UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended June 30, 2011
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period From _______________ to
_______________
Commission File Number 000-28820
Jones Soda Co.
(Exact name of registrant as specified in its charter)
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Washington
(State or other jurisdiction of
incorporation or organization)
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52-2336602
(I.R.S. Employer
Identification Number)
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234 Ninth Avenue North
Seattle, Washington
(Address of principal executive offices)
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98109
(Zip Code)
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(206) 624-3357
(Registrants Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file for such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
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No
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As
of August 5, 2011, there were 31,992,675 shares of the Companys common stock issued and
outstanding.
JONES SODA CO.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
TABLE OF CONTENTS
2
EXPLANATORY NOTE
Unless otherwise indicated or the context otherwise requires, all references in this Quarterly
Report on Form 10-Q to we, us, our, Jones, Jones Soda, and the Company are to Jones
Soda Co.
®
, a Washington corporation, and our wholly-owned subsidiaries Jones Soda Co.
(USA) Inc., Jones Soda (Canada) Inc., myJones.com Inc. and Whoopass USA Inc.
In addition, unless otherwise indicated or the context otherwise requires, all references in
this Quarterly Report to
Jones Soda
refer to our premium soda sold under the trademarked brand
name
Jones Soda Co
.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
We desire to take advantage of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. This Quarterly Report on Form 10-Q (Report) contains a number of
forward-looking statements that reflect managements current views and expectations with respect to
our business, strategies, products, future results and events, and financial performance. All
statements made in this Report other than statements of historical fact, including statements that
address operating performance, the economy, events or developments that management expects or
anticipates will or may occur in the future, including statements related to potential strategic
transactions, distributor channels, volume growth, revenues, profitability, new products, adequacy
of funds from operations, cash flows and financing, our ability to continue as a going concern,
statements regarding future operating results and non-historical information, are forward-looking
statements. In particular, the words such as believe, expect, intend, anticipate,
estimate, may, will, can, plan, predict, could, future, variations of such words,
and similar expressions identify forward-looking statements, but are not the exclusive means of
identifying such statements and their absence does not mean that the statement is not
forward-looking.
Readers should not place undue reliance on these forward-looking statements, which are based
on managements current expectations and projections about future events, are not guarantees of
future performance, are subject to risks, uncertainties and assumptions and apply only as of the
date of this Report. Our actual results, performance or achievements could differ materially from
historical results as well as the results expressed in, anticipated or implied by these
forward-looking statements. Except as required by law, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
In particular, our business, including our financial condition and results of operations and
our ability to continue as a going concern may be impacted by a number of factors, including, but
not limited to, the following:
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Our ability to successfully execute on our 2011 operating plan;
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Our ability to establish and maintain distribution arrangements with independent
distributors, retailers, brokers and national retail accounts, most of whom sell and
distribute competing products, and whom we rely upon to employ sufficient efforts in
managing and selling our products, including re-stocking the retail shelves with our
product, on which our business plan and future growth are dependent in part;
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Our ability to successfully launch new products or our failure to achieve case sales
goals with respect to existing products;
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Our ability to secure additional financing or to generate sufficient cash flow from
operations;
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Our ability to use the net proceeds from future financings to improve our financial
condition or market value;
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Dilutive and other adverse effects on our existing shareholders and our stock price
arising from future securities issuances;
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Our ability to manage our inventory levels and to predict the timing and amount of our
sales;
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Our reliance on third-party contract manufacturers of our products, which could make
management of our marketing and distribution efforts inefficient or unprofitable;
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Our ability to secure a continuous supply and availability of raw materials, as well as
other factors affecting our supply chain;
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Rising raw material, fuel and freight costs as well as freight capacity issues may have
an adverse impact on our results of operations;
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Our ability to source our flavors on acceptable terms from our key flavor suppliers;
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Our ability to maintain brand image and product quality and the risk that we may suffer
other product issues such as product recalls;
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Our ability to attract and retain key personnel, which would directly affect our
efficiency and results of operations;
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Our inability to protect our trademarks and trade secrets, which may prevent us from
successfully marketing our products and competing effectively;
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Litigation or legal proceedings, which could expose us to significant liabilities and
damage our reputation;
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Our ability to maintain effective disclosure controls and procedures and internal control
over financial reporting;
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Our ability to build and sustain proper information technology infrastructure;
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Our inability to maintain compliance with the continued listing requirements of The
Nasdaq Capital Market which may adversely affect our market price and liquidity;
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Our ability to create and maintain brand name recognition and acceptance of our products,
which are critical to our success in our competitive, brand-conscious industry;
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Our ability to compete successfully against much larger, well-funded, established
companies currently operating in the beverage industry;
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Our ability to continue developing new products to satisfy our consumers changing
preferences;
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Global economic conditions that may adversely impact our business and results of
operations;
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Our ability to comply with the many regulations to which our business is subject.
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For a more detailed discussion of some of the factors that may affect our business, results
and prospects, see Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2010 filed with the Securities and Exchange Commission on March 21, 2011. Readers are
also urged to carefully review and consider the various disclosures made by us in this Report and
in our other reports we file with the Securities and Exchange Commission, including our periodic
reports on Form 10-Q and current reports on Form 8-K, and those described from time to time in our
press releases and other communications, which attempt to advise interested parties of the risks
and factors that may affect our business, prospects and results of operations.
4
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JONES SODA CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
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June 30, 2011
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December 31, 2010
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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4,628
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$
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5,448
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Accounts receivable, net of allowance of $304 and $166
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2,575
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2,220
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Taxes receivable
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5
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480
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Inventory
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3,025
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2,279
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Prepaid expenses and other current assets
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212
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305
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Total current assets
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10,445
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10,732
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Fixed assets, net of accumulated depreciation of $3,028 and $2,973
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428
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296
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Other assets
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595
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435
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Total assets
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$
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11,468
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$
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11,463
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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1,527
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$
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853
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Accrued expenses
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1,855
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1,592
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Taxes payable
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60
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146
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Capital lease obligations, current portion
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22
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Total current liabilities
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3,464
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2,591
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Capital lease obligations
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94
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Long-term liabilities other
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2
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2
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Commitments and contingencies (Note 7)
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Shareholders equity:
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Common stock, no par value:
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Authorized 100,000,000; issued and outstanding shares
31,992,581 and 30,418,301 at June 30, 2011 and December 31,
2010, respectively
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50,089
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47,917
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Additional paid-in capital
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6,866
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6,570
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Accumulated other comprehensive income
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510
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450
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Accumulated deficit
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(49,557
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)
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(46,067
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Total shareholders equity
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7,908
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8,870
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Total liabilities and shareholders equity
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$
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11,468
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$
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11,463
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See accompanying notes to condensed consolidated financial statements.
5
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2011
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2010
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2011
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2010
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Revenue
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$
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4,914
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$
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5,365
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$
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9,001
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$
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9,258
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Cost of goods sold
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3,497
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3,894
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6,584
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6,979
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Write-down of excess GABA inventory
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178
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178
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Gross profit
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1,417
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1,293
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2,417
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2,101
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Licensing revenue
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7
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8
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12
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18
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Operating expenses:
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Promotion and selling
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1,873
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1,078
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3,153
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2,302
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General and administrative
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1,313
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1,745
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2,793
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3,428
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3,186
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2,823
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5,946
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5,730
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Loss from operations
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(1,762
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(1,522
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(3,517
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(3,611
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)
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Other income (expense), net
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6
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(3
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78
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(8
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Loss before income taxes
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(1,756
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(1,525
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(3,439
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(3,619
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Income tax expense, net
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(64
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(29
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(51
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(67
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Net loss
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$
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(1,820
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$
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(1,554
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$
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(3,490
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$
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(3,686
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Net loss per share basic and diluted
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$
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(0.06
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$
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(0.06
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$
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(0.11
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$
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(0.14
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Weighted average basic and diluted
common shares outstanding
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31,990,645
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26,451,211
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31,724,816
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26,439,596
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See accompanying notes to condensed consolidated financial statements.
6
JONES SODA CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Six Months Ended June 30,
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2011
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2010
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OPERATING ACTIVITIES:
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Net loss
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$
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(3,490
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$
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(3,686
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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86
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228
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Stock-based compensation
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295
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401
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Change in allowance for doubtful accounts
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138
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35
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Inventory write-down
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246
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Write-down of excess GABA inventory
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178
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Loss on disposal of fixed assets
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155
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Deferred income taxes
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2
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Other non-cash charges and credits
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7
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Changes in operating assets and liabilities:
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Accounts receivable
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(477
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)
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(965
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)
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Taxes receivable
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483
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Inventory
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(732
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)
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201
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Prepaid expenses and other current assets
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64
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25
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Other assets
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23
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74
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Accounts payable
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622
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980
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Accrued expenses
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253
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(436
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)
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Taxes payable
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(89
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)
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37
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Net cash used in operating activities
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(2,824
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)
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(2,518
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)
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INVESTING ACTIVITIES:
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Purchase of certificate of deposit, restricted
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(183
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)
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Redemption of certificate of deposit, restricted
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376
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Purchase of fixed assets
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(173
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)
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(16
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)
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Sale of fixed assets
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3
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Net cash (used in) provided by investing activities
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(353
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)
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360
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FINANCING ACTIVITIES:
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Proceeds from issuance of common stock, net
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2,185
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Proceeds from capital lease obligation
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122
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Proceeds from exercise of stock options
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17
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60
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Payments on capital lease obligations
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(6
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)
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Repayment of note payable
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(345
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)
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Net cash provided by (used in) financing activities
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2,318
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(285
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)
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Net decrease in cash and cash equivalents
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(859
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)
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(2,443
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)
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Effect of exchange rate changes on cash
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39
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(10
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)
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Cash and cash equivalents, beginning of period
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5,448
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4,975
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Cash and cash equivalents, end of period
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$
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4,628
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$
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2,522
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Supplemental disclosure:
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Cash received (paid) during period for:
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Interest
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$
|
50
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$
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(5
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Income taxes
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|
361
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1
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See accompanying notes to condensed consolidated financial statements.
7
JONES SODA CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations and Summary of Significant Accounting Policies
Jones Soda Co. develops, produces, markets and distributes premium beverages, including the
following product lines and extensions:
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Jones Soda
®
, a premium carbonated soft drink;
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Jones Zilch,
with zero calories (and an extension of the
Jones Soda
®
product line);
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WhoopAss Energy Drink
®
, an energy supplement drink; and
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WhoopAss Zero Energy Drink
®
, with zero sugar (and an extension of the WhoopAss Energy Drink
®
product line).
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We are a Washington corporation and have three operating subsidiaries, Jones Soda Co. (USA)
Inc., Jones Soda (Canada) Inc., and myJones.com, Inc., as well as one non-operating subsidiary,
Whoopass USA Inc.
Basis of presentation and consolidation
The accompanying condensed consolidated balance sheet as of December 31, 2010, which has been
derived from audited consolidated financial statements and the unaudited interim condensed
consolidated financial statements as of June 30, 2011, have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) and the Securities
and Exchange Commission (SEC) rules and regulations applicable to interim financial reporting. The
condensed consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All intercompany transactions between the Company and its subsidiaries
have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain all material adjustments, consisting only of those of a normal recurring nature,
considered necessary for a fair presentation of our financial position, results of operations and
cash flows at the dates and for the periods presented. The operating results for the interim
periods presented are not necessarily indicative of the results expected for the full year. These
financial statements should be read in conjunction with the audited financial statements and notes
thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31,
2010.
Use of estimates
The preparation of the condensed consolidated financial statements requires management to make
a number of estimates and assumptions relating to the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period.
Significant items subject to such estimates and assumptions include, but are not limited to,
inventory valuation, depreciable lives and valuation of fixed assets, valuation allowances for
receivables, trade promotion liabilities, stock-based compensation expense, valuation allowance for
deferred income tax assets, contingencies, and forecasts supporting the going concern assumption
and related disclosures. Actual results could differ from those estimates.
Seasonality
Our sales are seasonal and we experience fluctuations in quarterly results as a result of many
factors. We historically have generated a greater percentage of our revenues during the warm
weather months of April through September. Timing of customer
purchases will vary each year and sales can be expected to shift from one quarter to another.
As a result, management believes that
8
period-to-period comparisons of results of operations are not
necessarily meaningful and should not be relied upon as any indication of future performance or
results expected for the fiscal year.
Liquidity
As of June 30, 2011, we had cash and cash equivalents of approximately $4.6 million and
working capital of $7.0 million. Cash used in operations during the six months ended June 30, 2011
totaled $2.8 million. Our cash flows vary throughout the year based on seasonality. We
traditionally use more cash in the first half of the year as we build inventory to support our
historically seasonally-stronger shipping months of April through September, and expect cash used
by operating activities to decrease in the second half of the year as we collect receivables
generated during our stronger shipping months. We incurred a net loss of $1.8 million during the
three months ended June 30, 2011.
We believe that our current cash and cash equivalents, which includes net proceeds of
approximately $2.2 million received from our final draw down under the equity line of credit
facility on February 1, 2011 (see Note 2), will be sufficient to meet our anticipated cash needs at
least into the first half of 2012. This will depend, however, on our ability to successfully
execute our 2011 operating plan, which is based on our realigned higher-margin product portfolio,
including
Jones Soda
and our newly re-launched
WhoopAss Energy Drink
. The
introduction of new and re-launched products involves a number of risks, and there can be no
assurance that we will achieve the sales levels we expect or that justify the additional costs
associated with such product introductions. We also plan to continue our efforts to reinforce and
expand our distributor network by partnering with new distributors and replacing underperforming
distributors. It is critical that we meet our volume projections and continue to increase volume
going forward, as our operating plan already reflects prior significant general and administrative
cost containment measures, leaving us little room for further reductions in such costs that do not
jeopardize our growth plans.
Our operating plan factors in the use of cash to meet our contractual obligations. A
substantial portion of these contractual obligations consists of obligations to purchase raw
materials, including sugar and glass under our supply agreements. We enter into these supply
agreements in order to fix the cost of these key raw materials, which we expect will be used in the
ordinary course of our business. Our contractual obligations also relate to payments for
sponsorships, and have been reduced by approximately $7.0 million
through 2017 as the result of our termination of the
sponsorship arrangement with the New Jersey Nets (see Note 7).
We intend to continually monitor and adjust our business plan as necessary to respond to
developments in our business, our markets and the broader economy. Our current 2011 operating plan
does not require us to obtain additional financing; however, this will depend on our ability to
meet our sales volume goals and otherwise execute on our operating plan. We believe it is
imperative to meet these objectives and continue to expand our distribution network and increase
sales volume in order to lessen our reliance on external financing in the future. In order to
execute on our growth strategy beyond our 2011 operating plan, we will require additional financing to support our working capital
needs. The amount of additional capital we will require, and the timing of our capital needs, will depend on a number of factors, including the performance of our business for the remainder of 2011 and beyond and the market conditions for debt or equity financing. Although we believe we may have various debt and equity financing alternatives available to us, these alternatives may require significant cash payments for interest and other costs or
could be highly dilutive to our existing shareholders. We continue to monitor whether credit
facilities may be available to us on acceptable terms. There can be no assurance that any new debt
or equity financing arrangement will be available to us when needed on acceptable terms, if at all.
In addition, there can be no assurance that these financing alternatives would provide us with
sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic
transactions in the best interest of the Company and our shareholders, which may include, without
limitation, public or private offerings of debt or equity securities, joint ventures with one or
more strategic partners, strategic acquisitions and other strategic alternatives, but there can be
no assurance that we will enter into any agreements or transactions.
The uncertainties relating to our ability to successfully execute our 2011 operating plan,
combined with our inability to implement further meaningful cost containment measures that do not
jeopardize our growth plans and the difficult financing environment, continue to raise substantial
doubt about our ability to continue as a going concern. Our financial statements for the quarters
ended June 30, 2011 and 2010 were prepared assuming we would continue as a going concern, which
contemplates that we will continue in operation for the foreseeable future and will be able to
realize assets and settle liabilities and commitments in the normal course of business. These
financial statements do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications of liabilities that
could result should we be unable to continue as a going concern.
9
2. Equity Financing
In June 2010, we entered into an equity line of credit arrangement (Equity Line) with
Glengrove Small Cap Value, Ltd (Glengrove), pursuant to which Glengrove committed to purchase, upon
the terms and subject to the conditions of the purchase agreement establishing the facility, up to
$10 million worth of shares of our common stock, subject to a maximum aggregate limit of 5,228,893
common shares. The facility provided that we may, from time to time, over the 24-month term of the
facility and at our sole discretion, present Glengrove with draw down notices to purchase our
common stock at a price equal to the daily volume weighted average price of our common stock on
each date during the draw down period on which shares are purchased, less a discount of 6.0%.
During 2010, we completed draw downs and sales under the facility of an aggregate of 3,632,120
shares for net proceeds of approximately $4.0 million. On February 1, 2011, we completed our final
draw down and sale of 1,596,773 shares for net proceeds of approximately $2.2 million. We sold to
Glengrove a total of 5,228,893 shares, which is the maximum number of shares issuable under the
terms of the Equity Line and the Equity Line by its terms automatically has terminated.
3. Inventory
Inventory consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
Finished goods
|
|
$
|
2,438
|
|
|
$
|
1,695
|
|
Raw materials
|
|
|
587
|
|
|
|
584
|
|
|
|
|
|
|
|
|
|
|
$
|
3,025
|
|
|
$
|
2,279
|
|
|
|
|
|
|
|
|
Finished goods primarily include product ready for shipment, as well as promotional
merchandise held for sale. Raw materials primarily include ingredients, concentrate and packaging.
4. Capital Lease
In January 2011, we entered into capital lease agreements totaling $122,000 for the lease of
two branded vehicles used for marketing. The debt is payable over a 60-month period at 6.99%
interest. Our remaining scheduled lease payments, which include $20,000 in interest, are $15,000
for 2011, $29,000 for each of the years 2012 through 2015, and $5,000 for 2016.
5. Lease Obligations
In June 2011, we entered into an office building sublease for use as our principal
headquarters, as our previous lease expires in August 2011 and does not include an option to renew.
The term of the sublease is five years with an option to extend for up to three additional five
year terms. Under the terms of the sublease, we were required to deliver a Letter of Credit (LOC)
issued by KeyBank National Association in an amount equivalent to 50% of the total Subtenant
Improvement Allowance (as defined in the sublease agreement), or $183,000, which will be released
after year three of the sublease term, provided we have not been late in the payment of rent more
than five times during such period. As a condition of and to secure the LOC, KeyBank National
Association required us to place $183,000 in an interest bearing restricted reserve account,
invested in a certificate of deposit which is recorded in other assets.
Our scheduled sublease payments as of June 30, 2011 are as follows (in thousands):
|
|
|
|
|
|
|
Operating Lease
|
|
2011
|
|
$
|
|
|
2012
|
|
|
201
|
|
2013
|
|
|
206
|
|
2014
|
|
|
211
|
|
2015
|
|
|
216
|
|
Thereafter
|
|
|
127
|
|
|
|
|
|
|
|
$
|
961
|
|
|
|
|
|
10
6. Stock-Based Compensation
At our Annual Meeting held on May 25, 2011, our shareholders approved the Jones Soda Co. 2011
Incentive Plan (2011 Plan). As a result, the 2002 Stock Option and Restricted Stock Plan (2002
Plan) was terminated, and equity awards granted after the 2011 Annual Meeting will be made under
the 2011 Plan. Awards outstanding under the 2002 Plan will remain outstanding in accordance with
their existing terms.
The 2011 Plan initially authorizes the issuance of 3,000,000 shares of the Companys common
stock. Starting in 2012, the number of shares authorized under the 2011 Plan also may be increased
each January 1
st
by an amount equal to the least of (a) 1,300,000 shares, (b) 4.0% of
our outstanding common stock as of the end of our immediately preceding fiscal year, and (c) a
lesser amount determined by the Board of Directors (the Board), provided that the number of shares
that may be granted pursuant to awards in a single year may not exceed 10% of the Companys
outstanding shares of common stock on a fully diluted basis as of the end of the immediately
preceding fiscal year.
Under the terms of the 2011 Plan, the Board may grant awards to employees, officers,
directors, consultants, agents, advisors and independent contractors. Awards may consist of stock
options, stock appreciation rights, stock awards, restricted stock, stock units, performance awards
or other stock or cash-based awards. As
of June 30, 2011, there were 3,000,000 shares available for issuance under the 2011 Plan.
A summary of our stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Balance at January 1, 2011
|
|
|
1,789,784
|
|
|
$
|
1.96
|
|
Options granted
|
|
|
480,000
|
|
|
|
1.35
|
|
Options exercised
|
|
|
(25,288
|
)
|
|
|
0.68
|
|
Options cancelled/expired
|
|
|
(176,243
|
)
|
|
|
1.20
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011
|
|
|
2,068,253
|
|
|
$
|
1.68
|
|
Exercisable, June 30, 2011
|
|
|
1,096,879
|
|
|
$
|
2.17
|
|
Vested and expected to vest
|
|
|
2,024,156
|
|
|
$
|
1.70
|
|
(b)
|
|
Restricted stock awards:
|
A summary of our restricted stock activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Restricted
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Non-vested restricted stock at January 1, 2011
|
|
|
158,581
|
|
|
$
|
1.52
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(107,264
|
)
|
|
|
1.52
|
|
Cancelled/expired
|
|
|
(47,781
|
)
|
|
|
1.42
|
|
|
|
|
|
|
|
|
Non-vested restricted stock at June 30, 2011
|
|
|
3,536
|
|
|
$
|
2.80
|
|
A total of 47,352 shares were withheld by the Company as payment for withholding taxes due in
connection with the vesting of restricted stock awards issued under the 2002 Plan for the six
months ended June 30, 2011, and the average price paid per share of $1.32, reflects the average
market value per share of the shares withheld for tax purposes. There were no shares withheld by
the
11
Company for the three months ended June 30, 2011. A total of 808 and 1,715 shares were
withheld by the Company as payment for withholding taxes due in connection with the vesting of
restricted stock awards issued under the 2002 Plan for the three and six months ended June 30,
2010, respectively, and the average price paid per share of $2.03 and $1.82, respectively, reflects
the average market value per share of the shares withheld for tax purposes.
(c)
|
|
Stock-based compensation expense:
|
Stock-based compensation expense is recognized using the straight-line attribution method over
the employees requisite service period. We recognize compensation expense for only the portion of
stock options or restricted stock expected to vest. Therefore, we apply estimated forfeiture rates
that are derived from historical employee termination behavior. If the actual number of forfeitures
differs from those estimated by management, additional adjustments to stock-based compensation
expense may be required in future periods.
At June 30, 2011, the unrecognized compensation expense related to stock options and
non-vested restricted stock awards was $683,000 and $4,300, respectively, which is to be recognized
over weighted-average periods of 2.2 years and 0.4 years, respectively.
