UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-27802
ARTERIAL VASCULAR ENGINEERING, INC.
(Exact name of Company as specified in its charter)
Delaware 94-3144218
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3576 Unocal Place, Santa Rosa, California 95403
(Address of principal executive offices) (Zip code)
(707) 525-0111
(Company's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Indicate by check mark whether the Company (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 periods as the Company was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of August 31, 1997, there were 31,132,138 shares of Common Stock outstanding.
The aggregate market value of voting stock held by non-affiliates of the Company
was approximately $655,432,000 based upon the closing price of the Common Stock
on August 29, 1997 (the last trading day prior to August 31, 1997) on the Nasdaq
National Market tier of The Nasdaq Stock Market. Shares of Common Stock held by
each officer, director and holder of five percent or more of the Common Stock
outstanding as of August 31, 1997 have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily conclusive.
--------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Company for the 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
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PART I
The following trademarks of Arterial Vascular Engineering, Inc. are
used in this Form 10-K: Arterial Vascular Engineering(TM), Micro Stent(TM),
Micro Stent II(TM), Micro Stent II XL(TM), Micro Stent 2.5(TM), Micro Stent II
LP(TM), GFX(TM), GFX 2.5(TM), GFX XL(TM), Bridge(TM), Nike(TM), Elite(TM),
Peak(TM) and LTX(TM).
ITEM 1. BUSINESS
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements and risk factors in
this Item 1 include, without limitation, statements regarding the Company's
industry, products and strategy under "Company Strategy", "AVE Stent Technology"
and "Additional Business Risks", statements regarding the extent and timing of
product development, future revenues, customer demand, competitive products,
pricing pressure, the intellectual property positions of competitors,
reimbursement and future technological change under "Product Development,"
"Distribution, Sales and Marketing," "Competition," "Third-Party Reimbursement
and "Patents and Proprietary Rights," and statements regarding expected clinical
trial results and regulatory approvals and compliance under "Clinical Trial
Activities" and "Government Regulation." All forward-looking information
included in this document is based on information available to the Company as of
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
Additional forward-looking statements and risk factors include those discussed
in the sections entitled "Item 2. Properties," "Item 3. Legal Proceedings,"
"Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters," "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Item 8. Financial Statements and Supplementary
Data," as well as those that may be set forth in the reports filed by the
Company from time to time on Forms 10-Q and 8-K.
General
Arterial Vascular Engineering, Inc. ("AVE" or the "Company") designs,
develops, manufactures and markets a variety of highly specialized stent systems
and percutaneous transluminal coronary angioplasty ("PTCA") balloon catheters.
The Company's stents are used as arterial support devices in connection with
balloon angioplasty or other minimally invasive treatments of atherosclerosis
(the formation of deposits in the arteries) and to prevent abrupt closure of
vessels in higher-risk angioplasty procedures. The Company commenced operations
in 1991 and began marketing its PTCA balloon catheters in October 1993, its
coronary stent systems in October 1994, and its peripheral stent systems in
December 1996. To date, the Company has sold over 160,000 coronary stent systems
and over 38,000 PTCA balloon catheters in more than 40 countries outside the
United States, primarily in Europe and Japan. In April 1996, the Company began
its first direct sales operation in Europe, and currently it has direct
operations in each of France, Germany, the Netherlands (to service the Benelux
countries), Switzerland and the United Kingdom. In Japan, the Company currently
sells only PTCA balloon catheters. In June 1997, the Company's Japanese
distributor received regulatory approval for the sale in Japan of the Company's
coronary stent systems; however, as of the date hereof, the Company's Japanese
distributor had not yet received the related reimbursement approval there. The
Company does not expect reimbursement approval in Japan prior to November 1997,
and there can be no assurance when or if such approval will be obtained. In
August 1997, the Company submitted a premarket approval ("PMA") application to
the United States Food and Drug Administration (the "FDA") in connection with
its ongoing efforts to gain approval to begin commercial sales of its coronary
stent systems in the United States. The Company does not expect FDA approval of
its stent systems for sale in the United States prior to 1998, and there can be
no assurance when or if such approval will be obtained. As a result, the Company
expects international sales to account for substantially all of its revenues
until at least 1998.
AVE Stent Technology
AVE believes that its line of coronary and peripheral stent systems
incorporates a number of unique and proprietary design features that enable the
Company to address effectively a variety of lesion and vessel types. The
Company's stents are constructed of seamless, medical grade stainless steel
rings that are precision-formed into sinusoidal shaped elements. These elements
are polished and connected in a helical pattern utilizing a proprietary
manufacturing process in order to form a fully connected, yet flexible, stent
device. The Company believes its stent design provides more consistent vessel
support and radial force than coiled stent designs as well as more flexibility
and easier delivery than tubular slotted or mesh stent designs. The Company's
stent products are available in a variety of diameters and lengths and are
provided pre-mounted on both over-the-wire and rapid exchange delivery systems
(available only outside the United States) with the same advanced technology as
the Company's PTCA balloon catheters. The Company's coronary stents have been
used in a variety of applications, including vessels in which other stent
procedures have failed, as well as in the treatment of lesions in curved or
tortuous vessels. The Company also sells stent systems for use in the peripheral
vessels. The Company believes the following technical features of its
proprietary stent systems provide the Company with a number of competitive
advantages:
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Smooth Edge Design and Sheathless Deployment System. The Company's
stent products consist of highly polished, rounded, sinusoidal-shaped elements
at either end of the stent (unlike mesh stents, which have flat edges at each
end). The Company believes that the smooth edges of its stent products optimize
their ability to be moved through a vessel without causing tears or dissections
or halting movement of the delivery catheter, thereby minimizing trauma to
treated vessels. The smooth edges of the stent also permit the stent to be
delivered without the protective sheath necessary for use of certain competing
stent products. The Company believes that eliminating the need to monitor and
remove a protective sheath enhances the ease of use of its products.
High Stent Flexibility and System Trackability. The Company's products
consist of sinusoidal-shaped elements that are connected in a helical pattern
designed to provide a highly flexible stent. Increased stent flexibility allows
the Company's stent products to be more easily maneuvered and placed at the site
of a lesion, particularly through curved or tortuous vessels or around other
deployed stents. In addition, flexible stent design allows the use of a single
stent in the treatment of a lesion in a curved vessel, as compared to more
inflexible designs that may require the use of multiple stents to treat a long,
curved lesion. The Company believes that the ease of use and enhanced handling
characteristics of its stent delivery systems, coupled with stent flexibility
and smooth edge design, allow it to provide a stent system with high
trackability. The ability to easily access or "track to" a lesion is an
important stent system characteristic in the treatment of a distant site or
tortuous vessel. The Company currently offers stents in lengths as long as 40mm
for use in the treatment of long, diffuse lesions.
Improved Stent Strength and Stability. The advanced designs of the
Company's GFX and Micro Stent II family of stent products combines high radial
strength, which minimizes vessel recoil, and axial stability, which provides
consistent vessel support along the entire length of the stent. The Company
believes these features allow a physician to better control and optimize final
minimal lumen diameter ("MLD"). Studies have indicated that optimizing the MLD
of a vessel following use of a stent product generally reduces the likelihood of
subsequent restenosis.
Moderate Radiopacity. The Company believes that the moderate
radiopacity of its devices optimizes angiographic identification of stent
position and enhances post-procedure stent assessment. Physicians commonly use
low level x-rays to accurately monitor the placement and deployment of a stent,
including final expansion using a high pressure balloon, as well as to conduct
post-operative assessment of MLD. As a result, a lack of radiopacity, which may
prevent illumination of a stent, or an excess of radiopacity, which may
overilluminate the stent and impede its visual identification, may affect the
outcome of stent procedures and subsequent diagnosis of treated vessels.
Proprietary, Pre-Mounted Delivery Systems. Unlike certain other stents,
which may require the physician to hand-crimp the stent on a balloon delivery
device, the Company's stents are pre-mounted onto its proprietary delivery
systems. The Company believes that pre-mounting its stents on balloon delivery
systems helps ensure more consistent and accurate stent delivery and deployment,
particularly as stents are used by a broader group of physicians with varying
levels of experience with stents. In addition, the Company believes that the
ease of use of its product has promoted physician acceptance.
Adaptable Design Characteristics. The Company believes that the design
features of its stents allow it to modify one or more stent performance
characteristics, such as mass or flexibility, as necessary to produce an
effective device for a particular application. To date, the Company has utilized
its stent technologies to develop families of more than ten distinct stent
products. Each product also is offered in a variety of lengths and diameters,
allowing the physician to choose the device that best suits the needs of a
patient based on lesion characteristics. The Company believes the adaptability
of its stent designs will allow their use as platform technologies for the
development of a variety of other coronary and non-coronary products. For
example, in fiscal 1997 the Company introduced in selected international markets
stents designed for use in the peripheral renal and iliac vessels. See "--
Products."
Despite such advantages, due to the number of clinical applications for
stent systems and the variety of available products, the Company's stent
products may not be superior to competitive products in all applications. In
addition, many of the Company's competitors have substantially greater capital
resources, name recognition and expertise in manufacturing, marketing and
product approval, which factors provide a competitive advantage to such
companies, in connection with the sale of these stent products. The medical
indications that can be treated by stents can also be treated by surgery,
minimally invasive bypass procedures, drugs or other medical devices, including
stand-alone balloon catheters, atherectomy catheters, irradiated devices and
lasers. Many of the alternative treatments are widely accepted in the medical
community and have a long history of use.
Company Strategy
The Company's goal is to expand its position as one of the leading
worldwide providers of coronary stent systems. The key elements of its strategy
are as follows:
Introducing New Products for Both Coronary and Non-Coronary
Applications. The Company intends to build on its stent designs to broaden the
coronary and non-coronary applications for its stents. For example, the GFX
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stent system introduced by the Company in fiscal 1997 was designed for increased
flexibility and trackability and improved vessel coverage and support, with a
goal of increasing the types of medical indications that may be treated with
stents. The Company believes that the inherent adaptability and flexibility of
the Company's stent designs will augment its ability to meet specialized
coronary needs, as well as to provide stents for use in peripheral vessels,
saphenous vein grafts and other applications. The Company has recently created a
separate operating division, "Peripheral AVE," whose purpose is to focus its
efforts on the design, development, manufacture and marketing of the Company's
peripheral stent systems.
Continuing Integration of Research and Development and Manufacturing
Operations. The Company believes that the design of products for
manufacturability and the rapid manufacture of products to satisfy market demand
are key success factors in new product development in the medical device
industry. To support these capabilities, the Company has designed and developed
internally the technology necessary to perform a number of proprietary
production processes and has developed the expertise to fabricate the majority
of the components of its stent and PTCA balloon catheter products. The Company
has also begun construction of a 130,000 square foot building adjacent to its
corporate headquarters in Santa Rosa, California, at an estimated cost of $20
million, which, when completed, will be largely devoted to manufacturing
activities. The design of the new facility is intended to allow continued
integration of the Company's research and development and manufacturing
operations as well as a significant expansion of the Company's production
capabilities. The Company intends to leverage its vertically integrated product
development and manufacturing approach to rapidly introduce innovative products.
Continuing to Expand Sales and Marketing Efforts. The Company
continually seeks to increase its market share and build product awareness in
each of the over 40 countries outside of the United States in which its products
are marketed. The Company has direct sales operations in its principal target
markets in Europe -- France, Germany, the Netherlands (to service the Benelux
countries), Switzerland and the United Kingdom -- and operates through
unaffiliated distributors in other countries internationally. The Company
believes that its direct sales presence allows it to focus greater attention on
such countries' physician communities, which it believes helps to increase the
advocacy base for the Company's products in Europe and other countries as well
as facilitating more direct feedback to the Company on its products. The Company
also believes that, in addition to building stronger relationships with its
customers, this direct sales strategy provides the Company with more complete
control of the distribution and growth of the Company's full product line, as
well as allowing it to better manage the pricing and regulatory approval process
for its products. The Company has also centralized its distribution services by
contracting with a provider in the Netherlands to support direct sales
operations and distributions throughout Europe. The Company intends to utilize a
direct sales force in the United States if and when regulatory approval is
received for the sale of its products in the United States, and has begun to
develop such a sales force. The Company may continue to implement direct sales
operations in selected markets where it believes such an approach will benefit
its competitive position.
Broadening Product Offerings to Provide More Complete Therapy
Solutions. The Company believes that an ability to offer a more complete line of
therapeutic products may enhance the Company's ability to compete effectively in
the interventional marketplace. For example, the Company believes its current
line of PTCA balloon catheters has provided the Company with expertise in
balloon delivery and deployment. The Company continually reviews possible
strategic acquisitions, third party technology licenses and marketing or
distribution relationships with companies that have medical products in certain
complementary product areas. However, there can be no assurance that the Company
will enter into any such arrangements.
Pursuing Regulatory Approval in the United States and Abroad;
Conducting Clinical Trials to Promote Market Acceptance of the Company's
Products. The Company is seeking FDA approval to allow sale of its products in
the United States, which the Company believes represents the largest stent
market in the world. In August 1997, the Company submitted a PMA to the FDA in
connection with its ongoing efforts to gain approval to begin commercial sales
of its coronary stent systems in the United States. Clinical studies under an
Investigational Device Exemption (an "IDE") are ongoing with other of the
Company's products. The Company does not expect FDA approval of its stent
systems for sale in the United States prior to 1998, and there can be no
assurance when or if such approval will be obtained. In addition to its United
States clinical program, the Company is sponsoring several ongoing clinical
studies in several countries outside the United States. The Company intends to
use data from these trials to obtain regulatory approvals in new markets, to
promote market acceptance of its products and to expand clinical applications of
the Company's products.
Developing and Maintaining Relationships with Leading Physicians. AVE
develops and maintains relationships with leading physicians worldwide. Through
these relationships, the Company seeks to work with opinion leaders who can
foster market awareness of the Company's products. The Company supports these
efforts through group training programs designed to increase physician
familiarity with the Company's products. The Company also has assembled a staff
of clinical specialists to expand its physician training, service and support
activities. These specialists help provide an increased presence at industry
trade shows and produce marketing material targeted toward physicians. In
addition, the Company maintains an active program of collaborating with key
physicians and medical centers to obtain feedback for new product development.
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<TABLE>
Products
The Company currently markets its stent systems in most countries in
Europe, including Germany, France and the United Kingdom, and in other countries
outside of the United States in both over-the-wire and rapid exchange catheter
delivery forms. In addition, the Company offers a line of PTCA balloon catheters
outside of the United States. The following table identifies the Company's
current products, their principal clinical application and their current
commercialization status:
CURRENT PRODUCTS
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<CAPTION>
CORONARY STENT SYSTEMS
Initial
Release
Product Description/Application Date Status
------- ----------------------- ---- ------
<S> <C> <C> <C>
GFX Stent Systems
GFX Third-generation coronary stent system September 1996 Available for sale in over 40 countries.
designed to provide lower profile PMA submitted to the FDA in August 1997.
(most sizes capable of being used in 6
French guide catheters) and greater radial
strength and flexibility than Micro Stent
II.
GFX 2.5 Coronary stent designed for use in June 1997 Available for sale in over 40 countries
vessels as small as 2.5mm in diameter. outside the United States. Supplemental
IDE application was submitted in
September 1997.
GFX XL Coronary stent designed for use in the June 1997 Available for sale in over 40 countries
treatment of long and diffuse lesions. outside the United States. IDE
application was conditionally approved
by the FDA in July 1997.
Micro Stent II Systems
Micro Stent II Second-generation product, featuring October 1995 Available for sale in over 40 countries
helical connections and enhanced radial outside the United States. PMA submitted
strength. Designed for use in a variety to the FDA in August 1997.
of coronary applications.
Micro Stent 2.5 Coronary stent designed for use in December 1995 Available for sale in over 40 countries
vessels as small as 2.5mm in diameter. outside the United States. IDE received
in June 1996.
Micro Stent II XL Coronary stent designed for use in the December 1995 Available for sale in over 40 countries
treatment of long and diffuse lesions. outside the United States. PMA submitted
to the FDA in August 1997
Micro Stent II LP Similar configuration as the Micro Stent June 1996 Available in markets outside the United
II product with the added capability of States that prefer 6 French guide
being used in 6 French guide catheters. catheters. Being replaced by the GFX,
and is generally distributed only in
countries where pre-market approval for
GFX has not been obtained.
PERIPHERAL STENT SYSTEMS
Initial
Release
Product Description/Application Date Status
------- ----------------------- ---- ------
Bridge Renal Stent Peripheral stent designed for use in the December 1996 Limited release in selected
-- Extra Support renal arteries. international markets.
Bridge Iliac Stent Peripheral stent designed for use in the December 1996 Limited release in selected
-- Extra Support iliac vessels. international markets.
Bridge Iliac Stent Peripheral stent designed for use in July 1997 Limited release in selected
-- Flexible more tortuous iliac vessels. international markets.
Bridge Biliary Stent Peripheral stent designed for use in the N/A 510(k) submitted to the FDA in April
biliary tract. 1997.
PTCA BALLOON CATHETERS
Initial
Release
Product Description/Application Date Status
------- ----------------------- ---- ------
Nike
Rapid exchange, semi-compliant PTCA October 1994 Approved for use in Japan and available
catheter, featuring a flexible for sale in over 40 other countries
proximal shaft. outside the United States.
Elite Rapid exchange, semi-compliant PTCA November 1994 Approved for use in Japan and available
catheter, incorporating stiffer proximal for sale in over 40 other countries
shaft. outside the United States.
Peak Over-the-wire, semi-compliant PTCA July 1995 Approved for use in Japan and available
catheter. for sale in over 40 other countries
outside the United States. IDE clinical
studies in the United States commenced
in early 1997.
LTX Lower profile, higher pressure, September 1997 Limited release in selected
minimally compliant PTCA balloon international markets.
catheter with hydrophilic coating for
improved performance, in both rapid
exchange and over-the-wire models.
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</TABLE>
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Coronary Stent Systems
The Company currently markets the following families of coronary stent
products, all of which are pre-mounted on a catheter and balloon delivery system
produced by the Company:
GFX Stent Systems
GFX. The GFX stent has a modified, six crown sinusoidal configuration
and utilizes a stent component of 2mm in length. The product is designed to
allow improved stent flexibility and trackability, vessel coverage and support
while providing the capability of using most sizes with guiding catheters with
outer diameters as small as 6 French (approximately 2.0mm), which may be helpful
in certain applications. The GFX is offered in lengths of 8, 12, 18, 24 and 30mm
with diameters of 3.0, 3.5 and 4.0 mm.
GFX 2.5. The GFX 2.5 generally incorporates the same design features as
the GFX (although it utilizes a four-crown configuration), but is designed for
application in vessels as small as 2.5mm in diameter. The GFX 2.5 is offered in
8, 12, and 18mm lengths with a diameter of 2.5mm.
GFX XL. The GFX XL is a longer stent made up of multiple stent
components that is designed to be used in treating diffuse arterial disease and
longer lesions with a single stent. Because the GFX XL retains the flexibility
of the Company's GFX stent design, the Company believes it will enable
physicians to treat longer lesions with a single stent, thereby potentially
reducing procedure time and cost. The product incorporates the same design
features as the GFX. It is offered in lengths of 30 and 40mm with diameters of
3.0, 3.5 and 4.0mm.
Micro Stent II Systems
Micro Stent II. The Micro Stent II utilizes a stent component of 3mm in
length. The helical connection and reduced length of the stent elements allow
for increased flexibility, thereby enhancing the handling characteristics and
trackability of the stent system. The Micro Stent II also incorporates
engineering advances related to radial strength and materials processing
designed to allow greater control of minimal lumen diameter. The Company
currently produces the Micro Stent II in 6, 9, 12, 18 and 24mm total length
configurations with diameters of 3.0, 3.5 and 4.0mm.
Micro Stent 2.5. The Micro Stent 2.5 incorporates the same design
features as the Micro Stent II, but is designed for application in vessels as
small as 2.5mm in diameter. The Micro Stent 2.5 is offered in 6, 9, 12, 18 and
24mm lengths with a diameter of 2.5mm.
Micro Stent II XL. The Micro Stent II XL is a longer stent designed to
be used in treating diffuse arterial disease and longer lesions with a single
stent. Because the Micro Stent II XL retains the flexibility of the Company's
core stent design, the Company believes it will enable physicians to treat
longer lesions with a single stent, thereby potentially reducing procedure time
and cost. The product incorporates the same design features as the Micro Stent
II. It is offered in lengths of 30 and 39mm with diameters of 3.0, 3.5 and
4.0mm.
Micro Stent II LP. The Company's Micro Stent II family of products are
generally designed for use within guiding catheters with an outer diameter of 7
French (approximately 2.3mm) or greater. In response to clinical demand in
certain international markets, the Company developed the Micro Stent II LP for 6
French guide catheter compatibility. This product is being replaced by the GFX,
and is generally distributed only in countries where pre-market approval for the
GFX has not yet been obtained. The Micro Stent II LP is offered in lengths of 12
and 18mm with diameters of 3.0 and 3.5mm.
Peripheral Stent Systems
In addition to the Company's coronary stent systems, the Company also
offers a line of stent systems designed for the treatment of atherosclerosis in
peripheral vessels of the body.
Bridge Extra Support Renal Stent. The Bridge extra support renal stent
is designed to be used in the renal arteries and is offered in diameters of 5,
6, and 7mm and lengths of 16mm. Initial release of the product occurred in
December 1996.
Bridge Extra Support Iliac Stent. The Bridge extra support iliac stent
is designed to be used in the iliac vessels and is offered in diameters of 6, 7,
8, 9 and 10mm and lengths of 40 and 60mm. Initial release of the product
occurred in December 1996.
Bridge Flexible Iliac Stent. The Bridge flexible iliac stent is a lower
profile, more flexible peripheral stent designed for use in more tortuous iliac
vessels and is offered in diameters of 6, 7, 8, 9 and 10mm and a length of 40mm.
Initial release of the product occurred in May 1997.
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Bridge Biliary Stent. The Bridge biliary stent is designed to be used
in the biliary tract and is offered in diameters of 6, 7, 8, 9 and 10mm and
lengths of 16, 20 and 40mm. A 510(k) application was submitted with the FDA in
April 1997, but the product has not yet been released for commercial sale in any
country.
PTCA Balloon Catheters
In addition to the balloon catheters sold as part of the Company's
stent systems, the Company also offers a broad line of balloon catheters for use
in PTCA balloon procedures. All of such currently marketed balloon catheter
products are semi-compliant, with rated burst pressures of between 8 and 10
atmospheres. The Company offers PTCA catheters with balloons in lengths of 20,
30 and 40mm and diameters ranging from 1.5mm to 4.0mm as discussed below.
Nike. The Nike is a rapid exchange catheter with a flexible proximal
(nearer to the operator) shaft design coupled with a low profile distal (further
from the operator) shaft. It is designed to allow greater access to smaller or
more tortuous vessels.
Elite. The Elite is a rapid exchange catheter with a smaller proximal
shaft diameter. It incorporates the Nike distal shaft design with a stiffer
metallic type of proximal shaft construction designed to allow greater operator
control in maneuvering the balloon catheter while enhancing vessel imaging.
Peak. The over-the-wire Peak catheter incorporates a stiffer proximal
shaft for enhanced control and a flexible distal shaft for ease of access to
more tortuous vessels. It was designed for the Japanese market, which generally
favors over-the-wire catheters, although it is also sold in other countries.
LTX. The LTX utilizes a lower profile, higher pressure, minimally
compliant PTCA balloon rated at 14 atmospheres. Among other things, higher
pressure PTCA balloons are useful in follow-up dilatation treatment, since
higher pressure balloons generally more fully expand implanted stents. Initial
release of the product occurred in selected markets in September 1997.
Research and Development Program
The Company maintains an active research and development program
designed to exploit its core technical expertise in stent systems, PTCA balloon
catheters and related medical technologies. The Company has made a significant
investment in developing its proprietary stent technologies and believes its
research and development commitment in this area is critical to its competitive
position. During fiscal 1997, the Company significantly increased its research
and development expenditures and personnel. Research and development expenses
for fiscal 1997, 1996 and 1995 were approximately $11,422,000, $6,480,000
($3,880,000 after excluding a one-time charge of $2,600,000 in connection with
the termination of certain patent royalty obligations), and $987,000,
respectively.
The Company is reviewing potential products in several areas, including
stent use in carotid and neurological applications, radiation and the use of
alternative stent materials. There can be no assurance that any of the products
above will be successfully developed, commercially released or accepted by the
market or that regulatory clearance will be obtained from the necessary
international or United States regulatory agencies.
Clinical Trial Activities
Clinical trials have not been required in most European markets prior
to the initiation of commercial sales. By contrast, certain other countries,
including the United States and Japan, require government pre-market approval,
rigorous in vitro and/or pre-clinical data and the completion of clinical trials
prior to commercialization of new products. In Japan, following the submission
of the results of clinical trials to Japanese regulators in late 1996, the
Company's Japanese distributor received in June 1997 government approval for the
sale in Japan of the Company's coronary stent systems. The approval covers the
entire line of the Company's coronary stent systems, including the rapid
exchange and over-the-wire delivery systems for each of such products. The
approval includes the entire GFX product line, including the low profile GFX 2.5
for smaller vessels and the GFX XL for longer lesions, as well as the entire
Micro Stent II product line. As of the date hereof, however, the Company's
Japanese distributor had not yet received the related reimbursement approval.
The Company does not expect reimbursement approval in Japan prior to November
1997, and there can be no assurance when or if such approval will be obtained.
The Company's Japanese distributor has previously received approval of the
Company's Nike, Peak and Elite PTCA balloon catheter systems.
With respect to the United States, in August 1997 the Company submitted
a PMA to the FDA in connection with its ongoing efforts to gain approval to
begin commercial sales of its coronary stent systems in the United States. The
PMA was based on a 661-patient, multi-center, randomized clinical study with the
Company's Micro Stent II device in the United States under an Investigational
Device Exemption ("IDE"). The study, entitled SMART (Study of Micro stent's
Ability to limit Restenosis Trial), evaluated the treatment of both de novo and
restenotic lesions in native coronary arteries, utilizing the Palmaz-Schatz(R)
stent of Cordis (a Johnson & Johnson company) as a control. The study had an
elective indication for use and required follow up, utilizing a primary endpoint
of clinically driven target site revascularization at nine months and various
secondary endpoints (including angiographic restenosis). The data for
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preliminary six-month data, as presented in late August 1997 by the principal
investigator for the study, indicated that the target site revascularization for
the Micro Stent II at six months was approximately 8.4% and was statistically
equivalent to the results for the Palmaz-Schatz(R) product. The Company included
in supplemental registries to the study patients with long lesions that were
treated with the Micro Stent II XL as well as patients treated with the GFX, and
certain data relating to the GFX was included in the August 1997 PMA submission.
The Company has also commenced U.S. clinical trials of the Company's
single-operator stent delivery system and of the Company's Peak PTCA balloon
catheter, although such systems were not included in the PMA submission. The
Company does not expect FDA approval of any of its stent systems for sale in the
United States prior to 1998, and there can be no assurance when or if such
approval will be obtained. The Company has incurred, and expects to continue to
incur, substantial clinical research and other costs in connection with
obtaining regulatory approvals for its stent systems in the United States and
other countries.
In addition to its United States clinical program, the Company is
sponsoring several ongoing clinical studies in several countries outside the
United States. In addition to fulfilling the regulatory requirements for the
sale of its products in certain countries, the Company intends to use data from
these trials to promote market acceptance of its products and to expand clinical
applications of the Company's products. The Company believes that clinical
trials are an important method of demonstrating performance and expanding
potential applications of the Company's products to physicians at leading
medical centers participating in such trials. Accordingly, the Company believes
that the results of such trials can be an important part of the Company's
marketing programs and competitive positioning of the Company. In sponsoring
clinical trials, the Company generally is involved in the design of the protocol
for such trials, makes its stents available to the trials' investigators free of
charge or at discounted rates, and aids with the patient enrollment procedures
and other ministerial aspects of the trial as necessary, but otherwise does not
participate in the performance of the trials.
Clinical results are inherently unpredictable and are influenced by the
indications and endpoints chosen and the procedures used. Results from clinical
trials sponsored by the Company, its competitors or a third party could delay or
prevent regulatory approvals, reduce market demand and therefore have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, there can be no assurance that the Company's
interpretation of data from its clinical trials will be accepted by the FDA or
other regulatory authorities or the medical community at large.
Distribution, Sales and Marketing
The Company markets its GFX and Micro Stent II families of stent
systems and its PTCA balloon catheters in over 40 countries outside the United
States. Until April 1996, substantially all of the Company's sales were to
international distributors who resell products to health care providers. The
Company terminated its relationship with distributors in Germany and the United
Kingdom in April and May 1996, respectively, and in France, Switzerland, Belgium
and the Netherlands effective September 30, 1996. The Company believes that the
establishment and maintenance of direct sales forces in France, Germany, the
Netherlands (to service the Benelux countries), Switzerland and the United
Kingdom has resulted in increased revenues and market share in those
territories. The Company also believes that its direct sales operations have
enabled it to build stronger relationships with customers, more completely
control the distribution and growth of the Company's full product line, and to
better manage the pricing and regulatory approval process for its products. The
Company has also centralized its distribution services by contracting with a
provider in the Netherlands to support direct sales operations and independent
distributors throughout Europe. The Company may establish a direct sales force
in one or more additional countries in the future where it believes such an
approach will benefit its competitive position. The establishment and
maintenance of direct sales forces has required and will continue to require
significant ongoing expenditures, additional management resources and has
resulted, and may continue to result, in additional costs to eliminate existing
distributor relationships (including litigation by former distributors). The
Company's former distributors in Belgium, France, the Netherlands and
Switzerland have commenced legal action against the Company in connection with
the termination of the distribution relationships in those countries. See "Item
3. Legal Proceedings."
In all other countries, the Company currently sells its products
through independent distributors. Such distributors generally are granted the
right to sell the Company's products within a defined territory and are
typically permitted to sell other non-competing medical products. All sales to
distributors are denominated in U.S. dollars, while sales effected through the
Company's direct sales operations are denominated in the local currency. The
Company's distributors purchase the Company's products at discounts that vary by
product and market. The distributors resell the products to health care
providers such as hospitals at prices that are determined by the distributor.
The Company's use of distributors in certain countries does not allow the
Company to control end-market prices charged for its products in those markets
and may not result in the same level of sales and marketing efforts as would the
use of a direct sales force by the Company in those markets. The Company has
written agreements with most of its more significant distributors, including the
Company's Japanese distributor.
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Over 40% of the Company's fiscal 1997 revenues were derived from export
sales to non-affiliated international distributors. No single distributor
accounted for more than 5% of the Company's net sales in fiscal 1997. However,
upon any receipt of reimbursement approval for the sale of the Company's stents
in Japan, the Company's Japanese distributor is expected to account for a
significantly increased portion of the Company's sales for the remainder of
fiscal 1998. The Company anticipates that substantially all of its revenues from
product sales will be derived from sales in foreign countries until at least
1998. International sales are subject to certain risks, including foreign
medical regulations, export/import licenses, foreign currency fluctuations,
economic or political instability, shipping delays and tariffs and other various
trade restrictions, all of which could have a significant impact on the
Company's ability to deliver products on a competitive and timely basis. As the
Company continues to develop an international sales force it expects to be more
directly subject to foreign currency fluctuations to the extent such direct
sales may be denominated in foreign currency. In the third fiscal quarter of
fiscal 1997, the Company incurred losses of approximately $550,000 due to
foreign currency fluctuations. The Company has since entered into certain
currency hedging transactions in the form of forward exchange contracts that the
Company believes should limit its exposure to such currency fluctuations. There
can be no assurance, however, that the Company will not incur losses due to
foreign currency fluctuations in the future.
The Company continually reviews its existing distributor arrangements.
Establishing a direct sales force requires significant time, management
resources and expenditures and may result in substantial additional costs to
eliminate existing distribution relationships or legal actions by former
distributors. The Company expects to establish a direct sales force in one or
more additional countries in the future where it believes such an approach will
benefit its competitive position. Failure by the Company to quickly and
cost-effectively establish effective sales forces in such additional countries
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has implemented a marketing and development program to
support its sales in foreign markets as well as to increase its visibility with
leading physicians. The Company has implemented a series of physician group
training sessions in Europe and Japan designed to increase exposure to the
Company's products and allow "hands on" demonstration and training. In addition,
the Company has developed a staff of clinical specialists to help coordinate
clinical trials, work directly in the training of physicians and certain aspects
of patient care, provide an increased presence at industry tradeshows and
produce marketing material targeted toward physicians. The Company anticipates
that, because of the diverse needs of the market for peripheral stents and some
of the other markets for which the Company is developing products, it will
develop separate clinical support and sales forces to take advantage of clinical
and technical expertise specific to those markets.
In the United States, the Company intends to market its coronary stent
products, if and when approved by the FDA for sale there, with a direct sales
organization. The Company has begun to develop a U.S. sales force, but
additional resources will be required to develop a sales force capable of
effectively commercializing the Company's products in the United States. The
Company also anticipates that its various sales forces, particularly its U.S.
sales force, will need to actively pursue approval of the Company as a qualified
supplier for hospital group purchasing organizations that negotiate contracts
with suppliers of medical products. Qualification with such group purchasing
organizations, which exist on both a national and regional level, has become
increasingly important in recent years in response to cost containment pressures
and health care reform. Failure to build an effective sales and marketing
organization in the United States could have a material adverse effect on the
Company's business, financial condition and results of operations.
Manufacturing
The Company performs most of the steps for fabrication of its stents
internally, including cutting, forming, connecting through proprietary
attachment processes and electropolishing high quality medical grade stainless
steel. To support this capability, the Company has designed manufacturing and
testing equipment that has enabled the development and execution of proprietary
processes not currently available from outside suppliers. For example, the
Company has its own balloon and catheter extrusion equipment, which allows for
rapid prototyping and adherence to strict design specifications and quality
standards in manufacturing.
In addition to the technological advantages of its stent designs, the
Company believes that its vertically integrated manufacturing and research and
development operations provide a competitive advantage in quickly developing and
bringing to market sophisticated stent and catheter products. This integration
allowed the Company to develop and bring to market several new products in
fiscal 1997, including the GFX and the Bridge renal and iliac peripheral stent
systems. The Company's manufacturing engineers participate in the product design
process so as to insure the Company's ability to achieve rapid and cost
effective manufacturing capabilities for its products. The Company is committed
to manufacturing internally as many of its products and components as
practicable and believes that such a process better enables it to set, achieve
and control high standards for the quality of its devices, reduce time to
market, manage costs, maintain control over proprietary information, and execute
improvements in design and manufacturing processes. In mid-1998, the Company
expects to move a significant portion of its United States
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manufacturing operations to a new facility currently under construction adjacent
to its headquarters facility in Santa Rosa, California. There can be no
assurance that the Company will be able to cost-effectively complete such
transition or that it will not result in a stoppage or reduction of production
capacity or efficiency, any of which events could have a material adverse effect
on the Company business, financial condition or results of operations.
The design, manufacture and assembly of certain proprietary components
and materials used in the Company's PTCA balloon angioplasty and stent delivery
catheters take place in the Company's facilities in Santa Rosa, California and
those of Arterial Vascular Engineering Canada, Inc. ("AVEC"), a subsidiary of
the Company located in Richmond, British Columbia. Though catheter components
are fabricated in both facilities, all of the Company's products sold
commercially are currently finished and packaged in the Canadian facility, with
the Company's finished medical devices then being shipped from Canada to
distributors outside of the United States. However, if and when the FDA approves
the commercial sale of the Company's coronary stent products in the United
States, the Company expects that it will supply the United States market
directly from its manufacturing facilities in Santa Rosa. The Company executes
all critical assembly operations in controlled environment rooms in which
bacterial and airborne particulate levels are monitored.
The Company has obtained the right to affix CE (Conformite Europeene)
marking to all of its coronary stent systems sold in all countries of the
European Economic Area and Switzerland. CE marking is a European symbol of
conformance to strict product manufacturing and quality system standards. As
part of the CE marking process, the Company also received ISO 9001/EN46001
certification with respect to the manufacturing of all of its coronary stent
products. With respect to the United States, the FDA is expected to inspect the
Company's manufacturing facilities and processes for compliance with the FDA's
Quality System Regulation before the FDA will approve the Company's PMA
application for commercial sale of its coronary stent systems in the United
States. Such facilities have not yet been inspected by the FDA. Furthermore,
additional manufacturing sites (such as the 130,000 square foot facility
currently under construction in Santa Rosa, California) and changes in
manufacturing processes will also be subject to regulatory inspection for
compliance with United States and international regulations. There can be no
assurance that the Company will be able to demonstrate or continue to
demonstrate the compliance of its existing or future facilities with any such
regulations. See "--Government Regulation."
The Company relies on some outside sources for catheter components and
from time to time the Company has experienced shortages of certain supplied
materials that have significantly affected its ability to produce enough product
to satisfy market demand. The Company currently relies upon a single supplier of
the medical grade stainless steel from which the Company's stents are machined.
In fiscal 1995, the Company experienced a shortage in acceptable medical-grade
stainless steel and was unable to supply products for a period of time. The
Company is continually reviewing its own capabilities and the capabilities of
other potential suppliers of medical grade stainless steel, although to date no
such other suppliers have been able to produce materials meeting the Company's
quality standards. The failure to obtain sufficient quantities of component
materials could have a material adverse effect on the Company's business,
financial condition and results of operations.
The anticipated commencement of commercial sales of the Company's
coronary stent systems in the United States, if FDA approval is received, is
expected to increase production requirements to a level not yet experienced by
the Company. Manufacturers often encounter difficulties in increasing
production, including problems involving production yields, adequate supplies of
components, quality control and assurance and shortages of qualified personnel.
In 1995, the Company experienced difficulties in producing sufficient volumes of
products to satisfy demand, due in part to lower production yields associated
with the commencement of large scale manufacturing of new products. Moreover,
the Company developed a significant short-term backlog during January 1997 in
connection with the scale-up of manufacturing of its GFX stent system. There can
be no assurance that the Company will be successful in scaling up its
manufacturing operations, or that it will not experience manufacturing
difficulties in the future. Difficulties experienced by the Company in
manufacturing scale-up could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company believes that its current manufacturing space will be
sufficient to serve its needs through at least early 1998. The Company has begun
to produce inventory for the short-term supply of the potential U.S. market, and
it has begun construction of a 130,000 square foot building adjacent to its
corporate headquarters in Santa Rosa, California, at an estimated cost of $20
million, which, when completed, will be largely devoted to manufacturing
activities. However, there can be no assurance that such new manufacturing
facility will be completed in time to allow the Company to adequately supply the
potentially significant demands of the U.S. market on a long-term basis, nor
that such new facility will pass regulatory inspection for compliance with
United States and international regulations.
Competition
Competition in the market for the treatment of cardiovascular disease
is intense and is expected to increase. The Company competes primarily with
Boston Scientific Corporation, C.R. Bard, Inc., Cook, Inc., Guidant Corporation,
Cordis (Johnson & Johnson), Medtronic, Inc. and Pfizer, Inc., among others, in
the development, production and marketing of stents and stent technology. The
Company believes that Cordis (Johnson & Johnson) is
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currently the worldwide market leader with a majority of the market for stent
devices. As of the date of this report, Cordis (Johnson & Johnson), Cook and
Medtronic have the only stents which have been approved by the FDA for sale in
the United States. In addition, Guidant submitted a PMA to the FDA for its stent
product in June 1997, while the Company's PMA was submitted in August 1997.
Earlier entrants in the market in a therapeutic area often obtain and maintain
significant market share relative to later entrants. Moreover, in many countries
in which the Company markets its products, neither pre-market approval nor
clinical studies are required prior to marketing a product. As a result,
competitive products have been and continue to be quickly introduced in these
markets. Many of the Company's competitors and potential competitors have
substantially greater name recognition and capital resources than does the
Company and also have greater resources and expertise in the areas of research
and development, obtaining regulatory approvals, manufacturing and marketing.
There can be no assurance that the Company's competitors will not succeed in
developing stents or stent systems, competing technologies or therapeutic drugs
that are more effective or more effectively marketed than products marketed by
the Company or that render the Company's technology obsolete. Additionally, even
if the Company's products provide performance comparable to competing products,
there can be no assurance that the Company will be able to obtain necessary
regulatory approvals or compete against competitors in terms of manufacturing,
marketing and sales.
The Company believes that the primary competitive factors in the market
for stent technology include product safety, quality, ease of use, clinical
performance (radial strength, flexibility, radiopacity, low thrombosis risk and
long term efficacy), delivery system characteristics (flexibility, reliability,
ease of use), price, customer service and availability of third party
reimbursement. In addition, the length of time required for products to be
developed and to receive regulatory approval is an important competitive factor.
The Company believes it competes favorably with respect to these factors,
although there can be no assurance that it will be able to continue to do so.
An additional competitive factor is the current healthcare environment.
Particularly in the United States, this environment has increasingly centered
around managed care organizations, group purchasing organizations, hospital
consolidations and other factors resulting in increased cost containment
pressures for medical procedures generally, including the less invasive
procedures for which the Company markets its products. Many of the Company's
competitors have a greater strategic mass and offer broader product lines in
minimally invasive procedures generally than does the Company, allowing them to
market their stent systems and PTCA balloon catheters to medical specialists as
part of a broad package of other needed minimally invasive medical devices.
There can be no assurance that the Company's competitors will not succeed in
developing more effective marketing programs than the Company in such an
environment.
The Company believes that the increasing number of devices in the
international stent market and the desire of companies to obtain market share
has resulted in increased price competition, particularly in the second and
third quarters of fiscal 1997, which has caused the Company to reduce prices on
its stent systems. Price reductions effected by the Company in response to
competitive pressure reduced net sales in the second quarter of fiscal 1997, but
were offset by increased unit sales in the third and fourth quarters of fiscal
1997. The Company expects such price competition to continue, particularly in
Germany. If the Company is forced to effect further price reductions, such
reductions would reduce net sales in future periods if not offset by increased
unit sales or other factors. Price reductions by the Company in response to
competitive pressure, particularly in Germany, could have a material adverse
affect on the Company's business, financial condition and results of operations.
In addition, the ability to use patents or other proprietary rights to
prevent sales by competitors is an important competitive tool in the medical
device industry. The Company believes that patents held by competitors may
restrict its ability to market its current products in the United States. See
"-- Patents and Proprietary Rights."
The stent market is characterized by rapid technical innovation.
Product development involves a high degree of risk and there can be no assurance
that the Company's competitors and potential competitors will not succeed in
developing and marketing technologies and products that are more effective than
those developed and marketed by the Company, or that would render the Company's
technology and products obsolete or noncompetitive. The medical indications that
can be treated by stents can also be treated by surgery, minimally invasive
bypass procedures, drugs, or other medical devices including stand alone balloon
catheters, atherectomy catheters and lasers, many of which are widely accepted
in the medical community. Although the use of stents is increasingly supported
by the professional community, there is no assurance that procedures using stent
technology will replace such established treatments or that clinical research
will continue to support the use of stents. Additionally, new surgical
procedures and medications could be developed that replace or reduce the
importance of current procedures that use the Company's products.
Patents and Proprietary Rights
The Company has filed U.S. and foreign patent applications to protect
its proprietary position in stents and stent delivery systems. The Company also
relies on trade secrets, technical know-how and technological innovation to
maintain its competitive position. The Company's policy is to protect and
enforce its patent and other intellectual property rights by appropriate action.
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The Company holds one issued United States patent, has received notices
of issuance on two of its United States patent applications and has several
United States patent applications pending. It also holds two Australian patents,
one European patent and has additional foreign patent applications filed. The
Company's issued United States patent relates to stent technology used in the
Company's current stent systems. The Company also has a license to make and sell
stents and balloon angioplasty catheters using technology covered by patents and
patent applications of a third party. The application for a stent patent which
resulted in the Company's only issued United States patent was acquired from
Endothelial Support Systems, Inc. (subsequently known as Endovascular Support
Systems, Inc.) ("ESS"). In June 1996, two former shareholders of ESS, each of
whom currently holds shares of Common Stock of the Company, filed an action
against the Company seeking, among other things, to rescind the transfer of such
technology from ESS and to transfer such patent to ESS. No assurance can be
given as to the outcome of any such litigation. Loss or impairment of the right
to produce products based on such patents could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Item 3. Legal Proceedings."
A number of medical device and other companies, universities and
research institutions have filed patent applications or have been issued patents
relating to catheters, stents and delivery systems and there has been
substantial litigation in this area. The Company's success will depend on its
products not infringing patents issued to competitors. The Company is aware that
a portion of the technology used in its current stent systems may, if
challenged, be determined to be in conflict with certain United States patents
held by competitors of the Company, which competitors are larger and have more
substantial resources than the Company. These competitors can be expected to
expend significant resources to attempt to enforce and/or defend the validity of
their patents. The validity, scope and enforceability of one such patent held by
a competitor was recently challenged in litigation not involving the Company.
The parties to that litigation settled their dispute privately before receiving
a court decision as to the validity, scope or enforceability of such patent.
Subsequently, the validity and enforceability of that patent has separately been
challenged in other litigation not involving the Company. In the event that such
litigation is resolved unfavorably from the Company's perspective, the Company
may be precluded from selling its current stent products in the United States
for the life of such patent.
In anticipation of receiving approval for sale of its products in the
United States, the Company is reviewing whether it may be necessary to modify
its current technology or develop new products to avoid infringement under such
United States patents. If the Company's products are determined to infringe and
it cannot obtain a license on commercially reasonable terms or modify its
current technology or develop new products to avoid infringement, such outcome
could require the Company to cease its commercial activities and sales of the
affected products in the United States and could have a material adverse effect
on the Company's business, financial condition and results of operations.
Modification of the Company's products or development of new products to avoid
infringement may require the Company to conduct additional clinical trials for
such new or modified products in connection with United States regulatory
approval and to revise its filings with the FDA or other regulatory agencies.
The Company is continually reviewing the scope of United States and
foreign patents and the status of any litigation with respect to patents of
interest of which it is aware. The question of infringement involves complex
legal and factual issues and is highly uncertain. There can be no assurance that
any conclusion reached by the Company regarding infringement will be consistent
with the resolution of such issue by a court. In the event the Company's
products are found to infringe patents held by competitors, there can be no
assurance that the Company will be able to successfully modify its products to
avoid infringement, or that any modified products will be commercially
successful. Failure in such event to either develop a commercially successful
alternative or to obtain a license to such patent on reasonable terms could have
a material adverse effect on the Company's business, financial condition and
results of operations. In any event, there can be no assurance that the Company
will not be obliged to defend itself in court against allegations of
infringement of third party patents. Patent litigation is very expensive and
could subject the Company to significant liabilities, require disputed rights to
be licensed from third parties or require the Company to cease selling its
products.
