-----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, DNUuVRaemiTZ1IPgYfPMRjpO+VlJf1WILhjKEksVL3jX/Fjife+Sa8hEqh96PMao vIcrSG5+/GzNvwIUfKa7OA== 0000891618-99-000235.txt : 19990128 0000891618-99-000235.hdr.sgml : 19990128 ACCESSION NUMBER: 0000891618-99-000235 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990127 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BUSINESS RESOURCE GROUP CENTRAL INDEX KEY: 0000945028 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FURNITURE & HOME FURNISHINGS [5020] IRS NUMBER: 770150337 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-26208 FILM NUMBER: 99514175 BUSINESS ADDRESS: STREET 1: 2150 N FIRST ST STREET 2: STE 101 CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4083253200 MAIL ADDRESS: STREET 1: 2150 NORTH FIRST STREET SUITE 101 CITY: SAN JOSE STATE: CA ZIP: 95131 10-K405 1 FORM 10-K405 FOR THE PERIOD ENDED 10/31/98 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER: 0-26208 BUSINESS RESOURCE GROUP (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 77-0150337 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION)
2150 NORTH FIRST STREET, SUITE 101 SAN JOSE, CALIFORNIA 95131 (408) 325-3200 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK $0.01 PAR VALUE ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-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. YES [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $3,040,298 as of December 31, 1998, based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. There were 5,042,878 shares of Registrant's Common Stock outstanding as of December 31, 1998. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 4, 1999 ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT ON FORM 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INTRODUCTORY STATEMENT Except for the historical information contained in this Annual Report on Form 10-K, the matters discussed herein are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those projected. Such forward-looking statements include, without limitation, statements relating to the Company's future revenue, gross margins, operating expenses, management's plans and objectives for the Company's future operations and the sufficiency of financial resources to support future operations and expenditures. Factors that could cause actual results to differ materially include, but are not limited to, the timely availability, delivery and acceptance of new products and services, the continued strength of sales to Cisco Systems, Inc. (one of the Company's principal customers), the impact of competitive products and pricing, the management of growth and acquisitions, and other risks detailed below and included from time to time in the Company's other reports filed with the Securities and Exchange Commission ("SEC") and press releases, copies of which are available from the Company upon request. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. References made in this Annual Report on Form 10-K to "BRG," the "Company" or the "Registrant" refer to Business Resource Group. 2 3 PART I ITEM 1. BUSINESS Business Resource Group, a California corporation was organized in 1986 and is a leading provider of workspace services and products to businesses, primarily located in the Western United States. Between July 1989 and June 25, 1995, the Company was an S Corporation pursuant to the Internal Revenue Code of 1986, as amended. Effective June 25, 1995, in conjunction with the Company's initial public offering of its common stock, the Company terminated its S Corporation status and became a C Corporation. The Company markets a full range of new office workstation products, refurbished office systems furniture and related services such as facilities management outsourcing and consulting services, computer-aided facilities management, computerized space planning and design, project management, move management, installation, product specification and order management. The Company believes that its broad scope of services allows it to offer a customer-oriented, single source solution that provides for effective management of workspace requirements for growing and changing businesses, while minimizing the involvement of their in-house staff through outsourcing. INDUSTRY BACKGROUND According to The Business and Institutional Furniture Manufacturer's Association ("BIFMA"), the United States office furniture trade association, estimated office furniture manufacturers' shipments of product in the United States in 1998 were approximately $12.0 billion. The Company believes that on-going changes in corporate organizational structures, technology and work processes are driving growth in office furniture products and services. These changes are driven by several significant factors including continued corporate reengineering, restructuring and reorganizing, corporate relocations, new office technology and concerns about ergonomic standards. Management also believes recent market trends towards outsourcing in order to focus on core business strengths have influenced the growth of the office furniture manufacturing and service industry. The Company believes, based on its experience with customers, that the desire to minimize in-house facilities management headcount, reduce overhead and improve coordination has led many companies to outsource facilities-related tasks where feasible, including space planning, design and project management and fulfillment services. Furthermore, customers' use of modular office systems has increased the importance of product functionality and layout, which have become increasingly complex due to the need to integrate rapidly changing office technology requirements. The Company believes that such trends have led to the demand for a proactive workspace services and products solution. CUSTOMER ORIENTED INTEGRATED SOLUTION The Company believes that traditional approaches to the business furnishings industry are not well suited to meet the current requirements of growing and changing businesses. In response, the Company has positioned itself as the representative of the customer and as a single source provider of a full range of integrated workspace solutions. The Company has grown due to management's recognition and response to customer requirements for a single source solution for facilities needs. The Company has leveraged its knowledge of the office furniture industry, including suppliers and business methods, to develop an integrated approach which offers a single-source point of contact for modern interior workspaces. This approach incorporates a consultative selling approach in which the Company's sales representatives listen to the customer's needs. A team of BRG professionals chosen for each account then meets with the customer to build a partnership and reach consensus on the solution which best suits the customers needs. The Company believes it is able to fashion an integrated solution because of the wide array of services and products it can provide. The Company believes it is able to offer customers a much broader range of value-added services and product choices than its major competitors. 3 4 The Company believes the benefits to customers of the Company's integrated solution approach include: - Reduced overhead and more efficient coordination by having a single point of contact; - More favorable pricing, product selection and delivery available from a multi-line representative; - Accelerated design and installation through early coordination with a service provider; and - Superior customer communications, response and project control through the implementation of highly automated systems. SERVICES AND PRODUCTS The Company provides integrated workspace solutions for customers from the suite of services and products its offers: Workspace Product-Related Services A substantial portion of the Company's services are initiated prior to delivery of workspace products, including overall project management, computerized space planning and design, product specification and order management. The Company believes that the superior quality of its services differentiates its services from its competitors' and contributes to the Company's ability to win initial orders. The Company believes that its pre-installation services allow a close and efficient partnership with customers, moving them from needs identification and analysis to the development and selection of the solutions which best fit their needs. Once the customer and the Company have identified the workspace products best suited to the customer's needs, the Company provides additional services to implement set-up and maintenance of these products in the customer's facility and provides coordination and management services both during and after the move. Workspace Management Services The Company, through its Workspace Management Services group, provides the following service offerings designed to help companies manage their facilities' resources more effectively without adding headcount: Facilities Strategic Planning. The Company provides a systematic needs analysis based on a customer's current facility and their future growth plans. The resulting analysis will often yield a strategic facility plan which allows for facility programming, site selection, lease reviews and facilities alternatives. Facilities Planning Outsourcing. The Company fulfills a customer's short or long term staffing requirements by providing experienced facility professionals for specific temporary assignments. This service offers the customer operational and financial flexibility in meeting staffing requirements by allowing the customer to focus fixed resources on its core competencies. Facilities Automation Services. The Company, on a contract, outsourced or data center basis, provides efficient access to facilities information throughout organizations by automating and standardizing processes and data. The Company's internet and desktop based solutions are designed to incorporate cutting-edge technology and enable centralized data control, standardization, reporting and analysis throughout all areas of facilities management, such as physical space, people, properties, leases, assets, maintenance, telecommunications and utilities. Design Management. The Company manages a design team on behalf of its customers, which it believes ensures that the customer's design requirements are met while staying within time frame commitments and budget constraints. Move Management. The Company coordinates all components of a customer's move to a new location, including the development of a master move plan, communication to employees, the coordination of all vendor activities, and the management of building activation. This service is provided with minimal involvement or downtime to the customer's employees or disruption to ongoing business activities. 4 5 Workspace Products The Company offers a broad range of office furniture products and accessories that supports the Company's strategy of providing a single source for quality workspace management. The Company's five basic product categories are new office furniture systems; seating; storage and filing cabinets; desks and casegoods; and refurbished office furniture systems. SALES AND MARKETING The Company markets its products and services through a direct sales force consisting of approximately 40 salespeople, operating out of the Company's offices in San Jose, San Francisco and San Diego, California; Phoenix, Arizona; and Dallas, Texas. CUSTOMERS The Company's client base includes companies in networking and communications, software, electronics, financial services, life sciences and health care industries, as well as service providers of various types. The Company's customers also vary widely in size, ranging from large enterprises with over $1.0 billion in sales, to emerging companies, which are often thinly staffed and which the Company believes are, therefore, receptive to the Company's comprehensive solution strategy. The Company's largest customer is Cisco Systems which accounted for approximately 44%, 30% and 37% of net revenues during fiscal years 1998, 1997 and 1996 respectively. No other single customer accounted for more than 10% of revenues in fiscal 1998, 1997 or 1996. RAW MATERIALS AND SUPPLIERS There was no material change during fiscal 1998 in the source and availability of workspace products. None of the products currently offered by the Company are obtained on a sole-source basis from any vendor, and materials are considered to be widely available. The Company does not anticipate that the availability of materials will be a significant factor in the Company's business. During the fiscal year ended October 31, 1998, the Company purchased approximately 43% of its total workspace products purchases from one supplier. COMPETITION The office workspace products marketplace is highly competitive and fragmented with a significant number of companies providing products and services. In the United States there are five primary manufacturers of office furniture products: Haworth, Inc., Herman Miller, Inc., HON Industries, Inc., Knoll, Inc. and Steelcase, Inc. The Company currently represents HON Industries, Inc. and Knoll, Inc., in addition to other significant furniture manufacturers such as Teknion, Corp. and Kimball International, Inc. All of these manufacturers typically market their products through independent distribution companies who are responsible for providing on-going service to their customers. Typically these independent distribution companies are small, privately-held organizations that vary in size, product offering and breadth of service offering. The Company believes that while product design, quality and price play a part in a customer's purchasing decision, the primary purchasing decision is based upon the independent distributors overall service capabilities. Independent distributors compete on the basis of: (i) project management capabilities, (ii) strategic facilities consulting capabilities, (iii) innovative use of technology tools, (iv) on-time delivery and installation and (v) price. The Company believes its comprehensive range of products and services, ability to utilize trained company employees in the delivery of its full range of comprehensive services, use of current technology to provide higher level solutions and overall financial strength, provides a competitive advantage. To remain competitive, the Company must continue to offer a broad range of services and products to meet the needs of its customers, maintain quality levels, offer flexible delivery schedules, deliver finished products on a reliable basis and compete favorably on the basis of price. There can be no assurance that other manufacturers and independent distributors will not price their products and services, or offer other terms, to 5 6 be more competitive with the Company's products and services, or that such actions, if taken, would not have a material adverse affect on the Company or its results of operations. EMPLOYEES As of October 31, 1998, The Company had approximately 300 full-time employees. None of the Company's employees are represented by a collective bargaining agreement. From time to time, installation of workspace products require the use of union labor to comply with the requirements of the customer or the work rules for the job location. In these situations, the Company subcontracts the installation to other parties that employ union labor. To date, the Company has not experienced difficulties obtaining subcontract installation services where required. The Company believes its relationship with its employees is good. ITEM 2. PROPERTIES The Company currently leases approximately 21,000 square feet of office space at 2150 North First Street in San Jose, California. The Company leases most of this space under an operating lease which runs through August 2001. The San Jose facilities serve as the Company's principal offices and also function as a working showroom for products offered by the Company. The Company also leases sales offices, which function as working showrooms, in San Francisco, California; Phoenix, Arizona and Dallas, Texas. In San Francisco, the sales office leases approximately 6,800 square feet under an operating lease which runs through December 2003; in Phoenix, the sales office leases approximately 4,200 square feet of space under an operating lease which runs through December 2003; and in Dallas, the sales office leases approximately 11,900 square feet of space under an operating lease which runs through March 2002. The Company maintains a distribution center, in Dallas, Texas under an operating lease for approximately 21,000 square feet of space running through October 2002. The Company also leases approximately 25,000 square feet of office and warehouse space in San Diego, California to accommodate its subsidiary under an operating lease which expires in October 2000. The Company leases approximately 3,400 square feet of office space in San Antonio, Texas under an operating lease with a term running through November 2001. The Company has entered into a sublet agreement to lease the existing San Antonio facility to a company at the same lease rate and for the same term as the Company has in its operating lease. The Company believes that its existing facilities will generally be sufficient for its needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse affect on the Company. The Company may from time to time become a party to various legal proceedings arising in the normal course of its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 6 7 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The Company's Common Stock has been traded on the Nasdaq National Market under the symbol BRGP since the effective date of the Company's initial public offering on June 27, 1995. The price per share reflected in the table below represents the range of low and high closing sale prices for the Company's Common Stock as reported in the Nasdaq National Market for the quarters indicated.
HIGH LOW ---- --- FISCAL 1998 Fourth Quarter ended October 31, 1998..................... 3 1/4 1 1/8 Third Quarter ended July 31, 1998......................... 3 3/8 2 3/16 Second Quarter ended April 30, 1998....................... 3 3/4 3 1/16 First Quarter ended January 31, 1998...................... 3 3/4 3
HIGH LOW ---- --- FISCAL 1997 Fourth Quarter ended October 31, 1997..................... 4 3/4 3 5/8 Third Quarter ended July 31, 1997......................... 5 1/8 3 3/8 Second Quarter ended April 30, 1997....................... 5 1/2 4 11/16 First Quarter ended January 31, 1997...................... 5 1/2 3 5/8
The Company estimates it had approximately 461 shareholders as of December 31, 1998, including beneficial owners included in securities position listings as described in Rule 17Ad-8. The Company has never paid a cash dividend on its capital stock. Covenants in the Company's revolving line of credit facility prohibit the Company from paying dividends without prior approval by the lender. The Company currently anticipates that it will retain all available funds for use in the operation and expansion of its business, and does not anticipate paying any cash dividends in the foreseeable future. 7 8 ITEM 6. SELECTED FINANCIAL DATA SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31, --------------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- STATEMENTS OF INCOME DATA: Net revenues: Workspace products................... $76,373 $58,303 $67,834 $33,940 $32,197 Workspace services................... 17,132 14,127 10,155 6,119 4,258 Vendor commissions................... 60 271 291 569 657 ------- ------- ------- ------- ------- Total net revenues........... 93,565 72,701 78,280 40,628 37,112 ------- ------- ------- ------- ------- Cost of net revenues: Workspace products................... 60,623 47,100 55,051 26,605 25,044 Workspace services................... 12,611 10,330 7,320 4,179 3,131 ------- ------- ------- ------- ------- Total cost of net revenues... 73,234 57,430 62,371 30,784 28,175 ------- ------- ------- ------- ------- Gross profit........................... 20,331 15,271 15,909 9,844 8,937 Selling, general and administrative expenses............................. 17,498 16,622 12,870 8,143 6,425 ------- ------- ------- ------- ------- Income/(loss) from operations.......... 2,833 (1,351) 3,039 1,701 2,512 Other income/(expense)................. (264) 66 124 7 (77) ------- ------- ------- ------- ------- Income/(loss) before income taxes...... 2,569 (1,285) 3,163 1,708 2,435 Income taxes........................... 1,066 (523) 1,309 122 70 ------- ------- ------- ------- ------- Net income/(loss)...................... $ 1,503 $ (762) $ 1,854 $ 1,586 $ 2,365 ======= ======= ======= ======= ======= Net income/(loss) per share Basic................................ $ 0.30 $ (0.16) $ 0.38 ======= ======= ======= Diluted.............................. $ 0.30 $ (0.16) $ 0.38 ======= ======= ======= Pro forma(1): Historical income before income taxes............................. 1,708 Pro forma income taxes............... 709 ------- Pro forma net income................... $ 999 ======= Pro forma net income per share(1): Basic................................ $ 0.26 ======= Diluted.............................. $ 0.26 =======
- --------------- (1) Pro Forma Net Income and Net Income Per Basic and Diluted Shares -- Through June 1995, the Company was not subject to federal and most state income taxes since its shareholders elected that the Company be taxed as an S Corporation pursuant to the Internal Revenue Code. Therefore, no provision for federal income taxes has been included in the summary financial data for fiscal 1994 and the portion of fiscal 1995 during which the Company was an S Corporation. Although the S Corporation election is recognized for California income tax purposes, the State of California requires S Corporations to pay a tax of 1.5% of taxable income. Effective June 1995, in conjunction with the Company's initial public offering of its common stock, the Company's status as an S Corporation was terminated and the Company became subject to federal and state income taxes. 8 9 The pro forma information presented with the summary financial data reflect a provision for income taxes at an effective rate of 41% for fiscal 1995. Pro forma financial information is provided to show what the significant effects on the historical financial information might have been had the Company been treated as a C Corporation for income tax purposes for all of fiscal 1995.
OCTOBER 31, -------------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------ (IN THOUSANDS) BALANCE SHEET DATA: Working capital........................... $ 9,075 $ 9,279 $10,063 $ 9,470 $2,784 Total assets.............................. 27,978 20,760 22,560 16,053 7,640 Long-term obligations..................... 733 -- -- 120 123 Shareholders' equity...................... 14,396 12,452 13,002 11,020 3,296
9 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. OVERVIEW Most of the Company's net revenues are derived from billings for workspace products, including new office furniture systems, seating, storage and filing cabinets, desks and casegoods, and refurbished office furniture systems. The Company's experience is that its success in generating these revenues is dependent upon providing a full range of related services The Company has leveraged its knowledge of the office furniture industry, including suppliers and business methods, to develop an integrated approach which offers a single source point of contact for modern interior workspaces. This approach incorporates a consultative selling approach in which the Company's sales representatives listen to the customer's needs. A team of BRG professionals chosen for each account then meets with the customer to build a partnership and reach consensus on the solution which best suits the customers needs. The Company believes it is able to fashion an integrated solution because of the wide array of services and products it can provide. The Company believes it is able to offer customers a much broader range of value-added services and product choices than its major competitors. RESULTS OF OPERATIONS Net Revenues Net revenues increased $20.9 million, or 29%, to $93.6 million in fiscal 1998 from $72.7 million in fiscal 1997. The increase in net revenues was attributable to increased revenues of $18.6 million from Cisco Systems and $2.3 million from other customers. Fiscal 1998 product revenues of $76.4 million increased $18.1 million, or 31%, over fiscal 1997 product revenues of $58.3 million, primarily due to the increased Cisco Systems business. Services revenues in fiscal 1998 were $17.1 million, an increase of $3.0 million, or 21%, as compared to services revenues of $14.1 million in fiscal 1997. The increase in services revenues was attributable to increased product related services as a result of higher product sales, in addition to increased services revenues from facilities planning and automation services. Net revenues decreased 7% to $72.7 million in fiscal 1997 from $78.3 million in fiscal 1996. The decrease was attributable to a decrease of $7.3 million in revenues from Cisco Systems. Fiscal 1997 product revenues of $58.3 million decreased $9.5 million, or 14%, from fiscal 1996 product revenues of $67.8 million, primarily due to the decrease in revenues from Cisco Systems. Services revenues in fiscal 1997 were $14.1 million, an increase of $3.9 million, or 38%, as compared to services revenues of $10.2 million in fiscal 1997. The increase in services revenues was attributable to both product related services ($2.3 million) and facilities planning and automation services ($1.6 million). Gross Profit Gross profit as a percentage of net revenues increased to 21.7% in fiscal 1998 from 21.0% in fiscal 1997. The improved overall gross profit is the result of new product margins improving from 19.6% in fiscal 1997 to 19.9% in fiscal 1998 and a change in sales mix with the introduction of refurbished products which generally sell at higher gross margins, which were partially offset by a slight decline in services gross margins during the year. Gross profit as a percentage of net revenues increased to 21.0% in fiscal 1997 from 20.3% in fiscal 1996. This increase was mainly due to a slight increase in product margins, a shift in revenue mix to higher margin service revenue, which were partially offset by a slight decrease in service margins. 10 11 Selling, General and Administrative Expenses Selling, general and administrative expenses for fiscal 1998 were $17.5 million, an increase of approximately $900,000 over the $16.6 million reported in fiscal 1997. The increase in selling, general and administrative expense was primarily attributable to incremental expenses as a result of the acquisition of OFN, Inc. in May 1998. As a percentage of revenue, selling, general and administrative expenses were 18.7% of revenues in fiscal 1998, as compared to 22.9% in fiscal 1997. Selling, general and administrative expenses increased 29% to $16.6 million in fiscal 1997 from $12.9 million in fiscal 1996, while increasing as a percentage of net revenues to 22.9% in fiscal 1997 from 16.4% in fiscal 1996. The increase in selling, general and administrative expenses was primarily the result of the steps taken to realign operations in Texas, Arizona, and San Jose, California. Other Income (expense) -- net Other income (expense) for fiscal 1998 consisted of interest expense of $319,000 as compared to interest income of $66,000 in fiscal 1997. The increase in interest expense is the result of increased use of the Company's bank line of credit as a result of the acquisition of OFN, Inc. and increased in-transit inventories during the year. The gain on sale of assets was primarily the result of the sale of certain assets from the Company's former San Antonio operations. Interest income, net of interest and other expense totaled $66,000 for the twelve months ended October 31, 1997 versus $124,000 for the same period of fiscal 1996. The decrease in net interest income was due to lower average cash balances during the twelve month period. Income Taxes Income tax expense, as percentage of pre-tax income, was 41.5% for the year ended October 31, 1998, compared to a income tax benefit of 40.7% for the year ended October 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Working capital at October 31, 1998 was $9.1 million, a decrease from the working capital of $9.3 million reported at October 31, 1997. The current ratio of 1.7 at October 31, 1998 decreased from the current ratio of 2.1 at October 31, 1997. During fiscal 1998 net cash used by operating activities was $313,000, an increased use of cash from the $476,000 in net cash provided by operating activities in fiscal 1997. Accounts receivable at October 31, 1998 was $10.7 million, a decrease of $3.1 million from accounts receivable of $13.8 million reported at October 31, 1997. The decreased accounts receivable is primarily a result of increased accounts receivable collection efforts. Inventories at October 31, 1998 were $8.3 million, an increase of $6.9 million over the $1.4 million in inventories reported at October 31, 1997. The increased inventories were the result of an increase in in-transit inventories at October 31, 1998 by approximately $6.2 million, representing payments made to vendors on product that is either in-transit to customers or awaiting installation at the customer's facility. In addition, inventories increased as a result of incremental inventories of approximately $700,000 in refurbished product associated with OFN, Inc. Other assets at October 31, 1998 were $3.1 million, an increase of $2.2 million from the $900,000 reported at October 31, 1997. The increase in other assets was primarily due to goodwill acquired with the acquisition of OFN, Inc. Accounts payable at October 31, 1998 were $3.4 million, a decrease of approximately $600,000 from accounts payable of $4.0 million reported at October 31, 1997. Accrued liabilities at October 31, 1998 were $5.1 million, an increase of $900,000 from accrued liabilities of $4.2 million at October 31, 1997. The increase in accrued liabilities is primarily attributable to increased fiscal 1998 management incentive plan accruals and year end fringe benefit accruals. During fiscal 1998, the Company invested approximately $1.6 million in property and equipment which primarily represented investments in management information systems. At October 31, 1998 the Company had an outstanding capital expenditure commitment of approximately $350,000 in connection with the implementation of its new SAP management information system. Capital expenditures for fiscal 1999, which 11 12 will consist primarily of investments in management information systems and showroom furniture replacements, are expected to be in the range of $1.0 million to $1.5 million. The Company has a $15.0 million credit facility with a bank which expires in August 1999, with an option on an additional $1.0 million term loan. The Company maintains an irrevocable stand-by letter of credit in the amount of $3.0 million against this facility. At October 31, 1998, the Company had bank borrowings of $3.8 million under such credit facility. The Company believes its existing cash, together with cash generated from operations and the Company's available borrowing capacity will provide sufficient funds to meet the Company's anticipated working capital requirements for the foreseeable future. YEAR 2000 The year 2000 issue is primarily the result of computer programs using a two-digit format, as opposed to four digits, to indicate the year. Such computer systems will be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to a disruption in the operation of such systems. The Company's overall goal is to be prepared for the year 2000, meaning that critical systems, devices, applications or business relationships have been evaluated and are expected to be suitable for continued use into and beyond year 2000, or contingency plans are in place. The Company began to assess its business computer systems, such as general ledger, order entry, inventory control, distribution and customer billing, to address the need to improve access to information and the year 2000 issue in 1996. In May 1998, after an extensive review of systems the Company selected an enterprise resource planning system from SAP America, Inc. ("SAP"), a system capable of accommodating the year 2000. This new enterprise resource planning system is expected to be in production during the first half of fiscal 1999. The Company is reviewing the readiness of third parties which provide goods or services to the Company to determine whether a year 2000 related event will impede the ability of such suppliers to continue to provide such goods and services as the year 2000 is reached. Costs: The Company does not expect the costs associated with its year 2000 efforts to be material. The Company estimates that the total cost of replacing its information systems and achieving year 2000 readiness for its internal systems and equipment will range from $1.5 to $2.0 million, of which $900,000 has been incurred by the end of fiscal 1998. Based on its current estimates and information currently available, the Company does not anticipate that the costs associated with this project will have a material adverse affect on the Company's consolidated financial position, results of operations or cash flows in future periods. The Company's aggregate cost estimate does not include time and costs that may be incurred by the Company as a result of the failure of any third parties, including suppliers, to be prepared for the year 2000 or costs to implement any contingency plans. Risks/Contingency Plans: Based on assessment efforts to date, the Company does not believe that the year 2000 issue will have a material adverse effect on its financial condition or results of operations. The Company believes that the distribution and service nature of the Company's operations and its large supplier base should mitigate any adverse impact. The Company's beliefs and expectations, however, are based on certain assumptions and expectations that ultimately may prove to be inaccurate. Because the Company has not begun systems integration testing with respect to its SAP implementation, it accordingly has not fully assessed the risks from potential year 2000 failures and therefore, has not yet developed year 2000 contingency plans. The Company will develop such plans if the results of systems implementation testing identify a business function at risk. As a normal course of business, potential sources of risk include the inability of principal suppliers to be year 2000 ready, which could result in delays in product deliveries from such suppliers. The Company's contingency plans will include, among other things, manual workarounds, temporary replacement products and extra staffing as required to complete deliveries. The preceding year 2000 discussion contains various forward-looking statements which represent the Company's beliefs or expectations regarding future events. When used in the year 2000 discussion, the words "believes," "expects," "estimates" and similar expressions are intended to identify forward-looking statements. Forward-looking statements include, but are not limited to, the Company's expectations as to when it 12 13 will complete the implementation and testing phases of its year 2000 program as well as its year 2000 contingency plans; its estimated cost of achieving year 2000 readiness; and the Company's belief that its internal systems and equipment will be year 2000 compliant in a timely manner. All forward-looking statements involve a number of risks and uncertainties that could cause the actual results to differ materially from the projected results. Factors that may cause these differences include, but are not limited to, the availability of qualified personnel and other information technology resources; the ability to identify and remediate all date sensitive lines of computer code or to replace embedded computer chips in affected systems or equipment; and the actions of governmental agencies or other third parties with respect to year 2000 problems. BUSINESS ENVIRONMENT AND RISK FACTORS The Company's future results of operations may be adversely affected by various factors, including those discussed below. The Company's revenues and operating results may fluctuate from period to period depending on such factors as the timing of customer orders, the timing of revenue and cost recognition, variations in contract service and product mix, changes in customer buying patterns, changes in vendor lead times and trends in the economy of the geographic region in which the Company operates. Any unfavorable changes in these or other factors could have a material adverse effect on the Company's business and results of operations. Given the variability of these factors, the Company expects that quarter to quarter performance may fluctuate and that results in any single quarter may therefore not be indicative of future results. A large portion of the Company's net revenues for any period are frequently dependent on a few large customer projects involving relocation, including a move to a new facility or an upgrade of an existing facility. At the conclusion of a major project, that customer may not have an immediate need for additional services or products on the same scale. The Company does not enter into long term or volume purchase contracts with its customers, and customers may discontinue further purchases of the Company's services or products at any time without notice. There can be no assurance that any of the Company's customers will expand their operations, relocate their offices or facilities or otherwise require the Company's services or products in the future. To maintain or increase existing levels of revenues and profits, the Company must identify and book major projects within its existing base of customers or with new customers. There can be no assurance that any of the Company's current customers will engage the Company for major projects in the future or that the Company will be able to obtain additional new customers. While the Company's strategy is to maintain multiple sources of supply for each of its workspace product lines, the Company is dependent upon these suppliers for timely delivery and product quality once orders are placed. The Company has, from time to time, experienced delays in product delivery from a number of suppliers. These delays have adversely affected the timing of customer deliveries and installations. Delays by suppliers have also resulted in increased costs to the Company and in certain cases lost revenues. Almost all of the Company's purchases from its vendors are made on a purchase order basis, and liabilities of such vendors to the Company for late deliveries are therefore principally based on the terms and conditions set forth in the applicable purchase order and the supplier's confirming document (if any). The Company customarily enters into negotiations with its vendors for price adjustments and late fees as may be appropriate in the event of late deliveries. Future delays in delivery by suppliers or poor product quality could have a material adverse effect on the Company's ability to meet customer requirements and thereby adversely affect revenues or increase costs. The market for workspace services and products is influenced by economic conditions, including consumer behavior and consumer confidence, the level of discretionary spending, interest rates and credit availability. Purchases of these services and products are often discretionary and tend to be deferred in times of economic stress. During economic downturns, the furniture industry tends to experience longer and deeper periods of recession than the general economy. Although the economy in the United States, and in particular that of the San Francisco Bay Area, the Southwest and Texas, has been strong in recent years, there can be no assurance that it will continue to be strong or that it will not decline in the future. 13 14 The Company has made acquisitions during prior fiscal years and may continue to make acquisitions in the future. The expansion of corporate operations in addition to managing acquired operations in new geographic areas entails numerous operational and financial risks, including difficulties in assimilating acquired operations, diversion of management's attention to other business concerns, amortization of acquired intangible assets, potential loss of employees or customers of acquired operations and difficulties in developing a local market for the Company's services and products. There can be no assurance that the Company will be able to achieve growth, or effectively manage any such growth, and failure to do so could have a material adverse effect on the Company's operating results. The Company will require significant capital for the expansion of its existing business, expansion into other geographic markets and acquisition of other businesses, each of which are key elements of the Company's strategy. There are no assurances that this capital will be available or available on terms which will not have a material adverse effect on the Company or its financial results. ITEM 7.a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to interest rate risk primarily through its borrowing activities. The Company has not used derivative financial instruments to hedge such risks. There is inherent roll-over risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. If market rates were to increase immediately by 10 percent from levels at October 31, 1998, the fair value of the Company's borrowings would not be materially affected as borrowings are primarily subject to variable interest rates. 14 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ 16 Consolidated Financial Statements: Consolidated Balance Sheets at October 31, 1998 and 1997................................................... 17 Consolidated Statements of Operations for the Years Ended October 31, 1998, 1997 and 1996........................ 18 Consolidated Statements of Shareholders' Equity for the Years Ended October 31, 1998, 1997 and 1996............ 19 Consolidated Statements of Cash Flows for the Years Ended October 31, 1998, 1997 and 1996........................ 20 Notes to Consolidated Financial Statements for the Years Ended October 31, 1998, 1997 and 1996.................. 21
15 16 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Business Resource Group: We have audited the accompanying consolidated balance sheets of Business Resource Group and subsidiary (collectively the "Company") as of October 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended October 31, 1998. Our audits also included the financial statement schedule listed at Item 14(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP San Jose, California December 8, 1998 16 17 BUSINESS RESOURCE GROUP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS
OCTOBER 31, ------------------ 1998 1997 ------- ------- Current assets: Cash and equivalents...................................... $ 412 $ 274 Accounts receivable, less allowance for doubtful accounts of $400 in 1998 and $90 in 1997........................ 10,662 13,764 Inventory................................................. 8,279 1,398 Prepaids and other current assets......................... 2,411 2,076 ------- ------- Total current assets.............................. 21,764 17,512 Property and equipment -- net............................... 3,107 2,346 Other assets................................................ 3,107 902 ------- ------- $27,978 $20,760 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Line of credit............................................ $ 3,858 $ -- Accounts payable.......................................... 3,369 3,997 Accrued liabilities....................................... 4,789 4,236 Income taxes payable...................................... 337 -- Current portion of long-term debt......................... 336 -- ------- ------- Total current liabilities......................... 12,689 8,233 Long-term debt.............................................. 733 -- Deferred income tax liability............................... 160 75 Shareholders' equity: Preferred stock, par value $0.01 per share; 2,000,000 shares authorized; no shares outstanding..... -- -- Common stock, par value $0.01 per share; 50,000,000 shares authorized; outstanding: 5,023,778 shares in 1998 and 4,913,712 shares in 1997.................................................. 50 49 Additional paid-in capital................................ 11,337 10,897 Retained earnings......................................... 3,009 1,506 ------- ------- Total shareholders' equity........................ 14,396 12,452 ------- ------- $27,978 $20,760 ======= =======
See notes to consolidated financial statements. 17 18 BUSINESS RESOURCE GROUP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31, ----------------------------- 1998 1997 1996 ------- ------- ------- Net revenues: Workspace products........................................ $76,373 $58,303 $67,834 Workspace services........................................ 17,132 14,127 10,155 Vendor commissions........................................ 60 271 291 ------- ------- ------- Total net revenues................................ 93,565 72,701 78,280 ------- ------- ------- Cost of net revenues: Workspace products........................................ 60,623 47,100 55,051 Workspace services........................................ 12,611 10,330 7,320 ------- ------- ------- Total cost of net revenues........................ 73,234 57,430 62,371 ------- ------- ------- Gross profit................................................ 20,331 15,271 15,909 Selling, general and administrative expenses................ 17,498 16,622 12,870 ------- ------- ------- Income/(loss) from operations............................... 2,833 (1,351) 3,039 Other income/(expense): Interest income/(expense)................................. (319) 66 124 Gain on sale of assets.................................... 55 -- -- ------- ------- ------- Total other income/(expense)...................... (264) 66 124 ------- ------- ------- Income/(loss) before income taxes........................... 2,569 (1,285) 3,163 Income taxes................................................ 1,066 (523) 1,309 ------- ------- ------- Net income/(loss)........................................... $ 1,503 $ (762) $ 1,854 ======= ======= ======= Net income/(loss) per share Basic..................................................... $ 0.30 $ (0.16) $ 0.38 ======= ======= ======= Diluted................................................... $ 0.30 $ (0.16) $ 0.38 ======= ======= ======= Shares used in computation Basic..................................................... 4,963 4,902 4,844 ======= ======= ======= Diluted................................................... 4,965 4,902 4,886 ======= ======= =======
See notes to consolidated financial statements. 18 19 BUSINESS RESOURCE GROUP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL ------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL --------- ------ ---------- -------- ------- Balances, October 31, 1995............. 4,820,743 $48 $10,558 $ 414 $11,020 Employee stock purchase program...... 38,121 1 127 -- 128 Net income........................... -- -- -- 1,854 1,854 --------- --- ------- ------ ------- Balances, October 31, 1996............. 4,858,864 49 10,685 2,268 13,002 Employee stock purchase program...... 54,848 -- 212 -- 212 Net loss............................. -- -- -- (762) (762) --------- --- ------- ------ ------- Balances, October 31, 1997............. 4,913,712 49 10,897 1,506 12,452 Employee stock purchase program...... 10,066 -- 24 -- 24 Issuance of warrants................. -- -- 167 -- 167 Issuance of common stock in connection with acquisition....... 100,000 1 249 -- 250 Net income........................... -- -- -- 1,503 1,503 --------- --- ------- ------ ------- Balances, October 31, 1998............. 5,023,778 $50 $11,337 $3,009 $14,396 ========= === ======= ====== =======
See notes to consolidated financial statements. 19 20 BUSINESS RESOURCE GROUP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED OCTOBER 31, ----------------------------- 1998 1997 1996 ------- ------- ------- Cash flows from operating activities: Net income (loss)......................................... $ 1,503 $ (762) $ 1,854 Adjustments to reconcile to net cash provided (used) by operating activities: Depreciation and amortization.......................... 1,060 766 455 Gain on sale of property and equipment................. (55) -- -- Warrants issued for services........................... 167 -- -- Deferred income taxes.................................. (211) (292) (15) Changes in operating assets and liabilities (net of effect of acquisitions): Accounts receivable -- net........................ 3,554 2,358 (8,533) Inventory......................................... (6,391) (424) (52) Prepaids and other current assets................. (12) (449) (318) Accounts payable.................................. (704) (1,938) 3,583 Accrued liabilities............................... 776 1,216 958 ------- ------- ------- Net cash provided (used) by operating activities...................................... (313) 475 (2,068) ------- ------- ------- Cash flows from investing activities: Purchase of property and equipment........................ (1,562) (928) (1,549) Proceeds from sales of property and equipment............. 55 -- -- Cash paid for acquisitions................................ (1,926) -- (300) Other assets.............................................. 2 (20) (101) ------- ------- ------- Net cash used by investing activities............. (3,431) (948) (1,950) ------- ------- ------- Cash flows from financing activities: Bank overdraft increase (decrease)........................ 819 (476) (175) Repayment of notes payable and capital lease obligations............................................ -- -- (250) Issuance of common stock.................................. 24 212 128 Borrowings on line of credit -- net....................... 3,039 -- -- ------- ------- ------- Net cash provided (used) by financing activities...................................... 3,882 (264) (297) ------- ------- ------- Increase (decrease) in cash and equivalents................. 138 (737) (4,315) Cash and equivalents balances: Beginning of period....................................... 274 1,011 5,326 ------- ------- ------- End of period............................................. $ 412 $ 274 $ 1,011 ======= ======= ======= Supplemental disclosures of cash flow information -- cash paid during the period for: Interest............................................... $ 319 $ -- $ 39 ======= ======= ======= Income taxes........................................... $ 200 $ 470 $ 1,250 ======= ======= ======= Noncash investing and financing transactions: Sale of distribution rights for note receivable........... $ -- $ -- $ 177 ======= ======= ======= Acquisitions: Tangible assets acquired.................................. $ 1,030 $ -- $ 333 Intangible assets acquired................................ 2,407 -- 255 Liabilities assumed....................................... (192) -- (288) Notes payable issued...................................... (1,069) -- -- Common stock issued....................................... (250) -- -- ------- ------- ------- Cash paid for acquisitions........................ $ 1,926 $ -- $ 300 ======= ======= =======
See notes to consolidated financial statements. 20 21 BUSINESS RESOURCE GROUP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 1. SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS -- Business Resource Group markets a full range of new office workstation products, refurbished office systems furniture and related services such as facilities management outsourcing and consulting services, computer-aided facilities management, computerized space planning and design, project management, move management, installation, product specification and order management. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of Business Resource Group and its wholly-owned subsidiary (collectively the "Company"). Intercompany transactions have been eliminated in consolidation. ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Such management estimates include the allowance for doubtful accounts, inventory reserves and certain accruals. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially subject the Company to concentration of credit risk principally consist of cash, cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with what it believes are high credit quality financial institutions. The Company sells its products and services primarily to companies in California, Arizona and Texas. The Company maintains reserves for potential credit losses. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The Company believes that the carrying amount for cash and cash equivalents, accounts receivable, accounts payable, and long-term debt approximated fair values at the date of the financial statements. CASH AND CASH EQUIVALENTS -- are highly liquid investments purchased with a maturity of three months or less. INVENTORIES -- are valued at the lower of cost or market and consist primarily of in transit products shipped directly to customers by suppliers. PROPERTY AND EQUIPMENT -- are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of three to seven years for equipment. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease. OTHER ASSETS -- Goodwill represents the excess of the purchase price over the estimated fair value of net assets of acquired businesses. Goodwill is being amortized on a straight-line basis over periods not exceeding twenty years. Goodwill amortization amounted to $215,000, $167,000, and $187,000 in fiscal years 1998, 1997 and 1996, respectively. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Impairments are recognized when the net book value of assets exceeds the future undiscounted cash flows attributable to such assets. REVENUE RECOGNITION -- Revenues from workspace product sales and vendor commissions are recognized at the start of installation of products at the customers facility. Service revenues are recognized upon customer acceptance of the project. STOCK BASED COMPENSATION -- The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board No. 25, Accounting for Stock Issued to Employees. 21 22 BUSINESS RESOURCE GROUP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 INCOME TAXES -- Deferred income taxes are provided for temporary differences between financial statements and income tax reporting. EARNINGS PER SHARE (EPS) -- Earnings per share are computed as basic EPS using the average number of common shares outstanding and diluted EPS using the average number of common and diluted common equivalent shares outstanding, in accordance with SFAS 128 (see Note 13). RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting Standards Board ("FASB") adopted Statements of Financial Accounting Standards ("SFAS") 130, (Reporting Comprehensive Income), which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from non-owner sources; and SFAS 131, (Disclosures about Segments of an Enterprise and Related Information), which establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Adoption of these statements will not impact the Company's financial position, results of operations or cash flows, and any effect will be limited to the form and content of its disclosures. Both statements are effective for the fiscal year beginning November 1, 1998. In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," was issued which defines derivatives, requires all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Although the Company has not fully assessed the implications of this new statement, the Company does not believe adoption of this statement will have a material impact on the Company's financial statements. 2. INVENTORIES (in thousands)