The following table summarizes the stock-based compensation expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Type of awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
115
|
|
|
$
|
213
|
|
|
$
|
200
|
|
|
$
|
348
|
|
Restricted stock
|
|
|
5
|
|
|
|
21
|
|
|
|
95
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120
|
|
|
$
|
234
|
|
|
$
|
295
|
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promotion and selling
|
|
$
|
28
|
|
|
$
|
25
|
|
|
$
|
86
|
|
|
$
|
58
|
|
General and administrative
|
|
|
92
|
|
|
|
209
|
|
|
|
209
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120
|
|
|
$
|
234
|
|
|
$
|
295
|
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We employ the following key weighted-average assumptions in determining the fair value of
stock options, using the Black-Scholes option pricing model:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30
|
|
|
|
2011
|
|
|
2010
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Expected stock price volatility
|
|
|
99.4
|
%
|
|
|
91.9
|
%
|
Risk-free interest rate
|
|
|
2.5
|
%
|
|
|
2.8
|
%
|
Expected term (in years)
|
|
5.9 years
|
|
5.6 years
|
Weighted-average grant date fair-value
|
|
$
|
1.06
|
|
|
$
|
0.60
|
|
The aggregate intrinsic value of stock options outstanding at June 30, 2011 and 2010 was
$135,000 and $311,000 and for options exercisable was $257,000 and $188,000, respectively. The
intrinsic value of outstanding and exercisable stock options is calculated as the quoted market
price of the stock at the balance sheet date less the exercise price of the option. The total
intrinsic value of options exercised during the three and six months ended June 30, 2011 and 2010
was $700 and $57,000 and $14,000 and $58,000, respectively.
7. Commitments and contingencies
Commitments
In
August 2011, we announced that we agreed to terminate the Amended Sponsorship Agreement with the New Jersey
Nets, dated October 29, 2007, effectively ending the agreement five years early. In connection
with the termination, we agreed to pay $500,000, which is recorded in accrued liabilities as of
June 30, 2011. The payment includes a $150,000 payment owed under the Amended Sponsorship
12
Agreement in connection with annual sponsorship fees for the year ended December 31, 2010 and
the first half of 2011 and a termination fee of $350,000 payable in three installments ending March
1, 2012.
With the conclusion of our sponsorship with the Portland Trailblazers effective June 30, 2011,
our remaining sponsorships are comprised of several athlete and other sponsorships; these
obligations vary in terms. Sponsorship obligations in future periods
under these commitments, after giving effect to the termination of the New
Jersey Nets Sponsorship, are
expected to occur as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
Sponsorships
|
|
$
|
425
|
|
|
$
|
125
|
|
|
$
|
150
|
|
|
$
|
150
|
|
Legal proceedings
On September 4, 2007, a putative class action complaint was filed against us, our then serving
chief executive officer, and our then serving chief financial officer in the U.S. District Court
for the Western District of Washington, alleging claims under Section 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The case was
entitled
Saltzman v. Jones Soda Company, et al.
, Case No. 07-cv-1366-RSL, and purported to be
brought on behalf of a class of purchasers of our common stock during the period March 9, 2007 to
August 2, 2007. Six substantially similar complaints subsequently were filed in the same court,
some of which alleged claims on behalf of a class of purchasers of our common stock during the
period November 1, 2006 to August 2, 2007. Some of the subsequently filed complaints added as
defendants certain current and former directors and another former officer of the Company. The
complaints generally alleged violations of federal securities laws based on, among other things,
false and misleading statements and omissions about our financial results and business prospects.
The complaints sought unspecified damages, interest, attorneys fees, costs, and expenses. On
October 26, 2007, these seven lawsuits were consolidated as a single action entitled
In re Jones
Soda Company Securities Litigation
, Case No. 07-cv-1366-RSL. On March 5, 2008, the Court appointed
Robert Burrell lead plaintiff in the consolidated securities case. On May 5, 2008, the lead
plaintiff filed a First Amended Consolidated Complaint, which purports to allege claims on behalf
of a class of purchasers of our common stock during the period of January 10, 2007, to May 1, 2008,
against the Company and Peter van Stolk, our former Chief Executive Officer, former Chairman of the
Board, and former director. The First Amended Consolidated Complaint generally alleges violations
of federal securities laws based on, among other things, false and misleading statements and
omissions about our agreements with retailers, allocation of resources, and business prospects.
Defendants filed a motion to dismiss the amended complaint on July 7, 2008. After hearing oral
argument on February 3, 2009, the Court granted the motion to dismiss in its entirety on February
9, 2009. Plaintiffs filed their motion for leave to amend their complaint on March 25, 2009. On
June 22, 2009, the Court issued an order denying plaintiffs motion for leave to amend and
dismissed the case with prejudice. On July 7, 2009, the Court entered judgment in favor of the
Company and Mr. van Stolk. On August 5, 2009, plaintiffs filed a notice of appeal of the Courts
order dismissing the complaint and denying plaintiffs motion for leave to amend, and the resulting
July 7, 2009 judgment. On August 30, 2010, the Ninth Circuit panel affirmed the denial of
plaintiffs motion for leave to amend. On September 20, 2010, plaintiffs filed a petition for
rehearing of their appeal by the full Ninth Circuit. On October 20, 2010, the Ninth Circuit denied
plaintiffs petition for rehearing. Plaintiffs did not file a petition for review by the U.S.
Supreme Court, and the time for doing so has passed.
In addition, on September 5, 2007, a shareholder derivative action was filed in the Superior
Court for King County, Washington, allegedly on behalf of and for the benefit of the Company,
against certain of our former officers and current and former directors. The case was entitled
Cramer v. van Stolk, et al.
, Case No. 07-2-29187-3 SEA (Cramer Action). The Company also was named
as a nominal defendant. Four other shareholders filed substantially similar derivative cases. Two
of these actions were filed in Superior Court for King County, Washington. One of these two
Superior Court actions was voluntarily dismissed and the other was consolidated with the Cramer
Action under the caption In re Jones Soda Co. Derivative Litigation, Lead Case No. 07-2-31254-4
SEA. On April 28, 2008, plaintiffs in the consolidated action filed an amended complaint based on
the same basic allegations of fact as in the federal securities class actions and alleging, among
other things, that certain of our current and former officers and directors breached their
fiduciary duties to the Company and were unjustly enriched in connection with the public
disclosures that are the subject of the federal securities class actions. On May 2, 2008, the Court
signed a stipulation and order staying the proceedings in the consolidated Cramer Action until all
motions to dismiss in the consolidated federal securities class action have been adjudicated. On
July 9, 2010, the Court dismissed the consolidated action without prejudice.
The two other shareholder derivative actions were filed in the U.S. District Court for the
Western District of Washington. On April 10, 2008, the Court presiding over the federal derivative
cases consolidated them under the caption Sexton v. van Stolk, et al., Case
13
No. 07-1782RSL (Sexton Action), and appointed Bryan P. Sexton lead plaintiff. The actions
comprising the consolidated Sexton Action are based on the same basic allegations of fact as in the
securities class actions filed in the U.S. District Court for the Western District of Washington
and the Cramer Action, filed in the Superior Court for King County. The actions comprising the
Sexton Action alleged, among other things, that certain of our current and former directors and
former officers breached their fiduciary duties to the Company and were unjustly enriched in
connection with the public disclosures that are the subject of the federal securities class
actions. The complaints sought unspecified damages, restitution, disgorgement of profits, equitable
and injunctive relief, attorneys fees, costs, and expenses. The Court granted an agreed motion by
the parties to stay the Sexton Action until the resolution of the appeal in the securities class
action described above. By order dated February 14, 2011, the Court lifted the stay and the
plaintiffs filed a notice of designation of operative complaint by the deadline of April 18, 2011.
On June 2, 2011, the plaintiffs in the actions comprising the Sexton Action filed a notice of
voluntary dismissal without prejudice.
In addition to the matters above, we are or may be involved from time to time in various
claims and legal actions arising in the ordinary course of business, including proceedings
involving product liability claims and other employee claims, and tort and other general liability
claims, for which we carry insurance, as well as trademark, copyright, and related claims and legal
actions. In the opinion of our management, the ultimate disposition of these matters will not have
a material adverse effect on our consolidated financial position, results of operations or
liquidity.
8. Comprehensive Loss
Comprehensive loss is comprised of net loss and other adjustments, including items such as
non-U.S. currency translation adjustments. We do not provide income taxes on currency translation
adjustments, as the historical earnings from our Canadian subsidiary are considered to be
indefinitely reinvested.
The following table summarizes our comprehensive loss for the periods presented (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Net loss
|
|
$
|
(1,820
|
)
|
|
$
|
(1,554
|
)
|
|
$
|
(3,490
|
)
|
|
$
|
(3,686
|
)
|
Currency translations
|
|
|
21
|
|
|
|
(78
|
)
|
|
|
60
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(1,799
|
)
|
|
$
|
(1,632
|
)
|
|
$
|
(3,430
|
)
|
|
$
|
(3,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Segment Information
We have one operating segment with operations primarily in the United States and Canada.
Revenues are assigned to geographic locations based on the location of customers. Geographic
information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
United States
|
|
$
|
3,678
|
|
|
$
|
3,784
|
|
|
$
|
6,842
|
|
|
$
|
6,484
|
|
Canada
|
|
|
1,227
|
|
|
|
1,322
|
|
|
|
2,106
|
|
|
|
2,335
|
|
Other Countries
|
|
|
9
|
|
|
|
259
|
|
|
|
53
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
4,914
|
|
|
$
|
5,365
|
|
|
$
|
9,001
|
|
|
$
|
9,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2011 and 2010, three of our customers represented
approximately 43% and 35%, respectively, of revenue, one of which, A. Lassonde Inc., a Canadian
direct store delivery distributor, represented approximately 33% and 24%, respectively, of revenue.
During the six months ended June 30, 2011 and 2010, three of our customers represented
approximately 40% and 32%, respectively, of revenue, one of which, A. Lassonde Inc., a Canadian
direct store delivery distributor, represented approximately 28% and 21%, respectively, of revenue.
14
10. Subsequent Events
In
August 2011, we announced that we agreed to terminate the Amended Sponsorship Agreement with the New Jersey
Nets, dated October 29, 2007, effectively ending the agreement five years early. In connection
with the termination, we agreed to pay $500,000 which is recorded in accrued liabilities as of June
30, 2011. The payment includes a $150,000 payment owed under the Amended Sponsorship Agreement in
connection with annual sponsorship fees for the year ended December 31, 2010 and the first half of
2011 and a termination fee of $350,000 payable in three installments ending March 1, 2012.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our unaudited
condensed consolidated financial statements and related notes included elsewhere in this Report and
the 2010 audited consolidated financial statements and notes thereto included in our Annual Report
on
Form 10-K
, which was filed with the Securities and Exchange Commission (SEC) on March 21, 2011.
This Quarterly Report on
Form 10-Q
and the documents incorporated herein by reference contain
forward-looking statements. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by terminology such as
believe, expect, intend, anticipate, estimate, may, will, can, plan, predict,
could, future, variations of such words, and similar expressions. These statements are only
predictions. Actual events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks outlined at the beginning of this
report under Cautionary Notice Regarding Forward-Looking Statements and in Item 1A of our most
recent Annual Report on
Form 10-K
filed with the SEC. These factors may cause our actual results to
differ materially from any forward-looking statements. Except as required by law, we undertake no
obligation to publicly release any revisions to these forward-looking statements that may be made
to reflect events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Overview
We develop, produce, market and distribute premium beverages, including the following product
lines and extensions:
|
|
|
Jones Soda
®
, a premium carbonated soft drink;
|
|
|
|
Jones Zilch,
with zero calories (and an extension of the
Jones Soda
®
product line);
|
|
|
|
WhoopAss Energy Drink
®
,
an energy supplement drink; and
|
|
|
|
WhoopAss Zero Energy Drink
®
, with zero sugar (and an extension of the
WhoopAss Energy Drink
®
product line).
|
We sell and distribute our products primarily throughout the United States (U.S.) and Canada
through our network of independent distributors, which we refer to as our direct store delivery
(DSD) channel, and directly to national retail accounts, which we refer to as our direct to retail
(DTR) channel. Additionally, in limited circumstances we sell concentrate for distribution or
production of our products, which we refer to as our concentrate soda channel. We do not directly
manufacture our products but instead outsource the manufacturing process to third-party contract
manufacturers.
Our products are sold in 50 states in the U.S. and nine provinces in Canada, primarily in
convenience stores, grocery stores, delicatessens, and sandwich shops, as well as through our
national accounts with several large retailers. We also sell various products on-line, which we
refer to as our interactive channel, including soda with customized labels, wearables, candy and
other items. Our distribution landscape is evolving, with the majority of our case sales of our
core products, including
Jones Soda
as well as our newly re-launched
WhoopAss
Energy Drink
, sold through our DSD channel in recent years. We are strategically building our
national and regional retailer network by focusing on the distribution system that
will provide us the best top-line driver for our products and optimize availability of our
products. We have focused our sales and marketing resources on the expansion
15
and penetration of our products through our independent distributor network and national and
regional retail accounts in our core markets throughout the U.S. and
Canada. We also intend to initiate and enhance distributor relationships in international regions where we believe there may be appropriate demand for our products. Our
international business outside of North America is comprised of Ireland, the United Kingdom and
Australia.
Our business strategy is to increase sales by expanding distribution of our products in new
and existing markets (primarily within North America). Our business strategy focuses on:
|
|
|
expanding points of distribution of
Jones Soda
throughout the entire U.S. in the grocery,
mass and club channels;
|
|
|
|
growing our convenience and gas (C&G) distribution behind
WhoopAss Energy Drink
;
|
|
|
|
expanding the stock-keeping unit (SKU) offerings in the grocery stores where we
are already present; and
|
|
|
|
developing innovative beverage brands that will allow us to capture share in the growing
natural carbonated drink segment.
|
In order to compete effectively in the beverage industry, we believe that we must convince
independent distributors that
Jones Soda
and
WhoopAss Energy Drink
are leading brands in the
premium soda and energy drink segments of the sparkling beverage category. We believe our story is
compelling as we perform well compared to our direct competitors in the premium soda segment in
sales per point of distribution. Additionally, as a means of maintaining and expanding our
distribution network, we introduce new products and product extensions, and when warranted, new
brands. Although we believe that we will be able to continue to create competitive and relevant
brands to satisfy consumers changing preferences, there can be no assurance that we will be able
to do so or that other companies will not be more successful in this regard over the long term.
We believe that our current cash and cash equivalents, which includes net proceeds of
approximately $2.2 million received from our final draw down under the equity line of credit
facility in February 2011 (see Note 2 to the financial statements), will be sufficient to meet our
anticipated cash needs at least into the first half of 2012.
Additionally, in August 2011, we announced we were
able to terminate our sponsorship arrangement with the New Jersey Nets
(see Liquidity and Capital Resources) thereby reducing our sponsorship commitments
by approximately $7.0 million through 2017 as we return our attention to grassroots marketing initiatives that focus on a nationwide audience.
Our current 2011 operating plan does not require us to obtain additional financing; however, this
will depend on our ability to meet our sales volume goals and otherwise execute on our operating
plan. We believe it is imperative to meet these objectives and continue to expand our distribution
network and increase sales volume in order to lessen our reliance on external financing in the
future. In order to execute on our growth strategy beyond our 2011
operating plan, we will require additional
financing to support our working capital needs. The amount of additional capital we will require, and the timing of our capital needs, will depend on a number of factors, including the performance of our business for the remainder of 2011 and beyond and the market conditions for debt or equity financing. Although we believe we may have various debt and equity financing alternatives available to us, these alternatives may require significant cash
payments for interest and other costs or could be highly dilutive to our existing shareholders. We
continue to monitor whether credit facilities may be available to us on acceptable terms. There can
be no assurance that any new debt or equity financing arrangement will be available to us when
needed on acceptable terms, if at all. In addition, there can be no assurance that these financing
alternatives would provide us with sufficient funds to meet our long-term capital requirements. If
necessary, we may explore strategic transactions in the best interest of the Company and our
shareholders, which may include, without limitation, public or private offerings of debt or equity
securities, joint ventures with one or more strategic partners, strategic acquisitions and other
strategic alternatives, but there can be no assurance that we will enter into any agreements or
transactions.
16
The uncertainties relating to our ability to successfully execute our 2011 operating plan,
combined with our inability to implement further meaningful cost containment measures that do not
jeopardize our growth plans and the difficult financing environment, continue to raise substantial
doubt about our ability to continue as a going concern (see Liquidity and Capital Resources).
Results of Operations
The following selected unaudited financial and operating data are derived from our condensed
consolidated financial statements and should be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of Operations and our condensed consolidated
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
2011
|
|
|
Revenue
|
|
|
2010
|
|
|
Revenue
|
|
|
2011
|
|
|
Revenue
|
|
|
2010
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
Consolidated statements of operation data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,914
|
|
|
|
100.0
|
|
|
$
|
5,365
|
|
|
|
100.0
|
|
|
$
|
9,001
|
|
|
|
100.0
|
|
|
$
|
9,258
|
|
|
|
100.0
|
|
Cost of goods sold
|
|
|
(3,497
|
)
|
|
|
(71.2
|
)
|
|
|
(3,894
|
)
|
|
|
(72.6
|
)
|
|
|
(6,584
|
)
|
|
|
(73.1
|
)
|
|
|
(6,979
|
)
|
|
|
(75.4
|
)
|
Write-down of excess GABA inventory
|
|
|
|
|
|
|
|
|
|
|
(178
|
)
|
|
|
(3.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(178
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,417
|
|
|
|
28.8
|
|
|
|
1,293
|
|
|
|
24.1
|
|
|
|
2,417
|
|
|
|
26.9
|
|
|
|
2,101
|
|
|
|
22.7
|
|
Licensing revenue
|
|
|
7
|
|
|
|
0.1
|
|
|
|
8
|
|
|
|
0.1
|
|
|
|
12
|
|
|
|
0.1
|
|
|
|
18
|
|
|
|
0.2
|
|
Promotion and selling expenses
|
|
(1,873
|
)
|
|
|
(38.1
|
)
|
|
|
(1,078
|
)
|
|
|
(20.1
|
)
|
|
|
(3,153
|
)
|
|
|
(35.0
|
)
|
|
|
(2,302
|
)
|
|
|
(24.9
|
)
|
General and administrative expenses
|
|
|
(1,313
|
)
|
|
|
(26.7
|
)
|
|
|
(1,745
|
)
|
|
|
(32.5
|
)
|
|
|
(2,793
|
)
|
|
|
(31.0
|
)
|
|
|
(3,428
|
)
|
|
|
(37.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,762
|
)
|
|
|
(35.9
|
)
|
|
|
(1,522
|
)
|
|
|
(28.4
|
)
|
|
|
(3,517
|
)
|
|
|
(39.0
|
)
|
|
|
(3,611
|
)
|
|
|
(39.0
|
)
|
Other income (expense), net
|
|
|
6
|
|
|
|
0.1
|
|
|
|
(3
|
)
|
|
|
(0.1
|
)
|
|
|
78
|
|
|
|
0.9
|
|
|
|
(8
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(1,756
|
)
|
|
|
(35.8
|
)
|
|
|
(1,525
|
)
|
|
|
(28.5
|
)
|
|
|
(3,439
|
)
|
|
|
(38.1
|
)
|
|
|
(3,619
|
)
|
|
|
(39.1
|
)
|
Income tax expense, net
|
|
|
(64
|
)
|
|
|
(1.3
|
)
|
|
|
(29
|
)
|
|
|
(0.5
|
)
|
|
|
(51
|
)
|
|
|
(0.6
|
)
|
|
|
(67
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,820
|
)
|
|
|
(37.1
|
)
|
|
$
|
(1,554
|
)
|
|
|
(29.0
|
)
|
|
$
|
(3,490
|
)
|
|
|
(38.7
|
)
|
|
$
|
(3,686
|
)
|
|
|
(39.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
(Dollars in thousands)
|
|
Balance sheet data:
|
|
|
|
Cash and cash equivalents and accounts receivable, net
|
|
$
|
7,203
|
|
|
$
|
7,668
|
|
Fixed assets, net
|
|
|
428
|
|
|
|
296
|
|
Total assets
|
|
|
11,468
|
|
|
|
11,463
|
|
Long-term liabilities
|
|
|
96
|
|
|
|
2
|
|
Working capital
|
|
|
6,981
|
|
|
|
8,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Case sale data (288-ounce equivalent):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished products cases
|
|
|
358,300
|
|
|
|
390,500
|
|
|
|
660,300
|
|
|
|
701,100
|
|
Concentrate cases
|
|
|
|
|
|
|
84,000
|
|
|
|
|
|
|
|
110,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cases
|
|
|
358,300
|
|
|
|
474,500
|
|
|
|
660,300
|
|
|
|
811,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended June 30, 2011 Compared to Quarter Ended June 30, 2010
Revenue
For
the quarter ended June 30, 2011, revenue was approximately $4.9 million, a decrease of $451,000, or 8.4%, from $5.4 million
in revenue for the three months ended June 30, 2010. This decrease is in part attributable to a 4.3% decline in
revenue due to the discontinuation of underperforming product lines,
Jones Naturals
®
,
Jones Organics
TM
, Jones 24C
®
and
Jones GABA
®
,
and certain underperforming
Jones Soda
flavors (which we refer to as stock keeping units, or SKUs). This product line
and SKU rationalization was initiated in the second half of 2010, after the arrival of our new Chief Executive Officer in
April of that year, as part of our strategic decision to focus our business on our higher-margin, core products, including
Jones Soda
SKUs that we believe have demonstrated strong sales performance at retail (measured
by the number of units of a particular SKU sold per point of distribution within a specific period of time, referred to as
sales velocity) and our newly re-launched
WhoopAss Energy Drink
. As a result, for the second quarter
of 2011 we earned significantly less revenue from these discontinued products and SKUs compared to the same period in the
prior year as we cycle through the remaining inventory of these products, which we expect
to continue through the remainder of the year. The following table
summarizes the case sales and revenue for the three months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case Sales (288-ounce equivalent)
|
|
|
Revenue (in thousands)
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Core products North America
|
|
|
347,000
|
|
|
|
323,400
|
|
|
$
|
4,852
|
|
|
$
|
4,688
|
|
Core products International
|
|
|
700
|
|
|
|
21,100
|
|
|
|
9
|
|
|
|
259
|
|
Discontinued products
|
|
|
9,700
|
|
|
|
35,400
|
|
|
|
46
|
|
|
|
191
|
|
Discontinued SKUs
|
|
|
900
|
|
|
|
10,600
|
|
|
|
7
|
|
|
|
96
|
|
Concentrate
|
|
|
|
|
|
|
84,000
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
358,300
|
|
|
|
474,500
|
|
|
$
|
4,914
|
|
|
$
|
5,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Also contributing to the decrease
in revenue was a significant decline in our international market as a result of an underperforming key distributor serving
the Ireland market that ultimately sought bankruptcy protection. This accounted for a 4.6% decrease in revenue in the second quarter
of 2011 compared to the same period in 2010, and we expect this to continue to negatively impact our revenue for the remainder of the
year as we transition to a new distributor in the Ireland market. In addition, there were no case sales of concentrate during the second quarter
of 2011 compared to 84,000 cases during the same period of 2010.