The validity and breadth of claims in medical technology patents
involve complex legal and factual questions and, therefore, may be highly
uncertain. No assurance can be given that any patents based on pending patent
applications or any future patent applications of the Company will be issued,
that the scope of any patent protection will exclude competitors or provide
competitive advantages to the Company, that any of the Company's patents or
patents to which it has licensed rights will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held or licensed by the Company. Furthermore, there
can be no assurance that others have not developed or will not develop similar
products, duplicate any of the Company's products or design around any patents
issued to or licensed by the Company or that may be issued in the future to the
Company. Since patent applications in the United States are maintained in
secrecy until patent issue, the Company also cannot be certain that others did
not first file applications for inventions covered by the Company's pending
patent applications, nor can the Company be certain that it will not infringe
any patents that may be issued to others on such applications.
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The Company relies upon trade secret protection for certain aspects of
its proprietary technology. The Company's policy is to have each employee and
consultant enter into a confidentiality agreement containing provisions
prohibiting the disclosure of confidential information to anyone outside the
Company and requiring disclosure to the Company of ideas, developments,
discoveries or inventions conceived during employment or service as a
consultant, and assignment to the Company of proprietary rights to such matters
related to the business and technology of the Company. There can be no
assurance, however, that these agreements will provide meaningful protection or
adequate remedies for the Company's trade secrets in the event of unauthorized
use or disclosure of such information or that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's trade secrets and proprietary know-how.
Government Regulation
International sales of medical devices are subject to regulatory
requirements in many countries. The regulatory review process required for
commercial sales varies from country to country. The products currently sold by
the Company are subject to pre-market approval in Belgium, Canada, Italy, Japan,
Norway, Spain and Sweden as well as to other regulatory requirements in these
and other countries. The Company received approvals to market its coronary stent
systems in Belgium, Italy, Norway and Sweden prior to or early in fiscal 1997.
The Company received such approval in Spain when it obtained the right to affix
CE marking to its stent systems in June 1997. Pre-market approvals from
particular countries within the European Economic Area (the 15 countries of the
European Union and Norway and Iceland) will not be required after the Company
has achieved compliance with the requirements of the Medical Devices Directive
(the "MDD") discussed below. Additionally, in June 1997, the Company's Japanese
distributor received approval for the sale in Japan of all the Company's
coronary stent systems to date; however, to date such distributor had not yet
received the related reimbursement approval there. It had earlier obtained such
approval for the Company's Peak, Nike and Elite PTCA balloon catheter systems.
The Company is also currently working with Canadian authorities regarding
approval of its stent products for sale in Canada. In certain countries, the
Company may also be subject to regulations governing clinical trials of its
products. The Company currently exports and sells its coronary stent systems and
its PTCA balloon catheters in over 40 countries outside of the United States,
with full or limited release of the Company's line of Bridge peripheral stents
and its LTX high pressure PTCA balloon catheter system currently in progress.
In fiscal 1997, the Company began taking an active role in the receipt
of pre-market approvals and compliance with clinical trial requirements in those
countries that require them, particularly in those countries where it has direct
sales operations. However, to some extent the Company continues to rely on
distributors in those countries where it continues to use distributors. The
Company's distributors have received pre-market approvals in those countries
that require them and in which the Company currently has commercial sales. There
can be no assurance that the Company will continue to be able to quickly and
cost-effectively establish and maintain regulatory compliance operations with
respect to those countries where it establishes direct sales operations. The
Company has in the past discovered instances of regulatory noncompliance by its
distributors, and has, in response, caused the applicable distributor to file
revised governmental notifications, ceased to sell commercially its products in
the applicable countries or otherwise acted so as to halt any ongoing
noncompliance in such countries. While the Company is not aware of any pending
or threatened governmental action against it in any country in which it has done
business, any enforcement action by regulatory authorities with respect to past
or any future regulatory noncompliance could have a material adverse effect on
the Company's business, financial condition and results of operations.
Generally, in order to continue selling its products within the
European Economic Area and Switzerland following June 14, 1998, the Company will
be required to achieve compliance with the requirements of the MDD and affix CE
marking on its products to attest to such compliance; the Company believes that
products which have already been delivered to distributors will be able to
continue to be sold by such distributors during a subsequent three-year
transition period. To achieve compliance, the Company's products must meet the
"Essential Requirements" of the MDD relating to safety and performance and the
Company must successfully undergo verification of its regulatory compliance
("conformity assessment") by a Notified Body selected by the Company. The
Company has selected TUV Product Service of Munich, Germany as its Notified
Body. The nature of such assessment depends on the regulatory class of the
product, and the Company's coronary stent products are currently in Class III,
the highest risk class, and therefore subject to the most rigorous controls.
In March 1997, the Company received ISO 9001/EN46001 certification from
its Notified Body with respect to the manufacturing of all of its coronary stent
products. This certification applies to the manufacturing operations in each of
the Company's Santa Rosa facilities and AVEC's facility in Canada. In June 1997,
the Company obtained the right to affix CE marking to all of its coronary stent
systems sold in all countries of the European Economic Area and Switzerland. The
Company will be subject to continued supervision by its Notified Body and will
be required to report any serious adverse incidents to the appropriate
authorities. The Company also will be required to comply with additional
national requirements that are beyond the scope of the MDD. With respect to its
Bridge line of peripheral stent systems, its LTX high pressure PTCA balloon
catheter system and any additional products not already cleared for CE marking,
the Company will need to comply with the CE marking requirements prior to June
14, 1998, or else it will
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be unable to sell its products in the European Economic Area or Switzerland
unless and until compliance is achieved. Failure to achieve such compliance
could have a material adverse effect upon the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to achieve or maintain compliance required for CE marking on all or
any of its products or that it will be able to timely and profitably produce its
products while complying with the requirements of the MDD and other regulatory
requirements.
In the United States, the Company is subject to extensive regulation of
medical devices by the FDA as well as state and local authorities, including the
California Department of Health Services. Generally, unless a medical device
manufacturer can establish to the FDA's satisfaction that a newly developed
device is "substantially equivalent" to a legally marketed device that does not
itself require pre-market approval, the Federal Food, Drug and Cosmetic Act (the
"FDC Act") requires that the manufacturer submit a PMA for the device and obtain
the FDA's approval of the PMA prior to marketing the device in the United
States. It is expected that all of the Company's coronary stent products will be
subject to the PMA process. The first step in the PMA approval process is
usually the submission to the FDA of the results of laboratory and pre-clinical
studies, which typically must be conducted in compliance with the FDA's
regulations governing Good Laboratory Practices, and a request for permission to
clinically evaluate the device in humans under an IDE. Initiation of the study
requires the approval of the FDA and of the institutional review board of the
hospital or clinic participating in the clinical trial and written informed
consent from all participating patients. Furthermore, FDA regulations subject
sponsors of IDEs to certain requirements including proper monitoring of clinical
investigations, selection of qualified investigators, recordkeeping, reporting
of unanticipated adverse device events and submission of periodic progress
reports. In addition, a sponsor is prohibited from promoting or commercializing
a device prior to PMA approval. The PMA must contain, among other things, the
results of the clinical trials, the results of all relevant bench tests,
laboratory and pre clinical studies, a complete description of the device and
its components, and a detailed description of the methods, facilities and
controls used for manufacture, including the method of sterilization. In
addition, the submission must include the proposed labeling, advertising
literature and physician training methods (if required). In general, data from
adequate and well-controlled independent, statistically significant clinical
trials must demonstrate the safety and effectiveness of the device in order to
obtain approval of the PMA.
After completion of the FDA's preliminary review, the submission is
ordinarily sent to an FDA-selected scientific advisory panel composed of
physicians and scientists with expertise in the particular field which (after
holding any public hearings it deems necessary) then issues a recommendation to
the FDA that may include conditions for approval. The FDA is not bound by the
recommendations of the advisory panel. Toward the end of the PMA review process,
the FDA will conduct an inspection of the manufacturer's facilities to ensure
that the facilities are in compliance with applicable quality system regulation
("QSR") requirements. If the FDA evaluations of both the PMA application and the
manufacturing facilities are favorable, the FDA will issue an approvable letter,
which usually contains a number of conditions which must be met in order to
secure final approval of the PMA. When those conditions have been fulfilled to
the satisfaction of the FDA, the agency will issue a PMA approval order,
authorizing commercial marketing of the device for certain indications. The
sponsor may not promote the device for uses not approved by the FDA. The FDA
also has the authority to impose certain post-approval requirements in a PMA
approval order, including post-approval surveillance studies further evaluating
the safety, efficacy and reliability of the device. Additional post-approval FDA
requirements include Medical Device Reporting (MDR) requirements and device
tracking requirements. Failure to comply with any post-approval requirements may
lead to withdrawal of FDA approval. The PMA review and approval process
generally takes more than a year to complete from the date of acceptance by the
FDA for filing, and may take substantially longer. In response to public
concerns, the FDA has recently made efforts to reduce the time required to clear
PMAs and PMA supplements, but review times for products such as the Company's
remain long and there can be no assurance that the Company's PMA will receive
any kind of expedited review. The FDA may also determine that additional
clinical trials are necessary, in which case the PMA may be delayed for several
years while additional clinical trials are conducted and submitted in an
amendment to the PMA. Certain modifications to medical devices require FDA
clearance, either under the IDE or in a PMA supplement. Such IDE and PMA
supplements relating to product modifications require the submission of the same
type of information required for an initial application, but because such
subsequent filings need only contain sufficient information to support the
change, they are generally more brief. The FDA generally does not use an
advisory panel review for PMA supplements.
In August 1997 the Company submitted a PMA to the FDA in connection
with its ongoing efforts to gain approval to begin commercial sales of certain
of its coronary stent systems in the United States. The PMA was based on a
661-patient, multi-center, randomized clinical study with the Company's Micro
Stent II device in the United States under an IDE. The study evaluated the
treatment of both de novo and restenotic lesions in native coronary arteries,
utilizing the Palmaz-Schatz(R) stent of Cordis (a Johnson & Johnson company) as
a control. The study had an elective indication for use and required follow-up,
utilizing a primary endpoint of clinically driven target site revascularization
at nine months and various secondary endpoints (including angiographic
restenosis). The data for preliminary six-month data, as presented in late
August 1997 by the principal investigator for the study, indicated that the
target site revascularization for the Micro Stent II at six months was
approximately 8.4% and was statistically equivalent to the results for the
Palmaz-Schatz(R) product. The Company included in supplemental registries to the
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<PAGE>
study patients with long lesions that were treated with the Micro Stent II XL as
well as patients treated with the GFX, and certain data relating to the GFX was
included in the August 1997 PMA submission. The Company has also commenced
clinical trials of the Company's single-operator stent delivery system and of
the Company's Peak PTCA balloon catheter system. Such systems were not, however,
included in the PMA submission made in August 1997. The Company does not expect
FDA approval of any of its stent systems for sale in the United States prior to
1998, and there can be no assurance when or if such approval will be obtained.
The Company has incurred, and expects to continue to incur, substantial clinical
research and other costs in connection with obtaining regulatory approvals for
its stent systems in the United States and other countries.
With respect to its commercial product sales, which currently occur
only outside of the United States, the Company's Santa Rosa facilities currently
manufacture only components (not finished devices) and the finished devices are
currently assembled in the AVEC facility. However, the Company anticipates that
it will supply the United States market, if and when the sale of its products
are approved by the FDA for sale there, directly from its manufacturing
facilities in Santa Rosa. Under current law, at such time as the Company
manufactures finished devices in the United States or imports or offers finished
devices for import into the United States (except as may be covered by an IDE),
the QSR requirements will apply and the Company expects that the FDA will
inspect the Company's manufacturing facilities on a regular basis for compliance
with applicable FDA regulations, including the QSR requirements. The QSR
requirements mandate that the Company manufacture its products and maintain its
documents in a prescribed manner with respect to manufacturing, testing and
control activities. The Company will also be required to comply with various FDA
requirements for labeling. Furthermore, in accordance with the FDA's MDR
requirements the Company will be required to provide information to the FDA on
death or serious injuries alleged to have been associated with the use of its
medical devices, as well as product malfunctions that would likely cause or
contribute to death or serious injury if the malfunction were to recur. In
addition, the FDA prohibits an approved device from being marketed for
unapproved applications. If the FDA believes that a company is not in compliance
with the law, it can institute proceedings to detain or seize products, issue a
recall, enjoin future violations and assess civil and criminal penalties against
the Company, its officers and its employees.
The Company currently exports to its Canadian subsidiary its stent
components, stent delivery system components and PTCA balloon catheter
components for final assembly and distribution. The Company believes that its
export of these components does not currently subject the Company to export
approval requirements under the FDC Act. However, the FDA could determine in the
future that the Company's export of components is not in compliance with the FDC
Act or the FDA's regulations or policies, or that such exports will be
prohibited in the future. Failure to comply with applicable FDA or other
applicable regulatory requirements can result in fines, injunction, civil
penalties, recall or seizure of products, total or partial suspension of
production and criminal prosecution. In addition, the manufacturing operations
at the facilities of AVEC are subject to Canadian medical device regulations. In
February 1996, a medical device inspector with the Canadian government inspected
AVEC's facility and determined that AVEC's operations were in compliance with
such regulations. However, Canadian authorities could determine in the future
that AVEC's operations are no longer in compliance with such regulations, and a
restriction or prohibition against the export by the Company of components for
final assembly in Canada or another country could require the Company to make
substantial changes to its manufacturing operations and have a material adverse
effect on the Company's business, financial condition and results of operations.
Third-Party Reimbursement
Sales volumes and prices of the Company's products are heavily
dependent on the availability of reimbursement from third party payors, such as
government and private insurance plans, health maintenance organizations and
other sources of reimbursement for health care costs ("Third-Party Payors").
Individuals are seldom, if ever, willing or able to pay directly for the costs
associated with the use of the Company's products. In foreign markets,
reimbursement is obtained from a variety of sources, including governmental
authorities, private health insurance plans and labor unions. The market in the
United States is moving rapidly in the direction of managed care, in which
Third-Party Payors attempt to shift financial risk to providers of health care
through mechanisms that, among other things, involve fixed payments for a
defined treatment or episode of care. In addition, Third-Party Payors attempt to
contain health care costs by influencing the clinical decision making of health
care providers in the direction of what is deemed to be "cost effective care."
Some Third-Party Payors may also contract on an exclusive basis with a single
provider of an ancillary service or product to obtain the lowest possible price
and then induce providers or insured individuals to deal only with the
contracted source by limiting routine insurance coverage to services or supplies
obtained from that source.
The federal Medicare program and other major Third-Party Payors in the
United States generally reimburse most acute, general care hospitals for
inpatient medical treatment, including all operating costs and all furnished
items or services, including devices such as the Company's, at a prospectively
fixed rate based on the diagnosis-related group ("DRG") that covers such
treatment, as established by the federal Health Care Financing Administration
(the "HCFA"). For interventional procedures, the fixed rate of reimbursement is
based on the procedure or procedures performed and is unrelated to the specific
devices used in that procedure. In addition, each interventional DRG payment is
calculated
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to reflect the costs of a specific procedure or type of procedure. Effective
October 1, 1996, the HCFA created a new procedure code for the implantation of a
coronary artery stent. In accordance with HCFA policy, that code was assigned to
the DRG category used for predecessor codes, not specifically designed for
coronary artery stents: DRG 112 -- "Percutaneous Cardiovascular Procedures." DRG
112 includes PTCA procedures. This DRG does not reflect the current costs
associated with the use of the Company's stent systems, and therefore would
likely result in under-reimbursement in the event that the Company were
permitted to sell such products to parties subject to such reimbursement level.
As of the date of this report, the HCFA was reevaluating this DRG assignment,
based on hospital resource data, as part of its annual DRG review process, and
considering whether to re-assign coronary stent implant procedures from DRG 112
to DRG 116 (a code which includes cardiac pacemaker implants) as of October 1,
1997. The Company believes that the reimbursement rate established in connection
with such new DRG code would be higher than that currently established under DRG
112 and that such rate would generally reflect the current costs associated with
the use of the Company's stent systems. There can be no assurance, however, that
the HCFA will re-assign coronary stent procedures to DRG 116 or that any new
reimbursement rates will sufficiently reflect the current or future costs
associated with the use of the Company's stent systems.
Third-Party Payors that do not use prospectively fixed payments
increasingly use other cost containment devices, such as having exclusive
suppliers or approved lists of devices deemed to be "cost effective," and
requiring discretionary, prior authorization for exceptions. In addition,
Third-Party Payors may deny reimbursement if they determine that the device used
in a treatment was not a covered device or was unnecessary, inappropriate,
experimental, used for a nonapproved indication or not cost effective. In other
situations, Third-Party Payor cost containment efforts may pose barriers to the
use of the Company's products if, for example, the products are not on a
Third-Party Payor's approved list of devices. Accordingly, providers must
determine that the clinical benefits of stents justify the additional cost or
the additional effort required to obtain prior authorization or coverage and the
uncertainty of actually obtaining such authorization or coverage. Reimbursement
of angioplasty procedures is covered under a DRG, but because the amount of
reimbursement is fixed by Medicare and some other Third-Party Payors, the amount
of potential profit relating to the procedure may be reduced by the additional
cost associated with use of the Company's stent systems.
While the Company believes that the use of stents may continue to be
cost effective for many medical indications, the Company believes that
reimbursement in the future is becoming subject to increased restrictions such
as those described above, both in the United States and in foreign markets. The
Company believes that the overall escalating cost of medical products and
services has led to and will continue to lead to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products offered by the Company. There can be no
assurance as to either United States or foreign markets that third party
reimbursement and coverage will be available and adequate, that current
reimbursement amounts will not be decreased in the future or that future
legislation, regulation or reimbursement policies of Third-Party Payors will not
otherwise adversely affect the demand for the Company's products or its ability
to sell its products on a profitable basis, particularly if the Company's stents
are more expensive than competing stents. The unavailability of Third-Party
Payor coverage or the inadequacy of reimbursement could have a material adverse
effect on the Company's business, financial condition and results of operations.
Product Liability and Insurance
The design, manufacture and marketing of medical devices of the types
produced by the Company entail an inherent risk of product liability and other
liability claims in the event that the use of the Company's products results in
personal injury claims. The Company's products are designed to be implanted in
the human body indefinitely, and are used in life-threatening situations where
there is a high risk of serious injury or death. From time to time the Company
has received inquiries regarding particular medical procedures in which its
products were used, but to date the Company has not experienced any product
liability claims. Any such claims could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
maintains liability insurance with coverage of $20 million both per occurrence
and in the aggregate. There can be no assurance that product liability or other
claims will not exceed such insurance coverage limits, or that such insurance
will continue to be available on commercially acceptable terms or at all.
Environmental Matters
The Company is subject to federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of certain hazardous and
potentially hazardous substances used in connection with the Company's
operations. Although the Company believes that it has complied with these laws
and regulations in all material respects and to date has not been required to
take any action to correct any noncompliance, there can be no assurance that the
Company will not be required to incur significant costs to comply with
environmental regulations in the future.
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Additional Business Risks
The Company has recently experienced rapid growth in its facilities and
the number of its employees, the number of products under development, the
number and amount of products manufactured and sold and the geographic scope of
its sales. In order to support increased levels of sales in the future and to
augment its long-term competitive position, the Company anticipates that it will
be required to make significant additional expenditures in manufacturing,
research and development, sales and marketing, and administration, both in
absolute dollars and as a percentage of sales. Among other things, the Company
expects to spend approximately $20 million on its new manufacturing facility
currently under construction in Santa Rosa, California. While the Company has
commenced the implementation of improved financial and management systems, is
increasing personnel and expects to increase substantially its efforts in these
areas, there can be no assurance that such systems and personnel will be
efficiently integrated or will be adequate for the management of the Company's
current or future operations, or that the Company will be able to manage such
growth effectively.
The Company has a limited operating history upon which an evaluation of
its prospects can be made. There can be no assurance that the Company will grow
or that the Company's future financial results will be comparable to its recent
results. Future operating results will depend on many factors, including the
demand for the Company's products, the level of product and price competition,
the levels of third-party reimbursement, the Company's success in expanding its
direct sales force and distribution channels and whether the Company can develop
and market new products and control costs. In addition, the Company's future
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered in establishing a new business in the medical device
industry, which is characterized by intense competition, rapid technological
change and significant regulation.
The Company's success is dependent upon acceptance of its stent systems
and PTCA balloon catheters by the medical community as reliable, safe and cost
effective. The Company has only limited clinical data regarding the efficacy of
the stent systems it currently sells. The Company and other producers of stents
are engaged in clinical studies of stent systems, including in some cases
comparison of the Company's stents to those of competitors. Clinical results are
inherently unpredictable and are influenced by the indications and endpoints
chosen and the procedures used. There can be no assurance that results from
clinical trials sponsored by the Company, its competitors, or a third party will
not delay or prevent regulatory approvals, reduce market demand for the
Company's products or that the Company's interpretation of data from its
clinical trials will be accepted by the FDA or other regulatory authorities or
the medical community at large.
In fiscal 1997, the vast majority of the Company's net sales were
derived from sales of its stent systems. In addition, over 40% of the Company's
net sales for fiscal 1997, and over 70% of its net sales for the fourth quarter
of fiscal 1997, were derived from products introduced during fiscal 1997. The
success of these products depends, among other things, on the nature of the
technological advances inherent in the products' design, clinical trial results,
market acceptance of the products, and the Company's receipt of regulatory
approvals for the products. There can be no assurance that clinical trial
results will be favorable, that required regulatory approvals will be obtained,
or that recently introduced products or future products will gain market
acceptance. Unfavorable clinical trial results, failure to obtain regulatory
approvals or failure to gain market acceptance for the Company's recently
introduced products or future products could have a material adverse effect on
the Company's business, financial condition and results of operations. The life
cycle of the Company's products is difficult to predict. To the extent demand
for any of the Company's products declines and the Company's newly introduced
products are not commercially accepted, there could be a material adverse effect
on the Company's business, financial condition and results of operations.
The medical device industry is characterized by rapid and significant
technological change. The Company's future success will depend in large part on
whether the Company can continue to respond to such changes, and whether it can
expand the indications and applications for which its products are used, through
the timely development and successful introduction of enhanced and new versions
of its stents systems and balloon catheters. Product research and development
will require substantial expenditures and has inherent risks, and there can be
no assurance that the Company will be successful in identifying products for
which demand exists, in developing products that have the characteristics
necessary to treat particular applications, or that any new product introduced
will receive regulatory approval or be commercially successful.
The Company's Amended and Restated Certificate of Incorporation and the
Delaware General Corporation Law contain certain provisions, including the
requirements of Section 203 of the Delaware General Corporation Law, that may
delay or prevent an attempt by a third party to acquire control of the Company.
In addition, in February 1997 the Company's Board of Directors adopted a
stockholder rights plan, commonly referred to as a "poison pill," that is
intended to deter hostile or coercive attempts to acquire the Company. The
stockholder rights plan enables stockholders to acquire shares of the Company's
common stock, or the common stock of an acquiror, at a substantial discount to
the public market price should any person or group acquire more than 15% of the
Company's common stock without the approval of the Board of Directors under
certain circumstances. The Company has reserved 1,000,000 shares of Series A
Junior Participating Preferred Stock for issuance in connection with the
stockholder rights plan. The Company is authorized to issue an additional
4,000,000 shares of preferred stock in one or more series with terms to be fixed
by
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the Board of Directors without a stockholder vote. While the Board of
Directors has no current intentions or plans to issue any preferred stock,
issuance of these shares could also be used as an anti-takeover device.
The Company is dependent upon a limited number of key management and
technical personnel. The loss of the services of one or more of such key
employees could have a material adverse effect on the Company's business. In
addition, the Company's success will be dependent on whether the Company can
attract and retain additional highly qualified sales, management, manufacturing
and research and development personnel. The Company faces intense competition in
its recruiting activities and there can be no assurance that the Company will be
able to attract and/or retain qualified personnel.
Employees
At August 31, 1997, the Company and its subsidiaries had 869 regular
and temporary employees worldwide of which 100 were involved in research and
development, 534 in manufacturing and manufacturing support, 77 in sales and
marketing, 118 in quality assurance and regulatory and clinical affairs and 40
in finance and administration. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that its relationship with
its employees is good.
<TABLE>
Executive Officers of the Company
The executive officers of the Company and their ages and positions as
of August 31, 1997 are as follows:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Bradly A. Jendersee 36 Chairman of the Board of Directors
Scott J. Solano 40 President, Chief Executive Officer and Director
Robert D. Lashinski 36 Vice President of Research and Development and Director
John D. Miller 40 Vice President of Finance, Chief Financial Officer, Treasurer and Director
W. Kevin Bedsole 37 Vice President of Worldwide Sales and Marketing
Gregory M. French 36 Vice President of Manufacturing
John A. Schiek 42 Vice President of Quality, Clinical & Regulatory Affairs
Creg W. Dance 44 Vice President of International Operations
Edward G. Schrader Jr. 45 Vice President of Health Care Strategies and Director of Business Development
Lawrence J. Fassler 37 General Counsel and Secretary
</TABLE>
Bradly A. Jendersee is a founder of the Company and has served as
Chairman of the Board of Directors since August 1993, as Chief Executive Officer
and President from August 1993 to August 1997, as Director of Research and
Development from inception to June 1992 and as Vice President of Operations from
June 1992 to August 1993. Prior to joining the Company, Mr. Jendersee served as
a Principal Research and Development Engineer at Schneider (USA) Inc., a medical
device manufacturer and subsidiary of Pfizer Inc. ("Schneider"), as the Research
and Development Engineering Manager of Angioplasty Products with Mallinckrodt
Medical, Inc., Cardiology Division, a medical device manufacturer, and with
Advanced Cardiovascular Systems, Inc., a subsidiary of Eli Lilly & Company
("ACS"). Mr.
Jendersee holds a B.S. degree from the University of Minnesota.
Scott J. Solano has served as President, Chief Executive Officer and a
Director of the Company since August 1997, after serving as the Company's Chief
Operating Officer since February 1997. Prior to joining the Company, Mr. Solano
served as Vice President of Research and Development at the Ohmeda medical
device division of The BOC Group from February 1995 to February 1997. Mr. Solano
also served as Vice President of New Product Development and Operations at the
interventional vascular division of Medtronic, Inc., a medical device
manufacturer, from September 1994 to February 1995, and as Director of New
Product Development there from March 1991 to September 1994. Mr. Solano holds a
B.S. degree from the State University of New York at Albany and a M.S. degree
from Rensselaer Polytechnic Institute.
Robert D. Lashinski has served as Vice President of Research and
Development since January 1995 after joining the Company in July 1992 as
Director of Research and Development. Mr. Lashinski has also served as a
director of the Company since August 1993. Mr. Lashinski was employed with
Schneider from October 1990 to June 1992 in both manufacturing and research and
development capacities. Prior to that time, Mr. Lashinski was a founder of
Danforth Biomedical Inc., which focuses on the research and development of
vascular therapeutic devices, and also served with ACS in the capacities of
Advanced Development Engineer and Manager of Equipment Design and Development
for its pilot and manufacturing facilities. Mr. Lashinski holds a B.S. degree
from the University of Minnesota.
John D. Miller, C.P.A., is a founder of the Company and has served as
Vice President of Finance since January 1996, Secretary from May 1995 to
December 1996 and Chief Financial Officer, Treasurer and a Director since the
Company's inception. Prior to his position as Vice President of Finance, Mr.
Miller served as Director of Finance from the Company's inception to January
1996. Mr. Miller performed his duties to the Company as a consultant from
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the Company's inception to January 1995 when he began devoting his full working
time to the Company. Mr. Miller was a partner in a New York accounting firm
until 1990, when he went into private practice. Mr. Miller holds a B.B.A. from
Hofstra University.
W. Kevin Bedsole has served as Vice President of Worldwide Sales and
Marketing since January 1996 and served as Director of Worldwide Sales and
Marketing from March 1993 to January 1996. Prior to joining the Company, Mr.
Bedsole spent seven years in interventional cardiology device sales with Cordis
Corporation, a medical device manufacturer. Mr. Bedsole holds a B.S. degree from
Florida State University.
Gregory M. French has served as Vice President of Manufacturing since
January 1996 and served as Director of Manufacturing from October 1992 to
January 1996. From January 1989 to October 1992, Mr. French managed Northern
California manufacturing operations for Peripheral Systems Group, a medical
device manufacturer and a division of Eli Lilly ("PSG"), and also managed PSG's
Advanced Development Group. Mr. French has also served with ACS. Mr. French
holds a B.S. degree from the California Polytechnic State University, San Luis
Obispo.
John A. Schiek has served as Vice President of Quality, Regulatory and
Clinical Affairs since January 1996 and served as Director of Regulatory Affairs
and Quality Assurance from February 1993 to January 1996. From January 1989 to
1992, Mr. Schiek was the quality and reliability engineering department head and
from 1992 to 1993 was a member of the executive staff in charge of Quality
Assurance and Regulatory Affairs at PSG. Mr. Schiek has also worked for ACS as a
Quality Engineering Specialist and has worked in the fields of quality
assurance, product development and program evaluation since 1979. Mr. Schiek
holds a B.A. degree from the University of Wisconsin Milwaukee and an M.S.
degree in Quality Assurance from San Jose State University.
Creg W. Dance has served as Vice President of International Operations
since December 1996 and previously served as Director of Canadian Operations at
AVEC since joining the Company in January 1995. From 1989 to January 1995, Mr.
Dance was Director of Research and Development and Clinical Research at Lake
Region Manufacturing Co., Inc., a medical device manufacturer. Mr. Dance has
also served as Manager of Research and Development and Manufacturing -- Catheter
Division with Medtronic, Inc., a medical device manufacturer, and as
Manufacturing Engineering Manager of ACS. Mr. Dance holds a B.S. degree from
Southern Illinois University.
Edward G. Schrader Jr. has served as Vice President of Health Care
Strategies and Director of Business Development since August 1997. Prior to
joining the Company, Mr. Schrader served from November 1992 to August 1997 as
Corporate Director Cardiology Clinical Markets at VHA, Inc., a national health
care alliance. From June 1990 to August 1992, Mr. Schrader served as corporate
sales manager at Menlo Care, Inc., a medical device manufacturer. Mr. Schrader
was also employed for seven years in various sales and operations management
roles at Mallinckrodt Medical, Inc. Mr. Schrader studied at Sam Houston State
University and at the University of Houston School of Business Management.
Lawrence J. Fassler has served as General Counsel since October 1996
and Secretary since December 1996. Prior to joining the Company, Mr. Fassler
served as an attorney with Cooley Godward LLP from August 1995 to October 1996
and with Shearman & Sterling from March 1991 to June 1995. Mr. Fassler holds a
B.S. degree from the University of California at Berkeley and a J.D./M.B.A.
degree from Columbia University.
ITEM 2. PROPERTIES
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements and risk factors in
this Item 2 include, without limitation, statements regarding the construction,
timing, operational sufficiency and regulatory compliance of existing or
proposed production facilities. All forward-looking statements in this document
are based on information available to the Company as of the date hereof, and the
Company assumes no obligation to update any such forward-looking statement. It
is important to note that the Company's actual results could differ materially
from those in such forward-looking statements. Additional forward-looking
statements and risk factors include those discussed in the sections entitled
"Item 1. Business," "Item 3. Legal Proceedings," "Item 5. Market for the
Registrant's Common Equity and Related Stockholders," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Item 8. Financial Statements and Supplementary Data," as well as those that may
be set forth in the reports filed by the Company from time to time on Forms 10-Q
and 8-K.
The Company owns a 65,000 square foot building in Santa Rosa,
California that serves as the Company's corporate headquarters and houses most
of its administrative offices, research laboratories and component manufacturing
facilities. The Company also leases or subleases approximately 59,000 square
feet in Santa Rosa, California, or nearby communities which house additional
administrative offices and manufacturing and warehouse facilities. Such leases
and subleases expire at various times from February 1999 to July 2002. The
Company's wholly owned subsidiary, AVEC, leases approximately 25,000 square feet
in Richmond, British Columbia, which house AVEC's offices and assembly facility.
The lease for such facility expires in August 2001. The Company's international
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<PAGE>
subsidiaries maintain international sales offices in France, Germany, the
Netherlands (to service the Benelux countries), Switzerland, and the United
Kingdom. The Company's European subsidiaries collectively lease administrative
offices and warehouse space of approximately 6,500 square feet under leases that
expire at various times between September 1997 and May 2006.
The Company believes that its facilities are adequate to meet its space
requirements through at least early 1998. The Company has begun construction of
a 130,000 square feet building adjacent to its corporate headquarters in Santa
Rosa, California, at an estimated cost of $20 million, which, when completed,
will be largely devoted to manufacturing activities. However, there can be no
assurance that such new manufacturing facility will be completed in time to
allow the Company to adequately supply the potentially significant demands of
the U.S. market on a long-term basis, nor that such new facility will pass
regulatory inspection for compliance with United States and international
regulations.
ITEM 3. LEGAL PROCEEDINGS
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements and risk factors in
this Item 3 include, without limitation, statements regarding the anticipated
outcome of litigation. All forward-looking statements in this document are based
on information available to the Company as of the date hereof, and the Company
assumes no obligation to update any such forward-looking statement. It is
important to note that the Company's actual results could differ materially from
those in such forward-looking statements. Additional forward-looking statements
and risk factors include those discussed in the sections entitled "Item 1.
Business," "Item 2. Properties," "Item 5. Market for the Registrant's Common
Equity and Related Stockholders," "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Item 8. Financial
Statements and Supplementary Data," as well as those that may be set forth in
the reports filed by the Company from time to time on Forms 10-Q and 8-K.
ESS Litigation. Effective as of October 1992, a subsidiary of the
Company purchased substantially all the assets of Endothelial Support Systems,
Inc. (subsequently known as Endovascular Support Systems, Inc.) ("ESS") in
consideration of certain royalty payments payable by the Company based on the
net sales of products using or adapted from such assets. The Company was
informed that the shareholders of ESS ratified the transaction on May 27, 1993.
The purchased assets included an application for a stent patent which resulted
in a patent owned by the Company. Following such asset purchase, the Company
between June 1993 and March 1995 purchased in several transactions 100% of the
shares of capital stock of ESS from its shareholders in consideration of shares
of common stock of the Company and, in certain instances, other consideration,
and ESS was merged into the Company. In June 1996, the Company received notice
of a lawsuit filed by Dr. Azam Anwar and Benito Hidalgo, each of whom is a
former shareholder of ESS (who together held approximately 48% of ESS's
outstanding shares of common stock) and each of whom currently holds shares of
common stock of the Company, in the District Court of Dallas County, Texas. The
suit names as defendants the Company, Bradly A. Jendersee and John D. Miller,
each a director, officer and principal stockholder of the Company, Dr. Simon H.
Stertzer, a director and principal stockholder of the Company, and Dr. Gerald
Dorros, a principal stockholder of the Company. In January 1997, the plaintiffs
filed an amended petition alleging common law fraud, negligent
misrepresentation, securities fraud pursuant to the Texas Securities Act, fraud
pursuant to the Texas Business and Commercial Code, control person liability,
aider and abetter liability of the individual defendants, civil conspiracy,
breach of fiduciary duty, and constructive fraud in connection with the
Company's acquisition of ESS and the Company's acquisition of shares of ESS
capital stock from the plaintiffs. The plaintiffs seek unspecified damages,
rescission of the Company's acquisition of the ESS assets and its subsequent
acquisition of the ESS stock, reconstitution of ESS, punitive damages, interest
and attorneys' fees and other relief. On February 10 and 12, 1997, the court
overruled defendants' special appearances and denied motions objecting to
jurisdiction, motions to dismiss based on forum non conveniens, and motions to
abate or stay the Texas proceedings. The defendants, including the Company, have
filed an answer denying plaintiff's claims, and also filed a counterclaim
against the plaintiffs. The counterclaim alleges claims against Mr. Hidalgo for
specific performance, breach of contract, breach of the implied covenant of good
faith and fair dealing, and declaratory relief based on comparative indemnity,
contribution and absence of fraud. The cross-complaint alleges claims against
Dr. Anwar for intentional and negligent interference with contract, equitable
estoppel and declaratory relief based on absence of fraud. The Company believes
it has meritorious defenses to the claims alleged by the plaintiffs, and that it
has meritorious claims against the plaintiffs, in the Texas action. However, no
assurance can be given as to the outcome of the action. The inability of the
Company to prevail in the action, including the loss or impairment of the right
to produce products based on the Company's issued patents, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company also received notice in August 1996 of a lawsuit filed by
Messrs. Anwar and Hidalgo in the Superior Court of Sonoma County, California,
which names the same defendants as in the Texas action and alleges claims for
securities fraud and unregistered securities under the California securities
laws, breach of fiduciary duty
19
<PAGE>
and fraud. The plaintiffs seek unspecified damages, rescission of the Company's
acquisition of the ESS assets and its subsequent acquisition of the ESS stock,
reconstitution of ESS and other relief. The defendants, including the Company,
have filed an answer denying plaintiff's claims, and also filed a
cross-complaint against the plaintiffs. The cross-complaint alleges claims
against Mr. Hidalgo for specific performance, breach of contract, breach of the
implied covenant of good faith and fair dealing, and declaratory relief based on
comparative indemnity, contribution and absence of fraud. The cross-complaint
alleges claims against Dr. Anwar for intentional and negligent interference with
contract, equitable estoppel and declaratory relief based on absence of fraud.
Mr. Hidalgo and Dr. Anwar have filed an answer generally denying the claims
contained in the cross-complaint.
On July 11, 1996, the Company, along with the individual defendants
named in the Texas and Sonoma County actions, filed two actions against Mr.
Hidalgo in the Superior Court of San Mateo County, California. The first action
alleges claims for specific performance, breach of contract, breach of the
implied covenant of good faith and fair dealing, and declaratory relief based on
indemnity. These claims arise out of a stock exchange agreement entered into
between Mr. Hidalgo and the Company, and out of Mr. Hidalgo's actions as a
director of ESS. The second action alleges claims for specific performance,
breach of contract, and breach of the implied covenant of good faith and fair
dealing. These claims arise out of a separation and release agreement entered
into between Mr.
Hidalgo and the Company.
On December 6, 1996, the Superior Court of Sonoma County, California,
pursuant to the stipulation of the parties, transferred the Sonoma County action
to the Superior Court of San Mateo County. On December 11, 1996, the Superior
Court of San Mateo County, pursuant to the stipulation of the parties,
consolidated all three pending California actions into a single action (the
"Consolidated Action"), and ordered that the pleadings from the Sonoma County
action shall be the operative pleadings in the Consolidated Action. A motion by
the Company and the individual defendants for summary judgment against Mr.
Hidalgo in the Consolidated Action was denied by the Superior Court of San Mateo
County on May 5, 1997 with respect to each of the plaintiffs' claims. The
Company believes that it has meritorious defenses to the claims alleged by the
plaintiffs, and that it has meritorious claims against the plaintiffs, in the
Consolidated Action. However, no assurance can be given as to the outcome of the
Consolidated Action. The inability of the Company to prevail in the Consolidated
Action, including the loss or impairment of the right to produce products based
on the Company's issued patents, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has agreed to indemnify each of the individuals named as
defendants in the lawsuits against the Company relating to the ESS transaction.
Claims of Terminated Distributors. In connection with the Company's
termination of certain distributor relationships, several of such distributors
have filed, or have threatened to file, claims against the Company with respect
to such terminations.
In November 1996, in connection with the Company's termination of its
distribution relationship with Alfatec-Medicor N.V. ("Alfatec-Medicor") and
Medicor Nederland B.V. ("Medicor Nederland") in Belgium and the Netherlands,
respectively, effective September 30, 1996, the Company received notice of a
lawsuit filed by Alfatec-Medicor in the Second Chamber of the Commercial Court
of Brussels, Belgium, alleging insufficient notice of termination of a
distribution agreement between the parties, promotion costs, personnel
restructuring claims and additional compensation. Alfatec-Medicor seeks
compensation of BF189,389,135 (approximately $5.0 million using current exchange
rates), of which BF30,000,000 (approximately $797,000) is sought as a
provisional payment. The Company has entered counterclaims for $257,000 in
unpaid accounts receivable and has requested from Alfatec-Medicor information
that would support its claims for indemnification, but has not yet received such
information. Following a hearing on April 18, 1997, the court postponed further
consideration of the matter until the parties have conducted an appropriate
exchange of information and prepared written pleadings. On February 20, 1997,
the Company commenced an action against Medicor Nederland before the Amsterdam
District Court for payment of $269,000 in unpaid accounts receivable. On July
23, 1997, Medicor Nederland filed a statement of defense and entered a
counterclaim for DG2,284,379.30 (approximately $1.1 million using current
exchange rates) on the basis of insufficient notice of termination of a
distribution agreement between the parties and unjust enrichment.
On August 19, 1996, in connection with the Company's termination of its
distribution relationship in Switzerland with Medicor AG, effective September
30, 1996, such distributor filed an action against the Company in the United
States District Court for the Northern District of California alleging breach of
written, oral and implied-in-fact contracts, inducement to breach an employment
contract with one of such distributor's employees, intentional interference with
contractual relations, intentional and negligent interference with prospective
economic advantage, misappropriation of trade secrets, and intentional and
negligent misrepresentation. On October 11, 1996, the court denied the
distributor's request for preliminary and temporary injunctive relief. On
January 30, 1997, the court entered an order dismissing the entire action on
forum non conveniens grounds. As part of the dismissal, AVE has agreed to submit
to the jurisdiction of the appropriate forum in Switzerland, waive any defense
of statute of limitations to any substantially similar claims made there, make
available witnesses and documents there and satisfy any judgment entered against
it there. On January 27, 1997, the Company filed an action in the debt
collection office of Cham,
20
<PAGE>
Switzerland against the distributor for $93,000 plus accrued interest in
connection with unpaid accounts receivable from the distributor relationship.
The distributor obtained a preliminary stay on the debt collection proceedings
and a hearing with respect to the Company's motion to lift such stay was held on
March 11, 1997. On July 14, 1997, the District Court of Zug denied the Company's
motion to lift such stay in a summary proceeding. The Company intends to file a
claim in ordinary court proceedings with the District Court of Zug to have the
stay lifted.
In connection with the Company's termination of its distribution
relationship in France with Medi Service, S.A.R.L./Fournitures Hospitalieres
S.A. effective September 30, 1996, the Company received notice from such
distributor that it had filed an action before the Tribunal de Grande Instance
of Mulhouse in France seeking compensation for breach of an alleged exclusive
distribution agreement for an indeterminate period between the parties. The
action included a claim for compensation equal to the total value of such
distributor's business, which the distributor valued at FF400,000,000
(approximately $65 million using current exchange rates). The Company
counterclaimed for unpaid accounts receivable of approximately $1.8 million and
for damages for abusive legal proceedings. On September 23, 1996, the Tribunal
rejected the distributor's claims for damages for unlawful termination as well
as the Company's counterclaim for abusive legal proceedings. The Tribunal
reserved judgement with respect to the repurchase of the distributor's inventory
of AVE products and the payment of unpaid accounts receivable sought by the
Company. The parties have submitted briefs on these issues and a procedural
hearing was held on March 10, 1997, at which the distributor filed an additional
brief. A procedural hearing was held on May 9, 1997, at which time the Company
added a counterclaim for unfair competition. On February 10, 1997, the
distributor filed an appeal of the Tribunal's decision of September 23, 1996,
with the Court of Appeals of Colmar, and the parties have exchanged briefs in
the appellate proceeding. A procedural hearing with respect to both the original
and the appellate proceedings is set for September 19, 1997.
With respect to each of the aforementioned distributors, the Company
has consulted with local counsel in the applicable country and believes that the
termination of each of the distributor relationships was lawful. The Company
understands that under the laws of certain countries, including Belgium and the
Netherlands, under certain circumstances, certain indemnities may be claimed by
distributors for insufficient notice of termination and/or goodwill
compensation. The Company intends to vigorously defend itself against pending
claims and any other claims that may be brought by such distributors and to
pursue claims for unpaid accounts receivable against such distributors. However,
no assurance can be given as to the outcome of any pending or threatened
litigation, and any successful claim for damages or injunctive relief by one or
more of such distributors, or the failure by the Company to succeed on its
claims against its former French distributor, could have a material adverse
effect on the Company's business, financial condition and results of operations.
From time to time, the Company is involved in other legal proceedings
arising in the ordinary course of its business. As of the date hereof, the
Company is not a party to any other legal proceedings with respect to which an
adverse outcome would, in management's opinion, have a material adverse effect
on the Company's business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
21
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements and risk factors in
this Item 5 include, without limitation, statements regarding factors that may
affect the market price of the Company's common stock. All forward-looking
statements in this document are based on information available to the Company as
of the date hereof, and the Company assumes no obligation to update any such
forward-looking statement. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
Additional forward-looking statements and risk factors include those discussed
in the sections entitled "Item 1. Business," "Item 2. Properties," "Item 3.
Legal Proceedings," "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Item 8. Financial Statements and
Supplementary Data," as well as those that may be set forth in the reports filed
by the Company from time to time on Forms 10-Q and 8-K.
Market Information
The Company's common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market ("Nasdaq") under the symbol "AVEI." The following table
sets forth the high and low closing sales prices for the Company's common stock
since public trading commenced on April 3, 1996, as furnished by Nasdaq. These
prices reflect prices between dealers, without retail markups, markdowns or
commissions, and may not represent actual transactions.
High Low
---- ---
Year ended June 30, 1997
Fourth Quarter $32.25 $12.25
Third Quarter $19.25 $11.50
Second Quarter $29.125 $ 9.00
First Quarter $36.25 $18.25
Year ended June 30, 1996
Fourth Quarter (beginning April 3) $49.50 $29.50
As of August 20, 1997, there were approximately 173 stockholders of
record (which number does not include the number of stockholders whose shares
are held of record by a brokerage house or clearing agency but does include such
brokerage house or clearing agency as one record holder). The Company believes
it has in excess of 5,000 beneficial holders of the Company's Common Stock. The
Company's stock price has been and may continue to be subject to significant
volatility, particularly on a quarterly basis. Any shortfall in revenue or
earnings from levels expected by securities analysts could have an immediate and
significant adverse effect on the trading price of the Company's Common Stock in
any given period. Additionally, the Company participates in a highly dynamic
industry, which has and may continue to result in significant volatility of the
price of the Company's common stock. Announcements of technological innovations
or new products by the Company or its competitors (including future competitors
with alternative technologies), release of reports by securities analysts,
developments or disputes concerning patents or proprietary rights, regulatory
developments, changes in regulatory or medical reimbursement policies, economic
and other external factors, as well as period-to-period fluctuations in the
Company's financial results, may have a significant impact on the market price
of the Common Stock. In addition, the securities markets have from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies or industries.