1998 1997 ------ ------ New furniture in-transit................................... $7,517 $1,398 Refurbished................................................ 762 -- ------ ------ Total inventories.......................................... $8,279 $1,398 ====== ======
3. PROPERTY AND EQUIPMENT (in thousands)
1998 1997 ------- ------- Computer equipment....................................... $ 3,581 $ 2,251 Office furniture and equipment........................... 1,412 1,177 Leasehold improvements................................... 146 146 ------- ------- 5,139 3,574 Accumulated depreciation and amortization................ (2,032) (1,228) ------- ------- Total property and equipment -- net............ $ 3,107 $ 2,346 ======= =======
4. LONG-TERM DEBT AND LINE OF CREDIT (in thousands)
1998 1997 ------ ------ Unsecured term loans....................................... $1,069 $ -- Less current portion....................................... (336) -- ------ ------ Long-term debt............................................. $ 733 $ -- ====== ======
The Company has $1,069,000 of unsecured term loans outstanding, bearing interest at the rate of 6% per annum with principal payments through fiscal 2001. 22 23 BUSINESS RESOURCE GROUP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 The Company has a $15,000,000 revolving line of credit with an option on an additional $1.0 million term loan with a bank, which expires in August 1999. The line bears interest at prime (8.00% at October 31, 1998) and is secured by substantially all of the Company's assets. The line of credit contains restrictions with respect to certain payments (including dividends), additional debt, and the maintenance of minimum quick assets and stockholders equity. The Company currently maintains an irrevocable stand-by letter of credit in the amount of $3.0 million against this facility. Required principal payments of long-term debt are payable as follows: Year ending October 31, 1999 -- $336,000; 2000 -- $356,000; 2001 -- $377,000; 2002 -- $0; and 2003 -- $0. 5. ACCRUED LIABILITIES (in thousands)
OCTOBER 31, ---------------- 1998 1997 ------ ------ Customer deposits.......................................... $1,867 $2,201 Sales taxes payable........................................ 284 546 Commissions payable........................................ 667 512 Other liabilities.......................................... 1,971 977 ------ ------ Total accrued liabilities........................ $4,789 $4,236 ====== ======
6. COMMITMENTS AND CONTINGENCIES The Company is obligated under leases of certain office and warehouse facilities expiring at various dates through 2003. Future minimum lease payments under these lease agreements at October 31, 1998 are as follows (in thousands):
YEARS ENDING OCTOBER 31, ------------ 1999...................................................... $1,204 2000...................................................... 1,109 2001...................................................... 1,018 2002...................................................... 995 2003...................................................... 995 ------ Total future minimum payments............................... $5,321 ======
Total rent charged to expense amounted to $955,000, $803,000 and $636,000 for the years ended October 31, 1998, 1997 and 1996, respectively. 7. EMPLOYEE BENEFIT PLAN The Company has a 401(k) Plan (tax deferred savings plan) which covers substantially all full-time employees. The plan requires that the Company make cash contributions equal to 25% of contributions made by participating employees. In fiscal 1998, 1997 and 1996, the Company contributed $107,000, $93,000, and $71,000 to the plan. 23 24 BUSINESS RESOURCE GROUP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 8. INCOME TAXES The provisions for income taxes consisted of the following (in thousands):
YEAR ENDED OCTOBER 31, ------------------------- 1998 1997 1996 ------ ----- ------ Current: Federal......................................... $1,035 $(229) $1,043 State........................................... 242 (2) 281 ------ ----- ------ 1,277 (231) 1,324 ------ ----- ------ Deferred: Federal......................................... (195) (207) (25) State........................................... (16) (85) 10 ------ ----- ------ (211) (292) (15) ------ ----- ------ Total................................... $1,066 $(523) $1,309 ====== ===== ======
The components of the actual deferred tax assets and liabilities at October 31, 1998 and 1997 were as follows (in thousands):
OCTOBER 31, -------------- 1998 1997 ----- ----- Deferred tax assets: Accruals recognized in different periods for tax purposes............................................... $ 810 $ 477 Amortization of intangibles............................... 104 138 Deferred tax liabilities -- accelerated depreciation...... (264) (176) ----- ----- Net deferred tax assets..................................... $ 650 $ 439 ===== =====
Current deferred income tax assets of $767,000 and $514,000 at October 31, 1998 and 1997, respectively, are included in prepaids and other current assets. The following is a reconciliation of the effective income tax rates, for financial statement purposes:
YEAR ENDED OCTOBER 31, ------------------------ 1998 1997 1996 ----- ------ ----- Tax computed at federal statutory rate................ 34.0% (35.0)% 35.0% State income taxes, net of federal effect............. 5.8 (6.1) 6.1 Other................................................. 1.7 0.4 0.3 ---- ----- ---- Effective income tax rate............................. 41.5% (40.7)% 41.4% ==== ===== ====
9. MAJOR CUSTOMERS AND VENDORS One customer represented 44%, 30%, and 37% of net revenues for the years ended October 31, 1998, 1997 and 1996, respectively. One vendor represented 43%, 24% and 35% of total purchases for the years ended October 31, 1998, 1997 and 1996, respectively. 10. WARRANTS The Company issued warrants in fiscal year 1995 to purchase 110,000 shares of common stock, at an exercise price per share of 120% of the initial offering price ($8.40 per share), to the underwriters who 24 25 BUSINESS RESOURCE GROUP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 managed the initial public offering of the Company's common stock. The warrants are exercisable over a period of five years beginning from the date of the initial public offering (June 1995). The Company also issued a warrant in fiscal 1997 to purchase 60,000 shares of common stock, at an exercise price per share of $5.50 per share, to an advisor. Such warrant is exercisable at any time from April 1997 until it expires in April 2002. As of October 31, 1998, no warrants had been exercised. 11. STOCK OPTION PLANS AND STOCK PURCHASE PLANS Under the 1995 Stock Option Plan (the 1995 Plan), the Company may grant stock options at an exercise price of not less than 100% of fair market value on the date of the grant and non-statutory stock options at not less than 85% of the fair market value on the date of the grant. Stock options granted under the 1995 Plan for new employees generally become exercisable at the rate of 1/8 of the total shares granted six months after the date of the grant and 1/48 of the total number of shares granted each month thereafter. Generally, stock options granted for existing employees become exercisable at a rate of 1/48 of the total shares granted each month after the date of the grant. During fiscal 1998 and 1997, the Company increased the number of shares of common stock reserved for issuance under the 1995 Stock Option Plan (the 1995 Plan) from 1,700,000 to 2,200,000 and from 1,200,000 to 1,700,000, respectively. In March, 1998 the Company canceled stock options to purchase 361,992 shares of the Company's common stock price at prices ranging from $3.375 to $7.000 and exchanged them for options to purchase 361,992 shares of the Company's common stock at the then current market value of $3.187 per share with new vesting periods. The vesting for exchanged options was 50% of the shares on the one year anniversary of the date of grant and 1/24 of the total number of shares granted each month thereafter. Under the 1995 Directors' Stock Option Plan (the Directors' Plan) non-employee directors of the Company receive an initial grant of non-statutory stock options on the date they join the Board and automatic annual grants of non-statutory stock options issued on the first day of each fiscal year to all non-employee directors of the Company who have served at least three months as of such grant date. Options are granted under the Directors' Plan at an exercise price equal to the fair market value on the grant date. Initial grants become exercisable ratably over four years and automatic grants become exercisable four years after the date of grants. A total of 175,000 shares of common stock have been reserved for issuance under the Directors' Plan. Option activity under the plans is as follows:
1998 1997 1996 -------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE --------- -------- -------- -------- -------- -------- Outstanding -- beginning of year... 737,863 $4.75 865,844 $5.12 546,805 $5.98 Granted............................ 1,177,086 $3.10 295,742 $4.24 475,250 $4.24 Exercised.......................... -- -- (34,051) $4.00 -- -- Canceled........................... (643,573) $4.70 (389,672) $5.43 (156,211) $5.47 Outstanding -- end of year......... 1,271,436 $3.28 737,863 $4.65 865,844 $5.12 Exercisable at end of year......... 293,695 $3.53 243,315 $4.89 249,732 $5.57
25 26 BUSINESS RESOURCE GROUP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 Weighted-average fair value of options granted during the year was $3.10 per share in 1998, $3.06 per share in 1997 and $3.07 per share in 1996. Outstanding and Exercisable By Price Range as of October 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- ---------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ------------------- -------------- ----------- -------------- $2.625 - $5.000 1,211,436 4.3 yrs $3.141 258,695 $3.151 $5.001 - $7.000 60,000 7.1 yrs $6.042 35,000 $6.304 --------- ------- ------ ------- ------ $2.625 - $7.000 1,271,436 4.4 yrs $3.278 293,695 $3.526
Under the 1995 Employee Stock Purchase Plan (Purchase Plan) eligible employees may purchase common stock through payroll deductions of up to 10% of their compensation at a purchase price equal to the lower of 85% of the fair market value of the Company's common stock at the beginning or end of each six-month offering period. A total of 200,000 shares of common stock have been reserved for issuance under the Purchase Plan. There were 10,066 and 20,797 shares issued under the Employee Stock Purchase Plan in fiscal 1998 and 1997, respectively. ADDITIONAL STOCK PLAN INFORMATION As discussed in the Statement of Accounting Policies, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board No. 25, Accounting for Stock Issued to Employees and its related interpretations. Accordingly, no compensation cost has been recognized in the financial statements for its stock plans. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS 123) requires the disclosure of pro forma net income (loss) and net income (loss) per share had the Company used the fair value method to account for its stock-based compensation awards granted subsequent to October 31, 1995. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models. The Black-Scholes model used by the Company to calculate option values for purposes of this note, as well as other currently accepted option valuation models, were developed to estimate the fair value of stock options that are freely tradable and fully transferable and that have no vesting restrictions. These models also require highly subjective assumptions, including future stock price volatility and expected term until exercise, which greatly affect the calculated values. Accordingly, management believes that this model does not necessarily provide a reliable measure of the fair value of the Company's option awards. 26 27 BUSINESS RESOURCE GROUP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 The Company's calculations were made using the Black-Scholes multiple option-pricing model. The following weighted average assumptions were used: expected option life of 12 months beyond each respective vesting period; risk-free interest rates of 4.6% in fiscal 1998 and 6.0% in fiscal 1997 and 1996; expected stock volatility of 70% in fiscal 1998 and 88% in fiscal 1997 and 1996 and a dividend yield of zero. If the computed fair values of the awards had been amortized to expense over the vesting period of the awards, pro forma net income (loss) would have been as follows:
1998 1997 1996 ---------- ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income/(loss): As reported........................................... $1,503 $ (762) $1,854 Pro forma............................................. $1,183 $(1,241) $1,536 Basic & Diluted income/(loss) per share: As reported........................................... $ 0.30 $ (0.16) $ 0.38 Pro forma............................................. $ 0.24 $ (0.25) $ 0.31
12. ACQUISITIONS In May 1998, the Company acquired, in a purchase transaction, certain assets and assumed certain liabilities of OFN, Inc. in exchange for $2,093,000 in cash, the Company's promissory note in the aggregate principal amount of $1,069,205, and 100,000 shares of the Company's Common Stock. OFN, Inc. is a San Diego based refurbisher of office workstations. In January 1996, the Company acquired, in a purchase transaction, certain assets and assumed certain liabilities of Corporate Source for a purchase price of $300,000 in cash. Results of operations include those operations relating to the acquired companies' assets and liabilities from the date of acquisition. In connection with these acquisitions, the Company recorded intangible assets consisting primarily of goodwill, totaling $2,407,000 for OFN, Inc. and $335,000 for Corporate Source, which will be amortized over twenty years and three years, respectively. Had these acquisitions taken place at the beginning of fiscal 1997 and 1996, unaudited pro forma net revenues would have been approximately $76.1 million and $79.3 million, respectively. Pro forma net loss would have been approximately $(529,000) and basic and diluted net loss per share would have been approximately $(0.11) per share for fiscal 1997 and would not have changed significantly for fiscal 1996. 13. PER SHARE INFORMATION Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding for the period while diluted earnings per share also includes the dilutive effects of stock options. Basic and diluted earnings per share for the fiscal years ended October 31, 1998, 1997 and 1996, respectively, are calculated as follows:
1998 1997 1996 ------ ------ ------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Basic weighted average shares outstanding................... 4,963 4,902 4,844 Dilutive effect of options.................................. 2 -- 42 ----- ----- ----- Diluted weighted average shares outstanding................. 4,965 4,902 4,886 ===== ===== =====
27 28 BUSINESS RESOURCE GROUP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 14. SELECTED QUARTERLY DATA (UNAUDITED) The following presents unaudited quarterly operating results for fiscal years ended October 31, 1998 and 1997:
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, ----------- --------- -------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) FISCAL 1998 Net revenues................................... $18,283 $21,810 $26,281 $27,191 Gross profit................................... 3,799 4,729 5,850 5,953 Net income..................................... 137 313 517 536 Basic earnings per share....................... $ .03 $ .06 $ .10 $ .11 Diluted earnings per share..................... $ .03 $ .06 $ .10 $ .11 FISCAL 1997 Net revenues................................... $22,312 $22,526 $12,884 $14,979 Gross profit................................... 4,749 4,922 2,487 3,113 Net income..................................... 509 534 (1,001) (804) Basic earnings per share....................... $ .10 $ .11 $ (.20) $ (.16) Diluted earnings per share..................... $ .10 $ .11 $ (.20) $ (.16)
28 29 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Certain information required by Part III is omitted from this report because the Registrant will file a definitive proxy statement within 120 days after the end of its fiscal year pursuant to Regulation 14A (the "Proxy Statement") for its annual meeting of shareholders to be held March 4, 1999 and the information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to directors of the Company is incorporated by reference from the information under the caption "Election of Directors -- Nominees" in the Registrant's Proxy Statement. The executive officers of the Company, and their ages as of October 31, 1998, are as follows:
NAME AGE POSITION ---- --- -------- John W. Peth......................... 50 President, Chief Executive Officer and Director Brian D. McNay....................... 42 Executive Vice President of Sales and Director John M. Palmer....................... 40 Vice President, Finance and Chief Financial Officer Jeffrey Tuttle....................... 41 Executive Vice President of Marketing and Director
Mr. Peth has served as President and Chief Executive Officer since December 1997 and also served as Chief Financial Officer from December 1997 to February 1998 and as a director of the Company since April 1995. From July 1997 to December 1997, Mr. Peth was a consultant to the Company. From June 1996 to March 1997, Mr. Peth served as Acting President and Chief Executive Officer of Tab Products Co. ("TAB"), an office filing and furniture systems manufacturer and distributor. From April 1991 until June 1997, Mr. Peth served as Executive Vice President and Chief Operating Officer of TAB. From August 1984 to April 1991, Mr. Peth served as the managing partner of the San Jose region of Deloitte & Touche LLP and one of its predecessor accounting firms. Mr. Peth is also a director of Aspect Telecommunications, Inc., a provider of call transaction processing systems. Mr. Peth received his BA degree in Economics in 1970 from the University of California at Santa Barbara, and an MBA from the University of California at Los Angeles in 1972. Mr. McNay has served as Executive Vice President of Sales since April 1995, and as a member of the Board of Directors since its inception in April 1987. Mr. McNay also served as President between April 1987 and April 1995. Mr. McNay was also the founder and owner of Business Interiors, a sole proprietorship sold to the Company in April 1987. In addition, Mr. McNay served as a sales executive at various office furniture dealerships from 1979 to 1986, including the Contract Source Center, the Contract Office Group and Design Performance. Mr. Palmer has served as Vice President, Finance and Chief Financial Officer since February 1998. From August 1994 to February 1998 Mr. Palmer served as Vice President, Finance and Chief Financial Officer of TAB, an office filing and furniture systems manufacturer and distributor. From September 1992 to August 1994, he served as Vice President, Finance for Tab Products of Canada, Limited. From January 1986 to September 1992 Mr. Palmer served as Controller of Wright Line of Canada Ltd. He received his C.G.A. designation from the Certified General Accountants Association of Canada in 1985. Mr. Tuttle has served as Executive Vice President of Marketing since April 1995, and as a member of the Board of Directors since its inception in 1987. Mr. Tuttle also served as Vice President of Sales between April 1987 and April 1995. From 1978 to 1987, Mr. Tuttle served as a sales executive with KBM Office Furniture, an office furniture dealership. He received his BS degree in Marketing in 1980 from Santa Clara University. 29 30 ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the information under the caption "Compensation Committee Report on Executive Compensation" in the Registrant's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the information under the caption "Common Stock Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the information under the captions "Compensation Committee Report on Executive Compensation" and "Transactions with Management and Others" in the Registrant's Proxy Statement. 30 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) FINANCIAL STATEMENTS See index to Financial Statements at Item 8 of this report. (2) FINANCIAL STATEMENT SCHEDULE Schedule II -- Valuation and Qualifying Accounts (see page 38). (3) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Amended and Restated Articles of Incorporation of Registrant.(1) 3.2 Amended and restated bylaws of Registrant.(1) 4.1 Buy and Sell Agreement dated October 31, 1987, as amended on March 15, 1988, August 17, 1994, October 27, 1994 and April 22, 1995 among the Registrant, Brian McNay, Charles Winter, Jeffrey Tuttle, Alison Lazarus and Jeffrey Bernstein.(1) 10.1 1995 Stock Option Plan, as amended and forms of agreements thereunder.(8) 10.2 1995 Directors' Stock Option Plan and form of option agreement thereunder.(1) 10.3 1995 Employee Stock Purchase Plan and form of subscription agreement thereunder.(1) 10.4 Form of Directors' and Officers' Indemnification Agreement.(1) 10.5 Form of Common Stock Purchase Warrant.(1) 10.6 North First Street Plaza Lease Agreement dated May 28, 1991, as amended on December 21, 1993, between the Registrant and Wells Fargo Bank, N.A.(1) 10.6A Second Amendment to Lease between the Registrant and Wells Fargo Bank, NA, dated November 30, 1995 with respect to premises at 2150 N. First Street, San Jose, CA 95131.(3) 10.7 Sublease Agreement dated January 15, 1995, as amended on April 20, 1995, by and between the Registrant and First Franklin Financial Corporation.(1) 10.8 Lease Agreement dated June 10, 1994 between the Registrant and Alexander M. Maisin, Trustee of the Alexander M. and June L. Maisin Revocable Trust.(1) 10.9 Business Loan Agreements between the Registrant and Silicon Valley Bank, including related promissory notes and amendments thereto.(1) 10.9A Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated January 16, 1996.(3) 10.9B Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated March 6, 1996.(3) 10.9C Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated March 13, 1996.(3) 10.10 Commercial Security Agreement dated March 15, 1988, as amended on February 25, 1993, between the Registrant and Silicon Valley Bank.(1) 10.11 Direct Sales Representative Agreement dated October 5, 1994 between the Registrant and TAB Products Co.(1) 10.12 Letter Agreement dated April 28, 1995 between the Registrant and Landmark Pacific Group, Inc.(1)
31 32
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.13 Letter Agreement dated April 30, 1995 between the Registrant and Refurbished Panel Systems.(1) 10.14 Asset Purchase Agreement dated September 27, 1995 between the Registrant and RST & Associates, Inc.(4) 10.15 Assignment and Assumption of Lease between RST & Associates, Inc. and the Registrant dated September 1, 1995 with respect to premises at 2010 East University, Tempe, Arizona.(4) 10.16 Assignment and Assumption of Lease between RST & Associates Inc. and the Registrant dated September 27, 1995 with respect to premises at 3957 East Speedway, Tucson, Arizona.(4) 10.17 Assignment and Assumption of Lease between RST & Associates Inc. and the Registrant dated September 27, 1995 with respect to premises at 5140 South Rogers, Las Vegas, Nevada.(4) 10.18 Purchase Agreement between Cisco Systems, Inc., Teknion, Inc., Teknion International and the Registrant effective as of September 1, 1995.(4) 10.19 Master Lease and Lease Renewal Agreement between the Registrant and OMI Properties Inc., dated July 21, 1995 and February 1, 1996, respectively, for facilities located at 130 Andover Park East, Suite 204, Tukwila, WA 98188.(3) 10.20 Master Lease Agreement between the Registrant and IM Joint Venture, dated June 23, 1995, for facilities located at Infomart Suite 5001, 1950 Stemmons Freeway, Dallas, Texas 75207.(3) 10.21 Asset Purchase Agreement dated January 25, 1996 between the Registrant and Darthmouth Group, Inc. d/b/a Corporate Source.(3) 10.22 Assignment and Assumption of Lease between the Registrant and Corporate Source, dated January 25, 1996 with respect to premises at 2811 McKinney Avenue, Suite 18, Dallas, Texas 75204.(3) 10.23 Assignment and Assumption of Lease between the Registrant and Corporate Source, dated January 25, 1996 with respect to premises at 1367 & 1369 Glenville Drive, Richardson, Texas 75081.(3) 10.24 Vehicle Lease Service Agreement between the Company and Penske Truck Leasing Co., L.P., dated January 23, 1996.(3) 10.25 Master Lease Agreement between the Registrant and Southwestern Bell Telephone Company Inc., dated May 2, 1996 for facilities located at 105 Auditorium Circle, San Antonio, Texas 78209.(5) 10.26 Third Amendment to Lease between the Registrant and Wells Fargo Bank, NA, dated August 5, 1996 with respect to premises at 2150 N. First Street, San Jose, CA 95131.(5) 10.27 Amended and Restated Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated July 3, 1996.(5) 10.28 Master Lease Agreement between the Registrant and Centennial Plaza, LLC, dated October 4, 1996 for facilities located at Centennial Airport Plaza Building, 12200 E. Briarwood Avenue, Suite 199, Englewood, Colorado 80112.(4) 10.29 Master Lease Agreement between the Registrant and Amberjack Ltd., dated December 16, 1996 for facilities located at 1515 E. Missouri, Phoenix, AZ 85014.(4) 10.30 Common Stock Purchase Warrant Agreement between the Company and Gateway Advisors dated April 21, 1997.(6) 10.31 Revolving Credit Loan and Security Agreement between the Company and Comerica Bank dated August 8, 1997.(7) 10.32 Severance and Mutual Release Agreement between the Company and Charles J. Winter dated December 17, 1997.(8) 10.33 Stand by Letter of Credit with Comerica Bank.(9)
32 33
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.34 Amended Stand by Letter of Credit with Comerica Bank.(9) 10.35 Collateral Security Agreement with Teknion, Inc.(9) 10.36 Asset Purchase Agreement dated May 22, 1998 between the Registrant, OFN, Inc., BRG Acquisition Corp. and David & Rebecca Nagorski, Husband and Wife as Joint Tenants.(10) 10.37 Assignment and Assumption of Lease between the Registrant and OFN Inc., dated May 22, 1998 with respect to premises at 8060 Arjons Drive, San Diego, California.(2) 10.38 Consulting Services Agreement between the Registrant and Hewlett-Packard Company dated May 1998.(2) 10.39 Commercial Lease Agreement between the Registrant and Crow Carrara No. 2 dated October 8, 1997 with respect to premises at 2015 Surveyer Boulevard, Carrollton, Texas .(2) 10.40 Retail Lease Agreement between the Registrant and Blue Jean Equities West dated August 11, 1998 with respect to premises at 1225 Battery Street, San Francisco, California.(2) 10.41 Office Lease Agreement between the Registrant and Scottsdale Spectrum, L.L.C. dated October 7, 1998 with respect to premises at 6720 North Scottsdale Road, Phoenix, Arizona.(2) 22.1 Subsidiary of Registrant.(2) 23.1 Independent Auditor's Consent.(2) 24.1 Power of Attorney (see page 37).(2) 27 Financial Data Schedule.(2)
- --------------- (1) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Registrant's Registration Statement on Form S-1 and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (File No. 33-46527), which became effective on June 27, 1995. (2) Filed herewith. (3) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated March 14, 1996. (4) Incorporated by reference to exhibits filed in response to Item 14, "Exhibits," of the Registrant's Form 10-K dated January 22, 1996. (5) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated September 13, 1996. (6) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated June 13, 1997. (7) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated September 13, 1997. (8) Incorporated by reference to exhibits filed in response to Item 14, "Exhibits," of the Registrant's Form 10-K dated January 26, 1998. (9) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated March 11, 1998. (10) Incorporated by reference to exhibits filed in response to Item 7(c), "Exhibits," of the Registrant's Form 8-K/A dated July 31, 1998. (b) Reports on Form 8-K: The Company filed a report on Form 8-K dated June 8, 1998 and a related report on Form 8-K/A dated July 31, 1998 related to the acquisition of OFN, Inc. The Company filed a report on Form 8-K dated December 1, 1998 related to Common Stock ownership of certain beneficial owners and management. 33 34 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. BUSINESS RESOURCE GROUP Date: January 25, 1999 By: /s/ JOHN W. PETH ------------------------------------ John W. Peth President, Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John W. Peth and John M. Palmer, his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN W. PETH President, Chief Executive January 25, 1999 - -------------------------------------------------------- Officer and Director (John W. Peth) (Principal Executive Officer) /s/ BRIAN D. MCNAY Executive Vice President of January 25, 1999 - -------------------------------------------------------- Sales and Director (Brian D. McNay) /s/ JEFFREY TUTTLE Executive Vice President of January 25, 1999 - -------------------------------------------------------- Marketing, Secretary and (Jeffrey Tuttle) Director /s/ JOHN M. PALMER Vice President, Finance and January 25, 1999 - -------------------------------------------------------- Chief Financial Officer (John M. Palmer) (Principal Financial and Accounting Officer) /s/ HARRY S. ROBBINS Director January 25, 1999 - -------------------------------------------------------- (Harry S. Robbins) /s/ JACK A. BRADLEY Director January 25, 1999 - -------------------------------------------------------- (Jack A. Bradley)
34 35 BUSINESS RESOURCE GROUP SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS )
ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD ----------- ---------- ---------- ---------- ------------- ---------- Allowance for doubtful accounts: Fiscal 1996............................. 125 -- -- (68) 57 Fiscal 1997............................. 57 33 -- -- 90 Fiscal 1998............................. 90 397 -- (87) 400
- --------------- (1) Charge off of accounts, net of recoveries. 35 36 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ 3.1 Amended and Restated Articles of Incorporation of Registrant.(1).............................................. 3.2 Amended and restated bylaws of Registrant.(1)............... 4.1 Buy and Sell Agreement dated October 31, 1987, as amended on March 15, 1988, August 17, 1994, October 27, 1994 and April 22, 1995 among the Registrant, Brian McNay, Charles Winter, Jeffrey Tuttle, Alison Lazarus and Jeffrey Bernstein.(1).... 10.1 1995 Stock Option Plan, as amended and forms of agreements thereunder.(8).............................................. 10.2 1995 Directors' Stock Option Plan and form of option agreement thereunder.(1).................................... 10.3 1995 Employee Stock Purchase Plan and form of subscription agreement thereunder.(1).................................... 10.4 Form of Directors' and Officers' Indemnification Agreement.(1)............................................... 10.5 Form of Common Stock Purchase Warrant.(1)................... 10.6 North First Street Plaza Lease Agreement dated May 28, 1991, as amended on December 21, 1993, between the Registrant and Wells Fargo Bank, N.A.(1)................................... 10.6A Second Amendment to Lease between the Registrant and Wells Fargo Bank, NA, dated November 30, 1995 with respect to premises at 2150 N. First Street, San Jose, CA 95131.(3).... 10.7 Sublease Agreement dated January 15, 1995, as amended on April 20, 1995, by and between the Registrant and First Franklin Financial Corporation.(1).......................... 10.8 Lease Agreement dated June 10, 1994 between the Registrant and Alexander M. Maisin, Trustee of the Alexander M. and June L. Maisin Revocable Trust.(1).......................... 10.9 Business Loan Agreements between the Registrant and Silicon Valley Bank, including related promissory notes and amendments thereto.(1)...................................... 10.9A Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated January 16, 1996.(3)......... 10.9B Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated March 6, 1996.(3)............ 10.9C Business Loan Modification Agreement between the Registrant and Silicon Valley Bank, dated March 13, 1996.(3)........... 10.10 Commercial Security Agreement dated March 15, 1988, as amended on February 25, 1993, between the Registrant and Silicon Valley Bank.(1)..................................... 10.11 Direct Sales Representative Agreement dated October 5, 1994 between the Registrant and TAB Products Co.(1).............. 10.12 Letter Agreement dated April 28, 1995 between the Registrant and Landmark Pacific Group, Inc.(1)......................... 10.13 Letter Agreement dated April 30, 1995 between the Registrant and Refurbished Panel Systems.(1)........................... 10.14 Asset Purchase Agreement dated September 27, 1995 between the Registrant and RST & Associates, Inc.(4)................ 10.15 Assignment and Assumption of Lease between RST & Associates, Inc. and the Registrant dated September 1, 1995 with respect to premises at 2010 East University, Tempe, Arizona.(4).....
37
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ 10.16 Assignment and Assumption of Lease between RST & Associates Inc. and the Registrant dated September 27, 1995 with respect to premises at 3957 East Speedway, Tucson, Arizona.(4)................................................. 10.17 Assignment and Assumption of Lease between RST & Associates Inc. and the Registrant dated September 27, 1995 with respect to premises at 5140 South Rogers, Las Vegas, Nevada.(4).................................................. 10.18 Purchase Agreement between Cisco Systems, Inc., Teknion, Inc., Teknion International and the Registrant effective as of September 1, 1995.(4).................................... 10.19 Master Lease and Lease Renewal Agreement between the Registrant and OMI Properties Inc., dated July 21, 1995 and February 1, 1996, respectively, for facilities located at 130 Andover Park East, Suite 204, Tukwila, WA 98188.(3)..... 10.20 Master Lease Agreement between the Registrant and IM Joint Venture, dated June 23, 1995, for facilities located at Infomart Suite 5001, 1950 Stemmons Freeway, Dallas, Texas 75207.(3)................................................... 10.21 Asset Purchase Agreement dated January 25, 1996 between the Registrant and Darthmouth Group, Inc. d/b/a Corporate Source.(3).................................................. 10.22 Assignment and Assumption of Lease between the Registrant and Corporate Source, dated January 25, 1996 with respect to premises at 2811 McKinney Avenue, Suite 18, Dallas, Texas 75204.(3)................................................... 10.23 Assignment and Assumption of Lease between the Registrant and Corporate Source, dated January 25, 1996 with respect to premises at 1367 & 1369 Glenville Drive, Richardson, Texas 75081.(3)................................................... 10.24 Vehicle Lease Service Agreement between the Company and Penske Truck Leasing Co., L.P., dated January 23, 1996.(3).................................................... 10.25 Master Lease Agreement between the Registrant and Southwestern Bell Telephone Company Inc., dated May 2, 1996 for facilities located at 105 Auditorium Circle, San Antonio, Texas 78209.(5).................................... 10.26 Third Amendment to Lease between the Registrant and Wells Fargo Bank, NA, dated August 5, 1996 with respect to premises at 2150 N. First Street, San Jose, CA 95131.(5).... 10.27 Amended and Restated Loan and Security Agreement between the Registrant and Silicon Valley Bank, dated July 3, 1996.(5).................................................... 10.28 Master Lease Agreement between the Registrant and Centennial Plaza, LLC, dated October 4, 1996 for facilities located at Centennial Airport Plaza Building, 12200 E. Briarwood Avenue, Suite 199, Englewood, Colorado 80112.(4)............ 10.29 Master Lease Agreement between the Registrant and Amberjack Ltd., dated December 16, 1996 for facilities located at 1515 E. Missouri, Phoenix, AZ 85014.(4).......................... 10.30 Common Stock Purchase Warrant Agreement between the Company and Gateway Advisors dated April 21, 1997.(6)............... 10.31 Revolving Credit Loan and Security Agreement between the Company and Comerica Bank dated August 8, 1997.(7).......... 10.32 Severance and Mutual Release Agreement between the Company and Charles J. Winter dated December 17, 1997.(8)........... 10.33 Stand by Letter of Credit with Comerica Bank.(9)............ 10.34 Amended Stand by Letter of Credit with Comerica Bank.(9)....
38
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ 10.35 Collateral Security Agreement with Teknion, Inc.(9)......... 10.36 Asset Purchase Agreement dated May 22, 1998 between the Registrant, OFN, Inc., BRG Acquisition Corp. and David & Rebecca Nagorski, Husband and Wife as Joint Tenants.(10).... 10.37 Assignment and Assumption of Lease between the Registrant and OFN Inc., dated May 22, 1998 with respect to premises at 8060 Arjons Drive, San Diego, California.(2)................ 10.38 Consulting Services Agreement between the Registrant and Hewlett-Packard Company dated May 1998.(2).................. 10.39 Commercial Lease Agreement between the Registrant and Crow Carrara No. 2 dated October 8, 1997 with respect to premises at 2015 Surveyer Boulevard, Carrollton, Texas.(2)........... 10.40 Retail Lease Agreement between the Registrant and Blue Jean Equities West dated August 11, 1998 with respect to premises at 1225 Battery Street, San Francisco, California.(2)....... 10.41 Office Lease Agreement between the Registrant and Scottsdale Spectrum, L.L.C. dated October 7, 1998 with respect to premises at 6720 North Scottsdale Road, Phoenix, Arizona.(2)................................................. 22.1 Subsidiary of Registrant.(2)................................ 23.1 Independent Auditor's Consent.(2)........................... 24.1 Power of Attorney (see page 37).(2)......................... 27 Financial Data Schedule.(2).................................
- --------------- (1) Incorporated by reference to exhibits filed in response to Item 16(a), "Exhibits," of the Registrant's Registration Statement on Form S-1 and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (File No. 33-46527), which became effective on June 27, 1995. (2) Filed herewith. (3) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated March 14, 1996. (4) Incorporated by reference to exhibits filed in response to Item 14, "Exhibits," of the Registrant's Form 10-K dated January 22, 1996. (5) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated September 13, 1996. (6) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated June 13, 1997. (7) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated September 13, 1997. (8) Incorporated by reference to exhibits filed in response to Item 14, "Exhibits," of the Registrant's Form 10-K dated January 26, 1998. (9) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Form 10-Q dated March 11, 1998. (10) Incorporated by reference to exhibits filed in response to Item 7(c), "Exhibits," of the Registrant's Form 8-K/A dated July 31, 1998. EX-10.37 2 ASSIGNMENT AND ASSUMPTION OF LEASE 1 EXHIBIT 10.37 May 15, 1998 Paul Cassiday, General Partner MBP Associates 900 Fort Street Mall, Suite 1450 Honolulu, Hawaii 96813 OFN, INC. - ASSIGNMENT OF LEASE AGREEMENTS Dear Mr. Cassiday: Pursuant to Section 12.1 of the Standard Industrial/Commercial Multi-Tenant Lease between MBP Associates ("Lessor") and OFN, INC. ("Lessee") dated April 1, 1997, as amended, for the premises 8230 B, Miralani Drive, San Diego, CA (the "Miralani Drive Lease"), this letter provides prior notice of a change in the control (as defined in the Miralani Drive Lease) of Lessee which shall constitute an assignment of the Miralani Drive Lease by Lessor to a wholly-owned subsidiary of Business Resource Group ("BRG"). By its signature below, BRG agrees to assume the obligations of Lessee under the Miralani Drive Lease to be effective upon consummation of the Asset Purchase Agreement by and between BRG and Lessee. Pursuant to Section 12.1 of the Standard Industrial/Commercial Single-Tenant Lease between MBP Associates ("Lessor") and OFN, INC. ("Lessee") dated October 16, 1992, as amended, for the premises 8070 Arjons Drive, San Diego, CA (the "Arjons Drive Lease"), this letter provides prior notice of a change in the control (as defined in the Arjons Drive Lease) of Lessee which shall constitute an assignment of the Arjons Drive Lease by Lessor to BRG. By its signature below, BRG agrees to assume the obligations of Lessee under the Arjons Drive Lease to be effective upon consummation of the Asset Purchase Agreement by and between BRG and Lessee. Please acknowledge the consent of Lessor to the above assignments by signing where indicated below. Sincerely, OFN, INC., D.B.A. OFFICE FURNITURE NETWORKING /s/ DAVID NAGORSKI ---------------------------------------- David Nagorski President AGREED TO AND ACCEPTED: AGREED TO AND ACCEPTED: MPS ASSOCIATES BUSINESS RESOURCE GROUP By: /s/ Paul R. Cassiday By: /s/ J.W. Pent -------------------------------- ------------------------------------ Name: Paul R. Cassiday Name: J.W. Pent ------------------------------ ---------------------------------- Title: General Partner Title: President & CEO ----------------------------- --------------------------------- Date: 5/21/98 Date: 5/22/98 ------------------------------ ----------------------------------
EX-10.38 3 CONSULTING SERVICES AGREEMENT 1 EXHIBIT 10.38 CONSULTING SERVICES AGREEMENT This Consulting Services Agreement ("Agreement") is made by and between Hewlett-Packard Company ("Seller") and the undersigned customer ("Customer") and is effective as of the date last signed by Seller or Customer ("Effective Date"). 1. DEFINITIONS a. "Deliverables" means the tangible result of the services delivered by Seller to Customer as described in each Attachment A hereto. b. "Services" means those consulting services performed by Seller for Customer as described in Attachment A hereto. Services may include such activities as analysis., design, specification, planning, implementation, education, and performance optimization of systems and applications, and project management services as described in Attachment A. 2. TERM This Agreement shall commence on the Effective Date and shall continue in effect until terminated by either party in accordance with Section 13 "Termination." 3. SERVICE PROVISIONS a. SCOPE OF WORK. Sell will provide those Services and/or Deliverables specifically described in one or more statements of work attached hereto as Attachment A. Customer and Seller will sign a separate Attachment A for each consulting assignment. Each Attachment A will reference this Agreement and will be executed by authorized representatives of Customer and Seller. For each consulting assignment performed by Seller hereunder, the Attachment A will specify the following: o Deliverables o Acceptance criteria o Estimated delivery schedule o Names of the individuals coordinating o Total price the activities on behalf of Customer o Payment Schedule and Seller o Any other information necessary to clarify the scope of the work Seller is providing to Customer b. SERVICE HOURS. Services will be performed during Seller's normal business hours at Customer's or Seller's facility, unless otherwise agreed in writing by the parties. c. DELIVERY SCHEDULE. The estimated dates for delivery of the services and/or Deliverables are set out in Attachment A. Seller will use reasonable efforts to meet the estimated delivery schedule set out in Attachment A, but will not be liable for failure to meet such dates. 4. CUSTOMER RESPONSIBILITIES a. CUSTOMER CONTACT. For each Attachment A hereto. Customer will appoint a customer contact to the Seller consultant providing Services. This contact, or a designated alternate, must be present at Customer's facility at all times Services are performed by Seller at such facility. Seller personnel will not enter or remain at Customer's facility in the absence thereof. Page 1 of 6 2 b. INFORMATION AND ACCESS. Customer shall provide Seller with access to and use of all information, documentation, computer time and facilities required to provide the Services to Customer hereunder. Customer is responsible for the completeness and accuracy of information upon which Seller will rely in providing the Services. Customer is responsible for determining that the Services and Deliverables meet Customer's business objectives. c. CUSTOMER DELAYS. In the event Seller incurs delays, additional costs or labor as a result of any act or omission of Customer, including but not limited to Customer's failure to provide information, data or access to Customer's facilities or personnel. Customer agrees that Seller may, upon prior written notice to Customer, add reasonable charges to the amounts invoiced to Customer and adjust the delivery schedule set forth in Attachment A. 5. CHANGE ORDERS a. If Customer finds there is a need for a change in Attachment A or in any other aspect of the project, then (i) Customer shall submit a change order in writing; (ii) Seller shall evaluate the impact of the change order on the project schedule and respond by accepting or rejecting it within five (5) working days of receipt; (iii) Seller's acceptance of a change order shall include the estimated cost and impact, if any, on the project schedule; and (iv) Customer will notify Seller in writing within five (5) working days of receipt of Seller's acceptance whether Customer authorizes Seller to implement the change order based on the cost and schedule set out in Seller's acceptance. b. If Seller finds that there is a need for a change in Attachment A or any other aspect of the project, then (i) Seller shall submit a change order in writing detailing the cost and impact, if any, on the project schedule; (ii) Customer shall respond by accepting or rejecting the change order within five (5) working days of receipt; and (iii) Customer's acceptance shall specifically authorize implementation of the change order based on the cost and schedule set out in Seller's requested change order. c. In the event a change order is rejected, the party rejecting such change order shall be obligated to provide reasonable grounds for not accepting such change orders, and the party requesting the change order shall have five (5) working days from notification that the change order is not accepted to withdraw such change order. If such change order is not withdrawn, then either party shall have the right to terminate this Agreement. Upon such termination, Customer shall pay Seller's costs and labor incurred to date of termination on a time and material basis and shall promptly comply with Section 13a. d. Although changes in the standard Seller products ordered for the Project are governed by the terms of Customer's Purchase Agreement, these changes may impact the Project Services and software development services provided under this Agreement. Therefore, changes in the standard Seller products ordered for the Project, whether requested by Customer or Seller, require that a change order be submitted by the requesting party detailing the desired changes. 6. ACCEPTANCE Acceptance of the Services and/or Deliverables provided to Customer hereunder will occur upon Seller's demonstration that the Services and/or Deliverables meet the acceptance criteria set out in the applicable Attachment A. In the absence of any acceptance criteria in Attachment A, acceptance of the Services will occur upon Seller's completion of the performance of such Services, and acceptance of the Deliverables will occur upon Seller's delivery of such Deliverables to Customer. Notwithstanding the above, Customer's operational or commercial use of the Deliverables shall also constitute Acceptance. Page 2 of 6 3 7. WARRANTY HP warrants that Services provided hereunder will be performed in a professional and workmanlike manner in accordance with generally recognized commercial practices and standards. HP MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, FOR THE SERVICES OR ANY DELIVERABLES DEVELOPED OR PROVIDED HEREUNDER, AND SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 8. PRICE AND PAYMENT TERMS a. PRICE. Prices quoted for the Services and Deliverables provided hereunder are valid for thirty (30) days from the quotation date. Prices include all materials, labor, and travel expenses, except as specified in Attachment A. b. INVOICES. Seller will issue invoices for payment in accordance with the schedule set out in each Attachment A hereto. Charges for travel expenses may be invoiced separately. c. PAYMENT. Payment for each invoice provided by Seller to Customer hereunder shall be due within thirty (30) days of the invoice date. 9. TITLE AND RIGHTS IN DELIVERABLES a. Except as provided in paragraph 9(b), all rights, title and interest in any and all Deliverables provided hereunder for shall belong to Seller. b. Seller grants Customer a perpetual, worldwide, nonexclusive, nontransferable license to use the Deliverables provided hereunder for Customer's internal use only. c. Seller reserves the right to use any of the underlying ideas, concepts, know how, techniques and experience gained hereunder. d. All copyrights and other intellectual property rights existing prior to the Effective Date shall belong to their originator. e. Neither party shall gain by virtue of this Agreement any rights of ownership or copyright or any other intellectual property rights owned by the other. 10. INTELLECTUAL PROPERTY PROTECTION a. Seller will not knowingly infringe any patent, copyright, trade secret, mask work or trademark in the course of providing Services and/or Deliverables to Customer hereunder. b. Seller will defend or settle any claim against Customer that Seller has knowingly infringed any patent, copyright, trade secret, mask work or trademark in the course of providing Services and/or Deliverables hereunder, provided Customer: 1) promptly notifies seller in writing of the claim; and 2) cooperates with Seller in, and grants Seller sole authority to control the defense and any related settlement. Page 3 of 6 4 c. Seller will pay the cost of such defense and settlement and any costs and damages finally awarded by a court against Customer. If such a claim is made or appears likely to be made, Seller may procure the right for Customer to continue using the Deliverable, may modify the Deliverable, or may replace it. If use of the Deliverable is enjoined by a court and Seller determines that none of these alternatives is reasonably available, Seller will take back the Deliverable and refund its depreciated value. d. Seller has no obligation for any claim of infringement arising from: 1) Seller's compliance with any designs, specifications or instructions of Customer; 2) modification of the Deliverable by Customer or a third party; 3) use of the Deliverable in a way not specified by Seller; or 4) use of the Deliverable with products not supplied by Seller. e. This Section 10 states the entire liability of Seller for claims of infringement by Deliverables and Services supplied by Seller hereunder. 11. LIMITATION OF REMEDIES AND LIABILITIES a. Seller will be liable for damage to tangible property per incident up to $300,000, and for damages for bodily injury or death, to the extent a court of competent jurisdiction has determined that a Deliverable provided hereunder is defective and has directly caused such damages. b. THE REMEDIES PROVIDED HEREIN ARE CUSTOMER'S SOLE AND EXCLUSIVE REMEDIES. IN NO EVENT SHALL SELLER OR ITS SUBCONTRACTORS BE LIABLE FOR LOSS OF DATA OR FOR DIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL (INCLUDING LOST PROFIT) OR OTHER DAMAGE WHETHER BASED IN CONTRACT, TORT, OR OTHERWISE. 12. CONFIDENTIALITY Seller and Customer agree that all information exchanged between them is not confidential unless they have entered into a separate Confidential Disclosure Agreement. 13. TERMINATION a. TERMINATION OF ATTACHMENT A. Either party may terminate a specific Attachment A for cause in the event of the other party's refusal or inability to perform, or the breach of any material provision of this Agreement or Attachment A, provided the party in breach has been given thirty (30) days' prior written notice and has failed to cure the breach during the thirty (30) day cure period. In the event of termination, Customer will pay Seller's for all work performed and charges incurred by Seller up to date of termination, and Seller will provide Customer with any work in progress. b. TERMINATION OF THIS AGREEMENT. Either party may terminate this Agreement for convenience upon thirty (30) days' prior written notice to the other party. Any termination of this Agreement shall not relieve either party of its obligations under any Attachment A in effect on the date of termination of this Agreement, unless otherwise mutually agreed to in writing by Seller and Customer. 14. PERSONNEL a. PERSONNEL ASSIGNMENTS. Seller reserves the right to select the consultants who will deliver the Services and/or Deliverables to Customer and to reassign employees as necessary. If Seller agrees to Customer's request for a specific Seller consultant, Customer agrees to pay any extra expenses associated with the use of the requested consultant. Page 4 of 6 5 b. SUBCONTRACTORS. Seller may use subcontractors to provide Services and/or Deliverables under this Agreement. 15. SURVIVAL OF PROVISIONS Sections 7, 9, 10 and 11 of this Agreement regarding disclaimer of warranty, title and rights in deliverables, intellectual property protection, and limitation of remedies and liability shall survive the termination of this Agreement. 16. NOTICES All notices required under or regarding this Agreement, or any Attachment A hereto, shall be in writing and shall be considered given upon personal delivery of the written notice to the Seller consultant or Customer representative designated in Attachment A, or within five (5) days of mailing, postage prepaid and appropriately addressed thereto. 17. ASSIGNMENT Neither party may assign or transfer any of its rights or obligations under this Agreement or any Attachment A hereto without the prior written consent of the other party, and any purported attempt to do so will be null and void. 18. EXHIBITS The following documents are attached hereto as exhibits, the terms of which are incorporated by reference in their entirety: Attachment A--Scope of Work 19. ORDER OF PRECEDENCE In the event the terms of this Agreement conflict with the terms contained in an Attachment A hereto, the terms of this Agreement shall govern. 20. MISCELLANEOUS a. SIMILAR SERVICES. Nothing in this Agreement will be construed to prohibit Seller from developing and providing materials or services to others that are similar to those delivered to Customer hereunder. b. STANDARD PRODUCTS. This Agreement is for services only. All standard hardware and software products sold or licensed to Customer are governed by the terms of separate agreement. c. SUPPORT. Unless otherwise agreed to by Seller and Customer in Attachment A, Seller is not responsible for providing support for any Deliverables delivered hereunder. d. INVALIDITY. Any term of this Agreement which is held to be invalid will be deleted, but the remainder of the terms of this Agreement will not be affected. e. FORCE MAJEURE. Neither party will be liable for performance delays or for non-performance due to causes beyond its reasonable control. f. WAIVER. Neither party's failure to exercise any of its rights under this Agreement will constitute or be deemed a waiver or forfeiture of those rights. Page 5 of 6 6 g. GOVERNMENT REGULATIONS. No government procurement regulations or contract clauses are binding on either party unless required by law or mutually agreed. h. EXPORT PROHIBITION. If Customer exports any Deliverable provided hereunder, Customer assumes responsibility for complying with applicable laws and regulations and for obtaining required export and import authorizations. Customer will not export or re-export any technical data in violation of applicable export regulations. i. GOVERNING LAW. Any disputes arising in connection with this Agreement will be governed by the laws of the State of California. j. ENTIRE AGREEMENT. This Agreement and any attachments constitute the entire agreement between Seller and Customer relating to transactions hereunder and supersede any previous communications, representations or agreements between the parties, whether oral or written, regarding transactions hereunder. Customer's additional or different terms and conditions will not apply. The terms and conditions of this Agreement may not be changed except by an amendment signed by an authorized representative of each party. The parties hereto have caused this Consulting Services Agreement to be duly executed as of the date indicated below. Seller: CUSTOMER: Hewlett-Packard Company ---------------------------------- (Print Company Name of Customer) Signed: Signed: --------------------------- --------------------------- Printed: Printed: -------------------------- -------------------------- Title: Title: ---------------------------- ---------------------------- Date: Date: ----------------------------- ----------------------------- Address: 3000 Hanover Street Address: Palo Alto, CA 94303-0890 -------------------------- ---------------------------------- ---------------------------------- ---------------------------------- Page 6 of 6 EX-10.39 4 COMMERCIAL LEASE AGREEMENT BETWEEN THE REGISTRANT 1 EXHIBIT 10.39 BILLINGSLEY PROPERTY SERVICES, INC. COMMERCIAL LEASE AGREEMENT CROW CARRARA NO. 2 LESSOR AND BUSINESS RESOURCE GROUP LESSEE 2 STANDARD INDUSTRIAL LEASE AGREEMENT BILLINGSLEY PROPERTY SERVICES, INC. 21,415 Square Feet 2015 Surveyor Road Carrollton, Texas LEASE AGREEMENT THIS LEASE AGREEMENT, made and entered into by and between Crow Carrara No. 2 hereinafter referred to as "Lessor", and Business Resource Group, hereinafter referred to as "Lessee"; WITNESSETH: 1. PREMISES AND TERM. A. In consideration of the mutual obligations of Lessor and Lessee set forth herein, Lessor leases to Lessee, and Lessee hereby takes from Lessor the approximately 21,415 square feet, which Premises are part of that approximately 92,640 square foot building (the "Building") located on the real property situated within the County of Dallas, State of Texas, which real property is more particularly described on EXHIBIT "A" attached hereto and incorporated herein by reference (the "Land"), together with all rights, privileges, easements, appurtenances, and amenities belonging to or in any way pertaining to the Premises, to have and to hold, subject to the terms, covenants and conditions in this Lease. B. The term of this Lease shall commence on October 20, 1997. The term of this Lease shall be sixty (60) full calendar months following the Commencement Date. 2. BASE RENT, SECURITY DEPOSIT AND ESCROW PAYMENTS. A. Lessee agrees to pay to Lessor Base Rent for the Premises, in advance, without demand, deduction or set off, at the rate of See Exhibit "C" for Base Rent Schedule Dollars ($**********) per month during the term hereof. One such monthly installment, plus the other monthly charges set forth in Paragraph 2.C. below shall be due and payable on the date hereof and alike monthly installment shall be due and payable on or before the first day of each calendar month succeeding the Commencement Date, except that all payments due hereunder for any fractional calendar month shall be prorated. B. In addition, Lessee shall deposit with Lessor on the date hereof the sum of Six Thousand Six Hundred Thirty-one Dollars and 68/100 ($6,631.68), which shall be held by Lessor as security for the performance of Lessee's obligations under this lease, it being expressly understood and agreed that this deposit is not an advance rental deposit or a measure of Lessor's damages in case of Lessee's default. Upon each occurrence of an event of default, Lessor may use all or part of the deposit to pay past due rent or other payments due Lessor under this Lease, and the cost of any other damage, injury, expense or liability caused by such event of default without prejudice to any other remedy provided herein or provided by law. On demand, Lessee shall pay Lessor the amount that will restore the security deposit to its original amount. The security deposit shall be deemed the property of Lessor, but any remaining balance of such deposit shall be returned by Lessor to Lessee when Lessee's obligations under this Lease have been fulfilled. C. Lessee agrees to pay as additional rent, its Proportional Share (as defined in Paragraph 22.B. below) of (1) Taxes (hereinafter defined) payable by Lessor pursuant to Paragraph 3.A. below, (2) the cost of any jointly metered utilities payable pursuant to Paragraph 8, below, (3) the cost of maintaining insurance, and (4) the cost of repairs, replacement, replacement reserve for capital items and other operating expenses required by this Lease. During each month of the term of this Lease, on the same day that Base Rent is due hereunder, Lessee shall escrow with Lessor an amount equal to 1/12 of the estimated annual cost of its Proportionate Share of such items. Lessee authorizes Lessor to use the funds deposited with Lessor under this Paragraph 2.C. to pay such costs. The initial monthly escrow payments are based upon the estimated amounts for the year in question, and shall be increased or decreased annually to reflect the projected actual cost of all such items. If Lessee's total escrow payments are less than Lessee's actual Proportionate Share of all such items, Lessee shall pay the difference to Lessor within ten (10) days after demand. If the total escrow. 3 payments of Lessee are more than Lessee's actual Proportionate Share of all such items, Lessor shall retain such excess and credit it against Lessee's next annual escrow payments. The amount of the initial monthly rental and the initial monthly escrow payments are as follows: (a) Base Rent as set forth in Paragraph 2.A.......................... $5,175.29 (b) Taxes as set forth in Paragraph 2.C.(1).......................... $1,024.18 (c) Utilities, Insurance and Operating Expenses as set forth in Paragraphs 2.C.(2), (3) and (4).................................. $ 432.21 --------- Monthly Payment Total............................................ $6,631.68 =========