The
decrease in revenue for the
quarter ended June 30, 2011 compared to the same period of 2010 was offset, in part, by an increase in revenue from
our continuing core product offerings in the North American market of 3.1%, driven by growth in case sales of
Jones Soda
and
WhoopAss Energy Drink
. We believe our efforts with respect to reinforcing and
expanding our distribution network by partnering with new distributors and replacing underperforming distributors, coupled
with our strategic refocus to emphasize our higher-margin core products, are beginning to positively impact our business.
17
For the quarter ended June 30, 2011, promotion allowances and slotting fees, which are a
reduction to revenue, totaled $573,000, an increase of $229,000, or 66.6%, from $344,000 a year
ago. The increase in promotion allowances and slotting fees was primarily attributable to a focus
on more traditional trade spend strategies for core products through our DSD channel in order to
increase sales velocity. We expect promotional allowances and slotting fees to be higher in 2011
than in 2010 as the year continues and we concentrate on these traditional trade spend strategies.
Gross Profit
For the quarter ended June 30, 2011, gross profit increased by approximately $124,000, or
9.6%, to $1.4 million as compared to $1.3 million in gross profit for the quarter ended June 30,
2010. Despite the overall decrease in revenue during the quarter compared to the same period in the
prior year for the reasons outlined above under Revenue, the increase in gross profit was
benefited by a reduction in cost of goods sold in the second quarter of 2011 compared to the same
period in the prior year as a result of our transition out of underperforming product lines which
had a higher cost to produce. Additionally, the prior year gross profit was negatively impacted by
a $178,000 write-down of excess GABA inventory. For the quarter ended June 30, 2011, gross profit
as a percentage of revenue increased to 28.8% from 24.1% for the second quarter of 2010.
Promotion and Selling Expenses
Promotion and selling expenses for the quarter ended June 30, 2011 were $1.9 million, an
increase of $795,000, or 73.7%, from $1.1 million for the quarter ended June 30, 2010. Promotion
and selling expenses as a percentage of revenue increased to 38.1% for the quarter ended June 30,
2011, from 20.1% in the same period in 2010. The increase in promotion and selling expenses was
primarily due to an increase in selling expenses year over year of $419,000, to $964,000, or 19.6%
of revenue driven by added sales and marketing personnel to support our growth strategy. Also
contributing to the increase was trade promotion and marketing expenses which grew from $533,000 to
$909,000, or 18.5% of revenue for the quarter ended June 30, 2011, due primarily to a $350,000
charge accrued to the second quarter in connection with the termination of our New Jersey Nets
sponsorship agreement in August 2011. We anticipate increased promotion and selling expenses in
future quarters compared prior year periods due to our hiring of additional sales and marketing
personnel to support our strategy of securing and growing larger distributor and national retail
accounts, as well as our efforts to grow our
Jones Soda
and
WhoopAss Energy Drink
core
product lines.
General and Administrative Expenses
General and administrative expenses for the quarter ended June 30, 2011 were $1.3 million, a
decrease of $432,000, or 24.8%, compared to $1.7 million for the quarter ended June 30, 2010.
General and administrative expenses as a percentage of revenue decreased to 26.7% for the three
months ended June 30, 2011 from 32.5% in the same period of 2010. The decrease in general and
administrative expenses was primarily due to decreases in salaries and benefits, driven by a
decrease in stock-based compensation, and a decrease in professional fees. In addition, general
and administrative expenses were favorably impacted due to a loss on disposal of fixed assets in
the prior year period.
Income Tax Expense, Net
Provision for income taxes for the quarters ended June 30, 2011 and 2010 was an expense of
$64,000 and $29,000, respectively. The tax provision relates primarily to the tax on income from
our Canadian operations. No tax benefit is recorded for the loss in our U.S. operations as we have
recorded a full valuation allowance on our U.S. net deferred tax assets. We expect to continue to
record a full valuation allowance on our U.S. net deferred tax assets until we sustain an
appropriate level of taxable income through improved
18
U.S. operations. Our effective tax rate is based on recurring factors, including the
forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and
the recording of a full valuation allowance on our U.S. net deferred tax assets.
Net Loss
Net loss for the quarter ended June 30, 2011 increased to $1.8 million from a net loss of $1.6
million for the quarter ended June 30, 2010. This was primarily due to an increase in promotion and
selling expenses of $795,000, offset by a decrease in general and administrative expenses for the
reasons discussed above.
Six Month Period Ended June 30, 2011 Compared to Six Month Period Ended June 30, 2010
Revenue
For
the six months ended June 30, 2011, revenue was approximately $9.0 million, a decrease of $257,000, or 2.8%, from $9.3 million in revenue for the six months ended June 30, 2010.
This decrease is primarily attributable to a 8.8% decline in revenue due to the discontinuation of
underperforming products lines,
Jones Naturals
®
,
Jones Organics
TM
,
Jones 24C
®
and
Jones
GABA
®
, and certain underperforming
Jones Soda
flavors (which we refer to as stock keeping units, or SKUs). This product line and SKU rationalization was initiated
in the second half of 2010, after the arrival of our new Chief Executive Officer in April of that year, as part of
our strategic decision to focus our business on our higher-margin, core products, including
Jones Soda
SKUs that we believe have demonstrated strong sales performance at retail (measured by the number of units of a
particular SKU sold per point of distribution within a specific period of time, referred to as sales velocity) and our newly re-launched
WhoopAss Energy
Drink. As a result, for the first half of 2011 we earned
significantly less revenue from these discontinued products and SKUs compared to the same period in the prior year
as we cycle through the remaining inventory of these products, which we expect to continue through the remainder of the year.
The following table
summarizes the case sales and revenue for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case Sales (288-ounce equivalent)
|
|
|
Revenue (in thousands)
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Core products North America
|
|
|
642,600
|
|
|
|
559,300
|
|
|
$
|
8,899
|
|
|
$
|
7,855
|
|
Core products International
|
|
|
3,700
|
|
|
|
35,500
|
|
|
|
53
|
|
|
|
439
|
|
Discontinued products
|
|
|
12,700
|
|
|
|
76,700
|
|
|
|
39
|
|
|
|
549
|
|
Discontinued SKUs
|
|
|
1,300
|
|
|
|
29,600
|
|
|
|
10
|
|
|
|
314
|
|
Concentrate
|
|
|
|
|
|
|
110,800
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
660,300
|
|
|
|
811,900
|
|
|
$
|
9,001
|
|
|
$
|
9,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Also contributing to the decrease in revenue was a significant decline in our
international market as a result of an underperforming key distributor serving the Ireland market
that ultimately sought bankruptcy protection. This accounted for a 4.2% decrease in revenue in the first half
of 2011 compared to the same period in 2010, and we expect this to continue to negatively impact our revenue for the remainder
of the year as we transition to a new distributor in the Ireland market. In addition, there were no case sales of concentrate
during the first half of 2011 compared to 110,800 cases during the same period a year ago.
The decrease in revenue for the six months ended June 30, 2011 compared to the same period of 2010
was offset, in part, by an increase in revenue from our continuing core product offerings in the North
American market of 11.3%, driven by growth in case sales of
Jones Soda
and
WhoopAss Energy Drink
. We believe this was the direct result of our efforts, beginning in the
latter part of 2010, to reinforce and expand our distributor network by partnering with new
distributors and replacing underperforming distributors, in addition to our transition out of
underperforming products and SKUs as we focus on our core product lines.
For the six months ended June 30, 2011, promotion allowances and slotting fees, which are a
reduction to revenue, totaled $901,000, an increase of $148,000, or 19.7%, from $753,000 a year
ago. The increase in promotion allowances and slotting fees was primarily attributable to a focus
on more traditional trade spend strategies for core products through our DSD channel in order to
increase sales velocity. We expect promotional allowances and slotting fees to be higher in 2011
compared to the same periods in 2010 as the year continues as we concentrate on these traditional
trade spend strategies.
Gross Profit
For the six months ended June 30, 2011, gross profit increased by approximately $316,000, or
15.0%, to $2.4 million as compared to $2.1 million in gross profit for the six months ended June
30, 2010. Despite the overall decrease in revenue during the six months ended June 30, 2011
compared to the same period in the prior year for the reasons outlined above under Revenue, this
increase in gross profit was primarily a result of a reduction in cost of goods sold for the first
six months of 2011 compared to the same period in the prior year as a result of our transition out
of underperforming product lines which had a higher cost to produce. Additionally, the prior year
gross profit was negatively impacted by a $178,000 write-down of excess GABA inventory. For the
six months ended June 30, 2011, gross profit as a percentage of revenue increased to 26.9% from
22.7% for the six months of 2010.
Promotion and Selling Expenses
Promotion and selling expenses for the six months ended June 30, 2011 were $3.2 million, an
increase of $851,000, or 37.0%, from $2.3 million for the six months ended June 30, 2010. Promotion
and selling expenses as a percentage of revenue increased to 35.0% for the six months ended June
30, 2011, from 24.9% in the same period in 2010. The increase in promotion and selling expenses was
primarily due to an increase in selling expenses year over year of $560,000, to $1.7 million, or
19.2% of revenue, driven by added sales and marketing personnel to support our growth strategy.
Also contributing to the increase was trade promotion and marketing expenses which grew from $1.1
million, to $1.4 million, or 15.9% of revenue for the six months ended June 30, 2011, due
19
primarily to a $350,000 charge accrued to the second quarter in connection with the
termination of our New Jersey Nets sponsorship agreement in August 2011. We anticipate increased
promotion and selling expenses in future quarters compared prior year periods due to our hiring of
additional sales and marketing personnel to support our strategy of securing and growing larger
distributor and national retail accounts, as well as our efforts to grow our
Jones Soda
and
WhoopAss Energy Drink
core product lines.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2011 were $2.8 million,
a decrease of $635,000, or 18.5%, compared to $3.4 million for the six months ended June 30, 2010.
General and administrative expenses as a percentage of revenue decreased to 31.0% for the six
months ended June 30, 2011 from 37.0% in the same period of 2010. The decrease in general and
administrative expenses was primarily due to decreases in salaries and benefits, driven by a
decrease in stock-based compensation, as well as a decrease in professional fees and depreciation
expense. In addition, general and administrative expenses were favorably impacted due to a loss on
disposal of fixed assets in the prior year period.
Income Tax Expense, Net
Provision for income taxes for the six months ended June 30, 2011 and 2010 was an expense of
$51,000 and $67,000, respectively. The tax provision relates primarily to the tax provision on
income from our Canadian operations. No tax benefit is recorded for the loss in our U.S. operations
as we have recorded a full valuation allowance on our U.S. net deferred tax assets. We expect to
continue to record a full valuation allowance on our U.S. net deferred tax assets until we sustain
an appropriate level of taxable income through improved U.S. operations. Our effective tax rate is
based on recurring factors, including the forecasted mix of income before taxes in various
jurisdictions, estimated permanent differences and the recording of a full valuation allowance on
our U.S. net deferred tax assets.
Net Loss
Net loss for the six months ended June 30, 2011 decreased to $3.5 million from a net loss of
$3.7 million for the six months ended June 30, 2010. This was primarily, for the reasons discussed
above, due to a decrease in general and administrative expenses of $635,000 offset by an increase
in promotion and selling expenses of $851,000, combined with an increase in gross profit of
$316,000 due to increased revenue from our core products and the discontinuation of lower margin,
underperforming product lines and SKUs.
Liquidity and Capital Resources
Liquidity
As of June 30, 2011, we had cash and cash equivalents of approximately $4.6 million and
working capital of $7.0 million. Cash used in operating activities during the six months ended June
30, 2011 totaled $2.8 million. Our cash flows vary throughout the year based on seasonality. We
traditionally use more cash in the first half of the year as we build inventory to support our
historically seasonally-stronger shipping months of April through September, and expect cash used
by operating activities to decrease in the second half of the year as we collect receivables
generated during our stronger shipping months. Additionally, for the six months ended June 30,
2011, net cash used by investing activities totaled $353,000, due to the investment in a certificate of deposit in conjunction with our new operating lease buildout, as well as the purchase of fixed assets
primarily comprised of the purchase of two branded vehicles, while net cash provided by financing
activities totaled $2.3 million due to the proceeds from our final draw down on our equity line,
and to a lesser extent, proceeds from the capital lease obligation for the financing of the
purchased branded vehicles. We incurred a net loss of $1.8 million during the three months ended
June 30, 2011.
We believe that our current cash and cash equivalents, which includes net proceeds of
approximately $2.2 million received from our final draw down under the equity line of credit
facility on February 1, 2011 (see Note 2 to the financial statements), will be sufficient to meet
our anticipated cash needs at least into the first half of 2012. This will depend, however, on our
ability to successfully execute our 2011 operating plan, which is based on our realigned
higher-margin product portfolio, including
Jones Soda
and our newly
re-launched
WhoopAss Energy Drink
. The introduction of new and re-launched products involves a
number of risks, and there can be no assurance that we will achieve the sales levels we expect or
that justify the additional costs associated with such product introductions. We also plan to
continue our efforts to reinforce and expand our distributor network by partnering with new
distributors and replacing underperforming distributors. It is critical that we meet our volume
projections and
20
continue to increase volume going forward, as our operating plan already reflects prior
significant general and administrative cost containment measures, leaving us little room for
further reductions in such costs that do not jeopardize our growth plans.
Our operating plan factors in the use of cash to meet our contractual obligations. A
substantial portion of these contractual obligations consists of obligations to purchase raw
materials, including sugar and glass under our supply agreements. We enter into these supply
agreements in order to fix the cost of these key raw materials, which we expect will be used in the
ordinary course of our business. Our contractual obligations also relate to payments for
sponsorships, and have been reduced by approximately $7.0 million through 2017 as the result of the termination of our
sponsorship arrangement with the New Jersey Nets (see Contractual Obligations).
We intend to continually monitor and adjust our business plan as necessary to respond to
developments in our business, our markets and the broader economy. Our current 2011 operating plan
does not require us to obtain additional financing; however, this will depend on our ability to
meet our sales volume goals and otherwise execute on our operating plan. We believe it is
imperative to meet these objectives and continue to expand our distribution network and increase
sales volume in order to lessen our reliance on external financing in the future. In order to
execute on our growth strategy beyond our 2011 operating plan, we
will require additional financing to support our working capital
needs. The amount of additional capital we will require, and the timing of our capital needs, will depend on a number of factors, including the performance of our business for the remainder of 2011 and beyond and the market conditions for debt or equity financing. Although we believe we may have various debt and equity financing alternatives available to us, these alternatives may require significant cash payments for interest and other costs or
could be highly dilutive to our existing shareholders. We continue to monitor whether credit
facilities may be available to us on acceptable terms. There can be no assurance that any new debt
or equity financing arrangement will be available to us when needed on acceptable terms, if at all.
In addition, there can be no assurance that these financing alternatives would provide us with
sufficient funds to meet our long-term capital requirements. If necessary, we may explore strategic
transactions in the best interest of the Company and our shareholders, which may include, without
limitation, public or private offerings of debt or equity securities, joint ventures with one or
more strategic partners, strategic acquisitions and other strategic alternatives, but there can be
no assurance that we will enter into any agreements or transactions.
The uncertainties relating to our ability to successfully execute our 2011 operating plan,
combined with our inability to implement further meaningful cost containment measures that do not
jeopardize our growth plans and the difficult financing environment, continue to raise substantial
doubt about our ability to continue as a going concern. Our financial statements for the quarters
ended June 30, 2011 and 2010 were prepared assuming we would continue as a going concern, which
contemplates that we will continue in operation for the foreseeable future and will be able to
realize assets and settle liabilities and commitments in the normal course of business. These
financial statements do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications of liabilities that
could result should we be unable to continue as a going concern.
Contractual Obligations
In June 2011, we entered into an office building sublease for use as our principal
headquarters as our previous lease expires in August 2011 and did not include an option to renew.
The term of the sublease is five years with an option to extend for up to three additional five
year terms.
Under the terms of the sublease, we were required to deliver a Letter of Credit (LOC) issued
by KeyBank National Association in an amount equivalent to 50% of the total Subtenant Improvement
Allowance (as defined in the sublease agreement), or $183,000 which will be released after year
three of the sublease term, provided we have not been late in the payment of rent more than five
times during such period. As a condition of and to secure the LOC, KeyBank National Association
required us to place $183,000 in an interest bearing restricted reserve account, invested in a
certificate of deposit.
In
August 2011, we announced that we agreed to terminate the Amended Sponsorship Agreement with the New Jersey
Nets, dated October 29, 2007, effectively ending the agreement five years early. In connection
with the termination, we agreed to pay $500,000 which is recorded in accrued liabilities as of June
30, 2011, and includes a $150,000 payment owed under the Amended Sponsorship Agreement in
connection with annual sponsorship fees for the year ended December 31, 2010 and the first half of
2011, and a termination fee of $350,000 payable in three installments ending March 1, 2012.
With the conclusion of our sponsorship with the Portland Trailblazers effective June 30, 2011,
our remaining sponsorships are comprised of several individual
athlete sponsorships and other
sponsorships;
21
these obligations vary in terms. Our commitments as of June 30, 2011 with
respect to known contractual obligations, after giving effect to the termination of the New
Jersey Nets Sponsorship, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
Less Than 1
|
|
|
|
|
|
|
|
|
|
|
More Than
|
|
Contractual Obligations
|
|
Total
|
|
|
Year
|
|
|
2-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
Operating lease obligations
|
|
$
|
991
|
|
|
$
|
129
|
|
|
$
|
412
|
|
|
$
|
432
|
|
|
$
|
18
|
|
Capital lease obligations
|
|
|
136
|
|
|
|
29
|
|
|
|
58
|
|
|
|
49
|
|
|
|
|
|
Sponsorships
(1)
|
|
|
425
|
|
|
|
200
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
Purchase obligations
|
|
|
2,779
|
|
|
|
2,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
4,331
|
|
|
$
|
3,137
|
|
|
$
|
695
|
|
|
$
|
481
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes amount recorded in accrued liabilities as of June 30, 2011 in connection with the termination of the New Jersey Nets Sponsorship arrangement, as discussed above.
|
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Seasonality
Our sales are seasonal and we experience significant fluctuations in quarterly results as a
result of many factors. We historically have generated a greater percentage of our revenues during
the warm weather months of April through September. Timing of customer purchases will vary each
year and sales can be expected to shift from one quarter to another. As a result, management
believes that period-to-period comparisons of results of operations are not necessarily meaningful
and should not be relied upon as any indication of future performance or results expected for the
fiscal year.
Critical Accounting Policies
See the information concerning our critical accounting policies included under Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations Critical
Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010,
filed with the Securities and Exchange Commission on March 21, 2011. There have been no material
changes in our critical accounting policies during the three months ended June 30, 2011.
ITEM 4. CONTROLS AND PROCEDURES
Procedures
(a) Evaluation of disclosure controls and procedures
The Company maintains disclosure controls and procedures (as defined under Rules 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended). Management, under the supervision
and with the participation of our Chief Executive Officer and our Chief Financial Officer,
evaluated the effectiveness of the Companys disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15(b) as of June 30, 2011. Based on that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that these disclosure controls and procedures
were effective as of June 30, 2011.
(b) Changes in internal controls
There were no changes in the Companys internal control over financial reporting during the
three months ended June 30, 2011 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
22
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 4, 2007, a putative class action complaint was filed against us, our then serving
chief executive officer, and our then serving chief financial officer in the U.S. District Court
for the Western District of Washington, alleging claims under Section 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The case was
entitled Saltzman v. Jones Soda Company, et al., Case No. 07-cv-1366-RSL, and purported to be
brought on behalf of a class of purchasers of our common stock during the period March 9, 2007 to
August 2, 2007. Six substantially similar complaints subsequently were filed in the same court,
some of which alleged claims on behalf of a class of purchasers of our common stock during the
period November 1, 2006 to August 2, 2007. Some of the subsequently filed complaints added as
defendants certain current and former directors and another former officer of the Company. The
complaints generally alleged violations of federal securities laws based on, among other things,
false and misleading statements and omissions about our financial results and business prospects.
The complaints sought unspecified damages, interest, attorneys fees, costs, and expenses. On
October 26, 2007, these seven lawsuits were consolidated as a single action entitled In re Jones
Soda Company Securities Litigation, Case No. 07-cv-1366-RSL. On March 5, 2008, the Court appointed
Robert Burrell lead plaintiff in the consolidated securities case. On May 5, 2008, the lead
plaintiff filed a First Amended Consolidated Complaint, which purports to allege claims on behalf
of a class of purchasers of our common stock during the period of January 10, 2007, to May 1, 2008,
against the Company and Peter van Stolk, our former Chief Executive Officer, former Chairman of the
Board, and former director. The First Amended Consolidated Complaint generally alleges violations
of federal securities laws based on, among other things, false and misleading statements and
omissions about our agreements with retailers, allocation of resources, and business prospects.
Defendants filed a motion to dismiss the amended complaint on July 7, 2008. After hearing oral
argument on February 3, 2009, the Court granted the motion to dismiss in its entirety on February
9, 2009. Plaintiffs filed a motion for leave to file an amended complaint on March 25, 2009. On
June 22, 2009, the Court issued an order denying plaintiffs motion for leave to amend and
dismissed the case with prejudice. On July 7, 2009, the Court entered judgment in favor of the
Company and Mr. van Stolk. On August 5, 2009, plaintiffs filed a notice of appeal of the Courts
orders dismissing the complaint and denying plaintiffs motion for leave to amend, and the
resulting July 7, 2009 judgment. On August 30, 2010, the Ninth Circuit panel affirmed the denial of
plaintiffs motion for leave to amend. On September 20, 2010, plaintiffs filed a petition for
rehearing of their appeal by the full Ninth Circuit. On October 20, 2010, the Ninth Circuit denied
plaintiffs petition for rehearing. Plaintiffs did not file a petition for review by the U.S.
Supreme Court, and the time for doing so has passed.
In addition, on September 5, 2007, a shareholder derivative action was filed in the Superior
Court for King County, Washington, allegedly on behalf of and for the benefit of the Company,
against certain of our former officers and current and former directors. The case was entitled
Cramer v. van Stolk, et al., Case No. 07-2-29187-3 SEA (Cramer Action). The Company also was named
as a nominal defendant. Four other shareholders filed substantially similar derivative cases. Two
of these actions were filed in Superior Court for King County, Washington. One of these two
Superior Court actions was voluntarily dismissed and the other was consolidated with the Cramer
Action under the caption In re Jones Soda Co. Derivative Litigation, Lead Case No. 07-2-31254-4
SEA. On April 28, 2008, plaintiffs in the consolidated action filed an amended complaint based on
the same basic allegations of fact as in the federal securities class actions and alleging, among
other things, that certain of our current and former officers and directors breached their
fiduciary duties to the Company and were unjustly enriched in connection with the public
disclosures that are the subject of the federal securities class actions. On May 2, 2008, the Court
signed a stipulation and order staying the proceedings in the consolidated Cramer Action until all
motions to dismiss in the consolidated federal securities class action have been adjudicated. On
July 9, 2010, the Court dismissed the consolidated action without prejudice.