Dividend Policy
The Company has not historically paid cash dividends and currently
intends to retain any future earnings for use in its business for the
foreseeable future.
22
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
Fiscal Year Ended June 30,
----------------------------------------------------
1997 1996 1995 1994 1993
------- ------ ------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Net sales $79,420 $55,228 $17,141 $2,897 $ 15
Cost of sales
16,217 10,565 4,515 1,631 5
------- ------- ------- ------ ------
Gross profit 63,203 44,663 12,626 1,266 10
Operating expenses:
Research and development 11,422 6,480 987 594 398
Selling, general and administrative 22,510 8,437 1,807 870 973
Settlement costs
-- -- 425 358 --
------- ------- ------- ------ ------
Operating income (loss) 29,271 29,746 9,407 (556)
(1,361)
Interest and other income
4,190 1,460 237 21 549
------- ------- ------- ------ ------
Income (loss) before provision for income taxes 33,461 31,206 9,644 (535)
(812)
Provision for income taxes
11,711 10,766 3,004 3 2
------- ------- ------- ------ ------
Net income (loss)
$21,750 $20,440 $6,640 $ (538) $ (814)
======= ======= ======= ======= =======
Net income (loss) per share $0.69 $ 0.71 $ 0.24 $(0.03) $(0.04)
Shares used in per share calculation 31,644 28,260 27,194 21,290 20,045
June 30,
----------------------------------------------------
1997 1996 1995 1994 1993
------- ------ ------ ------ -------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents $25,036 $59,238 $2,533 $1,882 $82
Working capital 114,486 106,925 4,413 415 161
Total assets 147,979 122,157 13,089 3,086 706
Retained earnings (accumulated deficit) 46,902 25,152 4,712 (1,928) (1,390)
Total stockholders' equity 138,200 116,571 8,129 1,004 607
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements and risk factors in
this Item 7 include, without limitation, statements regarding the extent and
timing of new product introductions, competition, regulatory approvals,
expenditures and margin levels, and the establishment of direct sales forces in
targeted countries. All forward-looking statements in this document are based on
information available to the Company as of the date hereof, and the Company
assumes no obligation to update any such forward-looking statement. It is
important to note that the Company's actual results could differ materially from
those in such forward-looking statements. Additional forward-looking statements
risk factors include those discussed in the sections entitled "Item 1.
Business," "Item 2. Properties," "Item 3. Legal Proceedings," "Item 5. Market
for the Registrant's Common Equity and Related Stockholders," and "Item 8.
Financial Statements and Supplementary Data" as well as those that may be set
forth in the reports filed by the Company from time to time on Forms 10-Q and
8-K.
Overview
The Company is engaged in the design, development, manufacturing and
marketing of stent systems and PTCA balloon catheters designed to be utilized in
connection with less invasive treatment of atherosclerosis. The Company began
commercial sales of its PTCA balloon catheters in October 1993, its coronary
stent systems in October 1994 and its peripheral stent systems in December 1996.
The Company's products are currently commercially sold only outside of the
United States, primarily in Europe and Japan. In April 1996, the Company began
its first direct sales operation in Europe, and currently it has direct
operations in each of France, Germany, the Netherlands (to service the Benelux
countries), Switzerland and the United Kingdom. In Japan, the Company currently
sells only balloon catheters. In June 1997, the Company's Japanese distributor
received regulatory approval for the sale in Japan of the Company's coronary
stent systems; however, as of the date hereof, such distributor had not yet
received the related reimbursement approval. The Company does not expect
reimbursement approval in Japan prior to November 1997, and there can be no
assurance when or if such approval will be obtained.
In August 1997, the Company submitted a PMA to the FDA in connection
with its ongoing efforts to gain approval to begin commercial sales of its
coronary stent systems in the United States. Clinical studies under an IDE are
ongoing with certain of the Company's products. The Company does not expect FDA
approval of its stent systems
23
<PAGE>
for sale in the United States prior to 1998, and there can be no assurance when
or if such approval will be obtained. As a result, the Company expects
international sales to account for substantially all of its revenues until at
least 1998. The Company has incurred, and expects to continue to incur,
substantial clinical research and other costs in connection with obtaining
regulatory approvals for its stent systems in the United States and other
countries.
The Company has a limited history of operations. The increase in the
Company's sales to date has been due to greater demand for the Company's stent
systems and, to a lesser degree, its PTCA balloon catheter systems. The Company
believes that it is currently one of the leading providers of stent systems
internationally. In order to support increased levels of sales in the future and
to augment its long term competitive position, the Company anticipates that it
will be required to make continuing significant additional expenditures in
manufacturing, research and development (including clinical study and regulatory
costs), sales and marketing and administration, both in absolute dollars and as
a percentage of net sales. The Company has also experienced higher
administrative expenses resulting from its obligations as a public reporting
company.
Until April 1996, substantially all of the Company's sales were to
international distributors who resell products to health care providers. The
Company terminated its relationship with distributors in Germany and the United
Kingdom in April and May 1996, respectively, and in France, Switzerland, Belgium
and the Netherlands effective September 30, 1996. The Company believes that the
establishment and maintenance of direct sales forces in France, Germany, the
Netherlands (to service the Benelux countries), Switzerland and the United
Kingdom has resulted in increased revenues and market share in those
territories. The establishment and maintenance of direct sales forces has
required and will continue to require significant ongoing expenditures,
additional management resources and has resulted, and may continue to result, in
additional costs to eliminate existing distributor relationships (including
litigation by former distributors). See "Item 3. Legal Proceedings."
Generally, the Company manufactures and ships product shortly after the
receipt of orders, and it anticipates that it will do so in the future. The
Company developed a significant short-term backlog during January 1997 in
connection with the scale-up of manufacturing of its GFX stent product. This
backlog was significantly reduced during the same fiscal quarter in which it
arose. There can be no assurance, however, that the Company will be successful
in scaling up production of new products or that it will not experience
manufacturing difficulties in the future.
The Company anticipates that its results of operations may fluctuate for
the foreseeable future due to several factors, including variations in operating
expenses, the costs and the outcome of litigation, competition (including
pricing pressures), costs and the timing of establishing direct sales
operations, the timing of research and development expenses (including clinical
trial related expenditures), the timing of new product introductions or
transitions to new products, sales by distributors, the mix of sales among
distributors and the Company's direct sales force, timing of regulatory and
third party reimbursement approvals, the level of third-party reimbursement, the
Company's ability to manufacture its products efficiently, and seasonal factors
impacting the number of elective angioplasty procedures. In addition, the
Company's results of operations could be affected by the timing of orders from
distributors, changes in the Company's distributor network (including expenses
in connection with termination of former distributors), the ability of the
Company's distributors to effectively promote the Company's products and the
ability of the Company to quickly and cost-effectively establish or maintain and
manage an effective direct sales force in targeted countries. The Company's
limited operating history makes accurate prediction of future operating results
difficult or impossible. Although the Company has experienced growth in recent
years, there can be no assurance that, in the future, the Company will sustain
revenue growth or remain profitable on a quarterly or annual basis or that its
growth will be consistent with predictions made by securities analysts. The
Company has experienced, and may experience in one or more future quarters,
operating results that are below the expectations of public market analysts and
investors. In such event, the price of the Company's common stock has been, and
would likely be, materially and adversely affected.
Results of Operations - Years Ended June 30, 1997 and 1996
Net sales. For fiscal 1997, net sales increased to $79.4 million from
$55.2 million for fiscal 1996. The increase in net sales was due to significant
increases in sales of the Company's stent systems, particularly the GFX and the
Micro Stent II family of products. The GFX was released in certain countries
internationally in September 1996, and the Micro Stent II was released in
certain countries internationally in October 1995.
The Company anticipates that stent system sales will continue to
constitute the vast majority of total net sales. In the fourth quarter of fiscal
1996, the Company commenced direct sales operations in the United Kingdom and
Germany, and in the second quarter of fiscal 1997 the Company began selling
directly in France, Switzerland, Belgium and the Netherlands. All other
commercial sales made by the Company were through unaffiliated distributors. The
Company believes that the increasing number of devices in the international
stent market and the desire of companies to obtain market share has resulted in
increased price competition, particularly in the second and third quarters of
fiscal 1997, which has caused the Company to reduce prices on its stent systems.
Price reductions in response to competitive pressure reduced net sales in the
second quarter of fiscal 1997, but were offset by increased unit sales in the
third and fourth quarters of fiscal 1997. The Company expects such price
competition to continue, particularly in Germany. If
24
<PAGE>
the Company is forced to effect further price reductions, such reductions would
reduce net sales in future periods if not offset by increased unit sales or
other factors.
Cost of Sales. Cost of sales increased to $16.2 million in fiscal 1997
from $10.6 million in fiscal 1996, and increased as a percentage of net sales to
20% in fiscal 1997 from 19% in fiscal 1996. The increase in absolute dollars
during fiscal 1997 was primarily a result of the increased volume of products
sold and, to a lesser extent, the costs of additional manufacturing capacity and
personnel necessary to support increased sales volume. The increase as a
percentage of net sales during fiscal 1997 was primarily the result of lower
unit pricing compared to fiscal 1996.
The Company expects cost of sales to continue to increase in absolute
dollars as the Company increases the volume of products sold and adds additional
manufacturing capacity and personnel.
Research and Development. Research and development expenses, which
include clinical study and regulatory costs increased to $11.4 million in fiscal
1997 from $6.5 million in fiscal 1996 and increased as a percentage of net sales
to 14% in fiscal 1997 from 12% in fiscal 1996. A one-time charge of $2.6 million
was included in fiscal 1996 in connection with the termination of certain patent
royalty obligations. Excluding the effect of this charge, research and
development expenses increased from $3.9 million or 7% of net sales for fiscal
1996. The increase in absolute dollars and as a percentage of net sales during
fiscal 1997 was primarily due to the addition of research and development
personnel, increased levels of spending in connection with clinical studies
relating to the GFX, Micro Stent II and Micro Stent II XL systems and costs
incurred in connection with the development of additional products.
The Company expects research and development expenses to continue to
increase in absolute dollars as the Company increases clinical trial activities
and pursues development of next generation products.
Selling, General and Administrative. Selling, general and
administrative expenses increased in absolute dollars to $22.5 million in fiscal
1997 from $8.4 million in fiscal 1996, and increased as a percentage of net
sales to 28% in fiscal 1997 from 15% in fiscal 1996. A one-time charge of $2.6
million was included in fiscal 1996 in connection with the termination of
certain patent royalty obligations. Excluding the effect of this charge,
selling, general and administrative expenses increased from $5.8 million or 11%
of net sales for fiscal 1996. The increase during fiscal 1997 in absolute
dollars and as a percentage of sales primarily reflected additional costs of
marketing and other personnel necessary to support the Company's higher level of
operations, including the recent commencement of direct sales operations in
France, Germany, the Netherlands (to service the Benelux countries), Switzerland
and the United Kingdom. Additionally, the increase reflects increased legal
costs relating primarily to litigation with former shareholders of ESS, which
resulted in related legal expenses of $3.4 million during fiscal 1997.
The Company expects selling, general and administrative costs to
continue to increase in absolute dollars in the future primarily due to direct
sales operations in certain European countries, the increased level of sales and
product support, and increases in finance, legal and administrative costs in
connection with public company obligations and ESS and other ongoing litigation.
Substantially all of the Company's revenues are currently derived from
sales outside of the United States. As a result, the Company's financial results
will be affected by changes in foreign currency exchange rates to the extent
that such sales may be denominated in foreign currency. The Company is exposed
to fluctuations in currencies in western Europe. During the year ended June 30,
1997, the Company began a program of entering into derivative financial
instruments in the form of forward exchange contracts in order to reduce the
uncertainty of foreign exchange rate movement on inter-Company sales denominated
in foreign currencies. These contracts are designed to specifically hedge
against gains or losses incurred from foreign currency transactions and are not
used for trading or speculative purposes. Forward exchange contracts are used to
hedge material foreign currency-denominated receivables and payables. They are
generally settled between three to six months with gains or losses recorded in
"Selling, general and administrative" expenses to offset gains or losses on
foreign currency receivables and payables.
Interest and Other Income. The Company had interest and other income of
$4.2 million in fiscal 1997 compared to $1.5 million in fiscal 1996. The
increase was primarily due to additional interest income earned on the Company's
increased cash and cash equivalents and short-term investment balances arising
from the utilization of proceeds from the Company's initial public offering in
April 1996.
Provision for Income Taxes. The Company's provision for income taxes
was $11.7 million in fiscal 1997, compared to $10.8 million in fiscal 1996. The
increase in this provision during fiscal 1997 was a result of the Company's
higher earnings during fiscal 1997.
If the FDA approves the commercial sale of the Company's products in
the United States, the income tax rate on any such sales will likely be higher
than that currently enjoyed with respect to the Company's international sales,
which receive a benefit from the Company's foreign sales corporation.
Net Income. The Company had net income of $21.8 million for fiscal
1997, compared to $20.4 million for fiscal 1996 ($23.9 million if the one-time
charge is excluded).
25
<PAGE>
Results of Operations - Years Ended June 30, 1996 and 1995
Net sales. The Company's net sales for fiscal 1996 were $55.2 million,
an increase of $38.1 million or 223% from $17.1 million in fiscal 1995. The
increase in net sales principally reflected additional unit sales of the Micro
Stent family of products, particularly the Micro Stent II that was released in
certain countries internationally in October 1995. In the fourth quarter of
fiscal 1996, the Company commenced direct sales operations in the United Kingdom
and Germany.
Cost of sales. Cost of sales increased in absolute dollars to $10.6
million in fiscal 1996 from $4.5 million in fiscal 1995, and decreased as a
percentage of net sales to 19% in fiscal 1996 from 26% in fiscal 1995. The
increase in absolute dollars was primarily a result of the increase in the
volume of products sold and, to a lesser extent, the costs of additional
manufacturing capacity and personnel necessary to support increased sales
volume. The decrease as a percentage of net sales resulted primarily from the
leveraging of certain fixed overhead expenses across a higher base of sales and
as a result of the change in sales mix towards higher margin stent systems. The
direct sales operations that commenced in the fourth quarter of fiscal 1996 in
the United Kingdom and Germany did not significantly affect the gross margin.
Research and development. Research and development expenses increased
to $6.5 million in fiscal 1996 from $1.0 million in fiscal 1995. A one-time
charge of $2.6 million was recognized in fiscal 1996 in connection with the
termination of certain patent royalty obligations discussed below. Excluding the
effect of this charge, research and development expenses increased to $3.9
million or 7% of net sales for fiscal 1996 from $1.0 million or 6% of sales for
fiscal 1995. The increase was primarily due to the addition of research and
development personnel and the commencement of clinical trials with the Micro
Stent II following FDA clearance in November 1995.
Selling, general and administrative. Selling, general and
administrative expenses increased to $8.4 million in fiscal 1996 from $1.8
million in fiscal 1995. A one-time charge of $2.6 million was recognized in
fiscal 1996 in connection with the termination of certain patent royalty
obligations discussed below. Excluding the effect of this charge, selling,
general and administrative expenses increased in absolute dollars to $5.8
million or 11% of net sales for fiscal 1996 from $1.8 million or 11% of net
sales for fiscal 1995. The increase in absolute dollars primarily reflected
additional costs of marketing and other personnel necessary to support the
Company's increased level of operations and, to a lesser extent, expenses
resulting from the Company's status as a public company.
Interest and other income. Interest and other income increased to $1.5
million in fiscal 1996 from $0.2 million in fiscal 1995. The increase
principally reflects additional interest on increased cash balances and
short-term investments arising from the utilization of proceeds from the
Company's initial public offering in April 1996.
Provision for income taxes. The Company's effective tax rate for fiscal
1996 was 34.5% resulting in a provision for income taxes of $10.8 million,
compared to 31% resulting in a provision for income taxes of $3.0 million for
fiscal 1995. The rates reflect the benefits derived from the Company's foreign
sales corporation and appropriate research credits. The increase in the rate in
fiscal 1996 was primarily as a result of the Company's higher earnings in that
year and due to the utilization of net operating loss carryforwards in fiscal
1995.
Net income. The Company had net income of $20.4 million for fiscal 1996
compared to $6.6 million for fiscal 1995. Net income excluding the one-time
charge of $5.2 million discussed below, together with the associated income tax
benefits of $1.7 million, would have been $23.9 million for fiscal 1996.
In February 1996, the Company entered into certain amendments to the
employment agreements of Bradly A. Jendersee and Robert D. Lashinski, executive
officers and directors of the Company. Pursuant to such amendments, each of
Messrs. Jendersee and Lashinski agreed to the elimination of provisions
entitling them to certain royalties from the sale or license by the Company of
products covered by patents for which such persons were named as inventors. In
connection with such amendments, the Company agreed to pay to Messrs. Jendersee
and Lashinski an aggregate of approximately $3.9 million in cash (less an
estimated amount of approximately $2.6 million required to be withheld by the
Company on behalf of Messrs. Jendersee and Lashinski with respect to the
delivery of the cash and shares under applicable federal and state law) and
issue to them an aggregate of 110,000 shares of Common Stock (55,000 shares
each) at an attributed value of $12 per share. Such payments to Messrs.
Jendersee and Lashinski resulted in the recognition by the Company in the
quarter ending March 31, 1996, of a one-time charge of $5.2 million.
Liquidity and Capital Resources
Net cash used in operating activities was $20.0 million for fiscal
1997. Net cash used in operating activities in fiscal 1996 was $20.5 million,
and net cash provided by operating activities in fiscal 1995 was $3.3 million.
The net cash used in operating activities for fiscal 1997 included the Company's
purchase of short-term investments totaling $29.8 million. Excluding these
investments, the Company had net cash provided by operating activities of $9.9
million for fiscal 1997, principally arising as a result of positive net income
for the period. The net cash used in operating activities for fiscal 1996
included the Company's purchase of short-term investments totaling $31.1
million, and the net cash provided by operating activities in fiscal 1995 was a
result of positive net income from operations during such
26
<PAGE>
period. Cash, cash equivalents and short-term investments totaled $87.2 million
at June 30, 1997 as compared to $91.6 million at June 30, 1996. Working capital
increased to $114.5 million at June 30, 1997 as compared to $106.9 million at
June 30, 1996. Inventories increased to $7.3 million at June 30, 1997 from $3.4
million at June 30, 1996, primarily due to the commencement of direct sales
operations in France, Switzerland, Belgium and the Netherlands in the second
quarter of fiscal 1997. Included in accounts receivable at June 30, 1997 is
approximately $2.4 million was due from former distributors of the Company that
have threatened or commenced litigation in connection with the termination of
distribution relationships. The Company has commenced litigation against such
terminated distributors to collect such amounts. The Company expects accounts
receivable and inventories to increase in absolute dollar amounts as sales
increase.
In August 1997, the Company entered into a bank credit agreement for a
revolving credit facility of $20 million. Such revolving credit facility is
secured by certain of the Company's short-term investments and is due and
payable on August 31, 1998. The bank credit agreement contains no material
restrictive covenants. As of August 31, 1997, the Company had drawn down
approximately $1.0 million of such revolving credit facility.
The Company expects to incur substantial additional costs, including
costs relating to capital equipment and other costs associated with expansion of
the Company's manufacturing capabilities, increased sales and marketing
activities (including the establishment of direct sales forces in the United
States and internationally), and increased research and development expenditures
in connection with seeking regulatory approvals and conducting additional
clinical trials. Among other things, the Company expects to spend approximately
$20 million on a new manufacturing facility currently under construction in
Santa Rosa, California. The Company may require additional equity or debt
financing to address its working capital needs or to provide funding for capital
expenditures in the future. Furthermore, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. There can be no assurance that events in the future will
not require the Company to seek additional capital or, if so required, that it
will be available on terms acceptable to the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the Company's consolidated financial
statements as of June 30, 1997 and 1996 and for each of the three years in the
period ended June 30, 1997.
The statements contained in this Form 10-K that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements and risk factors in
this Item 8 include, without limitation, statements regarding factors that may
affect the Company's results of operations. All forward-looking statements in
this document are based on information available to the Company as of the date
hereof, and the Company assumes no obligation to update any such forward-looking
statement. It is important to note that the Company's actual results could
differ materially from those in such forward-looking statements. Additional
forward-looking statements and risk factors include those discussed in the
sections entitled "Item 1. Business," "Item 2. Properties," "Item 3. Legal
Proceedings," "Item 5. Market for the Registrant's Common Equity and Related
Stockholders," and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as those that may be set forth in
the reports filed by the Company from time to time on Forms 10-Q and 8-K.
<TABLE>
Quarterly Results of Operations
The following table sets forth certain unaudited consolidated results
of operations for the fiscal years ended June 30, 1997 and 1996. This
information has been derived from unaudited consolidated financial statements
that, in the opinion of management, reflect all adjustments (consisting only of
normally recurring adjustments) necessary to fairly present this information.
The results of operations for any quarter are not necessarily indicative of the
results to be expected for any future period.
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended June 30, 1997
Net sales $18,568 $18,228 $20,402 $22,222
Gross profit 15,657 14,495 15,806 17,245
Operating income 10,670 6,032 6,257 6,311
Net income 7,765 4,606 4,633 4,746
Net income per share 0.25 0.15 0.15 0.15
Year ended June 30, 1996
Net sales $10,572 $11,142 $15,589 $17,926
Gross profit 8,081 8,715 12,693 15,174
Operating income 7,087 7,246 4,625 10,787
Net income 4,756 4,871 3,101 7,712
Net income per share 0.17 0.18 0.11 0.25
</TABLE>
27
<PAGE>
Results of the Company's operations may fluctuate significantly from
quarter to quarter and will depend on numerous factors, including (i) variations
in operating expenses, (ii) the costs and outcome of litigation, (iii)
competition (including pricing pressures), (iv) the costs and the timing of
establishing direct sales operations, (v) the timing of research and development
expenses (including clinical trial related expenditures), (vi) the timing of new
product introductions or transitions to new products, (vii) the mix of sales
among distributors and the Company's direct sales force, (viii) the timing of
regulatory and third party reimbursement approvals, (ix) the level of third
party reimbursement, (x) the Company's ability to manufacture its products
efficiently, and (x) seasonal factors impacting the number of elective
angioplasty procedures. Announcements or expected announcements by the Company
or its competitors of new products or technologies could cause customers to
defer purchases of existing products of the Company and alter the mix of
products sold by the Company, which could materially adversely affect the
Company's business, financial condition and results of operations. There can be
no assurance that future products or product enhancements can be successfully
introduced or that such introductions will not adversely affect the demand for
existing products. Since the Company believes there are typically fewer elective
interventional procedures during the summer months due to vacation schedules of
patients and health care providers, especially in Europe, sales of the Company's
products may slow during the Company's first fiscal quarter of each year (the
quarter ending September 30). The Company expects that its quarterly operating
results will fluctuate in the future as a result of these and other factors. Due
to such quarterly fluctuations in operating results, quarter to quarter
comparisons of the Company's operating results are not necessarily meaningful
and should not be relied upon as indicators of likely future performance or
annual operating results.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors and the compliance of
certain reporting persons with Section 16(a) of the Securities Exchange Act of
1934 will be set forth under the caption "Election of Directors" and "Compliance
with the Reporting Requirements of Section 16(a)" in Company's proxy statement
for use in connection with the Annual Meeting of Stockholders to be held on
October 29, 1997 (the "1997 Proxy Statement") and is incorporated herein by
reference. The 1997 Proxy Statement will be filed with the Securities and
Exchange Commission within 120 days after the end of the Company's fiscal year.
Information regarding Company's executive officers is set forth in this
Form 10-K in Part I, Item 1.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference from the information set forth under the caption "Executive
Compensation" in the Company's 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Company's 1997
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference from the information set forth under the caption "Certain
Transactions" in the Company's 1997 Proxy Statement.
28
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
Page
<S> <C>
(1) Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors 34
Consolidated Balance Sheets at June 30, 1997 and 1996 35
Consolidated Statements of Operations for the three years ended June 30, 1997 36
Consolidated Statements of Stockholders' Equity for the three years ended June 30, 1997 37
Consolidated Statements of Cash Flows for the three years ended June 30, 1997 38
Notes to Consolidated Financial Statements 39
(2) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts 53
All other schedules are omitted because they are not required,
they are not applicable or the information is already included in
the financial statements or notes thereto.
(3) Exhibits
</TABLE>
Exhibit
Number Description of Document
------ -----------------------
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 No. 333-00824, filed February 1,
1996).
3.2 Amended By-laws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 No
333-00824, filed February 1, 1996).
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.3 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 No.
333-00824, filed March 7, 1996).
3.4 Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company (incorporated by reference to Exhibit
2 to the Company's Current Report on Form 8-K, filed February 27,
1997).
4.1 Specimen stock certificate (incorporated by reference to Exhibit 4.1
to Amendment No. 1 to the Company's Registration Statement on Form
S-1 No. 333-00824, filed March 7, 1996).
10.1* Company's 1996 Equity Incentive Plan.
10.2 Company's 1996 Non-Employee Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996, filed
September 26, 1996).
10.3* Company's 1997 Employee Stock Purchase Plan.
10.4 Distribution Agreement dated July 17, 1993 between the Company and
Century Medical, Inc. (incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form S-1 No. 333-00824,
filed February 1, 1996).
10.5 Importing and Distribution Agreement dated December 2, 1993 between
the Company and Japan Lifeline Co., Ltd (incorporated by reference
to Exhibit 10.4 to the Company's Registration Statement on Form S-1
No. 333-00824, filed February 1, 1996).
10.6 Termination Agreement dated August 11, 1995 between the Company and
Century Medical, Inc. (incorporated by reference to Exhibit 10.5 to
the Company's Registration Statement on Form S-1 No. 333-00824,
filed February 1, 1996).
10.7 International Distribution Agreement, dated as of January 22, 1997,
between Japan Lifeline Co., Ltd. and the Company (incorporated by
reference to Exhibit 10.26 to the Company's Quarterly Report on Form
10-Q for the period ended December 31, 1996, filed February 14,
1997). (Confidential treatment applies to certain information
contained in this document pursuant to an order of the Securities
and Exchange Commission. Such information has been omitted and filed
separately with the Securities and Exchange Commission pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934, as amended.)
10.8* Amendment, dated as of July 9, 1997, to the International
Distribution Agreement, dated as of January 22, 1997 between Japan
Lifeline Co., Ltd. and the Company. (Confidential treatment has been
requested for certain information contained in this document. Such
information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended).
29
<PAGE>
10.9* Amendment No. 2, dated as of August 22, 1997, to the International
Distribution Agreement dated as of January 22, 1997 between Japan
Lifeline Co., Ltd. and the Company. (Confidential treatment has been
requested for certain information contained in this document. Such
information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934, as amended).
10.10 Employment Agreement, dated as of March 17, 1995, between the
Company and Bradly A. Jendersee (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1 No.
333-00824, filed February 1, 1996).
10.11 Employment Agreement Amendment between the Company and Bradly A.
Jendersee (incorporated by reference to Exhibit 10.7 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 No.
333-00824, filed March 7, 1996).
10.12 Employment Agreement, dated as of March 17, 1995, between the
Company and Robert D. Lashinski (incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-1 No.
333-00824, filed February 1, 1996).
10.13 Employment Agreement Amendment between the Company and Robert D.
Lashinski (incorporated by reference to Exhibit 10.9 to Amendment
No. 1 to the Company's Registration Statement on Form S-1 No.
333-00824, filed March 7, 1996).
10.14 Employment Agreement, dated as of March 17, 1995, between the
Company and John D. Miller (incorporated by reference to Exhibit
10.10 to the Company's Registration Statement on Form S-1 No.
333-00824, filed February 1, 1996).
10.15 Employment Agreement, dated as of March 17, 1995, between the
Company and W. Kevin Bedsole (incorporated by reference to Exhibit
10.11 to the Company's Registration Statement on Form S-1 No.
333-00824, filed February 1, 1996).
10.16 Employment Agreement, dated as of March 17, 1995, between the
Company and Gregory M. French. (incorporated by reference to Exhibit
10.12 to the Company's Registration Statement on Form S-1 No.
333-00824, filed February 1, 1996).
10.17 Employment Agreement, dated as of March 17, 1995, between the
Company and John A. Schiek (incorporated by reference to Exhibit
10.13 to the Company's Registration Statement on Form S-1 No.
333-00824, filed February 1, 1996).
10.18 Employment Agreement, dated as of February 3, 1997, between the
Company and Scott J. Solano (incorporated by reference to Exhibit
10.28 to the Company's Quarterly Report on Form 10-Q for the period
ended December 31, 1996, filed February 14, 1997).
10.19 Form of Change in Control Option Vesting Acceleration Agreement
between the Company and Lawrence J. Fassler and certain other
employees (incorporated by reference to Exhibit 10.27 to the
Company's Quarterly Report on Form 10-Q for the period ended
December 31, 1996, filed February 14, 1997).
10.20 Form of Indemnification Agreement between the Company and each of
its executive officers and directors (incorporated by reference to
Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1996, filed November 13, 1996).
10.21 Rights Agreement, dated as of February 26, 1997, between the Company
and The First National Bank of Boston (incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-K, filed
February 27, 1997).
10.22 Stock Exchange Agreement, dated as of December 22, 1994, between the
Company and Benito Hidalgo (incorporated by reference to Exhibit
10.14 to the Company's Registration Statement on Form S-1 No.
333-00824, filed February 1, 1996).
10.23 Stock Exchange Agreement, dated as of March 27, 1995, between the
Company and Michael D. Bonneau (incorporated by reference to Exhibit
10.15 to the Company's Registration Statement on Form S-1 No.
333-00824, filed February 1, 1996).
10.24 Lease, dated August 5, 1996, and First Amendment thereto, between
Ruth Waltenspiel, Dixie Walker and the Company, concerning the
facilities at 5341, 5343, 5345 and 5347 Skylane Boulevard, Santa
Rosa, California (incorporated by reference to Exhibit 10.24 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996, filed November 13, 1996).
10.25 Second Amendment to Lease, dated May 5, 1997, to that certain Lease
dated August 5, 1996 between Dixie Walker, Ruth Waltenspiel and the
Company, as amended (incorporated by reference to Exhibit 10.30 to
the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 1997, filed May 15, 1997).
10.26* Lease, dated as of April 28, 1997, between Bruce and Sandra Rocco
and the Company concerning the facility at 5355 Skylane Boulevard,
Santa Rosa, California.
10.27* Sublease, dated as of June 30, 1997, between the Company and
Verticom, Inc. concerning the facility at 1201 Corporate Center
Parkway, Santa Rosa, California.
10.28* Lease, dated as of May 19, 1997, between the Company and SBR
Development concerning the facility at 7975 Cameron Center Drive,
Buildings 100 and 300, Santa Rosa, California.
30
<PAGE>
10.29* Lease, dated August 10, 1994, between Bentall Properties Ltd,
Westminster Management Corporation and Arterial Vascular Engineering
Canada, Inc., concerning the facility at 13155 Delf Place, Richmond,
British Columbia.
10.30* Addendum to Lease and Lease Amending Agreement, dated as of July 21,
1997, between Arterial Vascular Engineering Canada, Inc. and Bentall
Properties Ltd. concerning 13140 Delf Place Richmond, British
Columbia.
10.31* Business Loan Agreement, dated as of August 21, 1997, between the
Company and Bank of America National Trust Association.
11.1* Statement regarding calculation of net income (loss) per share.
16.1 Letter, dated March 5, 1996, from Anthony Capeci regarding change in
certifying accountant (incorporated by reference to Exhibit 16.1 to
Amendment No. 1 to the Company's Registration Statement on Form S-1
No. 333-00824, filed March 7, 1996).
16.2 Letter, dated May 10, 1996, from Coopers & Lybrand L.L.P. regarding
change in certifying accountant (incorporated by reference to
Exhibit 16.2 to the Company's Form 8-K, filed May 10, 1996).
21.1* Subsidiaries of the Company.
23.1* Consent of Ernst & Young LLP, Independent Auditors.
24.1* Power of Attorney (reference is made to the signature page of this
Form 10-K).
27* Financial Data Schedule
- ------------------
* Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1997.
(c) See Exhibits listed under Item 14(a)(3).
(d) The financial statement schedules required by this Item are listed
under Item 14(a)(2).
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ARTERIAL VASCULAR ENGINEERING, INC.
Date: September 12, 1997 /s/ Bradly A. Jendersee
-----------------------------
Bradly A. Jendersee
Chairman of the Board of Directors
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bradly A. Jendersee, Scott J. Solano and John D.
Miller, and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Report on Form 10-K, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that all said attorneys-in-fact and agents, or any of them or their
or his substitute or substituted, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Date: September 12, 1997 /s/ Bradly A. Jendersee
--------------------------------------------------
Bradly A. Jendersee
Chairman of the Board of Directors
(Principal Executive Officer)
Date: September 12, 1997 /s/ Scott J. Solano
--------------------------------------------------
Scott J. Solano
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: September 12, 1997 /s/ John D. Miller
--------------------------------------------------
John D. Miller
Vice President of Finance, Chief Financial Officer
Treasurer and Director
(Principal Financial and Accounting Officer)
Date: September 12, 1997 /s/ Robert D. Lashinski
--------------------------------------------------
Robert D. Lashinski
Vice President of Research and Development and
Director
Date: September 12, 1997 /s/ Dr. Simon H. Stertzer
--------------------------------------------------
Dr. Simon H. Stertzer
Director
Date: September 12, 1997 /s/ Dr. J. Irawan Sugeng
--------------------------------------------------
Dr. J. Irawan Sugeng
Director
Date: September 12, 1997 /s/ Craig E. Dauchy
--------------------------------------------------
Craig E. Dauchy
Director
32
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
with
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
33
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Arterial Vascular Engineering, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Arterial
Vascular Engineering, Inc. and Subsidiaries as of June 30, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Arterial Vascular Engineering, Inc. and Subsidiaries at June 30, 1997 and 1996,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended June 30, 1997, in conformity with general
accepted accounting principles.
ERNST & YOUNG LLP
Palo Alto, California
July 25, 1997, except as to the first
paragraph of Note 5 as to which the
date is August 21, 1997
34
<PAGE>
<TABLE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
June 30,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,036 $ 59,238
Short-term investments 62,192 32,354
Accounts receivable, net of allowance for doubtful accounts of $1,080
and $290 at June 30, 1997 and 1996
22,850 13,213
Inventories 7,302 3,352
Deferred income tax 2,413 2,016
Prepaid expenses and other current assets 4,472 2,338
------------- -------------
Total current assets 124,265 112,511
Deferred income tax 1,598 172
Property, plant and equipment, net 21,759 8,974
Purchased technology and other intangible assets, net 357 500
------------- -------------
Total assets $147,979 $122,157
============= =============
LIABILITIES
Current liabilities:
Accounts payable $ 4,035 $ 1,671
Accrued expenses 5,744 2,479
Income taxes payable - 1,436
------------- -------------
Total current liabilities 9,779 5,586
------------- -------------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY
Preferred Stock, $0.001 par value
Authorized: 5,000 shares
Issued and outstanding: None - -
Common Stock, $0.001 par value
Authorized: 100,000 shares
Issued and outstanding, including shares in treasury:
31,047 and 30,862 shares at June 30, 1997 and 1996 31 31
Additional paid-in capital 93,021 91,776
Notes receivable for common stock - (301)
Deferred compensation - (87)
Treasury Stock, at cost; 30 shares at June 30, 1997 (390) -
Cumulative translation adjustment (1,364) -
Retained earnings 46,902 25,152
------------- -------------
Total stockholders' equity 138,200 116,571
------------- -------------
Total liabilities and stockholders' equity $147,979 $122,157
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
35
<PAGE>
<TABLE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Year Ended June 30,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 79,420 $ 55,228 $ 17,141
Cost of sales 16,217 10,565 4,515
----------- ----------- -----------
Gross profit 63,203 44,663 12,626
----------- ----------- -----------
Operating expenses:
Research and development 11,422 6,480 987
Selling, general and administrative 22,510 8,437 1,807
Settlement costs - - 425
----------- ----------- -----------
Total operating expenses 33,932 14,917 3,219
----------- ----------- -----------
Operating income 29,271 29,746 9,407
Interest and other income 4,190 1,460 237
----------- ----------- -----------
Income before provision for income taxes 33,461 31,206 9,644
Provision for income taxes 11,711 10,766 3,004
---------- ---------- -----------
Net income $ 21,750 $ 20,440 $ 6,640
=========== =========== ===========
Net income per share $ 0.69 $ 0.71 $ 0.24
Shares used in per share calculation 31,644 28,260 27,194
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
36
<PAGE>
<TABLE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Notes Retained
Additional Receivable Cumulative Earnings
Common Stock Paid-in For Common Deferred Treasury Translation (Accumulated
------------------
Shares Amount Capital Stock Compensation Stock Adjustment Deficit) Total
-------- -------- ---------- ---------- ------------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, June
30, 1994 17,897 $ 18 $ 3,393 $ -- $ (479) $ -- $ -- $ (1,928) $ 1,004
Issuance of
common stock 110 -- 100 -- -- -- -- -- 100
Common stock
repurchased
and canceled (275) -- (300) -- -- -- -- -- (300)
Issuance of
common stock for
stock in
Endovascular
Support Systems,
Inc 511 1 463 -- -- -- -- -- 464
Issuance of
common stock for
notes receivable 3,438 3 3,123 (3,126) -- -- -- -- --
Deferred
compensation -- -- 91 -- (91) -- -- -- --
Cancellation of
deferred
compensation -- -- (50) -- 50 -- -- -- --
Amortization of
deferred
compensation -- -- -- -- 221 -- -- -- 221
Net income -- -- -- -- -- -- -- 6,640 6,640
-------- -------- ---------- ---------- ------------- --------- ---------- ------------ ----------
Balances, June
30, 1995 21,681 22 6,820 (3,126) (299) -- -- 4,712 8,129
Issuance of
common stock 110 -- 1,321 -- -- -- -- -- 1,321
Issuance of
common stock
upon exercise of
stock options 4,821 4 31 -- -- -- -- -- 35
Common stock
offering (Note
10) 4,250 5 81,310 -- -- -- -- -- 81,315
Amortization of
deferred
compensation -- -- -- -- 212 -- -- -- 212
Income tax
reduction
relating to
stock plans -- -- 2,294 -- -- -- -- -- 2,294
Repayment of
notes receivable -- -- -- 2,825 -- -- -- -- 2,825
Net income -- -- -- -- -- -- -- 20,440 20,440
-------- -------- ---------- ---------- ------------- --------- ---------- ------------ ----------
Balances, June
30, 1996 30,862 31 91,776 (301) (87) -- -- 25,152 116,571
Issuance of
common stock
upon exercise of
stock options 185 -- 204 -- -- -- -- -- 204
Treasury stock
purchased -- -- -- -- -- (390) -- -- (390)
Amortization of
deferred
compensation -- -- -- -- 87 -- -- -- 87
Income tax
reduction
relating to
stock plans -- -- 1,041 -- -- -- -- -- 1,041
Repayment of
notes receivable -- -- -- 301 -- -- -- -- 301
Translation
adjustment -- -- -- -- -- -- (1,364) -- (1,364)
Net income -- -- -- -- -- -- -- 21,750 21,750
-------- -------- ---------- ---------- ------------- ---------- --------- ---------- ----------
Balances, June
30, 1997 31,047 $ 31 $ 93,021 $ -- $ -- $ (390) $(1,364) $46,902 $ 138,200
======== ======== ========== ========== ============= ========== ========== =========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
37
<PAGE>
<TABLE>
ARTERIAL VASULAR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year Ended June 30,
---------------------------------------
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 21,750 $ 20,440 $ 6,640
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,706 817 274
Provision for doubtful accounts 804 186 100
Provision for obsolete inventory 317 261 60
Amortization of deferred compensation 87 212 221
Income tax reduction relating to stock plans 1,041 2,294 --
Deferred income taxes (1,823) (1,100) (1,088)
Changes in assets and liabilities:
Short-term investments (29,838) (31,054) --
Accounts receivable (11,348) (8,422) (4,713)
Inventories (4,912) (2,693) (795)
Prepaids and other current assets (1,904) (2,068) (204)
Accounts payable 2,405 1,319 13
Accrued liabilities 3,392 1,315 778
Customer deposits -- (1,405) 11
Income taxes payable (1,633) (603) 2,039
-------- -------- --------
Net cash provided by (used in) operating activities (19,956) (20,501) 3,336
-------- -------- --------
Cash flows from investing activities:
Proceeds (purchase) of investments -- 100 (1,400)
Acquisition of property, plant and equipment (14,379) (8,390) (977)
Acquisition of stock in Endovascular Support
Systems, Inc. -- -- (108)
-------- -------- --------
Net cash used in investing activities (14,379) (8,290) (2,485)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 204 82,671 100
Common stock repurchased -- -- (300)
Treasury stock purchased (390) -- --
Repayment of notes receivable 301 2,825 --
-------- -------- --------
Net cash provided by (used in) financing activities 115 85,496 (200)
-------- -------- --------
Effect of exchange rate changes on cash and cash equivalents 18 -- --
Net increase (decrease) in cash and cash equivalents (34,202) 56,705 651
Cash and cash equivalents, at beginning of year 59,238 2,533 1,882
-------- -------- --------
Cash and cash equivalents, at end of year $ 25,036 $ 59,238 $ 2,533
======== ======== ========
Supplemental cash flow information:
Income taxes paid $ 14,206 $ 10,175 $ 2,075
Supplemental disclosures of noncash investing and financing activities:
Issuance of common stock for stock in
Endovascular Support Systems, Inc. $ -- $ -- $ 464
Issuance of common stock for notes receivable $ -- $ -- $ 3,126
Transfer of available-for-sale investments to trading $ -- $ 1,300 $ --
<FN>
The accompanying notes are an integral part of these consolidated financial
statements
</FN>
</TABLE>
38
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
1. Formation and Business of the Company
Arterial Vascular Engineering, Inc., formerly Applied Vascular Engineering,
Inc., (the "Company") was incorporated in Delaware in July 1991 to address
the rapidly expanding market for angioplasty products. The Company designs,
develops, manufactures and markets a variety of highly specialized stent
systems and percutaneous transluminal coronary angioplasty ("PTCA") balloon
catheters. The Company's stents are used as arterial support devices in
connection with balloon angioplasty or other minimally invasive treatments
of atherosclerosis (the formation of deposits in the arteries) and to
prevent abrupt closure of vessels in higher-risk angioplasty procedures.
The Company commenced operations in 1991 and began marketing its PTCA
balloon catheters in October 1993, its coronary stent systems in October
1994, and its peripheral stent systems in December 1996. In April 1996, the
Company began its first direct sales operation in Europe, and currently it
has direct operations in each of France, Germany, the Netherlands (to
service the Benelux countries), Switzerland and the United Kingdom.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash and
cash equivalents are maintained with financial institutions in the United
States, Canada and Europe. Deposits in these banks may exceed the amount of
insurance provided on such deposits. These deposits may be redeemed upon
demand and, therefore, bear minimal risk. The Company has not experienced
any losses on its deposits of cash and cash equivalents.
Investments
The Company classifies all investments as trading securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities (SFAS No. 115)." Such
investments are recorded at market value and unrealized holding gains and
losses are reflected in earnings. Market value is determined by the most
recent traded price of the security at the balance sheet date. Net realized
gains or losses are determined on the specific identification cost method.
During the year ended June 30, 1996, the Company re-evaluated its
investment policies and reclassified all investments previously held as
available-for-sale to trading securities. The reclassification did not
result in any unrealized gains or losses being included in net income.
Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market value. Provisions are made in each year for the estimated
effects of excess and obsolete inventories. Actual excess and obsolete
inventories may differ from the Company's estimates and such differences
could be material to the consolidated financial statements.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization of property,
plant and equipment is computed using the straight-line method over the
estimated useful lives of the respective assets (three to forty years), or
over the shorter of the lease term or the estimated useful life of
leasehold improvements.
39
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies (continued)
Construction in progress consists of expenditures incurred for the
expansion of the Company's existing facilities. Depreciation commences as
these assets are placed in service.
Purchased Technology and Other Intangible Assets
Purchased technology is capitalized at cost and amortized on a
straight-line basis over its useful life estimated of five years.
Other intangible assets consist primarily of organization costs, and are
carried at cost less accumulated amortization. Costs are amortized over the
estimated useful lives of the related assets. At June 30, 1997, other
intangible assets were fully amortized.
Research and Development
Research and development costs are expensed as incurred.
Revenue Recognition
The Company recognizes revenue upon shipment of product to customers
provided there is no conditional payment upon sale by the customer to other
third parties and provided there is no right of return on unsold
merchandise.
Income Taxes
Income taxes are accounted for under the asset and liability method of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes (SFAS No. 109)." Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates in effect for the year
in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to
the amounts expected to be realized.
Foreign Currency Translation
The assets and liabilities, capital accounts and revenue and expense
accounts of the Company's foreign subsidiaries have been translated using
the exchange rates at the balance sheet date, historical exchange rates,
and the weighted average exchange rates for the period, respectively.
Adjustments arising from the translation of assets and liabilities held
outside the United States are recorded as a component of stockholders'
equity.
Net Income Per Share
Net income per share is computed using the weighted average number of
common and common stock equivalent shares, when dilutive, outstanding
during the period. Common equivalent shares comprise stock options using
the treasury stock method. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, common and common equivalent shares
issued by the Company at prices below the initial public offering price
during the twelve-month period prior to the offering have been included in
the calculation as if they were outstanding for all periods presented prior
to the offering date (using the treasury stock method and the initial
public offering price).
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share (SFAS No. 128)," which is effective for both
interim and annual financial statements for periods ended after December
15, 1997. The Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary (or basic) earnings per share, the
dilutive effect of stock options will be excluded. The impact is expected
to result in an increase in primary earnings per share for the years ended
June 30, 1996 and 1997. The impact of Statement 128 on the calculation of
fully diluted earnings per share for these periods is not expected to be
material.