3. TAXES A. Lessor agrees to pay all taxes, assessments and governmental charges of any kind and nature (collectively referred to herein as "Taxes") that accrue against the Premises, and/or the land and/or improvements of which the Premises are a part and Lessee shall be liable to Lessor for its proportionate share of the same. If at any time during the term of this Lease, there shall be levied, assessed or imposed on Lessor a capital levy or other tax directly on the rents received therefrom and/or a franchise taxed, assessment, levy or charge measured by or based, in whole or in part, upon such rents from the Premises and/or the land and improvements of which the Premises are a part, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term "Taxes" for the purposes hereof. The Lessor shall have the right to employ a tax consulting firm to attempt to assure a fair tax burden on the building and grounds within the applicable taxing jurisdiction. Lessee agrees to pay its proportionate share of the cost of such consultant. Upon request from Lessee, Lessor shall provide the name of such consultant and the amount of the fee imposed. B. Lessee shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises. If any such taxes are levied or assessed against Lessor or Lessor's property and (i) Lessor pays the same or (ii) the assessed value of Lessor's property is increased by inclusion of such personal property and fixtures and Lessor pays the increased taxes, then, upon demand Lessee shall pay to Lessor such taxes. 4. LESSOR'S REPAIRS. A. Lessor, at its own cost and expense, shall be responsible not only for roof replacement and for repair and replacement of only the foundation and the structural members of the exterior walls of the Building. The terms "roof" and "walls" as used herein shall not include skylights, windows, glass or plate glass, doors, special store fronts or office entries. Lessee shall immediately give Lessor written notice of defect or need for repairs, after which Lessor shall have reasonable opportunity to repair same or cure such defect. Lessor's liability with respect to any defects, repairs, replacement or maintenance for which Lessor is responsible hereunder shall be limited to the cost of such repairs or maintenance or the curing of such defect. B. Lessor reserves the right to perform the Lessee's maintenance, repair and replacement obligations and any other items that are otherwise Lessee's obligations under Paragraph 5.B., in which event, Lessee shall be liable for the cost and expense of such repair, replacement, maintenance and other such items. 5. LESSEE'S MAINTENANCE AND REPAIR OBLIGATIONS. A. Lessee, at its own cost and expense, shall maintain all parts of the Premises (except those for which Lessor is expressly responsible hereunder) in good condition, ordinary wear and tear excepted, and promptly make all necessary repairs and replacements to the Premises. B. In addition to Lessee's obligations under the preceding subparagraph A., if Lessee is the only occupant of the Building, unless Lessor and Lessee otherwise agree, Lessee is responsible for causing the parking areas, driveways, alleys and grounds surrounding the Premises (except those for which Lessor is expressly responsible hereunder) to be maintained in a good, neat, clean and sanitary condition, consistent with the operation of a first class office/warehouse building, which includes without limitation, prompt maintenance, repairs and replacements (1) of any drill or spur track servicing the Premises, (2) of the parking area associated with the Building, (3) of all grass, shrubbery and other landscape treatments surrounding the Building, (4) of the exterior of the Building (including painting), (5) of sprinkler systems, sewage lines, and (6) of any other maintenance, repair or replacement items normally associated with the foregoing. In addition, Lessee shall repair and pay for any damage caused by the negligence of Lessee, or Lessee's employees, agents or invitees, or caused by Lessee's default hereunder. C. In the event that the Lessee is not the sole occupant of the Building, then subject to payment by Lessee, Lessor shall perform the maintenance, repair, and replacement obligations set forth in the foregoing Subparagraph B. Lessee shall be liable for its Proportionate Share of the cost and expense of such repair, replacement, replacement reserve, maintenance and other such items. The amount of Lessee's rental obligation set forth in Paragraph 2.A. above does not include the cost of such items, and Lessor's performance of repair, replacement, maintenance and other items, is not a condition to payment of such rental obligations. D. Lessee agrees to pay its Proportionate Share of the cost of (1) operation, maintenance and/or landscaping of any property or facility that is operated, maintained or landscaped by any property owner or community owner association that is named in any restrictive covenants or deed restrictions to which the Premises are subject and which are actually billed to the Building, and (2) operating and maintaining any property, facilities or services provided for the common use of Lessee and other lessees of the 2 ----------- Lessor [Initials] ----------- Lessee [Initials] ----------- 4 Building, which costs shall include, without limitation, management fees, maintenance and repair costs, sewer, landscaping, trash and security (if furnished by Lessor), wages and employee benefits payable to employees of Lessor whose duties are connected with the operation and maintenance of the Building, amounts paid to contractors or subcontractors for work or services performed in connection with the operation and maintenance of the Building, all service, supplies, repairs, replacements or other expenses for maintaining and operating the Building, and any other facilities or services provided for the common use of Lessee and other lessees of the Building. E. Lessee shall enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing all hot water, heating and air conditioning systems and equipment within the Premises, and shall be responsible for all costs and expenses required thereunder. 6. ALTERATIONS. Subject to Exhibit B approval by Lessor and Lessee, Lessee shall not make any alterations, additions or improvements to the Premises without the prior written consent of Lessor. Lessee, at its own cost and expense, may erect such shelves, bins, machinery and trade fixtures as it desires provided that (a) such items do not alter the basic character of the Premises or the Building; (b) such items do not overload or damage the same; (c) such items may be removed without injury to the Premises; and (d) the construction, erection or installation thereof complies with all applicable governmental laws, ordinances, regulations and with Lessor's specifications and requirements. All shelves, bins, machinery and trade fixtures installed by Lessee shall be removed on or before the earlier to occur of the date of termination of this Lease or vacating the Premises, at which time Lessee shall restore the Premises to their original condition. All installations, removals and restoration shall be performed in a good and workmanlike manner so as not to damage or alter the primary structure or structural qualities of the Building or the Premises. 7. SIGNS. Any signage, decorations, advertising media, blinds, draperies, window treatments, bars, and security installations Lessee desires for the Premises shall be subject to Lessor's prior written approval and shall be submitted to Lessor prior to the Commencement Date. Lessee shall repair, paint, and/or replace the building facia surface to which its signs are attached upon vacation of the Premises, or the removal or alteration of its signage, all of which shall be accomplished at Lessee's sole cost and expense. Lessee shall not, (i) make any changes to the exterior of the Premises, (ii) install any exterior lights, decorations, balloons, flags, pennants, banners or painting, or (iii) erect or install any signs, windows or door lettering, decals, window and storefront stickers, placards, decorations or advertising media of any type that can be viewed from the exterior of the Premises, without Lessor's prior written consent. 8. UTILITIES. Lessee shall obtain and pay for all water, gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or at the Premises, together with any taxes, penalties, surcharges or the like pertaining to the Lessee's use of the Premises, and any maintenance charges for utilities. Lessor shall have the right to cause any of said services to be separately metered to Lessee, at Lessee's expense. Lessee shall pay its pro rata share, as reasonably determined by Lessor, of all charges for jointly metered utilities. Lessor shall not be liable for any interruption or failure of utility service on the Premises. 9. INSURANCE. A. Lessor shall maintain insurance covering the Building and the Premises in an amount not less than eighty percent (80%) of the "replacement cost" thereof insuring against the perils and costs of Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief, Liability and Rental Interruption and such other insurance as Lessor shall deem necessary. B. Lessee, at its own expense, shall maintain during the term of this Lease (1) a policy or policies of worker's compensation and comprehensive general liability insurance (with contractual liability endorsement), including personal injury and property damage in the amount of Five Hundred Thousand Dollars ($500,000.00) per occurrence for property damage and One Million Dollars ($1,000,000.00) per occurrence for personal injuries or deaths of persons occurring in or around the Premises and (2) fire and extended coverage insurance covering the replacement cost of (a) all alterations, additions, partitions and improvements installed or placed on the Premises, (b) all of Lessee's personal property contained within the Premises and (c) business interruption insurance insuring loss of profits in the event of an insured peril damaging the Premises. Said policies shall (i) name Lessor as an additional insured, (ii) be issued by a Triple A rated or better insurance company, (iii) provide that said insurance shall not be canceled unless thirty (30) days prior written notice shall have been given to Lessor, (iv) shall be delivered to Lessor by Lessee upon commencement of the term of the Lease and upon each renewal of said insurance, and (v) shall provide primary coverage to Lessor when any policy issued to Lessor is similar or duplicate in coverage, and Lessor's policy shall be excess over Lessee's policies. 3 ----------- Lessor Initials ----------- Lessee Initials ----------- 5 C. Lessee will not permit the Premises to be used for any purpose or in any manner that would (1) void the insurance thereon, (2) increase the insurance risk, or (3) cause the disallowance of any sprinkler credits. Lessee shall pay any increase in the cost of any insurance on the Premises or the Building, which is caused by Lessee's use of the Premises, or because Lessee vacates the Premises. 10. FIRE AND CASUALTY DAMAGE. A. Lessee immediately shall give written notice to Lessor if the Premises or the Building are damaged or destroyed. If the Premises or the Building should be totally destroyed or so damaged by an insured peril and in Lessor's estimation, rebuilding or repairs cannot be completed within one hundred eighty (180) days after the date of Lessor's actual knowledge of such damage, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage. B. If the Building or the Premises should be damaged by any insured peril, and in Lessor's estimation, rebuilding or repairs can be substantially completed within one hundred eighty (180) days after the date of Lessor's actual knowledge of such damage, this Lease shall not terminate, and Lessor shall restore the Premises to substantially its previous condition, except that Lessor shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements required to be covered by Lessee's insurance pursuant to Paragraph 9.B. above. Effective upon the date of the occurrence of such damage and ending upon substantial completion (as defined in Paragraph 1. above), if the Premises are untenantable in whole or part during such period, the rent shall be reduced to such extent as may be fair and reasonable under all of the circumstances. If such repairs and rebuilding have not been substantially completed within one hundred eighty (180) days after the date of such damage, Lessee, as Lessee's exclusive remedy, may terminate this Lease by delivering written notice of termination to Lessor in which event the rights and obligations hereunder shall cease and terminate. C. In connection with any repair or reconstruction to the Premises arising from or necessitated by fire or other casualty which is covered by the insurance provided pursuant to Paragraph 9.A. above, Lessee shall pay Lessor the amount of the deductible or such Insurance unless the cost of such repair or reconstruction is necessitated by the negligent act of the Lessor. D. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed or trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then Lessor shall have the right to terminate this Lease by delivering written notice of termination to Lessee within fifteen (15) days after such requirement is made known by any such holder, whereupon all rights and obligations hereunder shall cease and terminate. E. Anything in this Lease to the contrary notwithstanding except as set forth in Paragraph 10.C. above, to the extent of a recovery of loss proceeds under the policies of insurance described in this Lease, Lessor and Lessee hereby waive and release each other and any related parties and affiliates of and from any and all rights of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the Premises, the Building, or personal property within the Building and/or Premises arising from or caused by fire or other casualty or hazard covered or required to be covered by hazard insurance under this Lease. Upon execution of this Lease, Lessor and Lessee shall notify their respective insurance companies of the mutual waivers contained herein and, if available, shall cause such policy described in this Lease to be so endorsed. 11. LIABILITY AND INDEMNIFICATION. A. Lessor shall hold Lessee harmless and defend Lessee against any and all claims, actions, damages or liability (including without limitation, all costs, attorneys' fees and expenses incurred in connection therewith) in connection with any loss, injury or damage to any person or property occurring in, on or about or arising out of all or part of the Premises and/or Building or the use or occupancy thereof, or the conduct or operation of Lessor's business, when such injury or damage shall be caused by the act, neglect, fault of, or omission of, any duty with respect to the same by Lessor, its agents, servants and employees (unless the indemnified loss is caused wholly or in part by Lessee's negligence, in which event this indemnity shall not apply to the allocable share of such loss resulting from Lessee's negligence). B. Lessee shall indemnify, protect, hold harmless and defend Lessor, its agents, employees, contractors, customers, partners, directors, officers and any affiliates (as defined in the Securities Act of 1933) of the aforementioned, (collectively, the "Lessor Affiliates") against any and all obligations, suits, losses, judgments, claims, actions, damages or liability (including without limitation, all costs, attorneys' fees and expenses incurred in connection therewith) in connection with any loss, injury or damage to any person or property occurring in, on or about or arising out of all or part of the Premises and/or the Building or the use or occupancy thereof, or the conduct or operation of Lessee's business, when such injury or damage (1) shall be caused by the act, neglect, fault of, or omission of, any duty with respect to the same by Lessee, its agents, servants and employees, and/or (2) arises from a breach, violation or non-performance of any term, provision, covenant or agreement of Lessee hereunder, or a breach or violation by Lessee of any court order or any law, regulation, or ordinance of any federal, state or local authority (collectively, the "Losses"), even if the Losses are caused wholly or in part by the negligence of Lessor and/or Lessor Affiliates. If any claim is made against Lessor or Lessor's Affiliates, Lessee, at its sole cost and expense, shall defend any such claim, suit or proceeding by or through attorneys satisfactory to Lessor. C. The provisions of this Paragraph shall survive the expiration or termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. The indemnification provided by this Paragraph 11. is subject 4 ----------- Lessor Initials ----------- Lessee Initials ----------- 6 to Lessee's and Lessor's waiver of recovery in the preceding Paragraph 10. to the extent of either Lessee's or Lessor's recovery of loss proceeds under policies of insurance described in Paragraph 10. 12. USE. A. The Premises shall be used only for the purpose of receiving, storing, shipping and selling (other than retail) products, materials and merchandise made and/or distributed by Lessee and for such other lawful purposes as may be incidental thereto. Lessee shall not use the Premises for the receipt, storage or handling of any product, material or merchandise that is explosive or highly inflammable or hazardous. Outside storage, including without limitation, long-term storage of trucks and other vehicles, is prohibited without lessor's prior written consent. Lessee shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises, and promptly shall comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with, the Premises, all at Lessee's sole expense. Lessee shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger Lessor or any other lessees of the Building. B. Lessee and its employees, customers and licenses shall have the non-exclusive rights to use any parking areas associated with the Premises that have been designated for such use by Lessor, subject to (1) all reasonable rules and regulations promulgated by Lessor and (2) rights of ingress and egress of other Lessees. Lessor shall not be responsible for enforcing Lessee's parking rights against any third parties. 13. INSPECTION. Lessor and Lessor's agents and representatives shall have the right, with reasonable notice, to enter the Premises at any reasonable time during business hours, to inspect the Premises an to make such repairs as may be required or permitted pursuant to this Lease. During the period that is twelve (12) months prior to the end of the Lease term, Lessor and Lessor's representatives may enter the Premises during business hours for the purpose of showing the Premises. In addition, Lessor shall have the right to erect a suitable sign on the Premises stating the Premises are available. Lessee shall notify Lessor in writing at least thirty (30) days prior to vacating the Premises and shall arrange to meet with Lessor for a joint inspection of the Premises prior to vacating. If Lessee fails to give such notice or to arrange for such inspection, then lessor's inspection of the Premises shall be deemed correct for the purpose of determining Lessee's responsibility for repairs and restoration of the Premies. 14. ASSIGNMENT AND SUBLETTING. A. Lessee shall not have the right to sublet all or part of the premises or to assign, transfer or encumber this Lease, or any interest therein, without the prior written consent of Lessor, not to be unreasonably withheld. Any attempted assignment, subletting, transfer or encumbrance by lessee in violation of the terms and covenants of this Paragraph shall be void. No assignment, subletting or other transfer, whether consented to by Lessor or not, or permitted hereunder, shall relieve Lessee of its liability hereunder. If an event of default occurs while the Premises or any part thereof are assigned or sublet, then Lessor, in addition to any other remedies herein provided, or provided by law, may collect directly from such assignee, sublessee or transferee all rents payable to the Lessee and apply such rent against my sums due to Lessor hereunder. No such collection shall be construed to constitute a novation or a release of Lessee from the further performance of Lessee's obligations hereunder. B. Upon the occurrences of an assignment or subletting, whether consented to by Lessor, or mandated by judicial intervention, Lessee hereby assigns, transfers and conveys all rents or other sums received by Lessee under any such assignment or sublease, which are in excess of the rents and other sums payable to lessee under this Lease, and agrees to pay such amounts within ten (10) days after receipt. C. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, II U.S.C. Section 1-1 et.seq., (the "Bankruptcy Code"), and any all monies or other considerations payable or otherwise to be delivered in connection with such assignments shall be paid or delivered to Lessor, shall be and remain the exclusive property of Lessor and shall not constitute property of Lessee or of the estate of Lessee within the meaning of the Bankruptcy Code. Any and all monies or other considerations constitute Lessor's property under the preseding sentence not paid or delivered to Lessor shall be held in trust for the benefit of Lessor and be promptly paid or delivered to Lessor. D. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed, without further act or deed, to have assumed all of the obligations arising under this lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Lessor an instrument confirming such assumption. 15. CONDEMNATION. If more than fifty percent (50%) of the Premises are taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof and the taking prevents or materially interferes with the use of the Premises for the purpose for which they were leased to Lessee, this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective on the date of such taking. If less than fifty percent (50%) of the Premises are taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent 5 ----------- Lessor Initials ----------- Lessee Initials ----------- 7 ???? 16. HOLDING OVER. At the termination of this Lease by its expiration or otherwise, Lessee immediately shall deliver possession to Lessor with all repairs and maintenance required herein to be performed by Lessee completed. If, for any reason, Lessee retains possession of the Premises after the expiration or termination of this Lease or fails to complete any repairs required hereby, unless the parties hereto otherwise agree in writing, such possession shall be subject to termination by either Lessor or Lessee at any time upon not less than ten (10) days advance written notice, and provided all of the other terms and provisions of this Lease shall be applicable during such period, except that Lessee shall pay Lessor from time to time, upon demand, as rental for the period of such possession, an amount equal to double one hundred and fifty (150%) percent of the rent in effect on the termination date, computed on a monthly basis for any day of each calendar month of such period. No holding over by Lessee, whether with or without consent of Lessor, shall operate to extend this Lease except as otherwise expressly provided. The preceding provisions of this Paragraph 16, shall not be construed as consent for Lessee to retain possession of the Premises in the absence of written consent thereto by lessor. 17. QUIET ENJOYMENT. Lessor covenants that on or before the Commencement Date it will have good title to the Premises, free and clear of all liens and encumbrances, excepting only the lien for current taxes not yet due, such mortgage or mortgages as are permitted by the terms of this Lease, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other conditions of record. If this Lease is a sublease, then Lessee agrees to take the Premises subject to the provisions of the prior lease. Lessor represents that it has the authority to enter into this Lease and that so long as Lessee pays all amounts due hereunder and performs all other covenants and agreements herein set forth, Lessee shall peaceably and quietly have, hold and enjoy the Premises for the term hereof without hindrance or molestation from Lessor, subject to the terms and provisions of this Lease. 18. EVENTS OF DEFAULT. The following events (herein individually referred to as an "event of default") each shall be deemed to be events of nonperformance by Lessee under this Lease: A. Lessee shall fail to pay any installment of the rent herein reserved when due, or any other payment or reimbursement to Lessor required herein when due or any payment or reimbursement required under any other lease with Lessor, and such failure shall continue for a period of five (5) days from written notice to Lessee. B. Lessee shall fail to pay any amounts owed to contractors or subcontractors for work or services performed in connection with the operation, construction, management or maintenance of the Building as provided herein, and such failure shall continue for a period of five (5) days from the date such payment was due. C. The Lessee or any guarantor of the Lessee's obligations hereunder shall (i) become insolvent; (ii) admit in writing its inability to pay its debts; (iii) make a general assignment for the benefit of creditors; (iv) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization for relief of debtors or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or of any substantial part of its property; or (v) take any action to authorize or in contemplation of any of the actions set forth above in this Paragraph 18. D. Any case, proceeding or other action against the Lessee or any guarantor of the Lessee's obligations hereunder shall be commenced seeking (i) to have an order for relief entered against it as debtor or to adjudicate it a bankrupt or insolvent; (ii) reorganization, arrangements, adjustment, liquidation, dissolution or composition of it or its debts under any law relating in bankruptcy, insolvency, reorganization or relief of debtors; (iii) appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (a) results in the entry of an order for relief against it which it is not fully stayed within seven (7) business days after the entry thereof or (b) shall remain undismissed for a period of forty-five (45) days. E. Lessee shall fail to discharge any lien placed upon the Premises in violation of Paragraph 21, hereof within twenty (20) days after any such lien or encumbrance is filed against the Premises. F. Lessee shall fail to comply with any term, provision or covenant of this Lease (other than those listed in this Paragraph 18.), and shall not cure such failure within twenty (20) days after written notice thereof to Lessee. 6 ----------- Lessor [Initials] ----------- Lessee [Initials] ----------- 8 19. REMEDIES. A. Upon each occurrence of an event of default, Lessor shall have the option to pursue any one or more of the following remedies without any notice or demand: (1) Terminate this Lease; and/or (2) Enter upon and take possession of the premises without terminating this Lease; and/or (3) Alter all locks and other security devices at the Premises with or without terminating this Lease, deny access to Lessee, and pursue, at Lessor's option, one or more remedies pursuant to this Lease, Lessee hereby specifically waiving any state or federal law to the contrary. This provision shall control over any conflicting provisions of the Texas Property Code or any successor statute governing the right of landlords to change the door locks of commercial tenants. B. Upon the occurrence of any event of default Lessee immediately shall surrender the Premises to Lessor, and if Lessee fails so to do, Lessor, without waiving any other remedy it may have, may enter upon and take possession of the Premises and expel or remove Lessee and any other person who may be occupying such Premises or any part thereof, without being liable for prosecution or any claim of damages therefor. C. If Lessor repossesses the Premises with or without terminating the Lease, Lessee, at Lessor's option, shall be liable for and shall pay Lessor on demand all rental and other payments owed to Lessor hereunder, accrued to the date of such repossession, plus all amounts required to be paid by Lessee to Lessor until the date of expiration of the term as stated in Paragraph 1. Actions to collect amounts due by Lessee to Lessor under this subparagraph may be brought from time to time, on one or more occasions, without the necessity of Lessor's waiting until expiration of the Lease term. D. Upon an event of default, in addition to any sum provided to be paid herein, Lessee also shall be liable for and shall pay to Lessor (1) any brokerage fees incurred by Lessor in connection with the execution of this Lease [both parties warrant that neither Lessor nor Lessee engaged a real estate broker in connection with this lease]; (2) brokers' fees incurred by Lessor in connection with any reletting of the whole or part of the Premises; (3) the costs of removing and storing Lessee's or other occupant's property; (4) the costs of repairing, altering, remodeling or otherwise putting the Premises into condition acceptable to a new lessee or lessees; and (5) all reasonable expenses incurred by Lessor in enforcing or defending Lessor's rights and/or remedies. If either party hereto institutes any action or proceeding to enforce any provision hereof by reason of any alleged breach of any provision of this Lease, the prevailing party shall be entitled to receive from the losing party all reasonable attorneys' fees and all court costs in connection with such proceeding. E. In the event Lessee fails to make any payment due hereunder when payment is due, to help defray the additional cost to lessor for processing such late payments, lessee shall pay to lessor on demand a late charge in an amount equal to five percent (5%) of such installment; and the failure to pay such amount within ten (10) days after demand therefor shall be an additional event of default hereunder. The provision for such late charge shall be in addition to all of Lessor's rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Lessor's remedies in any manner. F. Exercise by Lessor of any one or more remedies hereunder granted or otherwise available, including without limitation, the institution by Lessor, its agents or attorneys of a forcible detainer or ejectment action to re-enter the Premises shall not be construed to be an election to terminate this Lease or relieve Lessee of its obligation to pay rent hereunder and shall not be deemed to be an acceptance of surrender of the Premises by Lessor, whether by agreement or by operation of law, it being understood that such surrender can be affected only by the written agreement of Lessor and Lessee. Lessee and Lessor further agree that forbearance by Lessor to enforce its rights pursuant to the Lease at law or in equity, shall not be a waiver of Lessor's right to enforce one or more of its rights in connection with any subsequent default. G. In the event of termination and/or repossession of the Premises for an event of default, Lessor shall use reasonable efforts to relet the Premises; provided, that, Lessee shall not be entitled to credit or reimbursement of any proceeds in excess of the rental owed hereunder. Lessor may relet the whole or any portion of the Premises for any period, to any lessee and for any use and purpose. H. If Lessor fails to commence to perform any of its obligations hereunder within thirty (30) days after written notice from Lessee specifying such failure, Lessee's exclusive remedy shall be an action for damages. Unless and until Lessor fails to so cure said default after such notice, Lessee shall not have any remedy or cause of action by reason thereof. All obligations of Lessor hereunder will be binding upon Lessor only during the period of its possession of the Premises and not thereafter. The term "Lessor" shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all covenants and obligations of the Lessor thereafter accruing, but such covenants and obligations shall be binding during the Lease term upon each new owner for the duration of such owner's ownership. Notwithstanding any other provision hereof, Lessor shall not have any personal liability hereunder. In the event of any breach or default by Lessor in any term or provision of this Lease, and, as a consequence, if Lessee shall recover a money judgment against Lessor, such judgment shall be satisfied only out of the proceeds received at a judicial sale upon execution and levy against the right, title and interest of Lessor in the Building, and in the rents or other income from the Building receivable by Lessor, and neither Lessor nor Lessor's owners, partners or venturers shall have any personal, partnership, corporate or other liability hereunder. 7 9 I. If Lessor repossesses the Premises pursuant to the authority herein granted, then Lessor shall have the right to (i) keep in place and use or (ii) remove and store all of the furniture, fixtures and equipment at the Premises, including that which is owned by or leased to Lessee at all times prior to any foreclosure thereon by Lessor or repossession thereof by any Lessor thereof or third party having a lien thereon. Lessor also shall have the right to relinquish possession of all or any portion of such furniture, fixtures, equipment and other property to any person ("Claimant") who presents to Lessor a copy of any instrument represented by Claimant to have been executed by Lessee (or any predecessor of Lessee) granting Claimant the right under various circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of Lessor to inquire into the authenticity or legality of said instrument. Lessor may, at its sole option and without prejudice to, or waiver of any rights it may have i) escort Lessee to the Premises to retrieve any personal belongings of Lessee and/or its employees not covered by the Lessor's lien and security interest described in Paragraph 25, hereof, or ii) obtain a list from Lessee of the personal property of Lessee and/or its employees that is not covered by the Lessor's lien and security interest described in Paragraph 25, hereof, and make such property available to Lessee and or Lessee's employees; provided, however, Lessee first shall pay in cash all costs and estimated expenses to be incurred in connection with the removal of such property and making it available. The rights of Lessor herein stated shall be in addition to any and all other rights that Lessor has or may hereafter have at law or in equity, and Lessee stipulates and agrees that the rights herein granted Lessor are commercially reasonable. J. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor under this Lease, whether or not expressly denominated as rent, shall constitute rent. K. This is a contract under which applicable law excuses Lessor from accepting performance from (or rendering performance to) any person or entity other than Lessee. 20. MORTGAGES. Lessee accepts this Lease subject and subordinate to any mortgages and/or deeds of trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon or the building of which the Premises are a part, provided, however, that if the mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have Lessee's interest in this Lease superior to any such instrument, then by notice to Lessee from such mortgagee, trustee or holder, this Lease shall be deemed superior to such lien, whether this Lease was executed before or after said mortgage or deed of trust. Lessee agrees to attorn to any mortgagee, trustee under a deed of trust or purchaser at a foreclosure sale or trustee's sale as Lessor under this Lease. Lessee, at any time hereafter, within ten (10) days after demand, shall execute any instruments, releases or other documents that may be required by any mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage. If Lessee fails to execute the same within such ten (10) day period, Lessor is hereby authorized to execute the same as attorney-in-fact for Lessee. 21. MECHANIC'S LIENS. Lessee has no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind the interest of Lessor or Lessee in the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Lessee, including those who may furnish materials or perform labor for any construction or repairs. Lessee covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises and that it will save and hold Lessor harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Lessor in the Premises or under the terms of this Lease. Lessee agrees to give Lessor immediate written notice of the placing of any lien or encumbrance against the Premises. 22. MISCELLANEOUS. A. Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. B. In the event the Premises constitute a portion of a multiple occupancy building, Lessee's Proportionate Share, as used in this Lease, shall mean a fraction, the numerator of which is the space contained in the Premises and the denominator of which is the entire rentable space contained in the Building. C. The terms, provisions and covenants and conditions contained in this Lease shall run with the land and shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, executors, personal representatives, legal representatives, successors and assigns, except as otherwise herein expressly provided. Lessor shall have the right to transfer and assign, in whole or in part, its rights and obligations in the Building and property that are the subject of this Lease. Each party agrees to furnish to the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of such party to enter into this Lease. D. Lessor shall not be held responsible for delays in the performance of its obligations hereunder when caused by material shortages, acts of God or labor disputes. 8 10 E. Lessee agrees, from time to time, within ten (10) days after the request of Lessor, to deliver to Lessor, or Lessor's designee, a Certificate of Occupancy, financial statements and an estoppel certificate stating this Lease is in full force and effect, the date to which rent has been paid, the unexpired term of this Lease and such other factual matters pertaining to this Lease as may be requested by Lessor. It is understood and agreed that Lessee's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Lessor's execution of this Lease. If Lessee fails to execute the same within such ten (10) day period, Lessor is hereby authorized to execute the same as attorney-in-fact for Lessee. F. This Lease constitutes the entire understanding and agreement of the Lessor and Lessee with respect to the subject matter of this Lease, and contains all of the covenants and agreements of Lessor and Lessee with respect thereto. Lessor and Lessee each acknowledge that no representations, inducements, promises or agreements, oral or written, have been made by Lessor or Lessee, or anyone acting on behalf of Lessor or Lessee, which are not contained herein, and any prior agreements, promises, negotiations, or representations not expressly set forth in this Lease are of no force or effect. This Lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto. G. All obligations of Lessee hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including without limitation, all payment obligations with respect to taxes and insurance and all obligations concerning the condition and repair of the Premises. Upon the expiration or earlier termination of the term hereof, and prior to Lessee vacating the Premises, Lessee shall pay to Lessor any amount reasonably estimated by Lessor as necessary to put the Premises, including without limitation, all heating and air conditioning systems and equipment therein, in good condition and repair, reasonable wear and tear excluded. Lessee shall also, prior to vacating the Premises, pay to Lessor the amount, as estimated by Lessor, of Lessee's obligation hereunder for real estate taxes and insurance premiums for the year in which the Lease expires or terminates. All such amounts shall be used and held by Lessor for payment of such obligations of Lessee hereunder, with Lessee being liable for any additional costs therefor upon demand by Lessor, or with any excess to be returned to Lessee after all such obligations have been determined and satisfied as the case may be. Any security deposit held by Lessor shall be credited against the amount due for Lessee under this Paragraph 22.G. H. 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 may be legal, valid and enforceable. I. All references in this Lease to "the date hereof" or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease. J. Lessor and Lessee represent and warrant that it has dealt with no broker other than Harry B. Lucas Company, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, and Lessee agrees to indemnify and hold Lessor harmless from and against any claims by any other broker, agent or other persons claiming a commission or other form of compensation by virtue of having dealt with Lessee with regard to this leasing transaction. K. If and when included within the term "Lessor", as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of a notice specifying some individual at some specific address for the receipt of notices and payments to Lessor. If and when included within the term "Lessee", as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Lessee. All parties included within the terms "Lessor" and "Lessee", respectively, shall be bound by notices given in accordance with the provisions of Paragraph 23, hereof to the same effect as if each had received such notice. L. LESSEE ACKNOWLEDGES THAT (1) IT HAS INSPECTED AND ACCEPTS THE PREMISES IN AN "AS IS, WHERE IS" CONDITION, (2) THE BUILDINGS AND IMPROVEMENTS COMPRISING THE SAME ARE SUITABLE FOR THE PURPOSE FOR WHICH THE PREMISES ARE LEASED AND LESSOR HAS MADE NO WARRANTY, REPRESENTATION, COVENANT, OR AGREEMENT WITH RESPECT TO THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE PREMISES, (3) THE PREMISES ARE IN GOOD AND SATISFACTORY CONDITION, (4) NO REPRESENTATIONS AS TO THE REPAIR OF THE PREMISES, NOR PROMISES TO ALTER, REMODEL OR IMPROVE THE PREMISES HAVE BEEN MADE BY LESSOR (UNLESS AND EXCEPT AS MAY BE SET FORTH IN EXHIBIT B ATTACHED TO THIS LEASE, IF ONE SHALL BE ATTACHED, OR AS IS OTHERWISE EXPRESSLY SET FORTH IN THIS LEASE), AND (5) THERE ARE NO REPRESENTATIONS OR WARRANTIES, EXPRESSED, IMPLIED OR STATUTORY, THAT EXTEND BEYOND THE DESCRIPTION OF THE PREMISES. 23. NOTICES. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivering of notice or the making of any payment by Lessor to Lessee or with reference to the sending, mailing, or delivering of any notice or the making of any payment by Lessee to Lessor shall be deemed to be complied with when and if the following steps are taken: 9 11 A. All rent and other payments required to be made by Lessee to Lessor hereunder shall be payable to Lessor at the address for Lessor set forth below or at such other address as Lessor may specify from time to time by written notice delivered in accordance herewith. Lessee's obligation to pay rent and any other amounts to Lessor under the terms of this Lease shall not be deemed satisfied until such rent and other amounts have been actually received by Lessor. In addition to Base Rent due hereunder, all sums of money and all payments due Lessor hereunder shall be deemed to be additional rental owed to Lessor. B. All payments required to be made by Lessor to Lessee hereunder shall be payable to Lessee at the address set forth below, or at such other address within the continental United States as Lessee may specify from time to time by written notice delivered in accordance herewith. C. Any written notice or document required or permitted to be delivered hereunder shall be deemed to be delivered upon the earlier to occur of (1) tender of delivery (in the case of a hand-delivered notice) or (2) deposit in the United States Mail, postage prepaid, Certified or Registered Mail, addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith. 24. HAZARDOUS WASTE. The term "Hazardous Substances", as used in this Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the removal of which is required or the use of which is restricted, prohibited or penalized by any "Environmental Law", which term shall mean any federal, state or local law or ordinance relating to pollution or protection of the environment. Lessee hereby agrees that (i) no activity will be conducted on the Premises that will produce any Hazardous Substances, except for such activities that are part of the ordinary course of Lessee's business activities (the "Permitted Activities") provide said Permitted Activities are conducted in accordance with all Environmental Laws and have been approved in advance in writing by Lessor; (ii) the Premises will not be used in any manner for the storage of any Hazardous Substances except for any temporary storage of such materials that are used in the ordinary course of Lessee's business (the "Permitted Materials") provided such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws and approved in advance in writing by Lessor; (iii) no portion of the Premises will be used as a landfill or a dump; (iv) Lessee will not install any underground tanks of any type; (v) Lessee will not allow any surface or surface conditions to exist or come into existence that constitute, or with the passage of time may constitute a public or private nuisance; (vi) Lessee will not permit any Hazardous Substances to be brought onto the Premises, except for the Permitted Materials, and if so brought or found located thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws. If at any time during or after the term of the Lease, the Premises is found to be so contaminated or subject to said conditions, Lessee agrees to indemnify and hold Lessor harmless from all claims, demands, actions, liabilities, costs, expenses, damages, and obligations of any nature arising from or as a result of the use of the Premises by Lessee. The foregoing indemnification shall survive the termination or expiration of this Lease. 25. LESSOR'S LIEN. To secure the payment of all rentals and other sums of money due or to become due hereunder from Lessee, Lessee hereby grants to Lessor, in addition to any statutory lien for rent in Lessor's favor, a continuing security interest in all goods, wares, equipment, fixtures, furniture, inventory, and other personal property of Lessee now or hereafter situated at the Premises described below, and all proceeds or products thereof, of whatever kind or type, including equipment, inventory, instruments, accounts, chattel paper or general intangibles, and the security interest shall continue in such property and all proceeds and products, regardless of location. Such property shall not be removed therefrom without the consent of Lessor, unless at the time of removal all arrearages in rent as well as any and all other sums of money then due to Lessor hereunder shall first have been paid and discharged in full. Upon a default hereunder by Lessee in addition to all other rights and remedies, Lessor shall have all rights and remedies under the Uniform Commercial Code, including without limitation, the right to sell the property described in this Paragraph at public or private sale upon five (5) days notice by Lessor to Lessee at the Premises. Lessee hereby agrees to execute such other instruments, necessary or desirable under applicable law to perfect the security interest hereby created. Lessor and Lessee agree that pages 1 - 14 of this Lease and security agreement may serve as a financing statement and that a copy, photographic or other reproduction of this portion of this Lease may be filed of record by Lessor and have the same force and effect as the original. This Lease and security agreement and financing statement also covers fixtures located at the Premises subject to this Lease, which is located at 2015 Surveyor Road, Carrolton, Texas, more particularly described in Exhibit "A" attached hereto and incorporated herein by reference, (if an Exhibit A is attached) and this page, together with said Exhibit A, (if one is attached) may be filed for record in the appropriate real estate records. The record owner of this property is Lessor. EXECUTED BY LESSOR, this 8th day of October, 1997.
