ownership is acquired as a result of a sale, through foreclosure of a deed of trust or mortgage, or otherwise. 22. REMOVAL OF TENANT'S PROPERTY. ---------------------------- A. All movable furniture and personal effects of Tenant not removed from the Premises upon the vacation or abandonment thereof or upon the termination of this Lease for any cause whatsoever shall conclusively be deemed to have been abandoned and may be appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord without notice to Tenant or any other person and without obligation to account therefor and Tenant shall 18 pay Landlord all expenses incurred in connection with the disposition of such property. B. Subject to any prior purchase money security interests granted by Tenant, Tenant hereby conveys to Landlord all of Tenant's property situated on the Premises as security for the payment of all rents and other amounts due or to become due hereunder, and Tenant shall execute such documents as Landlord may reasonably require to evidence and perfect Landlord's security interest therein. For this purpose, this Lease shall be considered to be a security agreement covering such personal property and Landlord, upon the occurrence of an Event of Default under Paragraph 19 hereof, may exercise any rights of a secured party under the Uniform Commercial Code of the State of Colorado. Such security interest shall be prior and superior to any other security interest except a purchase money security interest. Tenant's property shall not be removed from the Premises without the consent of Landlord, except to the extent such property is replaced with an item of equal or greater value (and Landlord's security interest shall extend to such replacements and to the proceeds of all such property). 23. HOLDING OVER: TENANCY MONTH-TO-MONTH. If, after the expiration of ------------------------------------ this Lease, Tenant shall remain in possession of the Premises and continue to pay rent, and Landlord shall accept such rent, without any express written agreement as to such holding over, then such holding over shall be deemed and taken to be a holding upon a tenancy from month-to-month, subject to all the terms and conditions hereof on the part of Tenant to be observed and performed and at a monthly rent equivalent to two hundred percent (200%) of the monthly installments paid by Tenant immediately prior to such expiration or the Current Market Rental Rate for the Premises, whichever is greater. All such rent shall be payable in advance on the same day of each calendar month. Such month-to- month tenancy may be terminated by either party upon ten (10) days' notice prior to the end of any such monthly period. Nothing contained herein shall be construed as obligating Landlord to accept any rental tendered by Tenant after the expiration of the term hereof or as relieving Tenant of its liability pursuant to Paragraph 16 and any holdover without Landlord's consent shall be deemed a default hereunder entitling Landlord to all of its rights and remedies set forth in Paragraph 19 above, including, without limitation, its right to recover consequential damages resulting from said holdover. 24. PAYMENTS AFTER TERMINATION. No payments of money by Tenant to -------------------------- Landlord after the termination of this Lease, in any manner, or after giving of any notice (other than a demand for payment of money) by Landlord to Tenant shall reinstate, continue, or extend the term of this Lease or affect any notice given to Tenant prior to the payment of such money, it being agreed that after the service of notice or the commencement of a suit or other final judgment granting Landlord possession of the Premises, Landlord may receive and collect any sums of rent due or any other sums of money due under the terms of this Lease or otherwise exercise Landlord's rights and remedies hereunder and the payment of such sums of money, whether as rent or otherwise, shall not waive said notice or in any manner affect any pending suit or judgment theretofore obtained. 25. STATEMENT OF PERFORMANCE. Tenant agrees at any time and from time to ------------------------ time, upon not less than ten (10) days' prior written request by Landlord, to execute, acknowledge, and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), that there have been no defaults thereunder by Landlord or Tenant (or, if there have been defaults, setting forth the nature thereof), the date to which the rent and other charges have been paid in advance, if any, and such other information as Landlord may request. It is intended that any such statement delivered pursuant to this Paragraph may be relied upon by any prospective purchaser of all or any portion of Landlord's interest herein or a holder of any mortgage or deed of trust encumbering the Building Complex. Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant that: (i) this Lease is in full force and effect, without modification except as may be represented by Landlord; (ii) there are no uncured defaults in Landlord's performance; and (iii) not more than one (1) month's rent has been paid in advance. Further, upon request, Tenant will supply to Landlord a corporate or partnership resolution, as the case may be, certifying that the party signing said statement of Tenant is properly authorized to do so. 19 26. MISCELLANEOUS. ------------- A. The term "Landlord" as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners of the Building Complex at the time in question and, in the event of any transfer or transfers of the title thereto, Landlord herein named (and in the case of any subsequent transfers or conveyances, the then grantor) shall be automatically released, from and after the date of such transfer or conveyance, of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer in which Tenant has an interest shall be turned over to the grantee and any amount then due and payable to Tenant by Landlord or the then grantor under any provisions of this Lease shall be paid to Tenant. B. The termination or mutual cancellation of this Lease shall not work a merger, and such termination or mutual cancellation shall, at the option of Landlord, either terminate all subleases and subtenancies or operate as an assignment to Landlord of any or all such subleases or subtenancies. C. The Tenant agrees that, for the purposes of completing or making repairs or alterations in any portion of the Building, Landlord may use one or more of the street entrances, the halls, passageways, and elevators of the Building. D. This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant shall not be entitled to any setoff of the rent or other amounts owing hereunder against Landlord if Landlord fails to perform its obligations set forth herein; provided, however, the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building Complex or any portion thereof and an opportunity granted to Landlord and such holder to correct such violation as provided in Paragraph 20 above. E. If any clause or provision of this Lease is illegal, invalid, or unenforceable under present or future laws effective during the term of this Lease, then and in that event it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid, or unenforceable there be added as a part of this Lease a clause or provision as similar in terms to such illegal, invalid, or unenforceable clause or provision as may be possible and be legal, valid, and enforceable. F. The caption of each paragraph is added as a matter of convenience only and shall be considered of no effect in the construction of any provision or provisions of this Lease. G. Except as herein specifically set forth, all terms, conditions, and covenants to be observed and performed by the parties hereto shall be applicable to and binding upon their respective heirs, administrators, executors, and assigns. The terms, conditions, and covenants hereof shall also be considered to be covenants running with the land to the fullest extent permitted by law. H. Tenant and the party executing this Lease on behalf of Tenant represent to Landlord that such party is authorized to do so by requisite action of the board of directors or partners, as the case may be, and agree, upon request, to deliver to Landlord a resolution or similar document or opinion of counsel to that effect. I. If there are more than one entity or person which or who are the Tenant under this Lease, the obligations imposed upon Tenant under this Lease shall be joint and several. J. No act or thing done by Landlord or Landlord's agents during the term hereof, including, but not limited to, any agreement to accept surrender of the Premises or to amend or modify this Lease, shall be deemed to be binding on Landlord, unless such act or thing shall be by a partner or officer 20 of Landlord, as the case may be, or a party designated in writing by Landlord as so authorized to act. The delivery of keys to Landlord, or Landlord's agents, employees, or officers shall not operate as a termination of this Lease or a surrender of the Premises. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent and all other amounts owing, as herein stipulated, shall be deemed to be other than on account of the earliest stipulated rent or other amounts nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy available to Landlord. K. Landlord shall have the right at any time to change the name of the Building, to increase the size of the Building Complex by adding additional real property thereto, to construct other buildings or improvements on any portion of the Building Complex or to change the location and/or character of or to make alterations of or additions to the Building Complex. In the event any such additional buildings are constructed or Landlord increases the size of the Building Complex, Landlord and Tenant shall execute an Amendment to Lease which incorporates such modifications, additions, and adjustments to Tenant's Pro Rata Share, if necessary. Tenant shall not use the Building's name for any purpose other than as a part of its business address. Any use of such name in the designation of Tenant's business shall constitute a default under this Lease. L. Tenant covenants and agrees that no diminution of light, air, or view of or from the Building or any other -building (whether or not constructed or owned by Landlord) shall entitle Tenant to any reduction of rent or other charges under this Lease, result in any liability of Landlord to Tenant, or in any way affect this Lease or Tenant's obligations hereunder. M. Notwithstanding anything to the contrary contained herein, Landlord's liability under this Lease shall be limited to Landlord's interest in the Building Complex. N. Tenant acknowledges and agrees that it has not relied upon any statements, representations, agreements, or warranties by Landlord, its agents or employees, except such as are expressed herein and that no amendment or modification of this Lease shall be valid or binding unless expressed in writing and executed by the parties hereto in the same manner as the execution of this Lease. O. Tenant agrees to make such modification and amendments of this Lease as may hereafter be required to conform to any lender's requirements, so long as such modifications or amendments will not increase Tenant's obligations hereunder or materially alter its rights as set forth herein. P. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or an option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. 27. AUTHORITIES FOR ACTION AND NOTICE. --------------------------------- A. Except as herein otherwise provided, Landlord may act in any manner provided for herein by and through Landlord's Building Manager or any other person who shall from time to time be designated in writing. B. All notices, demands, statements or communications required or permitted to be given to Landlord hereunder shall be in writing and shall be deemed duly served when delivered personally to any officer of Landlord (or a partner of Landlord if Landlord is a partnership or to Landlord individually if Landlord is a sole proprietor) or manager of Landlord whose principal office is in the Building, or when deposited in the United States mail, postage prepaid, certified or registered, return receipt requested, addressed to Landlord at Landlord's principal office in the Building or at the most recent address of which Landlord has notified Tenant in writing. All notices, demands, statements or communications required to be given to Tenant hereunder shall be in writing and shall be deemed duly served when delivered personally to any officer of Tenant (or a partner of Tenant if Tenant is a partnership or to Tenant individually if Tenant is a sole proprietor) or manager of Tenant whose office is in the Building, when deposited in the United States mail, 21 postage prepaid, certified or registered, return receipt requested, addressed to Tenant at the Premises, or, prior to Tenant's taking possession of the Premises, to the address known to Landlord as Tenant's principal office address. Either party shall have the right to designate in writing, served as above provided, a different address to which notice is to be mailed. The foregoing shall in no event prohibit notice from being given as provided in Rule 4 of Colorado Rules of Civil Procedure, as the same may be amended from time to time. 28. RULES AND REGULATIONS. It is further agreed that the rules and --------------------- regulations set forth on Exhibit D attached hereto shall be and are hereby made a part of this Lease and Tenant agrees that Tenant's employees and agents or any others permitted by Tenant to occupy or enter the Premises will at all times abide by said rules and regulations. A breach of any of such rules or regulations shall be deemed an Event of Default under this Lease and Landlord shall have all remedies as set forth in Paragraph 19 hereof. 29. PARKING. Landlord agrees to make available to Tenant one (1) in and ------- out non-assigned parking space per 1,000 rentable square feet of the Premises in the parking facilities (parking lot or parking structure) made available by Landlord for use by tenants in the Building, in Denver, Colorado, at the current rate charged for such spaces from time to time, and Tenant shall pay the going monthly building rate for all such spaces it elects to lease. Tenant shall notify Landlord in writing prior to the commencement date of the Primary Lease Term of Tenant's acceptance of all or any portion of the spaces so offered, and Landlord agrees to make the same available to Tenant within thirty (30) days following the commencement date of the Primary Lease Term. Any parking space offered by Landlord which is not accepted by Tenant as of the commencement date of the Primary Lease Term or leased continuously during the term of this Lease, shall be forfeited for the balance of the Primary Lease Term, including any extensions hereof. The number of parking spaces which Tenant elects to lease pursuant to the terms of this Paragraph shall be evidenced on the Commencement Certificate attached hereto as Exhibit C to be signed by Landlord and Tenant. Tenant shall receive one bill monthly for all spaces leased by it hereunder and Tenant shall pay for all spaces in one lump payment directly to Landlord. The right granted to Tenant herein to use said parking spaces shall be deemed a license only and Landlord's inability to make such spaces available at any time during the term of the Lease for reasons beyond Landlord's reasonable control shall not be deemed a material breach by Landlord of any of its obligations under the Lease. The abatement of Tenant's obligation to pay for such spaces during any period the same are unavailable shall constitute Tenant's sole remedy in the event of such unavailability. If at any time during the term hereof Tenant fails to timely make payment of parking rental due hereunder, Tenant shall forfeit its rights to all parking spaces granted hereunder. 30. SUBSTITUTE PREMISES. At any time during the Primary Lease Term, or ------------------- any extension thereof, Landlord shall have the right upon thirty (30) days, prior written notice to Tenant to substitute other substantially comparable space within the Building, including substantially comparable tenant finish, for the Premises (the "Substitute Premises"). Tenant shall relocate to the Substitute Premises on the date set forth in Landlord's notice (to occur no sooner than thirty (30) days after receipt by Tenant of said notice). Landlord agrees to pay all reasonable expenses incurred by Tenant to move its furniture, fixtures, and equipment to the Substitute Premises. The suite number designation and Exhibit A shall be deemed revised to reflect the description of the Substitute Premises. Except for such revisions, the terms and provisions of the Lease shall be applicable to the Substitute Premises and the Substitute Premises shall be deemed to be the Premises under the Lease. 