Stock Split
On January 26, 1996 the Company effected a 5.5-for-1 common stock split in
connection with the public offering of its stock. All common stock data in
the accompanying consolidated financial statements has been retroactively
adjusted to reflect the stock split.
40
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation (SFAS 123)", effective for fiscal 1997. Relevant disclosures
are presented in note 10 "Stockholders' Equity." Accordingly the Company
continues to account for stock-based compensation using the intrinsic value
method as permitted under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees (APB 25)."
3. Acquisition of Endovascular Support Systems, Inc.
In October 1992, Proprietary Extrusion Technologies, Inc. (PET), a wholly
owned subsidiary of the Company, acquired the patent rights to Endovascular
Support Systems, Inc.'s ("ESS") stent products in exchange for royalties
between 5% and 12% of PET's worldwide stent sales for the remaining life of
the ESS stent patent.
In June 1993, the Company acquired a 15% interest in ESS in exchange for
110,000 shares of the Company's common stock valued at $40,000. In a series
of transactions initiated in 1994 and completed in March 1995, the Company
acquired all of the remaining shares of ESS for $108,000 and an additional
511,000 shares of the Company's common stock at a fair market value of
$464,000. The acquisition was accounted for as a purchase transaction and
the results of the operations of ESS were included with those of the
Company after March 1995, the date the acquisition was consummated. At the
acquisition date, ESS had net liabilities of $38,000. The acquisition
terminated PET's obligations to ESS under a royalty agreement on stent
sales. ESS's shares were canceled in April 1995 and the remaining assets
and liabilities of ESS were transferred to the Company.
Purchased completed technology of $650,000 was recorded at March 1995, and
is being amortized over a period of five years. At June 30, 1997,
accumulated amortization totaled $293,000.
4. Settlement of Litigation
In July 1995, the Company settled a legal proceeding in which the plaintiff
alleged the Company breached a joint venture agreement. Under the terms of
the settlement agreement, the Company paid the plaintiff $425,000 in full
and final settlement. The Company had established a provision for $425,000
at June 30, 1995.
5. Financial Instruments
Revolving Credit Agreement
In August 1997, the Company signed a revolving credit agreement with a
financial institution under which the Company may borrow up to $20 million
for the construction of new manufacturing facilities at its headquarters in
Santa Rosa, California. The credit facility is secured by certain of the
Company's short-term investments. The credit facility terminates on August
31, 1998, at which time the Company is required to repay the total borrowed
amount. The interest rate on the revolving credit agreement is LIBOR plus
one-half of one percent.
Foreign Currency Instruments
Substantially all of the Company's revenues are currently derived from
sales outside of the United States. As a result, the Company's financial
results will be affected by changes in foreign currency exchange rates to
the extent that such sales may be denominated in foreign currency. The
Company is exposed to fluctuations in currencies in western Europe.
During the year ended June 30, 1997, the Company began a program of
entering into derivative financial instruments in the form of forward
exchange contracts ("forwards") in order to reduce the uncertainty of
foreign exchange rate movement on inter-company sales denominated in
foreign currencies. These contracts are designed to specifically hedge
against gains or losses incurred from foreign currency transactions and are
not used for trading or speculative purposes. The Company has established a
control environment that includes policies and procedures for risk
assessment and the approval, reporting and monitoring of foreign currency
hedging activities. Forwards are used to hedge material foreign currency
denominated receivables and payables. They are generally settled between
three to six months with gains or losses recorded in "Selling, general and
administrative" expenses, to offset gains or losses on foreign currency
receivables and payables.
41
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Inventories
Inventories comprise (in thousands):
June 30,
----------------------
1997 1996
---------- ----------
Raw materials $ 925 $ 456
Work in process 3,044 1,211
Finished goods 3,333 1,685
---------- ----------
$ 7,302 $ 3,352
========== ==========
7. Property, Plant and Equipment
Property, plant and equipment comprise (in thousands):
June 30,
----------------------
1997 1996
---------- ----------
Land $ 2,891 $ 1,909
Buildings 8,590 3,616
Manufacturing equipment 5,486 2,226
Computers and equipment 2,218 824
Furniture and fixtures 1,737 490
Leasehold improvements 872 768
---------- ----------
21,794 9,833
Less accumulated depreciation
and amortization (2,575) (1,053)
----------- ---------
19,219 8,780
Construction in progress 2,540 194
---------- ----------
$ 21,759 $ 8,974
========== ==========
8. Accrued Expenses
Accrued expenses comprise (in thousands):
June 30,
----------------------
1997 1996
---------- ----------
Accrued payroll and related benefits $ 2,261 $ 861
Accrued professional and other fees 1,089 617
Accrued clinical trial costs 432 213
Value added tax 1,160 393
Other accrued expenses 802 395
--------- ----------
$ 5,744 $ 2,479
========== ==========
42
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Commitments and Contingencies
Commitments
The Company leases its facilities under operating lease agreements expiring
in 1997 through 2006. Total rent expense under all operating leases was
$139,000, $369,000 and $898,000 for the years ended June 30, 1995, 1996 and
1997, respectively. In addition, the Company leases vehicles for certain of
its European staff.
The future minimum annual lease payments as of June 30, 1997 under
operating leases are as follows:
Year Ending June 30, (In thousands)
--------------------
1998 $ 1,223
1999 1,145
2000 762
2001 459
2002 169
Thereafter 344
----------
$ 4,102
==========
The Company has entered into a contract to build new manufacturing
facilities at its headquarters in Santa Rosa, California. The total cost of
construction is expected to be approximately $20 million (see Note 5 -
Financial Instruments). Additionally, the Company has commitments under
various other construction contracts totaling $2 million.
Contingencies
ESS Litigation. Effective as of October 1992, a subsidiary of the Company
purchased substantially all the assets of Endothelial Support Systems, Inc.
(subsequently known as Endovascular Support Systems, Inc.) ("ESS") in
consideration of certain royalty payments payable by the Company based on
the net sales of products using or adapted from such assets. The Company
was informed that the shareholders of ESS ratified the transaction on May
27, 1993. The purchased assets included an application for a stent patent
which resulted in a patent owned by the Company. Following such asset
purchase, the Company between June 1993 and March 1995 purchased in several
transactions 100% of the shares of capital stock of ESS from its
shareholders in consideration of shares of common stock of the Company and,
in certain instances, other consideration, and ESS was merged into the
Company. In June 1996, the Company received notice of a lawsuit filed by
Dr. Azam Anwar and Benito Hidalgo, each of whom is a former shareholder of
ESS (who together held approximately 48% of ESS's outstanding shares of
common stock) and each of whom currently holds shares of common stock of
the Company, in the District Court of Dallas County, Texas. The suit names
as defendants the Company, Bradly A. Jendersee and John D. Miller, each a
director, officer and principal stockholder of the Company, Dr. Simon H.
Stertzer, a director and principal stockholder of the Company, and Dr.
Gerald Dorros, a principal stockholder of the Company. In January 1997, the
plaintiffs filed an amended petition alleging common law fraud, negligent
misrepresentation, securities fraud pursuant to the Texas Securities Act,
fraud pursuant to the Texas Business and Commercial Code, control person
liability, aider and abetter liability of the individual defendants, civil
conspiracy, breach of fiduciary duty, and constructive fraud in connection
with the Company's acquisition of ESS and the Company's acquisition of
shares of ESS capital stock from the plaintiffs. The plaintiffs seek
unspecified damages, rescission of the Company's acquisition of the ESS
assets and its subsequent acquisition of the ESS stock, reconstitution of
ESS, punitive damages, interest and attorneys' fees and other relief. On
February 10 and 12, 1997, the court overruled defendants' special
appearances and denied motions objecting to jurisdiction, motions to
dismiss based on forum non conveniens, and motions to abate or stay the
Texas proceedings. The defendants, including the Company, have filed an
answer denying plaintiff's claims, and also filed a counterclaim against
the plaintiffs. The counterclaim alleges claims against Mr. Hidalgo for
specific performance, breach of contract, breach of the implied covenant of
good faith and fair dealing, and declaratory relief based on comparative
indemnity, contribution and absence of fraud. The cross-complaint alleges
claims against Dr. Anwar for intentional and negligent interference with
contract, equitable estoppel and declaratory relief based on absence of
fraud. The Company believes it has meritorious defenses to the claims
alleged by the plaintiffs, and that it has meritorious claims against the
plaintiffs, in the Texas action. However, no assurance can be given as to
the outcome of the action. The inability of the Company to prevail in the
action, including the loss or impairment of the right to produce products
based on the Company's issued patents, could have a material adverse effect
on the Company's business, financial condition and results of operations.
43
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Commitments and Contingencies (continued)
The Company also received notice in August 1996 of a lawsuit filed by
Messrs. Anwar and Hidalgo in the Superior Court of Sonoma County,
California, which names the same defendants as in the Texas action and
alleges claims for securities fraud and unregistered securities under the
California securities laws, breach of fiduciary duty and fraud. The
plaintiffs seek unspecified damages, rescission of the Company's
acquisition of the ESS assets and its subsequent acquisition of the ESS
stock, reconstitution of ESS and other relief. The defendants, including
the Company, have filed an answer denying plaintiff's claims, and also
filed a cross-complaint against the plaintiffs. The cross-complaint alleges
claims against Mr. Hidalgo for specific performance, breach of contract,
breach of the implied covenant of good faith and fair dealing, and
declaratory relief based on comparative indemnity, contribution and absence
of fraud. The cross-complaint alleges claims against Dr. Anwar for
intentional and negligent interference with contract, equitable estoppel
and declaratory relief based on absence of fraud. Mr. Hidalgo and Dr. Anwar
have filed an answer generally denying the claims contained in the
cross-complaint.
On July 11, 1996, the Company, along with the individual defendants named
in the Texas and Sonoma County actions, filed two actions against Mr.
Hidalgo in the Superior Court of San Mateo County, California. The first
action alleges claims for specific performance, breach of contract, breach
of the implied covenant of good faith and fair dealing, and declaratory
relief based on indemnity. These claims arise out of a stock exchange
agreement entered into between Mr. Hidalgo and the Company, and out of Mr.
Hidalgo's actions as a director of ESS. The second action alleges claims
for specific performance, breach of contract, and breach of the implied
covenant of good faith and fair dealing. These claims arise out of a
separation and release agreement entered into between Mr. Hidalgo and the
Company.
On December 6, 1996, the Superior Court of Sonoma County, California,
pursuant to the stipulation of the parties, transferred the Sonoma County
action to the Superior Court of San Mateo County. On December 11, 1996, the
Superior Court of San Mateo County, pursuant to the stipulation of the
parties, consolidated all three pending California actions into a single
action (the "Consolidated Action"), and ordered that the pleadings from the
Sonoma County action shall be the operative pleadings in the Consolidated
Action. A motion by the Company and the individual defendants for summary
judgment against Mr. Hidalgo in the Consolidated Action was denied by the
Superior Court of San Mateo County on May 5, 1997 with respect to each of
the plaintiffs' claims. The Company believes that it has meritorious
defenses to the claims alleged by the plaintiffs, and that it has
meritorious claims against the plaintiffs, in the Consolidated Action.
However, no assurance can be given as to the outcome of the Consolidated
Action. The inability of the Company to prevail in the Consolidated Action,
including the loss or impairment of the right to produce products based on
the Company's issued patents, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has agreed to indemnify each of the individuals named as
defendants in the lawsuits against the Company relating to the ESS
transaction.
Claims of Terminated Distributors. In connection with the Company's
termination of certain distributor relationships, several of such
distributors have filed, or have threatened to file, claims against the
Company with respect to such terminations.
In November 1996, in connection with the Company's termination of its
distribution relationship with Alfatec-Medicor N.V. ("Alfatec-Medicor") and
Medicor Nederland B.V. ("Medicor Nederland") in Belgium and the
Netherlands, respectively, effective September 30, 1996, the Company
received notice of a lawsuit filed by Alfatec-Medicor in the Second Chamber
of the Commercial Court of Brussels, Belgium, alleging insufficient notice
of termination of a distribution agreement between the parties, promotion
costs, personnel restructuring claims and additional compensation.
Alfatec-Medicor seeks compensation of BF189,389,135 (approximately $5.0
million using current exchange rates), of which BF30,000,000 (approximately
$797,000) is sought as a provisional payment. The Company has entered
counterclaims for $257,000 in unpaid accounts receivable and has requested
from Alfatec-Medicor information that would support its claims for
indemnification, but has not yet received such information. Following a
hearing on April 18, 1997, the court postponed further consideration of the
matter until the parties have conducted an appropriate exchange of
information and prepared written pleadings. On February 20, 1997, the
Company commenced an action against Medicor Nederland before the Amsterdam
District Court for payment of $269,000 in unpaid accounts receivable. On
July 23, 1997, Medicor Nederland filed a statement of defense and entered a
counterclaim for DG2,284,379.30 (approximately $1.1 million using current
exchange rates) on the basis of insufficient notice of termination of a
distribution agreement between the parties and unjust enrichment.
44
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Commitments and Contingencies (continued)
On August 19, 1996, in connection with the Company's termination of its
distribution relationship in Switzerland with Medicor AG, effective
September 30, 1996, such distributor filed an action against the Company in
the United States District Court for the Northern District of California
alleging breach of written, oral and implied-in-fact contracts, inducement
to breach an employment contract with one of such distributor's employees,
intentional interference with contractual relations, intentional and
negligent interference with prospective economic advantage,
misappropriation of trade secrets, and intentional and negligent
misrepresentation. On October 11, 1996, the court denied the distributor's
request for preliminary and temporary injunctive relief. On January 30,
1997, the court entered an order dismissing the entire action on forum non
conveniens grounds. As part of the dismissal, AVE has agreed to submit to
the jurisdiction of the appropriate forum in Switzerland, waive any defense
of statute of limitations to any substantially similar claims made there,
make available witnesses and documents there and satisfy any judgment
entered against it there. On January 27, 1997, the Company filed an action
in the debt collection office of Cham, Switzerland against the distributor
for $93,000 plus accrued interest in connection with unpaid accounts
receivable from the distributor relationship. The distributor obtained a
preliminary stay on the debt collection proceedings and a hearing with
respect to the Company's motion to lift such stay was held on March 11,
1997. On July 14, 1997, the District Court of Zug denied the Company's
motion to lift such stay in a summary proceeding. The Company intends to
file a claim in ordinary court proceedings with the District Court of Zug
to have the stay lifted.
In connection with the Company's termination of its distribution
relationship in France with Medi Service, S.A.R.L./Fournitures
Hospitalieres S.A. effective September 30, 1996, the Company received
notice from such distributor that it had filed an action before the
Tribunal de Grande Instance of Mulhouse in France seeking compensation for
breach of an alleged exclusive distribution agreement for an indeterminate
period between the parties. The action included a claim for compensation
equal to the total value of such distributor's business, which the
distributor valued at FF400,000,000 (approximately $65 million using
current exchange rates). The Company counterclaimed for unpaid accounts
receivable of approximately $1.8 million and for damages for abusive legal
proceedings. On September 23, 1996, the Tribunal rejected the distributor's
claims for damages for unlawful termination as well as the Company's
counterclaim for abusive legal proceedings. The Tribunal reserved judgement
with respect to the repurchase of the distributor's inventory of AVE
products and the payment of unpaid accounts receivable sought by the
Company. The parties have submitted briefs on these issues and a procedural
hearing was held on March 10, 1997, at which the distributor filed an
additional brief. A procedural hearing was held on May 9, 1997, at which
time the Company added a counterclaim for unfair competition. On February
10, 1997, the distributor filed an appeal of the Tribunal's decision of
September 23, 1996, with the Court of Appeals of Colmar, and the parties
have exchanged briefs in the appellate proceeding. A procedural hearing
with respect to both the original and the appellate proceedings is set for
September 19, 1997.
With respect to each of the aforementioned distributors, the Company has
consulted with local counsel in the applicable country and believes that
the termination of each of the distributor relationships was lawful. The
Company understands that under the laws of certain countries, including
Belgium and the Netherlands, under certain circumstances, certain
indemnities may be claimed by distributors for insufficient notice of
termination and/or goodwill compensation. The Company intends to vigorously
defend itself against pending claims and any other claims that may be
brought by such distributors and to pursue claims for unpaid accounts
receivable against such distributors. However, no assurance can be given as
to the outcome of any pending or threatened litigation, and any successful
claim for damages or injunctive relief by one or more of such distributors,
or the failure by the Company to succeed on its claims against its former
French distributor, could have a material adverse effect on the Company's
business, financial condition and results of operations.
From time to time, the Company is involved in other legal proceedings
arising in the ordinary course of its business. As of the date hereof, the
Company is not a party to any other legal proceedings with respect to which
an adverse outcome would, in management's opinion, have a material adverse
effect on the Company's business, financial condition or results of
operations.
45
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stockholders' Equity
Common and Preferred Stock
During the year ended June 30, 1995, the Company entered into a Restricted
Stock Purchase Agreement with certain directors and other individuals. A
total of 3,438,000 shares were issued at fair market value under this
agreement at $0.9091 per share. All purchases of stock were financed by
issuance of notes accumulating interest at 8% per annum until repaid. The
notes were fully repaid as at June 30, 1997. All shares are subject to
repurchase by the Company pursuant to vesting over periods ranging from one
to five years or upon termination of employment. At June 30, 1997,
1,346,000 shares were subject to repurchase.
In January 1996, the Board of Directors approved the Company's Amended and
Restated Certificate of Incorporation increasing the authorized capital
stock of the Company to 50,500,000 and reducing the par value of the
capital stock to $0.001 from $0.01.
In February 1996, the Company amended its Certificate of Incorporation to
increase the authorized capital stock of the Company to 105,000,000 shares.
One hundred million (100,000,000) shares are designated common stock with a
par value of $0.001, and five million (5,000,000) shares are designated
preferred stock with a par value of $0.001.
In April 1996, the Company completed an initial public offering and issued
4,250,000 shares of common stock, raising net proceeds of approximately $81
million.
In February 1997 the Company's Board of Directors adopted a stockholder
rights plan, commonly referred to as a "poison pill," that is intended to
deter hostile or coercive attempts to acquire the Company. The stockholder
rights plan enables stockholders to acquire shares of the Company's common
stock, or the common stock of an acquiror, at a substantial discount to the
public market price should any person or group acquire more than 15% of the
Company's common stock without the approval of the Board of Directors under
certain circumstances. The Company has reserved 1,000,000 shares of Series
A Junior Participating Preferred Stock for issuance in connection with the
stockholder rights plan. The Company is authorized to issue an additional
4,000,000 shares of preferred stock in one or more series with terms to be
fixed by the Board of Directors without a stockholder vote.
Stock Repurchase Program
During the first quarter of fiscal 1997, the Board of Directors authorized
a stock repurchase program pursuant to which the Company may repurchase
shares of its common stock with an aggregate value of up to $10 million.
The repurchases may be made from time to time on the open market at
prevailing market prices or in negotiated transactions off the market.
Although the Company does not currently intend to repurchase a significant
number of additional shares under the repurchase program, the program will
continue until discontinued by the Board of Directors. The Company has
used, and plans to use, existing cash balances to finance any repurchases.
The Company may use the repurchased shares to offset grants under its
employee equity incentive plan. As of June 30, 1997, the Company had
repurchased 30,000 shares of its common stock at an aggregate cost of
$390,000.
Stock Option Plans
From 1991 to 1996, the Board of Directors granted non-statutory stock
options allowing employees, directors, and consultants of the Company to
purchase shares of the Company's common stock. Stock option grants were
awarded at the discretion of the Board of Directors and generally vest over
a period of three years from the date of the grant, and unexercised options
expire upon termination of employment with the Company or after the
expiration of five years from the date of the grant. No shares of common
stock under stock options granted from 1991 to 1996 are subject to
repurchase.
46
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stockholders' Equity (continued)
In January 1996, the Company adopted the 1996 Equity Incentive Plan (the
"Incentive Plan") under which 800,000 shares of common stock are reserved
for issuance upon exercise of options granted to employees, officers and
consultants of the Company. In December 1996, the Company's stockholders
approved an increase in the number of shares of common stock reserved for
issue under the Incentive Plan from 800,000 to 1,500,000. If any stock
award granted under the Incentive Plan or any stock option granted pursuant
to the Company's previous stock option program shall for any reason expire
or otherwise terminate, in whole or in part, without having been exercised
in full, the stock not acquired shall revert to and again become issuable
under the Incentive Plan. Options granted to employees and consultants
after January 1996 are made under the terms of the Incentive Plan. The
Incentive Plan is administered by the Board of Directors or a committee
appointed by the Board, which determines recipients and types of awards to
be granted, including the exercise price, number of shares subject to the
award and the exercisability thereof. The terms of stock options granted
under the Incentive Plan generally may not exceed 10 years. Restricted
stock purchase awards granted under the Incentive Plan may be granted
pursuant to a repurchase option in favor of the Company in accordance with
a service vesting schedule determined by the Board. Stock bonuses may be
awarded in consideration for past services without a purchase payment.
Stock appreciation rights authorized for issuance under the Incentive Plan
may be tandem stock appreciation rights, concurrent stock appreciation
rights or independent stock appreciation rights. To date, no restricted
stock awards, stock bonuses or stock appreciation rights have been granted
under the Incentive Plan. The Incentive Plan will terminate in January
2006, unless terminated sooner by the Board of Directors.
In January 1996, the Board adopted the 1996 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of common stock to non-employee directors of the
Company. The Directors' Plan is administered by the Board, unless the Board
delegates administration to a committee of disinterested directors. The
maximum number of shares of common stock that may be issued pursuant to
options granted under the Directors' Plan is 100,000. Pursuant to the terms
of the Directors' Plan, each person serving as a director of the Company
and who is not an employee of the Company (a "Non-Employee Director"), on
the effective date of the initial public offering of the Company's common
stock, or the date such person first becomes a Non-Employee Director will
then automatically be granted an option to purchase 12,000 shares of common
stock. Each person elected to be a Non-Employee Director and who is not
elected for the first time, on the date of the annual meeting of
stockholders each year following the first registration of any equity
securities under Section 12 of the Securities Exchange Act of 1934, will
automatically be granted an option to purchase 4,000 shares of common
stock. Options under the Directors' Plan will vest in 4 annual installments
commencing on the date one year after the grant date. The exercise price of
options granted under the Directors' Plan must equal or exceed the fair
market value of the common stock granted on the date of grant. No option
granted under the Directors' Plan may be exercised after the expiration of
ten years from the date it was granted.
<TABLE>
A summary of the activity under the stock option plans is as follows (in
thousands, except per share data):
<CAPTION>
Reserved Optioned Shares
but -------------------------------------------------------
Unoptioned Number of Price Weighted Average
Shares Shares Per Share Exercise Price
----------- ---------- ------------------ -----------------
<S> <C> <C> <C> <C>
Balances, June 30, 1994 2,296 5,695 $0.0018-$0.0661 $0.0065
Options granted (182) 182 $0.0018-$0.9091 $0.7716
Options canceled 55 (55) $0.0018 $0.0018
----------- ----------
Balances, June 30, 1995 2,169 5,822 $0.0018-$0.9091 $0.0304
Shares reserved - 1996 plans 900 - - -
1991 option plan termination (2,008) - - -
Options exercised - (4,821) $0.0018-$0.0661 $0.0073
Options granted (491) 491 $9.5455-$35.125 $17.148
Options canceled 40 (40) $0.0018-$35.125 $ 9.162
----------- ----------
Balances, June 30, 1996 610 1,452 $0.0018-$35.125 $ 5.653
Shares reserved - 1996 plan 700 - - -
Options exercised - (185) $0.0018-$21.000 $ 1.075
Options granted (898) 898 $13.000-$24.875 $15.187
Options canceled 74 (74) $13.000-$22.750 $16.515
----------- ----------
Balances, June 30, 1997 486 2,091 $0.0018-$35.125 $ 9.764
=========== ==========
</TABLE>
47
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stockholders' Equity (continued)
The following table summarizes information concerning outstanding and
exercisable options as of June 30, 1997 (in thousands, except per share
data):
Options Outstanding Options Exercisable
---------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise of Contractual Exercise of Exercise
Prices Shares Life Price shares Price
- --------- ---------- ------------ -------------- ----------- -----------
$0.0018-$0.9090 680 1.2 $0.0018 636 $0.0018
$0.9091-$12.000 305 6.6 $ 6.454 100 $ 6.325
$12.001-$13.000 516 9.6 $13.000 - -
$13.001-$21.375 459 9.1 $18.786 67 $20.410
$21.376-$35.125 131 9.4 $23.811 11 $24.658
---------- ------------ -------------- ----------- -----------
2,091 6.3 $ 9.764 814 $ 2.790
========== ============ ============== =========== ===========
At June 30, 1996 and 1995, options to purchase 745,000 and 5,197,500 shares
of common stock were exercisable at weighted average exercise prices of
$0.0487 and $0.0069, respectively.
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees (APB 25)" and
related interpretations in accounting for its employee stock options
because the alternative fair value accounting prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation (SFAS 123)" requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
no compensation expense is recognized because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant.
Pro forma information regarding net income and net income per share has
been determined as if the Company had accounted for its employee stock
options granted subsequent to June 30, 1995 under the fair value method
prescribed by SFAS 123. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions for 1997 and 1996: Expected dividend
yield of 0%, expected stock price volatility of 55% (0% in the period prior
to the Company's initial public offering), risk free interest rates ranging
from 3.50 percent to 7.75 percent, and the expected life of options of 4
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except per share
data):
Year ended June 30,
-----------------------
1997 1996
---------- -----------
Net income - as reported $ 21,750 $ 20,440
Net income - pro forma $ 20,698 $ 20,424
Net income per share - as reported $ 0.69 $ 0.71
Net income per share - pro forma $ 0.65 $ 0.71
The weighted average fair value of options granted in the year ended June
30, 1997 and 1996 was $5.48 and $3.55 per share respectively.
48
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stockholders' Equity (continued)
The pro forma effect on net income for 1997 is not representative of the
pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made
prior to 1996 and the compensation expense that will be recognized in
future years as the graded vesting periods become exercisable.
The difference between the exercise price and fair market value of the
Company's common stock at the date of issue of certain stock options,
totaling $902,000 has been recorded as deferred compensation and a
component of stockholders' equity. The entire compensation of $902,000 has
been recognized as an expense through June 30, 1997.
Employee Stock Purchase Plan
In July 1997, the Board of Directors adopted the 1997 Employee Stock
Purchase Plan (the "ESPP") under which 1,500,000 shares of common stock are
reserved for issuance under the terms of the ESPP. The ESPP permits
eligible employees to purchase common stock through payroll deductions
(which cannot exceed 20% of the employees eligible compensation) at 85% of
its fair market value on specified dates. The first scheduled purchase
under the ESPP is due on January 31, 1998. Thereafter, purchases will be
made at six monthly intervals. No shares were purchased or payroll
deductions withheld in the year ended June 30, 1997. The ESPP is subject to
stockholder approval.
11. Income Taxes
The provision for income taxes is as follows (in thousands):
June 30,
----------------------------------------------
1997 1996 1995
------------- ------------ ------------
Federal $ 11,611 $ 10,756 $ 3,108
State 1,000 1,006 977
Foreign 923 104 8
------------- ------------ ------------
13,534 11,866 4,093
Deferred taxes (1,823) (1,100) (1,089)
------------- ------------ ------------
$ 11,711 $ 10,766 $ 3,004
============= ============ ============
The Company's effective tax rate differs from the U.S. federal statutory rate as
follows:
June 30,
----------------------------------------------
1997 1996 1995
------------- ------------ ------------
Federal tax at statutory rate 35.0% 35.0% 34.0%
State tax, net of federal benefit 1.7 2.2 5.9
Utilization of net operating loss - - (3.8)
FSC benefit (3.6) (4.6) (5.0)
Other 1.9 1.9 (0.1)
------------- ------------ ------------
35.0% 34.5% 31.0%
============= ============ ============
49
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Income Taxes (continued)
Significant components of the Company's deferred tax assets are as follows
(in thousands):
June 30,
--------------------------
1997 1996
------------ ------------
Foreign deferred profits and losses $ 594 $ 1,039
Depreciation and amortization 1,598 171
State taxes, net of federal benefit 300 297
Net operating losses - 31
Reserves and accruals 718 255
Deferred compensation 218 186
Inventories 517 152
Other 66 57
------------ ------------
$ 4,011 $ 2,188
============ ============
12. Employee Agreements
In March 1995 and February 1996, the Company entered into employee
agreements with certain key officers and directors over terms of four to
five years. Employees under contract have an aggregate annual compensation
of $1,410,000, and have been granted 4,877,500 options to purchase common
stock of the Company at exercise prices of between $0.0018 and $13.25 per
share of which 4,410,000 options had been exercised at June 30, 1997. The
Company may terminate any agreement for cause, and the compensation and
benefits under the employee agreements shall cease effective upon date of
termination. If an agreement is terminated by reason of disability, the
employee's compensation and benefits shall continue for the first twelve
weeks of the incapacity.
In February 1996, the Company entered into certain amendments to the
employee agreements of Bradly A. Jendersee and Robert D. Lashinski,
executive officers and directors of the Company. Pursuant to such
amendments, each of Messrs. Jendersee and Lashinski agreed to the
elimination of provisions entitling them to certain royalties from the sale
or license by the Company of products covered by patents for which such
persons were named as inventors. In connection with such amendments, the
Company agreed to pay Messrs. Jendersee and Lashinski an aggregate of
approximately $3.9 million in cash and issue to them an aggregate of
110,000 shares of Common stock. Such payments to Messrs. Jendersee and
Lashinski resulted in the recognition by the Company, in the year ended
June 30, 1996, a one-time compensation expense of $5.2 million.
13. Employee Benefit Plan
During 1994, the Company established a Retirement Savings and Investment
Plan (the "Plan") under which employees may defer a portion of their salary
up to the maximum allowed under IRS rules. The Company has the discretion
to make contributions to the Plan. In the year ended June 30, 1997, the
Company contributed $88,000 to the Plan.
50
<PAGE>
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Geographic Area Information and Concentration of Credit and Other Risks
The Company operates in the medical products industry sector and currently
markets and sells substantially all of its products internationally in
Europe and Asia. Over 40% of the Company's fiscal 1997 revenues were
derived from export sales to non-affiliated international distributors. In
addition, over 40% of the Company's net sales for fiscal 1997 were derived
from products introduced during fiscal 1997. For the years ended June 30,
1995 and 1996, the Company had sales to three customers representing 26%,
16% and 14% and 20%, 16% and 10% net of sales, respectively. The Company
performs ongoing credit evaluations of its customers and provides an
allowance for expected losses. There have been no material losses on
customer receivables. Sales to both distributors and directly to hospitals
and clinics as a percentage of total net sales by geographical region are
as follows:
Year Ended June 30,
-----------------------------------
1997 1996 1995
--------- --------- ---------
Europe 75% 76% 79%
Asia 9% 16% 19%
Rest of World 16% 8% 2%
--------- --------- ---------
100% 100% 100%
========= ========= =========
15. Quarterly Financial Data (unaudited, in thousands except per share data)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
--------- -------- -------- --------- --------
Net sales
1997 $18,568 $18,228 $20,402 $22,222 $79,420
1996 10,572 11,142 15,589 17,926 55,228
Gross profit
1997 15,657 14,495 15,806 17,245 63,203
1996 8,081 8,715 12,693 15,174 44,663
Net income
1997 7,765 4,606 4,633 4,746 21,750
1996 4,756 4,871 3,101 7,712 20,440
Net income per share
1997 0.25 0.15 0.15 0.15 0.69
1996 0.17 0.18 0.11 0.25 0.71
51
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated financial statements of Arterial
Vascular Engineering, Inc. and Subsidiaries as of June 30, 1997 and 1996, and
for each of the three years in the period ended June 30, 1997, and have issued
our report thereon dated July 25, 1997, except as to the first paragraph of Note
5 as to which the date is August 21, 1997 (included elsewhere in this Annual
Report on Form 10-K). Our audits also included the financial statement schedule
listed in Item 14(a) of this Annual Report on Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Palo Alto, California
July 25, 1997
52
<PAGE>
SCHEDULE II
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Description Balance at Charged to Balance at
----------- Beginning of Costs and End of
the Period Expenses the Period
------------------------------------
Balances for the year ended June 30, 1995:
Allowance for doubtful accounts receivable $ 4 $100 $104
Allowance for obsolete inventory -- 60 60
Balances for the year ended June 30, 1996:
Allowance for doubtful accounts receivable 104 186 290
Allowance for obsolete inventory 60 261 321
Balances for the year ended June 30, 1997:
Allowance for doubtful accounts receivable 290 790 1,080
Allowance for obsolete inventory 321 314 635
ARTERIAL VASCULAR ENGINEERING, INC.
1996 EQUITY INCENTIVE PLAN
Adopted by the Board of Directors January 26, 1996
Approved by the Stockholders February 28, 1996
Amended by the Board of Directors September 20, 1996
Amendment Approved by the Stockholders December 4, 1996
Amended by the Board of Directors July 8, 1997
Amended by the Board of Directors August 8, 1997
Approved by the Stockholders on ________________, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) Stock
Appreciation Rights granted pursuant to section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
1.
<PAGE>
(e) "Company" means Arterial Vascular Engineering, Inc., a Delaware
corporation.
(f) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "Continuous Status as an Employee, Director or Consultant" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board or the chief executive
officer of the Company may determine, in that party's sole discretion, in its
sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of: (i) any
leave of absence approved by the Board or the chief executive officer, including
sick leave, military leave, or any other personal leave; or (ii) transfers
between the Company, Affiliates or their successors.
(i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board.
(k) "Employee" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows:
(i) If the common stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq Small Cap Market, the Fair
Market Value of a share of common stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Company's common stock) on the market trading day that is the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the common stock, the Fair
Market Value shall be determined in good faith by the Board.
2.
<PAGE>
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Independent Stock Appreciation Right" or "Independent Right" means a
right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(q) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(r) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
(v) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "Plan" means this Arterial Vascular Engineering 1996 Equity Incentive
Plan.
(x) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
3.
<PAGE>
(y) "Securities Act" means the Securities Act of 1933, as amended.
(z) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(aa) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(bb) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall be
granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory
Stock Option, a stock bonus, a right to purchase restricted stock, a Stock
Appreciation Right, or a combination of the foregoing; the provisions of each
Stock Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive stock pursuant to a Stock Award;
whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 14.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient which are not inconsistent with the terms of
the Plan to promote the best interests of the Company.
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(c) The Board may delegate administration of the Plan to a committee of the
Board composed of not fewer than two (2) members (the "Committee"), all of the
members of which Committee may be, in the discretion of the Board, Non-Employee
Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding anything in this Section 3 to the
contrary, the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
(1) are not then subject to Section 16 of the Exchange Act and/or (2) are either
(i) not then Covered Employees and are not expected to be Covered Employees at
the time of recognition of income resulting from such Stock Award, or (ii) not
persons with respect to whom the Company wishes to comply with Section 162(m) of
the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards granted
under the Plan shall not exceed in the aggregate Two Million Five Hundred
Thousand (2,500,000) shares of the Company's common stock, as determined
immediately following any stock split or combination made in connection with the
first registration of any equity security of the Company under Section 12 of the
Exchange Act. If any Stock Award granted under the Plan or any stock option
granted pursuant to the Company's previous stock option program Plan shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Stock Award or stock
option pursuant to the Company's previous stock option program shall revert to
and again become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan shall not
be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of the Director as a
person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock
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Awards granted to the Director: (i) the Board has delegated its discretionary
authority over the Plan to a Committee which consists solely of Disinterested
Persons; or (ii) the Plan otherwise complies with the requirements of Rule 16b
3. The Board shall otherwise comply with the requirements of Rule 16b 3. This
subsection 5(b) shall not apply (i) prior to the date of the first registration
of an equity security of the Company under Section 12 of the Exchange Act, or
(ii) if the Board or Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any of
its Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant. Prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, the provisions of
this subsection 5(c) shall also apply to the grant of a Nonstatutory Stock
Option made to a ten percent (10%) stockholder as described in the preceding
sentence.
(d) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than Two Hundred Fifty Thousand (250,000)
shares of the Company's common stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be determined by the Board or the
Committee. Notwithstanding the foregoing, an Option (whether an Incentive Stock
Option or a Nonstatutory Stock Option) may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
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according to a deferred payment arrangement, except that payment of the common
stock's "par value" as defined in the Delaware General Corporation Law) shall
not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option shall only be
transferable by the Optionee upon such terms and conditions as are set forth in
the Option Agreement for such Nonstatutory Stock Option, as the Board or the
Committee shall determine in its discretion. Notwithstanding the foregoing, the
person to whom the Option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionee, shall thereafter be entitled to exercise
the Option.
(e) Vesting. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual options may vary. The provisions of this subsection 6(e) are subject
to any Option provisions governing the minimum number of shares as to which an
Option may be exercised.
(f) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date three (3) months after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
unless such termination is for Cause (as defined in the Option Agreement), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
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terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(g) Disability of Optionee. In the event an Optionee's Continuous Status as
an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during, or
within a period specified in the Option after the termination of, the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option may be
exercised (to the extent the Optionee was entitled to exercise the Option at the
date of death) by the Optionee's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance or by a person designated to
exercise the option upon the Optionee's death pursuant to subsection 6(d), but
only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(j) Re-Load Options. Without in any way limiting the authority of the Board
or Committee to make or not to make grants of Options hereunder, the Board or
Committee shall have the authority (but not an obligation) to include as part of
any Option Agreement a provision entitling the Optionee to a further Option (a
"Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave
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rise to such Re-Load Option; and (iii) shall have an exercise price which is
equal to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock
Option and which is granted to a 10% stockholder (as described in subsection
5(c)), shall have an exercise price which is equal to one hundred ten percent
(110%) of the Fair Market Value of the stock subject to the Re-Load Option on
the date of exercise of the original Option and shall have a term which is no
longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 12(d) of the Plan and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares under subsection 4(a)
and the limits on the grants of Options under subsection 5(c) and shall be
subject to such other terms and conditions as the Board or Committee may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. TERMS OF STOCK
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock purchase
agreement shall be such amount as the Board or Committee shall determine and
designate in such agreement. In any event, the Board or the Committee may
determine that eligible participants in the Plan may be awarded stock pursuant
to a stock bonus agreement in consideration for past services actually rendered
to the Company or for its benefit.
(b) Transferability. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or otherwise only upon such terms and conditions as are set
forth in the applicable Stock Award Agreement, as the Board or the Committee
shall determine in its discretion, so long as stock awarded under such agreement
remains subject to the terms of the agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a stock
purchase agreement shall be paid either: (i) in cash at the time of purchase;
(ii) at the discretion of the Board or the Committee, according to a deferred
payment arrangement, except that payment of the common stock's "par value" (as
defined in the Delaware General Corporation Law) shall not be made by deferred
payment), or other arrangement with the person to whom the stock is sold;
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or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in their discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(e) Termination of Employment or Relationship as a Director or Consultant.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire,
subject to the limitations described in subsection 7(d), any or all of the
shares of stock held by that person which have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority, exercisable
in its sole discretion, to grant Stock Appreciation Rights under the Plan to
Employees or Directors of or Consultants to the Company or its Affiliates. To
exercise any outstanding Stock Appreciation Right, the holder must provide
written notice of exercise to the Company in compliance with the terms of the
Stock Award Agreement evidencing such right. Except as provided in subsection
5(c), no limitation shall exist on the aggregate amount of cash payments the
Company may make under the Plan in connection with the exercise of a Stock
Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) Tandem Stock Appreciation Rights. Tandem Stock Appreciation Rights
will be granted appurtenant to an Option, and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to the particular Option grant to which it pertains. Tandem Stock Appreciation
Rights will require the holder to elect between the exercise of the underlying
Option for shares of stock and the surrender, in whole or in part, of such
Option for an appreciation distribution. The appreciation distribution payable
on the exercised Tandem Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on the Fair Market Value (on the date
of the Option surrender) in an amount up to the excess of (A) the Fair Market
Value (on the date of the Option surrender) of the amount of shares of stock
covered by that portion of the surrendered Option in which the Optionee is
vested over (B) the aggregate exercise price payable for such vested shares.
(ii) Concurrent Stock Appreciation Rights. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which the Concurrent
Right pertains. A Concurrent Right shall be exercised automatically at the same
time the
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underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on the Fair Market Value on the date
of exercise of the Concurrent Right) in an amount equal to such portion as shall
be determined by the Board or the Committee at the time of the grant of the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(iii) Independent Stock Appreciation Rights. Independent Rights will be
granted independently of any Option and shall, except as specifically set forth
in this Section 8, be subject to the same terms and conditions applicable to
Nonstatutory Stock Options as set forth in Section 6. They shall be denominated
in share equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess of (A)
the aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (B) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided, in an equivalent number of shares of stock based on the Fair Market
Value on the date of the exercise of the Independent Right.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at
any time and from time to time, (i) the repricing of any outstanding Options
and/or Stock Appreciation Rights under the Plan and/or (ii) with the consent of
the affected holders of Options and/or Stock Appreciation Rights, the
cancellation of any outstanding Options and/or Stock Appreciation Rights under
the Plan and the grant in substitution therefor of new Options and/or Stock
Appreciation Rights under the Plan covering the same or different numbers of
shares of stock, but having an exercise price per share not less than one
hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option or, in the case of a 10% stockholder (as described in subsection
5(c)) receiving a new grant of an Incentive Stock Option, not less than one
hundred ten percent (110%) of the Fair Market Value) per share of stock on the
new grant date. Notwithstanding the foregoing, the Board or the Committee may
grant an Option and/or Stock Appreciation Right with an exercise price lower
than that set forth above if such Option and/or Stock Appreciation Right is
granted as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled under
this Section 9 shall continue to be counted against the maximum award of Options
or Stock Appreciation Rights permitted to be granted pursuant to section 5 of
the Plan, if any. The repricing of an Option or Stock Appreciation Right under
this Section 9, resulting in a reduction of the exercise price, shall be deemed
to be a cancellation of the original Option or Stock Appreciation Right and the
grant of a substitute Option and/or Stock Appreciation Right; in the
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event of such repricing, both the original and the substituted Options shall be
counted against the maximum awards of Options and Stock Appreciation Rights
permitted to be granted pursuant to subsection 5(c) of the Plan, if any. The
provisions of this subsection 9(b) shall be applicable only to the extent
required by Section 162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act, either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.
11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant, nor any person to whom a
Stock Award is transferred under subsection 6(d), 7(b) or 8(b), shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan, or any instrument executed or Stock Award granted
pursuant thereto, shall confer upon any Employee, Director or Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director of or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause, the right of the Company's Board and or the
Company's stockholders to remove any Director pursuant to the terms of the
Company's By-Laws and the provisions of the Delaware General Corporation Law, or
the right to terminate the
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relationship of any Consultant pursuant to the terms of such Consultant's
agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted, or
any person to whom a Stock Award is transferred pursuant to subsection 6(d),
7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
type(s) and
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maximum number of securities subject to the Plan pursuant to subsection 4(a) and
any maximum number of securities subject to award to any person during any
calendar-year period pursuant to section 5, and the outstanding Stock Awards
will be appropriately adjusted in the type(s) and number of securities and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or the Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, to the extent permitted by applicable law, (i) any
surviving or acquiring corporation shall assume any such Stock Awards
outstanding under the Plan or shall substitute similar Stock Awards (including a
right to acquire the same consideration paid to the stockholders in the
transaction described in this subsection 13(b) for those outstanding under the
Plan, or (ii) such Stock Awards shall continue in full force and effect. In the
event any surviving or acquiring corporation refuses to assume or continue such
Stock Awards, or to substitute similar options for such Stock Awards outstanding
under the Plan, then, with respect to Stock Awards held by persons then
performing services as Employees, Directors or Consultants, the time during
which such Stock Awards may be exercised shall be accelerated and the Stock
Awards terminated if not exercised after such acceleration and at or prior to
such event.
14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards under the
Plan;
(ii) Modify the requirements as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in order for
the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
14.
<PAGE>
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on January 26, 2006, which shall be within
ten (10) years from the date the Plan is adopted by the Board or approved by the
stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.
ARTERIAL VASCULAR ENGINEERING, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
Adopted by the Board of Directors July 8, 1997
Approved by the Stockholders on ________________, 1997
1. PURPOSE.
(a) The purpose of this 1997 Employee Stock Purchase Plan (the "Plan") is
to provide a means by which employees of Arterial Vascular Engineering Inc., a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
(the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of its
employees, to secure and retain the services of new employees, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which need
not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this
1.
<PAGE>
power, may correct any defect, omission or inconsistency in the Plan, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
"employee stock purchase plan" within the meaning of Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate One Million Five Hundred Thousand
(1,500,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having been
exercised (other than rolled-over rights), the Common Stock not purchased under
such right shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice
2.
<PAGE>
delivered by that employee will be deemed to apply to all of his or her rights
under the Plan, and (2) a right with a lower exercise price (or an
earlier-granted right, if two rights have identical exercise prices), will be
exercised to the fullest possible extent before a right with a higher exercise
price (or a later-granted right, if two rights have identical exercise prices)
will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan, unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be equal to or greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan,
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during the
course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the end of
the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to
3.
<PAGE>
purchase stock of the Company or any Affiliate to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) of fair market value of such stock
(determined at the time such rights are granted) for each calendar year in which
such rights are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, shall be granted the right to purchase up to the number of
shares of Common Stock of the Company purchasable with a percentage designated
by the Board or the Committee not exceeding twenty percent (20%) of such
employee's Earnings (as defined by the Board for each Offering) during the
period which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one or more dates during an Offering (the
"Purchase Date(s)") on which rights granted under the Plan shall be exercised
and purchases of Common Stock carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings (as defined
4.
<PAGE>
by the Board for each Offering) during the Offering. The payroll deductions made
for each participant shall be credited to an account for such participant under
the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero) or increase such payroll deductions,
and an eligible employee may begin such payroll deductions, after the beginning
of any Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for in
the Offering and only if the participant has not had the maximum amount withheld
during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
5.
<PAGE>
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
6.
<PAGE>
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's stockholdings acquired upon
exercise of rights hereunder are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) the acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors, then, as determined by the Board in its
sole discretion (i) any surviving or acquiring corporation may assume
outstanding rights or substitute similar rights for those under the Plan, (ii)
such rights may continue in full force and effect, or (iii) participants'
accumulated payroll deductions may be used to purchase Common Stock immediately
prior to the transaction described above and the participants' rights under the
ongoing Offering terminated.