ATTEST/WITNESS: LESSOR: By: /s/ JILL McDONALD Crow Carrara No. 2 ----------------- By: BCO Dallas Industrial, LTD., General Partner Jill McDonald Title: Asset Manager By: /s/ BARBARA A. ERHART ------------- ---------------------- Barbara A. Erhart Vice President of 12BCO, Inc. General Partner of BCO Dallas Industrial, LTD.
10. 12 ADDRESS: 4800 West Texas Commerce Tower 2200 Ross Avenue Dallas, Texas 75201 EXECUTED BY LESSEE, this 3rd day of October, 1997. ATTEST/WITNESS: LESSEE: Business Resource Group By: /s/ [SIG] -------------------------------- Title: By: /s/ TOMMY HITCHCOCK ----------------------------- -------------------------------- Tommy Hitchcock Vice President ADDRESS: 2811 McKinney Avenue Suite 18 Dallas, TX 75204 214-953-1233 11 13 EXHIBIT "A" LEGAL DESCRIPTION (2105 Surveyor) Approximately 24.415 square feet out of a larger facility containing 92,640 square feet and elevated on a tract of land more particularly described as follows: BEING a 4.254 area tract of land out of the DAVID MYERS SURVEY, ABSTRACT No. 923, in Dallas County, Texas; said tract being part of that tract conveyed to Henry S. Miller Development Company by Deed recorded in Volume 72174, page 2342, Deed Records of Dallas County, Texas; said tract being more particularly described as follows: BEGINNING at a point in the West line of Surveyor Boulevard, a 60.00 foot wide street, as dedicated by plat recorded in Volume 70148, page 2163, Deed Records of Dallas County, Texas; said point being N. 00 degrees 05'00" W., along said line of Surveyor Boulevard, 700.26 feet from the Intersection point of the said line of Surveyor Boulevard and the Addison-Carrollton City limits; THENCE N, 89 degrees 50'17" W., with said utility casement centerline, 320.00 feet to a point for corner in the West line of said Henry S. Miller Development Company tract; THENCE N., 00 degrees 05'00" W., with said West line, 580.94 feet to a point for corner in the South line of Tom & Jacobs Construction Company's 15.00 acre tract; THENCE N. 89 degrees 30'46" E., with said South line, 313.87 feet to a point for cover is the West line of Surveyor Boulevard, as dedicated by plat recorded in Volume 71061, page 2164, Deed Records of Dallas County, Texas; said point being in a curve, curving to the left in a Southerly direction and whose center bears S. 46 degrees 21'56" E.; a distance of 50.00 feet; THENCE with said curve to the left through a central angle of 96 degrees 50'52", an arc distance of 84.52 feet to the end of said curve and a point for corner; THENCE S., 00 degrees 05'00" E., with said West line of Surveyor Boulevard, 509.42 feet to the PLACE OF BEGINNING; containing 185,291.79 square feet or 5.254 acres of land, of which 23,2345.14 square feet is within the railroad casement. 14 EXHIBIT "B" [FLOOR PLAN] 15 EXHIBIT "C" SPECIAL PROVISIONS 26. BASE RENTAL. Notwithstanding anything to the contrary herein contained in Paragraph 2.A. the base rent schedule over the term of the Lease shall be as follows: ("Base Rent" is net of insurance, taxes and common area maintenance charges) Years Base Rental/Month ----- ----------------- 1-3 $5,175.29 4-5 $5,353.75
27. LESSEE IMPROVEMENTS. Lessor will deliver the Premises in its "As-Is" condition however, the Lessor agrees to make the following improvements to the Premises: A. Steam clean the carpets. B. Clean the existing office area. C. Remove the existing signage. D. Repair the overhead doors. E. Relamp, where necessary, all light fixtures in the office and warehouse area. F. Lessor will ensure that the IIVAC is in good working order and warranty it for the first ninety (90) days of the Lease term. 28. RENEWAL OPTION. Provided that Tenant is not in default of any of the terms, covenants and conditions hereof, and this Lease has not been assigned or the Leased Premises (or any part thereof) sublet, Lessee shall have the right and option to extend the original term of this Lease for one further term of sixty (60) months. Such extension of the original term shall be on the same terms, covenants and conditions as provided for in the original term except for this paragraph and except that the rental during the extended term shall be at the fair market rental then in effect on equivalent properties, of equivalent size. Lessee shall deliver written notice to Lessor of Lessee's intent to exercise the renewal option granted herein within six (6) months prior to the expiration of the original term of this Lease. In the event Lessee fails to deliver such written notice within the time period set for above, Lessee's right to extend the term hereof shall expire and be of no further force and effect. In the event Lessor and Lessee fail to agree in writing upon the fair market value rental within ten (10) days after exercise by Lessee of this renewal option, then Lessee's right hereunder to extend the term shall become null and void. EX-10.40 5 RETAIL LEASE AGREEMENT BETWEEN REGISTRANT AND BLUE 1 EXHIBIT 10.40 LEVI'S PLAZA HAAS BUILDING RETAIL LEASE between BLUE JEANS EQUITIES WEST as Landlord and BUSINESS RESOURCE GROUP, as Tenant 2 TABLE OF CONTENTS Page R E C I T A L S ..............................................................1 1. BASIC LEASE INFORMATION...................................................1 2. PREMISES..................................................................3 3. TERM; ACCEPTANCE OF THE PREMISES..........................................3 4. RENT; ADDITIONAL CHARGES..................................................4 5. ADDITIONAL CHARGES FOR EXPENSES AND REAL ESTATE TAXES.....................4 6. USE.......................................................................8 7. CONSTRUCTION OF PREMISES; BUILDING CHANGES................................9 8. ALTERATIONS...............................................................9 9. REPAIRS MAINTENANCE......................................................10 10. LIENS....................................................................11 11. COMPLIANCE WITH LAWS, ENVIRONMENTAL MATTERS AND INSURANCE REQUIREMENTS...11 12. SUBORDINATION............................................................13 13. INABILITY TO PERFORM.....................................................13 14. DESTRUCTION..............................................................14 15. EMINENT DOMAIN...........................................................15 16. ASSIGNMENT AND SUBLETTING................................................15 17. UTILITIES................................................................19 18. DEFAULT..................................................................19 19. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULTS...............................20 20. MORTGAGEE PROTECTION.....................................................21 21. INDEMNITY; TENANT'S INSURANCE............................................21 22. LIMITATION OF LANDLORD'S LIABILITY.......................................22 23. ACCESS TO PREMISES.......................................................23 24. NOTICES..................................................................23 25. NO WAIVER................................................................23 26. TENANT'S CERTIFICATES....................................................24 27. RULES AND REGULATIONS....................................................24 28. TAXES PAYABLE BY TENANT..................................................24 29. SECURITY DEPOSIT.........................................................25 30. AUTHORITY................................................................25 3 TABLE OF CONTENTS Page 31. PUBLIC TRANSIT INFORMATION...............................................25 32. SIGNAGE..................................................................25 33. PARKING..................................................................26 34. BROKERS..................................................................26 35. OPTION TO EXTEND.........................................................26 36. AMERICANS WITH DISABILITIES ACT ("ADA") AND SIMILAR ACTS.................29 37. HAZARDOUS SUBSTANCE DISCLOSURE...........................................29 38. NO REPRESENTATIONS BY LANDLORD...........................................29 39. SURRENDER................................................................30 40. LANDLORD'S LIABILITY; SALE OF BUILDING...................................30 41. MISCELLANEOUS............................................................30 EXHIBIT A-1 DESCRIPTION OF REAL PROPERTY....................................A-1 EXHIBIT A-2 PLAT OF LEVI'S PLAZA COMPLEX..................................A-2-1 EXHIBIT B FLOOR PLAN OF PREMISES............................................B-1 EXHIBIT C FORM OF NOTICE OF COMMENCEMENT DATE...............................C-1 EXHIBIT D LEVI'S PLAZA HAAS BUILDING RETAIL LEASE RULES AND REGULATIONS.....D-1 4 RETAIL LEASE THIS RETAIL LEASE ("Lease") is entered into as of this 19th day of August, 1998, by and between BLUE JEANS EQUITIES WEST, a California general partnership ("Landlord"), and BUSINESS RESOURCE GROUP, a California corporation ("Tenant"). RECITALS: A. Landlord owns that certain real property commonly known as Levi's Plaza, located in the City and County of San Francisco, California and more particularly described in EXHIBIT A-1 attached hereto (together with the Building (as described below) and any and all buildings and improvements thereon, the "Real Property"). B. Tenant desires to lease from Landlord and Landlord desires to lease to Tenant a portion of that certain building commonly known as the Haas Building, which building is located at 1225 Battery Street, San Francisco, California, and is included within Levi's Plaza and contains approximately 6,776 rentable square feet of rentable area (as hereinafter defined). C. As hereinafter used in this Lease, the term "Project" shall mean the entire Levi's Plaza complex, as shown on the plat attached hereto as EXHIBIT A-2, and the term "Building" shall mean the Haas Building. NOW, THEREFORE, Landlord and Tenant hereby covenant and agree as follows: 1. BASIC LEASE INFORMATION The following is a summary of basic lease information. Each term or matter in this Article 1 shall be deemed to incorporate all of the terms set forth hereinbelow pertaining to such matter or item and to the extent there is any conflict between the provisions of this Article 1 and any more specific provision of this Lease, such more specific provision shall control. LEASE DATE: August 11, 1998 BUILDING ADDRESS: 1225 Battery Street San Francisco, California 94111 LANDLORD: BLUE JEANS EQUITIES WEST, A CALIFORNIA GENERAL PARTNERSHIP ADDRESS OF LANDLORD: c/o Interland-Jalson 201 Filbert Street San Francisco, California 94111 Facsimile No: (415) 956-8097 Attention: Michael D. Franklin 5 TENANT: BUSINESS RESOURCE GROUP NOTICE ADDRESS FOR 2150 North First Street, Suite 101 TENANT: San Jose, California 95131 Fax No.: (408) 325-3288 KEY CONTACT FOR TENANT: Tim Thomas, Controller TELEPHONE: (408) 325-3200 FACSIMILE NO.: (408) 325-3228 SUITE AND/OR FLOORS: (Article 2) Ground Floor RENTABLE AREA OF PREMISES: Approximately 6,776 rentable square feet PARKING: N/A (Article 33) TERM: (Article 3) Five (5) years, Five (5) months following the Commencement Date.
BASE RENT: LEASE TOTAL ANNUAL MONTHLY (Article 4) YEARS BASE RENT INSTALLMENTS ----- ------------ ------------ November 1, 1998 (the $120,002.96 $10,000.25 "Rent Commencement ($17.71 per square Date") through foot of rentable December 31, 2000 space) January 1, 2001 $237,160 $19,763.33 through December 31, ($35.00 per square 2003 foot of rentable space)
USE: (Article 6) The retail sale of furniture and such other uses specified in Section 6.1 below. SECURITY DEPOSIT: (Article 29) None OTHER: Option to Extend (Article 35) 2 6 2. PREMISES Subject to the terms, covenants and conditions set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord those premises (the "Premises") in the Building which shall be the space enclosed by the demising walls, and which is approximately delineated on the floor plan attached hereto as EXHIBIT B. 3. TERM; ACCEPTANCE OF THE PREMISES 3.1 The Premises are leased for a term (the "Term") commencing (the "Commencement Date") on the earlier of (a) October 1, 1998 (the "Scheduled Commencement Date"), or (b) the date on which Tenant first occupies all or any portion of the Premises for the conduct of its business, and expiring on December 31, 2003 (the "Expiration Date"). If Landlord does not tender possession of the Premises to Tenant on or before the Scheduled Commencement Date, for any reason whatsoever, Landlord shall not be liable for any damage thereby, this Lease shall not be void or voidable, and Tenant shall not be liable for rent until Landlord tenders possession of the Premises to Tenant. In no event shall any failure by Landlord to tender possession of the Premises on or before the Scheduled Commencement Date extend the Term of this Lease. 3.2 Promptly following the Commencement Date, Landlord will deliver to Tenant a notice in substantially the form attached hereto as EXHIBIT C identifying the Commencement Date, a copy of which notice shall be executed by Tenant and promptly returned to Landlord. 3.3 Tenant hereby agrees to accept the Premises in an "As Is" condition. Without limiting the foregoing, Tenant's rights in the Premises are subject to all local, state and federal laws, regulations and ordinances governing and regulating the use and occupancy of the Premises and subject to all matters now or hereafter of record. Tenant acknowledges that neither Landlord nor Landlord's agents have made any representation or warranty as to: (i) the present or future suitability of the Premises for the conduct of Tenant's business, (ii) the physical condition of the Premises, (iii) the expenses of operation of the Premises, (iv) the safety of the Premises, whether for the use of Tenant or any other person, including without limitation, Tenant's employee's, agents, invitees or customers, or (v) any other matter or thing affecting or related to the Premises. Tenant specifically agrees that Landlord has no duty to make any disclosures concerning the fitness of the Premises for Tenant's intended use and Tenant expressly waives any duty which Landlord may have to make any such disclosures. Tenant shall, prior to delivery of the Premises, inspect the Premises and become thoroughly acquainted with its condition, and Tenant hereby acknowledges that the taking of possession of the Premises by Tenant shall be conclusive evidence that the Premises are in good and satisfactory condition at the time such possession is so taken. 3.4 Notwithstanding anything to the contrary contained herein, Landlord agrees that it shall, at its sole cost and expense, remove the tile floor in the existing kitchen of the Premises if such removal and/or remediation is required by Tenant's initial Alterations. 3 7 4. RENT; ADDITIONAL CHARGES 4.1 Tenant will pay to Landlord during the Term the annual Base Rent specified in Article 1 as the same may be adjusted pursuant to Section 4.2 (herein called the "Base Rent"). Commencing on the Rent Commencement Date, the Base Rent will be payable in equal consecutive monthly installments, as specified in Article 1, on or before the first day of each month, in advance, at the address specified for Landlord in Article 1, or such other place as Landlord may designate in writing, without any prior demand and without any deductions or setoff, except as expressly specified herein. If the Rent Commencement Date occurs on a day other than the first day of a calendar month, or the Expiration Date occurs on a day other than the last day of a calendar month, then the rental for such fractional month will be prorated based on a thirty (30) day month. 4.2 Tenant shall pay to Landlord all charges and other amounts required under this Lease (herein called "Additional Charges") as additional rent, including, without limitation, the charges for Taxes and Expenses as provided for in Article 5. All such Additional Charges will be payable to Landlord as additional rent at the place where the Base Rent is payable. Landlord will have the same remedies for a default in the payment of any Additional Charges as for a default in the payment of Base Rent. 4.3 If Tenant fails to pay any Base Rent or Additional Charges within five (5) days after the date the same is due and payable, such unpaid amounts will be subject to a late payment charge equal to the greater of five hundred dollars ($500) or five percent (5%) of the unpaid amounts in each instance. The late payment charge has been agreed upon by Landlord and Tenant, after negotiation, as a reasonable estimate of the additional administrative costs and detriment that will be incurred by Landlord as a result of any such failure by Tenant, the actual costs thereof being extremely difficult if not impossible to determine. The late payment charge constitute liquidated damages to compensate Landlord for its damages resulting from such failure to pay and shall be paid to Landlord together with such unpaid amounts. Acceptance of such late payment charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of the other rights or remedies granted under this Lease. 4.4 Any amount due to Landlord, if not paid when due, shall bear interest from the date due until paid at the highest rate legally permitted; provided that interest shall not be payable on late charges incurred by Tenant nor on any amounts upon which late charges are paid by Tenant to the extent such interest would cause the total interest to be in excess of that legally permitted. Payment of interest shall not excuse or cure any default hereunder by Tenant. 5. ADDITIONAL CHARGES FOR EXPENSES AND REAL ESTATE TAXES 5.1 This Lease is intended to be a net Lease; and the Base Rent owing hereunder is to be paid by Tenant absolutely net of all costs and expenses relating to Landlord's ownership and operation of the Building. The provisions of this Article 5 for the payment of Tenant's Share of Taxes and Expenses are intended to pass on to Tenant its share of all such costs and expenses. Notwithstanding the foregoing, Tenant shall commence payment to Landlord of Tenant's Share of Taxes and Expenses on and after January 1, 2001. The parties hereto acknowledge that Wells 8 Fargo Bank, the prior tenant in the Premises, has reimbursed Landlord for Tenant's Share of Taxes and Expenses for the period commencing on the Commencement Date through December 31, 2000. For purposes of this Article 5, the following terms shall have the meanings hereinafter set forth: (a) "Tenant's Share" means 4.716%, i.e., the percentage corresponding to a fraction, the numerator of which is equal to the number of rentable square feet in the Premises and the denominator of which is equal to the number of rental square feet in the Building, which denominator of the Lease Date is 143,651. Tenant's Share shall be adjusted by Landlord as a result of any change in the rentable area of the Premises or the total rentable area of the Building or the Project. (b) "Tax Year" means each twelve (12) consecutive month period commencing January 1st of each year during the Term, including any partial year during which the Lease may commence; provided that Landlord, upon notice to Tenant, may change the Tax Year from time to time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant's Tax Share of Taxes shall be equitably adjusted for the Tax Year involved in any such change. (c) As used in the Lease, the term "Taxes" shall mean all taxes, assessments and charges levied upon or with respect to the Real Property or any personal property located on the Real Property and used in the operation thereof or upon or with respect to any ownership or possessory interest in the Real Property or such personal property. Taxes shall include, without limitation, all general real property taxes and general and special assessments, charges, fees, or assessments for transit, housing, police, fire, or the governmental services or purported benefits to the Real Property or the occupants thereof, service payments in lieu of taxes, business taxes, and any tax, fee, or excise on the act of entering into the Lease or any other lease of space located on the Property, or on the use or occupancy of the Real Property or any part thereof, or on the rent payable under any lease or in connection with the business of renting space within the Real Property, that are now or hereafter levied or assessed against Landlord by the United States of America, the State of California or any political subdivision thereof, public corporation, district, or any other political or public entity, and shall also include any other tax, fee or other excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Taxes, whether or not now customary or in the contemplation of the parties on the Commencement Date. Taxes shall also include reasonable legal fees, costs, and disbursements incurred in connection with proceedings to contest, determine, or reduce Taxes. In addition, as provided in Section 5.1(f), Taxes shall also include .83% of taxes levied and assessed on the Exterior Common Areas (as defined below), which percentage represent the Premises' allocable share of such Exterior Common Areas. Taxes shall not include (a) franchise, transfer, inheritance, or capital stock taxes or income taxes measured by the net income of Landlord from all sources unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, or as an addition to, in whole or in part, any other taxes that would otherwise be included within Taxes, (b) penalties incurred, as a result of Landlord's negligence, inability or unwillingness to make payments of, and/or to file any tax or information returns with respect to, any Taxes, when due, (c) any Taxes directly payable by 5 9 Tenant or any other tenant within the Building under the applicable provisions in their respective leases,(d) any items included as Expenses, and (3) Taxes to the extent such Taxes may be separately allocated to any underground or above ground parking garage and/or other parking facilities associated with the Building or to the extent such Taxes are levied on revenues from such parking facilities. (d) "Exterior Common Areas" shall mean those portions of the project including, without limitation, the "Park Land" owned or controlled by Landlord and held for the common use and benefit of the public and all tenants and owners within the Project, all as designated and delineated on the plat attached hereto as EXHIBIT A-2 if and so long as such areas are privately owned or controlled and held for such mutual benefit but excluding any portion thereof devoted to commercial or other revenue producing purposes. (e) "Expense Year" means each twelve (12) consecutive month period commencing January 1st of each year during the Term, including any partial year during which the Lease may commence; provided that Landlord, upon notice to Tenant, may change the Expense Year from time to any other twelve (12) consecutive month period and, in the event of any such change, Tenant's Expense Share of Expenses shall be equitably adjusted for the Expense Year involved in any such change. (f) Subject to the provisions of Subsection (g) below, "Expense" shall mean and include the total costs and expenses paid or incurred by Landlord in connection with: (i) the cost of operating, maintaining, repairing and replacing the boiler, cooling tower and primary circulation system serving the Premises, including without limitation, all labor and material costs related thereto, and the cost of general maintenance, cleaning and service contracts and the cost of all supplies, tools and equipment required in connection therewith; (ii) the cost incurred by Landlord for all insurance carried on the Real Property or in connection with the use and/or occupancy of the Building, including, without limitation, the premiums and cost of fire, casualty, liability, rental abatement and earthquake insurance applicable to the Real Property and Landlord's personal property used in connection therewith (and all amounts paid as a result of loss sustained that would be covered by such policies but for "deductible" or self-insurance provisions), provided, however, that Landlord may, but shall not be obligated to, carry earthquake insurance; (iii) management fees; (iv) a ten percent (10%) overhead charge, and (v) .83% of the costs of operating, maintaining and repairing the Exterior Common Areas, which percentage represents the Premises' allocable share of the Exterior Common Areas. Expenses that cover a period of time not within the term (including any extended term) of the Lease shall be prorated on the basis of a 365-day year and the actual number of days in any applicable month. (g) If the Building is not one hundred percent (100%) occupied during all or any portion of any Expense Year, then Landlord shall make an appropriate adjustment, in accordance with industry standards and sound management practices, of the Expenses and Taxes for each such Expense Year to determine what the Expenses and Taxes would have been for such year if the Building had been one hundred percent (100%) occupied, and the amount so determined shall be deemed to be the amount of Expenses and Taxes for such year. Such adjustment shall be made by Landlord by increasing those costs included in the Expenses and/or 10 Taxes which, according to industry standards and sound management practices, vary based upon the level of occupancy of the Building. 5.2 (a) Tenant shall pay to Landlord as Additional Charges one twelfth (1/12) of Tenant's Share of the Expenses for each Expense Year or portion thereof during the Term, in advance, on or before the first day of each month during such Expense Year, in an amount estimated by Landlord in a writing delivered to Tenant. Landlord may revise such estimates from time to time and Tenant will thereafter make payments on the basis of such revised estimates. (b) Tenant shall pay to Landlord as Additional Charges one twelfth (1/12) of Tenant's Share of the Taxes for each Tax Year or portion thereof during the Term in advance, on or before the first day of each month during such Tax Year, in an amount estimated by Landlord in a writing delivered to Tenant. Landlord may revise such estimates from time to time, and Tenant will thereafter make payments on the basis of such revised estimates. 5.3 With reasonable promptness after the expiration of each Expense Year and Tax Year, including the Expense Year and Tax Year during which this Lease terminates, Landlord will furnish Tenant with a statement (herein called "Landlord's Expense and Tax Statement"), prepared by an independent certified public accountant, setting forth in reasonable detail the Expenses and Taxes for such Expense Year and Tax Year and Tenant's Share of the Taxes and Expenses, which statement shall be conclusive and binding upon Tenant unless Tenant timely delivers an Audit Notice (as defined in Section 5.5 below) and timely conducts an audit, all as more particularly set forth in Section 5.5 below. If the total of Tenant's Share of the actual Expenses and Taxes for such Expense Year and Tax Year as set forth in Landlord's Expense and Tax Statement exceeds the total estimated Expenses and Taxes paid by Tenant for such Expense Year and Tax Year, Tenant shall pay to Landlord (whether or not this Lease has terminated) the difference within thirty (30) days after the receipt of Landlord's Expense and Tax Statement; and if the total amount paid by Tenant for any such Expense Year and Tax Year shall exceed Tenant's Share of the actual Expenses and Taxes for such Expense Year and Tax Year, such excess shall be credited against the next installments of Base Rent or Expenses and Taxes due from Tenant to Landlord hereunder, or, if this Lease has terminated and no amounts are due or to become due to Landlord from Tenant hereunder, any excess shall be paid to Tenant by check within thirty (30) days after such final determination of the actual Expenses and Taxes. 5.4 If the Commencement Date or Expiration Date shall occur on a date other than the first or last day, respectively, of a Tax Year and/or Expense Year, Tenant's Tax Share of Taxes and/or Tenant's Expense Share of Expenses for the Tax Year and/or Expense Year in which the Commencement Date or Expiration Date occurs shall be prorated based on a 365-day year, but shall remain subject to adjustment based on receipt of information after the Expiration Date. 5.5 Tenant shall have the right to audit Landlord's books and records pertaining to the Expenses and Taxes for the immediately preceding Expense Year and Tax Year, subject to the terms and conditions set forth in this Section 5.5. In the event that Tenant desires to exercise its audit rights hereunder, Tenant must (i) deliver written notice (an "Audit Notice") to Landlord exercising such rights on or before that day that is ninety (90) days after the date (the "Statement Delivery Date") on which Tenant receives Landlord's Expense and Tax Statement from 7 11 Landlord and (ii) subject to delays to the extent resulting from Landlord's scheduling requests, complete such audit and deliver written notice (a "Contest Notice") to Landlord describing in detail any contested amounts within twelve (12) months after the Statement Delivery Date. In the event that Tenant fails to timely deliver an Audit Notice or Contest Notice as provided in the immediately preceding sentence, Tenant shall be prohibited from conducting an audit or contesting the amount of Expenses and Taxes with respect to such Expense Year and Tax Year and Landlord's Expense and Tax Statement for such Expense Year and Tax Year shall be conclusively binding upon Tenant. In no event whatsoever shall Tenant have the right to audit Landlord's books and records with respect to any Expense Year or Tax Year other than the immediately preceding Expense Year and Tax Year. In the event that Tenant timely delivers an Audit Notice, Tenant shall have the right, upon fifteen (15) days prior written notice to Landlord, to conduct an audit that is reasonable in terms of scope, detail and duration of Landlord's books and records pertaining to the Expenses and Taxes for the immediately preceding Expense Year and Tax Year, and Landlord agrees to provide to Tenant reasonable access to such books and records to enable Tenant to conduct such audit. Notwithstanding the foregoing, Tenant, in conducting such audit, agrees to accommodate reasonable scheduling requests of Landlord and to minimize any disruption to Landlord's business operations. Tenant shall have the right, at its sole cost and expense,and in its reasonable discretion, to make copies of portions of such books and records, provided that in no event shall Tenant have the right to remove such books and records from the Building's management office. Any audit conducted by Tenant pursuant to this Section 5.5 shall be conducted by a licensed Certified Public Accounting firm approved by Landlord (which approval shall not be unreasonably withheld or delayed) retained by Tenant on either a fixed fee or "time and materials" basis, and under no circumstances shall Tenant either engage any person to conduct such audit whose compensation is determined, in whole or in part, by the amount of the recovery, if any, received by Tenant as a result of such audit or assign to any third person any portion of such recovery, if any. In the event that Tenant breaches the terms of the foregoing sentence, Tenant shall thereafter be prohibited from conducting any future audit of Expenses or Taxes throughout the Term of this Lease. Tenant shall bear all costs of such audit, including Landlord's incidental costs (such as, for example, overtime or additional or temporary personnel charges or copying costs) incurred in connection with such audit; provided, however, in the event that it is determined that there has been an overpayment of Taxes and Expenses by Tenant by an amount of ten percent (10%) or more, Tenant shall not be obligated to pay for the incidental costs incurred by Landlord in connection with the audit. In the event that it is determined that there has been an underpayment of Expenses and Taxes by Tenant for such Expense Year and Tax Year, Tenant shall pay to Landlord, within thirty (30) days after such determination is made, the amount of such underpayment, and, in the event that it is determined that there has been an overpayment of Expenses and Taxes by Tenant for such Expense Year and Tax Year, Landlord shall at its option either (i) credit the excess to the next succeeding installment(s) of Base Rent and Additional Charges due under this Lease or (ii) reimburse Tenant for such overpayment within thirty (30) days after such determination is made. Any dispute under this Section shall be resolved by arbitration before a single arbitrator under the commercial rules of the American Arbitration Association (or its successor) in San Francisco, California. 6. USE Tenant shall use and continuously occupy the Premises during the Term of this Lease solely for retail use or for such other uses as may be specified in Article 1 and for no other use or 8 12 uses. Tenant's use of the Premises shall in all respects and at all times comply with applicable laws, statutes and regulations, at Tenant's sole cost and expense. 7. CONSTRUCTION OF PREMISES; BUILDING CHANGES Landlord reserves the right, at any time and from time to time, to make alterations, additions, repairs or improvements to or in or to decrease the size or area of all or any part of the Building, the fixtures and equipment therein and the arcades, plazas and walkways outside the Building, including, without limitation, the heating, ventilating, air-conditioning, plumbing, electrical, fire protection, life safety, security and other mechanical, electrical and communications systems of the Building (herein called "the Building Systems"), the common areas and all other parts of the Building, and to change the arrangement and/or location of entrances or passageways, doors and doorways, corridors, elevators, stairs, toilets and other public parts of the Building, provided that any such alterations or additions not necessitated by governmental action shall not materially diminish the quality or quantity of services being provided to the Premises or adversely affect the functional utilization of the Premises. 8. ALTERATIONS 8.1 Tenant shall have the right at any time and from time to time, at Tenant's sole cost and expense, to remodel, redecorate and make such alterations or improvements (collectively, "Alterations") in and to the Premises as may be necessary or proper to the continued use of the Premises by Tenant; provided, however, that Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, make any Alterations to the Premises which: (a) will materially affect the structure or structural components of the Building (including by way of illustration but not limitation, the construction of interior stairwells, skylights, dumbwaiters and additional floor supports), the heating, ventilating and air conditioning systems, or any other mechanical, electrical or plumbing systems of the Building, (b) will be visible from the exterior of the Building, (c) will be located outside or underneath the Building, or (d) will lessen the fair market value of the Building. Tenant shall be responsible for the cost of any additional alterations and improvements (including, without limitation, structural alterations and alterations which affect Building Systems) required by law to be made to or in the Building as a result of any Alterations. As determined by Landlord in its sole discretion, all Alterations shall be done by Landlord at Tenant's expense (including hard and soft costs), in accordance with plans and specifications approved by Landlord, and subject to all other conditions which Landlord may reasonably impose. If Landlord does any Alterations on behalf of Tenant, Landlord shall solicit bids from three (3) general contractors who are duly licensed in the State of California and shall thereafter hire the lowest responsible bidder. Tenant shall pay to Landlord upon demand an amount equal to ten percent (10%) of the total cost of such Alterations to reimburse Landlord for its administrative and managerial time and effort. Upon completion of any Alterations, Tenant shall provide to Landlord at Tenant's expense "as-built" plans and specifications. 8.2 Except as provided in Section 8.3, all appurtenances, fixtures, improvements, equipment, additions and other property attached to or installed in the Premises at the commencement of or during the Term shall be and remain the property of Landlord and shall not be removed by Tenant unless requested by Landlord. 9 13 8.3 All furniture, furnishings and articles of movable personal property installed in the Premises by or for the account of Tenant, without expense to Landlord, and which can be removed without structural or other material damage to the Building (all of which are herein called "Tenant's Property") shall be and remain the property of Tenant and may be removed by it at any time during the Term; provided, however, that any equipment or property for which Landlord has granted any allowance or credit to Tenant or which is a replacement for items originally provided by Landlord at Landlord's expense shall not be considered Tenant's Property unless Landlord so designates. Upon review by Landlord of the final plans for any Alterations, Landlord shall notify Tenant which portions of the Alterations, if any, constitute Tenant's Property. Upon the termination of this Lease, Tenant shall remove from the Premises all of Tenant's Property, and, at the request of Landlord, Tenant shall also remove any Alterations. Tenant shall repair or pay the cost of repairing any damage to the Premises or to the Building resulting from such removal. Tenant's obligations under this Section 8.3 shall survive the termination of this Lease. Any items of Tenant's Property which shall remain in the Premises after the termination of this Lease may, at the option of Landlord, be deemed abandoned and in such case may either be retained by Landlord as its property or be disposed of, without accountability, at Tenant's expense in such manner as Landlord may see fit. 9. REPAIRS AND MAINTENANCE 9.1 Landlord will repair and maintain the structural portions of the Building, the Building Systems, and the Exterior Common Areas, provided that Tenant shall be obligated to reimburse Landlord for the entire cost of any repair or maintenance if necessitated or occasioned by the acts, omissions or negligence of Tenant, or any of its servants, employees, contractors, agents, visitors or licensees. Tenant hereby waives and releases any right it may have to make repairs at Landlord's expense under Sections 1941 and 1942 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. 9.2 Tenant shall, at its sole cost and expense, keep the Premises and exterior and interior portions thereof, including without limitation, all utilities, plumbing and sewage facilities, electric systems, mechanical equipment, fixtures, windows, doors, and all other glass or plate glass fixtures, in good condition and repair and in a clean, safe and sanitary condition. Tenant shall be solely responsible for glass breakage in the Premises, whether by vandalism or otherwise. All repairs and replacements by Tenant shall be made and performed: (a) at Tenant's cost and expense and at such time and in such manner as Landlord may designate, (b) by contractors or mechanics approved by Landlord, (c) so that same shall be at least equal in quality, value and utility to the original work or installation, and (d) in a manner and using equipment and materials which will not interfere with or impair the operations, use or occupation of the Building Systems, the Building or other tenants or common areas of the Project, and (e) in accordance with the Rules and Regulations for the Building adopted by Landlord from time to time and all applicable laws and regulations of governmental authorities having jurisdiction over the Premises. If Tenant fails to keep the Premises in neat, clean, or in good condition and repair, Landlord may in its sole discretion, enter the Premises in order to clean or repair same. Tenant shall reimburse Landlord upon demand for any expenses incurred by Landlord in connection with any repairs or replacements required to be made by Tenant, including, without limitation, any fees charged by Landlord's contractors to review plans and specifications prepared by 10 14 Tenant, provided, however, any such payment shall not be deemed a cure of Tenant's default and Landlord shall have all remedies available to it as provided hereunder. 10. LIENS Tenant shall keep the Premises free from any liens arising out of any work performed, material furnished or obligations incurred by or for Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of any such lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have in addition to all other remedies provided herein and by law the right but not the obligation to cause same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith (including, without limitation, reasonable counsel fees) shall be payable to Landlord by Tenant upon demand. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law or that Landlord shall deem proper for the protection of Landlord, the Premises, and the Building, from mechanics' and materialmen's liens. Tenant shall give to Landlord at least five (5) business days' prior written notice of commencement of any repair or construction on the Premises. 11. COMPLIANCE WITH LAWS, ENVIRONMENTAL MATTERS AND INSURANCE REQUIREMENTS 11.1 Tenant, at Tenant's cost and expense, shall comply with all laws, orders and regulations of federal, state, county and municipal authorities relating to the Premises or the use, improvement or occupancy thereof, except that Tenant shall not be required to make any structural alterations in order to comply unless such alterations shall be necessitated or occasioned, in whole or in part, by Tenant's Alterations, or by the acts, omissions or negligence of Tenant or its servants, employees, contractors, agents, visitors or licensees. Any work or installations made or performed by or on behalf of Tenant or any person or entity claiming through or under Tenant pursuant to the provisions of this Article 11 shall be made in conformity with and subject to the provisions of Section 9.2. 11.2 (a) As used herein, the following items shall have the following meanings: "Environmental Activity" means any actual, proposed or threatened use, storage, treatment, existence, release, emission, discharge, generation, manufacture, disposal or transportation of any Hazardous Materials from, into, on, under or about the Building or the Premises, or any other activity or occurrence that causes or would cause any such event to exist; "Environmental Requirements" means all present and future federal, state, regional or local laws relating to the use, storage, treatment, existence, release, emission, discharge, generation, manufacture, disposal or transportation of any Hazardous Materials; and "Hazardous Material" means at any time any substances or materials which at such time are classified or considered to be hazardous or toxic under any Environmental Requirement. (b) Tenant shall not engage in nor permit the occurrence of any Environmental Activity. Tenant shall, at its own expense, procure, maintain in effect and comply with all conditions of any and all permits, licenses, and other governmental and regulatory approvals required under any Environmental Requirements for any Environmental 11 15 Activity by Tenant, including, without limitation, the discharge of (appropriately treated) materials or wastes into or through any sanitary sewer serving the Building or the Premises, and upon termination of this Lease Tenant shall cause all of its Hazardous Materials to be removed from the Building and the Premises in accordance with and in compliance with all applicable Environmental Requirements. Upon having knowledge thereof, Tenant shall immediately notify Landlord in writing of: any regulatory action that has been instituted, or threatened by any governmental agency or court with respect to Tenant that relates to any Environmental Activity; any claim relating to any Environmental Activity by Tenant in, on or about the Building or the Premises, or that arises out of or in connection with any Hazardous Materials in, on under or about the Building or the Premises or removed from the Building or the Premises; or any actual or threatened material release on, under or about the Building or the Premises or any adjacent property of any Hazardous Material, except any Hazardous Material whose discharge or emission is expressly authorized by and in compliance with a permit issued by a federal, state, regional or local governmental agency pursuant to Environmental Requirements. Tenant shall provide Landlord with copies of any communications with federal, state, regional or local governments, agencies or courts with respect to any Environmental Activity or Environmental Requirement relating to the Building or the Premises and any communications with any third party relating to any claim made or threatened with respect to any Environmental Activity by Tenant in, on or about the Building or the Premises. Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect, and hold Landlord and each of Landlord's partners, employees, agents, attorneys, successors and assigns, free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including attorneys' fees) arising from or caused in whole or in part, directly or indirectly, by (i) an Environmental Activity by Tenant, or (ii) Tenant's failure to comply with any Environmental Requirement. Tenant's obligations under this Section 11.2 shall include, without limitation, and whether foreseeable or unforseeable, all costs of any repair, damage or cleanup, removal or remediation action, or detoxification or decontamination of the Building or the Premises, or the preparation and implementation of any closure, remedial action or other plans in connection therewith that are required as a result of any Environmental Activity by Tenant, and shall survive the expiration or earlier termination of the term of this Lease. The provisions of this Section 11.2 shall survive the termination of this Lease. The provisions of this Section 11.2 shall survive the expiration or sooner termination of this Lease. 11.3 Tenant shall not do anything, or permit anything to be done, in or about the Building or the Premises which would: (a) invalidate or be in conflict with the provisions of or cause any increase in the applicable rates for any fire or other insurance policies covering the Project or any property located therein; (b) result in a refusal by fire insurance companies of good standing to insure the Project or any such property in amounts reasonably satisfactory to Landlord; or (c) subject Landlord to any liability or responsibility for injury to any person or property by reason of any business operation being conducted in the Premises. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body that shall hereafter perform the function of such Association. 12 16 12. SUBORDINATION 12.1 Without the necessity of any additional document, this Lease shall be subject and subordinate at all times to: (a) all reciprocal easement agreements and all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the Real Property or both, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Building, Real Property, ground leases or underlying leases, or Landlord's interest or estate in any of said items, is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated to this Lease any of the items referred to in clause (a) or (b) above. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant expressly waives the effect of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate the Lease if any foreclosure proceeding or sale occurs. Tenant covenants and agrees to execute and deliver a non-disturbance and attornment agreement, in a form reasonably acceptable to Landlord, and any other additional documents evidencing the priority or subordination of this Lease with respect to ground leases, underlying leases, reciprocal easement agreements or similar documents or instruments, or the lien of any such mortgage or deed of trust. The provisions of this Article 12 shall be self-operative and no further instrument shall be required. With respect to any existing mortgage indebtedness, Landlord agrees within sixty (60) days from the date hereof to deliver to Tenant a non-disturbance agreement in a form reasonably acceptable to Tenant, executed by the holder of such mortgage indebtedness, and thereafter, at Tenant's request, Landlord agrees to use its best efforts to obtain a similar agreement from any subsequent holders of mortgage indebtedness against the Building. 12.2 The Landlord's title is and always shall be paramount to the title of the Tenant and nothing contained in this Lease shall empower the Tenant to do any act which can, shall or may encumber the title of the Landlord. 13. INABILITY TO PERFORM 13.1 If Landlord is unable to perform, or is delayed in performing, any construction, installations, decorations, repairs, alterations, additions or improvements under this Lease, or is unable to fulfill or is delayed in fulfilling any of Landlord's other obligations under this Lease, by reason of acts of God, accidents, breakage, repairs, maintenance, strikes, lockouts, other labor disputes, inability to obtain utilities or materials or by any other reason beyond Landlord's reasonable control, then no such inability or delay by Landlord shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Base Rent or Additional Charges, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or its agents by reason of inconvenience, annoyance, interruption, injury or loss to or interference with Tenant's business or use and occupancy or quiet enjoyment of the Premises or any loss or damage occasioned thereby. Tenant hereby 13 17 waives and releases any right to terminate this Lease under Section 1932(1) of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. 13.2 If subsequent to the Commencement Date (a) Landlord defaults in providing any material service it is required to provide to Tenant hereunder, (b) the providing or not providing of such service is within the control of Landlord, (c) Tenant, upon learning of the failure by Landlord, immediately notifies Landlord by delivering written notification to Landlord at the locations for notices set forth in Section 24 hereof, and (d) such service is not provided to Tenant for a period of ten (10) or more consecutive business days after Landlord's receipt of the written notice from Tenant and the lack of such service prevents or materially interferes with, the business carried on by Tenant in the Premises, then, subject to the provisions of Section 17.2 hereof, Base Rent shall abate until such service is resumed, such abatement to be based upon the extent to which such interruption of service shall interfere with the business carried on by Tenant in the Premises. 14. DESTRUCTION If the Premises or the Building are damaged by fire or other casualty, Landlord shall forthwith repair the same, provided that such repairs can be made within one hundred eighty (180) days after the date of such damage under the laws and regulations of the federal, state and local governmental authorities having jurisdiction thereof. In such event, this Lease shall remain in full force and effect except that Tenant shall be entitled to a proportionate reduction of Base Rent and Additional Charges while such repairs to be made hereunder by Landlord are being made. Such proportionate reduction shall be based upon the extent to which such damage and the making of such repairs by Landlord shall interfere with the business carried on by Tenant in the Premises. Within sixty (60) days after the date of such damage (or as soon as reasonably possible after such sixty (60) day period), Landlord shall notify Tenant whether or not such repairs can be made within one hundred eighty (180) days after the date of such damage and Landlord's determination thereof shall be binding on Tenant. If such repairs cannot be made within one hundred eighty (180) days from the date of such damage, Landlord shall have the option, within thirty (30) days after the date of Landlord's notice to Tenant of such determination either to: (i) notify Tenant of Landlord's intention to repair such damage and diligently prosecute such repairs, in which event this Lease shall continue in full force and effect and the Base Rent and Additional Charges shall be reduced as provided herein; or (ii) notify Tenant of Landlord's election to terminate this Lease as of a date specified in such notice, which date shall be not less than thirty (30) nor more than sixty (60) days after notice is given. In the event that such notice to terminate is given by Landlord, this Lease shall terminate on the date specified in such notice. In case of termination, the Base Rent and Additional Charges shall be reduced by a proportionate amount based upon the extent to which such damage interfered with the business carried on by Tenant in the Premises, and Tenant shall pay such reduced Base Rent and Additional Charges up to the date of termination based upon an estimate produced by Landlord, with a final settlement of Additional Charges to be completed after the end of the applicable Tax Year and/or Expense Year, in accordance with Article 5 above. Landlord agrees to refund to Tenant any Base Rent and Additional Charges previously paid for any period of time subsequent to such date of termination. The repairs to be made hereunder by Landlord shall not include, and Landlord shall not be required to repair, any damage by fire or other cause to the property of Tenant or any damage caused by the negligence of Tenant, its contractors, agents, licensees or 14 18 employees or any repairs or replacements of any paneling, decorations, railings, floor coverings, or any alterations, additions, fixtures or improvements installed on the Premises by or at the expense of the Tenant. Tenant hereby waives the provisions of Section 1932, subdivision 2, and Section 1933, subdivision 4, of the Civil Code of California. 15. EMINENT DOMAIN 15.1 If all or any part of the Premises shall be taken as a result of the exercise of the power of eminent domain or any transfer in lieu thereof, this Lease shall terminate as to the part so taken as of the date of taking, and, in the case of a partial taking, either Landlord or Tenant shall have the right to terminate this Lease as to the balance of the Premises by written notice to the other within thirty (30) days after such date, provided, however, that a condition to the exercise by Tenant of such right to terminate shall be that the portion of the Premises taken shall be of such extent and nature as substantially to handicap, impede or impair Tenant's use of the balance of the Premises. If any material part of the Project shall be taken as a result of the exercise of the power of eminent domain or any transfer in lieu thereof, Landlord shall have the right to terminate this Lease by written notice to Tenant within thirty (30) days of the date of taking. In the event of any taking, Landlord shall be entitled to any and all compensation, damages, income, rent, awards, or any interest therein whatsoever which may be paid or made in connection therewith, and Tenant shall have no claim against Landlord for the value of any unexpired term of this Lease or otherwise; provided that Landlord shall have no claim to any portion of the award that is specifically allocable to Tenant's relocation expenses or the interruption of or damage to Tenant's business. In the event of a partial taking of the Premises which does not result in a termination of this Lease, the Base Rent and Additional Charges thereafter to be paid shall be equitably reduced. 