31. BROKERAGE. Tenant hereby represents and warrants that Tenant has not --------- employed any broker in regard to this Lease and that Tenant has no knowledge of any broker being instrumental in bringing about this Lease transaction except Cushman & Wakefield of Colorado, Inc., a Colorado corporation ("Cushman"), which has acted as Landlord's leasing agent. Tenant shall indemnify Landlord against any expense incurred by Landlord as a result of any claim for brokerage or other commissions made by any other broker, finder, or agent, whether or not meritorious, employed by Tenant or claiming by, through, or under Tenant. Tenant acknowledges that Landlord shall not be liable for any representations by Cushman regarding the Premises, Building, or this lease transaction. 22 32. ERISA. Tenant represents as follows: ----- A. Neither Tenant nor any of its affiliates (within the meaning of Part V(c) of Prohibited Transaction Exemption 84-14, 49 Fed.Reg. 9494 (1984), as amended ("PTE 84-14")) has, or during the immediately preceding year has, exercised authority to: (1) appoint or terminate the Prudential Insurance Company of America or Prudential Real Estate Investors ("Prudential") as investment manager over assets of any employee benefit plan invested in Landlord; or (2) negotiate the terms of a management agreement with Prudential on behalf of any such plan; B. Tenant is not a "related party" of Prudential (as defined in Part V(h) of PTE 84-14); C. Tenant has negotiated and determined the terms of this Lease at arm's length, as such terms would be negotiated and determined by Tenant with unrelated parties; and D. Tenant is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") , a "plan" as defined in Section 4965 (e) (1) of the Internal Revenue Code of 1986, as amended (the "Code") or any entity deemed to hold "plan assets" within the meaning of 29 C.P.R. (S)2510.3-101 of any such employee benefit plan or plan. 33. TIME OF ESSENCE. Time is of the essence herein. --------------- IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed on the dates below their respective signatures. This Lease shall be deemed effective upon delivery of a fully executed copy hereof to Tenant by Landlord. Landlord and Tenant, by execution hereof, agree that the day and year first above written shall be used for reference purposes only and shall not be deemed the effective date hereof. SUSTAIN TECHNOLOGIES, INC., a THE PRUDENTIAL INSURANCE COMPANY OF Virginia corporation AMERICA, a New Jersey corporation By Cushman & Wakefield of Colorado, By: /s/ Gerald L. Salzman Inc., a Colorado corporation, --------------------------------- Authorized Agent Title: President ------------------------------ Date: 8/10/99 By: ILLEGIBLE ------------------------------- ---------------------------- Director "Tenant" Date: 8/26/99 -------------------------- "Landlord" 23 RIDER ----- THIS RIDER is to that certain lease agreement (the "Lease"), by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("Landlord") and SUSTAIN TECHNOLOGIES, INC., a Virginia corporation ("Tenant") with respect to approximately 9,435 rentable square feet of space being a part of the Building. All capitalized terms not otherwise defined herein have the same meaning as in the Lease. In the event of any conflict between the terms and provisions of the Lease and the terms and provisions of this Rider, the terms and provisions of this Rider shall control. 1. Tenant may elect to terminate this Lease ("Termination Option") effective as of the last day of the 36th month of the Primary Lease Term (the "Early Termination Date"), by giving Landlord written notice ("Tenant's Notice") on or before the last day of the 27th month of the Primary Lease Term, provided that: (1) on or before the Early Termination Date, Tenant has paid Landlord all amounts due and owing under the Lease; and (2) Tenant pays to Landlord concurrently with Tenant's Notice a termination fee equal to: (i) $73,565.00, plus (ii) $63,190.92 (representing 3 months' Base Rent), plus (iii) 3 months' then estimated payments of increases in Operating Expenses. Tenant's right to exercise the Termination Option is conditioned on: (i) Tenant not being in default at the time of exercise of the Termination Option or on the Early Termination Date; and (ii) Tenant not having subleased or vacated more than 25% of the Premises or assigned its interest under the Lease as of the date of exercise of the Termination Option or on the Early Termination Date. If the Termination Option is timely exercised, Tenant will deliver possession of the Premises to Landlord on the Early Termination Date in accordance with the terms of the Lease and all other terms and provisions will apply as if the Lease had expired according to its terms, including Tenant's obligation for payment of any increases in Operating Expenses attributable to periods prior to the Early Termination Date at such time as such obligation is determined. If Tenant fails to timely give notice, Tenant will be deemed to have waived its right to terminate under this Paragraph, Tenant's right to terminate the Lease pursuant to this Paragraph is personal to Tenant and may not be assigned. In the event of an assignment of the Lease or a subletting