7.
<PAGE>
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in order for
the Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code); or
(iii) Modify the Plan in any other way if such modification requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of the
Plan shall not be altered or impaired by any amendment of the Plan, except with
the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
8.
<PAGE>
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at any
time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on August 1, 1997 (the "Effective Date"),
but no rights granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted by the Board or the
Committee, which date may be prior to the Effective Date.
9.
AMENDMENT, dated as of July 9, 1997, to that certain International
Distributorship Agreement, dated as of January 22, 1997 (the "Distributorship
Agreement") between Arterial Vascular Engineering, Inc., a Delaware corporation
("AVE") and Japan Lifeline Co., Ltd., a company organized under the laws of
Japan (the "Distributor").
WHEREAS, AVE and the Distributor desire to amend certain provisions of the
Distributorship Agreement;
NOW, THEREFORE, in consideration of the premises and for other valuable
consideration, receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 4.1 is hereby amended by deleting the proviso in the second
sentence of such Section 4.1
2. Schedule E of the Distributorship Agreement is hereby amended by
deleting the text in the third paragraph of Schedule E beginning with the words
"provided however," and ending with the end of such paragraph (i.e. ending with
the words "the quarterly period ending December 31, 1997."), and replacing such
text with the following: "provided, however, that during the period commencing
with the three-month anniversary of the date that distributor obtains the
necessary governmental registrations, licenses and permits to market and sell
such coronary stent Products in the Territory and ending on the earlier of (i)
the six-month anniversary of such date and (ii) the date that Japanese insurance
reimbursement is granted for such Products, the purchase price for up to *
coronary stent systems per month shall be * per coronary stent system (it being
understood and agreed that Distributor shall use its best efforts to market and
sell such coronary stent systems during the pre-reimbursement period and not to
accumulate them in its inventory).
3. A new Section 3.6 is hereby created that shall be and read as follows:
"3.6 Marketing Assistance
AVE shall * on October 1, 1997, for use by the Distributor during the
period between October 1, 1997 and September 30, 1998 in connection with
sales and marketing relating to the Products."
4. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Distributorship
Agreement.
5. From and after the date hereof, all references in the Distributorship
Agreement shall be deemed to be references to the Distributorship Agreement as
modified hereby.
- --------------
* Certain confidential information contained in this document, marked by
asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act
of 1934, as amended.
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6. This Amendment shall be governed by, and construed in accordance with,
the laws of the State of California applicable to contracts executed in and to
be performed in that State.
IN WITNESS WHEREOF, AVE and the Distributor have caused this Amendment to
be duly executed as of the date first written above by their respective officers
thereunto duly authorized.
ARTERIAL VASCULAR ENGINEERING, INC. JAPAN LIFELINE CO., LTD.
By /s/John D. Miller /S/Takeshi Mashumoto
----------------------- --------------------------
Name: John D. Miller Name: Takeshi Mashumoto
Title: V.P. Finance, C.F.O Title: President
2
EXHIBIT 10.9
SECOND AMENDMENT, dated as of August 22, 1997, to that certain
International Distributorship Agreement, dated as of January 22, 1997, as
amended (as so amended, the "Distributorship Agreement") between Arterial
Vascular Engineering, Inc., a Delaware corporation ("AVE") and Japan Lifeline
Co., Ltd., a company organized under the laws of Japan (the "Distributor").
WHEREAS, AVE and the Distributor desire to amend certain provisions of
the Distributorship Agreement;
NOW, THEREFORE, in consideration of the premises and for other valuable
consideration, receipt of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Section 3.6 is hereby amended by deleting the amount "*" and
substituting in lieu thereof the amount "*".
2. Schedule B is hereby amended by adding a proviso to the end of the
sentence under the heading "Coronary Stent Systems," which proviso shall be and
read as follows:
"; provided, however, that for the * period beginning * and
ending *, Distributor shall purchase at least * coronary stent
systems".
3. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Distributorship
Agreement.
4. From and after the date hereof, all references in the
Distributorship Agreement shall be deemed to be references to the
Distributorship Agreement as modified hereby.
5. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of California applicable to contracts executed in
and to be performed in that State.
IN WITNESS WHEREOF, AVE and the Distributor have caused this Amendment
to be duly executed as of the date first written above by their respective
officers thereunto duly authorized.
ARTERIAL VASCULAR ENGINEERING, INC. JAPAN LIFELINE CO., LTD.
By /s/ Scott J. Solano /s/ Takeshi Masumoto
------------------------------------- ----------------
Scott J. Solano Takeshi Masumoto
President and Chief Executive Officer President
- ---------------
* Certain confidential information contained in this document, marked by
asterisks, has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act
of 1934, as amended.
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--GROSS
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, April
28, 1997, is made by and between Bruce S. and Sandra G. Rocco Trustees
("Lessor") and Arterial Vascular Engineering, Inc. ("Lessee"), collectively the
"Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements therein
or to be provided by Lessor under the terms of this Lease, and commonly known by
the street address of 5355 Skylane Boulevard, Santa Rosa, located in the County
of Sonoma, State of California, and generally described as (describe briefly the
nature of the property) approximately 15,017 s.f. of office and light industrial
space as per attached Exhibits A & B ("Premises"). (See Paragraph 2 for further
provisions.)
1.3 Term: Three (3) years and (0) months ("Original Term") commencing May 1,
1997 ("Commencement Date") and ending April 30, 2000 ("Expiration Date"). (See
Paragraph 3 for further provisions.)
1.4 Early Possession: April 28, 1997. ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $12,013.60* per month ("Base Rent"), payable on the first day
of each month commencing Upon lease execution. (See Paragraph 4 for further
provisions.) *see item #49 for rent schedule
[x] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 Base Rent Paid Upon Execution: $12,013.60 as Base Rent for the period May
1997.
1.7 Security Deposit: $12,764.45 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: General office. (See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessee is the "Insuring Party." $__________ is the "Base
Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
Keegan & Coppin Company, Inc. represents
[ ] Lessor exclusively ("Lessor's Broker"); [X] both Lessor and Lessee, and
______ represents
[ ] Lessee exclusively ("Lessee's Broker"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraph 49 through 59 and Exhibits A-E all of which constitute a part of this
Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
system's, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefore as the same relate to Lessee's occupancy of the Premises and/or term
of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made
any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premise. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
Initials /s/ JM
/s/ BR SR
GROSS PAGE 1
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3.3 Delay In Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall; upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees or subtenants, for a modification of
said permitted purpose for which the premises may be used or occupied, so long
as the same will not impair the structural integrity of the improvements on the
Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give written notification of
same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this Lease,
Lessee, shall, at Lessee's sole cost and expense, fu11y, diligently and in a
timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
Initials /s/ JM
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need for such
repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense, keep
the foundations, exterior roof and structural aspects of the Premises in good
order, condition and repair, Lessor shall not, however, be obligated to paint
the exterior surface of the exterior walls or to maintain the windows, doors or
plate glass or the interior surface of exterior walls. Lessor shall not, in any
event, have any obligation to make any repairs until Lessor receives written
notice of the need for such repairs. It is the intention of the Parties that the
terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, with all of
the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. See Addendum Section 57
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9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a) in, on, or under the
Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination--Advance Payments. Upon termination of this Lease pursuant to
this Paragraph 9, an equitable adjustment shall be made concerning advance Base
Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor under the terms of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes. See Addendum Section 58
[SECTION 11 DELETED]
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12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assignment") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of the execution by Lessor of
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lesssor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee at all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
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and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. sec. 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guarantor of Lessee's obligations hereunder was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1 (b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee under
any statute authorizing the forfeiture of leases for unlawful detainer shall
also constitute the applicable notice for grace period purposes required by
subparagraphs 13.1 (b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1 (b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
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14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $22,795.80) for brokerage services rendered
by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer of assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (i) be liable for any act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment of
more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "non-disturbance agreement") from the Lender
that Lessee's possession and this Lease, including any options to extend the
term hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, cost and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement and
information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any such
Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee
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is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE
PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY
IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE
STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at __________________________ Executed at Santa Rosa, CA
on ___________________________________ on April 30, 1997
by LESSOR: by LESSEE:
______________________________________ Arterial Vascular Engineering, Inc.
______________________________________ ______________________________________
By /s/ Bruce S. Rocco
/s/ Sandra G. Rocco By /s/ John D. Miller
Name Printed: ________________________ Name Printed: John D. Miller
Title: _______________________________ Title: CFO
By ___________________________________ By ___________________________________
Name Printed: ________________________ Name Printed: ________________________
Title: _______________________________ Title: _______________________________
Address:______________________________ Address:______________________________
______________________________________ ______________________________________
Tel.No. (__)_______ Fax No. (__)______ Tel.No. (__)_______ Fax No. (__)______
GROSS PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 700
South Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.
Fax No. (213) 687-8616.
<PAGE>
STANDARD LEASE CONDITIONS ADDENDUM
To Lease dated April 28, 1997 by and between
Lessor Bruce S. and Sandra G. Rocco and
Lessee Arterial Vascular Engineering, Inc.
49. Rent Schedule:
May 1, 1997 to April 30, 1998 $12,013.60 per month
May 1, 1998 to April 30, 1999 $12,764.45 per month
May 1, 1999 to April 30, 2000 $13,515.30 per month
50. Tenant Improvement Scope:
Lessor shall provide a tenant improvement allowance not to exceed
$15,000 for re-carpeting of the office area indicated on attached
Exhibit B. Lessor shall be responsible for having the carpet delivered
to the space, ready for installation no later than April 30, 1997.
Lessor acknowledges that the Lessee has requested that the re-carpeting
be completed no later than 5:00 p.m. Friday, May 2 1997. Lessor shall
only be responsible for delivery of carpet to the space no later than
April 30th. Lessor will pay for the carpet installation, however,
Lessor shall not be responsible for the time involved to complete the
carpet installation. In the event that the carpet is not delivered on
or before April 30th, Lessee may elect to eliminate the requirement for
the re-carpeting and Lessee shall then receive the month of May rent
free. In this event the lease termination date shall be May 30, 2000.
Lessee shall be responsible for any costs involved in canceling the
order for the carpet and/or returning the carpet to the dealer or
manufacturer.
Lessee shall inspect said premises within three (3) days of completion
to ascertain that Tenant improvements have been installed in accordance
with plans and specifications. Lessee shall provide a "punch list" of
items not in accordance with plans and specifications or not installed
in a good workmanlike manner. Lessor shall have thirty (30) days to
correct said punch list items.
If Lessee installs any portion of the tenant improvements, it shall
have the same responsibility as indicated above for Lessor and
additionally Lessee shall remove all mechanic's liens, to satisfy all
claims and meet all contract requirements with suppliers, contractors
and employees arising out said installation of improvements. Lessee to
have workman compensation and liability insurance with a minimum
$500,000 per occurrence for said installation and to name Lessor
additional insured. Lessee shall indemnify and hold harmless Lessor for
all claims of employees, invitees, materialmen, supplier arising out of
said installation.
51. Financial Information
Lessor has reviewed and approved financial statements regarding Lessee.
Lessor may deliver such financial information in Lessor's possession to
lending institutions, mortgage brokers, investors in the Industrial
Center or prospective purchasers.
52. Permits
Lessee will obtain a use permit and a wastewater discharge permit if
required from the appropriate municipality within thirty (30) days of
acceptance hereof. Lessee shall use due diligence in pursuing such
permits and pay all costs associated with them. Lessee shall have the
responsibility to maintain any use permits and to comply with all terms
and conditions of said use permits during the term of this Lease. If
Lessee's application for a use permit is denied, Lessor or Lessee may
declare this lease void, in which event all deposits and prepaid rent
shall be returned to Lessee.
53. Hazardous Waste
"If Lessee uses, stores, or becomes aware of any hazardous waste or
substances as listed by Proposition 65, he will advise Lessor within
three (3) days of such existence and either obtain approval from Lessor
and the appropriate governing agencies within thirty (30) days from
notice or remove and clean up said hazardous waste to standards
required by the Lessor and the appropriate governing agencies within
sixty (60) days from notice."
"If Lessee, his invitees, employees, agents or associates cause or
allow a spill, or contamination of the premises, common area, soil or
surrounding area, then it will be the responsibility of Lessee to clean
up said hazard to the degree required and within the time frame set by
any public entity which has jurisdiction and particularly in response
to the Super Fund Act and Proposition 65."
54. Area Measurement:
Lessee has reviewed and approved the system of measurement, the useable
and rentable square footage of the subject premises.
<PAGE>
55. Associations and Expenses:
Lessee has reviewed and approved CC&R's, any common area association and
budget, rules, expenses, and use conditions pertaining thereto.
Lessee to review and approve estimated expenses including increases
above base, maintenance, repairs, insurance, utilities, taxes and
assessments pertaining to Lessee's premises and in accordance with lease
provisions within 30 days of acceptance hereof.
56. Lessee shall not exceed the parking allocation designated for the
building, Lessee shall park only in marked parking spaces and shall not
over park as to block parked cars.
57. See attached.
58. See attached.
Agreed by: Lessee: /s/ Arterial Vascular Engineering, Inc. Date: 4/30/97
--------------------------------------- -------
Agreed by: Lessor: /s/ Bruce S. Rocco Date: 4/30/97
----------------------------------- -------
/s/ Sandra G. Rocco
-----------------------------------
<PAGE>
EXHIBIT A
DRAWING -- BUILDINGS A, B & C
MIDSTATE CONSTRUCTION
<PAGE>
EXHIBIT B
DRAWING
COMPOSITE PLAN/AS-BUILT
ARTERIAL VASCULAR ENGINEERING, INC.
5355 Skylane Blvd., Santa Rosa, California
<PAGE>
EXHIBIT C
STANDARD LEASE DISCLOSURE ADDENDUM
Notice to Owners, Buyers and Tenants Regarding Hazardous Wastes or Substances
and Underground Storage Tanks
Comprehensive federal and state laws and regulations have been enacted in the
last few years in an effort to develop controls over the use, storage, handling,
cleanup, removal and disposal of hazardous wastes or substances. Some of these
laws and regulations, such as, for example, the so-called "Super Fund Act",
provide for broad liability schemes wherein an owner, tenant or other user of
the property may be liable for cleanup costs and damages regardless of fault.
Other laws and regulations set standards for the handling of asbestos or
establish requirements for the use, modification, abandonment, or closing of
underground storage tanks.
It is not practical or possible to list all such laws and regulations in this
Notice. Therefore, lessors and lessees are urged to consult legal counsel to
determine their respective rights and liabilities with respect to the issues
described in this Notice as well as other aspects of the proposed transaction.
If various materials that have been or may be in the future determined to be
toxic, hazardous or undesirable, or are going to be used, stored, handled or
disposed of on the property, or if the property has or may have underground
storage tanks for storage of such hazardous materials, or that such materials
may be in the equipment, improvements or soil, it is essential that legal and
technical advice be obtained to determine, among other things, what permits and
approvals have been or may be required, if any, the estimated costs and expenses
associated with the use, storage, handling, cleanup, removal or disposal of the
hazardous wastes or substances and what contractual provisions and protection
are necessary or desirable. It may also be important to obtain expert assistance
for site investigations and building inspections. The past uses of the property
may provide valuable information as to the likelihood of hazardous wastes or
substances, or underground storage tanks being on the property.
The term "hazardous wastes or substances" is used in this Notice in its very
broadest sense and includes, but is not limited to, all those listed under
Proposition 65, petroleum base products, paints and solvents, lead, cyanide,
DDT, printing inks, acids, pesticides, ammonium compounds, asbestos, PCBs and
other chemical products. Hazardous wastes or substances and underground storage
tanks may be present on all types of real property. This Notice is, therefore,
meant to apply to any transaction involving any type of real property, whether
improved or unimproved.
Although Keegan & Coppin Co., Inc. or its salespeople, will disclose any
knowledge it actually possesses with respect to the existence of hazardous
wastes or substances, or underground storage tanks on the property, Keegan &
Coppin Co., Inc. has not made investigations or obtained reports regarding the
subject matter of this Notice, except as may be described in a separate written
document, studies or investigation by experts. Therefore, unless there are
additional documents or studies attached to this notice, lease or contract, this
will serve as notification that Keegan & Coppin Co., Inc. or its salespeople
make no representation regarding the existence or non-existence of hazardous
wastes or substances, or underground storage tanks on the property. You should
contact a professional, such as a civil engineer, geologist, industrial
hygienist or other persons with experience in these matters to advise you
concerning the property.
Americans with Disabilities Act (ADA)
On July 26, 1991, the federal legislation known as the Americans with
Disabilities Act (ADA) was signed into law by President Bush. The purpose of the
ADA is to integrate persons with disabilities into the economic and social
mainstream of American life. Title III of the ADA applies to Lessors and Lessees
of "places of public accommodation" and "commercial facilities", and requires
that places of public accommodation undertake "readily achievable" removal of
communication and access barriers to the disabled. This requirement of Title III
of the ADA is effective January 26, 1992.
It is important that building owners identify and undertake "readily achievable"
removal of any such barriers in the common areas, sidewalks, parking lots and
other areas of the building under their control.
The lessor and lessee is responsible for compliance with ADA relating to removal
of barriers within the workplace i.e., arrangement of interior furnishings and
access within the premises, and any improvements installed by lessor and lessee.
Keegan & Coppin Company, Inc. recommends that both parties seek expert advice
regarding the implications of the Act as it affects this agreement.
Alquist-Priolo:
"The property which is the subject of this contract may be situated in a Special
Study Zone as designated under the Alquist-Priolo Geologic Hazard Act, Sections
2621-2625, inclusive, of the California Public Resources Code; and, as such, the
construction or development on this property of any structure for human
occupancy may be subject to the findings of a geologic report prepared by a
geologist registered in the State of California, unless such report is waived by
the City or County under the terms of that act. No representations on the
subject are made by the lessor or agent, and the lessee should make his own
inquiry or investigation".
Flood Hazard Area Disclosure:
The subject property may be situated in a "Special Flood Hazard Area" as set
forth on a Federal Emergency Management Agency (FEMA) "Flood Insurance Rate Map"
(FIRM) or "Flood Hazard Boundary Map" (FHBM). The law provides that, as a
condition of obtaining financing on most structures located in a "Special Floods
Hazard Area", lender requires flood insurance where the property or its
attachments are security for a loan. Lessee should consult with experts
concerning the possible risk of flooding.
Acknowledgment:
Lessee: /s/ Arterial Vascular Engineering, Inc. Date: 4/30/97
-------------------------------------- -------
Lessor: /s/ Bruce S. Rocco
/s/ Sandra G. Rocco Date: 4/30/97
---------------------------------- -------
<PAGE>
EXHIBIT D
LEASING DISCLOSURE REGARDING
REAL ESTATE AGENCY RELATIONSHIP
When you enter into a discussion with a real estate agent regarding a real
estate transaction, you should from the outset understand what type of agency
relationship or representation you wish to have with the agent in the
transaction.
LANDLORD'S AGENT
A Landlord's agent under a listing agreement with the Landlord acts as the agent
for the Landlord. A Landlord's agent or a subagent of that agent has the
following affirmative obligations:
To the Landlord:
(a) A fiduciary duty of utmost care, integrity, honesty and loyalty in dealing
with the Landlord.
To the Tenant and the Landlord:
(a) Diligent exercise of reasonable skill and care in performance of the agent's
duties.
(b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting the
value or desirability of the property that are not known to, or within the
diligent attention and observation of, the parties.
An agent is not obligated to reveal to either party any confidential information
obtained from the other party which does not involve the affirmative duties set
forth above.
TENANT'S AGENT
A Tenant's agent can, with a Tenant's consent, agree to act as agent for the
Tenant only. In these situations, the agent is not the Landlord's agent, even if
by agreement the agent may receive compensation for services rendered, either in
full or in part from the Landlord. An agent acting only for a Tenant has the
following affirmative obligations.
To the Tenant:
(a) A fiduciary duty of utmost care, integrity, honesty and loyalty in dealings
with the Tenant.
To the Tenant and the Landlord:
(a) Diligent exercise of reasonable skill and care in performance of the agent's
duties.
(b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting the
value or desirability of the property that are not known to, or within the
diligent attention and observation of, the parties.
An agent is not obligated to reveal to either party any confidential information
obtained from the other party which does not involve the affirmative duties set
forth above.
AGENT REPRESENTING BOTH LANDLORD AND TENANT
A real estate agent, either acting directly or through one or more associate
licensees, can legally be the agent of both the Landlord and the Tenant in a
transaction, but only with the knowledge and consent of both the Landlord and
the Tenant.
In a dual agency situation, the agent has the following affirmative obligations
to both the Landlord and the Tenant.
(a) A fiduciary duty of utmost care, integrity, honest and loyalty in the
dealings with either Landlord or Tenant.
(b) Other duties to the Landlord and the Tenant as stated above in their
respective sections.
In representing both Landlord and Tenant, the agent may not, without the express
permission of the respective party, disclose to the other party that the
Landlord will accept a rent less than the listed rent or that the Tenant will
pay a rent greater than the rent offered.
The above duties of the agent in a real estate transaction do not relieve a
Landlord or Tenant from the responsibility to protect their own interests. You
should carefully read all agreements to assure that they adequately express your
understanding of the transaction. A real estate agent is a person qualified to
advise about real estate. If legal or tax advice is desired, consult a competent
professional.
You should read its contents each time it is presented to you, considering the
relationship between you and the real estate agent in your specific transaction.
SIGN BELOW TO AUTHORIZE TYPE OF AGENCY
Keegan & Coppin Company, Inc., is the agent of (check one).
(Name of Listing Agent)
___ The Landlord exclusively; or
_X_ Both the Tenant and Landlord
CONFIRMED AND AUTHORIZED:
Landlord /s/ Bruce S. Rocco, Sandra Rocco Date 4-30-97
-------------------------------- -------
Agent Keegan & Coppin Company, Inc. By Date
---------------------------- ------------------------ -------
================================================================================
Keegan & Coppin Company, Inc., is the agent of (check one):
(Name of Tenant's agent)
___ The Tenant exclusively; or
___ The Landlord exclusively; or
___ Both the Tenant and Landlord
CONFIRMED AND AUTHORIZED:
Tenant /s/ Arterial Vascular Engineering, Inc. Date 4/30/97
---------------------------------- -------
Tenant Date
---------------------------------- -------
Agent Keegan & Coppin Company, Inc. By Date
---------------------------------- -------
<PAGE>
EXHIBIT E
[Logo]
OCCOR
INVESTMENTS
Bruce S. Rocco
April 28, 1997
INVENTORY OF ITEMS OWNED BY LESSOR
TO STAY IN BUILDING DURING TERM OF LEASE
Large Conference Room
6 - section Cherry Conference Table
1 Cherry Credenza -- Bought by AVE
1 Projection Cabinet
19 Adjustable Swivel Chairs to match table
Cafeteria
2 Round Tables
5 Wired plastic chairs
Small Conference Room
1 Oak-finished Conference Table
12 Oak chairs-Adjustable Swivel.
1 Oak Wall Unit Projection Screen and Chalk Board
Offices
10 Oak Desks
10 Oak Credenzas
10 Oak Book Shelves-mounted to credenzas.
8 Fire Extinguishers
3 Picnic Tables with Steel Frames
6 Wall Mount Clocks
<PAGE>
[Logo]
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
Dated April 28, 1997
By and Between (Lessor) Bruce S. and Sandra G. Rocco
(Lessee) Arterial Vascular Engineering, Inc.
Property Address: 5355 Skylane Blvd., Santa Rosa, CA
Paragraph 59
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for an additional 24 month period(s) commencing when the prior term
expires upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date which is
prior to the date that the option period would commence (if exercised) by at
least six (6) and not more than nine 9 months, a written notice of the exercise
of the option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to default
of Lessee set forth in paragraph 39.4 of this Lease are conditions of this
Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be calculated as
follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[x] I. Cost of Living Adjustment(s) (COL)
(a) On (Fill in COL Adjustment Date(s): May 1, 2000 and May 1, 2001
the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjusted by the change, if any, from the Base Month specified below, in
the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for (select one): [ ] CPI W (Urban Wage Earners and Clerical
Workers) or [X] CPI U (All Urban Consumers), for (Fill in Urban Area): San
Francisco-Oakland-San Jose, All Items (1982-1984 = 100), herein referred to as
"C.P.I."
(b) The monthly rent payable in accordance with paragraph Al(a) of
this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the
numerator of which shall be the C.P.I. of the calendar month 2 (two) months
prior to the month(s) specified in paragraph Al(a) above during which the
adjustment is to take effect, and the denominator of which shall be the C.P.I.
of the calendar month which is two (2) months prior to (select one): [X] the
first month of the term of this Lease as set forth in paragraph 1.3 ("Base
Month") or [ ] (Fill in Other "Base Month"): ____________________________. The
sum so calculated shall constitute the new monthly rent hereunder, but in no
event, shall any such new monthly rent be less than the rent payable for the
month immediately preceding the date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I.
shall be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for decision
to the American Arbitration Association in accordance with the then rules of
said association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
[ ] II. Market Rental Value Adjustment(s) (MRV)
(a) On (Fill in MRV Adjustment Date(s):____________________________
________________________________________________________________________________
the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached
Lease shall be adjusted to the "Market Rental Value" of the property as
follows:
1) Four months prior to the Market Rental Value (MRV)
Adjustment Date(s) described above, Lessor and Lessee shall meet to establish an
agreed upon new MRV for the specified term. If agreement cannot be reached,
then:
Initials: /s/ BR SR Initials: /s/ JM
_____________ _____________
OPTION(S) TO EXTEND
Page 1 of 2
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association. 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213)
687-8777. Fax No. (213) 687-8616.
(c) 1991 American Industrial Real Estate Association.
<PAGE>
i) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next 30 days.
Any associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and
pay the appraiser or broker of their choice to establish a MRV within the next
30 days. If, for any reason, either one of the appraisals is not completed
within the next 30 days, as stipulated, then the appraisal that is completed at
that time shall automatically become the new MRV. If both appraisals are
completed and the two appraisers/brokers cannot agree on a reasonable average
MRV then they shall immediately select a third mutually acceptable
appraiser/broker to establish a third MRV within the next 30 days. The average
of the two appraisals closest in value shall then become the new MRV. The costs
of the third appraisal will be split equally between the parties.
2) In any event, the new MRV shall not be less than the rent
payable for the month immediately preceding the date for rent adjustment.
(b) Upon the establishment of each New Market Rental Value as
described in paragraph All:
1) the monthly rental sum so calculated for each term as
specified in paragraph All(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
Al(a) above and
2) the first month of each Market Rental Value term as
specified in paragraph All(a) shall become the new "Base Month" for the purpose
of calculating any further Cost of Living Adjustments as specified in paragraph
Al(b).
[ ] III. Fixed Rental Adjustment(s) (FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be increased to the following amounts on the dates set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be:
____________________________________ $____________________________
____________________________________ $____________________________
____________________________________ $____________________________
____________________________________ $____________________________
B. NOTICE: Unless specified otherwise herein, notice of any escalations
other than Fixed Rental Adjustments shall be made as specified in paragraph 23
of the attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached
Lease shall be paid a Brokerage Fee for each adjustment specified
above in accordance with paragraph 15 of the attached Lease.
Initials: /s/ BR SR Initials: /s/ JM
_____________ _____________
OPTION(S) TO EXTEND
Page 2 of 2
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213)
687-8777. Fax No. (213) 687-8616.
(c) 1991 American Industrial Real Estate Association.
STANDARD SUBLEASE
American Industrial Real Estate Association
[LOGO]
1. Parties. This Sublease, dated, for reference purposes only, June 20, 1997, is
made by and between Verticom, Inc. (herein called "Sublessor") and Arterial
Vascular Engineering, Inc. (herein called "Sublessee").
2. Premises. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Sonoma, State of California, commonly known as 1201 Corporate Center Parkway
and described as approximately 10,000 s.f. of a 47,938 s.f. building known as
Building B in the complex A.P. #035-133-019 as shown on Exhibit A.
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Said real property, including the land and all improvements thereon, is
hereinafter called the "Premises".
3. Term.
3.1 Term. The term of this Sublease shall be for eighteen (18) months
commencing on September 1, 1997 and ending on February 28, 1999 unless sooner
terminated pursuant to any provision hereof.
3.2 Delay in Commencement. Notwithstanding said commencement date, if for
any reason Sublessor cannot deliver possession of the Premises to Sublessee on
said date. Sublessor shall not be subject to any liability therefore, nor shall
such failure affect the validity of this Lease or the obligations of Sublessee
hereunder or extend the term hereof, but in such case Sublessee shall not be
obligated to pay rent until possession of the Premises is tendered to Sublessee;
provided, however, that if Sublessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Sublessee may, at
Sublessee's option, by notice in writing to Sublessor within ten (10) days
thereafter, cancel this Sublease, in which event the parties shall be discharged
from all obligations thereunder. If Sublessee occupies the Premises prior to
said commencement date, such occupancy shall be subject to all provisions
hereof, such occupancy shall not advance the termination date and Sublessee
shall pay rent for such period at the initial monthly rates set forth below. See
Exhibit B-1, Paragraph 2.
4. Rent. Sublessee shall pay to Sublessor as rent for the Premises equal monthly
payments of $12,500, in advance, on the 1st day of each month of the term
hereof. Sublessee shall pay Sublessor upon the execution hereof $12,500 as rent
for September. See Addendum No. 1, Paragraph 7.
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Rent for any period during the term hereof which is for less than one month
shall be a prorata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Sublessor at the address stated herein or
to such other persons or at such other places as Sublessor may designate in
writing.
5. Security Deposit. Sublessee shall deposit with Sublessor upon execution
hereof $12,500 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit.
Sublessee shall within ten (10) days after written demand therefore deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Sublessor, shall be returned, without payment of interest or
other increment for its use to Sublessee (or at Sublessor's option, to the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust relationship
is created herein between Sublessor and Sublessee with respect to said Security
Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for research and
development, manufacturing, general office and for no other purpose.
6.2 Compliance with Law.
(a) Sublessor warrants to Sublessee that the Premises, in its existing
state, but without regard to the use for which Sublessee will use the Premises,
does not violate any applicable building code regulation or ordinance at the
time that this Sublease is executed. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly, at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a). Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
6.3 Condition of Premises. Except as provided in paragraph 6.2(a) Sublessee
hereby accepts the Premises in their condition existing as of the date of the
execution hereof, subject to all applicable zoning, municipal, county and state
laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto Sublessee acknowledges that neither
Sublessor nor Sublessor's agents have made any representation or warranty as to
the suitability of the Premises for the conduct of Sublessee's business.
7. Master Lease
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease", a copy of which is attached
hereto marked Exhibit 1, dated October 27, 1995 wherein Santa Rosa Corporate
Center Associates is the lessor, hereinafter referred to as the "Master Lessor".
7.2 This Sublease is and shall be at all times subject and subordinate to
the Master Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease. Therefore, for the purposes of this Sublease, wherever in the
Master Lease the word "Lessor" is used it shall be deemed to mean the Sublessor
herein and wherever in the Master Lease the word "Lessee" is used it shall be
deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each, and every obligation of
Sublessor under the Master Lease except as otherwise set forth in Addendum No.
1.
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7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "Sublessee's Assumed Obligations". The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations".
7.6 Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term of
this Sublease, subject, however, to any earlier termination of the Master Lease
without the fault of the Sublessor, and to comply with or perform Sublessor's
Remaining Obligations and to hold Sublessee free and harmless of and from all
liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. [Section omitted]
9. Consent of Master Lessor.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 [Paragraph omitted]
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations or alter
the primary liability of Sublessor to pay the rent and perform and comply with
all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or any one
else liable under the Master Lease shall not be deemed a waiver by Master Lessor
of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any guarantors or any one
else liable under the Master Lease or this Sublease without first exhausting
Master Lessor's remedies against any other person or entity liable thereon to
Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and assignments
of the Master Lease or this Sublease or any amendments or modifications thereto
without notifying Sublessor nor any one else liable under the Master Lease and
without obtaining their consent and such action shall not relieve such persons
from liability.
(f) In the event that Sublessor shall default in its obligations under
the Master Lease, then Master Lessor, at its option and without being obligated
to do so, may require Sublessee to attorn to Master Lessor in which event Master
Lessor shall undertake the obligations of Sublessor under this Sublease from the
time of the exercise of said option to termination of this Sublease but Master
Lessor shall not be liable for any prepaid rents nor any security deposit paid
by Sublessee, nor shall Master Lessor be liable for any other defaults of the
Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at
the end of this document shall constitute their consent to the terms of this
Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. Brokers Fee.
10.1 After execution hereof by all parties and upon occupancy by Sublessee,
Sublessor shall pay to Keegan and Coppin Co. Inc., a licensed real estate
broker, (herein called "Broker"), a fee as set forth in a separate agreement
between Sublessor and Broker, or in the event there is no separate agreement
between Sublessor and Broker, the sum of $13,500 for brokerage services rendered
by Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew this
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3 [Paragraph omitted]
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, as to any extension
or renewal; upon the execution of any new lease, as to a new lease transaction
or the exercise of a right of first refusal to lease; or at the close of escrow,
as to the exercise of any option to purchase or other sale transaction.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof, shall
be deemed to have assumed the respective obligations of Sublessor or Master
Lessor under this Paragraph 10. Broker shall be deemed to be a third-party
beneficiary of this paragraph 10.
11. Attorney's fees. If any party or the Broker named herein brings an action to
enforce the terms hereof or to declare rights hereunder, the prevailing party in
any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
Al1 parties to the Sublease and the Broker agree to the Arbitration of Disputes
language attached as Exhibit E.
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l2. Additional Provisions. [If there are no additional provisions draw a line
from this point to the next printed word after the space left here. If there are
additional provisions place the same here.]
Addendum #1
Exhibit A - Floor Plan
Exhibit C - Standard Lease Disclosure
Exhibit D - Agency Disclosure
Exhibit E - Arbitration of Disputes
If this Sublease has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Sublease or the transaction relating
thereto.
Executed at
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on July 8, 1997 By /s/ Douglas G. Dellin CEO
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address By
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- -------------------------------------- "Sublessor" (Corporate Seal)
Executed at Arterial Vascular Engineering, Inc.
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on July 9, 1997 By /s/ Lawrence J. Fassler
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address By General Counsel and Secretary
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- -------------------------------------- "Sublessee" (Corporate Seal)
Executed at
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on
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address By
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- -------------------------------------- "Master Lessor" (Corporate Seal)
Executed at
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on
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address By
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- -------------------------------------- "Guarantors"
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071. (213)
687-8777.
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ADDENDUM # 1
To Lease dated July 2, 1997 by and between
Sublessor Verticom, Inc., and Sublessee Arterial Vascular Engineering. Inc.
1. Tenant Improvement Scope:
Sublessor and Sublessee have approved plans and specifications covering the
layout of the premises and the scope of responsibility of the Tenant
Improvements between Sublessor and Sublessee as stipulated in lease, in the
Exhibit B of lease or Work Letter. Said approval shall be forthcoming
within thirty (30) days of acceptance hereof.
Sublessee to install Tenant Improvements in a quality good workmanlike
manner in accordance with approved plans and specification within sixty
(60) days of acceptance hereof.
Sublessor shall inspect said premises within three (3) business days of
completion to ascertain that Tenant Improvements have been installed in
accordance with plans and specifications. Sublessor shall provide a "punch
list" of items not in accordance with plans and specifications or not
installed in a good workmanlike manner. Sublessee shall have thirty (30)
days to correct said punch list items.
Sublessee shall remove all mechanic's liens, and will satisfy all claims
and meet all contract requirements with suppliers, contractors and
employees arising out of said installation of improvements. Sublessee to
have workman compensation and liability insurance with a minimum $1,000,000
per occurrence for said installation and to name Sublessor additional
insured. Sublessee shall indemnify and hold harmless Sublessor for all
claims of employees, invitees, materialmen, supplier arising out of said
installation.
2. Financial Information
Sublessor has reviewed and approved financial statements regarding
Sublessee.
3. Permits
If required Sublessee will obtain a use permit and a wastewater discharge
permit from the appropriate municipality within thirty (30) days of
acceptance hereof. Sublessee shall use due diligence in pursuing such
permits and pay all costs associated with them. Sublessee shall have the
responsibility to maintain any use permits and to comply with all terms and
conditions of said use permits during the term of this Lease. If
Sublessee's application for a use permit is denied, Sublessor or Sublessee
may declare this lease void, in which event all deposits and prepaid rent
shall be returned to Sublessee.
4. Hazardous Waste
Sublessee has provided Sublessor with its MSDA on the following chemicals -
Isopropyl alcohol, Posphoric Acid, Nitric Acid, Synergy CCS, Eposy Resin
and Oxalic Acid which may be stored on site. Sublessor has reviewed and
approved the use of these materials in the premises.
"If Sublessee, his invitees, employees, agents or associates cause or allow
a spill, or contamination of the premises, common area, soil or surrounding
area, then it will be the responsibility of Sublessee to clean up said
hazard to the degree required and within the time frame set by any public
entity which has jurisdiction and particularly in response to the Super
Fund Act and Proposition 65."
5. Area Measurement:
Sublessee and Sublessor has reviewed and approved the system of
measurement, the useable and rentable square footage of the subject
premises.
6. Associations and Expenses:
Sublessee has reviewed and approved CC&R's, any common area association and
budget, rules, expenses, and use conditions pertaining thereto. Sublessee
is not required to make any payments for common area charges detailed in
Paragraph 11.4 of the Master Lease.
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7. Rent:
This Sublease is on a Full Service Basis. There are no additional charges
in excess of the $12,500 per month rental charge contemplated by this
Sublease. The full service sublease includes the following services:
a. Janitorial service on every weekday (see janitorial below)
b. All utility services including sewer, water, electrical power, gas and
compressed air, (see utilities and facility requirements below).
All additional payments made by Sublessor to Masterlessor pursuant to the
terms of the Master Lease including the cost of property taxes (Paragraph
10.1), the cost of property insurance (Paragraph 8.2) and, the cost of
common area charges (Paragraph 11.4) shall remain the sole obligation of
the Sublessor.
8. Parking:
Sublessee shall be entitled to the use of sixty (60) parking spaces on an
unreserved basis free of charge.
9. Facility Requirements:
Sublessor shall provide the following services to the Sublessee:
a. Electrical - 225 amp, three phase supply; sublessee will distribute.
b. Compressed Air - 120PSI, CDA system, maximum 520 SCFH @ 120 PSI
c. Temperature and humidity support equipment to be furnished and
maintained by Verticom to achieve 68 to 73 degrees and 20%-70% relative
humidity.
d. 10" exhaust duct, AVE to supply fan and roof penetration.
While every possible attempt will be made to guarantee that all services,
facilities and systems are available for use by AVE at all times, VertiCom
will not be responsible for any charges or damages relating to mechanical
failure, system performance issues, maintenance downtime or any other
conditions that would temporarily prevent the services from being available
to AVE.
10. Janitorial Services:
Sublessor to provide Sublessee with daily janitorial service i.e., Monday
through Friday with a monthly expense cap of $1,200 per month. Any
specialized cleaning materials related to AVE's clean room operation will
be funished by AVE.
11. Utilities:
Sublessor shall provide Sublessee with all standard business park
utilities, however, electrical service shall be capped at $2,500 per month.
Any excess electrical charge attributable to AVE occupancy shall be paid by
AVE as additional rent with the following months rental payment.
12. Early Access:
Upon full execution of the Sublease Agreement, issuance of an insurance
certificate and payment of prepaid rent and security deposit, AVE will be
allowed access to the sublet premises to design and construct the proposed
interior improvements.
13. Roll-up Door Access:
Verticom to approve the use of the shipping and receiving docks by AVE for
the movement of large pieces of equipment with prior notification and
according to security procedures. No shared use of space is contemplated by
this Sublease.
Agreed by: Sublessee: /s/ Lawrence J. Fassler Date: 7/9/97
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Agreed by: Sublessor: /s/ Douglas G. Dellin Date: 7/8/97
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Chairman & CEO
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WORK LETTER
EXHIBIT B 1
Arterial Vascular Engineering, Inc. (AVE) and Verticom, Inc. (VI) are executing
simultaneously with this Letter Agreement, the written lease to which this
Letter Agreement is attached covering the premises described in said lease
(hereinafter called "the premises").
To induce AVE to enter into said lease (which is hereby incorporated by
reference to the extent that the provisions of this agreement may apply thereto)
and in consideration of the mutual covenants hereinafter contained, VI and AVE
mutually agree as follows:
1. AVE PLANS AND SPECIFICATIONS
(a) Except to the extent otherwise provided in subparagraphs (b) and (c) of this
paragraph, AVE agrees to furnish at its sole cost and expense, all
architectural, mechanical, and electrical engineering plans required for the
performance of the work herein below described, including complete detailed
plans and specifications for Lessee's partition layout, reflective ceiling,
heating and air conditioning, electrical outlets and switches and telephone
outlets. Eric Glass of Glass Architecture has been retained to perform
architectural services. A preliminary space plan has been attached as Exhibit
B2.
The layout shall be approved by each of the parties hereto and attached to this
lease and shall become a part thereof and shall be described as Exhibit B2.
(b) It is understood and agreed that any interior decorating service, such as
selection of special wall coverings, fixtures, carpeting, and any or all other
decorator items required by Lessee in the performance of said work referred to
hereinabove in subparagraph (a) shall be at AVE's sole cost and expense.
(c) It is understood and agreed that all plans and specifications referred to
hereinabove in subparagraph (a) are subject to VI's approval, which VI agrees
shall not be unreasonably withheld. It is also understood that VI is not making
any improvements to the premises and that the space is to be subleased on an
"as-is" basis except for seismic bracing of T-bar ceiling.
2. IMPROVEMENT WORK
AVE to install improvements in a good workmanlike manner and in accordance with
the City approved plans and specifications. AVE to proceed diligently with said
installation so as to meet the occupancy date stipulated in the lease. If AVE
encounters third party delays in completion of the improvements, and as long as
AVE maintains a best efforts basis to complete construction, then the occupancy
date and lease commencement date shall be extended by the amount of such delay.
A general contractor's cost breakdown is provided as Exhibit B3 for a scope of
work reference.
Upon termination of the Sublease, VI shall have the right to have AVE restore
the sublet premises to its original condition except for the toilet
improvements. AVE shall have the right to remove its trade fixtures including
clean room, HEPA filters, duct fan, chiller, office furniture, etc. AVE will
repair all damage caused by said removal.
SUBLESSOR SUBLESSEE
/s/ Douglas G. Dellin /s/ Lawrence J. Fassler
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EXHIBIT B2
Preliminary Space Plan
[GRAPHIC OMITTED]
<PAGE>
LEASING DISCLOSURE REGARDING
REAL ESTATE AGENCY RELATIONSHIP
When you enter into a discussion with a real estate agent regarding a real
estate transaction, you should from the outset understand what type of agency
relationship or representation you wish to have with the agent in the
transaction.
SUBLESSOR'S AGENT
A Sublessor's agent under a listing agreement with the Sublessor acts as the
agent for the Sublessor. A Sublessor's agent or a subagent of that agent has the
following affirmative obligations:
To the Sublessor:
(a) A fiduciary duty of utmost care, integrity, honesty and loyalty in dealing
with the Sublessor.
To the Sublessee and the Sublessor:
(a) Diligent exercise of reasonable skill and care in performance of the agent's
duties.
{b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting the
value or desirability of the property that are not known to, or within the
diligent attention and observation of, the parties.
An agent is not obligated to reveal to either party any confidential information
obtained from the other party which does not involve the affirmative duties set
forth above.
SUBLESSEE'S AGENT
A Sublessee's agent can, with a Sublessee's consent, agree to act as agent for
the Sublessee only. In these situations, the agent is not the Sublessor's agent,
even if by agreement the agent may receive compensation for services rendered,
either in full or in part from the Sublessor. An agent acting only for a
Sublessee has the following affirmative obligations.
To the Sublessee:
(a) A fiduciary duty of utmost care, integrity, honesty and loyalty in dealings
with the Sublessee.
To the Sublessee and the Sublessor:
(a) Diligent exercise of reasonable skill and care in performance of the agent's
duties.
(b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting the
value or desirability of the property that are not known to, or within the
diligent attention and observation of, the parties.
An agent is not obligated to reveal to either party any confidential information
obtained from the other party which does not involve the affirmative duties set
forth above.
AGENT REPRESENTING BOTH SUBLESSOR AND SUBLESSEE
A real estate agent, either acting directly or through one or more associate
licensees, can legally be the agent of both the Sublessor and the Sublessee in a
transaction, but only with the knowledge and consent of both the Sublessor and
the Sublessee.
In a dual agency situation, the agent has the following affirmative obligations
to both the Sublessor and the Sublessee.
(a) A fiduciary duty of utmost care, integrity, honest and loyalty in the
dealings with either Sublessor or Sublessee.
(b) Other duties to the Sublessor and the Sublessee as stated above in their
respective sections.
In representing both Sublessor and Sublessee, the agent may not, without the
express permission of the respective party, disclose to the other party that the
Sublessor will accept a rent less than the listed rent or that the Sublessee
will pay a rent greater than the rent offered.
The above duties of the agent in a real estate transaction do not relieve a
Sublessor or Sublessee from the responsibility to protect their own interests.
You should carefully read all agreements to assure that they adequately express
your understanding of the transaction. A real estate agent is a person qualified
to advise about real estate. If legal or tax advice is desired, consult a
competent professional.
You should read its contents each time it is presented to you, considering the
relationship between you and the real estate agent in your specific transaction.
We acknowledge receipt of a copy of this disclosure.
Sublessor/Sublessee /s/ Douglas G. Dellin Date 7/8/97
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Sublessor/Sublessee /s/ Lawrence J. Fassler Date 7/9/97
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SIGN BELOW TO AUTHORIZE TYPE OF AGENCY
Keegan & Coppin Company, Inc., is the agent of (check one).