15.2 Notwithstanding any other provision of this Article 15, if a taking occurs with respect to all or any portion of the Premises for a limited period of time, this Lease shall remain unaffected thereby and Tenant shall continue to pay Base Rent an Additional Charges and to perform all of the terms, conditions and covenants of this Lease. In the event of any such temporary taking, Tenant shall be entitled to receive that portion of any award which represents compensation for the use or occupancy of the Premises during the Term up to the total Base Rent and Additional Charges owing by Tenant for the period of the taking, and Landlord shall be entitled to receive the balance of any award. 15.3 Tenant hereby waives and releases any right to terminate this Lease in whole or in part under Sections 1265.120 an 1265.130 of the California Code of Civil Procedure or under any similar law, statute or ordinance now or hereafter in effect. 16. ASSIGNMENT AND SUBLETTING 16.1 Tenant may not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of its interest in or rights with respect to the Premises or its leasehold estate hereunder (collectively, "Assignment"), or permit all or any portion of the Premises to be occupied by anyone other than itself or sublet all or any portion of the Premises (collectively, "Sublease"), or enter into license or concession agreements, without Landlord's prior written consent in each instance, which shall not be 15 19 unreasonably withheld or delayed. Without limiting the circumstances in which it may be reasonable for Landlord to withhold its consent to an assignment or subletting, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold its consent in the following instances: (i) in Landlord's reasonable judgment, the use of the Premises by the proposed assignee or subtenant would be other than primarily retail, would entail any alterations which would lessen the value of the leasehold improvements in the Premises, or would require increased services by Landlord; (ii) in Landlord's reasonable judgment, the financial worth of the proposed assignee or subtenant does not meet the credit standards applied by Landlord for other tenants under leases with comparable terms; (iii) in Landlord's reasonable judgment, the proposed assignee or subtenant does not have a good reputation as a tenant of property; (iv) Landlord has experienced previous defaults by or is in litigation with the proposed assignee or subtenant; (v) the use of the Premises by the proposed assignee or subtenant will violate any applicable law, ordinance or regulation; (vi) in Landlord's reasonable judgment, the Premises, or the relevant part thereof, will be used in a manner that will violate any negative covenant as to use contained in any other lease of space in the Building; (vii) the proposed assignment or sublease involves a party who is a tenant in the Building or involves a party with whom Landlord is negotiating for other space in the Building or with whom Landlord has negotiated for other space in the Building during the six (6) months immediately preceding the request for Landlord's consent; (viii) Tenant is in default of any obligation of Tenant under this Lease, or Tenant has defaulted under this Lease on two or more occasions during the twelve (12) months preceding the date that Tenant shall request consent; (ix) in the case of a subletting of less than the entire Premises, if the subletting would result in the division of the Premises into more than two (2) subparcels or would require access to be provided through space leased or held for lease to another tenant or improvements to be made outside of the Premises; or (x) the proposed assignee or subtenant is a government agency. 16.2 If Tenant desires to enter into an Assignment of this Lease or a Sublease of the Premises or any portion thereof, it shall give written notice (herein called "Notice of Proposed Transfer") to Landlord and Landlord's mortgagee of its intention to do so, which notice shall state the terms and conditions under which Tenant is willing to enter into such proposed Assignment or Sublease. 16 20 16.3 At any time within thirty (30) days after Landlord's receipt of the Notice of Proposed Transfer pursuant to Section 16.2, Landlord may by written notice to Tenant elect to: (a) Sublease or take an Assignment of the portion of the Premises specified in the Notice of Proposed Transfer, on the terms and conditions set forth in such notice, except as otherwise provided in Section 16.4, or (b) terminate this Lease as to the portion (including all) of the Premises that is specified in the Notice of Proposed Transfer, with a proportionate reduction in Base Rent. If Landlord does not elect one of the options provided in clauses (a) and (b), Tenant shall be entitled for a period of ninety (90) days following the earlier of Landlord's notice that it will not elect either of the options provided in clauses (a) and (b) or the expiration of Landlord's thirty (30) day period in which to make such election, to enter into an Assignment of Sublease of the Premises or portion thereof, subject to Landlord's prior written approval of the proposed subtenant or assignee (collectively, "Transferee"), which shall not be unreasonably withheld as provided above; provided, however, that any rent or other consideration realized by Tenant under any such Assignment or Sublease, in excess of the Base Rent and Additional Charges payable hereunder (or the amount thereof proportionate to the portion of the Premises subject to such Sublease or Assignment) and reasonable commissions and reasonable attorneys' fees and the cost of any Alterations incurred in connection with such Sublease or Assignment, shall be divided and paid fifty percent (50%) to Landlord and fifty percent (50%) to Tenant. Tenant shall provide Landlord with such information regarding the proposed Transferee as Landlord may reasonably request and Landlord agrees that it will not unreasonably withhold its approval of any proposed Transferee. Notwithstanding the foregoing, in the event that after Landlord has given Tenant notice that it will not elect one of the options provided in clauses (a) and (b) or the expiration of the aforesaid thirty (30) day period without Landlord giving such notice, Tenant desires to enter into such Assignment or Sublease on terms and conditions materially more favorable to Tenant than those contained in the Notice of Proposed Transfer, then Tenant shall give Landlord a new Notice of Proposed Transfer, which notice shall state the terms and conditions of such proposed Assignment or Sublease and identify the proposed Transferee, and Landlord shall again be entitled to elect one of the options provided in clauses (a) and (b) at any time within thirty (30) days after Landlord's receipt of such new Notice of Proposed Transfer. In the event Landlord elects either of the options provided on clauses (a) and (b), Landlord shall be entitled to enter into a lease sublease or assignment agreement with respect to the Premises (or portion thereof specified in said new Notice of Proposed Transfer) with the proposed Transferee identified in Tenant's notice. 16.4 If Landlord elects to Sublease or take an Assignment from Tenant as described in Section 16.3: (a) Landlord shall have the right to use the portion of the Premises covered by the Notice of Proposed Transfer (the "Takeback Space") for the use permitted hereunder, (b) the rent payable by Landlord to Tenant shall be the lesser of that set forth in the Notice of Proposed Transfer or the Base Rent payable by Tenant under this Lease at the time of the Sublease or Assignment (or the amount thereof proportionate to the Takeback Space if for less than the entire Premises), (c) Landlord may make alternations and improvements to the Takeback Space as it shall elect and any such alternations or improvements may be removed, in whole or in part, prior to or upon the expiration of the Sublease, provided that any damage or injury to the Takeback Space caused by such removal shall be repaired, (d) Landlord shall have the right to further sublease or assign the Takeback Space to any party, without the consent of Tenant, and (e) Tenant shall pay to Landlord on demand any costs incurred by Landlord in physically 17 21 separating the Takeback Space (if less than the entire Premises) from the balance of the Premises and in complying with any applicable laws or regulations relating to such separation. 16.5 No Sublease or Assignment by Tenant nor any consent by Landlord thereto shall relive Tenant of any obligation to be performed by Tenant under this Lease. Any Sublease or Assignment that is not in compliance with this Article 16 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of any Base Rent or other payments by Landlord from a proposed Transferee shall not constitute consent to such Sublease or Assignment by Landlord or a recognition of any Transferee, or a waiver by Landlord of any failure of Tenant or other Transferee to comply with this Article 16. 16.6 Each Transferee (which for purposes of this Section 16.6 shall include without limitation, Tenant Affiliates and Tenant Successors, as defined in Section 16.7 below), other than Landlord, shall assume all obligations of Tenant under this Lease and shall be and remain liable jointly and severally with Tenant for the payment of Base Rent and Additional Charges, and for the performance of all of the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term. No Assignment shall be binding on Landlord unless Tenant or Transferee shall deliver to Landlord a counterpart of the Assignment and an instrument in recordable form that contains a covenant of assumption by such Transferee satisfactory in substance and form to Landlord, and consistent with the requirements of this Section 16.6, but the failure or refusal of such Transferee to execute such instrument of assumption shall not release or discharge such Transferee from its liability as set forth above. Tenant shall reimburse Landlord on demand for any reasonable costs that may be incurred by Landlord in connection with any proposed Sublease or Assignment, including, without limitation, the costs of making investigations as to the acceptability of the proposed Transferee and legal costs incurred in connection with the granting of any requested consent. 16.7 Without limiting the above, and subject to all of the terms of Sections 16.5 and 16.6, no consent shall be required for an Assignment or Sublease to a Tenant Affiliate or Tenant Successor. For purposes hereof, "Tenant Affiliate" shall mean any corporation, partnership or other entity which controls, is controlled by or is under common control with Tenant, and "Tenant Successor" shall mean any entity which acquires all or substantially all of the stock or assets of Tenant or any entity into which Tenant may become merged or consolidated, provided at the time of assignment or subleasing the Tenant Affiliates' or Tenant Successors' then-current tangible net worth (as determined in accordance with generally accepted accounting principles consistently applied) equals or exceeds that of the Tenant as of the date of the execution of this Lease, as evidenced by the then-current financial statements delivered to Landlord and certified by a licensed Certified Public accounting firm, reasonably approved by Landlord, with no material exceptions and no pending or contingent claims that would materially adversely affect the net worth of such successor corporation. "Control" in this context shall mean the right directly or indirectly to exercise in excess of fifty percent (50%) of the voting or governing power of an entity. 18 22 17. UTILITIES 17.1 All water, gas, electricity, power or other public utility used upon or furnished to the Premises and any sewer charges shall be separately metered, as appropriate, and paid for directly by Tenant. 17.2 Landlord shall make available to the Premises electric current for both lighting and power (excluding the central heating, air conditioning and ventilating system) up to a connected load of 2.5 watts per rentable square foot. Without the prior written consent of Landlord, which Landlord may refuse in its sole discretion, Tenant shall not: (a) connect or use any electrical equipment that exceeds the capacity of the Building electrical system; (b) connect any apparatus, machine or device through electrical outlets except in the manner for which such outlets are designed and without the use of any device intended to increase the plug capacity of any electrical outlet; or (c) maintain at any time an electrical demand load in excess of 2.5 watts. 17.3 Landlord shall not be liable for any failure or interruption for any reason of any utility services being furnished to the Premises nor shall any such failure or interruption entitle Tenant to terminate this Lease or withhold Basic Rent, Additional Rent or other sums due hereunder. 18. DEFAULT 18.1 Any vacation or abandonment of more than fifty percent (50%) of the Premises for a continuous period in excess of five (5) consecutive business days or any failure to pay any Base Rent or Additional Charges as and when due, or any failure to perform or comply with any covenant, condition or representation made under this Lease (including any exhibits hereto), shall constitute a default hereunder by Tenant, subject in the specific instances set forth below to the expiration without cure of the appropriate grace period hereinafter provided. Tenant shall have a period of three (3) days from the date of receipt of written notice from Landlord within which to cure any default in the payment of Base Rent or Additional Charges; provided, however, that Landlord shall not be required to provide such notice regarding Tenant's failure to make such payments when due more than once during any twelve (12) month period, and any such failure by Tenant after Tenant has received one such notice in any twelve (12) month period from Landlord shall constitute a default by Tenant hereunder without any requirement on the part of Landlord to give Tenant notice of such failure. Tenant shall have a period of ten (10) days from the date of written notice from Landlord within which to cure any other default under this Lease, provided, however, if the nature of such default is such that it cannot reasonably be cured within a period of ten (10) days, then Tenant shall have a reasonable period of time in which to cure the same if Tenant has commenced cure within such ten (10) day period and is diligently pursuing the remedies to cure such default. 18.2 The appointment of a receiver to take possession of all or substantially all of the assets of Tenant, or an assignment by Tenant for the benefit of creditors, or any action taken or suffered by Tenant under any insolvency, bankruptcy, reorganization, moratorium or other debtor relief act or statute, whether now existing or hereafter amended or enacted, shall also constitute a default under this Lease by Tenant. 19 23 18.3. Upon the occurrence of a default by Tenant which is not cured by Tenant within the applicable grace period specified in Section 18.1, Landlord shall have the following rights and remedies in addition to all other rights or remedies available to Landlord at law or in equity: (a) The rights and remedies provided by California Civil Code Section 1951.2, including, but not limited to, the right to terminate Tenant's right to possession of the Premises and to recover the worth at the time of award of the amount by which the unpaid Base Rent and Additional Charges for the balance of the Term after the time of award exceeds the amount of rental loss for the same period that the Tenant proves could be reasonably avoided, as computed pursuant to subsection (b) of said Section 1951.2. (b) The rights and remedies provided by California Civil Code Section 1951.4 ("Landlord may continue lease in effect after Tenant's breach and abandonment and recover rent as it becomes due, if Tenant has right to sublet or assign, subject only to reasonable limitations"), which allows Landlord to continue this Lease in effect and to enforce all of its rights and remedies under this Lease, including the right to recover rent as it becomes due, for so long as Landlord does not terminate Tenant's right to possession; acts of maintenance or preservation, efforts to relet the Premises or the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease shall not constitute a termination of Tenant's right to possession. If Landlord exercises its rights under California Civil Code Section 1951.4, Landlord as attorney-in-fact for Tenant may from time to time sublet the Premises or any part thereof for such term or terms (which may extend beyond the Term) and at such rent and upon such other terms as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises. Upon each such subletting, Tenant shall be immediately liable for payment to Landlord of, in addition to Base Rent and Additional Charges due hereunder, the cost of such subletting and such alterations and repairs incurred by Landlord and the amount, if any, by which the Base Rent and Additional Charges owing hereunder for the period of such subletting (to the extent such period does not exceed the term) exceeds the amount to be paid as Base Rent and Additional Charges for the Premises for such period pursuant to such subletting. For all purposes set forth in this Subsection 18.3(b), Landlord is hereby irrevocably appointed attorney-in-fact for Tenant, with power of substitution. No taking possession of the Premises by Landlord as attorney-in-fact for Tenant shall be construed as an election on Landlord's part to terminate this Lease or Tenant's right to possession unless a written notice of such intention is given to Tenant. No action taken by Landlord pursuant to this Subsection 18.3(b) shall be deemed a waiver of any default by Tenant and, notwithstanding any such subletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous default. (c) The right to have a receiver appointed for Tenant upon application by Landlord to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord as attorney-in-fact for Tenant pursuant to Subsection 18.3(b) hereof. 19. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULTS If Tenant shall default in the performance of its obligations under this Lease, after the expiration of any applicable cure period, Landlord at any time thereafter and without notice may remedy such default for Tenant's account and at Tenant's expense without thereby waiving such 20 24 default or any rights or remedies of Landlord on account of such default. Tenant shall pay to Landlord upon demand all sums expended by Landlord, or other costs, damages, expenses or liabilities incurred by Landlord, including, without limitation, reasonable attorneys' fees and costs, in remedying or attempting to remedy such default. Tenant's obligations under this Section 19.1 shall survive the termination of this Lease. 20. MORTGAGEE PROTECTION Tenant agrees to give any holder of any mortgage or deed of trust secured by the Real Property, by registered or certified mail, a copy of any notice of default served upon the Landlord by Tenant, provided that, prior to such notice, Tenant has been notified in writing (by way of service on Tenant of a copy of assignment of rents and leases or otherwise) of the address of such holder of a mortgage or deed of trust. Tenant further agrees that if Landlord shall have failed to cure such default within thirty (30) days after such notice to Landlord (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if Landlord has commenced within such thirty (30) day period and is diligently pursuing the remedies or steps necessary to cure or correct such default), then the holder of any mortgage or deed of trust shall have an additional sixty (60) days within which to cure or correct such default (or if such default cannot be cured or corrected within that time, then such additional time as may be necessary if such holder of any mortgage or deed of trust has commenced within such sixty (60) day period and is diligently pursuing the remedies or steps necessary to cure or correct such default). Notwithstanding the foregoing, in no event shall any holder of any mortgage or deed of trust have any obligation to cure any default of the Landlord. 21. INDEMNITY; TENANT'S INSURANCE 21.1 Tenant agrees to indemnify Landlord against and save Landlord harmless from any and all loss, cost, liability, damage and expense, including, without limitation, reasonable attorneys' fees and costs, incurred in connection with or arising from: (i) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed, or (ii) the use or occupancy or manner of use or occupancy of the Premises by Tenant or any person or entity claiming through or under Tenant, or (iii) the condition of the Premises or any occurrence on the Premises from any cause whatsoever, except to the extent caused by the gross negligence or willful misconduct of Landlord, or (iv) any acts, omissions or negligence of Tenant or of the contractors, agents, servants, employees, visitors, invitees or licensees of Tenant, in, on or about the Premises or the Building. Tenant's obligations under this Section 21.1 shall survive the termination of the Lease. 21.2 Tenant shall procure at its cost and expense and keep in effect during the Term commercial general liability insurance, including contractual liability with a combined single limit of liability of not less than five million dollars ($5,000,000.00), and with a deductible amount acceptable to Landlord. Such coverage shall be in a commercial general liability form with at least the following endorsements to the extent such endorsements are generally available: (i) deleting any employee exclusion on personal injury coverage, (ii) including employees as additional insureds, (iii) providing for blanket contractual coverage, broad form property damage coverage and products completed operations coverage (where applicable), (iv) deleting any liquor liability exclusions, and (v) providing for coverage of employee's automobile non- 21 25 ownership liability. Such insurance shall name Landlord, Landlord's mortgagee, and any other party designated by Landlord as an additional insured, shall specifically include the liability assumed hereunder by Tenant, shall provide that it is primary insurance and not excess over or contributory with any other valid, existing and applicable insurance covering the same loss carried by Landlord or any other party, shall provide for severability of interests, shall further provide that an act or omission of one of the named insureds which would void or otherwise reduce coverage shall not reduce or void the coverage as to any insured, shall afford coverage for all claims based on acts, omissions, injury or damage which occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period, and shall provide that Landlord will receive thirty (30) days' written notice from the insurer prior to any cancellation or change of coverage. Tenant shall deliver to Landlord policies of such insurance satisfactory to Landlord on or before the Commencement Date, and thereafter at least thirty (30) days before the expiration dates of expiring policies; and in the event Tenant shall fail to procure such insurance, or to deliver such policies, Landlord may, at its option, procure same for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor. Tenant's compliance with the provisions of this Section 21.2 shall in no way limit Tenant's liability under any provisions of Section 21.1. 21.3 Tenant shall be responsible, at its cost and expense, for separately insuring Tenant's Property. 21.4 Notwithstanding anything to the contrary contained herein, to the extent permitted by their respective policies of insurance and to the extent of insurance proceeds received with respect to a loss, Landlord and Tenant each hereby waive any right of recovery against the other party and against any other party maintaining a policy of insurance with respect to the Project or any portion thereof or the contents of any of the same, for any loss or damage covered by insurance maintained by such other party with respect to the Project or the Premises or any portion of any thereof or the contents of the same or any operation therein, whether or not such loss is caused by the fault or negligence of such other party. If any policy of insurance relating to the Premises carried by Tenant does not permit the foregoing waiver or if the coverage under any such policy would be invalidated as a result of such waiver, Tenant shall obtain from the insurer under such policy a waiver of all rights of subrogation the insurer might have against Landlord or any other party maintaining a policy of insurance covering the same loss, in connection with any claim, loss or damage covered by such policy. 22. LIMITATION OF LANDLORD'S LIABILITY Landlord shall not be responsible for or liable to Tenant and Tenant hereby waives all claims against Landlord for any injury, loss or damage to any person or property in or about the Premises by or from any cause whatsoever (other than Landlord's gross negligence or willful misconduct) including, without limitation, acts or omissions of persons occupying adjoining premises or any part of the Project adjacent to or connected with the Premises; theft; burst, stopped or leaking water, gas, sewer or steam pipes; or gas, fire, smoke, paint, polish, Environmental Activity, oil or electricity in, on or about the Premises or the Project. 22 26 23. ACCESS TO PREMISES Landlord reserves (for itself and any designated agent, representative, employee or contractor) the right to enter the Premises at all reasonable times and, except in cases of emergency, after giving Tenant reasonable notice, to inspect the Premises, to supply any service to be provided by Landlord hereunder, to show the Premises to prospective purchasers, mortgagees or, during the last year of the Term of this Lease, tenants, to post notices of nonresponsibility, and to alter, improve or repair the Premises and any portion of the Building, without abatement of Base Rent or Additional Charges, and may for that purpose erect, use and maintain necessary structures in and through the Premises where reasonably required by the character of the work to be performed, provided that the entrance to the Premises shall not be blocked thereby, and further provided that the business of Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned thereby. All locks for all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes or special security areas (designated in advance in writing by Tenant and approved in writing by Landlord) shall at all times be keyed to the Building master system and Landlord shall at all times have and retain a key with which to unlock all of said doors. Landlord shall have the right to use any and all means that Landlord may deem necessary or proper to open said doors in an emergency in order to obtain entry to any portion of the Premises, and any entry to the Premises or portions thereof 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, actual or constructive, of Tenant from the Premises or any portion thereof. 24. NOTICES Notices or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by certified mail with a return receipt requested or delivered personally by a nationally recognized overnight courier service: (a) to Tenant (i) at Tenant's address set forth in Article 1 hereof, or (ii) at any place where Tenant or any agent, officer or employee of Tenant may be found if sent subsequent to Tenant's vacating, deserting, abandoning or surrendering the Premises; or (b) to Landlord at Landlord's address set forth in Article 1; or (c) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Article 24. Tenant may be required to give notice to Landlord's mortgagee pursuant to Section 20.1 herein. Any such notice or other communication shall be deemed to have been rendered or given two (2) days after the date when it shall have been mailed if sent by certified mail, or upon the date personal delivery is made. 25. NO WAIVER 25.1 No failure by Landlord to insist upon the strict performance of any obligation of Tenant under this Lease or to exercise any right, power or remedy consequent upon a breach thereof, no acceptance of full or partial Base Rent or Additional Charges during the continuance of any such breach, and no acceptance of the keys to or possession of the Premises prior to the 23 27 expiration of the Term by any employee or agent of Landlord shall constitute a waiver of any such breach or of such term, covenant or condition or operate as a surrender of this Lease. 25.2 Neither this Lease nor any term or provisions hereof may be changed, waived, discharged or terminated orally, and no breach thereof shall be waived, altered or modified, except by a written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant and condition of this Lease shall continue in full force and effect with respect to any other then-existing or subsequent breach thereof. The consent of Landlord given in any instance under the terms of this Lease shall not relieve Tenant of any obligation to secure the consent of Landlord in any other or future instance under the terms of this Lease. 26. TENANT'S CERTIFICATES Tenant, at any time and from time to time upon not less than ten (10) days' prior written notice from Landlord, will execute, acknowledge and deliver to Landlord or to any party designated by Landlord, a certificate or estoppel of Tenant stating: (a) that Tenant has accepted the Premises (or, if Tenant has not done so, that Tenant has not accepted the Premises and specifying the reasons therefor), (b) the Commencement Date and Expiration Date of this Lease, (c) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that same is in full force and effect as modified and stating the modifications), (d) whether or not there are then existing any defenses against the enforcement of ay of the obligations of Tenant under this Lease (and, if so, specifying same), (e) whether or not there are then existing any defaults by Landlord in the performance of its obligations under this Lease (and, if so, specifying same), (f) the dates, if any, to which the Base Rent and Additional Charges and other charges under this Lease have been paid, and (g) any other information that may reasonably be required by any such person. 27. RULES AND REGULATIONS Tenant shall faithfully observe and comply with the rules and regulations attached to this Lease as EXHIBIT D and all modifications thereof and additions thereto from time to time put into effect by Landlord (the "Rules and Regulations"). Landlord shall have no duty to enforce the Rules and Regulations against, nor shall Landlord be responsible for the nonperformance of the Rules and Regulations by, any other tenant or occupant of the Project. In the event of any conflict between the terms, covenants, agreements and conditions of this Lease and the terms, covenants, agreements and conditions of the Rules and Regulations, this Lease shall control. 28. TAXES PAYABLE BY TENANT In addition to the Base Rent and the Additional Charges to be paid by Tenant hereunder, Tenant agrees to pay, prior to delinquency, any and all taxes and assessments levied or assessed or attributable during the Term hereof, whether or not now customary or within contemplation of the parties hereto, that are: (a) upon or measured by the Base Rent or Additional Charges payable hereunder, including, without limitation, any gross income tax or excise tax levied by the City, the State of California, the federal government or any other governmental body with respect to 24 28 the receipt of such Base Rent or Additional Charges; (b) upon or in connection with the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; (c) upon or measured by the cost or value of Tenant's Property; or (d) upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises. If at any time any of such taxes or assessments are levied or assessed against the Building or Real Property, Tenant shall reimburse Landlord for all such taxes paid by Landlord. In the event that it is not lawful for Tenant to so reimburse Landlord, the Base Rent and the Additional Charges payable to Landlord under this Lease shall be revised so that Landlord receives the same net Base Rent and Additional Charges after imposition of any such tax upon Landlord, as Landlord would have received prior to the imposition of any such tax. None of the kinds of taxes described in this Article 28 and imposed with respect to this Lease or any other lease of any portion of the Building shall be included within the definition of Taxes in Article 5 of this Lease. Landlord and Tenant acknowledge that the term "taxes" as used in this Article shall mean any levies, fees, charges or other impositions imposed by any governmental entity. If and to the extent that any portion of the Alterations is assessed to Landlord as a part of the Building, Tenant shall pay to Landlord any additional taxes actually payable by Landlord by reason of the fact that the Alterations are not separately assessed to Tenant. For the purpose of making this allocation, the parties shall seek access to the assessor's field notes and any other information available to the parties, that would be helpful in making such allocation. 29. SECURITY DEPOSIT Landlord shall not require a security deposit. 30. AUTHORITY Each of the persons executing this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing entity, that Tenant has and is qualified to do business in California, that Tenant has full right and authority to enter into this Lease, and that each and both of the persons signing on behalf of Tenant are authorized to do so. Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing covenants and warranties. 31. PUBLIC TRANSIT INFORMATION Tenant shall establish and carry on during the Term a program to encourage maximum use of public transportation by personnel of Tenant employed on the Premises, including, without limitation, the distribution to such employees of written materials explaining the convenience and availability of public transportation facilities adjacent or proximate to the Building and encouraging use of such facilities, all at Tenant's sole cost and expense. 32. SIGNAGE Tenant may affix only one (1) sign to the exterior surface of the Premises and shall maintain any such sign in good condition and repair. Said sign shall conform to Landlord's criteria for the size, content, design and location thereof and shall be subject to the prior written approval of Landlord. Tenant shall not place or maintain any signs, decal, placard, lettering or 25 29 advertising matter of any kind whatsoever on any exterior door, wall, window or within the Premises if directed to or readable by people standing outside the Premises without the prior written consent of Landlord. Tenant's signage within the Premises shall be professionally made and mounted and shall have no flashing or moving components. Tenant shall not place any fixture, display or sign within the Premises which in the opinion of Landlord is objectionable and contrary to the best interests of the Project or which effectively modifies the approved storefront appearance of the Premises. Upon the request of Landlord, Tenant shall immediately remove any sign, lettering or other material which Tenant has placed or permitted to be placed in, on, or about the Premises contrary to the provisions of this Article 32, and if Tenant fails to do so, Landlord may enter upon the Premises and remove the same at Tenant's expense. In the event that Landlord adopts and furnishes to Tenant uniform rules and regulations relating to signage and advertising material which are to be applicable to all tenants occupying retail space in the Project, Tenant agrees to conform to such rules. 33. PARKING [Intentionally Deleted]. 34. BROKERS Neither Tenant nor Landlord have had any contact or dealings regarding the leasing of the Premises, or any communication in connection with the subject matter of this transaction, through any real estate broker or other person who can claim a right to a commission or finder's fee in connection with the lease, except for a commission payable to Forst and Associates, Inc. ("Broker"), whose commission shall be by Landlord pursuant to a separate agreement between Landlord and Broker. In the event that any other broker or finder makes a claim for a commission or finder's fee based upon any such contract, dealings or communication, the party whose conduct is the basis for the broker or finder making its claim shall be responsible for said commission or fee and all costs and expenses (including reasonable attorneys' fees) incurred by the other party in defending against the same. 35. OPTION TO EXTEND 35.1 So long as Tenant, a Tenant Affiliate or a Tenant Successor subject to all the terms and conditions of Section 16.5 and 16.6 above, occupies the entire Premises, Tenant shall have one option ("Extension Option") to extend the term of this Lease with respect to the entirety of the Premises for a period of five (5) years from the Expiration Date (the "Extension Period"), subject to the following conditions: (a) The option to extend shall be exercised, if at all, by notice of exercise given to Landlord by Tenant not more than fifteen (15) months nor less than twelve (12) months prior to the Expiration Date. (b) Tenant shall accept the Premises on an "AS-IS" basis. (c) Anything herein to the contrary notwithstanding, if Tenant is in default under any of the terms, covenants or conditions of this Lease, either at the time Tenant exercises the Extension Option or on the commencement date of the Extension Period, Landlord shall 26 30 have, in addition to all of Landlord's other rights and remedies provided in this Lease, the right to terminate this option to extend upon notice to Tenant. 35.2 In the event the Extension Option is exercised in a timely fashion, the Lease shall be extended for the Term of the Extension Period upon all of the terms and conditions of this Lease, provided that the Base Rent for the Extension Period shall be the "Fair Market Rent" for the Premises. For purposes hereof, "Fair Market Rent" shall mean one hundred percent (100%) of the then prevailing rental rate per square foot, including, without limitation, base rent, additional rent and all other monetary payments and escalations, agreed to be paid by new and renewal tenants generally for first floor retail space located in first-class office buildings in the San Francisco financial district in a condition (including the state of build out) and location (within the Building and any comparison buildings) comparable to the Premises for comparable terms, pursuant to new and renewal leases entered into by such other tenants for substantially comparable-size space, and considering the age and amenities of any comparison buildings, but in no event considering any tenant improvement allowances or similar items granted in connection with new and renewal leases. In no event, however, shall any adjustment of Base Rent pursuant to this Section result in a decrease of the Base Rent and Additional Changes for the Premises below the amount due from Tenant for the final year of the Term. 35.3 Not later than six (6) months prior to the Expiration Date, Landlord shall notify Tenant in writing of Landlord's estimate of the Base Rent for the Extension Period, based on the provisions of Section 35.2 above. Within thirty (30) days after receipt of such notice from Landlord, Tenant shall have the right either to (a) accept Landlord's statement of Base Rent as the Base Rent for the Extension Period; or (b) elect to arbitrate Landlord's estimate of Fair Market Rent, such arbitration to be conducted pursuant to the provisions hereof. Failure on the part of Tenant to require arbitration of Fair Market Rent within such thirty (30) day period shall constitute acceptance of the Base Rent for the Extension Period as calculated by Landlord. If Tenant elects arbitration, the arbitration shall be concluded within ninety (90) days after the date of Tenant's election, subject to extension for an additional thirty (30) day period if a third arbitrator is required and does not act in a timely manner. To the extent that arbitration has not been completed prior to the expiration of any preceding period for which Base Rent has been determined, Tenant shall pay Base Rent at the rate calculated by Landlord, with an adjustment to be made once Fair Market Rent is ultimately determined by arbitration. 35.4 In the event of arbitration, the judgment or the award rendered in any such arbitration may be entered in any court having jurisdiction and shall be final and binding between the parties. The arbitration shall be conducted and determined in the City and County of San Francisco in accordance with the then prevailing rules of the American Arbitration Association or its successor for arbitration of commercial disputes except to the extent that the procedures mandated by said rules shall be modified as follows: (a) Tenant shall make demand for arbitration in writing within thirty (30) days after service of Landlord's determination of Fair Market Rent given under Section 35.3 above, specifying therein the name and address of the person to act as the arbitrator on its behalf. The arbitrator shall be qualified as a real estate appraiser with at least ten (10) years experience or a real estate broker with at least ten (10) years experience and otherwise familiar with the Fair Market Rent of first floor retail space located in first-class buildings in the San Francisco 27 31 financial district who would qualify as an expert witness over objection to give opinion testimony addressed to the issue in a court of competent jurisdiction. Failure on the part of Tenant to make a proper demand in a timely manner for such arbitration shall constitute a waiver of the right thereto. Within fifteen (15) days after the service of the demand for arbitration, Landlord shall give notice to Tenant, specifying the name and address of the person designated by Landlord to act as arbitrator on its behalf who shall be similarly qualified. (b) In the event that two arbitrators are chosen pursuant to Section 35.4(a) above, the arbitrators so chosen shall, within fifteen (15) days after the second arbitrator is appointed, determine the Fair Market Rent. If the two arbitrators shall be unable to agree upon a determination of Fair Market Rent within such fifteen (15) day period, they, themselves, shall appoint a third arbitrator, who shall be a competent and impartial person with qualifications similar to those required of the first two arbitrators pursuant to Section 35.4(a). In the event they are unable to agree upon such appointment within seven (7) days after expiration of said fifteen (15) day period, the third arbitrator shall be selected by the parties themselves, if they can agree thereon, within a further period of fifteen (15) days. If the parties do not so agree, then either party, on behalf of both, may request appointment of such a qualified person by the then Chief Judge of the United States District court having jurisdiction over the City and County of San Francisco, acting in his private and not in his official capacity, and the other party shall not raise any question as to such Judge's full power and jurisdiction to entertain the application for and make the appointment. The three arbitrators shall decide the dispute if it has not previously been resolved by following the procedure set forth below. (c) When an issue cannot be resolved by agreement between the two arbitrators selected by Landlord and Tenant or settlement between the parties during the course of arbitration, the issue shall be resolved by the three arbitrators within fifteen (15) days of the appointment of the third arbitrator in accordance with the following procedure. The arbitrator selected by each of the parties shall state in writing his determination of the Fair Market Rent supported by the reasons therefor with counterpart copies to each party. The arbitrators shall arrange for a simultaneous exchange of such proposed resolutions. The role of the third arbitrator shall be to select which of the two proposed resolutions most closely approximates his determination of Fair Market Rent. The third arbitrator shall have no right to propose a middle ground or any modification of either of the two proposed resolutions. The resolution he chooses as most closely approximating his determination shall constitute the decision of the arbitrators and be final and binding upon the parties. (d) In the event of a failure, refusal or inability of any arbitrator to act, his successor shall be appointed by him, but in the case of the third arbitrator, his successor shall be appointed in the same manner as provided for appointment of the third arbitrator. The arbitrators shall decide the issue within fifteen (15) days after the appointment of the third arbitrator. Any decision in which the arbitrator appointed by Landlord and the arbitrator appointed by Tenant concur shall be binding and conclusive upon the parties. Each party shall pay the fee and expenses of its respective arbitrator and both shall share the fee and expenses of the third arbitrator, if any, and the attorneys' fees and expenses of counsel for the respective parties and of witnesses shall be paid by the respective party engaging such counsel or calling such witnesses. 28 32 (e) The arbitrators shall have the right to consult experts and competent authorities to obtain factual information or evidence pertaining to a determination of Fair Market Rent, but any such consultation shall be made in the presence of both parties with full right on their part to cross-examine. The arbitrators shall render their decision and award in writing with counterpart copies to each party. The arbitrators shall have no power to modify the provisions of this Lease. 36. AMERICANS WITH DISABILITIES ACT ("ADA") AND SIMILAR ACTS. Notwithstanding anything to the contrary contained herein or in the Lease, Tenant, at its sole cost and expense, shall (i) cause all alterations, additions, improvements and repairs to the Premises to comply with the provisions of the ADA, Title 24 of the California Administrative Code, and other similar federal, state, and local laws and regulations, including, without limitation, any alterations required under the ADA for the purposes of "public accommodations" (as that term is used in the ADA), and (ii) reimburse Landlord upon demand for any and all costs and expenses incurred by Landlord to comply with ADA, Title 24, or such similar federal, state, or local laws and regulations in any other portion of the Building in which the Premises are located arising out of Tenant's use of or construction in the Premises. Except as provided above, Tenant shall have no responsibility to comply with such laws in portions of the Building outside of the Premises, but rather Landlord,at its sole cost and expense, shall be responsible for such compliance in the common areas of the Building and the Project. 37. HAZARDOUS SUBSTANCE DISCLOSURE. California law requires landlords to disclose to tenants the existence of certain Hazardous Materials. Accordingly, the existence of gasoline and other automotive fluids, asbestos containing materials, maintenance fluids, copying fluids and other office supplies and equipment, certain construction and finish materials, tobacco smoke, cosmetics and other personal items must be disclosed. Gasoline and other automotive fluids are found in the garage areas of the Project. Cleaning, lubricating and hydraulic fluids used in the operation and maintenance of the Building are found in the utility areas of the Building not generally accessible to Building occupants or the public. Many Building occupants use copy machines and printers with associated fluids and toners, and pens, markers, inks, and office equipment that may contain Hazardous Materials. Certain adhesives, paints and other construction materials and finishes used in portions of the Building may contain Hazardous Materials. The Building may from time to time be exposed to tobacco smoke. Building occupants and other persons entering the Building from time to time may use or carry prescription and non-prescription drugs, perfumes, cosmetics and other toiletries, and foods and beverages, some of which may contain Hazardous Materials. By its execution of this Lease, Tenant acknowledges that the notice set forth hereinabove shall constitute the notice required under California Health and Safety Code Section 25915.5. 38. NO REPRESENTATIONS BY LANDLORD Landlord and Landlord's agents have made no representations, warranties or promises, express or implied with respect to the condition of the Real Property, the Premises, the existing fixtures or the Building Systems serving the Premises or as to any other thing or fact related 29 33 thereto except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth herein. 39. SURRENDER Tenant shall at the end of the Term surrender to Landlord the Premises and all alterations, additions and improvements thereto in broom clean condition and otherwise in the same condition as when received, ordinary wear and tear and damage due to casualty excepted (other than to the extent Tenant is required to repair such condition). Subject to Landlord's right to require removal pursuant to Section 8.3 above, all improvements installed in the Premises by Tenant, shall, without compensation to Tenant, then become Landlord's property free and clear of all claims to or against them by Tenant or any third person, and Tenant shall defend and indemnify Landlord against all liability and loss arising from such claims or from Landlord's exercise of the rights conferred by this Article 39. Tenant shall, upon request by Landlord, remove all or any portion of the communications and data wiring and cabling installed by or for the benefit of Tenant in or about the Premises or the Building and repair and restore the Premises in respect of any damage caused by such removal. 40. LANDLORD'S LIABILITY; SALE OF BUILDING. The term "Landlord," as used in this Lease, shall mean only the owner or owners of the Building at the time in question. Tenant acknowledges and agrees that the liability of Landlord with respect to its obligations under this Lease, or arising in connection with the ownership, operation, management, leasing, repair, renovation, alteration or any other matter relating to the Building or the Premises, is limited to Landlord's interest in the Building, and Tenant agrees to look solely to Landlord's interest in the Building to satisfy any claim or judgment against or any liability or obligation of Landlord to Tenant under this Lease. In no event shall any partner, officer, director, employee, trustee, beneficiary, advisor, investment manager, manager, agent, member, advisor, or shareholder of Landlord have any personal liability to Tenant with respect to any liability or obligation of Landlord to Tenant, and no recourse shall be had by Tenant against any such parties or the assets of any such parties to satisfy any claim or judgment of Tenant for Landlord's breach of any of its obligations under this Lease. In addition, in the event of any conveyance of title to the Building, Landlord shall be relieved of all liability with respect to Landlord's obligations to be performed under this Lease after the date of such conveyance. 41. MISCELLANEOUS 41.1 The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. If there is more than one Tenant, the obligations under this Lease imposed on Tenant shall be joint and several. The captions preceding the articles of this Lease have been inserted solely as a matter of convenience and such captions in no way define or limit the scope or intent of any provision of this Lease. 41.2 The terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and, except as otherwise provided herein, their respective personal representatives and successors and assigns; provided, however, that upon the sale, assignment or transfer by Landlord named herein (or by any subsequent landlord) of its interest 30 34 in the Building as owner or Tenant, including any transfer by operation of law, Landlord (or any subsequent landlord) shall be relieved from all subsequent obligations and liabilities arising under this Lease subsequent to such sale, assignment or transfer. 41.3 If any provision of this Lease or the application thereof to any person, entity or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons, entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the full extent permitted by law. 41.4 This Lease shall be construed and enforced in accordance with the laws of the State of California. 41.5 This instrument, including the exhibits hereto, which are made a part of this Lease, contains the entire agreement between the parties and all prior negotiations and agreements are merged herein. Tenant hereby acknowledges that neither Landlord nor Landlord's agents have made any representations or warranties with respect to the Premises, the Building or this Lease except as expressly set forth herein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. 41.6 In the event that either Landlord or Tenant fails to perform any of its obligations under this Lease or in the event a dispute arises concerning the meaning or interpretation of any provision of this Lease, the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable counsel fees. 41.7 Tenant covenants and agrees that no diminution of light, air or view by any structure that may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of the Base Rent or Additional Charges under this Lease, result in any liability of Landlord to Tenant, or in any other way affect this Lease or Tenant's obligations hereunder. 41.8 Any holding over after the expiration of the Term without Landlord's prior written consent shall: (a) constitute a default by Tenant; (b) automatically increase the Base Rent and estimated Taxes and Expenses to two hundred percent (200%) of the monthly amounts for such items payable by Tenant hereunder prior to such expiration, together with an amount estimated by Landlord for any other Additional Charges payable under this Lease; and (c) entitle Landlord to exercise any or all of its remedies as provided in Article 18 hereof, notwithstanding that Landlord may elect to accept one or more payments of Base Rent and Additional Charges from Tenant. 41.9 Except as provided in Article 13 hereof, time is of the essence in respect of all provisions of this Lease in which a definite time for performance is specified. 41.10 The term "gross negligence" as used in this Lease shall mean "any action or inaction taken with a reckless disregard for the consequences". 31 35 41.11 WAIVER OF TRIAL BY JURY. THE RESPECTIVE PARTIES HERETO SHALL AND THEY HEREBY DO WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER UNDER THIS LEASE. IF LANDLORD COMMENCES ANY SUMMARY PROCEEDING AGAINST TENANT, TENANT WILL NOT INTERPOSE ANY COUNTERCLAIM OF WHATEVER NATURE OR DESCRIPTION IN ANY SUCH PROCEEDING (UNLESS FAILURE TO IMPOSE SUCH COUNTERCLAIM WOULD PRECLUDE TENANT FROM ASSERTING IN A SEPARATE ACTION THE CLAIM WHICH IS THE SUBJECT OF SUCH COUNTERCLAIM), AND WILL NOT SEEK TO CONSOLIDATE SUCH PROCEEDING WITH ANY OTHER ACTION WHICH MAY HAVE BEEN OR WILL BE BROUGHT IN ANY OTHER COURT BY TENANT. 41.12 Buyer hereby acknowledges that it understands that Wells Fargo Bank is a party to a lease with Landlord for the Premises which has an expiration date of January 1, 2001 (the "Wells Lease"). Notwithstanding anything to the contrary contained herein, the effectiveness of this Lease is expressly conditioned upon the execution by Landlord and Wells Fargo Bank of a termination agreement for the termination of the Wells Lease and the effective termination of the Wells Lease prior to the Commencement Date hereof. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and year first above written. LANDLORD: BLUE JEANS EQUITIES WEST, a California general partnership By: /s/ [SIG] ------------------------------ Its: Partner ----------------------------- TENANT: BUSINESS RESOURCE GROUP, a California corporation By: /s/ [SIG] ------------------------------ Its: V.P. Finance ----------------------------- 32 36 LIST OF EXHIBITS Exhibit A-1 Description of Real Property Exhibit A-2 Plat of Levi's Plaza Exhibit B Floor Plan of Premises Exhibit C Notice of Commencement Date Exhibit D Building Rules and Regulations