or vacation of more than 25% of the Premises, this Paragraph is null and void, except if such sublease was to Daily Journal Corporation. IN WITNESS WHEREOF, the parties hereto execute this Rider. SUSTAIN TECHNOLOGIES, INC., a THE PRUDENTIAL INSURANCE COMPANY OF Virginia corporation AMERICA, a New Jersey corporation By Cushman & Wakefield of Colorado, By: /s/ Gerald L. Salzman Inc., a Colorado corporation, ------------------------------- Authorized Agent Print Name: Salfman ----------------------- By: /s/ ILLEGIBLE Print Title: President --------------------------------- ---------------------- Director Date: 8/26/99 ATTEST: ------------------------------- "Landlord" By: ______________________________ Print Name: ______________________ Print Title:______________________ "Tenant" EXHIBIT A [FLOOR PLAN APPEARS HERE] EXHIBIT B 717 - 17TH STREET LEGAL DESCRIPTION ----------------- That part of Lot 8, Lots 9 to 19, and part of Lots 20 to 25, together with the vacated alley adjacent to said Lots, all in Block 141, EAST DENVER, the plat of which is recorded in Plat Book 1, Page 1, City and County of Denver, State of Colorado, more particularly described as follows: BEGINNING at the South corner of said Block 141; thence Northwesterly along the Southwesterly line of said Block, 266.50 feet to the West corner of said Block; thence Northeasterly along the Northwesterly line of said Block, 214.10 feet to a point; thence Southeasterly on a deflection angle to the right of 9000'00" a distance of 184.17 feet; thence Southwesterly on a deflection angle to the right of 9000'00" a distance of 131.20 feet; thence Southeasterly on a deflection angle to the left of 9000'00", a distance of 82.33 feet to the Southeasterly line of said block; thence Southwesterly along said Southeasterly line, 82.80 feet to the Point of Beginning; except the following described parcel: The Westerly 42.92 feet of Lots 21 and 22, Block 141, EAST DENVER; TOGETHER WITH the Southeasterly 1/2 of the portion of the vacated alley adjoining the Westerly 42.92 feet of said Lots 21 and 22, City and County of Denver, State of Colorado EXHIBIT C TO LEASE COMMENCEMENT CERTIFICATE ____________________, 19__ SUSTAIN TECHNOLOGIES, INC. _____________________________ _____________________________ _____________________________ RE: Lease dated as of the ____ day of ____________, ____ (the "Lease"), by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, as Landlord, and SUSTAIN TECHNOLOGIES, INC., a Virginia corporation, as Tenant, pertaining to approximately 9,435 rentable square feet of space located in Suite 2710 (the "Premises") of the building known as Johns Manville (the "Building") located at 717 - 17th Street, Denver, Colorado. Dear Tenant: With regard to the referenced Lease, Landlord and Tenant acknowledge the following: 1. Any remodeling or tenant finish in the Building or Premises required to be constructed and finished by Landlord in accordance with the Work Letter, if any, has been satisfactorily completed by Landlord and the Premises have been delivered to and accepted by Tenant on ________________. 2. In accordance with the provisions of Paragraph 4.B of the Lease, the term of the Lease shall commence at 12:01 a.m., on ________________, and expire at 12:00 midnight on _______________. 3. In accordance with the provisions of the Lease, Tenant's obligation for the payment of rent under the Lease commenced on ________________. Accordingly, Base Rent due under the Lease shall be as follows: Period Base Rent Due ------ ------------- 4. In accordance with the provisions of Paragraph 15, attached is a certificate of insurance evidencing that Tenant is carrying insurance required under Paragraphs 14 and 15 of the Lease. 5. Tenant has accepted for its use _________ parking spaces of the total parking spaces offered by Landlord pursuant to the provisions of Paragraph 29 of the Lease. The rental for such parking spaces as set forth in said Paragraph 29 shall be payable in addition to the rent referred to above. Tenant shall have no further rights under the Lease to any parking spaces. If Tenant later desires to use any additional parking spaces, Landlord will work with Tenant to make such additional spaces available on a month-to-month basis. Page 2 Monthly rental statements will be forwarded to you, along with a return envelope addressed to the banking institution of the office of the Building. In accordance with your Lease, the rental payments, payable to Cushman & Wakefield of Colorado, Inc., a Colorado corporation, are due and payable on the first day of each month. Monthly statements may reflect special charges, such as keys, locks, directory strips, work order requests and other services provided by the property management. Please use the return envelope included with your statement for transmittal of your rental payment. Please acknowledge the foregoing by having an authorized officer sign in the space provided below and return to our office. THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation By Cushman & Wakefield of Colorado, Inc., a Colorado corporation, Authorized Agent By: __________________________ Director "Landlord" THE PROVISIONS OF THE FOREGOING COMMENCEMENT CERTIFICATE ARE HEREBY ACKNOWLEDGED: SUSTAIN TECHNOLOGIES, INC., Virginia corporation By: ________________________________ Title: ______________________________ Date: ______________________________ "Tenant" EXHIBIT D TO LEASE RULES AND REGULATIONS 1. The sidewalks, entries, passages, corridors, stairways, and elevators of the Building Complex shall not be obstructed by Tenant or Tenant's agents or employees or used for any purpose other than ingress and egress to and from the Premises, it being understood and agreed that such access may be obtained only via the elevators in the lobby of the Building. 