The two other shareholder derivative actions were filed in the U.S. District Court for the
Western District of Washington. On April 10, 2008, the Court presiding over the federal derivative
cases consolidated them under the caption Sexton v. van Stolk, et al., Case No. 07-1782RSL (Sexton
Action), and appointed Bryan P. Sexton lead plaintiff. The actions comprising the consolidated
Sexton Action are based on the same basic allegations of fact as in the securities class actions
filed in the U.S. District Court for the Western District of Washington and the Cramer Action,
filed in the Superior Court for King County. The actions comprising the Sexton Action alleged,
among other things, that certain of our current and former directors and former officers breached
their fiduciary duties to the Company and were unjustly enriched in connection with the public
disclosures that are the subject of the federal securities class actions. The complaints sought
unspecified damages, restitution, disgorgement of profits, equitable and injunctive relief,
attorneys fees, costs, and expenses. The Court granted an agreed motion by the parties to stay the
Sexton Action until the resolution of the appeal in the securities class action described above. By
order dated February 14, 2011, the Court lifted the stay and the plaintiffs filed
23
a notice of designation of operative complaint by the deadline of April 18, 2011. On June 2,
2011, the plaintiffs in the actions comprising the Sexton Action filed a notice of voluntary
dismissal without prejudice.
In addition to the matters above, we are or may be involved from time to time in various
claims and legal actions arising in the ordinary course of business, including proceedings
involving product liability claims and other employee claims, and tort and other general liability
claims, for which we carry insurance, as well as trademark, copyright, and related claims and legal
actions. In the opinion of our management, the ultimate disposition of these matters will not have
a material adverse effect on our consolidated financial position, results of operations or
liquidity.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 2010 (the Form 10-K), which could materially affect our business,
financial condition or future results. The risks described in our Form 10-K are not the only risks
facing our company. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our business, financial
condition and/or operating results. However, there have been no material changes that we are aware
of from the risk factors set forth in Part I, Item 1A in our Form 10-K.
ITEM 6. EXHIBITS
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10.1++
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Sublease Agreement dated June 13, 2011, between 1000 Master Tenant LLC and Jones Soda Co. (Filed herewith.)
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10.2*
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Jones Soda Co. 2011 Incentive Plan (Previously filed with, and incorporated herein by reference to, Annex A to
the Companys Definitive Proxy Statement filed on April 12, 2011.)
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10.3*
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Form of Stock Option Grant Notice and Agreement under the Jones Soda Co. 2011 Incentive Plan (Filed herewith.)
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10.4*
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Form of Restricted Stock Award Notice and Agreement under the Jones Soda Co. 2011 Incentive Plan (Filed herewith.)
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10.5*
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Form of Restricted Stock Unit Notice and Agreement under the Jones Soda Co. 2011 Incentive Plan (Filed herewith.)
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31.1
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Section 302 Certification of CEO William R. Meissner, Chief Executive Officer (Filed herewith.)
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31.2
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Section 302 Certification of CFO Michael R. OBrien, Chief Financial Officer (Filed herewith.)
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32.1
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Section 906 Certification of CEO William R. Meissner, Chief Executive Officer of Jones Soda Co., pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)
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32.2
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Section 906 Certification of CFO Michael R. OBrien, Chief Financial Officer of Jones Soda Co., pursuant to 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith.)
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101.INS**
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XBRL Instance Document.
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101.SCH**
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XBRL Taxonomy Extension Schema Document.
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101.CAL**
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF**
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XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB**
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE**
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XBRL Taxonomy Extension Presentation Linkbase Document.
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*
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Management contract or compensatory plan or arrangement.
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**
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|
Pursuant to Rule 406T of Regulation S-T, these interactive data files
are deemed not filed or part of a registration statement or prospectus
for purposes of Sections 11 or 12 of the Securities Act of 1933 or
Section 18 of the Securities Exchange Act of 1934 and otherwise are
not subject to liability.
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++
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Portions of the marked exhibits have been omitted pursuant to requests for confidential treatment filed with the SEC.
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24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
August 12, 2011
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JONES SODA CO.
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By:
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/s/ WILLIAM R. MEISSNER
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William R. Meissner
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President and Chief Executive Officer
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By:
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/s/ MICHAEL R. OBRIEN
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Michael R. OBrien
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Chief Financial Officer
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25
EXHIBIT 10.1
[***] Portions of this exhibit have been omitted and filed separately with the Commission pursuant
to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as
amended.
SUBLEASE AGREEMENT
This
Sublease Agreement
(the Sublease) is entered
into as of this 13
th
day of
June, 2011, by and between 1000 Master Tenant LLC, a Washington limited liability company
(Sublandlord) and Jones Soda Co., a Washington corporation (Subtenant).
This Sublease is subject and subordinate to that certain Master Lease Agreement by and between
Sublandlord, as tenant, and 1000 1
st
Avenue South Limited Partnership, a Washington
limited partnership, as landlord (the Master Landlord), dated October 24, 2008 (Master Lease),
and any recorded deed of trust. Subtenant shall comply with all applicable provisions of the
Master Lease. This Sublease and Subtenants use and enjoyment of the Premises shall at all times
be subject to and in compliance with applicable laws, codes, ordinances and regulations related to
the Buildings status as a historic building and promulgated by the National Park Service, the
State of Washington, the Pioneer Square Preservation Board and the City of Seattle (HTC
Regulations). To the extent that any provisions of this Sublease are inconsistent with applicable
HTC Regulations, the HTC Regulations shall control and shall be applicable to Sublandlord and
Subtenant.
Sublandlord represents and warrants to Subtenant that the Master Lease is, as of the date
hereof, in full force and effect, and no uncured event of default by either party thereto has
occurred thereunder and, to Sublandlords knowledge, no event has occurred and is continuing which
would constitute an event of default by any party thereto but for the requirement of the giving of
notice and/or the expiration of the period of time to cure. Sublandlord shall not agree to
terminate the Master Lease nor agree to any amendment to the Master Lease which might have a
material adverse effect on Subtenants occupancy of the Premises or its use of the Premises for its
intended purpose. Sublandlord shall not exercise any right it may have under the Master Lease or
applicable law to elect to terminate the Master Lease (e.g., due to events of damage, destruction,
or condemnation, or in the event of Master Landlords bankruptcy and rejection of the Master Lease)
without the prior consent of Subtenant. Sublandlord shall neither do nor permit anything to be
done which would constitute a default or breach under the Master Lease or which would cause the
Master Lease to be terminated or forfeited by reason of any right of termination or forfeiture
reserved or vested in the Master Landlord, and Sublandlord agrees to comply with all terms,
conditions, and covenants of the Master Lease. Sublandlord represents and warrants that no consent
to this Sublease is required from the Master Landlord.
1. SUBLEASE SUMMARY AND EXHIBITS.
1.1.
Subleased Premises
. The Subleased premises (Premises) consists of an
agreed area of 9,500 rentable square feet of retail/office space as outlined on the floor plan
attached hereto and incorporated herein as
Exhibit A
(Floor Plan) and incorporated
herein by this reference, located on the real property legally described
on the attached
Exhibit B
and incorporated herein by this reference, and commonly
known as Palmer Court, first floor located at 1000 First Avenue South, Seattle, Washington.
Adjacent and along the easterly façade of the Building is a Common Area exterior deck that
provides, among other things, access to and from the Building (the Deck). The Premises shall
also include, at no additional charge to Subtenant, an approximately three hundred forty-nine (349)
square foot portion of the Deck as set forth on
Exhibit J
attached hereto and incorporated
herein (the Patio). Before Subtenant holds any events or otherwise uses the Patio, it shall
install at Subtenants sole expense a fence or other method of demarcation made of material(s)
mutually acceptable to Subtenant and Sublandlord, consistent with the architecture of the Building
and reasonably approved in advance by Sublandlord to separate the Patio from the remainder of the
Deck and the ingress/egress routes it provides to the Building. The Premises does not include the
real property beneath the Premises or structural elements of the building in which the Premises is
located (Building). The Building, the real property upon which it is situated, all other
improvements located on such land, and all common areas appurtenant to the Building are referred to
herein as the Property.
Subtenant understands and acknowledges that the Premises is located in an industrial area
subject to potential nuisances, primarily emanating from other properties in the vicinity of the
Building, such as, by way of illustration only, excessive noise, dust and pungent odors. Subtenant
represents and warrants that its intended use is consistent with the location of the Premises and
such potential nuisances.
1.2. Sublease Commencement Date
. The Sublease shall commence on the date on
which Sublandlord delivers possession of the Premises to Subtenant with the Sublandlords Work
described in Section 3.1 below substantially completed (the Commencement Date). The Projected
Commencement Date is the date that is up to forty-five (45) days from the date of mutual execution
hereof.
1.3. Sublease Expiration Date
. The Sublease shall expire at midnight on the last
day of the calendar month in which the fifth (5
th
) anniversary of the Commencement Date
occurs (the Expiration Date).
1.4. Monthly Base Rent
. The base monthly rent (Monthly Base Rent), based on an
agreed Premises area of 9,500 rentable square feet, shall be as follows:
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Building
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Month
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|
$/YR/SF
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Annual Base Rent
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|
|
Monthly Base Rent
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01 - 05
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$Abated*
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Abated*
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$ Abated
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*
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06-12
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$
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21.00
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$
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199,500.00
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$
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16,625.00
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13-24
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$
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21.50
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$
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204,250.00
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$
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17,020.83
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25-36
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$
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22.00
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$
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209,000.00
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$
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17,416.67
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37-48
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$
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22.50
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$
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213,750.00
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$
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17,812.50
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49-60
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$
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23.00
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$
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218,500.00
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$
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18,208.33
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61-65
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$
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23.50
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$
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223,250.00
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$
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18,604.17
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*
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All Monthly Base Rent shall abate during this period.
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Multi-Tenant Lease
Triple Net
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Page 2
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
Rent shall be payable at Sublandlords address shown in
Section 1.8
below, or such other
place designated in writing by Sublandlord.
1.5. Prepaid Rent
. Upon occupancy of this Sublease, Subtenant shall deliver to
Sublandlord the first payment of Monthly Base Rent.
1.6. Security Deposit & Letter of Credit
. Upon execution of this Sublease,
Subtenant shall deliver to Sublandlord a security deposit in the amount of Eighteen Thousand Six
Hundred Four Dollars and Seventeen Cents ($18,604.17) (Security Deposit).
In addition to the Security Deposit, within five (5) business days following execution of this
Sublease, Subtenant shall provide Sublandlord with a Letter of Credit (LOC) in the amount
equivalent to fifty percent (50%) of the total Subtenant Improvement Allowance. Such LOC must be
issued by a reputable bank to guarantee Subtenants ability to pay the Sublease and
costly/nonstandard improvements as the improvements are amortized over the term of the lease.
Sublandlord agrees to release the LOC requirement after year three of the Term in the event
Subtenant has not been in late in the payment of Rent more than five times during this period. The
LOC is hereby attached to this Sublease as
Exhibit F
.
1.7. Permitted Uses
. The Premises shall be used only for retail/merchandising,
light manufacturing relating to Subtenants business, office support, and preparation and sale of
food and beverages including liquor (subject to receipt of and in compliance with an appropriate
liquor license), and for no other purpose without the prior written consent of Sublandlord, not to
be unreasonably withheld. At all times, Subtenant shall keep the Patio clean and neat, avoid
blocking pedestrian traffic, and cause all trash and garbage to be picked up and removed at its
expense. Subtenant may offer low level music on the Patio and may install and use tables, chairs,
umbrellas, and the like, provided that the same kept in a clean, useable and orderly condition, so
as to present a tidy, attractive and consistent appearance to customers and passersby.
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Multi-Tenant Lease
Triple Net
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Page 3
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
1.8. Notice and Payment Addresses.
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Sublandlord:
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1000 Master Tenant LLC
270 S Hanford St, Ste 100
Seattle, WA 98134
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Subtenant:
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Jones Soda Co.
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Before Month 6:
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234 9
th
Ave. N.
Seattle, WA 98109-5120
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On and After Month 6:
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The Premises
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1.9. Subtenants Pro Rata Share
. Sublandlord and Subtenant agree that
Subtenants pro rata share is Thirteen and One-Half Percent (13.50%) (Subtenants Pro Rata
Share)(based on 70,350 total rentable square feet in the Building).
1.10. Subtenant Improvement Allowance
. The design and construction of
Subtenants desired initial leasehold improvements to the Premises (the Subtenant Improvements)
will be constructed in accordance with Sublandlords tenant improvement procedures set forth in
Exhibit G
attached hereto and incorporated herein. Sublandlord hereby agrees to provide
Subtenant with a Subtenant Improvement Allowance (TI Allowance) of Thirty Eight Dollars and Fifty
Cents ($38.50) per rentable square foot. Such TI Allowance shall be usable for space planning,
construction drawings, project/construction management, hard and soft construction costs, and
permits. Sublandlord and its contractor will allow the Subtenant and its subcontractors to work in
parallel with the Sublandlords contractors only with approval from the Sublandlords contractor
whose consent will not unreasonably be withheld as provided in
Exhibit
G
attached hereto
and incorporated herein.
1.11. Exhibits.
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Exhibit A
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Site Plan and Premises Floor Plan
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Exhibit A-1
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Expansion Space Floor Plan
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Exhibit B
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Legal Description
|
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Exhibit
C
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Guaranty
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Exhibit
D
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Affidavit
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Exhibit
E
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Sublandlords Work
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Exhibit F
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Letter of Credit
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Exhibit G
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Subtenant Improvements
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Exhibit H
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Subtenants Approved Signage
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Exhibit I
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Prohibited Uses
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Exhibit
J
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Depiction of the Deck and Patio Area
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Exhibit
K
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Form of Wall Sublease
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Multi-Tenant Lease
Triple Net
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|
Page 4
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|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
2. AGREEMENT TO SUBLEASE PREMISES
. Sublandlord hereby agrees to lease to Subtenant, and
Subtenant hereby agrees to lease from Sublandlord the Premises as is and upon the terms and
conditions set forth herein. Subtenant acknowledges that Sublandlord will construct tenant
improvements for other Subtenants in the Building during the Term. Subtenant and its employees,
agents and customers will be subject to noise and construction debris commonly encountered in
connection with the construction of tenant improvements for other tenants that Sublandlord will use
commercially reasonable efforts to mitigate and which shall not be subject to the provisions in
Section 31 below. Sublandlord also grants to Subtenant a license and nonexclusive right to the use
of all Common Areas (defined below) located from time to time in the Building and at the Property
and the benefit of all other easements, rights, and provisions of any covenants and restrictions
pertaining to the Property or Building and intended for the common use and enjoyment of other
occupants and subtenants thereof.
3. TERM AND CONDITION OF PREMISES.
3.1. Term
. The Sublease shall commence on the Commencement Date set forth in
Section 1.2
and shall expire on the Expiration Date set forth in
Section 1.3
,
unless the Sublease is sooner terminated as provided herein (Term). Sublandlord will deliver the
Premises to Subtenant with the work Sublandlord has agreed to perform set forth on
Exhibit
E,
attached hereto and incorporated herein (Sublandlords Work). In the event Sublandlord is
unable to deliver possession of the Premises on the Projected Commencement Date, Subtenant shall
receive one (1) days worth of Base Rent abatement for each one (1) day after the Projected
Commencement Date on which the Premises are delivered, with the benefit of such abatement to be
applied to the sixth months Monthly Base Rent. Monthly Base Rent shall not abate, however, if
delivery of possession of the Premises is delayed by acts or omissions of Subtenant (or, up to a
total of thirty (30) days, force majeure events), or acts or omissions of the City of Seattle or
the Pioneer Square Preservation Board. If the Commencement Date is delayed beyond the first
(1
st
) anniversary of the Projected Commencement Date, Subtenant may terminate this
Sublease, and receive a full refund of any advance rent or other deposits or sums or charges paid
to Sublandlord. If Subtenant does not elect to terminate as aforesaid, the foregoing Monthly Base
Rent abatement shall continue to accrue.
The Sublease Term may be extended as set forth in
Section 3.3
. References herein to
Term shall also include the Option Term(s) if the Option set forth below is exercised.
3.2. Condition of Premises
. Except to the extent otherwise set forth herein,
Sublandlord makes no representations or warranties to Subtenant regarding the condition of the
Premises, including the structural condition of the Premises or the condition of mechanical,
electrical, and other systems on or serving the Premises or the Building. By signing this
Sublease, Subtenant acknowledges that it has had adequate opportunity to investigate the Premises
and the Building, acknowledges responsibility for making any corrections, alterations and repairs
to the Premises other than Sublandlords
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Multi-Tenant Lease
Triple Net
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|
Page 5
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
Work, and acknowledges that the time needed to complete any such items, other than
Sublandlords Work, shall not delay the Commencement Date.
Notwithstanding anything to the contrary elsewhere herein, Sublandlord represents to Subtenant
that (i) Sublandlord has the authority to enter into this Sublease and its execution and delivery
by Sublandlord has been duly authorized; (ii) to the best of Sublandlords knowledge as of the
Commencement Date, the Premises, all Common Areas at the Building, all electrical, HVAC,
mechanical, plumbing, and fire/life safety systems in the Building (the Buildings Systems) will
comply with applicable laws, codes, and ordinances; (iii) to the best of Sublandlords knowledge
all Building Systems are, or will be on the Commencement Date, in reasonably good working order and
condition.
3.3. Options to Renew
.
Provided Subtenant is not, at the time of its notice of
exercise described below, in uncured default under the terms and conditions of this Sublease,
Subtenant may extend this Sublease for up to three (3) additional Five (5) year terms (each an
Option Term) on the same terms and conditions set forth herein, except that the Monthly Base Rent
for the first year of each Option Term shall be adjusted to the Fair Market Value, as defined in
Section 3.4(c), for similar properties in the area but not less than the Monthly Base Rent for the
last year of the Sublease Term. Subtenant must give Sublandlord not less than one hundred and
twenty (120) days written notice of its intent to exercise the Option Term.
3.4. Option to Expand and [***].
Sublandlord hereby agrees that during the Term
of this Sublease, Subtenant shall have a right of expansion (Expansion Right) and
[***]
with respect to all of the 4,757 rentable square foot area set forth as Office 201 on
Exhibit A-1
hereto (Expansion Space).
(a)
Subject to Section 3.4(b), Subtenant may exercise its Expansion Right with respect to
the Expansion Space at any time during the Term of the Sublease. If Subtenant exercises its
Expansion Right within the first twelve (12) months following the Commencement Date, the Monthly
Base Rent for the Expansion Space shall be $21.00 per rentable square foot. If Subtenant exercises
the Expansion Right after the first twelve (12) months following the Commencement Date, the Monthly
Base Rent for the Expansion Space shall be determined based on the Fair Market Value, as defined in
Section 3.4(c), for the Expansion Space.
(b)
[***]
.
(c)
Fair Market Value means the prevailing market rate for comparable buildings in the
vicinity of the Building for gross rent (i.e., inclusive of operating expenses and taxes, but
excluding electricity) for office space (like that existing in the Premises on the date on which
the Fair Market Value is being calculated) taking into account the size of the space and the length
of the term of the Sublease with respect to such space. Sublandlord shall notify Subtenant of its
determination of the Fair Market Value within ten (10) days. If Subtenant disagrees with
Sublandlords determination of
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Multi-Tenant Lease
Triple Net
|
|
Page 6
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
the Fair Market Value, Sublandlord and Subtenant shall confer for a period of thirty (30) days
in an attempt to agree on the Fair Market Value. In the event Sublandlord and Subtenant fail to
reach an agreement on such rental rate within such thirty (30) day period, then the Fair Market
Value that will be used in computing Monthly Base Rent shall be determined as follows: Within five
(5) days after the expiration of the thirty (30) day period described above, Sublandlord and
Subtenant shall each select an appraiser with at least ten (10) years experience in the market in
which the Building is located. If the two appraisers are unable to agree within ten (10) days
after their selection, they shall select a similarly qualified third appraiser (the Neutral
Appraiser). Within twenty (20) days after selection of the Neutral Appraiser, the three
appraisers shall simultaneously exchange determinations of the Fair Market Value. If the lowest
appraisal is not less than ninety percent (90%) of the highest appraisal, then the three appraisals
shall be averaged and the result shall be the Fair Market Value. If the lowest appraisal is less
than ninety percent (90%) of the highest appraisal, then the Fair Market Value shall be deemed the
rate set forth in the appraisal submitted by an appraiser appointed by a party that is closest in
dollar amount to the appraisal submitted by the Neutral Appraiser. If the Fair Market Value has
not been determined on or before the Commencement Date for the relevant space, Subtenant shall
begin paying Base Monthly Rent at the rate Subtenant is paying for the Premises, and Subtenant and
Sublandlord shall make any necessary adjusting payments when the Fair Market Value is determined.
Each party shall pay the cost of its own appraiser and the parties shall share the cost of the
Neutral Appraiser equally. Subtenant may rescind the exercise of its expansion right with respect
to any portion of the Expansion Space within ten (10) days following the determination of Fair
Market Value for such space.
4. RENT
. All Rent (as defined in Section 4.4, below) payments shall be made without any
prior demand and therefore without deduction or offset to the Sublandlord at the address set forth
in
Section 1.8
.
4.1.
Payment of Monthly Base Rent
.
Subtenant agrees to pay the Monthly Base Rent
for the Premises on or before the first day of each calendar month. Subtenant shall pay
Sublandlord Monthly Base Rent due for the sixth (6
th
) month of the Term plus the
Security Deposit when Subtenant executes the Sublease. The Monthly Base Rent shall be paid to the
Sublandlord at such place as Sublandlord may from time to time designate in writing.
4.2.
Additional Rent.
(a)
Real Property Taxes
. Subtenant shall pay Sublandlord as Additional Rent (as
defined in Section 4.2(d), below), in the manner described below, an amount equal to Subtenants
Pro Rata Share of Real Property Taxes, defined below, payable by Sublandlord for the Property in
any full or partial calendar year. Real Property Taxes shall mean real and personal property
taxes, assessments, including omit tax (but excluding any such omit tax properly allocable to
periods prior to the Commencement Date of this Sublease), and other governmental impositions and
charges
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Multi-Tenant Lease
Triple Net
|
|
Page 7
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
of every kind and nature, now or hereafter imposed, including surcharges with respect thereto
and interest thereon with respect to assessments amortized over a period exceeding one year, which
may during the Term of this Sublease be levied, assessed, imposed, or otherwise become due and
payable with respect to the Property, including the Subtenant improvements, and the Property and
all improvements, fixtures, and equipment thereon, or the use, occupancy or possession thereof;
taxes on Property of Subtenant which have not been paid by Subtenant directly to the taxing
authority; any taxes levied or assessed upon or measured by the Premises, the Building, or the
Property, or any amounts received by Sublandlord in connection therewith or hereunder, but not
including any federal or state net income, estate, inheritance, succession, transfer, gift,
franchise, or capital stock tax, or any income taxes arising out of or related to ownership and
operation of income-producing real estate, any Real Property Taxes allocable to any time prior to
the Commencement Date hereof or after the expiration or earlier termination hereof. All Real
Property Taxes due hereunder shall be determined with respect to the period for which such taxes
are (or would have been if timely levied) due and payable; and any taxes levied or assessed in lieu
of, or as a substitute for, the foregoing in whole or part. Notwithstanding the foregoing, in the
event rental income becomes subject to Washington business and occupation tax, such business and
occupation tax shall be subject to this Section 4.2(a).