(Name of Listing Agent)
The Sublessor exclusively; or
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X Both the Sublessee and Sublessor
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CONFIRMED AND AUTHORIZED:
Sublessor /s/ Douglas G. Dellin Date 7/8/97
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Sublessor Date
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Agent By Date
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Keegan & Coppin Company, Inc., is the agent of (check one):
(Name of Sublessee's agent)
The Sublessee exclusively; or
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The Sublessor exclusively; or
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X Both the Sublessee and Sublessor
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CONFIRMED AND AUTHORIZED:
Sublessee /s/ Lawrence J. Fassler Date 7/9/97
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Sublessee Date
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Agent By Date
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<PAGE>
EXHIBIT E
ARBITRATION OF DISPUTES
FOR LEASE
Any dispute or claim in law or equity arising out of this contract or any
resulting transaction shall be decided by neutral binding arbitration in
accordance with the rules of the American Arbitration Association, and not by
court action except as provided by California law for judicial review of
arbitration proceedings. Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. The parties shall have
the right to discovery in accordance with Code of Civil Procedure Section
1283.05. The following matters are excluded from arbitration hereunder: (a) a
judicial or non-judicial foreclosure or other action or proceeding to enforce a
deed of trust, mortgage, or real property sales contract as defined in Civil
Code Section 2985, (b) an unlawful detainer action, (c) the filing or
enforcement of a mechanic's lien, (d) any matter which is within the
jurisdiction of a probate court, or small claims court, or an action for bodily
injury or wrongful death, or for latent or patent defects to which Code of Civil
Procedure Section 337.1 or Section 337.15 applies. The filing of a judicial
action to enable the recording of a notice of pending action, for order of
attachment, receivership, injunction, or other provisional remedies, shall not
constitute a waiver of the right to arbitrate under this provision.
Any dispute or claim by or against broker(s) and/or associate licensee(s)
participating in this transaction shall be submitted to arbitration consistent
with the provision above only if the broker(s) and/or associate licensee(s)
making the claim or against whom the claim is made shall have agreed to submit
it to arbitration consistent with this provision.
"NOTICE: BY INITIALLING IN THE SPACE BELOW, YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW, AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN COURT OR JURY
TRIAL. BY INITIALLING IN THE SPACE BELOW, YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
'ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY."
"WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION."
( ) (/s/ LF) Lessee agrees ( ) ( ) Lessee does not agrees
---- ------- ---- ----
( ) (/s/ DGD) Lessor agrees ( ) ( ) Lessor does not agrees
---- ------- ---- ----
( ) (/s/ FR) Lessee's Broker agrees
---- -------
( ) ( ) Lessor's Broker agrees
---- -------
<PAGE>
<TABLE>
Exhibit B3
Dave Bailey Construction, Inc.
- --------------------------------------------------------------------------------
Contractors License No. 550323 55 St. James Drive 5/30/97
(707)579-4334 Santa Rosa, CA 95403
<CAPTION>
COST BREAKDOWN NOTES/CHANGES
Job: Applied Vascular Engnieering Circadian Way
- ------------------------------------------------------------------------------------------------------------------------------------
Item Cost
<S> <C> <C> <C>
1. Walls - complete $18,236. Framing, insulation and sheetrock, patching as required
2. HVAC $2,000. Allowance for duct relocation and restroom exhaust
3. Electrical $4,100. Allowance for light relocation, plugs, phone jacks and power poles in open areas
4. Acoutsic Ceiling $2,100. Vinyl tiles in clean room, gown and wash areas
5. Fire Sprinklers $1,550. Additional heads at new walls - allowance
6. Doors, Hdwr & Trim $4,430. Relocated doors and frames from Skylane
7. Interior glass $504. Tempered panels and new windows
8. Mini-blinds $0.
9. Cabinets & Shelves $540. Restroom counters
10. Painting $3,876. Paint new walls, doors and frames
11. Wallcovering $0.
12. Plumbing $8,500. Restroom plumbing allowance
13. Carpet/flooring/base $5,000. Patch VCT throughout, new rubber base at new walls - allowance
14. Restroom partitions $2,400.
15. Restroom accessories $1,500.
16. 0 $0.
17. Clean Room allowance $26,000. $15/sq.ft. allowance for clean room related HVAC, electrical and gas/air
18. 0 $0.
19. Concrete cut / patch $780. For restroom plumbing
20. Demolition $858. Wall cap, some walls, minimal floor areas
21. Dumpsters $280.
22. Lift rental $0.
23. Clean up $1,500.
24. Contingency $5,000. 5% for siesmic retrofit on grid and other unknowns.
25. Sub-contract Total $89,154.
26. Supervision and misc. $4,458.
27. Overhead and Profit $8,915.
28. Total of D.B.C. Costs $102,527.
29. Architertural/permit $0.
-----------------------------------------------------------------------------------------------------
30. ***TOTAL COST $102,527.
</TABLE>
<PAGE>
EXHIBIT C
STANDARD LEASE DISCLOSURE ADDENDUM
Notice to Owners, Buyers and Tenants Regarding Hazardous Waste or Substances
and Underground Storage Tanks
Comprehensive federal and state laws and regulations have been enacted in the
the last few years in an effort to develop controls over the use, storage,
handling, cleanup, removal and disposal of hazardous wastes or substances. Some
of these laws and regulations, such as, for example, the so-called "Super Fund
Act", provide for broad liability schemes wherein an owner, tenant or other user
of the property may be liable for cleanup costs and damages regardless of fault.
Other laws and regulations set standards for the handling of asbestos or
establish requirements for the use, modification, abandonment, or closing of
underground storage tanks.
It is not practical or possible to list all such laws and regulations in this
Notice. Therefore, lessors and lessees are urged to consult legal counsel to
determine their respective rights and liabilities with respect to the issues
described in this Notice as well as other aspects of the proposed transaction.
If various materials that have been or may be in the future determined to be
toxic, hazardous or undesirable, or are going to be used, stored, handled or
disposed of on the property, or if the property has or may have underground
storage tanks for storage of such hazardous materials, or that such materials
may be in the equipment, improvements or soil, it is essential that legal and
technical advice be obtained to determine, among other things, what permits and
approvals have been or may be required, if any, the estimated costs and expenses
associated with the use, storage, handling, cleanup, removal or disposal of the
hazardous wastes or substances and what contractual provisions and protection
are necessary or desirable. It may also be important to obtain expert assistance
for site investigations and building inspections. The past uses of the property
may provide valuable information as to the likelihood of hazardous wastes or
substances, or underground storage tanks being on the property.
The term "hazardous wastes or substances" is used in this Notice in its very
broadest sense and includes, but is not limited to, all those listed under
Proposition 65, petroleum base products, paints and solvents, lead, cyanide,
DDT, printing inks, acids, pesticides, ammmonium compounds, asbestos, PCBs and
other chemical products. Hazardous wastes or substances and underground storage
tanks may be present on all types of real property. This Notice is, therefore,
meant to apply to any transaction involving any type of real property, whether
improved or unimproved.
Although Keegan & Coppin Co., Inc. or its salespeople, will disclose any
knowledge it actually possesses with respect to the existence of hazardous
wastes or substances, or underground storage tanks on the property, Keegan &
Coppin Co., Inc. has not made investigations or obtained reports regarding the
subject matter of this Notice, except as may be described in a separate written
document, studies or investigation by experts. Therefore, unless there are
additional documents or studies attached to this notice, lease or contract, this
will serve as notification that Keegan & Coppin Co., Inc. or its salespeople
make no representation regarding the existence or non-existence of hazardous
wastes or substances, or underground storage tanks on the property. You should
contact a professional, such as a civil engineer, geologist, industrial
hygienist or other persons with experience in these matters to advise you
concerning the property.
Americans with Disabilities Act (ADA)
On July 26, 1991, the federal legislation known as the Americans with
Disabilities Act (ADA) was signed into law by President Bush. The purpose of the
ADA is to integrate persons with disabilities into the economic and social
mainstream of American life. Title III of the ADA applies to Lessors and Lessees
of "places of public accommodation" and "commercial facilities", and requires
that places of public accommodation undertake "readily achievable" removal of
communication and access barriers to the disabled. This requirement of Title III
of the ADA is effective January 26, 1992.
It is important that building owners identify and undertake "readily achievable"
removal of any such barriers in the common areas, sidewalks, parking lots and
other areas of the building under their control.
The lessor and lessee is responsible for compliance with ADA relating to removal
of barriers within the workplace i.e., arrangement of interior furnishings and
access within the premises, and any improvements installed by lessor and lessee.
Keegan & Coppin Company, Inc. recommends that both parties seek expert advice
regarding the implications of the Act as it affects this agreement.
Alquist-Priolo:
"The property which is the subject of this contract may be situated in a Special
Study Zone as designated under the Alquist-Priolo Geologic Hazard Act, Sections
2621-2625, inclusive, of the Caifornia Public Resources Code; and, as such, the
construction or development on this property of any structure for human
occupancy may be subject to the findings of geologic report prepared by a
geologist registered in the State of California, unless such report is waived by
the City or County under the terms of that act. No representations on the
subject are made by the lessor or agent, and the lessee should make his own
inquiry or investigation".
Flood Hazard Area Disclosure:
The subject property may be situated in a "Special Flood Hazard Area" as set
forth on a Federal Emergency Management Agency (FEMA) "Flood Insurance Rate Map"
(FIRM) or "Flood Hazard Boundary Map" (FHBM). The law provides that, as a
condition of obtaining financing on most structures located in a "Special Floods
Hazard Area", lender requires flood insurance where the property or its
attachments are security for a loan. Lessee should consult with experts
concerning the possible risk of flooding.
Acknowledgment:
Lessee: /s/ Lawrence J. Fassler Date: 7/9/97
------------------------ ------------
Lessor: /s/ Douglas G. Dellin Date: 7/8/97
------------------------ ------------
<PAGE>
INDUSTRIAL LEASE
BETWEEN
Santa Rosa Corporate Center Associates
as LANDLORD
and
Verticom, Inc.
as TENANT
<PAGE>
TABLE OF CONTENTS
PAGE
Defined Terms .................................... ii
Article 1. Parties ................................................... 1
Article 2. Premises .................................................. 1
Article 3. Term ...................................................... 1
Article 4. Rent ...................................................... 1
Article 5. Security Deposit .......................................... 3
Article 6. Use ....................................................... 3
Article 7. Maintenance, Repairs and Alterations ...................... 4
Article 8. Insurance; Indemnity ...................................... 7
Article 9. Damage or Destruction ..................................... 9
Article 10. Real Property Taxes ....................................... 10
Article 11. Common Areas .............................................. 11
Article 12. Utilities ................................................. 12
Article 13. Assignment and Subletting ................................. 12
Article 14. Defaults; Remedies ........................................ 14
Article 15. Condemnation .............................................. 16
Article 16. General Provisions ........................................ 16
Article 17. Performance Bond ...... ................................... 18
Article 18. Brokers ................................................... 18
Article 19. Interest on Past Due Obligations .......................... 19
Article 20. Interest Rate ............................................. 19
Article 21. Signs, etc. ............................................... 19
Article 22. Notices ................................................... 19
Article 23. Control of Lease Over Laws of General Application ......... 19
EXHIBIT A Map showing Park and Premises
EXHIBIT B Sign Criteria
EXHIBIT C Subordination, non-disturbance and Attornment Agreement
ADDENDUM 1 Hazardous Materials
i
<PAGE>
DEFINED TERMS
Defined Term Article in which Defined
Additional Rent ........................................................... 4.4
Adjustment Dates .......................................................... 4.3
Base Rent ................................................................. 4.2
Commencement Date ......................................................... 3.1
Common Areas ............................................................. 11.1
Condemnation .............................................................. 15
Consumer Price Index ...................................................... 4.3
Interest Rate ............................................................. 20
Landlord ........................................................... 1 and 16.2
Landlord Delay .......................................................... 3.2(d)
Option Period ............................................................. 3.4
Option Period Adjustment Dates .......................................... 4.5(b)
Park ...................................................................... 2
Preliminary Improvement Plan ............................................ 7.6(c)
Premises .................................................................. 2
Real Property Tax ........................................................ 10.2
Special Improvements .................................................... 7.6(a)
Target Date ........................ ...................................... 3.1
Tenant .................................................................... 1
Tenant Allowance ........................................................ 7.6(a)
Tenant Allowance Termination Date ....................................... 4.2(b)
Tenant Delay ............................................................ 3.2(c)
Third Party Delay ....................................................... 3.2(b)
Toxic Materials ........................................................... 6.3
ii
<PAGE>
INDUSTRIAL LEASE
-- MODIFIED NET --
1. Parties. This lease, dated for reference purposes only October 27, 1995, is
made by and between Santa Rosa Corporate Center Associates, a general
partnership (hereinafter called "Landlord"), and Verticom Inc., a California
Corporation (hereinafter called "Tenant").
2. Premises. Landlord hereby Leases to Tenant and Tenant Leases from Landlord
for the term, at the rental, and upon all of the conditions set forth herein,
that certain real property situated in the City of Santa Rosa, County of Sonoma,
State of California, and described as approximately 47,938 square feet, known as
Building B and located in the complex of office/research and development
buildings and related Common Areas (as hereinafter defined) commonly known as
Santa Rosa Corporate Center and more particularly described as assessor's Parcel
No. 035-133-019 (such complex hereinafter referred to as the "Park") Said
Building B, or portion thereof, is herein called the "Premises." The address of
the Premises is 1201 Corporate Center Parkway. A map showing the Park and
Premises outlined in blue is attached hereto as EXHIBIT A and by this reference
made a part hereof.
3. Term
3.1 Term. The term of this Lease shall be for One-Hundred-Twenty ( 120 )
months, unless sooner terminated pursuant to any provision hereof. The term
shall commence on December 15, 1995 (hereinafter referred to as the
"Commencement Date"), notwithstanding the fact that the Special Improvements to
the Premises (as defined in Section 7.6) may not be completed by said date.
3.2 Intentionally Omitted
3.3 Possession. Tenant shall be entitled to possession of the Premises
immediately upon commencement of the term of this lease, provided, however, that
Tenant shall be granted early access to the Premises upon mutual execution of
this Lease for the purpose of installing the Special Improvements as provided
for in Section 7.6 hereof. Any such early access shall be subject to the terms,
provisions and conditions of this Lease (except for the payment of Base Rent,
Common Area Charges and Real Property Taxes and (a) Tenant shall indemnify
Landlord with respect to all claims arising out of such access and provided in
Article 8.7, and (b) Tenant shall, prior to such access, deliver to Landlord a
certificate evidencing the existence and amount of insurance policies which
fulfill the requirements set forth in Article 8 but which, in addition, commence
prior to such early access and insure Landlord and Tenant against any liability,
loss or damage arising out of such early access. It is specifically acknowledged
and agreed that Tenant shall be responsible for the payment of utilities (as
defined in Section 12) during any such period of early access.
3.4 Intentionaily Omitted.
4. Rent
4.1 Time and Manner of Payment. Except as provided in the last sentence of
this Article 4.1, no Base Rent shall be due and owing hereunder until on and
after the Commencement Date. Tenant shall pay the monthly Base Rent for the
Premises in advance upon the Commencement Date and thereafter on the first day
of each month of the term hereof. All rentals shall be paid to Landlord, without
deductions of offset, in lawful money of the United States of America, at the
address set forth herein for delivery of notices to Landlord, or to such other
person or at such other place as Landlord may from time to time designate in
writing. Base Rent for any period during the term hereof which is for less that
one (1) month shall be a pro-rata portion of the monthly installment. Upon the
execution of this Lease, Tenant shall pay Landlord the sum of Thirty-Eight
Thousand Three Hundred-Fifty Dollars and Forty Cents ($ 38,350.40 ) as advance
payment of Base Rent for the first month of the initial term hereunder.
4.2 Base Rent
1
<PAGE>
(a) Subject to the rent adjustment provisions of Articles 4.2(b) and
4.3 hereof, Tenant shall pay to Landlord, without notice from Landlord, Base
Rent each month as follows (such rent, as adjusted from time to time hereunder,
hereinafter referred to as "Base Rent"):
MONTHS BASE RENT
------ ---------
1-120 $38,350.40 (subject to adjustment as
provided in Section 4.3.)
(b) Tenant shall be responsible from and after the Commencement Date
for all other items payable by Tenant hereunder whether or not such items are
designated as Additional Rent (defined in Article 4.4).
4.3 Adjustment of Base Rent During Initial Term. The Base Rent payable
hereunder shall be subject to an upward adjustment during the initial term of
this Lease on the following dates (the "Adjustment Dates"):
December 15, 1998 (thirty-seventh month) and December 15, 2001 (seventy-third
month).
The Base Rent payable hereunder shall be increased on each of the Adjustment
Dates to an amount determined by multiplying $38,350.40 by a fraction, the
numerator of which shall be the average of the three most recent monthly
Consumer Price Index (as hereinafter defined) figures published prior to the
date of such adjustment, and the denominator of which shall be the average of
the three most recent monthly Consumer Price Index figures published prior to
the Commencement Date; provided, however, that in no event shall the Base Rent
for any month be less than the Base Rent for the immediately preceding month,
nor shall the amount of the increase at each Adjustment Date be greater than
115% of the Base Rent Payable immediately prior to such Adjustment Date. As used
herein, the term "Consumer Price Index" shall mean the monthly United States
Department of Labor's Bureau of Labor Statistics Consumer Price Index, All Urban
Wage Earners and Clerical Workers, All Items, for San Francisco-Oakland (1967
equals 100). Should Landlord lack sufficient data to make the determination
specified in this section on the date of any such adjustment, Tenant shall
continue to pay the monthly Base Rent payable immediately prior to such
Adjustment Date. As soon as Landlord obtains the necessary data, it shall
determine the Base Rent payable from and after such Adjustment Date and notify
Tenant of the adjustment in writing. Should the monthly Base Rent for the period
following such Adjustment Date exceed the amount previously paid by Tenant for
such period, Tenant shall forthwith pays the difference to Landlord. If the
Consumer Price Index is changed so that the base year differs from that used as
of the month immediately preceding the Commencement Date, the Consumer Price
Index shall be converted in accordance with the conversion factor published by
the United States Department of Labor's Bureau of Labor Statistics. If the
Consumer Price Index is discontinued or revised during the term of this Lease,
such other government index or computation with which it is replaced shall be
used in order to obtain substantially the same result as would be obtained if
the Consumer Price Index had not been discontinued or revised.
4.4 Net Rental. Landlord shall receive the Base Rent set forth in this
Lease free and clear of any and all taxes (other than withholding taxes or
income taxes), utilities, insurance premiums described in Article 8, Common Area
charges described in Article 11.4, impositions, liens, charges or other expenses
of any nature whatsoever in connection with the ownership and operation of the
Premises during the term of this Lease. All such charges and expenses shall be
deemed additional rent ("Additional Rent") hereunder and upon the failure of
Tenant to pay any of such charges or expenses Landlord shall have the same
rights and remedies as otherwise provided in this Lease for the failure of
Tenant to pay Base Rent. In addition to the foregoing charges and expenses,
Tenant shall reimburse to Landlord as Additional Rent Landlord's cost of
administration and management of this Lease and the Common Areas, to be paid at
such time as other Additional Rent is required hereunder to be paid up to a
maximum amount of $300.00 per month.
2
<PAGE>
5. Security Deposit. Upon execution of this lease, Tenant shall deliver to
Landlord a security deposit in the amount of $651,956.80 (Initial Security
Deposit), as security for Tenants performance of all of Tenant's covenants and
obligations under this Lease; provided, however, that said Initial Security
Deposit shall not be deemed an advance rent deposit or an advance payment of any
other kind, or a measure of Landlord's damage upon Tenant's default. If Tenant
fails to pay Base Rent or Additional Rent as required hereunder, or otherwise
defaults with respect to any provision of this Lease, Landlord may use, apply or
retain all or any portion of said Initial Security Deposit for the payment of
any Base Rent or Additional Rent in default or for the payment of any other sum
which Landlord may become obligated by reason of Tenant's default, or to
compensate Landlord for any loss or damage which Landlord may suffer thereby,
including without limitation, the cleaning, restoration and repair of the
Premises. Landlord and Tenant agree that the Initial Security Deposit shall be
invested in an interest bearing "money market" account in the name of the
Landlord and shall be deposited at a interest rate and with a banking
institution of Landlord's choice, both in Landlord's sole and absolute
discretion. Tenant acknowledges that preservation of the principal balance of
the Initial Secuirty Deposit is an important consideration with respect to its
investment, and as such, Tenant hereby waives any claims, past, present or
future with respect to the method of investment of the Initial Security Deposit,
including, but not limited to, any claim that alternative investment options may
have earned a higher rate of interest; provided, however, that Landlord shall
bear all risk with respect to any loss or reduction in the principle balance of
the Initial Security Deposit.
Provided that (i) Tenant is not in breach of or in default under the Lease and
there exists no act or omission on the part of Tenant which, with the passage of
time or the giving of notice, or both would constitute a breach of or default
under the Lease, and (ii) the Initial Security Deposit has not been used,
applied or retained by Landlord pursuant to the foregoing provisions of this
Article 5, then (a) as and when the monthly installments of Base Rent come due
with respect to each of the second (2nd) through seventeenth (17th) months of
the Term, the Initial Security Deposit shall be reduced by the amount of
$38,350.40 and such amount will be applied as a credit to pay the respective
monthly installments of Base Rent as and when they become due during the second
(2nd) through the seventeenth (17th) months of the Term and (b) as and when the
monthly installment of Base Rent comes due with respect to the eighteenth (18th)
month of the Term, the entire remaining balance (including interest earned
thereon) of the Initial Security Deposit shall be disbursed to Tenant (as
opposed to being applied as a credit against Base Rent) provided; however, that
said disbursement shall be conditioned upon Tenant first providing Landlord a
cash deposit in the amount of $38,350.40 (Replacement Security Deposit), as
security for Tenant's continued faithful performance of all of Tenant's
covenants and obligations under this Lease. Landlord shall not be required to
keep said $38,350.40 Replacement Security Deposit as a separate fund, but may
commingle it with other funds. If Tenant performs all of Tenant's obligations
hereunder, said Replacement Security Deposit or so much as has not theretofore
been applied by Landlord, shall be returned, without payment of interest or
other increment for its use, to Tenant (or, at Landlord's option, to the last
assignee, if any, of Tenant's interest hereunder) within thirty (30) days after
the expiration of the term hereof, or after Tenant has vacated the Premises,
whichever is later.
6. Use.
6.1 Use. The premises shall be used and occupied only for research and
development, manufacturing, warehousing, sales, general office and related uses
and for no other purpose without prior written consent of Landlord, which
consent may be withheld or conditioned as Landlord may deem appropriate within
the exercise of its sole discretion. Tenant shall at its own cost and expense
obtain any and all licenses and permits necessary for any such use.
6.2 Compliance with Law. Tenant shall, at Tenant's expense, comply promptly
with all applicable statutes, ordinances, rules, regulations, orders, and
requirements in effect during the term of any part of the term hereof regulating
the use by Tenant of the Premises; provided that Tenant shall not be responsible
for making any structural changes to the Building that may be required by
applicable laws, unless such changes are necessitated by Tenant's acts, by
Tenant's business or use of the Premises or by improvements made by or for
Tenant. Tenant shall not use or permit the use of the Premises in any manner
that will tend to create waste or a nuisance or which shall tend to unreasonably
disturb other tenants in the Park.
6.3 Hazardous Materials. See Addendum I.
6.4 Condition of Premises. Tenant hereby accepts the Premises in their
condition existing as of
3
<PAGE>
the date of the possession hereunder, subject to all applicable zoning,
municipal, county and state laws, ordinances and regulations governing and
regulating the use of the Premises, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Tenant
acknowledges that neither Landlord nor Landlord's agent has made any
representation or warranty as to the suitability of the Premises for the conduct
of Tenant's business.
6.5 Landlord's Rules and Regulations. Tenant shall faithfully observe and
comply with the reasonable, nondiscriminatory rules and regulations that
Landlord shall from time to time promulgate. Landlord reserves the right from
time to time to make all reasonable modifications to said rules and regulations.
The additions and modifications to those rules and regulations shall be binding
upon Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any of said rules and
regulations by any other tenants or occupants provided that Landlord shall use
reasonable efforts to enforce such compliance. Notwithstanding any other
provision of this Article 6.5, Tenant shall in all events comply with all rules
and regulations of Landlord designed to maintain the first-class image and
aesthetically attractive nature of the Park.
7. Maintenance, Repairs and Alterations.
7.1 Landlord's Obligations. Subject to the limitations on Landlord's
obligations as set forth in Article 9, and except for damage caused by any
negligent or intentional act or omission of Tenant, Tenant's agents, employees,
or invitees, Landlord, at Landlord's expense, shall keep in good order,
condition and repair the structural components of the (i) foundations, (ii)
exterior walls and (iii) roof of the Premises. Notwithstanding the foregoing,
Landlord shall not be responsible for any such maintenance, upkeep or repairs of
the Premises to the extent that the same may be made necessary by or arise from
Tenant's placement or servicing of, or other activities in relation to the
location of, equipment on the roof (or penetration of the roof by such
equipment) of the Premises (regardless of Tenant's having obtained, prior to the
placement of any such equipment, the written approval of Landlord in accordance
with Article 7.5 hereof), and Tenant shall be solely responsible for and shall
pay the full cost of any such maintenance, upkeep or repairs. Landlord shall be
obligated to paint such exterior walls as reasonably required, in Landlord's
sole judgement. Landlord shall not be required to maintain the interior surface
of exterior walls, windows, doors or place glass. In the event Landlord paints
the exterior walls of the Premises, Landlord shall pay the costs thereof
provided, that if the painting of such walls is made necessary because of
Tenant's extraordinary or any acts of Tenant or its agents, employees,
independent contractors, quests or invites use of the Premises or Tenant's
failure to exercise ordinary care in its use and occupation of the Premises, all
of Landlord's costs and expenses in connection with painting the exterior walls
shall be borne by Tenant and shall become due and payable as Additional Rent
together with Tenant's next rental installment. Landlord shall make repairs
under this Article 7.1 within a reasonable time after receipt of written notice
of the need for such repairs, which notice Tenant shall give promptly after it
becomes aware of the need for such repairs. Tenant expressly waives the benefits
of any statute now or hereafter in effect which would otherwise afford Tenant
the right to make repairs at Landlord's expense, to deduct the cost of repairs
from Base Rent payable to Landlord or to terminate this Lease because of
Landlord's failure to keep the Premises in good order, condition and repair.
7.2 Tenant's Obligations. Subject to the provisions of Article 7.1 and
Landlord's obligations under Article 9, Tenant, at Tenant's expense, shall keep
in good order, condition and repair the Premises and every part thereof
(regardless of whether the damaged portion of the Premises or the means of
repairing the same are accessible to Tenant) including, without limiting the
generality of the foregoing, all plumbing, heating, air conditioning,
ventilating, electrical and lighting facilities and equipment within the
Premises fixtures, interior walls, ceilings, windows, doors, plate glass, and
roofing membrane and skylights located within the Premises and all truck loading
areas and tank farm areas adjacent to the Premises and other areas included
within the Premises,. Without limiting the generality of the foregoing, Tenant
shall be obligated to make such repair or alterations to the Premises
(including, without limitation, any improvements therein constructed by Tenant)
in compliance with all applicable statutes, ordinances, rules, regulations,
orders and requirements in effect during the term of this Lease, and such
repairs or alterations shall be constructed in a manner and with materials equal
to or better than the existing quality of the construction and materials of the
Premises and performed by a contractor approved by Landlord. At Tenant's sole
expense, Tenant shall hire and contract with a qualified heat, ventilation and
air conditioning maintenance service approved by Landlord to provide
inspections, repairs and maintenance of all such systems in the Premises. Such
inspections, repairs and maintenance shall be performed at a minimum frequency
of
4
<PAGE>
once each quarter. Tenant shall provide Landlord with a copy of Tenant's
maintenance service contract.
7.3 Surrender. On the last day of the term hereof, or on any sooner
termination, Tenant shall surrender the Premises to Landlord in good condition,
broom clean, uninsured casualty losses not caused by Tenant or Tenant's agents
or employees, ordinary wear and tear and repair obligations of Landlord under
this Lease excepted. Tenant shall repair any damage to the Premises occasioned
by its use thereof, or by the removal of Tenant's trade fixtures, furnishings
and equipment pursuant to Article 7.5, which repair shall include the patching
and filling of holes and repair of structural damage.
7.4 Landlord's Rights. If Tenant fails to perform Tenant's obligations
under any provision of this Lease, Landlord may, at its option (but shall not be
required to), enter upon the Premises, after ten (10) days prior written notice
to Tenant or with no prior written notice of an emergency, and put the same in
good order, condition and repair or otherwise perform Tenant's obligations
hereunder, and the cost thereof (including, without limitation, Landlord's
out-of-pocket expenses and reasonable attorneys' fees) together with interest
thereon at the Interest Rate (as defined hereafter) shall, after Landlord
notifies Tenant of such cost, become due and payable as Additional Rent to
Landlord together with Tenant's next rental installment.
7.5 Alterations and Additions.
(a) Tenant shall not, without Landlord's prior written consent, which
consent shall not be unreasonably withheld, make any alterations, improvements,
or additions in, on, or about the Premises, except for non-structural
alterations not exceeding Five Thousand Dollars ($5,000) in cost. In the event
Tenant requests Landlord to consent to such alterations, improvements or
additions, Tenant shall submit such information as Landlord may require,
including but not limited to (i) plans and specifications, (ii) permits,
licenses and bonds and (iii) evidence of contractor's insurance coverage in the
types and amounts as Landlord shall deem appropriate. As a condition to giving
such consent, Landlord may require that Tenant remove any such alterations,
improvements, additions or utility installations at the expiration of the term,
and restore the Premises to their prior condition, which requirement may be
imposed by Landlord at the time of giving such consent.
(b) Before commencing any work relating to alterations, additions and
improvements affecting the Premises, Tenant shall notify Landlord in writing of
the expected date of commencement thereof. Landlord shall then have the right at
any time and from time to time to post and maintain on the Premises such notices
as Landlord reasonably deems necessary to protect the Premises and Landlord from
mechanics' liens, materialmen's liens, or any other liens. In any event, Tenant
shall pay, when due, all claims for labor or materials furnished to or for
Tenant at or for use in the Premises. Tenant shall not permit any mechanics' or
materialmen's liens to be levied against the Premises for any labor or material
furnished to Tenant or claimed to have been furnished to Tenant or to Tenant's
agents or contractors in connection with work of any character performed or
claimed to have been performed on the Premises by or at the direction of Tenant.
(c) Unless Landlord requires their removal, as set forth in Article 7.5
(a), all alterations, improvements, or additions which may be made on the
Premises shall become the property of Landlord and remain upon and be
surrendered with the Premises at the expiration of the term. Notwithstanding the
provisions of this Article 7.5(c), Tenant's machinery, equipment and trade
fixtures other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises or which otherwise constitutes
real property or a fixture under California law, shall remain the property of
Tenant and may be removed by Tenant subject to the provisions of Article 7.3.
(d) Notwithstanding the provisions of subparagraph (b) above, if any
mechanics' or materialmen's lien is levied against the Premises for any labor or
material furnished to Tenant or claimed to have been furnished to Tenant or to
Tenant's agents or contractors in connection with work of any character
performed or claimed to have been performed on the Premises by or at the
direction of Tenant, and Tenant contests in good faith the subject claim, then
Tenant shall cause such lien to be released of record within twenty (20) days of
Tenant's acquiring knowledge of its filing by payment or posting of a proper
bond. If Tenant has not caused the lien to be so released within such 20-day
period, Landlord, in addition to all other remedies provided in this Lease and
by law, shall have the right, but shall not be obligated, to cause the lien to
be released by such means as Landlord
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deems proper, including payment of the claim giving rise to the lien. All
payments made and expenses incurred by Landlord in connection with lien shall be
considered Additional Rent pursuant to Article 14.5 below.
7.6 Special Improvements.
(a) Plans and Specifications. Tenant may cause the construction of
special improvements to the Premises ("Special Improvements), all in accordance
with the provisions set forth below.
Tenant shall deliver to Landlord preliminary plans ("Preliminary Plans"),
to be utilized in the preparation of final working drawings and specifications
for any Special Improvements. Promptly (but in no event less than three (3)
business days after its receipt of the Preliminary Plans), Landlord shall return
the same to Tenant marked and accompanied by comments and Landlord's required
revisions. Within five (5) days thereafter, Tenant shall submit two (2) sets of
revised Preliminary Plans, revised to reflect and conform to Landlord's comments
and requirements, to Landlord for its final review and approval. Within five (5)
days following Landlord's approval of the Preliminary Plans, Tenant shall cause
its architect to prepare and submit two (2) copies of working drawings and
specifications ("Working Plans") to Landlord for its review and approval.
Landlord shall advise Tenant promptly after landlord's receipt of the Working
Plans, but in no event less than three (3) business days after its receipt
thereof, of any required revisions. Within five (5) days thereafter, Tenant
shall submit two (2) copies of the revised Working Plans to Landlord for its
final review and approval.
Concurrently with the above review and approval process, Tenant shall
submit all plans and specifications to the City of Santa Rosa and other
applicable governmental agencies to obtain governmental approvals and issuance
of necessary permits and licenses to construct any Special Improvements as shown
on the Working Plans.
(b) Tenant shall cause the construction of any Special Improvements to be
carried out in compliance with the Working Plans and all applicable zoning laws
and regulations, applicable covenants, conditions, and restrictions, and
otherwise in compliance with the provisions of Article 7.2 of the Lease. Prior
to the commencement of construction, Tenant shall obtain course of construction
and builder's "all risk" insurance in such amounts and form as Landlord
requires, Liability insurance in the form and amounts required under the Lease,
and such performance bonds in form and amounts as Landlord requires.
Tenant shall cause the construction of any Special Improvements to be
carried out with such materials, equipment, contractors and subcontractors as
Tenant shall select, all of which shall be subject to Landlord's reasonable
approval. Within ten (10) days after the approval of the final Working Plans in
accordance with subparagraph (a) above or as soon as is reasonably possible
thereafter, Tenant shall submit to Landlord for its review and approval (i)
copies of all proposed construction contracts between Tenant and all contractors
and between such contractors and all subcontractors for any Special
Improvements, together with such background information on such contractors and
subcontractors as Landlord may require; (ii) a listing of the make, model, type,
grade, and all other characteristics requested by Landlord, of all materials,
equipment and fixtures which Tenant proposes to install in or use in connection
with any Special Improvements; and (iii) a budget setting forth in itemized
fashion the costs of all materials, equipment, fixtures, contractors,
subcontractors, laborers, permits, fees, licenses, and all other costs and
expenses Tenant proposes to incur in connection with the construction of any
Special Improvements (hereafter collectively any "Special Improvements Costs").
All such matters shall be subject to the approval of Landlord prior to the
commencement of construction of any Special Improvements, provided that Landlord
shall not unreasonably withhold its approval of any such matters and provided,
further, that Landlord's failure to respond in writing to Tenant's request for
approval of any such matter within five (5) business days shall be deemed to be
an approval of such matter.
Tenant shall have the responsibility to obtain all necessary construction
and building permits and licenses necessary for the construction of any Special
Improvements. Tenant shall cause construction of any Special Improvements in a
good and workmanlike manner in strict accordance with the approved Working
Plans. All Special Improvements Costs shall be paid for by and shall be the sole
responsibility of the Tenant, including without limitation all costs of
utilities, services and insurance on the Premises arising out of the
construction of the Special Improvements. All
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construction of the Special Improvements shall be performed and completed lien
free, and Tenant hereby indemnifies and agrees to defend and hold Landlord and
the Premises free and harmless from any and all claims, losses, damages, actions
and causes of action as may be incurred as a result of work performed or
materials furnished in connection with construction of the Special Improvements.
Landlord shall have the right to post notices of non-responsibility prior to the
commencement of construction of the Special Improvements.
(c) Tenant may from time to time request and obtain change orders
during the course of construction of the Special Improvements, provided that:
(i) each such request shall be reasonable and in writing
signed by or on behalf of Tenant;
(ii) each such request shall not result in any major
structural change in the Building or Special Improvements;
(iii) Landlord shall have the right to approve or disapprove
any requested change order, which approval shall not be unreasonably withheld;
(iv) all costs arising out of any approved change order, if
any, shall be borne by Tenant;
(v) any resulting delay in the completion of the Special
Improvements arising out of such change order shall not delay or extend the
Commencement Date.
(d) Landlord agrees to provide Tenant an allowance, (the "Allowance"),
in the amount of Three-Hundred and Fifty-Thousand Dollars ($350,000) to defer
costs associated with occupation of the Building; use of the allowance to be at
the sole discretion of Tenant. Landlord to deliver the Three-Hundred and
Fifty-Thousand Dollars ($350,000) to Tenant within seven (7) business days from
deposit as required in paragraph 5.
(e) Throughout the course of construction of any Special Improvements,
Landlord shall have the unconditional right to review and inspect such
construction by and through its agents and employees, including without
limitation Landlord's Architect. If at any time Landlord disapproves of the
materials or workmanship of any Special Improvements by Tenant, Landlord shall
promptly give Tenant written notice thereof specifying the deficiencies or
defects therein. Upon receipt of any such notice, Tenant shall immediately
commence correction of the defect or deficiency in a manner and to a condition
acceptable to Landlord. Should Tenant fail to commence to complete any such
correction as herein provided, or should Landlord deliver to Tenant three (3) or
more such notices during the course of construction of any Special Improvements,
Landlord shall have the immediate right to order the discontinuance of any
further construction of any Special Improvements by or on behalf of Tenant, and
the Landlord may, but shall not be obligated to, complete the construction of
any such Special Improvements in accordance with the Working Plans. Should
Landlord elect to complete any Special Improvements as herein provided, Landlord
shall be entitled to recover the costs of completing said construction, and any
additional costs incurred in connection therewith shall be the obligation of and
shall be paid by Tenant within ten (10) days after written demand by Landlord.
8. Insurance; Indemnity.
8.1 Liability Insurance. Tenant shall obtain and keep in force during the
term of this Lease a policy of comprehensive public liability insurance insuring
Landlord and Tenant against any liability arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be in an amount of not less than Three Million Dollars
($3,000,000) combined single limit for injury or death of any person or persons
and damage to property on an occurrence basis. The limit of said insurance shall
not, however, limit the liability of Tenant hereunder. Said insurance policy
shall not be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to Landlord. In
the even the Premises constitute a part of a larger property said insurance
shall have a Landlord's Protective Liability endorsement attached thereto. If
Tenant shall fail to procure and maintain said insurance Landlord may, but shall
not be required to, procure and maintain the same, but at the expense of Tenant.
Tenant shall, prior to possession of the Premises, deliver to Landlord a
certificate evidencing the existence and amount of the public liability
insurance required hereunder. Tenant shall be responsible
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for payment of any deductible amount required under such policy of insurance.
8.2 Property Insurance. Landlord shall obtain and keep in force during the
term of this Lease (i) a policy or policies of insurance covering loss or damage
to the Premises, in the amount of the full replacement value thereof, providing
protection against all peril included within the classification of fire,
extended coverage, vandalism, malicious mischief, special extended perils
(excluding earthquake and flood if not available at commercially reasonable
rates) (all risk) and sprinkler leakage, (ii) full coverage plate glass
insurance on the Premises, (iii) boiler machinery insurance on all boilers, air
conditioning equipment, and other pressure vessel systems located in, on, or
about the Premises with limits of not less than One Million Dollars ($1,000,000)
per occurrence, (iv) rent (including Additional Rent as specified in this Lease)
loss insurance in favor of Landlord insuring Landlord against any loss of rental
from damage or destruction of the Premises for a period of at least one year
from the date of such damage or destruction. Landlord may also obtain (but shall
not be obligated to do so) such other insurance as may be required by the
holder(s) of a mortgage or deed of trust on the Premises or by prudent property
management practices if available at commercially reasonable rates. Said
insurance shall provide for payment for loss thereunder to Landlord or to the
holder(s) of a mortgage or deed of trust on the Premises.
8.3 Personal Property Insurance. Tenant shall keep in force during the term
of this Lease insurance against loss or damage by fire and such other risk and
hazards as are insurable under present and future standard forms of fire and
extended coverage insurance policies, to the personal property, furniture,
furnishings and fixtures belonging to Tenant located in the Premises for not
less than 100% of the actual replacement value thereof. Tenant shall be
responsible for payment of any deductible amount required by this Article 8.3.
8.4 Insurance Policies. Insurance required hereunder shall be in companies
rated "A8" or better in "Best Insurance Guide" or as otherwise approved by
Landlord. Whether the insuring party under the provisions of this Article 8 is
Landlord or Tenant, Tenant shall, as Additional Rent for the Premises, pay the
cost of all insurance required hereunder. Tenant shall, within ten (10) days
following demand by Landlord, reimburse Landlord for the cost of insurance
obtained by Landlord. Tenant shall, forthwith upon Landlord's demand, reimburse
Landlord for any additional premiums attributable to any act or omission or
operation or Tenant causing such increase in the cost of insurance.
8.5 Waiver of Subrogation. Subject to first obtaining approval of the
insurer and an endorsement to the applicable policies of insurance, Tenant and
Landlord each waives any and all rights of recovery against the other or against
the officers, employees agents and representatives of the other, for loss of or
damage to such waiving party or its property or the property of others under its
control, where such loss or damage is insured against under any insurance policy
in force at the time of such loss or damage.
8.6 Insurance Cancellation. Tenant shall not do anything, or permit
anything to be done, in or about the Premises that shall (a) invalidate or be in
conflict with the provisions of any fire or other insurance policies covering
the Premises or the Park or any property located therein, (b) result in a
refusal by casualty insurance companies of good standing to insure the Premises
or the part or any such property in amounts reasonably satisfactory to Landlord,
(c) subject Landlord to any liability or responsibility for injury to any person
or property by reason of any business operation being conducted in or about the
Premises, (d) cause any increase in the casualty insurance rates applicable to
the Premises at the beginning of the term of this Lease or at any time
thereafter or (e) be in violation of any certificate of occupancy for the
Premises. Tenant, at Tenant's expense, shall comply with all rules, orders,
regulations and requirements of the American Insurance Association (formerly the
National Board of Fire Underwriters) and of any similar body that shall
hereafter perform the function of such association.
8.7 Hold Harmless. Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims, losses, costs, damages, liabilities, or causes
of action (including attorney's fees) arising from Tenant's use of the Premises
or from the conduct of its business or from any activity, work or things which
may be permitted or done by Tenant in or about the Premises and shall further
indemnity, defend and hold Landlord harmless from and against any and all
claims, losses, costs, damages, liabilities or cause of action (including
attorney's fees) arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the provisions of this
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Lease or arising from any negligence or intentional act of Tenant or any of its
agents, contractors, employees or invitees and from any and all costs,
attorney's fees, expenses and all liabilities incurred in the defense of any
such claim or action or proceeding brought thereon. Without limiting the
generality of the foregoing, the foregoing indemnity and agreement by Tenant to
defend and hold Landlord harmless shall extend to any claims, losses, costs,
damages, liabilities, or causes of action (including attorney's fees) arising
out of or pertaining to failure by Tenant to comply with all laws and
regulations concerning the protection of or discharge of materials into the
environment. Tenant hereby assumes all risk of damage to property or injury to
persons in or about the Premises from any cause, and Tenant hereby waives all
claims in respect thereof against Landlord, excepting where said damage arises
out of negligence of Landlord. Nothing in this article 8.7, however, shall
require Tenant to indemnify, defend or hold Landlord harmless from any claims,
liabilities or expenses to the extent such claims, liabilities or expenses are
due to Landlord's or Landlord's agents, employees or contractors active
negligence or willful misconduct.
9. Damage or Destruction.
9.1 Partial Damage--Insured. If the Premises are damaged and such damage
was caused by a casualty covered under an insurance policy required to be
maintained pursuant to Article 8.2, Landlord shall, at Landlord's expense,
repair such damage as soon as reasonably possible, and this Lease shall continue
in full force and effect. Notwithstanding the foregoing, Landlord shall not be
required to expend for repairs any funds in excess of the insurance proceeds
received by Landlord relating to such damage, nor shall Landlord be responsible
for repair or replacement of any of Tenant's personal property, alterations to
the Premises not approved by Landlord or any other property of Tenant, and
Tenant shall be required to pay the portion of repair costs covered by any
deductible amount under the subject insurance policy whether or not the total
cost of repair exceeds such deductible amount. In the event that the insurance
proceeds otherwise payable by virtue of the damage are reduced or rendered
completely unavailable because of acts or omissions of Tenant causing
cancellation of, or giving rise to insurer defenses under the insurance policy,
Tenant shall be obligated to pay such excess.
9.2 Damage--Uninsured. In the event the Premises may be damaged by a
casualty which is not covered by fire and extended coverage insurance carried by
Landlord, then Landlord shall have the option to restore the Premises or elect
not to restore and to terminate this Lease. Landlord must give Tenant written
notice of its election not to restore within sixty (60) days from the date
Landlord receives notice of such damage, and, if not given, Landlord shall be
deemed to have elected to restore and in such event shall repair any damage as
soon as reasonably possible, at Landlord's cost. In the event Landlord elects to
give such notice of Landlord's intention to cancel and terminate this Lease,
Tenant shall have the right within ten (10) days after receipt of such notice to
give written notice to Landlord of Tenant's intention to repair such damage at
Tenant's expense, without reimbursement from Landlord, in which event this Lease
shall continue in full force and effect and Tenant shall proceed to make such
repairs as soon as reasonably possible. If Tenant does not give such notice
within such ten (10) day period, this Lease shall be cancelled and terminated as
of the date of the occupance of such damage.
9.3 Total Destruction. If at any time during the term hereof the Premises
are totally destroyed from any cause whether or not covered by the insurance
required to be maintained by Landlord pursuant to Article 8.2 (including total
destruction required by any authorized public authority). Landlord shall have
the option to terminate this Lease as of the date of such total destruction.
Subject to Article 9.6, if Landlord elects not to terminate this Lease, the
provisions of Article 9.1 and 9.2 shall be applicable.
9.4 Damage Near End of Term. If the Premises are partially destroyed or
damaged during the last twelve (12) months of the term of this Lease, Landlord
or Tenant may, at Landlord's or Tenant's option cancel and terminate this Lease
as of the date of occurrence of such damage by giving written notice to Landlord
or Tenant of Landlord's or Tenant's election to do so within thirty (30) days
after Landlord receives notice of the occurrence of such damage.
9.5 Abatement of Rent.
(a) If the premises are partially destroyed or damaged and Landlord or
Tenant repairs or restores them pursuant to the provisions of this Article 9,
the Base Rent payable hereunder for the
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period during which such damage, repair or restoration continues shall be abated
in proportion to the degree to which Tenant's reasonable use of the Premises is
substantially impaired. Except for abatement, if any, of Base Rent, Tenant shall
have no claim against Landlord for any damage suffered by reason of any such
damage, destruction, repair or restoration, unless Landlord unreasonably
interferes with the conduct of Tenant's business within the Premises.