2. Furniture, equipment, or supplies will be moved in or out of the Building only upon the elevator designated by Landlord and then only during such hours and in such manner as may be reasonably prescribed by Landlord. The Landlord shall have the right to approve or disapprove the movers or moving company employed by Tenant and Tenant shall cause said movers to use only the loading facilities and elevator designated by Landlord. In the event Tenant's movers damage the elevator or any part of the Building, Tenant shall forthwith pay to Landlord the amount required to repair said damage. 3. No safe or article, the weight of which may, in the reasonable opinion of Landlord, constitute a hazard or damage to the Building or the Building's equipment, shall be moved into the Premises. Safes and other equipment, the weight of which is not excessive, shall be moved into, from, or about the Building only during such hours and in such manner as shall be prescribed by Landlord and Landlord shall have the right to designate the location of such articles in the Premises. 4. No sign, advertisement, or notice shall be inscribed, painted, or affixed on any part of the inside or outside of the Building unless of such color, size, and style and in such place upon or in the Building as shall be first designated by Landlord in writing but there shall be no obligation or duty on Landlord to allow any sign, advertisement or notice to be inscribed, painted, or affixed on any part of the inside or outside of the Building A directory in a conspicuous place, with names of tenants, not to exceed one (1) name per one thousand (1,000) Rentable Square Feet of space contained in their respective premises, will be provided by Landlord. Any necessary revision in the directory will be made by Landlord at Tenant's expense within a reasonable time after notice from Tenant of the change making the revision necessary. No furniture shall be placed in front of the Building or in any lobby or corridor of the Building (whether included wholly within the Premises, or otherwise) , without the prior written consent of Landlord, Landlord shall have the right to remove all non-permitted signs and furniture, without notice to Tenant, at the expense of Tenant. 5. Tenant shall not do or permit anything to be done in the Premises or bring or keep anything therein which would in any way increase the rate of fire insurance on the Building or on property kept therein, constitute a nuisance or waste, obstruct or interfere with the rights of other tenants or in any way injure or annoy them, or conflict with the laws relating to fire or with any regulations of the fire department, fire insurance underwriters, or with any insurance policy upon the Building or any part thereof, or conflict with any of the rules or ordinances of the Department of Health of the City and County where the Building is located. 6. Tenant shall not employ any person or persons other than the janitor of Landlord for the purpose of cleaning or taking care of the Premises, without the prior written consent of Landlord. Landlord shall be in no way responsible to Tenant for any loss of property from the Premises, however occurring, or for any damage done to Tenant's furniture or equipment by the janitor or any of the janitor's staff or by any other person or persons whomsoever. The janitor of the Building may at all times keep a passkey and other agents of Landlord shall at all times be allowed admittance to the Premises. 7. Water closets and other water fixtures shall not be used for any purpose other than that for which they were intended and any damage resulting to them from misuse on the part of Tenant or Tenant's agents or employees shall be paid for by Tenant. No person shall waste water by tying back or wedging the faucets or in any other manner. 8. No animals, other than guide dogs for the disabled, shall be allowed in the offices, halls, corridors, and elevators in the Building. No person shall disturb the occupants of the Building or adjoining buildings or premises by the use of any radio, sound equipment, or musical instrument or by the making of loud or improper noises. 9. Bicycles or other vehicles shall not be permitted in the offices, halls, corridors, and elevators in the Building nor shall any obstruction of sidewalks or entrances of the Building be permitted. 10. Tenant shall not allow anything to be placed on the outside of the Building, nor shall anything be thrown by Tenant or Tenant's agents or employees out of the windows or doors or down the corridors, elevator shafts, or ventilating ducts or shafts of the Building. Tenant, except in case of fire or other emergency, shall not open any outside window. 11. No additional lock or locks shall be placed by Tenant on any door in the Building, unless written consent of Landlord shall first have been obtained. Tenant shall have no right to rekey the Premises. Two keys to the Premises and the toilet rooms, if locked by Landlord, will be furnished by Landlord and neither Tenant nor Tenant's agents or employees shall have any duplicate keys made. Landlord shall supply Tenant with such additional keys as Tenant may require at Tenant's sole cost and expense. At the termination of this tenancy, Tenant shall promptly return to Landlord all keys to offices, toilet rooms, or vaults. 