(b)
Operating Expenses
. Subtenant shall pay Sublandlord as Additional Rent, in the
manner described below, an amount equal to Subtenants Pro Rata Share of the Propertys Operating
Expenses, defined below, payable by Sublandlord in any full or partial calendar year. Operating
Expenses shall mean all expenses paid or incurred by Sublandlord for maintaining, operating and
repairing the Property and the personal property used in conjunction therewith, including, without
limitation, the costs of utility and other services not paid separately by Subtenant, services of
independent contractors, compensation, including employment taxes and fringe benefits, of all
persons who perform duties in connection with the operation, maintenance and repair of the Property
and its equipment, insurance premiums, licenses, permits and inspection fees, commercially
reasonable management fees of four percent (4%) of the gross base rents for the Building,
commercially reasonable legal and accounting expenses, amortization of capital improvements that
Sublandlord reasonably anticipates will improve the operating efficiency of the Property, but the
amortization expense shall not exceed reasonably expected savings in operating costs resulting from
such capital improvements, and any other expense or charge, which in accordance with generally
accepted accounting and management practices would be considered an expense of maintaining,
operating or repairing the Property, but excluding costs of any special services rendered to
individual Subtenants, including Subtenant, for which a special charge is made.
(c)
Common Area Maintenance Expenses
. Subtenant shall pay Sublandlord as Additional
Rent, in the manner described below, an amount equal to Subtenants Pro Rata Share of the Common
Area Maintenance Expenses, defined below, for the Property incurred or payable by Sublandlord with
respect to the Common Areas
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
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(defined below) of the Property in any partial or full calendar year. The terms Common Area
Maintenance Expenses shall mean all expenses paid or incurred by Sublandlord for maintaining,
operating and repairing the common areas of the Property, including, without limitation, that
portion of the Deck that does not include the Patio, stairways, elevators, hallways, lobby,
rooftop, parking areas, landscaping, and restrooms open to use by more than one Subtenant (Common
Areas), including costs of obtaining services and products for maintaining, operating and
repairing such Common Areas and the personal property used in conjunction therewith, services of
independent contractors compensation, including employment taxes and fringe benefits, of all
persons who perform duties in connection with the operation, maintenance, repair of the Common
Areas, insurance premiums, personal property taxes, licenses, seasonal decorations, activities and
events, permits and inspection fees, amortization of capital improvements that Sublandlord
reasonably anticipates will improve the operating efficiency of the Common Areas, but such
amortization expenses shall not exceed reasonably expected savings in operating costs resulting
from such capital improvements, and any other expense or charge described, which in accordance with
generally accepted accounting and management practices would be considered an expense of
maintaining, operating or repairing the Common Areas of the Property. In no event shall any such
charges, modifications or alterations to the Common Areas increase Subtenants Pro Rata Share as
specified in
Section 1.9
. Sublandlord acknowledges that Subtenants acceptance of the
Sublease is based on the condition and location of the parking, loading, and Common Areas of the
Property and Premises as of the Commencement Date herein. Sublandlord shall, at all times, act in
good faith and with due diligence to minimize interruption, reduction or discontinuation as to not
unreasonably interfere with the ordinary conduct of Subtenants business operations in the
Premises.
In no event shall Operating Expenses or Common Area Maintenance Expenses include, and
Subtenant shall not be required by this Sublease to pay for, the following: (i) costs of any
special services rendered to individual Subtenants, including Subtenant, for which a special charge
is made; (ii) any capital costs except as expressly permitted above; (iii) interest, charges and
fees incurred on debt, payment on mortgages and rent under ground leases; and all costs expended in
connection with any sale, hypothecation, financing, refinancing, or ground lease of the Building or
Property or of the Sublandlords interest therein; (iv) costs occasioned by casualties that would
be covered by an all-risk property insurance policy (including earthquake and flood) or by other
insurance actually carried by Sublandlord, insurance deductibles greater than $20,000 per calendar
year, or self-insured retentions or co-insurance of any type; (v) administrative fees if property
management fees are already included in Operating Expenses or Common Area Maintenance Expenses;
(vi) reserves for any purposes; (vii) depreciation for any of the real or personal property
associated with the Building or Property, including depreciation of any leasehold improvements;
(viii) any duplicative charges (i.e., costs includable in Operating Expense shall not be includable
in Common Area Maintenance Expenses); (ix) leasing expenses such as commissions, attorneys fees,
auditing fees, and other costs incurred in connection with negotiations or disputes with subtenants
or negotiating or enforcing
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leases and lease-related documents; and (x) costs incurred to remove or remediate any hazardous
materials or substances from the Property existing in, on or under the Property as of the
Commencement Date and any judgments, fines, penalties, or other costs incurred in connection with
any hazardous material or substance exposure or release.
(d)
Manner of Payment
. Subtenants Pro Rata Share of Real Property Taxes,
Operating Expenses, and Common Area Maintenance Expenses, is sometimes collectively referred to
herein as Additional Rent.
(1) Sublandlord may reasonably estimate in advance the amounts Subtenant shall owe for
Additional Rent for any full or partial calendar year of the Term. Subtenant shall pay such
estimated amounts of Additional Rent, on a monthly basis, on or before the first day of each such
calendar month. Such estimate may be reasonably adjusted from time to time by Sublandlord. The
estimate for the first year of the Term is approximately
$0.58
per rentable square foot per
month.
(2) Within ninety (90) days after the end of each calendar year, or as soon thereafter as
practicable, Sublandlord shall provide a statement (the Statement) to Subtenant showing: (a) the
amount of actual Additional Rent for such calendar year, with a listing of amounts for major
categories of Operating Expenses, Real Property Taxes, and Common Area Maintenance Expenses, (b)
any amount paid by Subtenant toward such Additional Rent during such calendar year on an estimated
basis and (c) any revised estimate of Subtenants obligations for Additional Rent for the current
calendar year.
(3) If the Statement shows that Subtenants estimated payments were less than Subtenants
actual obligations for Additional Rent for such year, Subtenant shall pay the difference. If the
Statement shows an increase in Subtenants estimated payments for the current calendar year,
Subtenant shall pay the difference between the new and former estimates, for the period from
January 1 of the current calendar year through the month in which the Statement is sent. Subtenant
shall make such payments within thirty (30) days after Sublandlord sends the Statement.
(4) If the Statement shows that Subtenants estimated payments exceeded Subtenants actual
obligations for Additional Rent, Subtenant shall receive a credit for the difference against
payments of Rent next due. If the Term shall have expired and no further Rent shall be due,
Subtenant shall receive a refund of such difference, within thirty (30) days after Sublandlord
sends the Statement.
(5) So long as Subtenants obligations hereunder are not materially adversely affected
thereby, Sublandlord reserves the right to reasonably change, from time to time, the manner or
timing of the foregoing payments. In lieu of providing one (1) Statement covering Real Property
Taxes, Operating Expenses, and Common Area Maintenance Expenses, Sublandlord may provide separate
statements, at the same or different times. No delay by Sublandlord in providing the Statement, or
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separate statements, shall be deemed in default by Sublandlord or a waiver of Sublandlords
right to require payment of Subtenants obligations for actual or estimated Real Property Taxes,
Operating Expenses, or Common Area Maintenance Expenses.
(e)
Proration
. If the Term commences other than on January 1, or ends other than
on December 31, Subtenants obligations to pay estimated and actual amounts towards Additional Rent
for such first or final calendar year shall be prorated to reflect the portion of such years
included in the Term. Such proration shall be made by multiplying the total estimated or actual,
as the case may be, Additional Rent, for such calendar years by a fraction, the numerator of which
shall be the number of days of the Term during such calendar year, and the denominator of which
shall be 365. Other amounts payable or to be expended pursuant to this Sublease on an annual or
quarterly basis shall be similarly prorated.
(f)
Sublandlords Records
. The initial determination of Additional Rent shall be
made by Sublandlord. Sublandlord or its agents shall keep records in reasonable detail showing all
expenditures made or items enumerated above, which records shall be available for inspection and
auditing by Subtenant at its cost at any reasonable time on reasonable notice. Subtenant reserves
the right to object to any statement provided by Sublandlord, provided that nothing shall relieve
Subtenant of making payments of Additional Rent as determined by Sublandlord as and when required
hereunder.
4.3.
Late Charges and Default Interest
.
If Subtenant fails to pay when due Rent
or other amounts or charges which Subtenant is obligated to pay under the terms of this Sublease,
the unpaid amounts shall bear interest at the maximum rate then allowed by law. Subtenant
acknowledges that the late payment of any installment of Monthly Base Rent will cause Sublandlord
to lose the use of that money and incur costs and expenses not contemplated under this Sublease,
including without limitation, administrative and collection costs and processing and accounting
expenses, the exact amount of which is extremely difficult to ascertain. Therefore, in addition to
interest, if any such installment is not received by Sublandlord within ten (10) days from the date
it is due, Subtenant shall pay Sublandlord a late charge equal to ten percent (10%) of such
installment. Sublandlord and Subtenant agree that this late charge represents a reasonable
estimate of such costs and expenses and is fair compensation to Sublandlord for the loss suffered
from such nonpayment by Subtenant. Acceptance of any interest or late charge shall not constitute
a waiver of Subtenants default with respect to such nonpayment by Subtenant nor prevent
Sublandlord from exercising any other rights or remedies available to Sublandlord under this
Sublease.
4.4.
Rent and Other Charges
. Monthly Base Rent, Additional Rent, and any other
amounts which Subtenant is or becomes obligated to pay Sublandlord under this Sublease or other
agreement entered into in connection herewith, are sometimes herein referred to collectively as
Rent and all remedies applicable to the nonpayment of Rent shall be applicable thereto
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
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5. SECURITY DEPOSIT.
Subtenant agrees to deposit with Sublandlord the Security Deposit
set forth at
Section 1.6
upon execution of this Sublease, as security for Subtenants
faithful performance of its obligations under this Sublease. Sublandlord and Subtenant agree that
the Security Deposit may be commingled with funds of Sublandlord and Sublandlord shall have no
obligation or liability for payment of interest on such deposit. Subtenant shall not mortgage,
assign, transfer or encumber the Security Deposit without the prior written consent of Sublandlord
and any attempt by Subtenant to do so shall be void, without force or effect and shall not be
binding upon Sublandlord. If Subtenant fails to pay any Rent or other amount when due and payable
under this Sublease, or fails to perform any of the terms hereof, Sublandlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any other amount then
due and unpaid, for payment of any amount for which Sublandlord has become obligated as a result of
Subtenants default or breach, and for any loss or damage sustained by Sublandlord as a result of
Subtenants default or breach, and Sublandlord may so apply or use this deposit without prejudice
to any other remedy Sublandlord may have by reason of Subtenants default or breach. If Sublandlord
so uses any of the Security Deposit, Subtenant shall within ten (10) days after written demand
therefore, restore the Security Deposit to the full amount originally deposited; Subtenants
failure to do so shall constitute an act of default hereunder and Sublandlord shall have the right
to exercise any remedy provided for in
Section 21
hereof. Within fifteen (15) days after
the Term (or any extension thereof) has expired or Subtenant has vacated the Premises, whichever
shall last occur, and provided Subtenant is not then in default on any of its obligations
hereunder, Sublandlord shall return the Security Deposit to Subtenant, or, if Subtenant has
assigned its interest under this Sublease, to the last assignee of Subtenant. If Sublandlord sells
its interest in the Premises, Sublandlord may deliver this deposit to the purchaser of
Sublandlords interest and thereupon be relieved of any further liability or obligation with
respect to the Security Deposit.
6. SUBTENANTS USE OF THE PREMISES
. Subtenant may use the Premises solely for the
purposes set forth in Subtenants Use Clause in
Section 1.7
(Permitted Uses). Subtenant
shall not use or occupy the Premises in violation of law or any covenant, condition or restriction
affecting the Building or the certificate of occupancy issued for the Building, and shall, upon
notice from Sublandlord, immediately discontinue any use of the Premises which is declared by any
governmental authority having jurisdiction to be a violation of law or of occupancy. Subtenant, at
Subtenants own cost and expense, shall comply with all laws, ordinances, regulations, rules and/or
any directions of any governmental agencies or authorities having jurisdiction which shall, by
reason of the nature of Subtenants unique use or occupancy of the Premises( as opposed to general
office, commercial or retail uses), impose any duty upon Subtenant or Sublandlord with respect to
the Premises or its use or occupation. Sublandlord shall bear all other costs to comply with laws
affecting the Property or the Building. Subtenant shall not do or permit to be done anything which
will invalidate or increase the cost of any fire, extended coverage or other insurance policy
covering the Building and/or property located therein, and shall comply with all rules, orders,
regulations,
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requirements and recommendations of the Insurance Services Office or any other organization
performing a similar function. Subtenant shall promptly upon demand reimburse Sublandlord for any
additional premium charged for such policy by reason of Subtenants failure to comply with the
provisions of this
Section 6
. Subtenant shall not do or permit anything to be done in or
about the Premises which will in any way obstruct or interfere with the rights of other Subtenants
or occupants of the Building or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Subtenant cause, maintain or
permit any nuisance in, on or about the Premises. Subtenant shall not commit or suffer to be
committed any waste in or upon the Premises.
During the term of this Sublease, no portion of the Building or Property (other than the
Premises) may be used, and no other subtenant shall be permitted to operate, any business primarily
engaged in the sale of carbonated beverages (the Exclusive Use). Sublandlord shall not lease or
sublease any portion of the Building or Property to, or rename the Building to that of, any direct
competitor of Subtenant, and shall not permit any such direct competitors signage on the exterior
Building surfaces. The Exclusive Use restriction set forth herein shall not prevent Sublandlord
from leasing space in the Building to any restaurant, bar or other similar hospitality business. No
portion of the Building or Property may be used for any of the Prohibited Uses attached hereto and
incorporated herein as
Exhibit I
.
7. COMPLIANCE WITH LAWS
. Subtenant shall not cause or permit the Premises to be used in
any way which violates any law, ordinance, or governmental regulation or order. Subtenant shall be
responsible for complying with all laws applicable to the Premises solely as a result of
Subtenants particular use, such as modifications required by the Americans With Disabilities Act
as a result of Subtenant opening the Premises to the public as a place of public accommodation. If
the enactment or enforcement of any law, ordinance, regulation or code during the Sublease Term
requires any changes to the Premises during the Sublease Term, Subtenant shall perform all such
changes at its expense if the changes are required due to the nature of Subtenants unique
activities at the Premises, or to alterations that Subtenant seeks to make to the Premises;
otherwise, Sublandlord shall perform all such changes at its expense. Sublandlord shall not be in
default of any of the terms of this Sublease in the event Sublandlord is unable to obtain a
building permit to complete any Subtenant improvements specified in this Sublease, provided that
the foregoing shall not affect Subtenants rights described in
Section 3.1
in the event
Sublandlord fails to deliver the Premises by the Commencement Date.
8. GUARANTY.
[Intentionally Left Blank.]
9. UTILITIES
. Sublandlord shall cause as of the Commencement Date hereof, electricity,
water, sewer and telephone utilities to be available at the Premises. Subtenant shall pay directly
to the applicable utility/service provider for all water, sewer, gas, janitorial, electricity,
garbage removal, heat, telephone, and other utilities and
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services used by Subtenant on the Premises during the Term. Subtenant shall be responsible for
providing and paying directly for its own janitorial services to the Premises, and will not be
required to contribute toward janitorial costs allocable to other subtenant spaces at the Building.
Sublandlord, upon request of Subtenant, and at the sole expense and liability of Subtenant, shall
join with Subtenant in any application required for obtaining or continuing such utilities or
services.
10. TAXES
. Subtenant shall pay all taxes, assessments, liens and license fees (Taxes)
levied, assessed or imposed by any authority having the direct or indirect power to tax or assess
any such liens, by reason of Subtenants occupancy of the Premises, and all Taxes on Subtenants
personal property located on the Premises. Sublandlord shall pay all Taxes with respect to the
Building and the Property, including any Taxes resulting from a reassessment of the Building and
the Property due to a change of ownership or otherwise, which shall be included in Operating
Expenses, subject to Section 4.2(a) above.
11. ALTERATIONS
. Subtenant may make alterations, additions or improvements to the
Premises (Alterations) with the prior written consent of Sublandlord, which consent shall not be
unreasonably withheld. The term Alterations shall not include the installation of shelves,
partitions, Subtenants equipment and trade fixtures which may be performed without damaging
existing improvements or the structural integrity of the Premises, and Sublandlords consent shall
not be required for Subtenants installation of those items. Subtenant shall complete all
Alterations at Subtenants expense in compliance with all applicable laws and in accordance with
plans and specifications approved by Sublandlord. Sublandlord shall be deemed the owner of all
Alterations except for those which Sublandlord requires to be removed at the end of the Sublease
term. Subtenant shall remove all Alterations at the end of the Sublease term unless Sublandlord
conditioned its consent upon Subtenant leaving a specified Alteration at the Premises, in which
case Subtenant shall not remove such Alteration. Subtenant shall immediately repair any damage to
the Premises caused by removal of Alterations.
Notwithstanding the foregoing, in no event shall Subtenant be entitled to make any changes,
alterations, or modifications of structural portions or the exterior of the Building, including,
without limitation, anything which would affect window treatments, paint, surface texture, awnings,
light fixtures, or signage, without first obtaining Sublandlords prior written consent, which may
be withheld in Sublandlords sole and absolute discretion.
12. REPAIRS AND MAINTENANCE
.
12.1
Subtenants Repair and Maintenance Obligations
.
Subtenant shall at all
times throughout the Term, at its sole cost and expense, keep the Premises in good order and
repair, reasonable wear and tear excepted, including, by way of illustration only, maintenance and
repair of all exterior doors and entrances, windows and moldings and trim on all doors and
windows, bathrooms, all partitions, door surfaces,
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
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fixtures, equipment and appurtenances as well as all Building Systems serving only the
Premises or that portion of the Building Systems serving the entire Building which are physically
located within the Premises. Subtenant shall have the VAV located within the Premises serviced at
least one time per year. After each yearly servicing, Subtenant shall provide Sublandlord proof of
servicing of the Subtenant VAV within five (5) days of such servicing. Subtenant shall commit no
waste nor disturb the structural integrity of the Premises. Upon expiration or termination of the
Sublease Term, Subtenant shall promptly and peacefully surrender the Premises, together with all
keys, to Sublandlord in as good condition as when received by Subtenant from Sublandlord or as
thereafter improved, reasonable wear and tear and casualty or condemnation which Subtenant is not
required elsewhere under this Sublease to repair or restore excepted.
12.2
Sublandlords Repair and Maintenance Obligations
.
Sublandlord shall
maintain and repair in reasonably good working order and condition as necessary the following areas
of the Building: (i) all Common Areas, (ii) all structural components, (iii) the foundation, and
(iv) the roof. Sublandlord shall also maintain those portions of the Building Systems not
physically located within the Premises or located within the premises of another subtenant. Costs
for the foregoing shall be includable in Operating Expenses and/or Common Area Maintenance Expenses
as set forth in and subject to Section 4.2(b) and Section 4.2(c).
13. ACCESS
. After reasonable notice from Sublandlord (except in cases of emergency, where
no notice is required) Subtenant shall permit Sublandlord and its agents and employees to enter the
Premises at reasonable times for the purposes of repair or inspection. This
Section 13
shall not impose any repair or other obligation upon Sublandlord not expressly stated elsewhere in
this Sublease. After reasonable notice to Subtenant, Sublandlord shall have the right to enter the
Premises for the purpose of showing the Premises to prospective purchasers or lenders at any time,
and to prospective Subtenants within one hundred eighty (180) days prior to the expiration or
sooner termination of the Sublease Term. Sublandlord shall use commercially reasonable efforts to
minimize any adverse impacts on Subtenants use, enjoyment, and access of and to the Premises as
well as the visibility of its signage in connection with any entry on or activities at the
Premises.
14. SIGNAGE
. Except as described below, Subtenant shall obtain Sublandlords written
consent before installing any signs upon the Premises, which consent shall not be unreasonably
withheld. Subtenant shall install any approved signage at Subtenants sole expense and in
compliance with all applicable laws. Subtenant shall not damage or deface the Premises in
installing or removing signage and shall repair any injury or damage to the Premises caused by such
installation or removal. Sublandlord reserves the right to remove any offensive marketing,
advertisement and/or materials at all times. Sublandlord agrees to provide Subtenant with a lobby
directory signage. In addition, Subject to existing governmental, municipal and historical district
building codes and regulations Subtenant shall have the right to install the signage depicted on
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Exhibit H
attached hereto and incorporated herein. Sublandlord shall assist with the
Subtenant in securing approval on Subtenants proposed signage from the City of Seattle and the
Pioneer Square Preservation Board. Subtenant shall have the right to display banners, balloons,
and other related to advertise Subtenants product directly in front of Subtenants Premises on
Occidental Street with Sublandlords prior written reasonable consent. Such advertising shall be
contingent on requirements of the local ordinance. Sublandlord reserves the right to remove any
offensive displays and/or advertisement. Signage allowed in this Section 14 shall not include any
signs on the exterior walls of the Building. Subtenant, at Subtenants sole expense, shall have
(i) the ongoing option, at its election to be made anytime and from time to time when no third
party is then leasing the external façade of the south facing wall of the Building (the Wall
Sign), to lease the Wall Sign for one or more periods as may be elected at such times by
Subtenant; and (ii) a first right of refusal to lease the Wall Sign, to be exercised in writing by
Subtenant within five (5) business days after Sublandlord notifies Subtenant that Sublandlord has
received a bona fide third-party offer which Sublandlord would otherwise be willing to accept,
providing with such notice a copy of such third-party offer (although Sublandlord may redact terms
addressing rent or other consideration therefrom); and, in either such event, Sublandlord and
Subtenant will enter into a separate Wall Sublease for Subtenants Wall Sign in the form attached
hereto as
Exhibit K
.
15. DESTRUCTION OR CONDEMNATION.
15.1. Damage and Repair
. If the Premises are partially damaged but not rendered
untenantable, by fire or other insured casualty, then Sublandlord shall diligently restore the
Premises and this Sublease shall not terminate. The Premises shall not be deemed untenantable if
less than twenty-five percent (25%) of the Premises are damaged. Sublandlord shall have no
obligation to restore the Premises if insurance proceeds are not available to pay the entire cost
of such restoration. If insurance proceeds are available to Sublandlord but are not sufficient to
pay the entire cost of restoring the Premises, then Sublandlord may elect to terminate this
Sublease and keep the insurance proceeds, by notifying Subtenant within sixty (60) days of the date
of such casualty.
If the Premises are entirely destroyed, or partially damaged and rendered untenantable, by
fire or other casualty, Sublandlord may, at its option: (a) terminate this Sublease as provided
herein, or (b) restore the Premises to its previous condition. If, within sixty (60) days after
receipt by Sublandlord from Subtenant of written notice that Subtenant deems the Premises
untenantable, Sublandlord fails to notify Subtenant of its election to restore the Premises, or if
Sublandlord is unable to restore the Premises within nine (9) months of the date of the casualty
event, then Subtenant may elect to terminate the Sublease.