37 EXHIBIT A-1 DESCRIPTION OF REAL PROPERTY A-1 38 EXHIBIT A-1 The following describes the property outlined on Exhibit "A-1": Parcel 1: Lots 5, 6 and 7 as shown on the Map entitled, "PARCEL MAP OF BLOCK 'B', LEVI'S PLAZA, SAN FRANCISCO, CALIFORNIA, BEING A SUBDIVISION OF REAL PROPERTY ON A PORTION FIFTY VARA BLOCK NO. 27, ALSO BEING ASSESSOR'S BLOCK 84", recorded April 20, 1979, in the office of the Recorder of the City and County of San Francisco, State of California, in Book 10 of Parcel Maps at page 50. Parcel 2: BEGINNING at the point of intersection of the southerly line of Greenwich Street with the easterly line of Battery Street; running thence easterly along said line of Greenwich Street 102 feet and 8 inches to the southwesterly line of the Embarcadero, so-called; thence southeasterly along the southwesterly line of the Embarcadero 306 feet and 11-5/8 inches to the northerly line of Filbert Street; thence westerly along said northerly line of Filbert Street 238 feet and 1 inch to the easterly line of Battery Street; thence at a right angle northerly along said easterly line of Battery Street 275 feet to the point of beginning. BEING a portion of 50 Vara Block No. 13. Parcel 3: BEGINNING at the point of intersection of the easterly line of Battery Street and the northerly line of Union Street; running thence easterly and along said line of Union Street 275 fee and 0-1/2 inches to the westerly line of Front Street; thence at a right angle northerly and along said line of Front Street 275 feet to the southerly line of Filbert Street; thence at a right angle westerly and along said line of Filbert Street 275 feet and 0-1/2 inches to the easterly line of Battery Street; thence at a right angle southerly and long said line of Battery Street 275 feet to the point of beginning. BEING 50 Vara Black No. 14. Parcel 4: Lots 7 and 8 as shown on the Map entitled, "PARCEL MAP OF BLOCK 'A', LEVI'S PLAZA, SAN FRANCISCO, CALIFORNIA, BEING A SUBDIVISION OF REAL PROPERTY ON A PORTION FIFTY VARA BLOCK NO. 28, ALSO BEING ASSESSOR'S BLOCK 107", recorded April 20, 1979, in the office of the Recorder of the City and County of San Francisco, State of California, in Book 10 of Parcel Maps at page 49. Leasehold estates in Seawall lots Nos. 319 and 320. All right, title and interest that Lessor may have in the public streets adjacent to the foregoing properties. 39 EXHIBIT A-2 PLAT OF LEVI'S PLAZA COMPLEX A-2-1 40 EXHIBIT A-2 [LANDSCAPE PLAN] 41 EXHIBIT B FLOOR PLAN OF PREMISES B-1 42 EXHIBIT B [LEVI'S PLAZA FLOOR PLAN] 43 EXHIBIT C FORM OF NOTICE OF COMMENCEMENT DATE THIS MEMORANDUM OF COMMENCEMENT DATE is executed as of the __ day of _____, 199__, by and between BLUE JEANS EQUITIES WEST, a California general partnership ("Landlord") and BUSINESS RESOURCE GROUP, a California corporation ("Tenant"). R E C I T A L S A. Landlord and Tenant entered into that certain Retail Lease ("Lease"), dated as of July 24, 1998, pursuant to which Landlord leased to Tenant, and Tenant leased from Landlord, a portion of that certain building commonly known as the Haas Building, which building is located at 1225 Battery Street, San Francisco, California, and more particularly described in the Lease. B. Section 3.2 of the Lease requires Landlord and Tenant to execute a memorandum identifying the Commencement Date of the original Term. Any terms not defined herein shall have the meaning set forth in the Lease. NOW, THEREFORE, the parties hereby agree as follows: 1. The Commencement Date of the original Term of the Lease is ____________, 199_. 2. The Expiration Date of the original Term of the Lease is __________, 200_. IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum the day and year first above written. LANDLORD: BLUE JEANS EQUITIES WEST, a California general partnership By: ____________________________ Its: ___________________________ TENANT: BUSINESS RESOURCE GROUP, a California corporation By: ____________________________ Its: ___________________________ C-1 44 EXHIBIT D LEVI'S PLAZA HAAS BUILDING RETAIL LEASE RULES AND REGULATIONS D-1 45 EXHIBIT D LEVI'S PLAZA HAAS BUILDING RETAIL LEASE RULES AND REGULATIONS 1. Landlord shall have the right to control and operate the public portions of the Building, the Project and public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. No tenant shall invite to its demised premises, or permit the visit of, persons in such numbers or under such conditions as to interfere with the use and enjoyment of the entrances, corridors, elevators and facilities of the Building by other tenants. 2. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building outside of normal business hours as Landlord may deem to be advisable for the protection of the property. All tenants, their employees, or other persons entering or leaving the Building at any time when it is so locked may be required to sign the Building register when so doing, and the watchman in charge may refuse to admit to the Building while it is so locked Tenant or any of Tenant's employees, or any other person, without a pass previously arranged, or other satisfactory identification showing his right of access to the Building at such time. Landlord assumes no responsibility and shall not be liable for any damage resulting from any error in regard to any such pass or identification, or from the admission of any unauthorized person to the Building. 3. Landlord reserves the right to 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 or in violation of any law, order, ordinance, or governmental regulation. 4. The entries, corridors, stairways and elevators shall not be obstructed by any tenant, or used for any other purpose than ingress or egress to and from its respective officers. Tenant shall not bring into or keep within the Building any animal or vehicle without the prior written consent of the Landlord. 5. No tenant shall obtain or accept for use in its demised premises, ice, coffee service, catering, drinking water, barbering or bootblacking from any person not authorized by landlord in writing to furnish such services. 6. Freight, furniture, business equipment, merchandise and bulky matter of any description ordinarily shall be delivered to and removed from the Premises only in the freight elevator and through the service entrances and corridors, but special arrangements will be made for moving large quantities or heavy items of furniture, equipment and supplies into or out of the Building, 7. All entrance doors in the Premises shall be left locked when the Premises are not in use. 46 8. Tenant shall not attach or permit to be attached additional locks or similar devices to any door, transom or window of the Premises; change existing locks or the mechanism thereof; or make or permit to be made any keys for any door thereof other than those provided by Landlord. (If more than two keys for one lock are desired Landlord will provide them upon payment therefor by Tenant.) 9. Canvassing, soliciting or peddling in the Building is prohibited and each tenant shall cooperate to prevent the same. 10. Tenant shall not advertise the business, profession or activities of Tenant in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining thereto or use the name of the Building for any purpose other than that of the business address of Tenant. 11. Except as otherwise provided in this Lease, no sign, placard, picture, name, advertisement or notice, visible from the exterior or any tenant's premises shall be inscribed, painted, affixed, or otherwise displayed by any tenant on any part of the Building without the prior written consent of Landlord. If Landlord shall have given such consent at any time, such consent shall be deemed to relate only to the particular sign, placard, picture, name, advertisement or notice so consented to by Landlord and shall not be construed as dispensing with the necessity of obtaining specific written consent of Landlord with respect to each and every other sign, placard, picture, name, advertisement or notice. Landlord may adopt and furnish to Tenant general guidelines relating to signs in and on the Building. Tenant agrees to conform to such guidelines, but may request approval of Landlord for modifications, which approval will not be unreasonably withheld. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of the Tenant by a person approved by Landlord, which approval will not be unreasonably withheld. 12. The directory of the Building will be provided for the display of the name and location of Tenants, any Affiliate of any tenant, as defined in the respective leases, and a reasonable number of the principal officers and employees of such persons, and Landlord reserves the right to exclude any other names therefrom. Any additional name which Tenant shall desire to place upon said directory must first be approved by Landlord, and, if so approved, a charge will be made therefor. 13. The drinking fountains, lavatories, water closets and urinals shall not be used for any purpose other than those for which they were installed. 14. No awnings or other projections over or around the windows or entrances of the demised premises shall be installed by any tenant. No curtains, blinds, shares or screens shall be attached to or hung in, or used in connection with any window or door of the demised premises without the prior written consent of the Landlord. Tenant shall not make any changes which will alter the Building's appearance from the outside of the Building without prior written consent of the landlord. 15. Rooms or other areas used in common by tenants shall be subject to such regulations as are posted therein. 2 47 16. Landlord is not responsible to any tenant for the nonobservance or violation of the Rules and Regulations by any other tenant. 17. Landlord reserves the right by written notice to Tenant, to rescind, alter or waive any rule or regulation at any time prescribed for the Building when, in Landlord's judgment, it is necessary, desirable or proper for the best interest of the Building and its tenants. Waiver by Landlord shall not be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, and shall not prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building. 18. Tenant shall not exhibit, sell or offer for sale on the Premises or in the Building any article or thing except those articles and things essentially connected with the stated use of the Premises by Tenant without the advance consent of the Landlord. Nor shall any tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business in or from a demised premises for the service or accommodation of occupants of any other portion of the Building, nor shall the premises of any tenant be used for manufacturing of any kind, or any business or activity other than that specifically provided for in such tenant's lease. 19. Tenant shall never use any picture or likeness of the Building in any circulars, notices, advertisements or correspondence without the Landlord's consent. 20. Tenant shall cooperate fully with the Landlord to assure the effective operation of the Building's air conditioning system. If Tenant shall so use the Premises that noxious or objectionable fumes, vapors and odors exist beyond the extent to which they are discharged or eliminated by means of the flues and other devices contemplated by the various plans, specifications and leases, then Tenant shall provide proper ventilating equipment for the discharge of such excess fumes, vapors and odors so that they shall not enter into the air conditioning system or be discharged into other vents or flues of the Building or annoy any of the tenants of the building or adjacent properties. The design, location and installation of such equipment shall be subject to Landlord's prior written approval. 21. The Premises shall not be used for the storage of merchandise held for sale to the general public or for lodging. No cooking shall be done or permitted by Tenant on the Premises except in that area or those areas in which cooking and food preparation facilities are installed and operated under, pursuant to, and in accordance with, all applicable Federal, State and City laws, codes, ordinances, rules and regulations. The operation of any food service facility by Tenant or a concessionaire of Tenant shall be restricted to use by employees of the Tenant and any Affiliate thereof and their invited guests and shall not be available for use by the general public. Use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted in areas other than those specifically designated for food service, provided that such use is in accordance with all applicable Federal, State and City laws, codes, ordinances, rules and regulations. 22. All loading and unloading of merchandise, supplies, materials, garbage and refuse shall be made only through such entryways and elevators and at such times as the Landlord shall designate. In its use of the loading areas in the basement, Tenant shall not 3 48 obstruct or permit the obstruction of said loading area and at no time shall park or allow its officers, agents or employees to park vehicles therein except for loading or unloading. 23. There shall not be used or kept anywhere in the Building by any tenant or persons or firms visiting or transacting business with a tenant any hand trucks, or other vehicles of any kind except those equipped with rubber tires and side guards. 24. Tenant shall not contract for any work or service which might involve the employment of labor incompatible with the Building employees or employees of contractors doing work or performing services by or on behalf of the Landlord. 25. No tenant shall install any radio or television antenna, loud-speaker, or other device on the roof or exterior walls of the Building, without the prior written consent of Landlord. 26. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building. 4 EX-10.41 6 OFFICE LEASE AGREEMENT 1 EXHIBIT 10.41 09/01/98 DLM/TTM 02/01/92 09/10/98 DLM/JFW 09/15/98 DLM/JFW OFFICE LEASE SCOTTSDALE SPECTRUM THIS INDENTURE OF LEASE (the "Lease"), dated as of the 7th day of October, 1998, by and between SCOTTSDALE SPECTRUM, L.L.C., an Arizona limited liability company, owner of the Office Complex (as hereinafter defined), hereinafter referred to as "Lessor", and BUSINESS RESOURCE GROUP, a California corporation, hereinafter referred to as "Lessee". WITNESSETH: That Lessor, in consideration of the rents and covenants hereinafter set forth, does hereby lease and let unto Lessee, and Lessee does hereby hire and take from Lessor, that certain space shown and designated on the floor plan attached hereto and made a part hereof as Exhibit A, which space shall consist of approximately 4,212 rentable square feet and shall be located on the first floor of the Office complex at 6720 North Scottsdale Road, Scottsdale, Arizona 85253, and known as Scottsdale Spectrum. The aforesaid space leased and let unto Lessee is hereinafter referred to as the "Premises"; the land (including all easement areas appurtenant thereto) upon which the building ("Building") of which the Premises are a part is hereinafter referred to as the "Property"; and the Property and all buildings and improvements and personal property of Lessor used in connection with the operation or maintenance thereof located therein and thereon and the appurtenant parking facilities, if any, are hereinafter called the "Office Complex". Lessee hereby accepts this Lease and the Premises upon the covenants and conditions set forth herein and subject to any encumbrances, covenants, conditions, restrictions and other matters of record and all applicable zoning, municipal, county, state and federal laws, ordinances and regulations governing and regulating the use of the Premises. TO HAVE AND TO HOLD THE SAME PREMISES, without any liability or obligation on the part of Lessor to make any alterations, improvements or repairs of any kind on or about the Premises, except as expressly provided herein, for a term of five (5) years, zero (0) months, commencing on the first (1st) day of January, 1999, and ending on the thirty-first (31st) day of December, 2003, unless sooner terminated, in the manner provided hereinafter, to be occupied and used by Lessee for office purposes and for no other purpose, subject to the covenants and agreements hereinafter contained. ARTICLE I. BASE RENT: In consideration of the leasing aforesaid, Lessee agrees to pay to Lessor, at c/o Opus West Management Corporation, 2415 East Camelback Road, Suite 840, Phoenix, Arizona 85016, Attention: Accounting Department or at such other place as Lessor from time to time may designate in writing, an annual rental equal to the product of the rentable area of the Premises multiplied by the rental rate for the applicable portion of the term of this Lease, as hereinafter set forth, which annual rental may sometimes hereinafter be referred to as the "Base Rent", payable monthly, in advance, in equal monthly installments, commencing on the first day of the term and continuing on the first day of each and every month thereafter for the next succeeding months during the balance of the term: 2
Applicable Portion Annual Rental Rate Per Annual of Term Rentable Square Foot Rental Rate - ------------------- ---------------------- ----------- Months 1 through 12 $24.00 $101,088.00 Months 13 through 24 $25.00 $105,300.00 Months 25 through 36 $26.00 $109,512.00 Months 37 through 48 $27.00 $113,724.00 Months 49 through 60 $28.00 $117,936.00
If the term commences on a date other than the first day of a calendar month or ends on a date other than the last day of a calendar month, monthly rent for the first month of the term or the last month of the term, as the case may be, shall be prorated based upon the ratio that the number of days in the term within such month bears to the total number of days in such month. ARTICLE II. ADDITIONAL RENT: In addition to the Base Rent payable by Lessee under the provisions of Article I hereof, Lessee shall pay to Lessor "Additional Rent" as hereinafter provided for in this Article II. All sums under this Article II and all other sums and charges required to be paid by Lessee under this Lease (except Base Rent), however denoted, shall be deemed to be "Additional Rent". If any such amounts or charges are not paid at the time provided in this Lease, they shall nevertheless or collectible as Additional Rent with the next installment of Base Rent falling due. For purposes of this Article II, the parties hereto agree upon the following Definitions: A. The term "Lease Year" shall mean each of those calendar years commencing with and including the year during which the term of this Lease commences, and ending with the calendar year during which the term of this Lease (including any extensions or renewals) terminates. B. The term "Real Estate Taxes" shall mean and include all personal property taxes of Lessor relating to Lessor's personal property located in the Office Complex and used or useful in connection with the operation and maintenance thereof, real estate taxes and installments of special assessments, including interest thereon, relating to the Property and the Office Complex, and all other governmental charges, general and special, ordinary and extraordinary, foreseen as well as unforeseen, of any kind and nature whatsoever, or other tax, however, described, which is levied or assessed by the United States of America or the state in which the Office Complex is located or any political subdivision thereof, against Lessor or all or any part of the Office Complex as a result of Lessor's ownership of the Property or the Office Complex, and payable during the respective Lease Year. It shall not include any net income tax, estate tax or inheritance tax. C. [Intentionally omitted.] D. The term "Operating Expenses" shall mean and include all expenses incurred with respect to the maintenance and operation of the Property and the Office Complex as determined by Lessor's accountant in accordance with generally accepted accounting principles consistently followed, including, but not limited to, insurance premiums (including insurance premiums for rent insurance), -2- 3 maintenance and repair costs, steam, electricity, water, sewer, gas and other utility charges, fuel, lighting (including the tubes, ballasts and starters of fluorescent parabolic lights), window washing, janitorial services, trash and rubbish removal, wages payable to employees of Lessor whose duties are connected with the operation and maintenance of the Property and the Office Complex (but only for the portion of their time allocable to work related to the Office Complex), amounts paid to contractors or subcontractors for work or services performed in connection with the operation and maintenance of the Property and the Office Complex, all costs of uniforms, supplies and materials used in connection with the operation and maintenance of the Property and the Office Complex, all payroll taxes, unemployment insurance costs, vacation allowances and the cost of providing disability insurance or benefits, pensions, profit sharing benefits, hospitalization, retirement or other so-called fringe benefits, and any other expense imposed on Lessor or its contractors or subcontractors, pursuant to law or pursuant to any collective bargaining agreement covering such employees, all services, supplies, repairs, replacements or other expenses for maintaining and operating the Office Complex, reasonable attorneys' fees and costs in connection with appeal or contest of real estate or other taxes or levies, and such other expenses as may be ordinarily incurred in the operation and maintenance of an office complex and not specifically set forth herein, including reasonable management fees and the costs of a building office at the Office Complex. The term "Operating Expenses" shall not include any capital improvement to the Office Complex other than replacements required for normal maintenance and repair, nor shall it include repairs, restoration or other work occasioned by fire, windstorm or other insured casualty, expenses incurred in leasing or procuring tenants, leasing commissions, advertising expenses, expenses for renovating space for new tenants, legal expenses incident to enforcement by Lessor of the terms of any lease, interest or principal payments on any mortgage or other indebtedness of Lessor, compensation paid to any employee of Lessor above the grade of building superintendent, depreciation allowance or expense. Notwithstanding the foregoing, in the event Lessor installs equipment in or makes improvements or alterations to the Office Complex which are for the purpose of reducing energy costs, maintenance costs or other Operating Expenses or which are required under any governmental laws, regulations or ordinances which were not required at the date of commencement of the term of this Lease, Lessor may include in Operating Expenses reasonable charges for interest on such investment and reasonable charges for depreciation on the same so as to amortize such investment over the reasonable life of such equipment, improvement or alteration on a straight line basis. Operating Expenses shall also be deemed to include expenses incurred by Lessor in connection with city sidewalks adjacent to the Property and any pedestrian walkway system (either above or below ground) or other public facility to which Lessor or the Office Complex is from time to time subject in connection with operations of the Property and the Office Complex. The term "Operating Expenses" shall also include any assessments or fees or other charges imposed upon the Office Complex, or upon Lessor as a result of Lessor's ownership of the Office Complex, under any encumbrances, covenants, conditions, restrictions or other matters now -3- 4 of record or hereafter recorded against the Office Complex. E. The term "Excess Real Estate Taxes and Operating Expenses" shall mean the sum of Real Estate Taxes and Operating Expenses for any applicable Lease Year in excess of the product of Seven and 50/100ths Dollars ($7.50) and the total rentable area of the Office Complex (the "Expense Stop"). F. The term "Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses" shall mean the product of (i) the percentage obtained by dividing the rentable area of the Premises by the rentable area of the Office Complex, and (ii) the Excess Real Estate Taxes and Operating Expenses for the applicable Lease Year; provided, however, the percentage used to calculate Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses shall be amended each Lease Year to the greater of the following: (i) if the total rentable area leased in the Office Complex (pursuant to leases under which the term has commenced) is ninety-five percent (95%) or less than the rentable area of the Office Complex, the percentage shall be that which the rentable area of the Premises bears to ninety-five percent (95%) of the total rental area of the Office Complex for such Lease Year; or (ii) if the total rentable area leased in the Office Complex (pursuant to leases under which the term has commenced) is greater than ninety-five percent (95%), the percentage shall be that which the rentable area of the Premises bears to the actual rentable area of the Office Complex for such Lease Year. Rentable area shall in no event include basement storage space or garage space. G. Anything herein to the contrary notwithstanding, it is agreed that in the event the Office Complex is not fully occupied during any calendar year or any Lease Year, a reasonable and equitable adjustment shall be made by Lessor in computing the Operating Expenses for such year so that the Operating Expenses shall be adjusted to the amount that would have been incurred had the Office Complex been fully occupied during such year. As to each Lease Year during the term of this Lease, lessor shall estimate for each such Lease Year (i) the total amount of Excess Real Estate Taxes and Operating Expenses; (ii) Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses; and (iii) the computation of the annual and monthly rental payable during such Lease Year as a result of increases or decreases in Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses. Said estimate shall be in writing and shall be delivered or mailed to Lessee at the Premises. Lessee shall pay, as Additional Rent, the amount of Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses for each Lease Year, so estimated, in equal monthly installments, in advance, on the first day of each month during each applicable Lease Year. In the event that said estimate is delivered to Lessee after the first day of January of the applicable Lease Year, said amount, so estimated, shall be payable as Additional Rent, in equal monthly installments, in advance, on the first day of each month over the balance of such Lease Year, with the number of installments being equal to the number of full calendar months remaining in such Lease Year. From time to time during any applicable Lease Year, Lessor may re-estimate the amount of Excess Real Estate Taxes and Excess Operating Expenses and Lessee's Pro Rata Share thereof, and in such -4- 5 event Lessor shall notify Lessee, in writing, of such re-estimate in the manner above set forth and fix monthly installments for the then remaining balance of such Lease Year in an amount sufficient to pay the re-estimated amount over the balance of such Lease Year after giving credit for payments made by Lessee on the previous estimate. Upon completion of each Lease Year, Lessor shall cause its accountants to determine the actual amount of Excess Real Estate Taxes and Operating Expenses for such Lease Year and Lessee's Pro Rata Share thereof and deliver a written certification of the amounts thereof to Lessee after the end of each Lease Year. If Lessee has paid less than its Pro Rata Share of Excess Real Estate Taxes and Operating Expenses for any Lease Year, Lessee shall pay the balance of its Pro Rata Share of the same within ten (10) days after the receipt of such statement. If Lessee has paid more than its Pro Rata Share of Excess Real Estate Taxes and Operating Expenses for any Lease Year, Lessor shall, at Lessee's option, either (i) refund such excess, or (ii) credit such excess against the most current monthly installment or installments due Lessor for its estimate of Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses for the next following Lease Year. A pro rata adjustment shall be made for a fractional Lease Year occurring during the term of this Lease or any renewal or extension thereof based upon the number of days of the term of this Lease during said Lease Year as compared to three hundred sixty-five (365) days and all additional sums payable by Lessee or credits due Lessee as a result of the provisions of this Article II shall be adjusted accordingly. Further, Lessee shall pay, also as Additional Rent, all other sums and charges required to be paid by Lessee under this Lease, and any tax or excise on rents, gross receipts tax, transaction privilege tax or other tax, however described, which is levied or assessed by the United States of America or the state in which the Office Complex is located or any political subdivision thereof, or any city or municipality, against Lessor in respect to the Base Rent, Additional Rent, or other charges reserved under this Lease or as a result of Lessor's receipt of such rents or other charges accruing under this Lease; provided, however, Lessee shall have no obligation to pay net income taxes of Lessor. ARTICLE III. LATE CHARGE AND OVERDUE AMOUNTS - RENT INDEPENDENT: Lessee shall pay to Lessor, as liquidated damages, a late charge equal to five percent (5%) of any amount not paid on the date when the same is due to compensate Lessor for its costs in connection with such late payment by Lessee. The assessment or collection of a late charge hereunder shall not constitute the waiver by Lessor of a default by Lessee under this Lease and shall not bar the exercise by Lessor of any rights or remedies available under this Lease. In addition, any installment of Base Rent, Additional Rent or other charges to be paid by Lessee accruing under the provisions of this Lease, which shall not be paid when due, shall bear interest at the rate of eighteen percent (18%) per annum from the date when the same is due until the same shall be paid, but if such rate exceeds the maximum interest rate permitted by law, such rate shall be reduced to the highest rate allowed by law under the circumstances. Lessee's covenants to pay the Base Rent and the Additional Rent are independent of any other covenant, condition, provision or agreement herein contained. 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 Lessor. Base Rent and Additional Rent are sometimes collectively referred to as "rent". Rent shall be payable without deduction, offset, prior notice or demand, in lawful money of the United States. ARTICLE IV. POSSESSION OF PREMISES: If Lessor shall be unable to give possession of the Premises on the date of the commencement of -5- 6 the term for any reason, Lessor shall not be subject to any claims, damages or liabilities for the failure to give possession on said date. Under said circumstances, the rent reserved and covenant to pay same shall not commence until possession of the Premises is given or the Premises are ready for occupancy, whichever is earlier. Failure to give possession on the date of commencement of the term shall in no way affect the validity of this Lease or the obligations of Lessee hereunder; provided, however, that if the date of commencement of the initial term is delayed beyond the scheduled commencement date, the expiration date of the initial term shall be extended to provide for a full five (5) year, zero (0) month initial term of this Lease. If Lessee is given and accepts possession of the Premises on a date earlier than the date above specified for commencement of the term, the rent reserved herein and all covenants, agreements and obligations herein and the term of this Lease shall commence on the date that possession of the Premises is given to Lessee. The acceptance of possession by Lessee shall be deemed conclusively to establish that the Premises and all other improvements of the Office Complex required to be constructed by Lessor for use thereof by Lessee hereunder have been completed at such time to Lessee's satisfaction and in conformity with the provisions of this Lease in all respects unless Lessee notifies Lessor in writing within sixty (60) days after commencement of the term as to any items not completed. Lessee waives any claim as to matters not listed in said notice. Lessee acknowledges that neither Lessor nor any agent of Lessor has made any representation or warranty with respect to the Premises or the Office Complex or with respect to the suitability or fitness of either for the conduct of Lessee's business or for any other purpose. Nothing contained in this Article shall affect the commencement of the Lease term or the obligation of Lessee to pay any rent due under this Lease. ARTICLE V. SERVICES: Subject to the provisions of Article II hereof, Lessor shall provide the following services on all days excepting Saturdays, Sundays, holidays, and as otherwise stated: A. Nightly janitorial services Monday through Friday in and about the Premises; provided, however, Lessor may, but shall not be obligated to, elect to furnish janitorial service on Saturday or Sunday in lieu of furnishing such service on Friday. The janitorial services furnished to the Premises shall include normal cleaning and upkeep services, normal removal of trash and rubbish, vacuuming and spot cleaning of carpeting, maintenance of towels, tissue and other restroom supplies and such other work as is customarily performed in connection with such nightly janitorial services in an office complex similar in construction, general location, use and occupancy to the Office Complex. Lessor shall also provide periodic interior and exterior window washing and cleaning and waxing of uncarpeted floors in accordance with Lessor's reasonable schedule. B. Electrical energy will be provided for lighting and operation of office machines, air conditioning, and heating as required for normal office usage during the normal working hours set forth in subparagraph C of this Article. Office machines will include electric typewriters and other office equipment of similar low electrical consumption. This does not include special lighting in excess of building standard (2.2 watts per square foot installed), or any other item of electrical equipment which singularly consumes more than 0.5 kilowatts per hour at rated capacity or requires a voltage other than one hundred twenty (120) volts single phase. If electrical consumption exceeds the requirement of normal office use as specified above (such as in a -6- 7 computer room), Lessor reserves the right to include and Lessee shall pay upon receipt of invoice, a charge based on the average cost per unit of electricity for the Office Complex applied to the excess use determined by an engineer selected by Lessor and/or by submeter. At the option of either Lessor or Lessee, a submeter may be provided and installed at Lessee's expense, if allowable under law and local utility regulations. Lessee shall pay the cost of all equipment and of the installation of all facilities provided and installed by Lessor to provide such electrical capacity in excess of the normal office standards. Lessee shall not make any installation requiring excess electrical energy without first receiving Lessor's written consent thereto, which shall not be unreasonably withheld; and provided further that Lessee shall pay all costs of installation of facilities necessary to furnish such excess capacity and for such increased electrical usage. All electric lighting bulbs for specialized lighting within the Premises shall be replaced by Lessor at the expense of Lessee and shall be paid by Lessee upon receipt of invoice from Lessor as rent. The electrical service required of Lessor by this subparagraph B, and electricity for other uses consented to by Lessor, shall be available at all times subject to the requirement that Lessee pay for usage in excess of the electrical service to be provided pursuant to the terms of this subparagraph B. C. Heat and air conditioning, when necessary in Lessor's reasonable judgment; for normal comfort, from 7 o'clock A.M. to 6 o'clock P.M. on non-holiday weekdays, and on Saturdays which are not holidays, from 7 o'clock A.M. to 1 o'clock P.M. Air conditioning to the Premises is to be provided based on standard lighting and normal incidental office use only. During other hours, Lessor shall provide such amounts of heating and air conditioning upon reasonable advance notice from Lessee to Lessor, which advance notice shall not be less than twenty-four (24) hours; and Lessee, upon presentation of a bill therefor, shall pay Lessor for such service on an hourly basis at the then prevailing rates as established by Lessor. If such extended service is not a continuation of that service furnished during regular business hours as described above, Lessee shall pay for a minimum of three (3) hours of such service. D. Hot and cold water from the regular building outlets for lavatory and restrooms and for drinking purposes. E. Passenger elevator service in common with other tenants to be provided by automatica elevators. Lessor shall have the right to restrict the use of elevators for freight purposes to the freight elevator and to hours to be determined by Lessor. Lessor shall have the right to limit the number of elevators to be in operation on Saturdays, Sundays and holidays. F. Maintenance in good order, condition and repair of the parking facilities and all driveways leading thereto and keeping the same free from any unreasonable accumulation of snow. Lessor shall keep and maintain the landscaped area and parking facilities in a neat and orderly condition. Lessor reserves the right to designate areas of the appurtenant parking facilities where Lessee, its agents, employees and invitees shall park and may exclude Lessee and its agents, employees and invitees from parking in other areas as designated by Lessor; provided, however, Lessor shall not be liable to Lessee -7- 8 for the failure of any tenant or its invitees, employees, agents or customers to abide by Lessor's designations or restrictions. Lessee is aware that Lessor may be required to designate certain parking stalls due to governmental request or order to accommodate car or van poolers. G. Lessee shall be solely responsible for the direct payment of all utilities which are separately metered or separately charged (electric, natural gas (if any), telephone, cable television (if any) and any other special utility requirements of Lessee), if any, to the Premises or to Lessee and shall make such payments to the respective utility companies prior to delinquency. Such amounts shall not be included as Operating Expenses. No interruption in, or temporary stoppage of, any of the aforesaid services caused by repairs, renewals, improvements, alternations, strikes, lockouts, labor controversy, accidents, inability to obtain fuel or supplies, or other causes shall be deemed an eviction or disturbance of Lessee's use and possession, or render Lessor liable for damages, by abatement of rent or otherwise or relieve Lessee from any obligation herein set forth. In no event shall Lessor be required to provide any heat, air conditioning, electricity or other service in excess of that permitted by voluntary or involuntary guidelines or laws, ordinances or regulations of governmental authority. Lessor reserves the right, from time to time, to make reasonable and non-discriminatory modifications to the above standards for utilities and services. Lessee shall not, without the prior written consent of Lessor, use any apparatus or device in or about the Premises which shall cause any substantial noise or vibration or which will increase the amount of electricity or water, if any, usually furnished or supplied for use of the Premises as general office space. Lessee shall not connect with electric current or water pipes, except through existing electrical or water outlets already in the Premises, any apparatus or device for the purposes of using electric current or water. ARTICLE VI. INSURANCE: Lessor shall keep the Office Complex insured for the benefit of Lessor in an amount equivalent to the full replacement value thereof (excluding foundation, grading and excavation costs and a commercially reasonable deductible) against: (a) loss or damage by fire; and (b) such other risk or risks of a similar or dissimilar nature as are now or may be customarily covered with respect to buildings and improvements similar in construction, general location, use, occupancy and design to the Office Complex, including, but without limiting the generality of the foregoing, windstorms, hail, explosion, vandalism, malicious mischief, civil commotion and such other coverage as may be deemed necessary by Lessor, provided such additional coverage is obtainable and provided such additional coverage is such as is customarily carried with respect to buildings and improvements similar in construction, general location, use, occupancy and design to the Office Complex. These insurance provisions shall in no way limit or modify any of the obligations of Lessee under any provision of this Lease. Lessor agrees that such policy or policies of insurance shall permit releases of liability as provided herein and/or waiver of subrogation clause as to Lessee, and Lessor waives, releases and discharges Lessee from all claims or demands whatsoever which -8- 9 Lessor may have or acquire arising out of damage to or destruction of the Office Complex or loss of use thereof occasioned by fire or other casualty, whether such claim or demand may arise because of the negligence or fault of Lessee or its agents, employees, customers or business invitees, or otherwise, and Lessor agrees to look to the insurance coverage only in the event of such loss. Notwithstanding the foregoing, Lessee shall be obligated to pay the rental called for hereunder in the event of damage to or destruction of the Premises or the Office Complex if such damage or destruction is occasioned by the negligence or fault of Lessee or its agents or employees. Insurance premiums paid thereon shall be a portion of the "Operating Expenses" described in Article II hereof. Notwithstanding the above, in the event a release of Lessee or waiver of subrogation as to Lessee (without invalidation of coverage) becomes generally unavailable in insurance policies as to commercial office projects similar to the Office Complex, the release and any waiver of subrogation above provided for shall cease upon written notice by Lessor to Lessee of such event. Thereafter, Lessee may, upon written notice to Lessor, require Lessor to secure a waiver of subrogation as to Lessee if (a) a right to waive subrogation as to Lessee thereafter becomes available without increased premium, or (b) a right to waive subrogation as to Lessee becomes available and Lessee pays any increased premium required in connection therewith. Lessee shall keep all of its machinery, equipment, furniture, fixtures, personal property (including also property under the care, custody or control of Lessee) and business interests which may be located in, upon or about the Premises insured for the benefit of Lessee in an amount equivalent to the full replacement value or insurable value thereof against: (a) loss or damage by fire; and (b) such other risk or risks of a similar or dissimilar nature as are now, or may in the future be, customarily covered with respect to a tenant's machinery, equipment, furniture, fixtures, personal property and business located in a building similar in construction, general location, use, occupancy and design to the Office Complex, including, but without limiting the generality of the foregoing, windstorms, hail, explosions, vandalism, theft, malicious mischief, civil commotion and such other coverage as Lessee may deem appropriate or necessary. Lessee agrees that such policy or policies of insurance shall permit releases of liability as provided herein and/or waiver of subrogation clause as to Lessor, and Lessee waives, releases and discharges Lessor and its agents, employees and contractors from all claims or demands whatsoever which Lessee may have or acquire arising out of damage to or destruction of the machinery, equipment, furniture, fixtures, personal property and loss of use thereof occasioned by fire or other casualty, whether such claim or demand may arise because of the negligence or fault of Lessor or its agents, employees, contractors or otherwise, and Lessee agrees to look to the insurance coverage only in the event of such loss. Lessor shall, as a portion of the Operating Expenses defined in Article II, maintain, for its benefit and the benefit of its managing agent, general public liability insurance against claims for personal injury, death or property damage occurring upon, in or about the Office Complex, such insurance to afford protection to Lessor and its managing agent. Lessee shall, at Lessee's sole cost and expense but for the mutual benefit of Lessor, its managing agent and Lessee, maintain general public liability insurance against claims for personal injury, death or property damage occurring upon, in or about the -9- 10 Premises, such insurance to afford protection to Lessor, its managing agent and Lessee to the Limit of not less than One Million and No/100 Dollars ($1,000,000.00) in respect to the injury or death to a single person, and to the limit of not less than Three Million and No/100 Dollars ($3,000,000.00) in respect to any one accident, and to the limit of not less than Five Hundred Thousand and No/100 Dollars ($500,000.00) in respect to any property damage. Such policies of insurance shall be written in companies reasonably satisfactory to Lessor, naming Lessor and its managing agent as additional insureds thereunder, and such policies, or a memorandum or certificate of such insurance, shall be delivered to Lessor endorsed "Premium Paid" by the company or agency issuing the same or accompanied by other evidence satisfactory to Lessor that the premium thereon has been paid. At such time as insurance limits required of tenants in office buildings in the area in which the Office Complex is located are generally increased to greater amounts, Lessor shall have the right to require such greater limits as may then be customary. Lessee agrees to include in such policy the contractual liability coverage insuring Lessee's indemnification obligations provided for herein. Any such coverage shall be deemed primary to any liability coverage secured by Lessor. Such insurance shall also afford coverage for all claims based upon acts, omissions, injury or damage, which claims occurred or arose (or the onset of which occurred or arose) in whole or in part during the policy period. Lessee agrees to indemnify, protect, defend and hold harmless Lessor and Lessor's partners, shareholders, employees, lender and managing agent harmless from and against any and all claims, losses, costs, liabilities, actions and damages, including without limitation attorneys' fees and costs, by or on behalf of any person or person, firm or firms, corporation or corporations, arising from any breach or default on the part of Lessee in the performance of any covenant or agreement on the part of Lessee to be performed, pursuant to the terms of this Lease, or arising from any act or negligence on the part of Lessee or its agents, contractors, servants, employees or licensees, or arising from any accident, injury or damage to the extent caused by Lessee or its agents or employees to any person, firm or corporation occurring during the term of this Lease or any renewal thereof, in or about the Premises and the Office Complex, and from and against all costs, reasonable counsel fees, expenses and liabilities incurred in or about any such claim or action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor or its managing agent by reason of any such claim, Lessee, upon notice from Lessor, covenants to resist or defend such action or proceeding by counsel reasonably satisfactory to Lessor. Lessee agrees, to the extent not expressly prohibited by law, that Lessor and Lessor's agents, employees and servants shall not be liable, and Lessee waives all claims for damage to property and business sustained during the term of this Lease by Lessee occurring in or about the Office Complex, resulting directly or indirectly from any existing or future condition, defect, matter or thing in the Premises, the Office Complex or any part thereof, or from equipment or appurtenances becoming out of repair, or from accident, or from any occurrence or act or omission of Lessor, Lessor's agents, employees or servants, any tenant or occupant of the Office Complex or any other person. This paragraph shall apply especially, but not exclusively, to damage caused as aforesaid or by the flooding of basements or other subsurface areas, or by refrigerators, sprinkling devices, air conditioning apparatus, water, snow, frost, steam, excessive heat or cold, falling plaster, broken glass, sewage, gas, odors or noise, or the bursting or leaking of pipes or plumbing fixtures, and shall apply equally, whether any such damage results from the act or omission of other tenants or occupants in the Office Complex or any other persons, and whether such damage be caused by or result from any of the -10- 11 aforesaid, or shall be caused by or result from other circumstances of a similar or dissimilar nature. Anything herein to the contrary notwithstanding, in the event any damage to the Office Complex results from any act or omission of Lessee or its agents, employees or invitees, and all or any portion of Lessor's loss is within the "deductible" portion of Lessor's insurance coverage, Lessee shall pay to Lessor the amount of such deductible loss (not to exceed $1,000 per event). All property in the Office Complex or on the Premises belonging to Lessee or its agents, employees or invitees or otherwise located at the Premises, shall be at the risk of Lessee only, and Lessor shall not be liable for damage thereto or theft, misappropriation or loss thereof, and Lessee agrees to defend and hold Lessor and Lessor's agents, employees and servants harmless and indemnify them against claims and liability for injuries to such property. Lessee shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will in any way increase the existing rate of or affect in any other way any fire or other insurance upon the Office Complex or any of its contents, or cause a cancellation of any insurance policy covering the Office Complex or any of its contents. Notwithstanding anything to the contrary contained herein, Lessee shall promptly, upon demand, reimburse Lessor for the full amount of any additional premium charged for such policy by reason of Lessee's failure to comply with the provisions of this paragraph, it being understood that such demand for reimbursement shall not be Lessor's exclusive remedy. Lessee shall promptly, upon demand, reimburse Lessor for any additional premium charged for any such policy by reason of Lessee's failure to comply with the provisions of this Article. In the event Lessee fails to provide Lessor with evidence of insurance required under this Article VI, Lessor may, but shall not be obligated to, without further demand upon Lessee, and without waiving or releasing Lessee from any obligation contained in this Lease, obtain such insurance and Lessee agrees to repay, upon demand, all such sums incurred by Lessor in effecting such insurance. All such sums shall become a part of the Additional Rent payable hereunder, but no such payment by Lessor shall relieve Lessee from any default under this Lease. ARTICLE VII. CERTAIN RIGHTS RESERVED BY LESSOR: Lessor reserves the following rights exercisable without notice and without liability to Lessee and without effecting an eviction, constructive or actual, or disturbance of Lessee's use or possession, or giving rise to any claim for setoff or abatement of rent: A. To control, install, affix and maintain any and all signs on the Property, or on the exterior of the Office Complex and in the corridors, entrances and other common areas thereof, except those signs within the Premises not visible from outside the Premises. B. To reasonably designate, limit, restrict and control any service in or to the Office Complex, including but not limited to the designation of sources from which Lessee may obtain sign painting and lettering. Any restriction, designation, limitation or control imposed by reason of this subparagraph shall be imposed uniformly on Lessee and other tenants occupying space in the Office Complex. C. To retain at all times and to use in appropriate instances keys to all doors within and into the Premises. No locks shall be charged without the prior written consent of Lessor. This provision shall not apply to Lessee's safes or other areas maintained by Lessee for the safety and security of monies, securities, negotiable instruments or similar items. -11- 12 D. To make repairs, improvements, alterations, additions or installations, whether structural or otherwise, in and about the Office Complex, or any part thereof, and for such purposes to enter upon the Premises, and during the continuation of any of said work, to temporarily close doors, entry ways, public spaces and corridors in the Office Complex and to interrupt or temporarily suspend services and facilities. E. To restrict or prohibit vending or dispensing machines of any kind in or about the Premises; provided, however, Lessor consents to the installation of vending machines in the pantry or kitchen areas of the Premises for the dispensing without charge of soda and other similar drinks and snack foods to Lessee's employees, clients and visitors. F. To approve the weight, size and location of safes and other heavy equipment and articles in and about the Premises and the Office Complex and to require all such items to be moved into and out of the Office Complex and the Premises only at such times and in such manner as Lessor shall direct in writing. G. To grant to anyone the exclusive rights to conduct any particular business or undertaking in the Office Complex other than general office use, including but not limited to the following businesses: banks, savings and loan associations, restaurants, cafeterias, candy and/or tobacco shops, and other stores selling retail products. Lessor and its agents may enter the Premises at any time in case of emergency and shall have the right to use any and all means which Lessor may deem proper to open such doors during an emergency in order to obtain entry to the Premises. Any entry to the Premises obtained by Lessor in the event of an emergency shall not, under any circumstances, be construed or deemed to be a forcible or unlawful entry into, or detainer of, the Premises, or to be an eviction of Lessee from the Premises or any portion thereof. Lessee shall permit Lessor and its agents, upon notice, to enter and pass through the Premises or any part thereof at reasonable times during normal business hours to: (a) post notices of nonresponsibility; and (b) exhibit the Premises to holders of encumbrances on the interest of Lessor under the Lease and to prospective purchasers, mortgagees or lessees of the Office Complex. If, during the last month of the Lease term, Lessee shall have removed substantially all of Lessee's property and personnel from the Premises, Lessor may enter the Premises and repair, alter, and redecorate the same, without abatement of rent and without liability to Lessee, and such acts shall have no effect on this Lease. All covenants and agreements to be performed by Lessee under any of the terms of this Lease shall be performed by Lessee at Lessee's sole cost and expense and without any abatement of rent. If Lessee shall fail to pay any sum of money (other than rent due Lessor) required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, including, but not limited to, the failure to commence and complete repairs promptly and adequately, and the failure to remove any liens or otherwise to perform any act or fulfill any obligation required of Lessee under this Lease, Lessor may, but shall not be obligated to do so, and without waiving or releasing Lessee from any obligations of Lessee, make any such payment or perform any such act on Lessee's part to be made or performed as in this Lease provided. All sums so paid by Lessor and all necessary incidental costs, together with an administrative charge in the amount of fifteen percent (15%) of any costs incurred by Lessor, and interest thereon at the rate set forth in Article III accruing from the date paid -12- 13 or incurred by Lessor until reimbursed to Lessor by Lessee, shall be payable to Lessor by Lessee as rent on demand and Lessee covenants to pay all such sums. Lessor shall have (in addition to any other right or remedy of Lessor) the same rights and remedies in the event of Lessee's nonpayment of such sums, as in the case of default by Lessee in the payment of rent to Lessor. ARTICLE VIII. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make any improvements, alterations, additions or installations in or to the Premises (hereinafter referred to as "Work") without Lessor's prior written consent, which consent may be withheld in Lessor's sole discretion. Along with any request for Lessor's consent and before commencement of the Work or delivery of any materials to be used in the Work to the Premises or into the Office Complex, Lessee shall furnish Lessor with plans and specifications, names and addresses of contractors, copies of contracts, necessary permits and licenses, an indemnification in such form and amount as may be reasonably satisfactory to Lessor, and a performance bond executed by a commercial surety reasonably satisfactory to Lessor in an amount equal to the cost of the Work and for the payment of all liens for labor and material arising therefrom. Lessee agrees to defend and hold Lessor forever harmless from any and all claims and liabilities of any kind and description which may arise out of or be connected in any way with said improvements, alterations, additions or installations. All Work shall be done only by contractors or mechanics reasonably approved by Lessor and at such time and in such manner as Lessor may from time to time reasonably designate. All Work done by Lessee or its agents, employees or contractors shall be done in such a manner as to avoid labor disputes. Lessee shall pay the cost of all such improvements, alterations, additions or installations (including a reasonable charge for Lessor's services and for Lessor's inspection and engineering time) and the cost of painting, restoring or repairing the Premises and the Office Complex occasioned by such improvements, alterations, additions or installations. Upon completion of the Work, Lessee shall furnish Lessor with contractor's affidavits, full and final waivers of liens and receipted bills covering all labor and materials expended and used. The Work shall comply with all insurance requirements and all laws, ordinances, rules and regulations of all governmental authorities and shall be constructed in a good and workmanlike manner. Lessee shall permit Lessor to inspect construction operations in connection with the Work. Lessee shall not be allowed to make any improvements, alterations, additions or installations if such action results or would result in a labor dispute or otherwise would materially interfere with Lessor's operation of the Office Complex. Lessor, by written notice to Lessee given at or prior to termination of this Lease, may require Lessee, at Lessee's sole cost and expense, to remove any improvements, alterations, additions or installations installed by Lessee in the Premises and to repair or restore any damage caused by the installation and removal of such improvements, alterations, additions or installations; provided, however, the only improvements, alterations, additions or installations which Lessee shall remove shall be those specified in Lessor's notice. Lessee shall keep the Premises and the Office Complex free from any liens arising out of any work performed, material furnished or obligations incurred by Lessee, and shall indemnify, protect, defend and hold harmless Lessor from any liens and encumbrances arising out of any work performed or material furnished by or at the direction of Lessee. In the event that Lessee shall not, within twenty (20) days following the imposition of any such lien, cause such lien to be released of record by payment or posting of a proper bond, Lessor shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as it shall deem proper, including payment of and/or defense against the claim giving rise to such lien. All such sums paid by Lessor and all expenses incurred by it in connection therewith, including attorney's fees and costs, shall be payable as Additional Rent to -13- 14 Lessor by Lessee on demand with interest at the rate provided in Article III accruing from the date paid or incurred by Lessor until reimbursed to Lessor by Lessee. ARTICLE IX. REPAIRS: Subject to Article VI hereof, Lessee shall, during the term of this Lease, at Lessee's expense, keep the Premises in as good order, condition and repair as they were at the time Lessee took possession of the same, reasonable wear and tear and damage from fire and other casualties excepted. Lessee shall keep the Premises in a neat and sanitary condition, and Lessee shall not commit any nuisance or waste on the Premises or in, on or about the Office Complex, throw foreign substances in the plumbing facilities, or waste any of the utilities furnished by the Lessor. All uninsured damage or injury to the Premises or to the Office Complex caused by Lessee moving furniture, fixtures, equipment or other devices in or out of the Premises or the Office Complex or by installation or removal of furniture, fixtures, equipment, devices or other property of Lessee or its agents, contractors, servants or employees, due to carelessness, omission, neglect, improper conduct or other cause of Lessee or its servants, employees, agents, visitors or licensees, shall be repaired, restored and replaced promptly by Lessee at its sole cost and expense to the satisfaction of Lessor. All repairs, restorations and replacements shall be in quality and class equal to the original work and shall comply with all requirements of this Lease. Lessor and its employees and agents shall have the right to enter the Premises at any reasonable time or times for the purpose of inspection, cleaning, repairs, altering or improving the same but nothing contained herein shall be construed as imposing any obligation on Lessor to make any repairs, improvements, alterations, additions or installations which are the obligation of Lessee. Lessee shall give written notice to Lessor at least thirty (30) days prior to vacating the Premises for the express purpose of arranging a meeting with Lessor for a joint inspection of the Premises. In the event of Lessee's failure to give such notice and arrange such joint inspection, lessor's inspection at or after Lessee's vacation of the premises shall be conclusively deemed correct for purposes of determining Lessee's responsibility for repairs and restoration hereunder. ARTICLE X. ASSIGNMENT AND SUBLETTING: Lessee shall not, without the prior written consent of Lessor, (i) transfer, pledge, mortgage or assign this Lease or any interest hereunder; (ii) permit any assignment of this Lease by voluntary act, operation of law or otherwise; (iii) sublet the Premises or any part thereof; or (iv) permit the use of the Premises by any parties other than Lessee and its agents and employees. Lessee shall seek such written consent of Lessor by a written request therefor, setting forth such information as Lessor may deem necessary. Lessee shall, by notice in writing, advise Lessor of Lessee's intention, from, on and after a stated date (which shall not be less than thirty [30] days after the date of Lessee's notice), to assign this Lease or to sublet any part or all of the Premises for the balance or any part of the term. Lessee's notice shall include all of the terms of the proposed assignment or sublease and shall state the consideration therefor. In such event, Lessor shall have the right, to be exercised by giving written notice to Lessee within thirty (30) days after receipt of Lessee's notice, to recapture the space described in Lessee's notice and such recapture notice shall, if given, cancel and terminate this Lease with respect to the space therein described as of the date stated in Lessee's notice. Lessee's notice shall state the name and address of the proposed assignee or subtenant and a true and complete copy of the proposed assignment or sublease shall be delivered to Lessor with Lessee's notice. If Lessee's notice shall cover all of the Premises, and Lessor shall have exercised its foregoing recapture right, the term -14- 15 of this Lease shall expire and end on the date stated in Lessee's notice as fully and completely as if that date had been herein definitely fixed for the expiration of the term. If, however, this Lease be canceled with respect to less than the entire Premises, the Base Rent and Additional Rent shall be equitably adjusted by Lessor with due consideration of the size, location, type and quality of the portion of the Premises so remaining after the "recapture" and such rent shall be reduced accordingly from and after the termination date for said portion, and this Lease as so amended shall continue thereafter in full force and effect. The rent adjustments provided for herein shall be evidenced by an amendment to this Lease executed by Lessor and Lessee. If this Lease shall be terminated in the manner aforesaid, either as to the entire Premises or only a portion thereof, to such extent the term of this Lease shall end upon the appropriate effective date of the proposed sublease or assignment as if that date had been originally fixed in this Lease for such expiration, and in the event of a termination affecting less than the entire Premises, Lessee shall comply with Article XIII ("Surrender of Premises") of this Lease with respect to such portion of the Premises affected thereby. In the event of any termination pursuant to this paragraph, Lessee shall, at its sole cost and expense, discharge in full (i) any outstanding commission obligation on the part of Lessor with respect to that part of this Lease so terminated, and (ii) any commission which may be due and owing as a result of any proposed assignment or subletting, whether or not the subject portion of the Premises is "recaptured" pursuant thereto and rented by Lessor to the proposed tenant or any other tenant. If Lessor, upon receiving Lessee's notice with respect to any such space, shall not exercise its right to recapture as aforesaid, Lessor will not unreasonably withhold its consent to Lessee's assignment of the Lease or subletting such space to the party identified in Lessee's notice, provided, however, that in the event Lessor consents to any such assignment or subletting, and as a condition thereto, Lessee shall pay to Lessor ninety percent (90%) of all profit derived by Lessee from such assignment or subletting. For purposes of the foregoing, profit shall be deemed to include, but shall not be limited to, the amount of all rent payable by such assignee or sublessee in excess of the Base Rent, and rent adjustments, payable by Lessee under this Lease. If a part of the consideration for such assignment or subletting shall be payable other than in cash, the payment to Lessor shall be in cash for its share of any non-cash consideration based upon the fair market value thereof. Lessee shall and hereby agrees that it will furnish to Lessor upon request from Lessor a complete statement, certified by an independent certified public accountant, setting forth in detail the computation of all profit derived and to be derived from such assignment or subletting, such computation to be made in accordance with generally accepted accounting principles. Lessee agrees that Lessor and its authorized representatives shall be given access at all reasonable times to the books, records and papers of Lessee relating to any such assignment or subletting, and Lessor shall have the right to make copies thereof. The percentage of Lessee's profit due Lessor hereunder shall be paid by Lessee to Lessor within five (5) days of receipt by Lessee of all payments made from time to time by such assignee or sublessee to Lessee. For purposes of the foregoing, any change in the partners of Lessee, if Lessee is a partnership, or, if Lessee is a corporation, any transfer of any or all of the shares of stock of Lessee by sale, assignment, operation of law or otherwise resulting in a change in the present control of such corporation by the person or persons owning a majority of such shares as of the date of this Lease, shall be deemed to be an assignment within the meaning of this Article X. -15- 16 Any subletting or assignment hereunder shall not release or discharge Lessee of or from any liability, whether past, present or future, under this Lease, and Lessee shall continue fully liable thereunder. The subtenant or subtenants or assignee shall agree in a form satisfactory to Lessor to comply with and be bound by all of the terms, covenants, conditions, provisions and agreements of this Lease to the extent of the space sublet or assigned, and Lessee shall deliver to Lessor promptly after execution an executed copy of each such sublease or assignment and an agreement of compliance by each such subtenant or assignee. Consent by Lessor to any assignment of this Lease or to any subletting of the Premises shall not be a waiver of Lessor's rights under this Article X as to any subsequent assignment or subletting. Any sale, assignment, mortgage, transfer or subletting of this Lease which is not in compliance with the provisions of this Article X shall be of no effect and void. Lessor's right to assign its interest in this Lease shall remain unqualified. Lessor may make a reasonable charge to Lessee for any reasonable attorneys' fees or expenses incident to a review of any documentation related to any proposed assignment or subletting by Lessee. Notwithstanding anything to the contrary in this Lease, Lessee shall not assign its rights under this Lease or sublet all or part of the Premises to a person, firm or corporation which is (or, immediately prior to such subletting or assignment, was) a tenant or occupant of the Office Complex or any office building on property contiguous to the Office Complex owned by Lessor. The consent of Lessor to a transfer may not be unreasonably withheld, provided that should Lessor withhold its consent for any of the following reasons, which list is not exclusive, such withholding shall be deemed to be reasonable: (a) Financial strength of the proposed transferee is not at least equal to that of Lessee at the time of execution of this Lease or of tenants occupying comparable premises in the Office Complex or in other buildings owned or operated by Lessor located in the same metropolitan area as the Office Complex; (b) A proposed transferee whose occupation of the Premises would cause a diminution in the reputation of the Office Complex or the other businesses located therein; (c) A proposed transferee whose impact on the common areas or the other occupants of the Office Complex would be disadvantageous; or (d) A proposed transferee whose occupancy will require any variation in the terms and conditions of this Lease. Lessee agrees that its personal business skills and philosophy were an important inducement to Lessor for entering into this Lease and that Lessor may reasonably object to the transfer of the Premises to another tenant whose proposed use, while permitted by this Lease, would involve a different quality, manner or type of business skill than that of Lessee. ARTICLE XI. DAMAGE BY FIRE OR OTHER CASUALTY: If fire or other casualty shall render the whole or any material portion of the Premises untenantable, and the Premises can reasonably be expected to be made tenantable within one hundred twenty (120) days from the date of such event, then Lessor shall repair and restore the Premises and the Office Complex to as near their condition prior to the fire or other casualty as is reasonably possible within such one hundred twenty (120) day period (subject to delays for causes beyond Lessor's reasonable control) and notify Lessee that it will be doing so, such notice to be mailed within thirty (30) days from -16- 17 the date of such damage or destruction, and this Lease shall remain in full force and effect, but the rent for the period during which the Premises are untenantable shall be abated pro rata (based upon the portion of the Premises which is untenantable). If Lessor is required to repair the Office Complex and/or the Premises, as aforesaid, said work shall be undertaken and prosecuted with all due diligence and speed. If fire or other casualty shall render the whole or any material part of the Premises untenantable and the Premises cannot reasonably be expected to be made tenantable within one hundred twenty (120) days from the date of such event, then either party, by notice in writing to the other mailed within thirty (30) days from the date of such damage or destruction, may terminate this Lease effective upon a date within thirty (30) days from the date of such notice. In the event that more than fifty percent (50%) of the value of the specific office structure of which the Premises is a part is damaged or destroyed by fire or other casualty, and irrespective of whether damage or destruction can be made tenantable within one hundred twenty (120) days thereafter, then at Lessor's option, by written notice to Lessee, mailed within forty-five (45) days from the date of such damage or destruction, Lessor may terminate this Lease effective upon a date within ninety (90) days from the date of such notice to Lessee. If fire or other casualty shall render any portion of the Premises or any material portion of the Office Complex untenantable and the insurance proceeds are not sufficient to make repairs, then Lessor may, by notice to Lessee, mailed within thirty (30) days from the date of such damages or destruction, terminate this Lease effective upon a date within thirty (30) days from the date of such notice. If the Premises or the Office Complex is damaged, and such damage is of the type insured against under the fire and special form property damage insurance maintained by Lessor hereunder, the cost of repairing said damage up to the amount of the deductible under said insurance policy shall be included as a part of the Operating Expenses. If the damage is not covered by such insurance policies and Lessor elects to repair the damage, then Lessee shall pay Lessor a pro rata share of the "deductible amount" (if any) under Lessor's insurance policies based on Lessee's percentage interest of the Premises and, if the damage was due to an act or omission of Lessee, Lessee shall pay Lessor the difference between the actual cost of repair and any insurance proceeds received by Lessor. If fire or other casualty shall render the whole or any material part of the Premises untenantable and the Premises cannot reasonably be expected to be made tenantable within one hundred twenty (120) days from the date of such event and neither party hereto terminates this Lease pursuant to its rights herein or in the event that more than fifty percent (50%) of the value of the Office Complex is damaged or destroyed by fire or other casualty, and Lessor does not terminate this Lease pursuant to its option granted herein, or in the event that fifty percent (50%) or less of the value of the Office Complex is damaged or destroyed by fire or other casualty and neither the whole nor any material portion of the Premises is rendered untenantable, then Lessor shall repair and restore the Premises and the Office Complex to as near their condition prior to the fire or other casualty as is reasonably possible with all due diligence and speed (subject to delays for causes beyond Lessor's reasonable control) and the rent for the period during which the Premises are untenantable shall be abated pro rata (based upon the portion of the Premises which is untenantable). In no event shall Lessor be obligated to repair or restore any special equipment or improvements installed by Lessee. -17- 18 Anything herein contained to the contrary notwithstanding, Lessor shall not be obligated to spend more than the net insurance proceeds received by Lessor on account of any fire or other casualty in order to repair or restore the Premises or the Office Complex following such casualty; provided, however, Lessor shall notify Lessee promptly after the casualty if Lessor is unwilling to expend more than the net insurance proceeds. In the event of a termination of this Lease pursuant to this Article XI, rent shall be apportioned on a per diem basis and paid to the date of the fire or other casualty. ARTICLE XII. EMINENT DOMAIN. If the whole of or any substantial part of the Premises is taken by any public authority under the power of eminent domain, or taken in any manner for any public or quasi-public use, so as to render the remaining portion of the Premises unsuitable for the purposes intended hereunder, then the term of this Lease shall cease as of the day possession shall be taken by such public authority and Lessor shall make a pro rata refund of any prepaid rent. All damages awarded for such taking under the power of eminent domain or any like proceedings shall belong to and be the property of Lessor, Lessee hereby assigning to Lessor Lessee's interest, if any, in said award. In the event that fifty percent (50%) or more of the building area or fifty percent (50%) or more of the value of the Office Complex is taken by public authority under the power of eminent domain, then, at Lessor's option, by written notice to Lessee mailed within sixty (60) days from the date possession shall be taken by such public authority, Lessor may terminate this Lease effective upon a date within ninety (90) days from the date of such notice to Lessee. Further, if the whole of or any material part of the Premises is taken by public authority under the power of eminent domain, or taken in any manner for any public or quasi-public use, so as to render the remaining portion of the Premises unsuitable for the purposes intended hereunder, upon delivery of possession to the condemning authority pursuant to the proceedings, Lessee may, at its option, terminate this Lease as to the remainder of the Premises by written notice to Lessor, such notice to be given to Lessor within thirty (30) days after Lessee receives notice of the taking. Lessee shall not have the right to terminate this Lease pursuant to the preceding sentence unless (i) the business of Lessee conducted in the portion of the Premises taken cannot be carried on with substantially the same utility and efficiency in the remainder of the Premises (or any substitute space securable by Lessee pursuant to clause (ii) hereof); and (ii) Lessee cannot secure substantially similar (in Lessee's reasonable judgment) alternate space upon the same terms and conditions as set forth in this Lease (including rental) from Lessor in the Office Complex. Any notice of termination shall specify the date no more than sixty (60) days after the giving of such notice as the date for such termination. Anything in this Article XII to the contrary notwithstanding, Lessee shall have the right to prove in any condemnation proceedings and to receive any separate award which may be made for damages to or condemnation of Lessee's movable trade fixtures and equipment and for moving expenses; provided, however, Lessee shall in no event have any right to receive any award for its interest in this Lease or for loss of leasehold; and, provided further, Lessee shall not be entitled to claim any award to the extent the award to Lessor would be reduced below the amount which would be allowed to Lessor absent such claim by Lessee. Anything in this Article XII to the contrary notwithstanding, in the event of a partial condemnation of the Office Complex or the Premises and this Lease is not terminated, Lessor shall, at its sole cost and expense, restore the Premises and Office Complex to a complete architectural unit and the Base Rent provided for herein during the period from and after the date of delivery of possession pursuant to such proceedings to the termination of this Lease shall be -18- 19 reduced to a sum equal to the product of the Base Rent provided for herein multiplied by a fraction, the numerator of which is the fair market rent of the Premises after such taking and after the same has been restored to a complete architectural unit, and the denominator of which is the fair market rent of the Premises prior to such taking. ARTICLE XIII. SURRENDER OF PREMISES: On the last day of the term of this Lease, or on the sooner termination thereof, Lessee shall peaceably surrender the Premises in good condition and repair consistent with Lessee's duty to make repairs as herein provided. On or before the last day of the term of this Lease, or the date of sooner termination thereof, Lessee shall, at its sole cost and expense, remove all of its property and trade fixtures and equipment from the Premises, and all property not removed shall be deemed abandoned. Lessee hereby appoints Lessor its agent to remove all property or Lessee from the Premises upon termination of this Lease and to cause its transportation and storage for Lessee's benefit, all at the sole cost and risk of Lessee, and Lessor shall not be liable for damage, theft, misappropriation or loss thereof and Lessor shall not be liable in any manner in respect thereto. Lessee shall pay all costs and expenses of such removal, transportation and storage. Lessee shall leave the Premises in good order, condition and repair, reasonable wear and tear and damage from fire and other casualty not caused by Lessee excepted. Lessee shall reimburse Lessor upon demand for any expenses incurred by Lessor with respect to removal, transportation or storage of abandoned property and with respect to restoring said Premises to good order, condition and repair. All improvements, alterations, additions, installations and fixtures, other than Lessee's trade fixtures and equipment, which have been made or installed by either Lessor or Lessee upon the Premises shall remain the property of Lessor and shall be surrendered with the Premises as a part thereof, unless Lessee is required to remove same pursuant to the provisions of Article VIII hereof. If the Premises are not surrendered at the end of the term or sooner termination thereof, Lessee shall indemnify Lessor against loss or liability resulting from delay by Lessee in so surrendering the Premises, including, without limitation, claims made by any succeeding tenants founded on such delay and any attorneys' fees resulting therefrom. Lessee shall promptly surrender all keys for the Premises to Lessor at the place then fixed for the payment of rent and shall inform Lessor of the combinations of any vaults, locks and safes left on the Premises. In the event Lessee remains in possession of the Premises after expiration of this lease and without the execution of a new lease, but with Lessor's written consent, Lessee shall be deemed to be occupying the Premises as a tenant from month-to-month, subject to all the provisions, conditions and obligations of this Lease insofar as the same can be applicable to a month-to-month tenancy, except that the Base Rent shall be escalated to Lessor's then current base rent for the Premises according to Lessor's then current rental rate schedule for prospective tenants. In the event Lessee remains in possession of the Premises after expiration of this Lease and without the execution of a new lease and without Lessor's written consent, Lessee shall be deemed to be occupying the Premises without claim of right and Lessee shall pay Lessor for all costs arising out of loss or liability resulting from delay by Lessee in so surrendering the Premises as above provided and shall pay a charge for each day of occupancy in an amount equal to the greater of (i) double the Base Rent and Additional Rent (on a daily basis) then currently being charged by Lessor on new leases in the Office Complex for space similar to the Premises, or (ii) double the Base Rent and Additional Rent (on a daily basis) payable by Lessee under this Lease immediately prior the expiration of this Lease. ARTICLE XIV. DEFAULT OF LESSEE: The occurrence of any one or more of the following events (in this Article sometimes called "Event -19- 20 of Default") shall constitute a default and breach of this Lease by Lessee: A. If Lessee fails to pay any Base Rent or Additional Rent payable under this Lease or fails to pay any obligation required to be paid by Lessee when and as the same shall become due and payable, and such default continues for a period of five (5) days after written notice thereof given by Lessor to Lessee. B. If Lessee fails to perform any of Lessee's nonmonetary obligations under this Lease for a period of thirty (30) days after written notice from Lessor; provided that if more time is required to complete such performance, Lessee shall not be in default if Lessee commences such performance within the thirty-day period and thereafter diligently pursues its completion. However, Lessor shall not be required to give such notice if Lessee's failure to perform constitutes a non-curable breach of this Lease. The notice required by this subsection is intended to satisfy any and all notice requirements imposed by law on Lessor and is not in addition to any such requirement. C. If Lessee, by operation of law or otherwise, violates the provisions of Article X hereof relating to assignment, sublease, mortgage or other transfer of Lessee's interest in this Lease or in the Premises or in the income arising therefrom. D. If Lessee, by operation of law or otherwise, violates the provisions of Article XVI.R relating to compliance with environmental laws. E. If (i) Lessee makes a general assignment or general arrangement for the benefit of creditors; (ii) a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by or against Lessee and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease and possession is not restored to Lessee within thirty (30) days; or (iv) if substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease is subjected to attachment, execution or other judicial or non-judicial seizure which is not discharged within thirty (30) days. If a court of competent jurisdiction determines that any of the acts described in this subsection does not constitute an Event of Default and a trustee is appointed to take possession (or if Lessee remains a debtor in possession) and such trustee or Lessee transfers Lessee's interest hereunder, then Lessor shall receive, as Additional Rent, the difference between the rent (or any other consideration) paid in connection with such assignment or sublease and the rent payable by Lessee hereunder. As used in this subsection, the term "Lessee" shall also mean any guarantor of Lessee's obligations under this Lease. If any such Event of Default shall occur, Lessor, at any time during the continuance of any such Event of Default, may give written notice to Lessee stating that this Lease shall expire and terminate on the date specified in such notice, and upon the date specified in such notice this Lease, and all rights of Lessee under this Lease, including all rights of renewal whether exercised or not, shall expire and terminate, or in the alternative or in addition to the foregoing remedy, Lessor may assert and -20- 21 have the benefit of any other remedy allowed herein, at law, or in equity. Upon the occurrence of an Event of Default by Lessee, and at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have, Lessor shall be entitled to the rights and remedies set forth below: A. Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall not terminate unless Lessor gives written Notice to Lessee of its intention to terminate this Lease and Lessee shall immediately surrender possession of the Premises to Lessor. In such event, Lessor shall have the immediate right to reenter and remove all persons and property, and such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of Lessee, all without service of notice or resort to legal process and without being deemed guilty of trespass, or becoming liable for any loss or damage which may be occasioned thereby. In the event that Lessor shall elect to so terminate this Lease, then Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default, including: 1. The equivalent of the amount of the Base Rent and Additional Rent which would be payable under this Lease by Lessee if this Lease were still in effect, less 2. The net proceeds of any reletting affected pursuant to the provisions of this Article XIV hereof after deducting all of Lessor's reasonable expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, reasonable attorneys' fees, alteration costs, and expenses of preparation of the Premises, or any portion thereof, for such reletting. Lessee shall pay such current damages in the amount determined in accordance with the terms of this Article XIV as set forth in a written statement thereof from Lessor to Lessee (hereinafter called the "Deficiency"), to Lessor in monthly installments on the days on which the rent would have been payable under this Lease if this Lease were still in effect, and Lessor shall be entitled to recover from Lessee each monthly installment of the Deficiency as the same shall arise. B. At any time after an Event of Default, whether or not Lessor shall have collected any monthly Deficiency as set forth in this Article XIV, Lessor shall be entitled to recover from Lessee, and Lessee shall pay to Lessor, on demand, as and for final damages for Lessee's default, an amount equal to the then present worth of the aggregate of the Base Rent and Additional Rent and any other charges to be paid by Lessee hereunder for the unexpired portion of the term of this Lease (assuming this Lease had not been terminated). In the computation of present worth, a discount at the rate of 6% per annum shall be employed. If the Premises, or any portion thereof, shall be relet by Lessor for the unexpired term of this Lease, or any part thereof, before presentation of proof of such damages to any court, commission or tribunal, the amount of rent received upon such reletting shall be offset against any -21- 22 monies claimed pursuant to this subsection. Nothing herein contained or contained in this Article XIV shall limit or prejudice the right of Lessor to prove for and obtain, as damages, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved, whether or not such amount be greater, equal to or less than the amount of the difference referred to above. C. Upon the occurrence of an Event of Default by Lessee, Lessor shall also have the right, with or without terminating this Lease, to reenter the Premises to remove all persons and property from the Premises. Such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Lessee. If Lessor shall elect to reenter the Premises, Lessor shall not be liable for damages by reason of such reentry. D. If Lessor does not elect to terminate this Lease as provided in this Article XIV then Lessor may, from time to time, recover all rent as it becomes due under this Lease. At any time thereafter, Lessor may elect to terminate this Lease and to recover damages to which Lessor is entitled. E. In the event that Lessor should elect to terminate this Lease and to relet the Premises, it may execute any new lease in its own name. In the event that Lessor should not elect to terminate this Lease, it may re-let the Premises to a substitute tenant. Lessee hereunder shall have no right or authority whatsoever to collect any rent from such substitute tenant. The proceeds of any such reletting shall be applied as follows: 1. First, to the payment of any indebtedness other than rent due hereunder from Lessee to Lessor, including but not limited to storage charges or brokerage commissions owing from Lessee to Lessor as the result of such reletting; 2. Second, to the payment of the costs and expenses of reletting the Premises, including alterations and repairs which Lessor, in its sole discretion, deems reasonably necessary and advisable and reasonable attorneys' fees incurred by Lessor in connection with the retaking of the Premises and such reletting; 3. Third, to the payment of rent and other charges due and unpaid hereunder; and 4. Fourth, to the payment of future rent and other damages payable by Lessee under this Lease. Lessor shall not be deemed to have terminated this Lease and the Lessee's right to possession of the leasehold or the liability of Lessee to pay rent thereafter to accrue or its liability for damages under any of the provisions hereof, unless Lessor shall have notified Lessee in writing that it has so elected to terminate this Lease. Lessee covenants that the retaking of possession by Lessor or the service by Lessor of any notice pursuant to the applicable unlawful detainer statutes of the state in which the Office Complex is located and Lessee's surrender of possession pursuant to such notice shall not (unless Lessor elects to the contrary at the time of, or at any time subsequent to the service of, such notice, and such election be evidenced by a written notice to Lessee) be deemed to be a termination of this Lease or of Lessee's right to possession thereof. -22- 23 All rights, options and remedies of Lessor contained in this Lease shall be construed and held to be cumulative, and no one of them shall be exclusive of the other, and Lessor shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law whether or not stated in this Lease. No waiver by Lessor of a breach of any of the terms, covenants or conditions of this Lease by Lessee shall be construed or held to be a waiver of any succeeding or preceding breach of the same or any other term, covenant or condition therein contained. No waiver of any default of Lessee hereunder shall be implied from any omission by Lessor to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect default other than as specified in said waiver. The consent or approval by Lessor to or of any act by Lessee requiring Lessor's consent or approval shall not be deemed to waive or render unnecessary Lessor's consent to or approval of any subsequent similar acts by Lessee. Lessee shall reimburse Lessor, upon demand, for any costs or expenses incurred by Lessor in connection with any breach or default of Lessee under this Lease, whether or not suit is commenced or judgment entered. Such costs shall include, but not be limited to: legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if any action for breach of or to enforce the provisions of this Lease is commenced, the court in such action shall award to the party in whose favor a judgment is entered a reasonable sum as attorneys' fees and costs. Such attorneys' fees and costs shall be paid by the losing party in such action. Lessee shall also indemnify Lessor against and hold Lessor harmless from all costs, expenses, demands and liability incurred by Lessor if Lessor becomes or is made a party to any claim or action (a) instituted by Lessee, or by any third party against Lessee; (b) for foreclosure of any lien for labor or material furnished to or for Lessee or such other person; (c) otherwise arising out of or resulting from any act or transaction of Lessee or such other person; or (d) necessary to protect Lessor's interest under this Lease in a bankruptcy proceeding or other proceeding under Title 11 of the United States Code, as amended. Lessee shall defend Lessor against any such claim or action at Lessee's expense with counsel reasonably acceptable to Lessor or, at Lessor's election, Lessee shall reimburse Lessor for any legal fees or costs incurred by Lessor in any such claim or action. In addition, Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection with Lessee's request for Lessor's consent in connection with any act which Lessee proposed to do and which requires Lessor's consent. Lessee hereby waives all claims by Lessor's reentering and taking possession of the Premises or removing and storing the property of Lessee as permitted under this Lease and will save Lessor harmless from all losses, costs or damages occasioned Lessor thereby. No such reentry shall be considered or construed to be a forcible entry by Lessor. ARTICLE XV. SUBORDINATION: This Lease shall be subject and subordinate to any mortgage, deed of trust or ground lease now or hereafter placed upon the Premises, the Office Complex, the Property or any portion thereof by Lessor or its successors or assigns, and to amendments, replacements, renewals and extensions thereof. Lessee agrees at any time hereafter, upon demand, to execute and deliver any instruments, releases or other documents that may be reasonably required for the purpose of subjecting and subordinating this Lease, as above provided, to the lien of any such mortgage, deed of trust or ground lease. It is agreed, nevertheless, that as long as Lessee is not in default in the payment of Base Rent, Additional Rent, and other charges to be paid by Lessee under this Lease and in the performance of all covenants, agreements and con- -23- 24 ditions to be performed by Lessee under this Lease, then neither Lessee's right to quiet enjoyment under this Lease, nor the right of Lessee to continue to occupy the Premises and to conduct its business thereon, in accordance with the terms of this Lease as against any lessor, lessee, mortgagee, trustee or their successors or assigns shall be interfered with. The above subordination shall be effective without the necessity of the execution and delivery of any further instruments on the part of Lessee to effectuate such subordination. Notwithstanding anything hereinabove contained in this Article XV, in the event the holder of any mortgage, deed of trust or ground lease shall at any time elect to have this Lease constitute a prior and superior lien to its mortgage, deed of trust or ground lease, then, and in such event, upon any such holder or landlord notifying Lessee to that effect in writing, this Lease shall be deemed prior and superior in lien to such mortgage, deed of trust or ground lease, whether this Lease is dated prior to or subsequent to the date of such mortgage, deed of trust or ground lease, and Lessee shall execute such attornment agreement as may be reasonably requested by said holder or Lessor. Lessee agrees, provided the mortgagee, ground lessor or trust deed holder under any mortgage, ground lease, deed of trust or other security instrument shall have notified Lessee in writing (by the way of a notice of assignment of lease or otherwise) of its address, that Lessee shall give such mortgagee, ground lessor, trust deed holder or other secured party ("Mortgagee"), simultaneously with delivery of notice to Lessor, by registered or certified mail, a copy of any such notice of default served upon Lessor. Lessee further agrees that said Mortgagee shall have the right to cure any alleged default during the same period that Lessor has to cure such default. ARTICLE XVI. MISCELLANEOUS: A. Lessee represents that Lessee has dealt directly with and only with Lee & Associates Arizona (Craig Coppolla and Jim Watkins) and Greystone Properties (Jim Marohnic), as brokers, in connection with this Lease and that insofar as Lessee knows, no other broker negotiated or participated in negotiations of this Lease or submitted or showed the Premises or is entitled to any commission in connection therewith. Lessor and Lessee agree that no broker shall be entitled to any commission in connection with any renewal of the term of this Lease or any expansion of the Premises. B. Lessee agrees from time to time, upon not less than ten (10) days prior written request by Lessor, to deliver to Lessor a statement in writing certifying (i) this Lease is unmodified and in full force and effect (or if there have been modifications that the Lease as modified is in full force and effect and stating the modifications); (ii) the dates to which the rent and other charges have been paid; (iii) Lessor is not in default in any provision of this Lease or, if in default, the nature thereof specified in detail; (iv) the amount of monthly rental currently payable by Lessee; (v) the amount of any prepaid rent, and (vi) such other matters as may be reasonably requested by Lessor or any Mortgagee or prospective purchaser of the Office Complex. If Lessee does not deliver such statement to Lessor within such ten (10) day period, Lessor and any prospective purchaser or encumbrancer of the Premises or the Office Complex may conclusively presume and rely upon the following facts: (i) that the terms and provisions of this Lease have not been changed except as -24- 25 otherwise represented by Lessor, (ii) that this Lease has not been cancelled or terminated and is in full force and effect, except as otherwise represented by Lessor; (iii) that the current amounts of the Base Rent and security deposit are as represented by Lessor and that any charges made against the security deposit are uncontested and valid; (iv) that there have been no subleases or assignments of the Lease; (v) that not more than one month's Base Rent or other charges have been paid in advance; and (vi) that Lessor is not in default under the Lease. In such event, Lessee shall be estopped from denying the truth of such facts. C. All notices, demands and requests shall be in writing, and shall be effectively served by forwarding such notice, demand or request by certified or registered mail, postage prepaid, or by commercial overnight courier service addressed as follows: (1) If addressed to Lessee prior to Commencement: Business Resource Group 1515 East Missouri Avenue, #240 Phoenix, Arizona 85014 Attn: Steven Petersen (ii) If addressed to Lessee after Commencement: Business Resource Group 6720 North Scottsdale Road, Ste. 130 Scottsdale, Arizona 85253 Attn: Steven Petersen with a copy to: Tim Thomas c/o Business Resource Group Suites 100 & 101 2150 North First Street San Jose, California 95131 (iii) If addressed to Lessor: Scottsdale Spectrum, L.L.C. c/o Opus West Corporation 2415 East Camelback Road, Suite 800 Phoenix, Arizona 85016-4201 Attn: Thomas W. Roberts with a copy to: Opus U.S. Corporation 2415 East Camelback Road, Suite 800 Phoenix, Arizona 85016-4201 Attn: Daniel T. Haug, Esq. with a copy to: Opus West Management Corporation 2415 East Camelback Road, Suite 840 Phoenix, Arizona 85016-4201 Attn: Bret Borg and with a copy to: Meyers Law Firm, P.C. 2415 East Camelback Road, Suite 900 Phoenix, Arizona 85016 Attn: Donald L. Meyers, Esq. -25- 26 or at such other addresses as Lessor and Lessee may hereafter designate by written notice. The effective date of all notices shall be the time of mailing such notice or the date of delivery to a commercial overnight courier service. D. All rights and remedies of Lessor under this Lease or that may be provided by law may be executed by Lessor in its own name, individually, or in the name of its agent, and all legal proceedings for the enforcement of any such rights or remedies, including those set forth in Article XIV, may be commenced and prosecuted to final judgment and execution by Lessor in its own name or in the name of its agent. E. Lessor covenants and agrees that Lessee, upon paying the Base Rent, Additional Rent and other charges herein provided for and observing and keeping the covenants, agreements and conditions of this Lease on its part to be kept and performed, shall lawfully and quietly hold, occupy and enjoy the Premises during the terms of this Lease. Time is of the essence of this Lease and each and every provision contained herein, and any extension of time granted by Lessor to Lessee for the performance of any obligation of Lessee under this Lease shall not be considered an extension of time for the performance of any subsequent obligation of Lessee under this Lease. F. The covenants and agreements herein contained shall bind and inure to the benefit of Lessor and its successor and assigns and Lessee and its permitted successors and assigns. All obligations of each party constituting Lessee hereunder shall be the joint and several obligations of each such party. G. If any term or provision of this Lease shall to any extent be held invalid or unenforceable, the remaining terms and provisions of this Lease shall not be affected thereby, but each term and provision of this Lease shall be valid and enforced to the fullest extent permitted by law. This Lease shall be construed and enforced in accordance with the laws of the state in which the Premises are located. H. Lessee covenants not to do or suffer any waste or damage or disfigurement or injury to the Premises or the Office Complex and Lessee further covenants that it will not vacate or abandon the Premises during the term of this Lease. I. The term "Lessor" as used in this Lease so far as covenants or obligations on the part of Lessor are concerned shall be limited to mean and include only the owner or owners of the Office Complex at the time in question, and in the event of any transfer or transfers or conveyances the then grantor shall be automatically freed and released from all personal liability accruing from and after the date of such transfer or conveyance as respects the performance of any covenant or obligation on the part of Lessor contained in this Lease to be performed, it being intended hereby that the covenants and obligations contained in this Lease on the part of Lessor shall be binding on the Lessor, its successors and assigns, only during and in respect to their respective successive periods and ownership. In the event of a sale or conveyance by Lessor of the Office Complex or any part of the Office Complex, the same shall operate to release Lessor from any future -26- 27 liability upon any of the covenants or conditions herein contained and in such event Lessee agrees to look solely to the responsibility of the successor in interest of Lessor in and to this Lease. This Lease shall not be affected by any such sale or conveyance, and Lessee agrees to attorn to the purchaser or grantee, which purchaser or grantee shall be personally obligated on this Lease only so long as it is the owner of Lessor's interest in and to this Lease. J. The marginal or topical headings of the several Articles are for convenience only and do not define, limit or construe the contents of said Articles. K. All preliminary negotiations are merged into and incorporated in this Lease, except for written collateral agreements executed contemporaneously herewith. L. This Lease can only be modified or amended by an agreement in writing signed by the parties hereto. No receipt of money by Lessor from Lessee or any other person after termination of this Lease or after the service of any notice or after the commencement of any suit, or after final judgment for possession of the Premises, shall reinstate, continue or extend the term of this Lease or affect any such notice, demand or suit, or imply consent for any action for which Lessor's consent is required, unless specifically agreed to in writing by Lessor. Any amounts received by Lessor may be allocated to any specific amounts due from Lessee to Lessor as Lessor determines. M. Lessor shall have the right to close any portion of the building area or land area to the extent as may, in Lessor's reasonable opinion, be necessary to prevent a dedication thereof or the accrual of any rights to any person or the public therein. Lessor shall at all times have full control, management and direction of the Office Complex, subject to the rights of Lessee in the Premises, and Lessor reserves the right at any time and from time to time to reduce, increase, enclose or otherwise change the size, number and location of buildings, layout and nature of the Office Complex, to construct additional buildings and additions to any building, and to create additional rentable areas through use and/or enclosure of common areas, or otherwise, and to place signs on the Office Complex, and to change the name, address, number or designation by which the Office Complex is commonly known. No implied easements are granted by this Lease. N. Lessee shall permit Lessor (or its designees) to erect, use, maintain, replace and repair pipes, cables, conduits, plumbing, vents, and telephone, electric and other wires or other items, in, to and through the Premises, as and to the extent that Lessor may now or hereafter deem necessary or appropriate for the proper operation and maintenance of the Office Complex. O. Employees or agents of Lessor have no authority to make or agree to make a lease or other agreement or undertaking in connection herewith. The submission of this document for examination does not constitute an offer to lease, or a reservation of, or option for, the Premises. This document becomes effective and binding only upon the execution and delivery hereof by the proper officers or Lessor and by Lessee. Lessee -27- 28 confirms that Lessor and its agents have made no representations or promises with respect to the Premises or the making of or entry into this Lease except as in this Lease expressly set forth, and Lessee agrees that no claim or liability shall be asserted by Lessee against Lessor for, and Lessor shall not be liable by reason of, breach of any