12. No window shades, blinds, screens, draperies, or other window coverings will be attached or detached by Tenant without Landlord's prior written consent. Tenant agrees to abide by Landlord's rules with respect to maintaining uniform curtains, draperies and linings, or blinds at all windows and hallways. 13. If any Tenant desires telegraphic, telephonic, or other electric connections, Landlord or Landlord's agents will direct the electricians as to where and how the wires may be introduced. Without such directions, no boring or cutting for wires will be permitted. Any such installation and connection shall be made at Tenant's expense. 14. Tenant shall not install or operate any steam or gas engine or boiler or carry on any mechanical business in the Premises. The use of oil, gas, or inflammable liquids for heating, lighting, or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Building. 15. Any painting or decorating, as may be agreed to be done by and at the expense of Landlord, shall be done during regular weekday working hours. Should Tenant desire such work on Saturdays, Sundays, Legal Holidays, or outside of regular working hours, Tenant shall pay for the extra cost thereof. 16. Except as permitted by Landlord, Tenant shall not mark upon, paint signs upon, cut, drill into, drive nails or screws into, or in any way deface the walls, ceilings, partitions, or floors of the Premises or of the Building and any defacement, damage, or injury caused by Tenant or Tenant's agents or employees shall be paid for by Tenant. 17. Landlord shall at all times have the right, by Landlord's officers or agents, to enter the Premises and show the same to persons wishing to lease them. 18. Smoking is prohibited in all inside lobbies, stairwells, bathrooms, and other common areas and public areas of the Building Complex and is restricted in all outside plaza areas of the Building Complex to specific locations designated by Landlord as smoking areas. Smoking shall be prohibited (upon written notice from Landlord) within a respective premises if Landlord determines that smoke odors or emissions from the premises may be entering inside lobbies, common areas, public areas, the premises of other tenants, or the Building ventilation system. 19. All contractors hired by Tenant to complete the alterations to the Premises shall adhere to the provisions of the Lease and these Rules and Regulations, as well as such separate rules and regulations as Landlord may adopt as requirements for tenants' contractors. Tenant agrees that Landlord may amend, modify, delete, or add new and additional rules and regulations of the use and care of the Premises and the Building Complex. Tenant agrees to comply with all such rules and regulations upon notice to Tenant from Landlord thereof. In the event of any breach of any of the rules and regulations herein set forth or any amendments, modifications, or additions thereto, Landlord shall have all remedies in the Lease provided for in the Event of Default by Tenant. EXHIBIT E TO LEASE _________________, 19__ SUSTAIN TECHNOLOGIES, INC. ____________________________ ____________________________ ____________________________ Re: Tenant: SUSTAIN TECHNOLOGIES, INC., a Virginia corporation Premises: Approximately 9,435 rentable square feet of space located in Suite 2710 on the 27th floor (the "Premises") Address: 717 - 17th Street, Denver, Colorado 80202 Gentlemen: Concurrently herewith, you as Tenant, and the undersigned, as Landlord, have executed a Lease (the "Lease") covering the Premises (the provisions of said Lease are herein incorporated by reference as if fully set forth herein). In consideration of the execution of said Lease, Landlord has agreed to complete certain remodeling or tenant finish work in the Premises and Tenant and Landlord mutually agree as follows: 1. Landlord agrees to complete tenant finish work in the Premises (the "Tenant Finish Work") in accordance with a space plan prepared by Interarc, Inc., dated ____________, which space plan has been approved by Tenant and Landlord's representative on_______________ (the "Approved Space Plan"). 2. If the scope of Tenant Finish Work so requires, Landlord shall have its architects and engineers prepare architectural, mechanical and electrical working drawings for the Premises which are consistent with the Approved Space Plan. 3. Changes to the Approved Space Plan or Working Drawings may be made only by written direction to Landlord by Tenant. All costs incurred by such changes, including costs of the revisions in Working Drawings and costs of construction and materials, and reimbursables necessitated by such changes, shall be deemed Tenant Delay, as hereinafter defined. 4. Neither Landlord's use or approval of any plans submitted by Tenant for completion of the Tenant Finish work nor the fact that such plans have been prepared by Landlord's architect shall create a responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with any laws, rules and regulations of governmental agencies or authorities having jurisdiction over the Premises now in effect or which may hereafter be in effect. 