If Sublandlord restores the Premises under this
Section 15.1
, Sublandlord shall
proceed with reasonable diligence to complete the work, and the Monthly Base Rent shall be abated
in the same proportion as the untenantable portion of the Premises bears to the whole Premises,
provided that there shall be a rent abatement only if the damage or
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destruction of the Premises did not result from, or was not contributed to directly or
indirectly by the act, fault or neglect of Subtenant, or Subtenants officers, contractors,
licensees, agents, servants, employees, guests, invitees or visitors. No damages, compensation or
claim shall be payable by Sublandlord for inconvenience, loss of business or annoyance directly,
incidentally or consequentially arising from any repair or restoration of any portion of the
Premises. Sublandlord will not carry insurance of any kind for the protection of Subtenant or on
Subtenants furniture or on any fixtures, equipment, improvements or appurtenances of Subtenant
under this Sublease, and Sublandlord shall not be obligated to repair any damage thereto or replace
the same unless the damage is caused by Sublandlords negligence.
15.2. Condemnation.
If the Premises are made untenantable by eminent domain or
conveyed under a threat of condemnation, this Sublease shall automatically terminate as of the
earlier of the date title to the Property vests in the condemning authority or the condemning
authority first has possession of the Premises and all Rent shall be paid to that date. In the
event of a taking of a portion of the Property that does not render the Premises untenantable, then
this Sublease shall continue in full force and effect and the Monthly Base Rent shall be equitably
reduced based on the proportion by which the floor area of the Premises is reduced, such reduction
in Monthly Base Rent to be effective as of the earlier of the date the condemning authority first
has possession of such portion or title vests in the condemning authority. Sublandlord shall be
entitled to the entire award from the condemning authority attributable to the value of the
Premises and Subtenant shall make no claim for the value of its leasehold. Subtenant shall be
permitted to make a separate claim against the condemning authority for moving expenses or damages
resulting from interruption in its business, provided that in no event shall Subtenants claim
reduce Sublandlords award.
16. INSURANCE.
16.1. Subtenants Insurance
.
(a) All insurance required to be carried by Subtenant hereunder shall be issued by
responsible insurance companies reasonably acceptable to Sublandlord and Sublandlords lender and
qualified to do business in the State of Washington. Each policy of liability insurance shall name
Sublandlord, and at Sublandlords request any mortgagee of Sublandlord, as an additional insured.
Each policy shall contain (i) a cross-liability endorsement, (ii) a provisions that such policy and
the coverage evidenced thereby shall be primary and non-contributing with respect to any policies
carried by Sublandlord and that any coverage carried by Sublandlord shall be excess insurance, and
(iii) with respect to property insurance policies only, a waiver by the insurer of any right of
subrogation against Sublandlord, its agents, employees and representatives, which arises or might
arise by reason of any payment under such policy or by reason of any act or omission of
Sublandlord, its agents, employees or representatives. A copy of each paid up policy
(authenticated by the insurer) or an ACORD certificate of the insurer evidencing the existence and
amount of each insurance policy required hereunder shall be
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delivered to Sublandlord before the date Subtenant is first given the right of possession of
the Premises, and thereafter within thirty (30) days after any demand by Sublandlord therefore.
Sublandlord may, at any time and from time to time, inspect and/or copy any insurance policies
required to be maintained by Subtenant hereunder. No such policy shall be cancelable except after
twenty (20) days written notice to Sublandlord and Sublandlords lender. Subtenant shall furnish
Sublandlord with renewals or binders of any such policy at least ten (10) days prior to the
expiration thereof. Subtenant agrees that if Subtenant does not take out and maintain such
insurance, Sublandlord may (but shall not be required to) procure said insurance on Subtenants
behalf and charge the Subtenant the premiums together with a twenty-five percent (25%) handling
charge, payable upon demand. Subtenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by the Subtenant, provided such blanket policies expressly
afford coverage to the Premises, Sublandlord, Sublandlords mortgagee and Subtenant as required by
this Sublease.
(b) Beginning on the date Subtenant is given access to the Premises for any purpose and
continuing until the expiration of the Term, Subtenant shall procure, pay for and maintain in
effect policies of property insurance covering (i) all leasehold improvements (including any
alterations, additions or improvements that may be made by Subtenant), and (ii) trade fixtures,
merchandise and other personal property from time to time in, on or about the Premises, in the
amount not less than one hundred percent (100%) of their actual replacement cost from time to time,
providing protection against any peril included within the classification Fire and Extended
Coverage together with insurance against sprinkler damage, vandalism and malicious mischief. The
proceeds of such insurance shall be used for the repair or replacement of the property so insured.
Upon termination of this Sublease following a casualty as set forth herein, the proceeds under (i)
shall be paid to Sublandlord, and the proceeds under (ii) above shall be paid to Subtenant.
(c) Beginning on the date Subtenant is given access to the Premises for any purpose and
continuing until the expiration of the Term, Subtenant shall procure, pay for and maintain in
effect workers compensation insurance as required by law and comprehensive public liability and
property damage insurance with respect to the construction of improvements on the Premises, the
use, operation or condition of the Premises and the operation of Subtenant in, on or about the
Premises, providing personal injury and broad from property damage coverage for not less than One
Million Dollars ($1,000,000.00) combined single limit for bodily injury, death and property damage
liability.
(d) Subtenant shall deposit the policy or policies of such required insurance or ACORD
certificates thereof with Sublandlord prior to the Commencement Date, which policies shall name
Sublandlord and Sublandlords designee as additional named insured and shall also contain a
provision stating that such policy or
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policies shall not be canceled or materially altered except after thirty (30) days written
notice to Sublandlord.
(e) Not less than every three (3) years during the Term, Sublandlord and Subtenant shall
mutually agree to increases in all Subtenants insurance policy limits for all insurance carried by
Subtenant as set forth in this
Section 16.1
. In the event Sublandlord and Subtenant cannot
mutually agree upon the amounts of said increases, then Subtenant agrees that all insurance policy
limits as set forth in this
Section 16.1
shall be adjusted for increases in the same
proportion as Monthly Base Rent.
16.2. Sublandlord Insurance.
Sublandlord shall carry standard form extended
coverage fire insurance of the Building shell and core in the amount of their full replacement
value, commercial general liability insurance with respect to the Sublandlords activities at the
Building and Property (including the Common Areas), and such other insurance of such types and
amounts as Sublandlord, in its discretion, shall deem reasonably appropriate. The cost of any such
insurance may be included in the Operating Expenses by a blanket policy insuring other parties
and/or locations in addition to the Building, in which case the portion of the premiums therefor
allocable to the Building and the Property shall be included in the Operating Expenses. In
addition to the foregoing, in the event Subtenant fails to provide or keep in force any of the
insurance as required above, Sublandlord, in its discretion, may provide such insurance, in which
event, the cost thereof shall be payable by Subtenant to Sublandlord as Additional Rent on the
first day of the calendar month immediately following demand therefor from Sublandlord.
16.3. Waiver of Subrogation
. Sublandlord and Subtenant hereby release each other
and any other Subtenant, their agents or employees, from responsibility for, and waive their entire
claim of recovery for any loss or damage arising from any cause covered by property insurance
required to be carried by each of them. Each party shall provide notice to the property insurance
carrier or carriers of this mutual waiver of subrogation, and shall cause its respective property
insurance carriers to waive all rights of subrogation against the other. This waiver shall not
apply to the extent of the deductible amounts to any such properties policies or to the extent of
liabilities exceeding the limits of such policies.
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17. INDEMNIFICATION
.
17.1.
Subtenants Duty.
Subtenant shall indemnify, defend and hold Sublandlord
harmless against and from liability and claims of any kind for loss or damage to property of
Subtenant or any other person, or for any injury to or death of any person, arising out of: (1)
Subtenants use and occupancy of the Premises, or any work, activity or other things allowed or
suffered by Subtenant to be done in, on or about the Premises or the Property; (2) any breach or
default by Subtenant of any of Subtenants obligations under this Sublease; or (3) any negligent or
otherwise tortuous act or omission of Subtenant, its agents, employees, invitees or contractors.
Subtenant shall at Subtenants expense, and by counsel satisfactory to Sublandlord, defend
Sublandlord in any action or proceeding arising from any such claim and shall indemnify Sublandlord
against all costs, attorneys fees, expert witness fees and any other expenses incurred in such
action or proceeding. As a material part of the consideration for Sublandlords execution of this
Sublease, except for Sublandlords gross negligence or willful misconduct, Subtenant hereby assumes
all risk of damage or injury to any person or property in, on or about the Premises or the Property
from any cause.
17.2.
Sublandlords Duty.
Sublandlord shall indemnify, defend and hold Subtenant
harmless from any liability, loss, cost, expense or claim (including reasonable attorneys fees) of
any nature resulting from any injury to person or damage to property arising from the negligence or
willful misconduct of Sublandlord, its employees, contractors, agents, or invitees or any
activities conducted on or about the Premises by anyone other than Subtenant, its employees,
contractors or agents.
When the claim is caused by the joint negligence or willful misconduct of Subtenant and
Sublandlord or Subtenant and a third party unrelated to Subtenant (except Subtenants agents,
officers, employees or invitees), Subtenants duty to indemnify and defend shall be proportionate
to Subtenants allocable share of joint negligence or willful misconduct. When the claim is caused
by the joint negligence or willful misconduct of Subtenant and Sublandlord or Sublandlord and a
third party unrelated to Sublandlord (except Sublandlords agents, officers, employees or
invitees), Sublandlords duty to indemnify and defend shall be proportionate to Sublandlords
allocable share of joint negligence or willful misconduct.
In the absence of comparative or concurrent negligence on the part of the party claiming
indemnity under this
Section 17
or its employees, contractors, agents or invitees, the
foregoing indemnity shall also include reasonable costs, expenses and attorneys fees incurred in
successfully establishing the right to indemnity. The indemnifying party shall have the right to
assume the defense of any claim subject to this indemnity with counsel reasonably satisfactory to
the indemnified party. The indemnified party agrees to cooperate fully with the indemnifying party
and its counsel in any matter where the indemnifying party elects to defend, provided the
indemnifying party shall promptly reimburse the indemnified party for reasonable costs and expenses
incurred in connection with its duty to cooperate.
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Solely for the purpose of effectuating the parties respective indemnification obligations
under this Sublease, and not for the benefit of any third parties (including but not limited to
employees of either party), each party specifically and expressly waives any immunity that may be
granted it under the Washington State Industrial Insurance Act, Title 51 RCW. Furthermore, the
indemnification obligations under this Sublease shall not be limited in any way by any limitation
on the amount or type of damages, compensation or benefits payable to or for any third party under
Worker Compensation Acts, Disability Benefit Acts or other employee benefit acts. The parties
acknowledge that the foregoing provisions of this paragraph have been specifically and mutually
negotiated between the parties.
17.3.
Limitation on Sublandlords Liability.
Sublandlord shall not be liable for
injury or damage which may be sustained by the person or property of Subtenant, its employees,
invitees or customers, or any other person in or about the Premises, caused by or resulting from
fire, steam, electricity, gas, water or rain which may leak or flow from or into any part of the
Premises, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, whether such damage or injury results
from conditions arising upon the Premises or upon other portions of the Building or Property or
from other sources. Sublandlord shall not be liable for any damages arising from any act or
omission of any other Subtenant of the Building or the Property.
18. ASSIGNMENT AND SUBLETTING
. Subtenant shall not assign, sublet, mortgage, encumber or
otherwise transfer any interest in this Sublease (collectively referred to as a Transfer) or any
part of the Premises, without first obtaining Sublandlords written consent which consent shall not
be unreasonably withheld or delayed. No Transfer shall relieve Subtenant of any liability under
this Sublease notwithstanding Sublandlords consent to such transfer. Consent to any Transfer
shall not operate as a waiver of the necessity for Sublandlords consent to any subsequent
Transfer.
If Subtenant is a partnership, limited liability company, corporation, or other entity, any
transfer of this Sublease by merger, consolidation, redemption or liquidation, or any change(s) in
the ownership of, or power to vote, which singularly or collectively represents a majority of the
beneficial interest in Subtenant, shall constitute a Transfer under this
Section 18
.
As a condition to Sublandlords approval, if given, any potential assignee approved by
Sublandlord shall assume all obligations of Subtenant under this Sublease accruing on and after the
effective date of such assignment and shall be jointly and severally liable with Subtenant for the
payment of Rent and performance of all terms of this Sublease, and any potential sub-sublessee
shall acknowledge that its sub-sublease is subject to and subordinate in all respects to this
Sublease and to the Master Lease. In connection with any Transfer, Subtenant shall provide
Sublandlord with copies of all assignments, sub-subleases and assumption instruments.
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19. LIENS
. Subtenant shall keep the Property and the Premises free from any liens created
by or through Subtenant. Subtenant shall indemnify, defend and hold Sublandlord harmless from
liability from any such liens including, without limitation, liens arising from any Alterations.
If a lien is filed against the Property or the Premises by any person claiming by, through or under
Subtenant, Subtenant shall, upon request of Sublandlord, at Subtenants expense, promptly either
satisfy the lien and cause it to be removed from title to the Property or Premises, as applicable,
or furnish to Sublandlord a bond in form and amount and issued by a surety reasonably satisfactory
to Sublandlord, indemnifying Sublandlord and the Premises against all liabilities, costs and
expenses, including attorneys fees, which Sublandlord could reasonably incur as a result of such
lien(s).
20. DEFAULT
. The following occurrences shall each be deemed an event of default (Event
of Default) by Subtenant:
20.1. Failure to Pay
. Subtenant fails to pay any sum, including Rent, due under
this Sublease following ten (10) days written notice from Sublandlord of the failure to pay.
20.2. Abandonment
. Subtenant abandons the Premises (defined as an absence of ten
(10) days or more while Subtenant is in breach of some other term of this Sublease). Subtenants
abandonment of the Premises shall not be subject to any notice or right to cure.
20.3. Insolvency
. Subtenant becomes insolvent, voluntarily or involuntary
bankrupt or a receiver, assignee or other liquidating officer is appointed for Subtenants
business, provided that in the event of any involuntary bankruptcy or other insolvency proceeding,
the existence of such proceeding such constitute an Event of Default only if such proceeding is not
dismissed or vacated within sixty (60) days after its institution or commencement.
20.4. Levy or Execution
. Subtenants interest in this Sublease or the Premises,
or any part thereof, is taken by execution or other process of law directed against Subtenant, or
is taken upon or subjected to any attachment by any creditor of Subtenant, if such attachment is
not discharged within fifteen (15) days after being levied.
20.5. Other Non-Monetary Defaults
. Subtenant breaches any agreement, term or
covenant of this Sublease other than one requiring the payment of money and not otherwise
enumerated in this
Section 20
, and the breach continues for a period of thirty (30) days
after notice by Sublandlord to Subtenant of the breach.
20.6. Failure to Take Possession
. Subtenant fails to take possession of the
Premises on the Commencement Date.
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21. REMEDIES
. Sublandlord shall have the following remedies upon an Event of Default.
Sublandlords rights and remedies under this Sublease shall be cumulative, and none shall exclude
any other right or remedy allowed by law.
21.1. Termination of Sublease
. Sublandlord may terminate the Sublease and
re-enter the Premises and take possession thereof, but no act by Sublandlord other than written
notice from Sublandlord to Subtenant of termination shall terminate this Sublease. The Sublease
shall terminate on the date specified in the notice of termination. Upon termination of this
Sublease, Subtenant will remain liable to Sublandlord for damages in an amount equal to the Rent
and other sums that would have been owing by Subtenant under this Sublease for the balance of the
Sublease Term, less the net proceeds, if any, of any reletting of the Premises by Sublandlord
subsequent to the termination, after deducting all Sublandlords Reletting Expenses (as defined
below). Sublandlord shall be entitled to either collect damages from Subtenant monthly on the days
on which Rent or other amounts would have been payable under the Sublease, or alternatively,
Sublandlord may accelerate Subtenants obligations under the Sublease and recover from Subtenant:
(i) unpaid Rent which had been earned at the time of termination; (ii) the amount by which the
unpaid Rent which would have been earned after termination until the time of award exceeds the
amount of Rent loss that Subtenant proves could reasonably have been avoided; (iii) the amount by
which the unpaid Rent for the balance of the Term of the Sublease after the time of award exceeds
the amount of Rent loss that Subtenant proves could reasonably be avoided (discounting such amount
by the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus
one percent (1%)); and (iv) any other amount necessary to compensate Sublandlord for all the
detriment proximately caused by Subtenants failure to perform its obligations under the Sublease,
or which in the ordinary course would be likely to result from the Event of Default, including
without limitation Reletting Expenses described in
Section 21.2
.
21.2. Re-entry and Reletting
. Sublandlord may continue this Sublease in full
force and effect, and without demand or notice, re-enter and take possession of the Premises or any
part thereof, expel the Subtenant from the Premises and anyone claiming through or under the
Subtenant, and remove the personal property of either. Sublandlord may relet the Premises, or any
part of them, in Sublandlords or Subtenants name for the account of Subtenant, for such period of
time and at such other terms and conditions, as Sublandlord, in its discretion, may determine.
Sublandlord may collect and receive the Rents for the Premises. Re-entry or taking possession of
the Premises by Sublandlord under this Section shall not be construed as an election on
Sublandlords part to terminate this Sublease, unless a written notice of termination is given to
Subtenant. Sublandlord reserves the right following any re-entry or reletting, or both, under this
Section to exercise its right to terminate the Sublease. During the Event of Default, Subtenant
will pay Sublandlord the Rent and other sums which would be payable under this Sublease if
repossession had not occurred, plus the net proceeds if any, after reletting the Premises, after
deducting Sublandlords Reletting Expenses. Reletting
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Expenses is defined to include all expenses incurred by Sublandlord in connection with
reletting the Premises, including without limitation, all repossession costs, brokerage
commissions, attorneys fees, remodeling and repair costs, costs for removing and storing
Subtenants property and equipment, and Rent concessions granted by Sublandlord to any new
Subtenant, prorated over the life of the new lease. Sublandlord shall use commercially reasonable
efforts to mitigate its damages in the event of any Subtenant default hereunder.
21.3. Waiver of Redemption Rights
. Subtenant, for itself, and on behalf of any
and all persons claiming through or under Subtenant, including creditors of all kinds, hereby
waives and surrenders all rights and privileges which they may have under any present or future
law, to redeem the Premises or to have a continuance of this Sublease for the Sublease term, as it
may have been extended.
21.4. Nonpayment of Additional Rent
. All costs which Subtenant agrees to pay to
Sublandlord pursuant to this Sublease shall in the event of nonpayment be treated as if they were
payments of Rent, and Sublandlord shall have all the rights herein provided for in case of
nonpayment of Rent.
21.5. Failure to Remove Property
. If Subtenant fails to remove any of its
property from the Premises at Sublandlords request following an uncured Event of Default,
Sublandlord may, at its option and without notice, remove and store the property at Subtenants
expense and risk. If Subtenant does not pay the storage cost within five (5) days of Sublandlords
request, Sublandlord may, at its option, have any or all of such property sold at public or private
sale (and Sublandlord may become a purchaser at such sale), in such manner as Sublandlord deems
proper, without notice to Subtenant. Sublandlord shall apply the proceeds of such sale: (i) to
the expense of such sale, including reasonable attorneys fees actually incurred; (ii) to the
payment of the costs or charges for storing such property; (iii) to the payment of any other sums
of money which may then be or thereafter become due Sublandlord from Subtenant under any of the
terms hereof; and (iv) the balance, if any, to Subtenant. Nothing in this Section shall limit
Sublandlords right to sell Subtenants personal property as permitted by law to foreclose
Sublandlords lien for unpaid rent.
22. MORTGAGE SUBORDINATION AND ATTORNMENT
. This Sublease shall automatically be
subordinate to any mortgage or deed of trust created by Sublandlord which is now existing or
hereafter placed upon the Premises including any advances, interest, modifications, renewals,
replacements or extensions (Sublandlords Mortgage), provided the holder of any Sublandlords
Mortgage or any person(s) acquiring the Premises at any sale or other proceeding under any such
Sublandlords Mortgage shall elect to continue this Sublease in full force and effect. Subtenant
shall attorn to the holder of any Sublandlords Mortgage or any person(s) acquiring the Premises at
any sale or other proceeding under any Sublandlords Mortgage provided such person(s) assume the
obligations of Sublandlord under this Sublease. Subtenant shall promptly and in no event later
than fifteen (15) days execute, acknowledge and
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deliver documents which the holder of any Sublandlords Mortgage may reasonably require as
further evidence of this subordination and attornment. Notwithstanding the foregoing, Subtenants
obligations under this Section are conditioned on the holder of each of Sublandlords Mortgage and
each person acquiring the Premises at any sale or other proceeding under any such Sublandlords
Mortgage not disturbing Subtenants occupancy and other rights under this Sublease, so long as no
uncured Event of Default exists.
23.
NON-WAIVER
. Sublandlords waiver of any breach of any term contained in this
Sublease shall not be deemed to be a waiver of the same term for subsequent acts of Subtenant. The
acceptance by Sublandlord of Rent or other amounts due by Subtenant hereunder shall not be deemed
to be a waiver of any breach by Subtenant preceding such acceptance.
24.
HOLDOVER
. If Subtenant shall, without the written consent of Sublandlord,
hold over after the expiration or termination of the Term, such tenancy shall be deemed to be on a
month-to-month basis and may be terminated according to Washington law. During such tenancy,
Subtenant agrees to pay to Sublandlord one hundred fifty percent (150%) the Monthly Base Rent last
payable under this Sublease, unless a different rate is agreed upon by Sublandlord. All other
terms of the Sublease shall remain in effect.
25.
NOTICES
. All notices under this Sublease shall be in writing and effective
(i) when delivered by recognized overnight delivery service or in person, or (ii) three (3) days
after being sent by registered or certified mail to Sublandlord or Subtenant, as the case may be,
at the Notice Addresses set forth in
Section 1.8.
26.
COSTS AND ATTORNEYS FEES
. If Subtenant or Sublandlord engage the services
of an attorney to collect monies due or to bring any action for any relief against the other,
declaratory or otherwise, arising out of this Sublease, including any suit by Sublandlord for the
recovery of Rent or other payments, or possession of the Premises, the losing party shall pay the
Prevailing Party a reasonable sum for attorneys fees in such suit, at trial and on appeal.
Prevailing Party shall include without limitation (a) a party who dismisses an action in exchange
for sums allegedly due; (b) the party who receives performance from the other party of an alleged
breach or a desired remedy that is substantially equivalent to the relief sought in an action or
proceeding; or (c) the party determined to be the prevailing party by an arbitrator or a court of
law.
27.