(b) If Landlord shall be obligated to repair or restore the Premises
under the provisions of this Article 9 and shall not commence such repair or
restoration within sixty (60) days after such obligations shall accrue, Tenant
may, at Tenant's option, cancel and terminate this Lease by giving Landlord
witten notice of Tenant's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice. The commencement of preparation of
plans and/or specifications or application for permits for repair or restoration
shall be deemed commencement of repair or restoration within the meaning of the
foregoing provisions of this Article 9.5(b).
9.6 Tenant's Right to Terminate: If Landlord elects to repair any damage or
destruction to the Premises under this Article 9, then unless such damage or
destruction is caused by an act of Tenant or Tenant's use of the Premises,
Tenant shall have the right to terminate this Lease if Landlord's reasonable
estimate of the time required to repair such damage or destruction exceeds one
hundred eighty (180) days. Tenant shall exercise such right to terminate, if at
all, within ten (10) days after receipt of Landlord's estimate, and if not
exercised within such ten (10) day period such right shall terminate and be of
no further force or effect.
10. Real Property Taxes.
10.1 The Payment of Taxes. Tenant shall pay to Landlord as Additional Rent
all real property taxes applicable to the Premises and Tenant's pro-rata share
(computed in accordance with Article 11.4) of all real property taxes applicable
to the Common Areas during the term of this Lease. All such payments shall be
made to Landlord on or before the later to occur of (a) 30 days following
Landlord's issuance of a bill therefore, accompanied by a copy of Real Estate
Tax invoice or (b) fifteen (15) days prior to the delinquency date of such
payment. If any such taxes paid by Tenant shall cover any period of the time
prior to or after expiration of the term hereof, Tenant's share of such taxes
shall be equitably prorated to cover only the period of time within the tax
fiscal year during which this Lease shall be in effect. If Tenant shall fail to
pay such taxes to Landlord by the aforesaid date, the amount due Landlord shall
bear interest at the Interest Rate from the date the sum is due until Landlord
is paid by Tenant. The sum, together with interest, shall be deemed Additional
Rent hereunder.
10.2 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of assessment (other than the improvement
bond assessment existing as of the date of this lease), license fee, rent, tax,
levy, penalty, imposition or tax, of whatever nature (other than franchise,
corporate, inheritance or estate taxes) imposed by any authority having the
direct or indirect power to tax, including city, county, state or federal
government, or any school, agricultural, lighting, drainage, traffic mitigation
costs or other improvement district thereof, as against any legal or equitable
interest of Landiord in the Premises or in the real property of which the
Premises are a part, as against Landlord's right to Base Rent or other income
therefrom, or as against Landlord's business of leasing the Premises, and Tenant
shall pay any and all charges and fees which may be imposed by the EPA or other
similar governmental regulations or authorities.
10.3 Joint Assessment. If the Premises are not separately assessed,
Tenant's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Landlord from the respective valuations
assigned in the assessor's work sheets or other such information as may be
reasonably available. Landlord's reasonable determination thereof, in good
faith, shall be conclusive. In the event that the Premises and related,
supporting Common Areas are not the subject of a separate legal parcel and,
accordingly, separate real property tax assessment, then Tenant shall pay a
portion of the real property taxes for all land and improvements included within
the Common Areas, Tenant's share of Common Area real property taxes to be
determined on the basis of the percentage set forth in Article 11.4.
10.4 Personal Property Taxes.
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(a) Tenant shall pay prior to delinquency all taxes assessed against
and levied upon Leasehold improvements, fixtures, furnishings, equipment and all
other personal property of Tenant contained in the Premises or elsewhere. Tenant
shall use its best efforts to cause Leasehold improvements, trade fixtures,
furnishings, equipment, and all other personal property to be assessed and
billed separately from the real property of Landlord.
(b) If any of Tenant's personal property shall be assessed with the
real property, Tenant shall pay Landlord the taxes attributable to Tenant within
ten (10) days after receipt of a written statement setting forth the taxes
applicable to Tenant's property.
11. Common Areas. When, in fact, there are Common Areas, then the following
shall apply:
11.1 Definitions. The phrase "Common Areas" means all areas and facilities
outside of the Premises that are provided and designated for general use and
convenience of Tenant and other tenants and their respective officers, agents
and employees, customers and invitees. Common Areas include (but are not limited
to) pedestrian sidewalks, landscaped areas, roadways, parking areas and railroad
tracks, if any, but specifically do not include areas covered by or within
building improvements constructed from time to time by Landlord in the Park.
Landlord reserves the right from time to time to make changes in the shape,
size, location, number and extent of the land and improvements constituting the
Common Areas provided, however, that no such change shall (a) materially
increase the obligations or decrease the benefits of Tenant hereunder, or (b)
impair Tenant's access to the Premises, and, if appropriate, Tenant's pro rata
share of Common Area Charges shall be properly adjusted. Landlord may designate
from time to time additional parcels of land for use as a part thereof; and any
additional land so designated by Landlord for such use shall be included until
such designation is revoked by Landlord.
11.2 Maintenance. During the term of this Lease, Landlord shall operate,
manage, repair and maintain the Common Areas so that they are clean and free
from accumulation of debris, filth, rubbish and garbage. Landlord shall maintain
the Common Areas in a good, safe and clean condition and the use of the Common
Areas shall be subject to such reasonable regulations and changes therein as
Landlord shall make from time to time, including (but not by way of limitation)
the right to close from time to time, if necessary, all or any portion of the
Common Areas to such extent as may be legally sufficient, in the opinion of
Landlord's counsel, to prevent a dedication thereof or the accrual of rights of
any person or the public therein, or to close temporarily all or any portion of
such Common Areas for such purposes.
11.3 Tenant's Rights and Obligations. Landlord hereby grants to Tenant,
during the term this Lease, the non-exclusive right to use, for the benefit of
Tenant and its officers, agents, employees, customers, and invitees, in common
with the others entitled to such use, the Common Areas as they from time to time
exist, subject to the rights, powers, and privileges herein reserved to
Landlord. Tenant shall not use the Common Areas for the conduct of its business
other than for parking. Without limiting the foregoing, storage, either
permanent or temporary, of any materials, supplies, equipment or refuse in the
Common Areas is strictly prohibited. Should Tenant violate this provision of the
Lease, then in such event, Landlord may, at its option, upon five (5) days
written notice to Tenant either terminate this Lease, or, without further notice
to Tenant, remove said materials, supplies or equipment from the Common Areas
and place such items in storage, the cost thereof to be reimbursed by Tenant
within ten (10) days from receipt of a statement submitted by Landlord. All
subsequent costs in connection with the storage of said items shall be paid to
Landlord by Tenant as accrued. Failure of Tenant to pay these charges within ten
(10) days from receipt of statement shall constitute a material breach of this
Lease. Tenant and its officers, agents, employees, customers and invitees shall
park their motor vehicles only in areas designated by Landlord for that purpose
from time to time. Tenants shall not at any time park or permit the parking of
motor vehicles, belonging to it or to others, so as to interfere with the
pedestrian sidewalks, roadways, and loading areas, or in any portion of the
parking areas not designated by Landlord for such use by Tenant. Tenant agrees
that receiving and shipping goods and merchandise and all removal of refuse
shall be made only by way of the loading areas constituting part of the
Premises. Tenant shall repair, at its cost, all deterioration or damage to the
Common Areas occasioned by its lack of ordinary care. Tenant acknowledges that
the Premises are burdened by certain recorded covenants, conditions and
restrictions and agrees to comply with the provisions thereof.
11.4 Common Area Charges. Tenant shall pay to Landlord within 10 days
following demand
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by Landlord, as Additional Rent, (a) Tenant's pro rata share of the cost of (i)
operation and management of the Common Areas, including without limitation
utility and insurance charges, (ii) maintenance, repairs and replacements (other
than those replacements which by their nature are considered capital
improvements) to Common Areas or to any property or improvements located
thereon, and (iii) maintenance of storm drains located outside the Park which
are maintained by Landlord, and which service the Park and (b) the entire amount
of such costs and charges to the extent required by reason of any negligent act
or omission by Tenant or its agents, invitees, licensees, employees or
contractors. Tenant's pro rata share shall be computed by multiplying the
aforementioned costs and charges times a percentage obtained by dividing the
total square footage of the Premises by the total building square footage of the
whole of Landlord's buildings and improvements within the Park. The percentage
will initially be Twenty and six-five tenths percent (20.65%). Anything
contained in the Lease to the contrary notwithstanding, Common Area charges
described in this Article shall exclude: (i) additions to the Common Area; (ii)
depreciation on the Premises or any of the Common Areas, other than depreciation
on personal property actually used in the maintenance and operation of the
Premises or the Common Areas; (iii) all costs of tenant improvements and the
cost of any special utility or VAC services supplied to Tenant or any other
tenants; (iv) attorneys' fees incurred in preparing, reviewing or enforcing
leases; (v) real estate brokerage commissions; (vi) fines and penalties; (vii)
loan fees, points and other financing costs; and (viii) any costs reimbursed to
Landlord by other tenants or from insurance of condemnation proceeds.
11.5 Construction. Landlord or Tenant, while engaged in constucting
improvements or making repairs or alterations in or about the Premises or in
their vicinity, shall have the right to make reasonable use of the Common Areas.
12. Utilities. Tenant shall pay for, as Additional Rent, all water, gas, heat,
light power, telephone and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Tenant. Tenant shall pay a reasonable proportion to be
determined by Landlord of all charges jointly metered with other premises.
13. Assignment and Subletting.
13.1 Assignment, Mortgage and Subletting.
(a) Neither Tenant, nor Tenant's legal representatives, successors or
assigns, shall assign, mortgage or encumber this Lease, or sublease, or use or
occupy or permit the Premises or any part thereof to be occupied by others
without the prior written consent of Landlord, and any assignment, mortgage,
encumbrance or sublease without Landlord's prior written consent shall be
voidable, at the option of Landlord, and, at the further option of Landlord,
shall terminate this Lease. Landlord shall consent to an assignment of the Lease
or subletting to any corporation which controls, is controlled by or is under
common control with Tenant, or to a transfer of the Lease by operation of law
resulting from a merger, consolidation, liquidation, or change in fifty percent
(50%) or more of the voting control of Tenant, or to any person or entity which
acquires all of the assets of Tenant's business as a going concern, provided
that (i) the business reputations, creditworthiness and net worth of the person
or entity to which the Lease is assigned or transferred or the Premises are
sublet are reasonably acceptable to Landlord, (ii) such person or entity uses
the Premises for the purposes specified in the Lease and for no other purpose,
and (iii) Tenant remains fully liable under this Lease. If this Lease be
assigned, or if the Premises or any part thereof be subleased or occupied by any
other party other than Tenant, Landlord may, after default by Tenant, collect
Base Rent and Additional Rent from the Assignee, Sublease or occupant and apply
the net amount collected to the Base Rent and Additional Rent herein reserved,
but no such assignment, sublease occupancy or collection shall be deemed a
waiver of this covenant or the acceptance of the assignee, sublessee or occupant
as Tenant, or release of Tenant from the further performance by Tenant of the
obligations on the part of Tenant herein contained. Any sale or other transfer,
including consolidation, merger, or reorganization, of a majority of the voting
stock of Tenant, if Tenant is a corporation, or any sale or other transfer of a
majority of the partnership interests in the Tenant, if Tenant is a partnership,
shall be an assignment for purposes of this Article 13.1. As used in this
Article 13.1 the term "Tenant" shall also mean any entity that has guaranteed
Tenant's obligations under this Lease, and the prohibition hereof shall be
applicable to any sales or transfers of the stock or partnership interests of
said guarantor.
(b) Notwithstanding any contrary provision of the foregoing, but
subject to Article 13.1(d),
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Tenant may assign this Lease or sublease the Premises upon the following express
conditions:
(1) that Tenant provide Landlord with written notice of its intent to
assign or sublease the Premises, which notice is accompanied by copies
of the proposed assignment or sublease to be executed by Tenant and the
proposed assignee or sublessee and all documents relating thereto, at
least ten (10) days before the effective date of the proposed
assignment or sublease;
(2) that the proposed assignee or sublessee shall be subject to the
prior written consent of landlord, which consent will not be
unreasonably withheld, but without limiting the generality of the
foregoing, it shall be reasonable for Landlord to deny such consent if:
(i) the use to be made of the Premises by the proposed
assignee or sublease (x) is not generally consistent with the
character and nature of all other tenancies in the Park, or
(y) conflicts with any so-called "exclusive" then in favor of,
or for any use which is the same as that stated in any
percentage Lease to, another tenant of the Park, or (z) would
be prohibited by any other portion of this Lease; or
(ii) the character, creditworthiness, reputation and financial
responsibility of the proposed assignee or sublessee are not
satisfactory to Landlord;
(3) that Tenant shall pay to Landlord Landlord's then standard
processing fee and shall reimburse Landlord for all reasonable
attorney's fees incurred by Landlord in connection therewith, not to
exceed $1,000, whether or not such proposed assignment or sublease is
consented to by Landlord;
(4) that any proposed assignee shall execute an assignment and
assumption agreement on Landlord's then standard form, pursuant to
which it shall agree to perform faithfully and be bound by all of the
terms, covenants, conditions, provisions and agreements of this Lease.
Any such agreement shall be delivered to Landlord not later than 5 days
after the effective date thereof;
(5) that any proposed subleasee shall execute a sublease agreement in
form satisfactory to Landlord, pursuant to which it agrees to
faithfully perform and to be bound by all of the terms, conditions and
agreements of this Lease as the same relate to the subleased Premises.
Any such agreement shall be delivered to Landlord not later than five
days after the effective date thereof; provided, however, that such
agreement shall not be binding upon Landlord until the delivery thereof
to Landlord and the execution and provided, however, that such
agreement shall not be binding upon Landlord until the delivery thereof
to Landlord and the execution and delivery of Landlord's consent
thereto; and;
(6) that the consent by Landlord to an assignment or sublease shall not
in any way be construed to relieve Tenant or the assignee or the
sublessee from obtaining the express consent in writing of Landlord to
any further assignment or sublease or to release Tenant from any
liability whether past, present or future under this lease or to
release Tenant from any liability under this Lease because of
Landlord's failure to give notice of default under or in respect of any
of the terms, covenants, conditions, provisions or agreements of this
Lease.
(7) that Tenant shall not be in default under the terms and provisions
of this Lease as of the date of the proposed assignment or sublease.
(c) In the event Landlord consents to an assignment of this Lease and
Tenant receives cash or other consideration, in respect of such assignment,
Tenant shall pay to Landlord, upon receipt thereof, seventy-five percent (75%)
of any such cash or other consideration received by Tenant which is properly
attributable to the assignment, after first deducting therefrom any leasing
commission paid for by Tenant and the cost of necessary improvements to the
Premises approved by Landlord and paid for by Tenant, and Tenant's out of pocket
costs incurred in connection with such assignment sublease. In the event that
Landlord consents to a sublease of the Premises, Tenant shall pay to Landlord,
upon receipt thereof, seventy-five percent (75%) of any rent or other
consideration received by Tenant as a result of such Sublease, after first
deducting therefrom any leasing commissions paid for
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by Tenant in connection with such sublease, whether denominated as rent under
the sublease or otherwise, and Tenant's out of pocket costs incurred in
connection with such assignment sublease which exceed, in the aggregate, the
Base Rent and Additional Rent (prorated to reflect obligations allocable to that
portion of the Premises subject to such sublease).
(d) Notwithstanding the foregoing provisions of this Article 13, it is
expressly agreed and understood that Landlord shall have the option to terminate
this Lease rather than approve the assignment or sublease hereof. Tenant
understands and acknowledges that such option is a material inducement for
Landlord's agreeing to lease the Premises to Tenant upon the terms and
conditions herein set forth. Should Landlord elect to terminate the Lease,
Tenant shall have three (3) business days to withdraw the request for
Assignment.
14. Defaults; Remedies.
14.1 Defaults. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant.
(b) The failure by Tenant to make any payment Base Rent or Additional
Rent required to be made by Tenant hereunder as when due, except that Tenant
shall have a grace period of five (5) days after delivery of written notice from
Landlord (which notice Tenant agrees shall be inclusive of and in lieu of the
notice requirements of California Civil Code sec. 1161). Notwithstanding the
foregoing, Landlord shall not be required to provide such written notice more
than two (2) time in each twelve (12) month period after the commencement Date.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions, or provisions of this Lease to be observed or performed by Tenant,
other than described in paragraph (b) above, where such failure shall continue
for a period of thirty (30) days after written notice thereof from Landlord to
Tenant provided, however, that if the nature of Tenant's default is such that
more than thirty (30) days are reasonably required for its cure, then Tenant
shall not be deemed to be in default if Tenant commenced such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(d) (i) The making by Tenant of any general assignment, or general
assignment for the benefit of creditors; (ii) the filing by or against Tenant of
a petition to have Tenant adjudged bankrupt or petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
(e) The failure by Tenant to substantially complete the Special
Improvements to the Premises on or before March l, 1996.
14.2 Remedies in Default. In the event of any such default or breach by
Tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including be not limited to:
(i) the cost of recovering possession of the Premises; and
(ii) expenses of reletting, including necessary renovation and
alteration of the Premises; and
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(iii) reasonable attorney's fees, any real estate commission
actually paid, and that portion of the leasing commission, if any, paid by
Landlord pursuant to Article 18 applicable to the unexpired term of this Lease;
and
(iv) the worth at the time of award of the unpaid Base Rent
and Additional Rent that had been earned at the time of termination of this
Lease; and
(v) the worth at the time of award of the amount by which the
unpaid Base Rent and Additional Rent that could have been earned after the date
of termination of this Lease until the time of award exceeds the amount of the
loss of rental that Tenant proves could have been reasonably avoided; and
(vi) the worth at the time of award of the amount by which the
unpaid Base Rent and Additional Rent that could have been earned for the balance
of the term of this Lease after the time of award exceeds the amount of the loss
of Base Rent that Tenant proves could have been reasonably avoided; and
(vii) any other amount, and court costs, necessary to
compensate Landlord for all detriment proximately caused by Tenant's default.
Unpaid installments of Base Rent or Additional Rent shall bear interest from the
date due at the Interest Rate. In the event Tenant shall have abandoned the
Premises, Landlord shall have the option of (1) retaking possession of the
Premises and recovering from Tenant the amount specified in this Article 14.2(a)
or (2) proceeding under article 14.2(b). As used in this paragraph, the term
"the worth at the time of award" is to be computed by discounting the amount of
award by the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award, plus one percent (1%).
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event, Landlord shall be entitled to all of Landlord's rights
and remedies under this Lease including the right to recover Base Rent and
Additional Rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State of California.
14.3 Default by Landlord. Landlord shall not be in default unless Landlord
fails to perform obligations required by Landlord within a reasonable time, but
in no event later than thirty (30) days after written notice by Tenant to
Landlord and to holder of any mortgage or deed of trust covering the Premises,
whose name and address shall have theretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of the Landlord's obligation is such that
more than (30) days are required for performance, then Landlord shall not be in
default if Landlord or any such lienholder commences performance within such
thirty (30) period and thereafter diligently prosecutes the same to completion.
14.4 Late Charges. Tenant hereby, acknowledges that late payment by Tenant
to Landlord of Base Rent or Additional Rent due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the term of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Base Rent or Additional Rent due from Tenant
shall not be received by Landlord or Landlord's designee within ten (10) days
after said amount is past due, then Tenant shall pay to Landlord a late charge
of five percent (5%) of such overdue amount, and interest shall accrue on the
overdue installment at the Interest Rate calculated from the time that payment
was first due under the terms of this Lease. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the cost Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
14.5 Cure by Landlord. Landlord, at any time after Tenant commits a
default, which remains uncured after any applicable cure period, may take steps
to remedy the default at Tenant's cost. If Landlord at any time, by reason of
Tenant's default, pays any sum or does any act that requires the
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payment of any sum, the sum paid by Landlord at the time the sum is paid shall
be due immediately from Tenant to Landlord, and if paid at a later date shall
bear interest at the Interest Rate from the date the sum is paid by Landlord
until Landlord is reimbursed by Tenant. The sum, together with interest shall be
deemed Additional Rent hereunder.
15. Condemnation.
If the Premises or any portion thereof are taken under the power of
eminent domain, or sold by Landlord under the threat of the exercise of said
power (all of which is herein referred to as "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever occurs first. If more than twenty-five percent
(25%) of the floor area of the Premises is taken by condemnation, or parking is
taken such that 25% or more of the floor area of the Premises becomes unusable
by Tenant, either Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes possession by notice in writing of such election
within twenty (20) days after Landlord shall have notified Tenant of the taking,
or, in the absence of such notice, then within twenty (20) days after the
condemning authority shall have taken possession. If this Lease is not
terminated by either Landlord or Tenant then it shall remain in full force and
effect as to the portion of the Premises remaining, provided that unless and
until the Premises are restored as provided in the next sentence, the Base Rent
shall be reduced in the proportion that the floor area taken bears to the total
original floor area of the Premises. In the event this Lease is not so
terminated, then Landlord agrees, at Landlord's sole cost, as soon as reasonably
possible, to restore the Premises to a complete unit of like quality and
character as existed prior to the condemnation. All awards for the taking of any
part of the Premises or any payment made under the Threat of the exercise of
power of eminent domain shall be the property of Landlord, whether made as
compensation for diminution of value of the Leasehold or for the taking of the
fee or as severance damages; provided, however, that Tenant shall be entitled to
any separate award for loss of or damage to Tenant's trade fixtures, removable
personal property, and moving expenses.
16. General Provisions.
16.1 Tenant Estoppel; Financial Statements.
(a) Tenant shall at any time upon not less than fifteen (15) days prior
written notice from landlord, execute, acknowledge and deliver to Landlord a
statement in writing certifying that this Lease is unmodified and in full force
and effect without any claim by Tenant against Landlord (or, if modified,
stating the nature of such modification and certifying that this Lease, as so
modified, is in full force and effect) and the date to which the rent, security
deposit, and other charges are paid in advance, if any. Any such statement may
be conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises.
(b) Tenant's failure to deliver such statement within such time period
shall be conclusive upon Tenant that (i) this Lease is in full force and effect
and without any claim of Tenant against Landlord, without modification except as
may be represented by Landlord, and (ii) not more than one (1) month's rent has
been paid in advance.
(c) If Landlord desires to finance or refinance the Premises, or any
part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial statements of Tenant as may be reasonably required by
such lender. Such statements shall include the past three (3) years' financial
statements of Tenant. All such financial statements shall be received by
Landlord and/or Landlord's lender in confidence and shall be used only for the
purposes herein set forth.
16.2 Landlord's Interest. The term "Landlord" as used herein shall mean
only the owner or owners at the time in question of the fee title or a tenant's
interest in a ground Lease of the Premises. In the event of any transfer of such
title or interest, and assumption of the Landlord's interest herein by the
transferee Landlord herein named (and in case of any subsequent transfers, the
then grantor) shall be relieved from and after the date of such transfer of
liability as respects Landlord's obligations thereafter to be performed,
provided that any funds in the hands of Landlord or the then grantor at the time
of such transfer, in which Tenant has an interest, shall be delivered to the
grantee. The obligations contained in this Lease to be performed by Landlord
shall, subject as aforesaid, be binding upon Landlord's successors and assigns,
only during their respective periods of ownership. Tenant hereby agrees to
attorn any assignee of Landlord's interest hereunder, whether such assignment is
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voluntary or by operation of law.
16.3 Severability. In the event any term, covenant, condition, provision or
agreement herein is held to be invalid or void by any court of competent
jurisdiction, the invalidity of any such term, covenant, condition, provision or
agreement shall in no way affect any other term, covenant, condition, provision
or agreement herein contained.
16.4 Time of Essence. Time is of the essence.
16.5 Captions. Article and paragraph captions are not a part hereof.
16.6 Incorporation of Prior Agreement; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may me modified in writing only, signed by the paries in interest at
the time of the modification.
16.7 Waivers. No waiver by Landlord of any provision hereof shall be deemed
a waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. Landlord's consent to or approval of any act
shall not be deemed to render unnecessary the obtaining of Landlord's consent to
or approval of any subsequent act by Tenant. The acceptance of Base Rent or
Additional Rent hereunder by Landlord shall not be a waiver of any existing
breach by Tenant of any provision hereof, other than the failure of Tenant to
pay the particular Base Rent or Additional Rent so accepted, regardless of
Landlord's knowledge of such existing breach at the time of acceptance of such
Base Rent or Additional Rent.
16.8 Short Form Lease. Tenant agrees to execute, deliver and acknowledge,
at the request of Landlord, a short form of this Lease satisfactory to counsel
for Landlord, and Landlord may in its sole discretion record this Lease or such
short form in the county where the Premises are located. Tenant shall not record
this Lease, or a short form of this Lease, without Landlord's prior written
consent.
16.9 Holding Over. If Tenant remains in possession of the premises or any
part thereof after the expiration of the term hereof with the express written
consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental equal to 125% of the amount of the last monthly Base Rent plus all other
charges payable hereunder, and upon the terms hereof applicable to month to
month tenancy. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof without the express written
consent of Landlord, Tenant shall be in default of this Lease and Landlord shall
be entitled to pursue any remedy now or hereafter available to Landlord under
the laws or judgment decisions of the State of California.
16.10 Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive, but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
16.11 Covenants and Conditions. Each provision of this Lease performable by
Tenant shall be deemed both a covenant and a condition.
16.12 Binding Effect; Choice of Law; Proration. Subject to any provisions
hereof restricting assignment or subletting by Tenant and subject to the
provisions of Article 13.1, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by and
construed in accordance with the laws of the State of California. All prorations
shall be on the basis of a thirty (30) day month.
16.13 Subordination. Tenant agrees that this Lease shall be subordinate to
any mortgages or deeds of trust that may hereafter be placed upon the Premises
and to any and all advances to be made thereunder, and to the interest thereon,
and all renewals, replacements and extensions thereof. Within fifteen (15) days
after written request from Landlord, Tenant shall execute any documents that may
be necessary or desirable to effectuate the subordination of this Lease to any
such mortgages or deeds of trust and shall execute estoppel certificates as
requested by Landlord from time to time in the standard form of any such
mortgagee or beneficiary. Anything contained in the Lease to the contrary
notwithstanding, Tenant's obligation to subordinate its rights under the Lease
to a subsequent ground lessor, mortgagee, beneficiary under a deed of trust, or
any lending entity, shall be conditioned upon Landlord first delivering to
Tenant a nondisturbance agreement from such ground lessor, mortgagee,
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beneficiary or lender substantially in the form of Exhibit "C" attached hereto,
which form is hereby approved by Tenant.
16.14 Attorney's Fees. If either party named herein brings an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees and court costs to be paid by the losing party as fixed by the
court.
16.15 Landlord's Access. Landlord and Landlord's agents shall have the
right to enter the Premises at reasonable times upon reasonable notice (or,
during emergencies, at any time) for the purpose of inspecting the same, showing
the same to prospective tenants, purchasers or lender, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Landlord may deem necessary or desirable.
16.16 Quiet Enjoyment. Upon Tenant's paying the Base Rent and any
Additional Rent required hereunder and performing all of Tenant's obligations
under this Lease, Tenant may peacefully and quietly enjoy the Premises during
the term of this Lease as against all persons or entities lawfully claiming by
or through Landlord.
16.17 Merger. The voluntary or other surrender of this Lease by Tenant or
termination of this Lease by Tenant's default, or a mutual cancellation thereof,
shall not work a merger, and shall, at the option of Landlord, terminate all or
any existing subtenancies, or may at the option of Landlord, operate as an
assignment to Landlord of any or all of such subtenancies.
16.18 Authority. Each individual executing this Lease on behalf of a party
hereto represents and warrants that he is duly authorized to execute and deliver
this Lease on behalf of said party, and that this Lease is binding upon said
party corporation in accordance with its terms.
16.19 Landlord's Liability. The liability of Landlord hereunder or in
connection with the Premises shall be limited to its interest therein, and in no
event shall any other assets Landlord or any constituent partner of Landlord be
subject to any claim arising out of or in connection with this Lease.
16.20 Financing. Tenant shall not execute any document purporting to affect
the Premises or any other property of which the Premises are a part, including,
without limitation, any financing statement, without prior written consent of
Landlord, which may be withheld or conditioned in Landlord's sole discretion.
16.21 Landlord's Approval. The review, approval, inspection or examination
by Landlord of any item to be reviewed, approved, inspected or examined by
Landlord under the terms of this Lease or the exhibits attached hereto shall not
constitute the assumption of any responsibility by Landlord for either the
accuracy or sufficiency of any such item or the quality or suitability of such
item for its intended use. Any such review, approval, inspection or examination
by Landlord is for the sole purpose of protecting Landlord's interest in the
Park and under this Lease, and no third parties, including, without limitation,
Tenant or any person or entity claiming through or under Tenant, or the
contractors, agents, servants, employees, visitors or licensees of Tenant or any
such person or entity, shall have any rights hereunder.
17. Performance Bond. At any time Tenant either desires to or is required to
make any repairs, alterations, additions, improvements or utility installation
thereon, pursuant to Articles 7.2, 7.5 or 9.2 herein or otherwise, Landlord may,
at its sole option, require Tenant, at Tenant's sole cost and expense, to obtain
and provide to Landlord payment and performance bonds in amounts equal to one
and one-half (1-1/2) times the estimated cost of such repairs or improvements,
to insure Landlord against any liability for mechanics' and materialmen's liens
and to insure completion of the work.
18. Brokers. It is acknowledged and agreed by both parties that C.B. Commercial
and Wayne Mascia & Associates are the only brokers representing either party in
this transaction. It is agreed that Landlord will pay a commission for this
Lease transaction and CB Commercial and Wayne Mascia Associates split, 50/50,
the commission for the remaining term of the existing Tenant's (Henkel Research
Corporation) lease term. For the remaining term of the Lease, Wayne Mascia
Associates will receive 100% of the proceeds. The commission shall be calculated
at the rate of 5% of the Base Rent for the first 60 months of the Lease Term and
2% of the Base Rent for the remaining 60 months of the Lease Term. Apart from
the foregoing, each party represents that it
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has not had any dealings with any real estate broker, finder, or other person,
with respect to this Lease in any manner and that no commissions are due to any
brokers whatsoever other than such commissions as may be due or may become due
to the above-named brokers. Each party agrees to defend indemnify and hold
harmless the other party from and against all costs, expenses, and/or damages,
resulting from any claims that my be asserted against such other party by any
broker, finder, or other person, with whom the indemnifying party has or
purportedly has dealt.
19. Interest on Past Due Obligations. Except as expressly herein provided, any
amount due to Landlord not paid when due shall bear interest at the Interest
Rate from the due date. Payment of such interest shall not excuse or cure any
default by Tenant under this Lease.
20. Interest Rate. As used herein, the term "Interest Rate" shall mean a per
annum rate of interest equal to three percentage points (3%) above the rate most
recently announced by Wells Fargo Bank, National Association, at its principal
office in San Francisco as its "Prime Rate" serving as the basis upon which
effective rates of interest are calculated for those transactions making
reference thereto, but in no event in excess of the then highest applicable
usury limit, if any, under Federal or state law.
21. Signs, etc. Tenant may affix and maintain on the exterior of the Premises
only such signs, names, insignia, trademarks and other descriptive material of
any kind as shall have first received the written approval of Landlord as to
type, size, color, location and other design qualities. Landlord review of
proposed signs and other items described in this Article 21 shall be made in
accordance with the sign criteria attached hereto as EXHIBIT B. The provisions
of this Article 21 shall likewise apply to any signs or other item as aforesaid
which may be placed in any window area within and which shall be visible for the
exterior of the Premises. Notwithstanding any other provision of this Lease, in
no event shall Tenant make any other alterations or additions to or improvement
on or visible from the exterior of the Premises without Landlord's prior
written consent, which may be withheld in Landlord's sole and absolute
discretion.
22. Notices. Whenever under this Lease provision is made for any demand, notice
or declaration of any kind, or where it is deemed desirable or necessary by
either party to give or serve any such notice, demand or declaration to the
other party, it shall be in writing and served either personally or sent by
registered United States mail, postage prepaid, return receipt requested,
addressed at the address set forth hereinbelow:
To Landlord: Santa Rosa Corporate Center Associates
Attention: John W. Hopkins
2255 Challenger Way, Suite 101
Santa Rosa, CA 95407
with a copy to: Metropolitan Life Insurance Company
Attention: Assistant Vice President & Regional
Manager
101 Lincoln Centre Drive, 6th Floor
Foster City, CA 94404
with a copy to: O'Donnell, Hopkins & Partners
Attention: Mr. Donald Grant
2201 Dupont Drive, Suite 100
Irvine, CA 92715
To Tenant: H.O.H. Burkhardt
Vice President
Verticom, Inc.
1269 Corporate Center Parkway
Santa Rosa, CA 95407
23. Control of Lease Over Laws of General Application. Tenant hereby
acknowledges and agrees that the terms, covenants, conditions and provisions of
the Lease shall control the rights and obligations of Landlord and Tenant with
regard to the subject matter of the Lease, and shall
19
<PAGE>
supersede any laws of general application which would otherwise control if the
Lease was silent as to such matters, including but not limited to the provisions
of Sections 1941 and 1942 of the California Civil Code and any similar or
successor laws regarding Tenant's right to make repairs to the Premises at the
expense of Landlord (governed by Article 7 of the Lease); the provisions of
Sections 1932 (2) and 1933 (4) of the California Civil Code and any similar or
successor laws regarding the termination of leases based upon damage or
destruction of leased premises (governed by Article 9 of the Lease); the
provisions of Section 1265.130 of the California Code of Civil Procedure
regarding petitions to courts of law to terminate a lease in the event of a
partial taking by condemnation (governed by Article 15 of the Lease); and the
provisions of California code of Civil Procedure
The parties hereto have executed this Lease on the dates specified
immediately adjacent to their respective signatures.
Executed at Santa Rosa, California on Nov 3, 1995.
LANDLORD: TENANT:
SANTA ROSA CORPORATE CENTER VERTICOM, INC.
ASSOCIATES, a California
general partnership
By: By: /s/ Richard E. Hejmanowski
O'Donnell, Hopkins & --------------------------
Partners/San Francisco Richard E. Hejmanowski
a California partnership Its: CEO and President
By: /s/ Donald S. Grant By: /s/ H.O.H. Burkhardt
---------------------------- ---------------------------
Donald S. Grant H.O.H. Burkhardt
Trustee of the Its: Vice President and CFO
Donald S. Grant Revocable
Trust dated May 5, 1987,
partner
-OR-
By: /s/ John W. Hopkins
---------------------------
John W. Hopkins, Partner
20
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
LOGO
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, May
19, 1997, is made by and between SBR Development, A California General
Partnership ("Lessor") and Arterial Vascular Engineering, Inc. ("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2(a) Premises: That cetain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 7975 Cameron Center Dr., Bldgs 100 &
300, located in the City of Windsor, County of Sonoma, State of California, with
zip code 95492, as outlined on Exhibit A attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): Approximately 7,920
s.f. warehouse shell, the Lessee will be responsible to construct and pay for
Lessee's tenant improvement work - See Addendum #1, Paragraph 57. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Industrial Center". (Also
see Paragraph 2.)
1.2(b) Parking: ______________ unreserved vehicle parking spaces
("Unreserved Parking Spaces"); and 24 reserved vehicle parking spaces ("Reserved
Parking Spaces"). (Also see Paragraph 2.6.) See Addendum No. 1, Paragraph 54.
1.3 Term: five (5) years and 0 months ("Original Term") commencing August
1, 1997 ("Commencement Date") and ending July 31, 2002 ("Expiration Date").
(Also see Paragraph 3.)
1.4 Early Possession: ________________________ ("Early Possession Date").
(Also see Paragraphs 3.2 and 3.3.) See Addendum #1 Paragraph 58.
1.5 Base Rent: $4,435 per month ("Base Rent"), payable on the first day of
each month commencing September 1997. (Also see Paragraph 4.)
[x] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 60, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $4,435 as Base Rent for the period
August 1997.
1.6(b) Lessee's Share of Common Area Operating Expenses: one hundred
percent (100%) ("Lessee's Share") as determined by [x] prorata square footage of
the Premises as compared to the total square footage of the Building or [ ]
other criteria as described in Addendum __.
1.7 Security Deposit: $4,400 ("Security Deposit"). (Also see Paragraph 5.)
1.8 Permitted Use: General purpose warehouse with ancillary office and lab
functions ("Permitted Use"). (Also see Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] ___________________ represents Lessor exclusively ("Lessor's Broker");
[ ] _________________ represents Lessee exclusively ("Lessee's Broker"); or
[x] Keegan & Coppin Company, Inc. represents both Lessor and Lessee ("Dual
Agency"). (Also see Paragraph 15.)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$13,837.20 for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 64, and Exhibits A through D, all of which
constitute a part of this Lease. No Paragraph 49 or 63.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning,
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given with six (6) months following the Commencement
Date and setting forth with specificity the nature and extent of such
non-compliance, take such action, at Lessor's expense, as may be reasonable or
appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
<PAGE>
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas--Definition. The form "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general non-
exclusive use of Lessor, Lessee and other Lessors of the Industrial Control and
their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas--Lessee's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 Common Areas--Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereto in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas--Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof;
and
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date. Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written, notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
SEE ADDENDUM NO. 1, PARAGRAPH 60
(ii) The cost of water, gas, electricity and telephone to service
the Common Areas.
(iii) Trash disposal.
(iv) Omitted
(v) Any increase above the Base Real Property Taxes (as defined
in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph 8.1).
(viii) Omitted
(ix) Omitted
(b) Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12 month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of each over-
-2-
<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted Use
set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conlict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof other than
as set forth in Exhibit E, Lessee shall not engage in any activity in or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Requirements (as defined in Paragraph 6.3). "Reportable Use" shall
mean (i) the installation or use of any above or below ground storage tank, (ii)
the generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and (iii) the presence in, on or about the Premises of a
Hazardous Substance with respect to which any Applicable Laws require that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but upon notice to Lessor and in compliance with all Applicable
Requirements, use any ordinary and customary materials reasonably required to be
used by Lessee in the normal course of the Permitted Use, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring properties
to any meaningful risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may (but without any obligation to do
so) condition its consent to any Reportable Use of any Hazardous Substance by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier termination)
of reasonably necessary protective modifications to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, and shall
make available a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies available to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilating systems for the Premises. However, Lessor reserves the right, upon
notice to Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if available.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, shall keep in good order,
condition and repair the foundations, exterior walls, structural condtion of
interior bearing walls, except those built by Lessee, exterior roof, fire
sprinkler and/or standpipe and hose (if located in the Common Areas) or other
automatic fire extinguishing system including fire alarm and/or smoke detection
-3-
<PAGE>
systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condtion and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a) except as set forth in this lease, Lessee
shall not make nor cause to be made any Alterations or Utility Installations in,
on, under or about the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without Lessor's consent but upon notice to Lessor
so long as they are not visible from the outside of the Premises, do not involve
puncturing, relocating or removing the roof or any existing walls, or changing
or interfering with the fire sprinkler or fire detection systems and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $2,500.00.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Unless otherwise instructed per Subparagraph 7.4(b) hereof or
elsewhere in this lease, all Lessee-Owned Alterations and Utility Installations
shall, at the expiration or earlier termination of this Lease, become the
property of Lessor and remain upon the Premises and be surrendered with the
Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) As used herein, the term "Insurance Cost Increase" is defined as
any increase in the actual cost of the insurance applicable to the Building and
required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall include,
but not be limited to, requirements of the holder of a mortgage or deed of trust
covering the Premises, increased valuation of the Premises, and/or a general
premium rate increase. The term "Insurance Cost Increase" shall not, however,
include any premium increases resulting from the nature of the occupancy of any
other lessee of the Building. If the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered the "Base Premium." If a dollar amount has
not been inserted in Paragraph 1.9 and if the Building has been previously
occupied during the twelve (12) month period immediately preceding the
Commencement Date, the "Base Premium" shall be the annual premium applicable to
such twelve (12) month period. If the Building was not fully occupied during
such twelve (12) month period, the "Base Premium" shall be the lowest annual
premium reasonably obtainable for the Required Insurance as of the Commencement
Date, assuming the most nominal use possible of the Building. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to
Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability insurance
described in Paragaph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender or included in the Base Premium),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss payable
to Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year (including
all Real Property Taxes, insurance costs, all Common Area Operating Expenses and
any scheduled rental increases). Said insurance may provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
negligent or wrongful acts, omissions, use or occupancy of the Premises.
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(d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timley manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbling, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center except to the extent such liability arises
from Lessor's negligence or willful misconduct and is not covered by insurance
that Lessee is required to carry under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destructions.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage and
destruction. In addition, damage and destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premise Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Premises Partial Damage-Insured Loss. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 Partial Damage-Uninsured Loss. If Premises Partial Damage that is not
an Insured Loss occures, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage totally at Lessee's expense and without reimbursement from
Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof with thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is not legally responsible, the Base Rent, Common
Area Operating Expenses and other charges, if any, payable by Lessee hereunder
for the period during which such damage or condition, its repair, remediation or
restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess of proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement of
Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 Hazaradous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination--Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2. Any Real
Property Tax increase attributable to a sale of the building shall not be
included in the calculation of Common Area Operating Expenses.
10.2 Real Property Tax Definitions.
(a) As used herein, the term "Real Property Taxes" shall include any
form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "Base Real Property Taxes" shall be the
amount of Real Property Taxes, which are assessed against the Premises, Building
or Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d).
12. Assignment and Subletting. See Addendum #1, Paragraph 61
12.1 Lessor's Consent Required.
(a) Lessee shall not assign, mortgage or otherwise encumber
(collectively, "assign") or sublet all or any part of Lessee's interest in this
Lease or in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) Omitted
(c) Omitted
(d) A permitted assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation of obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liablity of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone
else responsible for the performance of the Lessee's obligations under this
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment of subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1 shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased by an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the Security Deposit
increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein up to and to the extent
of Lessee's obligations under this Lease:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon recept of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have the right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurence for
legal services and costs in the preparation and service of a notice of Default,
and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said default. A "Default" by Lessee is defined
as a failure by Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
by Lessee is defined as the occurence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor upon request with reasonable written evidence of (i)
compliance with Applicable Requirements per Paragraph 6.3, (ii) the inspection,
maintenance and service contracts required under Paragraph 7.1(b), (iii) the
rescission of an unauthorized assignment or subletting per Paragraph 12.1, (iv)
a Tenancy Statement per Paragraph 16 or 37, (v) the subordination or
non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this lease, where any
such failure continues for a period of ten (10) days following written notice by
or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurence of any of the following events: (i) the making by
Lessee of any general arrangement or assigment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within (30) days, or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provisions of this Subparagraph 13.1(e) is contrary to any applicable law, such
provisions shall be of no force or effect, and shall not affect the validity of
the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining or reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, as its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, resonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of awards plus one percent (1%).
Efforts by Lessor to mitigate damages caused be Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such pro-
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statue shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notices to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Omitted.
15.3 Omitted.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealing with any person, firm, broker or
finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the Indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within ten
(10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statments for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereinafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability of Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2 (e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists, nor
shall such consent by deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
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<PAGE>
37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Windsor, CA Executed at: ______________________
on: 6/3/97 on: _______________________________
By LESSOR: By LESSEE:
SBR, A California General Part ___________________________________
By: /s/ Randal P. Lewis By: /s/ Scott Solano
Name Printed: Randal P. Lewis Name Printed: Scott Solano
Title: Managing General Part Title: C.O.O.
By: ______________________________ By: ______________________________
Name Printed: ____________________ Name Printed: ____________________
Title: ___________________________ Title: ___________________________
Address: _________________________ Address: _________________________
__________________________________ __________________________________
Telephone: (707) 838-6633 Telephone:
Facsimile: (707) 838-7921 Facsimile:
BROKER: BROKER:
Executed at: _____________________ Executed at: _____________________
on: ______________________________ on: ______________________________
By: ______________________________ By: ______________________________
Name Printed: ____________________ Name Printed: ____________________
Title: ___________________________ Title: ___________________________
Address: _________________________ Address: _________________________
__________________________________ __________________________________
Telephone: ( ) __________________ Telephone: ( ) __________________
Facsimile: ( ) __________________ Facsimile: ( ) __________________
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL MULTI-TENANT LEASE
DATED MAY 9, 1997
BY AND BETWEEN
SBR DEVELOPMENT, A CALIFORNIA GENERAL PARTNERSHIP (LESSOR)
AND
ARTERIAL VASCULAR ENGINEERING, INC., (LESSEE)
PREMISES: BELL ROAD, SUITE F, WINDSOR, CALIFORNIA
-------------------------------------------------
A. "This Lease is contingent upon the following conditions":
50. Utilities and Other Services:
Lessee shall pay in addition to their rent their prorata share (100%)
of the cost of the utilities for the building. All other services, such
as security patrols, are at the discretion of the Lessor and Lessor is
not obligated to provide such services.
Refuse service shall be contracted and paid for directly by the Lessee.
Disposal of Lessee's trash is the Lessee's responsibility and cannot be
stacked or temporarily stored other than inside the Lessee's premises.
If Lessee fails to dispose of wood pallets or shipping containers
properly, Lessor may remove said items after three (3) days written
notice of Lessee. Lessor may charge Lessee for the costs of such
removal.
51. Signage:
Lessee will provide the street number on the glass storefront door of
the Premises.
Lessee will provide lettering for Lessee's business name on the
directory sign (at Lessee's option). All lettering will be in white
vinyl letters conforming to the style and sizing approved by Lessor.
Lessee may place such signs as Lessor deems reasonable for the
advertisement of space available for lease in the building. FOR LEASE
signs to include canvas or wood banners or metal of real estate
brokerage companies contracted by the Lessor.
All other signage will be provided by Lessee and Lessee agrees to abide
by the sign program of the building.
52. Financial Statements:
Lessor has approved Lessee's financial statements.