representations or promises not expressly stated in this Lease. This Lease, except for the Building Rules and Regulations, in respect to which subparagraph P of this Article shall prevail, can be modified or altered only by agreement in writing between Lessor and Lessee, and no act or omission of any employee or agent of Lessor shall alter, change or modify any of the provisions hereof. P. Lessee shall perform, observe and comply with the Building Rules and Regulations of the Office Complex as set forth on Exhibit B attached hereto and by this reference incorporated herein, with respect to the safety, care and cleanliness of the Premises and the Office Complex, and the preservation of good order thereon, and, upon written notice thereof to Lessee, Lessee shall perform, observe and comply with any changes, amendments or additions thereto as from time to time shall be established and deemed advisable by Lessor for tenants of the Office Complex. Lessor shall not be liable to Lessee for any failure of any other tenant or tenants of the Office Complex to comply with such Building Rules and Regulations. Q. Lessee shall not use the Premises 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 or regulation now in force or which may hereafter be enacted or promulgated. Lessee shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules and regulations now in force or which may hereafter be in force, and with the requirements of any fire insurance underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises. Lessee shall use the Premises and comply with any recorded covenants, conditions, and restrictions affecting the Premises and the Office Complex as of the commencement of the Lease or which are recorded during the lease term. R. Lessee shall not (either with or without negligence) cause or permit the escape, disposal or release of any biologically or chemically active or other hazardous substances or materials. Lessee shall not allow the storage or use of such substances or materials in any manner not sanctioned by law and by the highest standards prevailing in the industry for the storage and use of such substances or materials, nor allow to be brought into the Office Complex any such materials or substances except to use in the ordinary course of Lessee's business, and then only after written notice is given to Lessor of the identity of such substances or materials. Without limitation, hazardous substances and materials shall include those described in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 et seq., any applicable state or local laws and the regulations adopted under these acts. If any lender or governmental agency shall ever require testing to ascertain whether or not there has been any release of hazardous -28- 29 materials, then the reasonable costs thereof shall be reimbursed by Lessee to Lessor upon demand as additional charges if such requirement applies to the Premises. In addition, Lessee shall execute affidavits, representations and the like from time to time at Lessor's request concerning Lessee's best knowledge and belief regarding the presence of hazardous substances or materials on the Premises. In all events, Lessee shall indemnify Lessor in the manner elsewhere provided in this Lease from any release of hazardous materials on the Premises occurring while Lessee is in possession, or elsewhere if caused by Lessee or persons acting under Lessee. The within covenants shall survive the expiration or earlier termination of the term of this Lease. S. All obligations of Lessee hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including, without limitation, all payment obligations with respect to Operating Expenses and Real Estate Taxes and all obligations concerning the condition of the Premises. T. Any claim which Lessee may have against Lessor for default in performance of any of the obligations herein contained to be kept and performed by Lessor shall be deemed waived unless such claim is asserted by written notice thereof to Lessor within ten (10) days of commencement of the alleged default or of accrual of the cause of action and unless suit be brought thereon within six (6) months subsequent to the accrual of such cause of action. Furthermore, Lessee agrees to look solely to Lessor's interest in the Office Complex for the recovery of any judgment from Lessor, it being agreed that Lessor, or if Lessor is a partnership, its partners whether general or limited, or if Lessor is a corporation, its directors, officers or shareholders, or if Lessor is a limited liability company, its members, shall never be personally liable for any such judgment. U. Lessee shall furnish to Lessor promptly upon demand, a corporate resolution, proof of due authorization of partners, or other appropriate documentation reasonably requested by Lessor evidencing the due authorization of Lessee to enter into this Lease. V. This Lease shall not be deemed or construed to create or establish any relationship or partnership or joint venture or similar relationship or arrangement between Lessor and Lessee hereunder. W. Lessee shall in all respects comply with the Americans With Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.), as the same may be amended from time to time (as amended, the "ADA"), and Lessee agrees to indemnify and save Lessor and its managing agent harmless against and from any and all claims, loss, damage and expense by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from any failure or alleged failure of Lessee to comply with the ADA or arising from any claim made under the ADA in connection with the Premises, and from and against all costs, reasonable attorneys' fees, expenses and liabilities incurred in or about any such claim or action or proceeding brought thereon; in case any action or proceeding be brought against Lessor or its managing agent by reason of any such claim, Lessee, upon notice from Lessor, covenants to resist or defend such action -29- 30 or proceeding by counsel reasonably satisfactory to Lessor. X. Lessee shall not place, or permit to be placed or maintained, on any exterior door, wall or window of the Premises any sign, awning or canopy, or advertising matter or other thing of any kind, and will not place of maintain any decoration, lettering or advertising matter on the glass of any window or door, or that can be seen through the glass, of the Premises except as specifically approved in writing by Lessor. Lessee further agrees to maintain such sign, awning, canopy, decoration, lettering, advertising matter or thing as may be approved, in good condition and repair at all times. Lessee agrees at Lessee's sole cost, that any Lessee sign will be maintained in strict conformance with Lessor's sign criteria, if any, as to design, material, color, location, size, letter style, and method of installation. ARTICLE XVII. SUBSTITUTE PREMISES: Lessor shall have the right at any time during the term hereof, upon giving Lessee not less than thirty (30) days prior written notice, to move and furnish Lessee with space elsewhere in the Office Complex on a first floor off a lobby entrance, of approximately the same size as the Premises, and remove and place Lessee in such space, all upon the effective date stated in the notice from Lessor to Lessee, and upon such effective date, such substitute space shall be deemed to constitute the leased premises instead of and in lieu of the premises originally demised. Lessor shall, at Lessor's expense, physically move the furniture, equipment and files of Lessee then located in the original premises to the substitute space, and Lessor shall pay the costs of moving the then existing telephone equipment to the new location. If Lessor moves Lessee to such new space, all of the terms, covenants and conditions of this Lease shall remain in full force and effect and be deemed applicable to such new space, and such new space shall thereafter be deemed the Premises as though Lessor and Lessee had entered into an express written amendment of this Lease with respect thereto. Anything herein to the contrary notwithstanding, Lessor shall not be liable for any loss of business or loss of profits in connection with any move to such substitute space. ARTICLE XVIII. MISCELLANEOUS TAXES: Lessee shall pay, prior to delinquency, all taxes assessed or levied upon its occupancy of the Premises, or upon the trade fixtures, furnishings, equipment and all other personal property of Lessee located in the Premises, and when possible, Lessee shall cause such trade fixtures, furnishings, equipment and other personal property to be assessed and billed separately from the property of Lessor. In the event any or all of Lessee's trade fixtures, furnishings, equipment or other personal property, or Lessee's occupancy of the Premises, shall be assessed and taxed with the property of Lessor, Lessee shall pay to Lessor its share of such taxes within ten (10) days after delivery to Lessee by Lessor of a statement in writing setting forth the amount of such taxes applicable to Lessee's personal property. ARTICLE XIX. OTHER PROVISIONS: The following are made a part hereof, with the same force and effect as if specifically set forth herein: A. Floor Plan - Exhibit A. B. Building Rules and Regulations - Exhibit B. C. Rider To Lease - Exhibit C. D. First Right of Offer Space - Exhibit D. -30- 31 IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year first above written. LESSOR: LESSEE: SCOTTSDALE SPECTRUM, L.L.C., BUSINESS RESOURCE GROUP, an Arizona limited liability a California corporation company By Opus West Corporation By /s/ [SIG] a Minnesota corporation ---------------------- Its Managing Member Its V.P. Finance, CFO ------------------ By /s/ THOMAS W. ROBERTS ------------------------ Thomas W. Roberts Its President -31- 32 EXHIBIT A FLOOR PLAN Exhibit A (Page 1 of 1) 33 EXHIBIT B BUILDINGS RULES AND REGULATIONS 1. Any sign, lettering, picture, notice or advertisement installed on or in any part of the Premises and visible from the exterior of the Office Complex, or visible from the exterior of the Premises, shall be installed at Lessee's sole cost and expense, and in such manner, character and style as Lessor may approve in writing. In the event of a violation of the foregoing by Lessee, Lessor may remove the same without any liability and may charge the expense incurred by such removal to Lessee. 2. No awning or other projection shall be attached to the outside walls of the Office Complex. No curtains, blinds, shades or screens visible from the exterior of the Office Complex or visible from the exterior of the Premises shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Lessor. Such curtains, blinds, shades, screens or other fixtures must be of a quality, type, design and color, and attached in the manner, approved by Lessor. 3. Lessee and its servants, employees, customers, invitees and guests shall not obstruct sidewalks, entrances, passages, corridors, vestibules, halls, elevators or stairways in and about the Office Complex which are used in common with other tenants and their servants, employees, customers, guests and invitees and which are not a part of the Premises of Lessee. Lessee shall not place objects against glass partitions or doors or windows which would be unsightly from the Office Complex corridors or from the exterior of the Office Complex and will promptly remove any such objects upon notice from Lessor. 4. Lessee shall not make excessive noises, cause disturbances or vibrations or use or operate any electrical or mechanical devices that emit excessive sound or other waves or disturbances, and Lessee shall not create obnoxious odors (including cigarette, cigar and pipe smoke), any of which may be offensive to the other tenants and occupants of the Office Complex, or that would interfere with the operation of any device, equipment, radio, television broadcasting or reception from or within the Office Complex or elsewhere and shall not place or install any projections, antennas, aerials or similar devices inside or outside of the Premises or on the Office Complex. 5. Lessee shall not waste electricity, water or air conditioning and shall cooperate fully with Lessor to insure the most effective operation of the Office Complex's heating and air conditioning systems and shall refrain from attempting to adjust any controls other than unlocked room thermostats, if any, installed for Lessee's use. Lessee shall keep corridor doors closed. 6. Lessee assumes full responsibility for protecting its space from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed and secured after normal business hours. 7. No person or contractor not employed by Lessor shall be used to perform janitorial work, window washing, cleaning, maintenance, repair or similar work in the Premises without the written consent of Lessor. 8. In no event shall Lessee bring into the Office Complex inflammables, such as gasoline, kerosene, naphtha and benzine, or explosives or any other article of intrinsically dangerous nature. Exhibit B (Page 1 of 4) 34 If, by reason of the failure of Lessee to comply with the provisions of this subparagraph, any insurance premium for all or any part of the Office Complex shall at any time be increased, Lessee shall make immediate payment of the whole of the increased insurance premium, without waiver of any of Lessor's other rights at law or in equity for Lessee's breach of this Lease. 9. Lessee shall comply with all applicable federal, state and municipal laws, ordinances and regulations and building rules and shall not directly or indirectly make any use of the Premises which may be prohibited by any of the foregoing or which may be dangerous to persons or property or may increase the cost of insurance or require additional insurance coverage. 10. Lessor shall have the right to prohibit any advertising by Lessee which in Lessor's reasonable opinion tends to impair the reputation of the Office Complex or its desirability as an office complex for office use, and upon written notice from Lessor, Lessee shall refrain from or discontinue such advertising. 11. The Premises shall not be used for cooking, lodging, sleeping or for any immoral or illegal purpose. 12. Lessee and Lessee's servants, employees, agents, visitors and licensees shall observe faithfully and comply strictly with the foregoing rules and regulations and such other and further appropriate rules and regulations as Lessor or Lessor's agent may from time to time adopt. Reasonable notice of any additional rules and regulations shall be given in such manner as Lessor may reasonably elect. 13. Unless expressly permitted by Lessor, no additional locks or similar devices shall be attached to any door or window and no keys other than those provided by Lessor shall be made for any door. If more than two keys for one lock are desired by Lessee, Lessor may provide the same upon payment by Lessee. Upon termination of this Lease or of Lessee's possession, Lessee shall surrender all keys of the Premises and shall explain to Lessor all combination locks on safes, cabinets and vaults. 14. Any carpeting cemented down by Lessee shall be installed with a releasable adhesive. In the event of a violation of the foregoing by Lessee, Lessor may charge the expense incurred by such removal to Lessee. 15. The water and wash closets, drinking fountains and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, coffee grounds or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the lessee who, or whose servants, employees, agents, visitors or licensees, shall have caused the same. No person shall waste water by interfering or tampering with the faucets or otherwise. 16. No electrical circuit for any purpose shall be brought into the Premises without Lessor's written permission specifying the manner in which same may be done. 17. No bicycle or other vehicle, and no dog or other animal, shall be allowed in offices, halls, corridors or elsewhere in the Office Complex. 18. Lessee shall not throw anything out of the door or windows or down any passageways or elevator shafts. 19. All loading, unloading, receiving or delivery of goods, supplies or disposal of garbage or refuse shall be made only through entryways and freight elevators provided for such purposes Exhibit B (Page 2 of 4) 35 and indicated by Lessor. Lessee shall be responsible for any damage to the Office Complex or the property of its employees or others and injuries sustained by any person whomsoever resulting from the use or moving of such articles in or out of the Premises, and shall make all repairs and improvements required by Lessor or governmental authorities in connection with the use of such articles. 20. All safes, equipment or other heavy articles shall be carried in or out of the Premises only at such time and in such manner as shall be prescribed in writing by Lessor, and Lessor shall in all cases have the right to specify the proper position of any such safe, equipment or other heavy article, which shall be used by Lessee in a manner which will not interfere with or cause damage to the Premises or the Office Complex or to the other tenants or occupants of the Office Complex. Lessee shall be responsible for any damage to the Office Complex or the property of its employees or others and injuries sustained by any person whomsoever resulting from the use or moving of such articles in or out of the Premises, and shall make all repairs and improvements required by Lessor or governmental authorities in connection with the use or moving of such articles. 21. Canvassing, soliciting and peddling in the Office Complex is prohibited and all tenants of the Office Complex shall cooperate to prevent the same. 22. Vending machines shall not be installed without permission of Lessor; provided, however, Lessor consents to the installation of vending machines in the pantry or kitchen area of the Premises for the dispensing of soda and other similar drinks to Lessee's employees and guests. 23. Wherever in these Building Rules and Regulations the word "Lessee" occurs, it is understood and agreed that it shall mean Lessee and Lessee's associates, agents, clerks, servants and visitors. Wherever the word "Lessor" occurs, it is understood and agreed that it shall mean Lessor and Lessor's assigns, agents, clerks, servants and visitors. 24. Lessor shall have the right to enter upon the Premises at all reasonable hours for the purpose of inspecting the same. 25. Lessor shall have the right to enter the Premises at hours convenient to Lessee for the purpose of exhibiting the same to prospective tenants within the sixty (60) day period prior to the expiration of this Lease, and Lessor may place signs advertising the Premises for rent on the windows and doors of said Premises at any time within said sixty (60) day period. 26. Lessee and its servants, employees, customers, invitees and guests shall, when using the common parking facilities, if any, in and around the Office Complex, observe and obey all signs regarding fire lanes and no parking zones, and when parking, shall always park between the designated lines. Lessor reserves the right to tow away, at the expense of the owner, any vehicle which is improperly parked or parked in a no parking zone. All vehicles shall be parked at the sole risk of the owner, and Lessor assumes no responsibility for any damage to or loss of vehicles. No vehicles shall be parked overnight. 27. At all times the Office Complex shall be in charge of Lessor's employee in charge and (a) persons may enter the Office Complex only in accordance with Lessor's regulations, (b) persons entering or departing from the Office Complex may be questioned as to their business in the Office Complex, and the right is reserved to require the use of an identification card or other access device and the registering of such persons as to the hour of entry and departure, nature of visit, and other information deemed necessary Exhibit B (Page 3 of 4) 36 for the protection of the Office Complex, and (c) all entries into and departures from the Office Complex will take place through one or more entrances as Lessor shall from time to time designate; provided, however, anything herein to the contrary notwithstanding, Lessor shall not be liable for any lack of security in respect to the Office Complex whatsoever. Lessor will normally not enforce clauses (a), (b) and (c) above from 7:00 a.m. to 6:00 p.m., Monday through Friday, and from 8:00 a.m. to 1:00 p.m. on Saturdays, but it reserves the right to do so or not to do so at any time at its sole discretion. In case of invasion, mob, riot, public excitement or other commotion, Lessor reserves the right to prevent access to the Office Complex during the continuance of the same by closing the doors or otherwise, for the safety of the tenants or the protection of the Office Complex and the property therein. Lessor shall in no case be liable for damages for any error or other action taken with regard to the admission to or exclusion from the Office Complex of any person. 28. All entrance doors to the Premises shall be locked when the Premises are not in use. All corridor doors shall also be closed during times when the air conditioning equipment in the Office Complex is operating so as not to dissipate the effectiveness of the system or place an overload thereon. 29. Lessor reserves the right at any time and from time to time to rescind, alter or waive, in whole or in part, any of these Building Rules and Regulations when it is deemed necessary, desirable or proper, in Lessor's judgment, for its best interest or for the best interest of the tenants of the Office Complex. 30. Smoking shall be permitted only in the smoking areas located outside of the building, as designated and redesignated from time to time by Lessor, and Lessee and its servants, employees, customers, invitees and guests shall not smoke anywhere at the Office Complex (other than the smoking areas designated by Lessor), including without limitation Lessee's Premises and the sidewalks, entrances, passages, corridors, halls, elevators and stairways of the Office Complex. Initials: Lessor ___________ Lessee ___________ Exhibit B (Page 4 of 4) 37 EXHIBIT C RIDER TO OFFICE LEASE SCOTTSDALE SPECTRUM/BUSINESS RESOURCE GROUP ARTICLE XX. PROHIBITION ON CERTAIN AGREEMENTS: In no event shall Lessee or any other person having an interest in the possession, use, occupancy or utilization of the Premises enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of space in the Premises which provides for rental or other payment for such use, occupancy or utilization based in whole or in part of the net income or profits derived by any person from the portion of the Premises leased, used, occupied or utilized (other than an amount based on a fixed percentage or percentages of receipts or sales), and any such purported lease, sublease, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use, occupancy, or utilization of any part of the Premises. ARTICLE XXI. SECURITY DEPOSIT: Lessee hereby deposits with Lessor in cash the sum of Nine Thousand One Hundred Twenty-six Dollars and 00/100ths Dollars ($9,126.00), Lessor's estimate of one month's Base Rent and Additional Rent, the receipt of which is hereby acknowledged, as and for a security deposit for the full and faithful performance by Lessee of each and every term, covenant and condition of this Lease. In the event that Lessee defaults in respect to any of the terms, provisions, covenants and conditions of this Lease, including, but not limited to, the payment of any rentals or other charges or items to be paid or provided for by Lessee, Lessor may use, apply or retain the whole or any part of the security so deposited for the payment of any such rentals in default or for any other sum which Lessor may expend or be required to expend by reason of Lessee's default, including, but not limited to, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency may accrue before or after reentry by Lessor. Lessee shall not be entitled to any interest on the security deposit. It is expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Lessor's damages in case of Lessee's default. Upon application of any part of the deposit by Lessor as provided herein, Lessee shall pay to Lessor on demand the amount so applied in order to restore the security deposit to its original amount. Any application of the deposit by Lessor shall not be deemed to have cured Lessee's default by reason of which the application is made. In the event of a bona fide sale of the building of which the Premises are a part (the "Building"), Lessor shall have the right to transfer the security deposit to its vendee for the benefit of Lessee and thereafter Lessor shall be released of all liability for the return of such deposit and Lessee agrees to look to said vendee for the return of its security deposit. It is agreed that this provision shall apply to every transfer or assignment made of the security deposit to any new landlord. This security deposit shall not be assigned or encumbered by Lessee. It is expressly understood that the reentry of the Premises by Lessor for any default on the part of Lessee prior to the expiration of the term of this Lease shall not be deemed a termination of this Lease so as to entitle Lessee to recover the security deposit, and the security deposit shall be retained and remain in the possession of Lessor until the end of the term of this Lease. Actions by Lessor against Lessee for breach of this Lease shall in no way be limited or restricted by the amount of the security deposit and resort to such deposit shall not waive any other rights or constitute an election of remedies which Lessor may have. Exhibit C (Page 1 of 9) 38 If the Base Rent payable by Lessee under Article I hereof shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor an additional cash amount so that the total amount of the security deposit held by Lessor hereunder shall at all times bear the same proportion to current Base Rent as the original security deposit amount bears to the original Base Rent set forth in Article I of this Lease. ARTICLE XXII. LOCK BOX: Lessor may from time to time designate a lock box collection agent for the collection of rents or other charges due Lessor. In such event, the payment made by Lessee to the lock box shall be the date of receipt by the lock box collection agent of such payment (or the date of collection of any such sum if payment is made in the form of a negotiable instrument thereafter dishonored upon presentment); however, for the purpose of this Lease, no such payment or collection shall be deemed a waiver by Lessor of any breach by Lessee of any term, covenant or condition of this Lease nor a waiver of any of Lessor's rights or remedies and any payment of amounts other than that deemed due and proper by Lessor shall not prejudice Lessor in any manner nor constitute a waiver and Lessor shall hereby be authorized to retain the proceeds of any payments by Lessee, whether restrictively endorsed or otherwise, and apply same to the amounts due and payable from Lessee under this Lease without waiver. ARTICLE XXIII. PRIOR PROPOSALS: All prior proposals in respect to this Lease are hereby terminated. ARTICLE XXIV. USE: Notwithstanding anything to the contrary contained in this Lease, during the term of this Lease and any extensions or renewals. Lessee shall not use or permit any portion of the Premises to be used for (i) the operation of a title company or title agency or for providing services typically offered by escrow agents in connection with real estate transactions, or (ii) the discount or retail sale and/or brokerage of securities and/or commodities, or (iii) the operation of a bank or the provision of trust services (collectively, the "Restricted Uses"). Lessee acknowledges that Lessor may, in addition to the Restricted Uses, hereafter grant other exclusive or prohibited uses to or for the benefit of other tenants or occupants of the Office Complex, and Lessee agrees that neither it nor any successor, assign, concessionaire, subtenant or assignee shall use the Premises, or any part thereof, in any way that would violate any such exclusive or prohibited use of which Lessee has received written notice, so long as such exclusive or prohibited use does not prohibit the use of the Premises for any permitted office purpose for which Lessee is the using the Premises. Upon receipt by Lessee of written notice of any such exclusive or prohibited use hereafter granted to or for the benefit of another tenant or occupant of the Office Complex, such excludible or prohibited use shall automatically be deemed to be an additional Restricted Use, so long as such exclusive or prohibited use does not prohibit the use of the Premises for any permitted office purpose for which Lessee is then using the Premises. Lessee agrees that it will not withhold or delay its written acknowledgment of the addition of any such additional exclusive or prohibited use to the first sentence of this Article as an additional Restricted Use if such acknowledgment is requested in writing by Lessor (which acknowledgment may be in the form of an amendment to this Lease or in any other reasonable form), and in the event Lessee fails to furnish such written acknowledgment within fifteen (15) days after Lessee's receipt of Lessor's written request therefor, Lessee shall be deemed to have given such written acknowledgment as of the expiration of such 15-day period and shall be in default hereunder. Lessee shall comply with the terms of any encumbrances, covenants, conditions, restrictions or other matters now of record or hereafter recorded against the Office Complex. Exhibit C (Page 2 of 9) 39 ARTICLE XXV. [Intentionally Omitted.] ARTICLE XXVI. TENANT IMPROVEMENTS: A. Lessor shall provide, at no cost to Lessee, the base building improvements for the Premises, which shall consist of a ceiling approximately nine (9) feet high, the installation of 2' x 4' ceiling grid, 2' x 2' acoustical tiles stockpiled on the floor, 2' x 4' parabolic fluorescent light fixtures stockpiled on the floor, the installation of the primary distribution of the HVAC system and the shell building fire protection sprinkler system, and mini blinds stockpiled on the floor. All of the foregoing items shall be either stockpiled or installed, as applicable, using Lessor's building standard improvements. All additional improvements to the base building will be so-called "Tenant Improvements" to be installed by Lessor but to be selected by Lessee as hereinafter set forth and paid for by Lessee subject to Lessor providing the Tenant Improvement Allowance (as hereinafter defined). Lessor shall provide a tenant improvement allowance (the "Tenant Improvement Allowance") equal to the product of Twenty and 00/100ths Dollars ($20.00) multiplied by the useable area of the Premises. B. If the price of the Tenant Improvements exceeds the Tenant Improvement Allowance, Lessee shall pay Lessor, in cash, upon substantial completion of the Tenant Improvements, the amount by which the price of the Tenant Improvements exceeds the Tenant Improvement Allowance. If the actual price of the Tenant Improvements is less than the Tenant Improvement Allowance, the difference between the actual price of such Tenant Improvements and the Tenant Improvement Allowance (but in no event to exceed an amount equal to the product of Two and 001/100ths Dollars ($2.00)multiplied by the rentable square feet of the Premises) may be used by Lessee to offset moving expenses which may include, but shall not be limited to, transportation and installation of modular office furniture. Lessee shall submit receipts to Lessor which substantiate in reasonable detail any amount requested by Lessee for moving expenses pursuant to the previous sentence. In the alternative, this difference may be returned to Lessee in the form of a credit against rent due hereunder. C. On or before September 10, 1998, Lessee shall provide to Lessor a space plan of the Tenant Improvements which Lessee desires for Lessor to construct, which space plan shall be subject to Lessor's approval and shall be adequate for the preparation by Lessor of working drawings for construction of such Tenant Improvements. Such space plan shall show in reasonable detail the design and appearance of the tenant finishing materials to be used in the construction thereof, and such other detail or description as may be necessary to adequately outline the scope of the Tenant Improvements. Lessee shall be responsible for Lessor's costs (including lost rent) arising out of delays in completing the Tenant Improvements caused by Lessee. Lessee also agrees to refrain from ordering long lead time items which would delay substantial completion of the Tenant Improvements. Provided that interior finish materials are of suitable quality as determined by Lessor in its sole discretion and are available, in sufficient quantities and as needed to meet Lessor's construction schedule from reputable materialmen which meet all applicable Exhibit C (Page 3 of 9) 40 statutory and/or industry standards for licensing and bonding, Lessor agrees to purchase interior finish materials from vendors identified by Lessee. ARTICLE XXVII. PARKING: Lessor shall license vehicle parking spaces to Lessee and Lessee's business on the following terms and conditions. Lessor shall provide three (3) vehicular parking spaces as exclusive parking spaces ("Reserved Spaces") for Lessee and its employees in the enclosed parking garage portion of the Office Complex. This license is for reserved Spaces in the general parking area to be designated and redesignated from time to time by Lessor; provided, however, Lessor may require Lessee to park in a specific location. Lessor shall not be liable to Lessee for the failure of any of its tenants, invitees, employees, agents or customers or any third parties to comply with the designation of the Reserved Spaces. Lessor shall provide nine (9) vehicular parking spaces on an unreserved basis ("Unreserved Spaces") for Lessee and its employees in the enclosed parking garage portion of the Office Complex. This license is for unreserved Spaces in the general parking area to be designated and redesignated from time to time by Lessor; provided, however, Lessor may require Lessee to park in a specific location. Lessor shall not be liable to Lessee for the failure of any of its tenants, invitees, employees, agents or customers or any third parties to comply with the designation of the Unreserved Spaces. Lessee agrees to pay as a monthly fee for such license of parking spaces Lessor's then current fee for each Reserved Space and Unreserved Space licensed, payable on or before the first day of each month in advance, which monthly fee may be changed by Lessor as of the first day of any month by giving not less than thirty (30) days written notice thereof to the Lessee. The charge for each Reserved Space shall be Sixty Dollars and 00/100ths ($60.00) per month per space and the charge for each Unreserved Space shall be Forty Dollars and 00/100ths ($40.00) per month, per space. Such charges shall not be increased during the initial term of the Lease. All other charges related to parking (such as charges for parking garage access devices and name plates for Reserved Spaces) shall be paid for by Lessee upon receipt of invoice from Lessor. Only vehicles designated by Lessee to Lessor may be parked or stored therein; provided, however, that Lessee may change its automobile designations at any time upon written notice to Lessor or for temporary use upon notification given to the garage attendant, if any. No more than one automobile per space licensed hereunder shall be parked or stored under Lessee's rights hereunder at any one time. This license is for self-service storage or parking only and does not include the rights to any additional services, which services may be made available by Lessor from time to time at an additional charge. It is understood that Lessor and its agents and employees shall not be liable for loss or damage to any vehicle parked or stored by Lessee or under Lessee's rights herein and/or to the contents thereof caused by fire, theft, explosion, freezing of circulation system of any automobile, strikes, riots or by any other causes and Lessee (1) waives any claim against Lessor for and in respect thereto, and (2) hereby agrees to indemnify and defend Lessor against all claims for any loss or damage to any such vehicle or its contents from any cause whatsoever. It is further expressly understood that the relationship between Lessor and Lessee with respect to the parking spaces constitutes a license to use said garage subject to the terms and conditions herein only and Exhibit C (Page 4 of 9) 41 that neither such relationship nor the storage or parking of any automobile thereunder shall constitute a bailment nor create the relationship of bailor and bailee. In the event the garage referenced shall be damaged by fire or other casualty rendering it unusable by Lessee, the fee provided for herein shall be abated (pro rata based on the portion of the Lessee's stalls which are unusable) from the date ten (10) days after the date the garage becomes unusable until it again becomes usable. Further, if all or any part of the garage is taken by eminent domain proceedings, Lessor shall be entitled to all of the award in the proceedings and may terminate this parking arrangement in the event of a total taking or reduce the number of stalls licensed hereunder in proportion to the extent of any partial taking upon written notice to Lessee. If the garage is damaged by fire or other casualty, Lessor will cause it to be repaired with due diligence. Subject to the abatement provided for in the preceding paragraph, Lessor shall have the right to close any portion of the garage and deny access thereto in connection with any repairs or in an emergency, as it may require, without liability, cost or abatement of fee. Lessee shall perform, observe and comply with such rules of the Office Complex as may be reasonably adopted by Lessor in respect to the use and operation of said garage. Lessee shall, when using the parking facilities of said garage, observe and obey all signs regarding fire lanes and no parking zones, and when parking always park between designated lines. Lessor reserves the right to tow away, or otherwise impound, at the expense of the owner or operator, any vehicle which is improperly parked or parked in a no parking zone. In the event a key or other access device is supplied by Lessor to Lessee in connection with the rights granted herein, Lessee will surrender such key or access device to Lessor upon termination of this Lease. Anything in this Article to the contrary notwithstanding, Lessee's employees shall have access to and be entitled to use the surface parking lot for short periods of time, not to exceed two (2) hours per day. ARTICLE XXVIII. [Intentionally Omitted.] ARTICLE XXIX. CONFIDENTIALITY: Lessee agrees to keep this Lease and the terms hereof in confidence, and not to publish or disclose, in whole or in part, the same without Lessor's prior written consent, which consent may be withheld in Lessor's sole discretion. ARTICLE XXX. DEFAULT OF LESSOR: In the event of any alleged breach by Lessor of its covenants contained in this Lease, Lessee shall have available all rights and remedies provided at law or in equity, subject to the terms and conditions of this Lease; provided, however, Lessee may not exercise any such right or remedy unless Lessee has notified Lessor and any party having a recorded mortgage or bond indenture lien against the property by written notice of such alleged default, and the notified party or parties have not cured such default within the thirty (30) day period subsequent to receipt of such notice or, in the event such alleged default is of such nature that it cannot reasonably be cured within such thirty-day period, such notified party or parties have failed to cure such alleged default with all due diligence. ARTICLE XXXI. FINANCIAL STATEMENTS: Lessee agrees to provide to Lessor upon Lessee's execution of this Lease and prior to Lessor executing same, and within thirty (30) days after Lessor's request therefor at any time during the term of this Lease, complete, accurate up-to-date financial statements prepared according to Exhibit C (Page 5 of 9) 42 generally accepted accounting principles consistently applied, certified by Lessee's chief financial officer both as an officer of Lessee and personally, that same are a true, complete and correct statement of the financial condition of Lessee as of the date of such financial statements. ARTICLE XXXII. [Intentionally omitted.] ARTICLE XXXIII. COMMENCEMENT DATE MEMORANDUM; MEASUREMENT OF RENTABLE AREA: The Base Rent, Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses, the Expense Stop, the Tenant Improvement Allowance, and certain other items set forth in this Lease will be calculated based on the useable area of the Premises, the rentable area of the Premises, and the rentable area of the Office Complex. Promptly after the commencement of the term of this Lease, a memorandum (the "Commencement Date Memorandum") shall be prepared by Lessor and executed by Lessor and Lessee. The Commencement Date Memorandum shall set forth the date on which the term of this Lease commenced, the expiration date of the initial five (5) year, zero (0) month term, the useable area of the Premises, the rentable area of the Premises, and the rentable area of the Office Complex (all as determined by Lessor's architect), the Base Rent, the Expense Stop, and the percentage initially to be used to calculate Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses. Lessor's architect shall determine the usable and rentable area of the Premises and Office Complex as follows: (i) the usable area of the Premises shall be calculated by measuring to the finished surface of the office side of corridor and other permanent walls demising the Premises, to the center of partitions that separate the Premises from adjoining usable areas, and to the inside finished surface of the dominant portion of the permanent outer building walls demising the Premises, with no deduction for columns and projections necessary to the Building; (ii) the rentable area of the Office Complex shall be calculated by measuring, with respect to each floor of the Office Complex, to the inside finished surface of the dominant portion of the permanent outer building walls, excluding any major vertical penetrations of the floors, with no deduction for columns and projections necessary to the Building; (iii) the usable area of the Office Complex shall be equal to the sum of the usable area of each premises then located within, or then anticipated by Lessor to be located within, the Office Complex (computed in the manner set forth in clause (i) above), including the Premises; and (iv) the rentable area of the Premises shall be computed by multiplying the usable area of the Premises by the quotient of the rentable area of the floor(s) on which the Premises are located divided by the usable area of the floor(s) on which the Premises are located. Anything to the contrary notwithstanding, the following areas shall also be included in rentable area for purposes of this Article: (1) Any elevator shaft and any floor area used for apparatus, machinery or equipment used in connection with any private elevator that may be installed by Lessee to serve its customers, employees, agents and business invitees; (2) Any surface floor area deleted for stairways that may be installed by Lessee to serve its customers, employees, agents and business invitees; and (3) Any vertical shafts or ducts, janitor closets or equipment areas installed by Lessee for its private use, and not in connection with the operation or maintenance of the remainder of the Office Complex. Exhibit C (Page 6 of 9) 43 ARTICLE XXXIV. FUTURE DEVELOPMENT: Lessor and Lessee understand and agree that the Office Complex as initially constructed is the second phase ("Phase II") of a proposed two-phase integrated commercial real estate development (the first phase hereinafter referred to as "Phase I"). The Office Complex for purposes of this Lease may, at Lessor's option, include all of the land within Phase I and all easement areas appurtenant thereto, and all buildings, improvements and personal property of Lessor used in connection with the operation or maintenance thereof located therein and thereon and the appurtenant parking facilities. Upon election of Lessor, the Property shall thereafter be deemed to mean the land (and all easement areas appurtenant thereto) on which both Phase I and Phase II are located; and the Office Complex as that term is used herein shall be deemed to mean all buildings and improvements and personal property of Lessor used in connection with the operation or maintenance thereof and appurtenant parking facilities located on Phase I and Phase II. If Lessor so elects, upon redefinition of the terms "Property" and "Office Complex" as hereinabove described, the percentage set forth as "Lessee's Pro Rata Share of Excess Real Estate Taxes and Operating Expenses" in Article II.F herein, shall be recomputed on the basis of the rentable area of the Premises compared to the rentable area of the Office Complex (as expanded) subject to adjustment on the basis of ninety-five percent (95%) of the total average rentable area of the Office Complex (as expanded) pursuant to said Article II.F. In no event shall this Article be deemed to require Lessor to combine Phase I and Phase II as hereinabove allowed. Lessor shall retain the right to increase or decrease the size of Phase I or Phase II and make other changes to the Property and the legal description of the Office Complex in its sole discretion. ARTICLE XXXV. CAP ON INCREASE IN CONTROLLABLE OPERATING EXPENSES: Notwithstanding anything to the contrary contained in Article II ("Additional Rent") of this Lease, the portion of Operating Expenses controllable by Lessor (excluding without limitation insurance premiums, costs of utilities and taxes) used to calculate Lessee's Pro rata Share of Excess Real Estate Taxes and Operating Expenses for each Lease Year shall not increase beyond an amount equal to one hundred five percent (105%), compounded annually, of the amount of such Operating Expenses during the prior Lease Year. A pro rata adjustment shall be made for a fractional Lease Year occurring during the term of this Lease based upon the number of such days of the term of this Lease during said Lease Year. ARTICLE XXXVI. FIRST RIGHT OF OFFER: Subject to the terms and conditions set forth in this Article XXXVI, Lessor hereby grants to Lessee the first right ("First Right") to be offered by Lessor the opportunity to lease the approximately 1,100 rentable square feet of space shown as designated on Exhibit D attached hereto and incorporated herein by this reference. If, at any time while this First Right is in effect, Lessor should intend to lease such space to a third party tenant, then Lessor shall first offer to lease such space to Lessee. In the event Lessor offers to Lease such space to Lessee pursuant to this Article XXXVI, Lessee shall notify Lessor in writing within five (5) days of its receipt of Lessor's notice whether Lessee desires to offer to lease such space from Lessor. If Lessee notifies in writing within such five-day period that Lessee does not desire to lease such space, or if Lessee does not respond in writing to Lessor's notice within such five-day period, then, in either of the above instances, Lessor's obligations under this Article XXXVI shall automatically terminate and be of no further force or effect and Lessor shall thereafter be entitled to lease such space. If Lessee notifies Lessor in writing within such five-day period that Lessee desires to lease such space from Lessor, the parties shall thereafter negotiate for Exhibit C (Page 7 of 9) 44 Lessee's lease of the space from Lessor; provided, however, that if Lessor and Lessee fail to mutually agree upon the terms of Lessee's lease of such space and to execute a written amendment to this Lease within seven (7) days of the date of Lessee's receipt of written notice (which amendment shall contain the terms mutually agreed to by the parties for Lessee's lease of such space), then Lessor's obligations under this Article XXXVI shall automatically terminate and be of no further force or effect at the end of such seven-day period. Notwithstanding anything to the contrary contained in this Article XXXVI, in this event Lessee's First Right as set forth in this Article XXXVI is still in effect at the end of the initial five (5) year, zero (0) month term of this Lease, such First Right shall automatically terminate on the last day of the initial five (5) year, zero (0) month term of this Lease. The purpose of this Article is to provide notice to Lessee so that Lessee may be in a position to offer to lease such space on a competitive basis with others, and, notwithstanding anything to the contrary contained in this Article XXXVI, nothing in this Article XXXVI shall be deemed to be an option or right of first refusal. ARTICLE XXXVII. OPTION TO EXTEND: Lessee shall have the right, subject to the provisions hereinafter provided, to extend the term of this Lease for one (1) period of five (5) years, zero (0) months on the terms and provisions of this Article XXXVII. Such five (5) year, zero (0) month renewal period is sometimes herein referred to as the "Renewal Term". The conditions of such Renewal Term shall be as follows: (a) That this Lease is in full force and effect and Lessee is not in default in the performance of any of the terms, covenants and conditions herein contained, in respect to which notice of default has been given hereunder which has not been or is not being remedied in the time limited in this Lease, at the time of exercise of the right of renewal, but Lessor shall have the right at its sole discretion to waive the non-default conditions herein. (b) That such Renewal Term shall be on the same terms, covenants and conditions as in this Lease; provided, however, the annual Base Rent for such Renewal Term shall be the fair market Base Rent rate for such space on the date such renewal term shall commence in relation to comparable (in quality, location and size) space located in Scottsdale, Arizona. The determination of such fair market Base Rent for the Premises shall be made no later than the date that is eight (8) months prior to commencement of the Renewal Term. Provided Lessee has properly elected to renew the term of this Lease, and if Lessor and Lessee fail to agree at least eight (8) months prior to commencement of the Renewal Term upon the fair market Base Rent of the Premises, the fair market Base Rent of the Premises shall be determined by appraisal in accordance with the provisions of Article XXXVIII ("Appraisal") hereof. Notwithstanding anything to the contrary contained in this Article, in no event shall the Base Rent of the Premises for the Renewal Term be less than the Base Rent (exclusive of temporary abatements) payable by Lessee under the terms of this Lease immediately prior to commencement of such Renewal Term. (c) That Lessee shall exercise its right to the Renewal Term provided herein, if at all, by notifying Lessor in writing of its election to exercise the right to renew the term of this Lease no later than nine (9) months prior to end of the initial five (5) year, zero (0) month term. Upon notification with respect to such Exhibit C (Page 8 of 9) 45 renewal, and for a period of thirty (30) days thereafter, the parties hereto shall make a good faith effort to agree upon the fair market Base Rent of the Premises and for such Renewal Term. In the event that Lessor and Lessee fail to agree within the thirty-day time period set forth in this subparagraph (c), the fair market Base Rent of the Premises for such Renewal Term shall be determined by appraisal in the manner set forth in Article XXXVIII hereof. Any determination by appraisal or any agreement reached by the parties hereto with respect to such fair market Base Rent and resulting Base Rent of the Premises for such Renewal Term shall be expressed in writing and shall be executed by the parties hereto, and a copy thereof delivered to each of the parties. ARTICLE XXXVIII. APPRAISAL: Within seven (7) days after the expiration of the period within which Lessor and Lessee were to reach agreement on the fair market Base Rent as provided in Article XXXVII, Lessor and Lessee shall mutually appoint an appraiser that has at least five (5) years full-time commercial appraisal experience and is a member of the American Institute of Real Estate Appraisers. If Lessor and Lessee are unable to agree upon an appraiser, either of the parties to this Lease, after giving five (5) days prior written notice to the other party, may apply to the then president of the Scottsdale Board of Realtors for the selection of an appraiser who meets the foregoing qualifications, which selection shall be made within fifteen (15) days. The appraiser selected by the president of the Board of Realtors shall be a person who has not previously acted in any capacity for either party, its affiliates or leasing agents and who meets the above experience qualifications. Lessor and Lessee shall each, within seven (7) days of the appointment (either by agreement or selection) of the appraiser, submit to the appraiser such parties' determination of the fair market Base Rent for purposes of Article XXXVII. Within twenty (20) days after the conclusion of the above-referenced seven-day period, the appraiser shall review each of the Lessor's and Lessee's submittals and shall review such other information as such appraiser shall deem necessary (a party may furnish the appraiser with any information it deems relevant) and shall determine which of the two submittals is the more reasonable. The appraiser shall immediately notify the parties of his or her selection, and such selection shall be the Base Rent of the Premises for the Renewal Term. If, upon the expiration of the above-referenced seven-day period, the appraiser shall have received one of the party's submittals as to the fair market Base Rent, but not both, the appraiser shall designate the submitted item as the Base Rent for the Renewal Term, and the appraiser shall immediately notify the parties of same. Notwithstanding the foregoing two sentences, in no event shall the Base Rent of the Premises for the Renewal Term be less than the Base Rent (exclusive of temporary abatements) payable by Lessee under the terms of this Lease immediately prior to commencement of such Renewal Term. Initials: Lessor [Initials] ----------------- Lessee [Initials] ----------------- Exhibit C (Page 9 of 9) 46 EXHIBIT D FIRST RIGHT OF OFFER SPACE Exhibit D (Page 1 of 1) EX-22.1 7 SUBSIDIARY OF REGISTRANT 1 Exhibit 22.1 Subsidiary of Registrant: Office Furniture Networking, Inc. EX-23.1 8 INDEPENDENT AUDITOR'S CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements (Form S-8 Nos. 33-95144, 333-02388, 333-23495 and 333-49849) of Business Resource Group of our report dated December 8, 1998, appearing in this Annual Report on Form 10-K of Business Resource Group for the year ended October 31, 1998. Deloitte & Touche LLP San Jose, California January 25, 1999 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR OCT-31-1998 NOV-01-1997 OCT-31-1998 412 0 11,062 400 8,279 21,764 5,139 2,032 27,978 12,689 0 0 0 50 14,346 27,978 76,373 93,565 60,623 73,234 17,498 0 319 2,569 1,066 1,503 0 0 0 1,503 .30 .30
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