ESTOPPEL CERTIFICATES
. Subtenant shall, from time to time, upon written
request of Sublandlord, execute, acknowledge and deliver to Sublandlord or its designee a written
statement specifying the following, subject to any modifications necessary to make such statements
true and complete: (i) the date the Sublease Term commenced and the date it expires; (ii) the
amount of Monthly Base Rent and the date to which such Rent has been paid; (iii) that this Sublease
is in full force and effect and has not been assigned, modified, supplemented or amended in any
way; (iv) that this
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Sublease represents the entire agreement between the parties; (v) that all conditions under
this Sublease to be performed by Sublandlord have been satisfied; (vi) that there are no existing
claims, defenses or offsets which the Subtenant has against the enforcement of this Sublease by
Sublandlord; (vii) that no Rent has been paid more than one month in advance; and (viii) that no
security has been deposited with Sublandlord (or, if so, the amount thereof). Any such statement
delivered pursuant to this Section may be relied upon by a prospective purchaser of Sublandlords
interest or assignee of any mortgage or new mortgagee of Sublandlords interest in the Premises.
If Subtenant shall fail to respond within ten (10) business days of receipt by Subtenant of a
written request by Sublandlord as herein provided, Subtenant shall be deemed to have given such
certificate as above provided without modification and shall be deemed to have admitted the
accuracy of any information supplied by Sublandlord to a prospective purchaser or mortgagee, or, in
Sublandlords sole discretion, such failure shall be deemed an
un-curable Event of Default.
28.
TRANSFER OF SUBLANDLORDS INTEREST
. This Sublease shall be assignable by Sublandlord
without the consent of Subtenant. In the event of any transfer or transfers of Sublandlords
interest in the Property or the Premises, other than a transfer for security purposes only, upon
the assumption of this Sublease by the transferee, Sublandlord shall be automatically relieved of
obligations and liabilities accruing from and after the date of such transfer, except for any
retained security deposit or prepaid rent, and Subtenant shall attorn to the transferee.
29.
RIGHT TO PERFORM
. If Subtenant shall fail to timely pay any sum or perform
any other act on its part to be performed hereunder, after expiration of applicable notice and cure
periods, Sublandlord may make any such payment or perform any such other act on Subtenants part to
be made or performed as provided in this Sublease. Subtenant shall, on demand, reimburse
Sublandlord for its expenses reasonably incurred in making such payment or performance.
Sublandlord shall (in addition to any other right or remedy of Sublandlord provided by law) have
the same rights and remedies in the event of the nonpayment of sums due under this
Section
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as in the case of default by Subtenant in the payment of Rent.
30.
HAZARDOUS MATERIAL
. Subtenant shall not cause or permit any Hazardous
Material (as defined below) to be brought upon, kept, or used in or about, or disposed of on the
Premises or the Property (or migrate off the Property) by Subtenant, its agents, employees,
contractors or invitees, except in strict compliance with all applicable federal, state and local
laws, regulations, codes and ordinances. If Subtenant breaches the obligations stated in the
preceding sentence, then Subtenant shall indemnify, defend and hold Sublandlord harmless from any
and all claims, judgments, damages, penalties, fines, costs, liabilities or losses including,
without limitation, diminution in the value of the Property or the Premises, damages for the loss
or restriction on use of rentable or usable space or of any amenity of the Property or the
Premises, or elsewhere, damages arising from any adverse impact on marketing of space at the
Property, and sums paid in settlement of claims, attorneys fees, consultant fees and expert fees
(collectively, Claims) incurred or suffered by Sublandlord either during or after the Sublease
Term
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and which relate to Hazardous Materials brought upon, kept, or used in or about, or disposed
of on the Premises or Property (or which migrate off the Property) by Subtenant. Claims include
without limitation, costs incurred in connection with any investigation of site conditions or any
cleanup, remedial, removal or restoration work, whether or not required by any federal, state or
local governmental agency or political subdivision, because of Hazardous Material present in, on or
under the Property or the Premises, or in soil or groundwater on or under the Property, or if same
has migrated to adjacent property. Subtenant shall immediately notify Sublandlord of any inquiry,
investigation or notice that Subtenant may receive from any third party regarding the actual or
suspected presence of Hazardous Material on the Property or the Premises or regarding the actual or
suspected presence of Hazardous Material on adjacent property which has allegedly migrated from the
Property.
Without limiting the foregoing, if the presence of any Hazardous Material brought upon, kept
or used in or about the Property or the Premises by Subtenant, its agents, employees, contractors
or invitees, results in any unlawful release or discharge of Hazardous Material on the Property or
the Premises or any other property, Subtenant shall promptly take all actions, at its sole expense,
as are necessary to properly remediate the Property, the Premises or other property in accordance
with federal and state standards applicable to the release of any such Hazardous Material; provided
that Sublandlords approval of such actions shall first be obtained, which approval may be withheld
at Sublandlords sole discretion.
Notwithstanding anything to the contrary herein, Subtenants obligations under this Sublease
to indemnify Sublandlord with respect to Hazardous Materials and to remediate Hazardous Materials
are not applicable to Hazardous Materials on, in or under the Property or the Premises prior to the
Commencement Date. Sublandlord shall indemnify, defend and hold Subtenant harmless from any and
all Claims incurred or suffered by Subtenant either during or after the Sublease Term and which
relate to Hazardous Materials existing in, on, or under the Premises or Property as of the
Commencement Date or which are brought upon, kept, or used in or about, or disposed of on the
Premises or Property (or which migrate off the Property) by Sublandlord.
As used herein, the term Hazardous Material means any hazardous, dangerous, toxic or harmful
substance, material or waste including biomedical waste which is or becomes regulated by any local
governmental authority, the State of Washington or the United States Government due to its
potential harm to the health, safety or welfare of humans or the environment.
31.
QUIET ENJOYMENT
. So long as Subtenant pays the Rent and performs all of its
obligations set forth herein, Subtenants possession of the Premises will not be disturbed by
Sublandlord or anyone claiming by, through or under Sublandlord, or by the Master Landlord or the
holders of any Sublandlords Mortgage or any successor thereto.
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Multi-Tenant Lease
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Page 27
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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32.
GENERAL.
32.1. Heirs and Assigns
. This Sublease shall apply to and be binding upon
Sublandlord and Subtenant and their respective heirs, executors, administrators, successors and
assigns.
32.2. Brokers Fees
. Leigh Callaghan and James Yalowitz represented Sublandlord
in connection with this Sublease, and Austin Cohn and Anne Marie Koehler represented Subtenant in
connection with this Sublease (collectively, the Brokers). Subtenant represents and warrants to
Sublandlord that it has not engaged any other broker, and no other finder, broker or other person
who would be entitled to any commission or fees for the negotiation, execution, or delivery of this
Sublease other than as disclosed above. Subtenant shall indemnify, defend and hold Sublandlord
harmless against any loss, cost, liability or expense incurred by Sublandlord as a result of any
claim asserted by any such other broker, finder or other person on the basis of any arrangements or
agreements made or alleged to have been made by or on behalf of Subtenant. Sublandlord shall pay
commissions due to the Brokers in connection with this Sublease pursuant to a separate written
commission agreement.
32.3. Entire Agreement
. This Sublease contains all of the covenants and
agreements between Sublandlord and Subtenant relating to the Premises. No prior agreements or
understanding pertaining to the Sublease shall be valid or of any force or effect and the covenants
and agreements of this Sublease shall not be altered, modified or added to except in writing signed
by Sublandlord and Subtenant.
32.4. Severability
. Any provision of this Sublease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other provision of this
Sublease.
32.5. Force Majeure
. Time periods for either partys performance under any
provisions of this Sublease (excluding payment of Rent) shall be extended for periods of time
during which the partys performance is prevented due to circumstances beyond such partys control,
including without limitation, fires, floods, earthquakes, lockouts, strikes, embargoes,
governmental regulations, acts of God, public enemy, war or other strife.
32.6. Governing Law
. This Sublease shall be governed by and construed in
accordance with the laws of the State of Washington.
32.7. Memorandum of Sublease
. This Sublease shall not be recorded. However,
Sublandlord and Subtenant shall, at the others request, execute and record a memorandum of
Sublease in recordable form that identifies Sublandlord and Subtenant, the Commencement and
Expiration Dates of the Sublease, and the legal description of the Premises as set forth on
attached
Exhibit B
.
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Page 28
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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32.8. Submission of Sublease Form Not an Offer
. One partys submission of this
Sublease to the other for review shall not constitute an offer to lease the Premises. This
Sublease shall not become effective and binding upon Sublandlord and Subtenant until it has been
fully signed by both Sublandlord and Subtenant.
32.9. Authority of Parties
. Any individual signing this Sublease on behalf of an
entity represents and warrants to the other that such individual has authority to do so and, upon
such individuals execution, that this Sublease shall be binding upon and enforceable against the
party on behalf of whom such individual is signing.
33.
PARKING
. Subtenant and its customers shall be entitled to share parking with
Sublandlords other Subtenants and their customers at the designated parking areas for the Property
at no charge. Subtenant shall comply and shall be responsible for the compliance of its customers
with the terms of the Sublease and any reasonable rules and regulations adopted by Sublandlord from
time to time for the safe and orderly sharing of parking.
34.
EMPLOYER INFORMATION FORM IMMIGRANT INVESTOR PROGRAM.
Subtenant
understands that the renovations to this premises were funded through investments made by Alien
Entrepreneurs pursuant to 8 CFR 204.6. This is a Federal program that brings capital into
employment generating enterprises by encouraging immigrant investment in certain Regional Centers
or Enterprise Zones. A condition of the program is to substantiate employment created directly or
indirectly from the Aliens investment. New employment refers to newly created jobs as opposed to
jobs transferred from a different location. Periodically, U.S. Citizenship and Immigration Services
will request proof of new employment creation. Subtenant hereby agrees to cooperate with
Sublandlord with any requirements imposed on the Sublandlord by the U.S. Government to substantiate
Subtenants employment creation, in particular upon five days written notice, to provide an
Affidavit in the form attached hereto and incorporated herein as
Exhibit D
which may be
amended from time to time by the U.S. Government and to also provide within five days written
notice any supporting documentation required by the U.S. Government thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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Page 29
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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In W
itness Whereof
this Sublease has been executed the date and year first above written.
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Sublandlord:
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Subtenant:
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1000 Master Tenant LLC,
a Washington limited liability company
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Jones Soda Co.,
a Washington corporation
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By: American Life, Inc.,
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By:
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/s/ William R. Meissner
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a Washington corporation
Its: Managing Member
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Willam R. Meissner, CEO & President
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By:
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/s/ Henry G. Liebman
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Henry G. Liebman, President
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Consent of Master Landlord
The undersigned Master Landlord pursuant to the Master Lease described above hereby consents to the
foregoing Sublease, confirms that the Sublease is an Approved Sublease pursuant to the Tenant
Operating Agreement as defined in the Master Lease, and agrees to recognize the Sublease in the
event the Master Lease is terminated prior to scheduled expiration date of the Sublease Term and
any extension or renewal thereof.
1000 1st Avenue South Limited Partnership,
a Washington limited partnership
By: American Life, Inc.,
a Washington corporation
Its: Managing General Partner
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By:
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/s/ Henry G. Liebman
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Henry G. Liebman, President
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Multi-Tenant Lease
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Page 30
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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STATE OF WASHINGTON
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)
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)ss
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COUNTY OF KING
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)
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On this
13
th
day of June, 2011, before me, the undersigned, a Notary Public in and for the State
of Washington, duly commissioned and sworn, personally appeared Henry Liebman, to me known to be
the President of American Life, Inc. the corporation, that executed the foregoing instrument and
acknowledged the said instrument to be the free and voluntary act of and deed of said corporation,
for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute
the said instrument as the Manager Member of 1000 Master Tenant, LLC.
In Witness Whereof I have hereunto set my hand and affixed my official seal the day and year first
above written.
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/s/ Karyne L. Pesho
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Notary Public residing at:
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Bellingham
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Karyne L. Pesho
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Notarys Name (typed or legibly printed)
My Commission Expires:
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11-01-2012
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STATE OF WASHINGTON
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)
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)ss
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COUNTY OF KING
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)
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On this
13
th
day of June, 2011, before me, the undersigned, a Notary Public in and for the State
of Washington, duly commissioned and sworn, personally appeared
William Meissner to me
known to be the CEO/President of Jones Soda Co., the corporation that executed the foregoing
instrument and acknowledged the said instrument to be the free and voluntary act of and deed of
said corporation, for the uses and purposes therein mentioned, and on oath stated that
he was authorized to execute the said instrument and that the seal affixed is
the corporate seal of said corporation.
In Witness Whereof I have hereunto set my hand and affixed my official seal the day and year first
above written.
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/s/ Karyne L. Pesho
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Notary Public residing at:
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Bellingham
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Karyne L. Pesho
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Notarys Name (typed or legibly printed)
My Commission Expires:
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11-01-2012
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Multi-Tenant Lease
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Page 32
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Exhibit A
SITE PLAN AND PREMISES FLOOR PLAN
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Multi-Tenant Lease
Triple Net
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Exhibit A
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Multi-Tenant Lease
Triple Net
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Exhibit A
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Exhibit A-1
EXPANSION SPACE FLOOR PLAN
2
ND
FLOOR
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Multi-Tenant Lease
Triple Net
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Exhibit A-1
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Exhibit B
LEGAL DESCRIPTION
The South 36.09 feet of Lot 9 and the North 44 feet of Lot 10 in Block 324, Seattle Tidelands,
situate in the City of Seattle, County of King, State of Washington.
Together with an easement for access and utilities on the North 16 feet of property lying on that
portion of property legally described below, said easement recorded under King County Office of
Records and Elections File No. 980717-1655.
Tax Parcel Number: 7666206678
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Multi-Tenant Lease
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Exhibit B
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Exhibit C
GUARANTY
[ Intentionally Blank. ]
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Multi-Subtenant Lease
Triple Net
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Exhibit C
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Exhibit D
AFFIDAVIT
State of Washington
County of King
My full name is ____________________. I am over the age of 18 and competent to declare the
following:
I am the
________________ (officer title) of ______________________(company).
__________________________(company name) moved into the premises located at
________________________ on _________ date and we occupy ______ square feet of space. Our principle
business is _____________________.
As of ______________ date _____________________________ (company) employs ___ full time employees
each of whom work 35 or more hours per week; ___ employees who specifically share ___ jobs; and
part time employees who in the aggregate work ________ hours per week.
I understand that this information is provided to the Department of Homeland Security to support
several permanent residence visa petitions and that the Department of Homeland Security will rely
on this information in making its determination of eligibility.
I declare under penalty of perjury that the foregoing is true and correct.
Executed on ______________[date]
_____________________________[signature]
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Multi-Subtenant Lease
Triple Net
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Exhibit D
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Exhibit E
Sublandlords Work
(Base Building Shell and Core Definition)
1.
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All Building and site work completed per permit issued drawings.
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2.
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All Building and Common Areas, including any multi-tenant floors will be
completed.
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3.
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Restrooms installed and finished out per building standard finishes on each
floor.
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4.
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HVAC service (any and all VAV boxes) installed in Subtenants space and ready for
distribution. Minimum of six (6) zones per floor; four (4) exterior zones and two (2)
interior zones with thermostatic controls and wiring coiled for location by Subtenant.
HVAC capacity to be one (1) ton of cooling for each 250 square feet of net usable space.
(Pending confirmation from HVAC contractor regarding cooling capacity requirements for
Subtenants requested specifications.)
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5.
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Electrical service provided to Premises (the meter panels are ready for
distribution to the Premises). Electrical service including anticipated Subtenants usage
of approximately six (6) watts per square foot will be installed to Subtenants multiple
floors. The first floor shall have all electrical panels installed adjacent to the
electrical shaft including one panel for shell & core equipment requirements, one panel
for lighting and one 120 volt panel (with step-down transformer if needed) for Subtenant
convenience outlets. Distribution from these Sublandlord installed panels shall be by
Subtenant. (Pending confirmation from electrical contractor regarding power capacity
requirements for Subtenants requested specifications.)
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6.
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Please note that the interior walls remain as brick and therefore little if any
drywall will be required except for the restrooms and surrounding the elevator core and
stairwells.
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7.
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All fire and life safety equipment including an oversized standpipe to all
floors, with sprinklers installed and turned down supplied to Lease Premises.
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8.
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All building security access systems installed for Common Areas.
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Subtenant shall perform the following work items following delivery of the Premises to Subtenant, and
shall receive reimbursement for the reasonable costs incurred by Subtenant therefor, provided that such
reimbursement shall not exceed (a) $2.00 per SF for the lighting work described in Item 9 below, and (b)
$21 per square yard of carpet & floor covering work described in Item 10 below:
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9.
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Building standard lighting plans and fixture (or equivalent) to be applied to
Subtenant lighting package.
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10.
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Subtenant to choose finish upgrades from building standard carpet, vinyl, and
paint.
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Multi-Tenant Lease
Triple Net
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Exhibit E
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Exhibit F
Letter of Credit
[See next page.]
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Multi-Tenant Lease
Triple Net
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Exhibit F
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Multi-Tenant Lease
Triple Net
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Exhibit F
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Multi-Tenant Lease
Triple Net
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Exhibit F
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Multi-Tenant Lease
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Exhibit F
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Triple Net
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[***] Indicates portions of this exhibit that have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
Exhibit G
Subtenant Improvements
1. Plans. Subtenant shall provide to Sublandlord its plans for the Subtenant Improvements
in form suitable for (to the extent required) permit application (collectively, the Working
Drawings). Working Drawings, and all material changes thereto, shall be subject to Sublandlords
written approval, which shall not be unreasonably conditioned or withheld.
2. Contractors. All contractors and subcontractors participating in construction of the
Subtenant Improvements shall be reputable and shall meet all licensing and insurance requirements
of the State of Washington. Prior to the commencement of any of the foregoing work, Subtenant
shall provide Sublandlord with the general contractors state contractors registration number and
final Working Drawings and copies of permits.
3. Permits. Subtenant shall cause the approved Working Drawings to be submitted to the
appropriate governmental agencies for plan review and building permit. Revisions which may be
required by governmental agencies as a result of the plan review process shall be reviewed by
Subtenant and Sublandlord and modifications reflecting same shall be mutually agreed upon in a
timely manner.
4. Construction. Subtenant shall complete the Subtenant Improvements at Subtenants sole risk,
cost and expense (subject, however to payment of the TI Allowance as described below).
Construction shall be performed in a good and workmanlike manner and in compliance with all
applicable rules, laws, codes and regulations.
5. Construction Representatives. Subtenant hereby appoints Melissa Kelley to act on its behalf
and represent its interests with respect to all matters requiring Subtenant action in this Exhibit.
All matters requiring the consent, authorization or other actions by Subtenant with respect to
matters set forth in this Section shall be in writing and signed by the aforementioned person. No
consent, authorization, or other action by Subtenant with respect to the matters set forth in this
Exhibit shall bind Subtenant unless in writing and signed by the aforementioned person.
Sublandlord hereby appoints SoDo Builders LLC to act on its behalf and represent its interests
with respect to all matters requiring Sublandlord action in this Exhibit. All matters requiring
the consent, authorization or other actions by Sublandlord with respect to matters set forth in
this Section shall be in writing and signed by the aforementioned person. No consent,
authorization, or other action by Sublandlord with respect to the matters set forth in this Exhibit
shall bind Sublandlord unless in writing and signed by the aforementioned person.
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Multi-Tenant Lease
Triple Net
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Exhibit G
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
6. Subtenants Access During Construction. Subtenant or its representatives may enter upon the
Premises during construction of Sublandlords Work and the Subtenant
Improvements for purposes of conducting all such activities as are necessary, appropriate or
desirable with respect to completing the Subtenant Improvements. All terms and conditions of the
Sublease shall be in full force and effect upon the date possession is given to Subtenant, except
as to Term and the Commencement Date, which shall be as set forth elsewhere in the Sublease. If
Subtenants contractors enter onto the Premises prior to substantial completion of the
Sublandlords Work, Subtenant shall cause its contractors to ensure that Sublandlords Work is not
thereby materially interfered with or delayed.
7. Telecom Requirements. Unless otherwise agreed by the parties in the final mutually approved
Working Drawings, Subtenant is responsible for and shall select Subtenants telephone and data
services. Subtenant shall coordinate installation of the telephone and telecom system with
Sublandlord during construction of the Subtenant Improvements.
8. TI Allowance Payment. Payment of the TI Allowance may be requested by Subtenant, at its
election, either pursuant to monthly draw requests or in one lump sum following completion of
construction of the Subtenant Improvements. If Subtenant elects to receive the TI Allowance via
monthly draw payments, then on or before the thirtieth (30th) day of each calendar month during the
construction of the Subtenant Improvements, Subtenant shall deliver to Sublandlord: (A) a request
for payment showing the schedule, by trade, of percentage of completion of the Subtenant
Improvements and detailing the portion of the work completed and the portion not completed; (B)
invoices from all subcontractors and material suppliers for the Subtenant Improvements for labor
rendered and materials delivered to the Premises; (C) executed conditional mechanics lien releases
from all subcontractors and material suppliers which shall comply with the appropriate provisions,
as reasonably determined by Sublandlord. Within twenty (20) days thereafter, Sublandlord shall
deliver a check to Subtenant made jointly payable to the general contractor and Subtenant in
payment of the amounts so requested by Subtenant as set forth in this paragraph that are subject to
reimbursement herein, provided there remains TI Allowance funds available.
9. Compliance. All Subtenant Improvements shall at all times be subject to and in compliance
with all applicable laws, codes, ordinances and the HTC Regulations.
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Multi-Tenant Lease
Triple Net
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Exhibit G
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Exhibit H
Subtenants Approved Signage
[See next page.]
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Multi-Tenant Lease
Triple Net
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Exhibit H
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Multi-Tenant Lease
Triple Net
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Exhibit H
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Multi-Tenant Lease
Triple Net
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Exhibit H
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Multi-Tenant Lease
Triple Net
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Exhibit H
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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Multi-Tenant Lease
Triple Net
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Exhibit H
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
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Multi-Tenant Lease
Triple Net
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Exhibit H
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
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Multi-Tenant Lease
Triple Net
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Exhibit H
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
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Multi-Tenant Lease
Triple Net
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Exhibit H
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
|
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Multi-Tenant Lease
Triple Net
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Exhibit H
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
Exhibit I
Prohibited Uses
1. Bingo parlor, off track betting or other gambling facility.
2. Video or pinball arcade, or amusement arcades or game rooms, or amusement centers.
3. Any living quarters, sleeping apartments or lodging rooms.
4. Any establishment selling, renting or exhibiting pornographic materials, adult
books, films, video tapes, compact discs, or computer software (which are defined as stores
in which a material portion of the inventory is not available for sale or rental to
children under eighteen (18) years old because such inventory deals with or depicts human
sexuality).
5. The performance of any illicit sexual activity, lewd or obscene performance,
including by way of illustration, but not by way of limitation, prostitution, peep shows,
topless restaurants or performances and the like.
6. Any use which is illegal or any establishment which stocks, displays, sells, rents
or offers, for sale or rent any merchandise or material commonly used or intended for use
with or in consumption of any narcotic, dangerous drug, or other controlled substance
(except for prescription drugs sold by pharmacies).