5. Landlord's contractor shall perform the Tenant Finish Work substantially in accordance with the Approved Space Plan and Working Drawings, if applicable. All costs related to the Tenant Finish Work, including, but not limited to, design fees, costs of preparation of the Approved Space Plan and any Working Drawings, construction management fees, and costs of materials and construction, but specifically excluding costs incurred due to Tenant Delay, are considered "Tenant Finish Costs." If Landlord will pay the Tenant Finish Costs up to a maximum of One Hundred Fifty Thousand Nine Hundred Sixty and 00/100 Dollars ($150,960.00) (the "Tenant Finish Allowance"). Any Tenant Finish Costs in excess of the Tenant Finish Allowance will be at Tenant's sole cost and expense and will be paid promptly by Tenant upon receipt of billing therefor which may be prior to Landlord's commencement of the Tenant Finish Work. Other than the Tenant Finish Work described herein, Landlord shall have no obligation for the completion or remodeling of the Premises and Tenant shall accept the Premises in their "as is" condition on the date the Primary Lease Term commences. 6. If the Premises are not "Ready for Occupancy," as hereafter defined, on the date the Primary Lease Term is to begin as set forth in Paragraph 3 of the Lease due to any reason other than Tenant Delay, the Primary Lease Term and Tenant's obligation to pay Base Rent, its Pro Rata Share of increases in Operating Expenses, and any other sums owing under the Lease shall not commence until the Premises are Ready for Occupancy, at which time all of the covenants, conditions, and agreements of the Lease shall be in full force and effect. The delay in the commencement of the Primary Lease Term and the postponement of Tenant's obligation to pay rent and other sums herein provided to be paid by Tenant under the Lease for such period prior to the delivery of the Premises to Tenant Ready for Occupancy shall be in full settlement of all claims which Tenant might otherwise have by reason of the Premises not being Ready for Occupancy on the date the Primary Lease Term is scheduled to begin as set forth in Paragraph 2 of the Lease. However, if Tenant takes possession of all or any part of the Premises prior to the date the Premises are Ready for Occupancy for the purpose of conducting its usual business therein, all terms and provisions of the Lease shall apply as of the date Tenant takes possession, including the obligation for the payment of all rent and other amounts owing hereunder. "Ready for Occupancy" as used herein shall mean the date that Landlord shall have substantially completed the Tenant Finish Work to be performed by Landlord to the extent agreed herein. The certificate of the architect in charge of design and supervising the completion or remodeling of the Premises, or other representative of Landlord, shall control conclusively the date upon which the Premises are deemed Ready for Occupancy and the date Tenant's obligation to pay rent under the Lease commences. 7. In no event shall the commencement of the Primary Lease Term or Tenant's rental obligations under the Lease be delayed due to Tenant Delay, as hereinafter defined. If the completion of the Premises is delayed as the result of a Tenant Delay, then the Primary Lease Term and Tenant's rental and other obligations hereunder shall commence on the date the Premises would have been Ready for Occupancy if there had been no Tenant Delay. "Tenant Delay" means delay (i) in the preparation, finalization or approval of Working Drawings caused by Tenant, its agents or employees; (ii) caused by modifications, revisions and changes to the Approved Space Plan and Working Drawings due to changes requested by Tenant, its agents or employees; (iii) in the delivery or installation of any special or non-standard building items specified by Tenant; or (iv) of any kind or nature in the completion of the Premises caused by Tenant, its agents or employees. Tenant shall pay all costs arising from Tenant Delay, which shall be payable to Landlord in full prior to the commencement of the Tenant Finish Work by Landlord. Such costs of Tenant Delay may not be deducted from the Tenant Finish Allowance. 8. If the commencement of the Primary Lease Term is delayed pursuant to the provisions of this Work Letter, Landlord and Tenant shall execute a commencement certificate substantially in the form attached to the Lease as Exhibit C evidencing the date of delivery of the Premises to Tenant by Landlord Ready for Occupancy, the rent commencement date and the commencement and termination dates of the Primary Lease Term. SUSTAIN TECHNOLOGIES, INC., a THE PRUDENTIAL INSURANCE COMPANY OF Virginia corporation AMERICA, a New Jersey corporation By Cushman & Wakefield of Colorado, By: /s/ Gerald L. Salzman Inc., a Colorado corporation, ------------------------------- Authorized Agent Print Name: Salzman ----------------------- Print Title: President ---------------------- ATTEST: By: /s/ ILLEGIBLE ---------------------------- Director Date: 8/26/99 ------------------------------ By: ______________________________ Print Name: ______________________ "Landlord" Print Title:______________________ "Tenant" 2 EX-21.0 6 SUBSIDIARY OF DAILY JOURNAL CORPORATION Exhibit 21.0 Subsidiary of Daily Journal Corporation SUSTAIN Technologies, Inc., a Virginia Corporation ("Sustain"), is an 80% owned subsidiary of the Daily Journal Corporation that was acquired in January 1999. Prior to September 28, 1999, Sustain did business as Choice Information Systems, Inc. [End of document] EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1999 OCT-01-1998 SEP-30-1999 181,000 9,175,000 9,271,000 800,000 45,000 19,002,00 18,829,000 1,767,000 31,525,000 12,962,000 0 0 0 16,000 17,652,000 31,525,000 36,334,000 36,851,000 0 33,191,000 0 186,000 0 3,474,000 1,550,000 2,123,000 0 0 0 2,123,000 1.34 1.34
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