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Multi-Tenant Lease
Triple Net
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Exhibit I
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
Exhibit J
Depiction of the Deck and Patio Area
[See next page.]
|
|
|
Multi-Tenant Lease
Triple Net
|
|
Exhibit J
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
|
|
|
Multi-Tenant Lease
Triple Net
|
|
Exhibit J
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
Exhibit K
Form of Wall Sublease
[See next page.]
|
|
|
Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
WALL SUBLEASE
THIS WALL SUBLEASE (Sublease) is entered into as of this ____ day of _____, 20___, by and
between 1000 Master Tenant LLC, a Washington limited liability company (Sublandlord) and Jones
Soda Co., a Washington corporation (Subtenant).
Sublandlord and Subtenant are also the parties to that certain Sublease Agreement dated June
__, 2011 (the Office Space Sublease), pursuant to which Subtenant leases certain office space
from Sublandlord as more particularly described therein. This Sublease is the Wall Sublease as
defined in Section 14 of the Office Space Sublease, and is entered into under the terms and
conditions more specifically set forth therein.
This Sublease is subject and subordinate to that certain Master Lease Agreement by and between
Sublandlord, as tenant, and 1000 1
st
Avenue South Limited Partnership, a Washington
limited partnership, as landlord (the Master Landlord), dated October 24, 2008 (Master Lease),
and any recorded deed of trust. Subtenant shall comply with all applicable provisions of the
Master Lease. This Sublease and Subtenants use and enjoyment of the Premises shall at all times
be subject to and in compliance with applicable laws, codes, ordinances and regulations related to
the Buildings status as a historic building and promulgated by the National Park Service, the
State of Washington, the Pioneer Square Preservation Board and the City of Seattle (HTC
Regulations). To the extent that any provisions of this Sublease are inconsistent with applicable
HTC Regulations, the HTC Regulations shall control and shall be applicable to Sublandlord and
Subtenant.
Sublandlord represents and warrants to Subtenant that the Master Lease is, as of the date
hereof, in full force and effect, and no uncured event of default by either party thereto has
occurred thereunder and, to Sublandlords knowledge, no event has occurred and is continuing which
would constitute an event of default by any party thereto but for the requirement of the giving of
notice and/or the expiration of the period of time to cure. Sublandlord shall not agree to
terminate the Master Lease nor agree to any amendment to the Master Lease which might have a
material adverse effect on Subtenants occupancy of the Premises or its use of the Premises for its
intended purpose. Sublandlord shall not exercise any right it may have under the Master Lease or
applicable law to elect to terminate the Master Lease (e.g., due to events of damage, destruction,
or condemnation, or in the event of Master Landlords bankruptcy and rejection of the Master Lease)
without the prior consent of Subtenant. Sublandlord shall neither do nor permit anything to be
done which would constitute a default or breach under the Master Lease or which would cause the
Master Lease to be terminated or forfeited by reason of any right of termination or forfeiture
reserved or vested in the Master Landlord, and Sublandlord agrees to comply with all terms,
conditions, and covenants of the Master Lease. Sublandlord represents and warrants that no consent
to this Sublease is required from the Master Landlord.
|
|
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
1.
Sign Space
. Sublandlord hereby agrees to sublease to Subtenant, and Subtenant hereby agrees
to sublease from Sublandlord, for the purposes set forth in Section 3 below, the exterior surface
of the south facing exterior wall (Sign Space) on the building located at 1000 1
st
Avenue South, Seattle, Washington (Building), which commercial real property is legally described
in
Exhibit A
attached hereto and incorporated herein (the Property).
2.
Sublease Term
. This Sublease shall commence on _______, 20__ and shall expire on ________,
20__, unless the Sublease is sooner terminated as provided herein (Term).
3.
Use of Sign Space
.
3.1
Use
. Subtenant is granted the use of the Sign Space solely for the purpose of
affixing on-premise advertising materials in a vinyl poster format (Advertising Materials) for
beverages manufactured by Tenant or a subsidiary of Tenant.
3.2
Approval
. Subtenant shall submit to Sublandlord a copy of the proposed
Advertising Materials before affixing the same to the Sign Space. Sublandlord shall have final
approval regarding the content of the proposed Advertising Materials, which approval shall not be
unreasonably withheld. Sublandlord shall deliver denial of such proposed Advertising Materials to
Subtenant within five (5) business days of receipt of such proposed Advertising Materials from
Subtenant, otherwise the proposed Advertising Materials shall be considered approved.
3.3
Prohibited Content
.
3.3.1 Subtenant shall not display any Prohibited Content which shall mean:
3.3.1.1 Advertising Materials in the Sign Space which (i) are not approved
by Sublandlord, (ii) are obscene, pornographic or sexually explicit, (iii) are
political in nature, and/or (iv) advertise cigarettes or related tobacco products;
and
3.3.1.2 Use of the Sign Space for any purpose which is (i) a nuisance or
(ii) contrary to any law, ordinance, rule or regulation of any public authority,
including, but not limited to, discrimination against any person on the basis of
race, sex or national origin; and
3.3.1.3 Any Advertising Materials which result in public protests or
negative coverage in the media because the public deems the Advertising Materials
as offensive or immoral by community norms.
3.3.2 Sublandlord may require Subtenant to revise the Advertising Materials if,
over time, such Advertising Materials are deemed offensive or
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
immoral by community norms and results in public protests or negative coverage in the
media.
3.4
Removal
.
3.4.1 In the event that any Advertising Materials, when complete, materially
differ from the plans, sketches or drawings as approved by Sublandlord, Subtenant shall
remove the Advertising Materials upon five (5) days written notice from Sublandlord.
3.4.2 In the event any Advertising Materials contain Prohibited Content, Subtenant
shall remove the Advertising Materials upon five (5) days written notice from Sublandlord.
4.
Permits
.
4.1 At its sole cost and expense, Subtenant shall undertake diligent efforts to obtain
permits from the City of Seattle and any approvals required by the Pioneer Square Preservation
Board for use of the Advertising Materials to be placed on the Sign Space (the Permits).
4.2 Sublandlord, when required by the City of Seattle and/or the Pioneer Square
Preservation Board, will make reasonable efforts at no cost to Sublandlord, to assist Subtenant in
seeking such Permits, including but not limited to executing any necessary forms required by the
City of Seattle and/or the Pioneer Square Preservation Board.
4.3 Subtenant shall provide copies of all Permits to Sublandlord within five (5) days of
the issuance of the Permits.
4.4 Notwithstanding anything contained herein to the contrary, in the event Subtenant
shall be unable to obtain any of the Permits due to no fault of Subtenant, Subtenant upon thirty
(30) days written notice to Sublandlord, may cancel this Sublease, provided any Rent accrued to the
date of termination shall not be refunded, and to the extent past due shall remain payable. Either
party may terminate this Sublease if the Permits have not been granted within one hundred eighty
(180) days of the date hereof without liability to the other, except for the payment of the Rent
accrued to the date of termination.
4.5 Notwithstanding anything contained herein to the contrary, in the event (i) Subtenant
shall have obtained a Permit for the Sign Space but subsequently such Permit shall be withdrawn or
terminated for any reason other than as a result of Subtenant deliberately causing such termination
or withdrawal, or (ii) Sublandlord or Subtenant shall receive a violation notice or summons
alleging a violation of zoning law which would prevent further use of the Sign Space by Subtenant
for the purpose contemplated
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|
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
by this Sublease and such violation is not promptly dismissed
(provided Subtenant shall use good faith efforts to cure such violation if within its control), Subtenant upon thirty
(30) days written notice to Sublandlord, may at any time thereafter cancel the balance of the Term
of this Sublease, provided any of the Rent accrued to the date of termination shall not be
refunded, and to the extent past due, shall remain payable. Subtenant will pay all violations,
fines or penalties resulting from or relative to the use of the Sign Space.
5.
Rent
. Subtenant shall pay to Sublandlord monthly rent (Rent) for the Sign Space on the
first day of each month throughout the Term as follows:
[*The Months described below correspond to the Term of the Office Space Sublease described above,
and Subtenant shall pay Monthly Rent for the Sign Space according to the following table only
during those month(s) when Subtenant has exercised its option or right of first refusal rights to
sublease the Sign Space, as more particularly set forth in Section 14 of the Office Space
Sublease*]
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Month
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Monthly Rent
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01-12
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[***]
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13-24
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[***]
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25-36
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[***]
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37-48
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[***]
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49-60
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[***]
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61-65
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[***]
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6.
Installation of Advertising
.
6.1 Following execution of this Sublease, the granting of the Permits and approval of the
Advertising Materials by Landlord, Subtenant may commence to install at the Sign Space vinyl flex
face advertising copy.
6.2 All work shall be undertaken and completed in a good and workmanlike manner by
qualified personnel and contractors. Subtenant shall fully comply with all laws and regulations
applicable to its work and occupancy of the Sign Space.
6.3 Subtenant shall not permit to be created or to remain, and shall promptly discharge,
any lien, encumbrance or charge for any mechanics, laborers or materialmans lien resulting from
work which it performs upon the Sign Space or any part thereof.
7.
Condition of Sign Space; Maintenance and Repair
.
7.1 Subtenant covenants and agrees to maintain the Sign Space in good condition and
repair throughout the Term.
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
7.2 Sublandlord hereby grants to Subtenant, its agents, servants and employees the
limited right of access to the Sign Space in order to install, maintain,
operate and repair its Advertising Materials to be located at the Sign Space and as necessary,
access to the roof of the Building and to such other portions of the Building, exterior or
interior, as may be necessary or advisable for the installation and/or maintenance of Subtenants
signs subject to the rights of other subtenants in the Building. All access shall be coordinated
through Sublandlord and shall be undertaken in a manner that will not interfere with the use of the
Building by other subtenants of the Building.
7.3 Subtenant, at Subtenants sole cost and expense, shall promptly repair all damage to
the Sign Space, any other part of the Building, Property, or its fixtures, equipment and
appurtenances, whether requiring structural or nonstructural repairs, caused by or resulting from:
7.3.1 Careless, neglectful or improper use of the Sign Space or any other portion
of the Building or Property by Subtenant, its servants, employees or agents; and
7.3.2 Carelessness, omission, neglect or improper conduct by Subtenant, its
servants, employees or agents within the Sign Space, any other portion of the Building; and
7.3.3 The installation, repair and/or maintenance, or removal of Subtenants
signs, fixtures, equipment or structures.
7.4 If after ten (10) days notice Subtenant fails to make repairs required by
Sublandlord, such repairs may be made by Sublandlord at the expense of Subtenant and the expenses
thereof incurred by Sublandlord shall be immediately due and payable by Subtenant after delivery of
a bill or statement therefore. Sublandlord may make emergency repairs without any notice to
Subtenant, provided it shall thereafter provide immediate notice to Subtenant.
7.5 Subtenant shall be solely responsible for, and pay all costs of installation and use
of all electricity and other utilities, if any, used or consumed during installation of the
Advertising Materials.
8.
Alterations and Improvements
. Subtenant shall not make any alterations, additions or
improvements to, nor install any fixtures or equipment on the Sign Space without Sublandlords
prior written consent, which consent may be unreasonably withheld in Sublandlords sole discretion.
Subtenant shall pay any and all costs incurred by Sublandlord in reviewing and evaluating any
request for the consent required by this section. Any alteration, addition or improvement
consented to by Sublandlord shall be made in a good workmanlike manner at Subtenants sole cost and
expense and shall comply with all applicable laws, codes, ordinances, rules, regulations and the
HTC Regulations.
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
9.
Surrender Upon Termination
. At the end of the Term, or any extension thereof, Subtenant
shall surrender the Sign Space and return it to the same condition as existed at the beginning of
the Sublease, normal wear and tear from the elements excepted. Subtenant shall remove anything
that Subtenant installed in the Sign Space and repair any damage to the wall surface caused by
Subtenants use.
10.
Compliance with Laws and Regulations
.
10.1 Subtenant, at its sole expense, shall comply with all federal, state and municipal
laws, codes, ordinances, regulations, laws, the Permits and all lawful directives of public
officers which impose any duty upon Subtenant or Sublandlord with respect to the affixing of
advertising upon the Sign Space.
10.2 The parties acknowledge that there are certain federal, state and local laws,
regulations and guidelines now in effect and that additional laws, regulations and guidelines may
hereafter be enacted relating to or affecting the Building and the Property, concerning the impact
on the environment, construction, land use, the maintenance and operation of structures, and the
conduct of business. Subtenant shall not cause, or permit to be caused, any act or practice by
negligence, or omission, or otherwise, that would adversely affect the environment or do anything
or permit anything to be done that would violate any of said laws, regulations or guidelines. Any
violation of this covenant shall be an event of default under this Sublease. Subtenant shall
indemnify and hold Sublandlord harmless from any and all cost, expense, claims, losses, damages,
fines and penalties, including attorneys fees that may in any manner arise out of or be imposed
because of the failure of Subtenant to comply with this covenant. The foregoing shall cover all
requirements whether or not foreseeable at the present time and regardless of the expense attendant
thereto.
11.
Relationship
. Nothing herein authorizes Subtenant to act on behalf of Sublandlord, whether
as agent, representative or otherwise, and Subtenant shall take no action to obligate or bind
Sublandlord without Sublandlords prior written consent.
12.
Indemnification
.
12.1 Subtenant shall be responsible for any loss or damage whatsoever to Property or
persons, due to the installation, use, maintenance or operation of the Sign Space and the signs
thereon, including but not limited to the installation, posting, painting or maintenance of same or
the contents thereof. Subtenant agrees to indemnify and hold Sublandlord harmless from any and all
loss or damage, including without limitation, reasonable attorneys fees, resulting or arising out
of any action or omission by Subtenant, its agents, employees, licensees or contractors with
respect to the installation, posting, or maintenance of its signs at the Sign Space.
12.2 The indemnification obligations contained in this Section shall not be limited by any
workers compensation benefit or disability laws, and each indemnifying
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
party hereby waives (solely for the benefit of the indemnified party) any immunity that said
indemnifying party may have under the Industrial Insurance Act, Title 51 RCW and similar workers
compensation, benefit or disability laws. SUBLANDLORD AND SUBTENANT ACKNOWLEDGE BY THEIR EXECUTION
OF THIS SUBLEASE THAT EACH OF THE INDEMNIFICATION PROVISIONS OF THIS SUBLEASE (SPECIFICALLY
INCLUDING BUT NOT LIMITED TO THOSE RELATING TO WORKERS COMPENSATION BENEFITS AND LAWS) WERE
SPECIFICALLY NEGOTIATED AND AGREED TO BY SUBLANDLORD AND SUBTENANT.
13.
Insurance
.
13.1 Subtenant, throughout the Term of this Sublease, shall procure and maintain, at its
sole cost and expense, a policy of public liability insurance naming Sublandlord as a named
additional insured respecting installation, maintenance and use of the Sign Space, such policy to
be issued by an insurance carrier qualified to do business in Seattle, Washington and shall provide
for policy limits of not less than $1,000,000 per incident, $2,000,000 aggregate combined coverage.
13.2 Subtenant shall deliver a certificate evidencing such insurance coverage which shall
be kept in force at all times during the Term hereof. In the event Subtenant fails after written
notice to Subtenant to deliver such certificate of insurance or keep same in force, Sublandlord
may, but is not obligated to, procure such insurance and the cost of premiums therefore shall be
added to the next months Rent thereafter to become due, and shall be deemed to be additional Rent
and shall be collectible as such.
13.3 Subtenant shall require each contractor involved in the installation and maintenance
of the Sign Space to maintain insurance consistent with industry standards for the service provided
by such contractor.
13.4 Each policy or certificate of insurance procured by Subtenant or its contractor
pursuant to this Section 13 shall, to the extent obtainable, contain a provision that such policy
shall not be canceled without at least thirty (30) days prior written notice to Sublandlord.
13.5 Sublandlord and Subtenant release each other, and their respective authorized
representatives, from any claims for damage to any person or to the Sign Space, the Building and/or
the Property and to Subtenants alterations, trade fixtures and personal property that are caused
by or result from risks insured against under any insurance policies carried by the parties, in
force at the time of any such damage and collection. Sublandlord and Subtenant shall cause each
insurance policy obtained by it to provide that the insurance company waives all right of recovery
by way of subrogation against either party in connection with any damage covered by any insurance
policy.
14.
Obstruction/Diminished Use
. In the event that Subtenant is: (i) prevented by law or
governmental authority from using the Sign Space for advertising purposes, or (ii) an
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Multi-Tenant Lease
Triple Net
|
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Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
existing building or structure is altered or a sign structure is placed on an existing building or
a new building or structure is erected so as to materially and adversely obstruct the view of the
advertising at the Sign Space, then in any of such events, Subtenant may cancel this Sublease by
giving not less than thirty (30) days written notice to Sublandlord which cancellation shall be
effective on the date the Subtenant is prevented from using the Sign Space by law or governmental
authority, or the date of the material and adverse obstruction of the Sign Space, and neither party
shall have any further rights or obligations hereunder other than obligations that existed prior to
such termination. During the thirty (30) days following the effective date of termination,
Subtenant will remove the Advertising Materials from the Sign Space at the Building and restore the
Building to its prior condition, reasonable wear and tear excepted.
15.
Notices
. All notices, demands or requests by the parties to each other shall be given in
person or by registered or certified mail, return receipt requested, to the following addresses:
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Sublandlord:
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1000 Master Tenant LLC
270 S Hanford St, Ste 100
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Seattle, WA 98134
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Subtenant:
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Jones Soda Co.
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Before Month 6:
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234 9th Ave. N.
Seattle, WA 98109-5120
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On and After Month 6:
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The Premises demised by the
Office Space Sublease
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Either party hereto may change its address by giving such change to the other party in person or by
certified or registered mail, return receipt requested.
16.
Default
.
16.1
Subtenants Default
. Subtenant shall be in breach of this Sublease if: (a)
Subtenant shall default in the payment of Rent and such default shall continue for fifteen (15)
days after Sublandlord shall have given Subtenant a written notice of the same, or (b) Subtenant
shall default in the performance of any other term hereunder and such default shall continue for
thirty (30) days after written notice from Sublandlord of same. In the event of such breach,
Sublandlord may terminate this Sublease upon giving written notice, and re-enter the Sign Space and
remove any Advertising Materials.
16.2
Default by Sublandlord
. Sublandlord shall not be in default and Subtenant may
not terminate unless Sublandlord fails to perform obligations required of Sublandlord within a
reasonable time, but in no event later than thirty (30) days after written notice by Subtenant to
Sublandlord. Said notice shall specify wherein
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
Sublandlord has failed to perform such obligation; provided, however, that if the nature of
Sublandlords obligation is such that more than thirty (30) days are required for performance then
Sublandlord shall not be in default if Sublandlord commences performance within such thirty (30)
day period and thereafter diligently prosecutes the same to completion. Subtenant further agrees
not to invoke any of its remedies under this Sublease until said thirty (30) days have elapsed.
17.
Assignment
. Subtenant shall not assign or transfer this Sublease.
18.
Successors and Assigns
. The covenants, conditions and agreements contained in this Sublease
shall bind and inure to the benefit of Sublandlord and Subtenant, their respective heirs,
distributees, executors, administrators, successors and except as otherwise provided in this
Sublease, their assigns.
19.
Entire Sublease; Modifications; No Third Party Rights
. This Sublease represents the entire
understanding of the parties and supersedes any previous documents, correspondence, conversations
or other oral or written understanding related to this Sublease. It may not be assigned, waived or
modified by the parties except in writing signed by authorized representatives of both parties, nor
shall the conduct or actions of any party be deemed a modification or waiver. A modification or
waiver of a part of this Sublease shall not constitute a waiver or modification of any other
portion of the Sublease. Nothing in this Sublease shall create any enforceable rights in any
person not a party hereto.
20.
Choice of Law and Forum
. This Sublease shall be governed by and construed under laws of
the State of Washington and the City of Seattle without regard to its choice of law rules. Any
disputes under this Sublease shall be litigated in the local or federal courts located, and the
parties hereby consent to personal jurisdiction and venue, in the City of Seattle.
[See next page for signatures.]
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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In
Witness Where of
this Sublease has been executed the date and year first above
written.
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Sublandlord:
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Subtenant:
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1000 Master Tenant LLC,
a Washington limited liability company
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Jones Soda Co.,
a Washington corporation
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By: American Life, Inc.,
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By:
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Its: a Washington corporation
Managing Member
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[Name, Title]
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By:
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Henry G. Liebman, President
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Consent of Master Landlord
The undersigned Master Landlord pursuant to the Master Lease described above hereby consents to the
foregoing Sublease, confirms that the Sublease is an Approved Sublease pursuant to the Tenant
Operating Agreement as defined in the Master Lease, and agrees to recognize the Sublease in the
event the Master Lease is terminated prior to scheduled expiration date of the Sublease Term and
any extension or renewal thereof.
1000 1st Avenue South Limited Partnership,
a Washington limited partnership
By: American Life, Inc.,
a Washington corporation
Its: Managing General Partner
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By:
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Henry G. Liebman, President
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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STATE OF WASHINGTON
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)
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)ss
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COUNTY OF KING
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)
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On this _____ day of _______, 20___, before me, the undersigned, a Notary Public in and for the
State of Washington, duly commissioned and sworn, personally appeared Henry Liebman, to me known to
be the President of American Life, Inc. the corporation, that executed the foregoing instrument and
acknowledged the said instrument to be the free and voluntary act of and deed of said corporation,
for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute
the said instrument as the Manager Member of 1000 Master Tenant, LLC.
In Witness Whereof I have hereunto set my hand and affixed my official seal the day and year first
above written.
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Notary Public residing at:
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Notarys Name (typed or legibly printed)
My Commission Expires:
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Multi-Tenant Lease
Triple Net
|
|
Exhibit K
|
[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
|
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STATE OF WASHINGTON
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)
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)ss
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COUNTY OF KING
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)
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On this _____ day of ________, 20__, before me, the undersigned, a Notary Public in and for the
State of Washington, duly commissioned and sworn, personally appeared _______________________, to
me known to be the _______________ of JONES SODA, Co., the corporation that executed the foregoing
instrument and acknowledged the said instrument to be the free and voluntary act of and deed of
said corporation, for the uses and purposes therein mentioned, and on oath stated that
______________________ was authorized to execute the said instrument and that the seal affixed is
the corporate seal of said corporation.
In Witness Whereof I have hereunto set my hand and affixed my official seal the day and year first
above written.
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Notary Public residing at:
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Notarys Name (typed or legibly printed)
My Commission Expires:
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Multi-Tenant Lease
Triple Net
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Exhibit K
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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EXHIBIT A
LEGAL DESCRIPTION OF THE PROPERTY
The South 36.09 feet of Lot 9 and the North 44 feet of Lot 10 in Block 324, Seattle Tidelands,
situate in the City of Seattle, County of King, State of Washington. Together with an easement for access and utilities on the North 16 feet of property lying on that
portion of property legally described below, said easement recorded under King County Office of
Records and Elections File No. 980717-1655.
Tax Parcel Number: 7666206678
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Multi-Tenant Lease
Triple Net
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Exhibit K
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[***] Indicates portions of this exhibit that have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
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