<PAGE>
53. Environmental Issues:
A. Lessor's Environmental Obligations. Lessor shall comply, and take all
necessary actions to cause the building to comply, with all applicable
federal, state and local requirements relating to the protection of
public health, safety and welfare, and with all applicable
environmental laws relating to the building. Lessor is responsible for,
and agrees to hold harmless, indemnify and defend Lessee from any and
all claims, losses, liabilities, damages, costs and expenses, including
reasonable attorneys' fees, related to the presence of Hazardous
Substances in or on the Premises or the building, unless caused or
allowed by Lessee or Lessee's agents, employees, contractors,
suppliers, shippers, customers and invitees. The parties agree that
notwithstanding any term or provision of any applicable law or
regulation, Lessee shall not be liable for any claims, losses,
liabilities, damages, costs and expenses, including reasonable
attorneys' fees, and/or for investigating and complying with any
governmental order (federal, state and/or local) relating to any
Hazardous Substances on the Premises or building that were not caused
or allowed by Lessee's or Lessee's agents, employees, contractors,
suppliers, shippers, customers and invitees.
B. Lessee's Environmental Obligations. Lessee shall comply, and take all
necessary actions to cause its operations in and on the Premises to
comply with all applicable federal, state and local requirements
relating to the protection of public health, saftey and welfare, and
with all applicable environmental laws relating to the Premises. Lessee
is responsible for, and agrees to hold harmless, indemnify and defend
Lessor from any and all claims, losses, liabilities, damages, costs and
expenses, including reasonable attorneys' fees, caused by or related to
Lessee's delivery, storage or use of Hazardous Substances in or on the
Premises, the common area, soil or surrounding area or Lessee's acts or
those of Lessee's agents, employees, contractors, suppliers, shippers,
customers and invitees which result in violation of any such laws other
than as set forth in Exhibit E, to the extent Lessee or Lessee's
agents, employees, contractors, suppliers, shippers, customers and
invitees caused or allows the presence of or places Hazardous
Substances in or on the Premises, the common area, soil or surrounding
area or violates any such laws, Lessee at its sole cost and expense
shall promptly take any and all actions necessary or required to return
the Premises, the common area, soil or surrounding area to the
condition existing prior to such placement of the Hazardous Substances;
in any such event, Lessee shall be liable for any related claims,
losses, liabilities, damages, costs and expenses, including reasonable
attorneys; fees, and/or for investigating and complying with any
governmental order (federal, state and/or local).
C. Lessor Notification. Other than as set forth in Exhibit E, Lessee will
advise Lessor within three (3) days of the existence of any Hazardous
Substances on the Premises, the common area, soil or surrounding area
and in addition to complying with the provisions of the preceding
paragraph, either obtain approval from Lessor within thirty (30) days
from notice or remove and clean-up said Hazardous Substances to
standards required by the Lessor within sixty (60) days from notice. If
Lessee or Lessee's agents, employees, contractors, suppliers, shippers,
customers and invitees cause or allows any release (as defined in any
federal, state or local agency, law, rule or ordinance) or spill of, or
contamination by, a Hazardous Substance, Lessee shall immediately
notify Lessor.
D. Survivability. All indemnifications set forth in this Lease that relate
to Hazardous Substances shall survive the termination or expiration of
this Lease.
<PAGE>
E. Notice Regarding Hazardous Wastes. Lessor and Lessee each acknowledge
the Notice to Owners, Buyers and Tenants Regarding Hazardous Wastes or
Substances and Underground Storage Tanks, attached as Exhibit C
F. Definitions of Hazardous Substances. As used in this and the preceding
five paragraphs regarding environmental matters, "Hazardous Substances"
means a substance, material or waste that is toxic, etiological,
ignitable, reactive or corrosive or that is regulated by any federal,
state or local agency, law, rule or ordinance and includes without
limitation any and all material or substances defined or listed as
"hazardous waste," "extremely hazardous waste" or a "hazardous
substance" pursuant to Proposition 65 and/or any other federal, state
or local agency, law, rule or ordinance and includes asbestos, PCB's
(polychlorinated biphenyls), petroleum products, and substances which
are or may be toxic to humans, animals, plants, or the environment.
54. Parking Lot and Driveways:
Lessee is entitled to the use of the parking outlined on Exhibit A.
Lessor is hereby notified that Lessee intends to park a truck on
Cameron Drive adjacent to the building from time to time. Lessee is
aware that Cameron Drive is posted for no overnight parking.
55. Americans with Disabilities Acts:
See attached Addendum which is part of this Lease.
56. Arbitration of Disputes:
See attached Addendum which is part of this Lease.
57. Lessee accepts the premises "as is" provided the Lessor completes all
the requirements to complete the shell building which includes
providing (1) 400-amp 3-phase electrical panel to each building,
building shell fire sprinkler system, creating an opening in the
interior demising wall suitable for forklift traffic, landscaping and
all exterior painting at the time of lease commencement. Lessee shall
be allowed to install building improvements which they deem necessary
for the operation of their business such as building insulation,
restrooms, offices, heating and air-conditioning, electrical
distribution, etc., provided Lessee obtains the Lessor's approval for
all work and any necessary use or building permits. Lessee will be
responsible for the installation and payment of said improvements and
any possible damage it could cause to the building.
Lessee intends to use the Building for air conditioned storage of their
medical products. Their required improvements include an office,
toilets, ceiling and wall insulation, HVAC system, lights, pallet racks
and electrical distribution. Lessor approves of these improvements.
58. Upon full execution of this lease, payment of Prepaid Rent and Security
Deposit, and issuance of an insurance certificate, Lessee shall be
allowed access to the building to design and construct interior
improvements and to install and test a packaging line component. Lessee
and Lessor shall coordinate their activities so that Lessor can
complete the shell building without delay. If Lessee completes their
improvement work and occupies the building before August 1, 1997, then
the commencement date shall be advanced to the date of occupancy.
<PAGE>
59. Lessor to provide Lessee with the City of Windsor approved
architectural drawings for both the shell building and the interior
improvements free of charge. Lessee to pay for architectural fees to
modify said approved interior plans, and for the building permit and
plan check. There shall be no charge to Lessee for associated
engineering fees.
60. Lessee shall be responsible for the maintenance and repair of the fire
sprinkler system and fire alarm mechanism within the building.
61. Lessor written consent shall not be required if:
a. Has a net worth of at least $1,000,000 based on generally accepted
accounting practices.
b. Has not declared bankruptcy and has no outstanding judgments which
could reduce their net worth below $100,000,000.
c. Will not materially change the use of the premises.
62. Upon termination of Lease, Lessee shall have the right to remove the
HVAC system (which serves both office and warehouse areas), and
warehouse racking systems. Lessee shall repair all damage caused by the
removal of the warehouse racking, HVAC units and other trade fixtures.
The herein Addendum #1, upon its execution by both parties, its herewith made an
integral part of the aforementioned Agreement.
LESSEE LESSOR
/s/ Scott Solano /s/ Randal P. Lewis
__________________________ __________________________
__________________________ __________________________
Date: 6/9/97 Date: 6/13/97
_____________________ _____________________
<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
DATED: May 9, 1997
BY AND BETWEEN: SBR, a California General Partnership (Lessor) and Arterial
Vascular Engineering (Lessee)
ADDRESS: 7975 Cameron Center Drive, Buildings 100 & 300 Windsor 92
64 RENT ESCALATIONS
(a) On the commencement of the second year of the Lease and every year
thereafter, the monthly rent payable under Paragraph 4 and 1.5 of the
attached lease shall be adjusted by the increase, if any, from the date
this lease commenced, in the Consumer Price Index of the Bureau of
Labor Statistics of the U.S. Department of Labor for all Urban
Consumers, San Francisco-Oakland, California (1982-1984 base period)
"All Items", herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first
month of the term of this lease, as set forth in Paragraph 4 of the
attached lease, shall be multiplied by a fraction, the numerator of
which shall be the C.P.I. of the calendar month during which the
adjustment is to take effect, and the denominator of which shall be the
C.P.I. for the calendar month in which the original lease term
commences. The sum so calculated shall constitute the new monthly rent
hereunder, but in no event shall such new monthly rent be less than the
rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the actual
adjustment, Lessee shall pay an estimated adjusted rental, as
reasonably determined by Lessor by reference to the then available
C.P.I. information. Upon notification of the actual adjustment after
publication of the required C.P.I. any overpayment shall be credited
against the next installment of rent due, and any underpayment shall be
immediately due and payable by Lessee. Lessor's failure to request
payment of an estimated or actual rent adjustment shall not constitute
a waiver of the right to any adjustment provide for in the lease or
this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the
C.P.I. shall be used to make such calculation. In the event that Lessor
and Lessee cannot agree on such alternative index, then the matter
shall be submitted for decision to the American Arbitration Association
in accordance with the then rules of said association and the decision
of the arbitrators shall be binding upon the parties. The cost of said
Arbitrators shall be paid equally by Lessor and Lessee.
Initials: /s/ R.L. Initials: /s/ SJS
<PAGE>
ARCHITECTURAL MAP OF CAMERON CENTER / WINDSOR CALIFORNIA
<PAGE>
GROUND FLOOR PLAN AT BUILDING TYPE "a"
Exhibit B
<PAGE>
EXHIBIT C
NOTICE TO OWNERS, BUYERS AND TENANTS REGARDING HAZARDOUS
WASTES OR SUBSTANCES AND UNDERGROUND STORAGE TANKS
Comprehensive federal and state laws and regulations have been enacted in the
last few years in an effort to develop controls over the use, storage, handling,
cleanup, removal and disposal of hazardous wastes or substances. Some of these
laws and regulations, such as, for example, the so-called "Super Fund Act",
provide for broad liability schemes wherein an owner, tenant or other user of
the property may be liable for cleanup costs and damages regardless of fault.
Other laws and regulations set standards for the handling of asbestos or
establish requirements for the use, modification, abandonment, or closing of
underground storage tanks.
It is not practical or possible to list all such laws and regulations in this
Notice. Therefore, owners, buyers and tenants are urged to consult legal counsel
to determine their respective rights and liabilities with respect to the issues
described in this Notice as well as other aspects of the proposed transaction.
If various materials that have been or may be in the future determined to be
toxic, hazardous or undesirable, or are going to be used, stored, handled or
disposed of on the property, or if the property has or may have underground
storage tanks for storage of such hazardous materials, or that such materials
may be in the equipment, improvements or soil, it is essential that legal and
technical advice be obtained to determine, among other things, what permits and
approvals have been or may be required, if any, the estimated costs and expenses
associated with the use, storage, handling, cleanup, removal or disposal of the
hazardous wastes or substances and what contractual provisions and protections
are necessary or desirable. It may also be important to obtain expert assistance
for site investigations and building inspections. The past uses of the property
may provide valuable information as to the likelihood of hazardous wastes or
substances, or underground storage tanks being on the property.
The term "hazardous wastes or substances" is used in this Notice in its very
broadest sense and includes, but is not limited to, all those listed under
Proposition 65, petroleum base products, paints and solvents, lead, cyanide,
DDT, printing inks, acids, pesticides, ammonium compounds, asbestos, PCBs and
other chemical products. Hazardous wastes or substances and underground storage
tanks may be present on all types of real property. This Notice is, therefore,
meant to apply to any transaction involving any type of real property, whether
improved or unimproved.
Although Keegan & Coppin Co., Inc. or its salespeople, will disclose any
knowledge it actually possess with respect to the existence of hazardous wastes
or substances, or underground storage tanks on the property, Keegan & Coppin
Co., Inc. has not made investigations or obtained reports regarding the subject
matter of this Notice, except as may be described in a separate written
document, studies or investigation by experts. Therefore, unless there is an
additional documents or studies attached to this notice, lease or contract, this
will serve as notification that Keegan & Coppin Co., Inc. or its salespeople
make no representation regarding the existence or non-existence of hazardous
wastes or substances, or underground storage tanks on the property. You should
contact a professional, such as a civil engineer, geologist, industrial
hygienist or other persons with experience in these matters to advise you
concerning the property.
Agreed: /s/ Scott Solano Date 6/2/97
----------------------- -----------------------
Lessee
Agreed: /s/ Randal P. Lewis Date 6/13/97
----------------------- -----------------------
Seller/Lessor
<PAGE>
EXHIBIT D
AGENT REPRESENTING BOTH LANDLORD AND TENANT
A real estate agent either acting directly or through one or more associate
licenses, can legally be the agent of both the Landlord and the Tenant in a
transaction, but only with the knowledge and consent of both the Landlord and
the Tenant.
In a dual agency situation, the agent has the following affirmative obligations
to both the Landlord and the Tenant.
(a) A fiduciary duty of utmost care, integrity, honest and loyalty in the
dealings with either Landlord or Tenant.
(b) Other duties to the Landlord and the Tenant as stated above in their
respective sections.
In representing both Landlord and Tenant, the agent may not, without the express
permission of the respective party, disclose to the other party that the
Landlord will accept a rent less than the listed rent or that the Tenant will
pay a rent greater than the rent offered.
The above duties of the agent in a real estate transaction do not relieve a
Landlord or Tenant from the responsibility to protect their own interest. You
should carefully read all agreements to assure that they adequately express your
understanding of the transaction. A real estate agent is a person qualified to
advise about real estate. If legal or tax advise is desired, consult a competent
professional.
You should read its contents each time it is presented to you, considering the
relationship between you and the real estate agent in your specific transaction.
I/We acknowledge receipt of a copy of this disclosure.
/s/ Randal P. Lewis Date 6/13/97
- ------------------------------ --------------------------
(Landlord)
/s/ Scott Solano Date 6/2/97
- ------------------------------ --------------------------
(Tenant)
DECLARATION REGARDING REAL ESTATE AGENCY RELATIONSHIP
Keegan & Coppin Company, Inc., is the agent of (check one)
(Name of Listing Agent)
The Landlord exclusively; or
- --
X Both the Tenant and Landlord
- --
CONFIRMED AND ACKNOWLEDGED:
/s/ Randal P. Lewis Date 6/13/97
- ------------------------------ --------------------------
(Landlord)
Date
- ------------------------------ --------------------------
(Landlord)
By:
- ------------------------------ --------------------------
(Agent)
- --------------------------------------------------------------------------------
Keegan & Coppin Company, Inc., is the agent (check one)
- -- The Tenant exclusively; or
The Landlord exclusively; or
- --
X Both the Tenant and Landlord
- --
CONFIRMED AND ACKNOWLEDGED:
Date
- ------------------------------ --------------------------
(Landlord)
Date
- ------------------------------ --------------------------
(Landlord)
By:
- ------------------------------ --------------------------
(Agent)
<PAGE>
EXHIBIT E
PERMITTED HAZARDOUS MATERIALS
Lessee may, at any time and from time to time, engage in a Reportable Use (as
defined in Section 6.2) with respect to any of the following substances:
Isopropanol
Nitric Acid
Sulfuric Acid
Phosphoric Acid
Synergy cleaner (citrus-based organic)
Oxalic acid
Cidex (gluteraldehyde)
Epoxy
Lessee acknowledges and agrees that the Sonoma County Department of
Environmental Health and the Department of Emergency Services require that a
Hazardous Material Management Plan ("HMMP") be filed if the total amount of
hazardous materials exceeds 25 gallons. AVE covenants to Lessor to file an HMMP
with the aforementioned agencies if at any time the amount of hazardous
materials stored on the property exceeds such amount.
<PAGE>
ARBITRATION OF DISPUTES
FOR LEASE
PROPERTY ADDRESS: 7975 Cameron Center Drive Buildings 100 & 300
--------------------------------------------------------------
Any dispute or claim in law or equity arising out of this contract or any
resulting transaction shall be decided by neutral binding arbitration in
accordance with the rules of the American Arbitration Association, and not by
court action except as provided by California law for judicial review of
arbitration proceedings. Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. The parties shall have
the right to discovery in accordance with Code of Civil Procedure Section
1283.05. The following matters are excluded from arbitration hereunder: (a) a
judicial or non-judicial foreclosure or other action or proceeding to enforce a
deed of trust, mortgage, or real property sales contract as defined in Civil
Code Section 2985, (b) an unlawful detainer action, (c) the filing or
enforcement of a mechanic's lien, (d) any matter which is within the
jurisdiction of a probate court, or small claims court, or an action for bodily
injury or wrongful death, or for latent or patent defects to which Code of Civil
Procedure Section 337.1 or Section 337.15 applies. The filing of a judicial
action to enable the recording of a notice of pending action, for order of
attachment, receivership, injunction, or other provisional remedies, shall not
constitute a waiver of the right to arbitrate under this provision.
Any dispute or claim by or against broker(s) and/or associate licensee(s)
participating in this transaction shall be submitted to arbitration consistent
with the provision above only if the broker(s) and/or associate licensee(s)
making the claim or against whom the claim is made shall have agreed to submit
it to arbitration consistent with this provision.
"NOTICE: BY INITIALLING IN THE SPACE BELOW, YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW, AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN COURT OR JURY
TRIAL. BY INITIALLING IN THE SPACE BELOW, YOU ARE GIVING UP YOUR JUDICIAL RIGHTS
TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE
'ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY."
"WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION."
(/s/SJS) ( ) Lessee agrees ( ) ( ) Lessee does not agree
(/s/RL ) ( ) Lessor agrees ( ) ( ) Lessor does not agree
( ) ( ) Lessee's Broker agrees
( ) ( ) Lessor's Broker agrees
<PAGE>
AMERICANS WITH DISABILITIES ACT (ADA)
ADDENDUM TO STANDARD INDUSTRIAL MULTI-TENANT LEASE
BY AND BETWEEN
SBR DEVELOPMENT, A CALIFORNIA GENERAL PARTNERSHIP, (LESSOR)
AND
ARTERIAL VASCULAR ENGINEERING, INC., (LESSEE)
On July 26, 1991, the federal legislation known as the Americans with
Disabilities Act (ADA) was signed into law by President Bush. The purpose of the
ADA is to integrate persons with disabilities into the economic and social
mainstream of American life. Title III of the ADA applies to Lessors and Lessees
of "places of public accommodation" and "commercial facilities", and requires
that places of public accommodation undertake "readily achievable" removal of
communication and access barriers to the disabled. This requirement of Title III
of the ADA is effective January 26, 1992.
It is important that building owners identify and undertake "readily achievable"
removal of any such barriers in the common areas, sidewalks, parking lots and
other areas of the building under their control.
The Lessee is responsible for compliance with ADA relating to removal of
barriers within the workplace i.e., arrangement of interior furnishings and
access within the premises, and any improvements installed by Lessee.
Keegan & Coppin Company, Inc. recommends that both parties seek expert advice
regarding the implications of the Act as it affects this agreement.
/s/ Randal P. Lewis 6/13/97
- ------------------------------ -----------------------------
Lessor Date
/s/ Scott Solano 6/2/97
- ------------------------------ -----------------------------
Lessee Date
Lease No: 035700
KNIGHTSBRIDGE BUSINESS PARK
Richmond, B.C.
LEASE
Between - BENTALL PROPERTIES LTD. and
WESTMINSTER MANAGEMENT CORPORATION
as Landlord
and - APPLIED VASCULAR ENGINEERING CANADA, INC.
as Tenant
<PAGE>
KNIGHTSBRIDGE BUSINESS PARK
Richmond, B.C.
Table of Contents
------------------------------
Page
Basic Terms: ............................................................... 1
.01 Area of Leased Premises ......................................... 1
.02 Basic Rent ...................................................... 1
.03 Permitted Use ................................................... 1
.04 Term ............................................................ 1
Article 1 - Demise and Term: ............................................... 2
1.01 Demise and Term ................................................. 2
1.02 Surrender of Leased Premises .................................... 2
Article 2 - Rent: .......................................................... 2
2.01 Basic Rent ...................................................... 2
2.02 Additional Rent ................................................. 3
2.03 Adjustment of Additional Rent ................................... 3
2.04 Manner and Place of Payment ..................................... 3
2.05 Irregular Calculation of Basic Rent ............................. 3
2.06 Disproportionate Allocation ..................................... 3
2.07 Net Lease Intent ................................................ 3
Article 3 - Construction and Fixturing of Leased Premises: ................. 4
3.01 Landlord's and Tenant's Work .................................... 4
3.02 Commencement of the Construction ................................ 4
3.03 Payment for Landlord's Work ..................................... 4
3.04 Acceptance of Lease Premises .................................... 4
Article 4 - Conduct of Business: ........................................... 4
4.01 Use of Premises ................................................. 4
4.02 Prohibited Uses ................................................. 4
4.03 Operations During the Term ...................................... 4
4.04 Signs and Advertising Displays .................................. 5
4.05 Nuisance and Annoyance .......................................... 5
4.06 Coin Operated Machines .......................................... 5
4.07 Loud Speakers and Other Advertising Apparatus ................... 5
4.08 Delivery of Supplies and Materials .............................. 5
4.09 Ordinances and Regulations ...................................... 5
4.10 Rules and Regulations ........................................... 5
Article 5 - Repairs: ....................................................... 6
5.01 Tenant's Repairs ................................................ 6
5.02 Perimeter Walls and Glass ....................................... 6
5.03 Landlord's Examination of Leased Premises ....................... 6
5.04 Landlord's Right to Repair ...................................... 6
5.05 Landlord's Right to Enter for Other Repairs ..................... 6
5.O6 Landlord's Repairs .............................................. 6
5.07 Landlord's Obligation to Maintain ............................... 7
5.08 Damage and Destruction .......................................... 7
5.09 Qualifications .................................................. 8
5.10 Condition of Expiration ......................................... 8
Article 6 - Common Areas and Common Facilities: ............................ 8
6.01 Tenant's Use of Parking Areas ................................... 8
6.02 Landlord's Right to Remove Vehicles ............................. 8
6.03 Control of Common Areas and Common Facilities ................... 9
6.04 Merchandise on Common Area ...................................... 9
- 1 -
<PAGE>
6.05 Customer Parking ................................................ 9
Article 7 - Assignment and Sub-letting: .................................... 9
7.01 Prohibitions .................................................... 9
7.02 Control of Corporation .......................................... 10
7.03 Assignment by Landlord .......................................... 10
Article 8 - Insurance: ..................................................... 10
8.01 Tenant to Insure ................................................ 10
8.02 Not to Affect Landlord's Insurance .............................. 10
8.03 Landlord to Insure .............................................. 10
Article 9 - Tenant Alterations: ............................................ 11
9.01 Painting, Decorating and Alterations ............................ 11
9.02 Landlord's Property ............................................. 11
9.03 Prohibitions .................................................... 11
9.04 No Liens ........................................................ 11
Article 10 - Public Utilities and Taxes: ................................... 12
10.01 Public Utilities, Business Tax and Machinery Tax ................ 12
10.02 Payment of Real Property Taxes by Landlord ...................... 12
10.03 Increase in Real Property Taxes Attributable to Tenant .......... 12
10.04 Goods and Services Tax .......................................... 12
Article 11 - Exclusion of Liability and Indemnity: ......................... 12
11.01 Exclusion of Liability .......................................... 12
11.02 Indemnification ................................................. 13
Article 12 - Landlord's Rights and Remedies: ............................... 13
12.01 Default ......................................................... 13
12.02 Consequences of Default ......................................... 14
12.03 Non-Waiver ...................................................... 15
12.04 Right of Landlord to Perform Tenant's Covenants ................. 15
12.05 Time for Payment and Legal Costs ................................ 15
12.06 Remedies Cumulative ............................................. 15
Article 13 - Mortgages and Assignment by Landlord: ......................... 16
13.01 Sale or Financing of Development ................................ 16
13.02 Subordination and Acknowledgement ............................... 16
13.03 Offset Statement ................................................ 16
13.04 Registration .................................................... 16
Article 14 - Overholding Tenant: ........................................... 16
14.01 No Tacit Renewal ................................................ 16
Article 15 - Quiet Possession: ............................................. 17
15.01 Quiet Possession ................................................ 17
Article 16 - Legal Relationships: .......................................... 17
16.01 No Partnership .................................................. 17
16.02 Joint and Several Liability ..................................... 17
16.03 Successors and Assigns .......................................... 17
Article 17 - Notices: ...................................................... 17
17.01 Notices ......................................................... 17
- 2 -
<PAGE>
Article 18 - General: ...................................................... 18
18.01 Collateral Representations and Agreements ....................... 18
18.02 Management of Development ....................................... 18
18.03 Time of the Essence ............................................. 18
18.04 Unavoidable Delays .............................................. 18
18.05 Accord and Satisfaction ......................................... 18
18.06 Competition Act ................................................. 18
18.07 Covenants ....................................................... 18
18.08 Consent or Approval of Landlord ................................. 19
18.09 For Lease Signs ................................................. 19
18.10 The Commercial Tenancy Act ...................................... 19
18.11 No Exclusivity .................................................. 19
18.12 Schedules ....................................................... 19
18.13 Applicable Law .................................................. 19
18.14 Headings ........................................................ 19
18.15 Tenant's Acceptance ............................................. 19
18.16 Arbitration ..................................................... 19
18.17 Severability .................................................... 19
Article 19 - Definitions: .................................................. 19
19.01 Additional Rent ................................................. 19
19.02 Area of Leased Premises ......................................... 20
19.03 Basic Rent ...................................................... 20
19.04 Basic Term ...................................................... 20
19.05 Building ........................................................ 20
19.06 Building Operation and Maintenance Costs ........................ 20
19.07 Commencement Date ............................................... 21
19.08 Common Areas .................................................... 21
19.09 Common Facilities ............................................... 21
19.10 Development ..................................................... 21
19.11 Development Operation and Maintenance Costs ..................... 21
19.12 Force Majeure ................................................... 21
19.13 Gross Leaseable Area ............................................ 21
19.14 HVAC Costs ...................................................... 22
19.15 Landlord's Architect ............................................ 22
19.16 Landlord's Work ................................................. 22
19.17 Lands ........................................................... 22
19.18 Lease ........................................................... 22
19.19 Lease Year ...................................................... 22
19.20 Leased Premises ................................................. 22
19.21 Other Buildings ................................................. 22
19.22 Permitted Use ................................................... 22
19.23 Prime Rate ...................................................... 22
19.24 Real Property Taxes ............................................. 22
19.25 Rent ............................................................ 22
19.26 Tax Cost ........................................................ 22
19.27 Tenant's Proportionate Share .................................... 22
19.28 Tenant's Work ................................................... 23
19.29 Term ............................................................ 23
19.30 Year of the Term ................................................ 23
Article 20 - Special Clauses: .............................................. 23
20.01 Early Occupancy ................................................. 23
20.02 Delayed Occupancy ............................................... 23
20.03 Tenant Improvement Allowance .................................... 23
20.04 Deposit ......................................................... 24
SCHEDULES: ................................................................. 25
Schedule A Plan of the Premises ......................................... 25
Schedule B Landlord's Work .............................................. 26
Schedule C Signage ...................................................... 27
Schedule D Omitted ......................................................
Schedule E Environmental Covenants ...................................... 29
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<PAGE>
THIS LEASE made the 10TH day of AUGUST, 1994.
BETWEEN:
BENTALL PROPERTIES LTD.,
a body corporate, having its head office at Suite
3100, Three Bentall Centre, in the City of
Vancouver, in the Province of British Columbia
and
WESTMINSTER MANAGEMENT CORPORATION, a body
corporate, having a business office at Suite 600,
355 Burrard Street, in the City of Vancouver, in
the Province of British Columbia
(collectively the "Landlord")
OF THE FIRST PART
AND:
APPLIED VASCULAR ENGINEERING CANADA, INC., a body
corporate, having a busineas office at Suite No.
260 13155 Delf Avenue, in the City of Richmond,
in the Province of British Columbia, V6V 2A2 (the
"Tenant")
OF THE SECOND PART
WHEREAS:
(A) by agreement dated July 7, 1994 (the "Agreement") the Landlord and the
Tenant agreed to enter into a lease with respect to the Leased Premises; and
(B) the Landlord has represented to the Tenant that the Landlord is the
registered owner of the Lands, subject however to such liens, charges and
encumbrances as are registered against the title thereto as at the date hereof,
and has constructed, or is in the process of constructing, improvements thereon,
including the Building generally in accordance with the plans set forth in
Schedule "A";
<TABLE>
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the rents,
covenants and agreements hereinafter reserved and contained, the parties agree
to this Lease of the Leased Premises on the terms and conditions set forth
herein:
BASIC TERMS
.01 Area of Leased Premises: approximately 8,000 square feet
<CAPTION>
.02 Basic Pent: Term Per Annum Per Month Per Square Foot
---- --------- --------- ---------------
<S> <C> <C> <C> <C>
Yr. 1-5 $50,000.00 $4,166.67 $6.25
.03 Permitted Use: The Premises shall be used for the purposes of
conducting the business of research and
development, assembly, service and distribution
of medical devices, plus associated
administrative offices.
.04 Term: Five (5) years
</TABLE>
The foregoing Basic Terms are agreed to by the Landlord and the Tenant and
any reference in this Lease to any one of the same shall include the provisions
set forth above with respect thereto and in addition any more specific
definition or reference hereinafter provided.
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<PAGE>
ARTICLE 1
Demise and Term
1.01 Demise and Term
The Landlord does hereby demise and lease unto the Tenant the Leased
Premises to have and to hold for and during the Term. For so long as the Tenant
duly and punctually pays the Rent, and performs and observes its covenants
herein undertaken, the Tenant shall be entitled for the benefit of the Leased
Premises to enjoy, upon the terms and conditions established or altered pursuant
to this Lease, the use in common with others entitled thereto of the Common
Areas and the Common Facilities.
1.02 Surrender of Leased Premises
(A) Upon the expiration or sooner termination of this Lease, the Tenant shall
vacate and surrender to the Landlord the Leased Premises in accordance with the
provisions of this Lease. Except to the extent as otherwise expressly agreed by
the Landlord in writing; no leasehold improvements, trade fixtures, furniture or
equipment shall be removed by the Tenant from the Leased Premises either during
or at the expiration or sooner termination of the Term except that the Tenant:
(a) may at the end of the Term, if it is not in default hereunder,
remove its trade fixtures;
(b) shall at the end of the Term remove such leasehold
improvements, trade fixtures, furnishings, equipment and
inventory as the Landlord shall require to be removed;
(c) may, if it is not in default hereunder, remove its
furnishings, equipment and inventory at the end of the Term,
and also during the Term in the usual and normal course of its
business where such furnishings or equipment have become
excess for the Tenant's purposes or the Tenant is substituting
therefor new furnishings and equipment.
The Tenant shall, in the case of every removal either during or at the end of
the Term, make good any damage caused to the Leased Premises and any leasehold
improvements therein by the installation and removal.
(B) Notwithstanding the provisions of Article 1.02(A), the Tenant shall be
permitted to remove its trade fixtures from the Leased Premises at the
expiration or sooner termination of this Lease, provided the Tenant shall make
good any damage or injury caused to the Leased Premises resulting from such
removal, reasonable wear and tear excepted.
ARTICLE 2
Rent
2.01 Basic Rent
The Tenant shall pay to the Landlord for each and every Year of the
Term, the Basic Rent specified in Basic Term .02, by equal monthly instalments,
each in advance on the first day of each and every month during the Term, the
first of such monthly instalments to be paid on the Commencement Date. If the
Term commences on a day which is not the first day of a calendar month then the
instalment of Basic Rent payable on the broken portion of a calendar month at
the beginning of the Term shall be calculated at a rate per day of 1/365th of
the annual Basic Rent.
Notwithstanding anything to the contrary contained in this Lease, the
Tenant shall not be obligated to pay any Basic Rent for the first three (3)
months of the Term only. For greater certainty, the Tenant acknowledges and
agrees that notwithstanding the period of free Basic Rent it shall be
responsible for payments of all other amounts owing under this Lease.
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<PAGE>
2.02 Additional Rent
The Tenant shall pay to the Landlord for each and every Lease Year or
portion thereof, the Additional Rent for such Lease Year or portion thereof. The
amount of Additional Rent which the Tenant is to pay in each Lease Year or
portion thereof shall be estimated by the Landlord in advance and the Tenant
shall pay to the Landlord such amount in equal monthly instalments in advance
during such Lease Year or the portion thereof. The amount of the estimated
Additional Rent may be adjusted, from time to time, during a Lease Year by the
Landlord giving notice to the Tenant, in which event the remaining payments to
be made by the Tenant as aforesaid in such Lease Year shall be adjusted
accordingly. All remedies of the Landlord on non-payment of rent shall be
applicable to the Additional Rent and the obligation of the Tenant to pay any
monies pursuant to this Lease shall survive the expiration or sooner termination
of this Lease.
2.03 Adjustment of Additional Rent
Within ninety (90) days after the end of each Lease Year, the Landlord
shall furnish to the Tenant a statement of the actual amount of Additional Rent
payable by the Tenant for such preceding Lease Year and showing in reasonable
detail the information relevant and necessary to the calculation thereof. If the
amount payable by the Tenant as shown on such statement is more or less than the
Additional Rent paid by the Tenant to the Landlord for such Lease Year pursuant
to Article 2.02, the appropriate adjustment as between the Landlord and the
Tenant shall be made within fourteen (14) days of delivery of such statement.
Any payment made by the Landlord or made by the Tenant and accepted by the
Landlord in respect of any adjustment made pursuant to this Article 2.03 shall
be without prejudice to the right of the Landlord or the Tenant to claim a
re-adjustment provided such claim if made by the Tenant is made within ninety
(90) days after, or if made by the Landlord is made within one hundred twenty
(120) days after, the date of delivery of the statement referred to in this
Article 2.03. The Tenant shall have the right for a period of ninety (90) days
following receipt of the aforesaid statement to, at its sole expense, inspect
during the Landlord's normal business hours, subject to the inspection being
reasonable in all the circumstances, any record kept or held by the Landlord of
the costs or expenses claimed by the Landlord for such Lease Year and the
Landlord shall make its said records available accordingly.
2.04 Manner and Place of Payment
All Rent and all other sums payable by the Tenant to the Landlord
hereunder shall be paid to the Landlord at the office of the Landlord
hereinafter set forth, or at such other place as the Landlord may in writing,
from time to time, direct, without notice or demand, except as otherwise
specifically provided herein, and without deduction, set off or abatement for
any reason whatsoever. The Landlord may at its option apply all or any sums
received from or due to the Tenant against amounts due and payable by the Tenant
hereunder in such manner as the Landlord sees fit, regardless of any designation
or instructions by the Tenant to the contrary. The Tenant shall pay to the
Landlord interest at a rate equal to the lesser of the maximum rate permitted by
law or the rate that is three (3%) percent per annum above the Prime Rate on all
arrears of Rent or other sums payable by the Tenant to the Landlord pursuant to
the terms hereof, from, except as otherwise specifically provided herein, the
date of default in payment, until payment is received by the Landlord.
2.05 Irregular Calculation of Basic Rent
If for any reason it is necessary to calculate Basic Rent for a period
of one or more months, but less than a Year of the Term, the same shall be
calculated on the basis of 1/12 of the Basic Rent being payable for each month.
If for any reason it becomes necessary to calculate Basic Rent for a period of
less than one month the same shall be calculated on the basis of 1/365 of the
Basic Rent being payable for each day in such period. Without restricting the
generality of the foregoing, in the event the Commencement Date occurs other
than on the first day of a month, the first instalment of Basic Rent paid by the
Tenant in accordance with Article 2.01 shall be based on the period from the
Commencement Date to and including the last day of the month in which the
Commencement Date occurs.
2.06 Disproportionate Allocation
Notwithstanding anything else herein otherwise contained, to the extent
that the Landlord, acting reasonably, determines that an item included in
Additional Rent properly related to only a portion of the Development or to a
portion of the Building, the Landlord may allocate such item to such portion of
the Development or Building, as the case may be, in which event the Tenant's
Proportionate Share, if the Leased Premises are within such portion, shall be
calculated in relation to the Gross Leaseable Area of all leaseable premises in
such portion.
2.07 Net Lease Intent
Except to that extent otherwise specifically provided herein this Lease
shall be a net lease to the Landlord such that the Basic Rent shall be received
by the Landlord free of all outgoings whatsoever, the Tenant to pay for its own
account all amounts, charges, costs, duties, fees, rates and taxes in any way
relating to the Leased Premises as well as the Additional Rent herein provided.
- 3 -
<PAGE>
ARTICLE 3
Construction and Fixturing of Leased Premises
3.01 Landlord's and Tenant's Work
The parties agree that the work to be done by the Landlord is as set
out in Schedule "B" hereto and that any additional work shall be Tenant's Work
hereunder, and the Tenant agrees to accept the Leased Premises in an "as is,
where is" condition.
The Tenant shall be responsible for its own improvements to the Leased
Premises, subject to the Landlord's prior reasonable approval of the design of
the Leased Premises.
The Landlord shall provide a space plan to assist in the parties mutual
agreement of the improvements to the Leased Premises, which mutual agreement
shall be given within five (5) business days from receipt of tbe space plan.
3.02 Commencement of the Construction
If, at any time prior to the commencement of the Tenant's Work, the
Landlord is in its opinion unable to obtain satisfactory zoning or other
government approvals including, without limiting the generality of the
foregoing, development permits, building permits, occupancy permits, lease
commitments from other tenants, construction and permanent mortgage financing or
favourable economic projections with respect to the Development or if the
Landlord's mortgagee does not consent to this Lease, then the Landlord shall
have the right and option at any time thereafter to cancel this Lease and in
such event, any money or security deposited hereunder shall be returned to the
Tenant without interest, this Lease shall thereafter be null and void and
neither party shall have any further claim, the one against the other.
3.03 Payment for Landlord's Work
All work done at the Tenant's request (including the supplying of
materials or equipment) by the Landlord or its contractors or sub-contractors in
or relating to the Leased Premises, over and above Landlord's Work, shall be
paid for by the Tenant forthwith on demand.
3.04 Acceptance of Leased Premises
The taking of possession of the Leased Premises by the Tenant to
construct the Tenant's Work shall be deemed to be conclusive proof that except
for items noted in a list prepared by the Tenant during a joint inspection by
the Tenant and the Landlord at the time of the taking of such possession, the
Leased Premises are in the condition called for by this Lease to the extent that
the Landlord is responsible therefor and that the Landlord has performed all of
the Landlord's Work with respect thereto in a good and workmanlike manner. The
itemizing of any matter in such list by the Tenant shall not preclude the
Landlord from disputing the categorization of such matter as a deficiency.
ARTICLE 4
Conduct of Business
4.01 Use of Leased Premises
The Tenant shall not use or occupy the Leased Premises or any part
thereof for any purpose other than the Permitted Use, without consent of the
Landlord first had and obtained.
4.02 Prohibited Uses
The Tenant shall not, at any time, carry on nor suffer, permit or allow
to be carried on in the Leased Premises any fire sale, distress sale, bankruptcy
sale, going-out-of-business sale, or any other business sale designed to convey
to the public that business operations are to be discontinued, an auction, a
pawn business, a mail order business or any other business which because of the
merchandise likely to be sold or the merchandising or pricing methods likely to
be used would, in the reasonable opinion of the Landlord, tend to lower the
character of the Development, or any other business or occupation which shall be
deemed by the Landlord to be a nuisance.
4.03 Operations During the Term
The Tenant acknowledges that its continued occupancy of the Leased
Premises and the regular conduct of its business therein are of the utmost
importance to the Landlord in avoiding the appearance and impression generally
created by vacant space in a development, in facilitating the leasing of vacant
space, and in the renewal of other leases, and that the Landlord will suffer
substantial damage if the Leased Premises are vacated or left vacant during the
Term even if Basic Rent is paid.
- 4 -
<PAGE>
The Tenant shall on the Commencement Date commence and thereafter
during the Term, actively and diligently carry on in the Leased Premises the
business specified as the Permitted Use, and shall without limiting the
generality of the foregoing:
(a) conduct its business in the entire Leased Premises; and
(b) remain open for business at least during normal business days
and hours for the type of business being conducted from the
Leased Premises.
The Tenant will not during the Term vacate or abandon the Leased
Premises either in full or in part.
4.04 Signs and Advertising Displays
The Tenant, after first obtaining the written approval of the Landlord
to, or at the request of the Landlord with instructions as to the
specifications, design, location and method of installation, shall at the
expense of the Tenant install, maintain and operate during such reasonable hours
as the Landlord may determine a sign in accordance with the sign criteria of the
Landlord as such criteria are set out in Schedule "C" hereto. The Tenant shall
not erect or place, or suffer to be erected or placed or maintain any other
signs of any nature or kind whatsoever either on the exterior walls of the
Leased Premises or elsewhere in the Development without the approval of the
Landlord. The Tenant shall not erect or place or suffer to be erected or placed
in the display windows of the Leased Premises, any signs, decoration, lettering
or advertising matter of any kind (including signs placed in the interior of the
Leased Premises for exterior view) without first obtaining the Landlord's
written approval, which approval may not be unreasonably withheld. All signs or
other materials, referred to in this Article 4.04 shall remain the property of
the Tenant and the Tenant shall remove the same at the expiration of the Term or
such shorter period to which the approval relates and shall make good any damage
caused by such installation or removal.
4.05 Nuisance and Annoyance
The Tenant shall not use or occupy the Leased Premises or suffer or
permit the same to be used or occupied for any unlawful purpose, or for any
dangerous, noxious or offensive trade or business, or for any purpose likely to
cause a nuisance or annoyance to the Landlord or any other tenants of the
Development nor undertake any operation likely to cause the same, nor commit or
suffer to be done any waste, damage or disfigurement or injury to the
Development or any part thereof nor permit or suffer the overloading of any
floors therein.
4.06 Coin Operated Machines
The Tenant shall not have or permit or suffer to be on the Leased
Premises any machines selling merchandise or services or providing
entertainment, whether by coins, credit cards or otherwise, unless expressly
approved by the Landlord in writing.
4.07 Loud Speakers and Other Advertising Apparatus
The Tenant shall not have or permit any public address, music broadcast
or other sound system which may be heard beyond the limits of the Leased
Premises.
4.08 Delivery of Supplies and Materials
The delivery and shipping of merchandise, supplies, fixtures and other
materials or goods of whatsoever nature to or from the Leased Premises and all
loading, unloading and handling thereof shall be done through such entrances as
designated by the Landlord and at such times and by such means as approved by
the Landlord.
4.09 Ordinances and Regulations
The Tenant shall observe and fulfil the provisions and requirements of
all statutes, orders in council, by-laws, rules and regulations, relating
directly or indirectly to the use of the Leased Premises and shall comply with
all reasonable requirements of any insurer under any policy of insurance
affecting the Development.
4.10 Rules and Regulations
The Tenant shall observe and comply with and use its best efforts to
cause its employees, agents, licensees and invitees to observe and comply with
any and all rules and regulations communicated by the Landlord to the Tenant,
from time to time, which in the judgment of the Landlord are necessary or
desirable in relation to all aspects of the use and occupancy by the Tenant of
the Leased Premises, the Building, the Common Areas and the Common Facilities
including for the reputation, care, safety and appearance of the Development,
the preservation of good order therein and the operation and maintenance
thereof, provided that such rules and regulations do not conflict with any
express provisions of this Lease and are not discriminatory against the Tenant.
The Tenant
- 5 -
<PAGE>
specifically acknowledges that the Landlord has and shall have the right to make
rules and regulations as aforesaid
ARTICLE 5
Rent
5.01 Tenant's Repairs
The Tenant shall at all times during the Term. at its own cost and
expense, repair, maintain, operate and keep the Leased Premises, all equipment,
fixtures and mechanical systems (including heating, ventilating and
air-conditioning systems) within the Leased Premises or elsewhere (if such
equipment, fixtures or systems are provided for the use or benefit of the Leased
Premises) and any improvements now or hereafter made to the Leased Premises in
good order, firstclass condition and repair (reasonable wear and tear and
repairs which are the Landlord's responsibility pursuant to Article 5.06 hereof
only excepted) in accordance with the statutory building scheme registered
against title to the Lands and without limiting the generality of the foregoing,
the Tenant shall, during the Term, cause such good management and care to be
taken of the Leased Premises and various parts thereof that no injury to the
same shall occur and all water closets, sinks, heating and air-conditioning and
ventilating apparatus located in the Leased Premises shall be maintained in a
state of efficient and good working order. The Tenant shall decorate the Leased
Premises in a manner and to a standard acceptable to or determined by the
Landlord and shall maintain such decorating to such standards throughout the
Term. The Tenant shall be responsible for all such maintenance, repairs,
replacements and such decorating and shall promptly with due diligence, at its
sole expense, carry out any and all of the foregoing. The Tenant shall be
responsible for all janitorial services respecting the Leased Premises
(including the washing of windows therein, both inside and outside) so as to
keep the Leased Premises in a clean and tidy condition.
5.02 Perimeter Walls and Glass
The Tenant shall promptly repair or make whole all damaged glass, plate
glass, doors and windows in the Leased Premises as and whenever the same is
required.
5.03 Landlord's Examination of Leased Premises
The Landlord and any employee, servant, agent or contractor of the
Landlord shall be entitled, at any time during normal business hours and at any
time in the event of an emergency, to enter and examine the state of
maintenance, repair, decoration and cleanliness of the Leased Premises, all
equipment and fixtures within the Leased Premises and any improvements now or
hereafter made to the Leased Premises and the Landlord may give notice to the
Tenant requiring that the Tenant perform such maintenance or effect such
repairs, replacements or decoration or cleaning as is the responsibility of the
Tenant and as may be found necessary from such examination.
5.04 Landlord's Right to Repair
In the event that the Tenant fails forthwith after receipt of written
notice thereof, or within such reasonable time thereafter if for any cause
beyond the control of the Tenant it is not reasonable in the circumstances (it
being agreed that lack of finances on the part of the Tenant shall not be
treated as a cause beyond the Tenant's control), to commence and diligently
proceed to perform such maintenance or effect such repairs, replacements,
decorations or cleaning as so specified in any notice given by the Landlord, the
landlord, its employees, servants, agents or contractors may, but shall not be
obligated to, enter the Leased Premises and at the Tenant's expense, perform and
carry out the same and the Landlord in so doing shall not be liable for
inconvenience, disturbance, loss of business or other damage resulting therefrom
and in the event the Landlord expends any monies pursuant to the provisions of
this Article 5.04, the Tenant shall pay the same to the Landlord on demand with
a fee of twenty (20%) percent of such amount for the Landlord's supervisory
function and in addition shall pay interest on the aggregate of the foregoing at
the rate provided in this Lease from the date of the expenditure of such first
mentioned monies by the Landlord.
5.05 Landlord's Right to Enter for Other Repairs
The Landlord, and any employee, servant, agent or contractor of the
Landlord shall have the right to enter the Leased Premises at all times during
business hours and at any time in the case of an emergency to make such
alterations or repairs as the Landlord is required to make pursuant to the terms
of this Lease or shall deem necessary for the safety, preservation, proper
administration or improvement of the Development or any portion thereof and the
Landlord in so doing, shall not be liable for inconvenience, disturbance, loss
of business or other damage resulting therefrom.
5.06 Landlord's Repairs
The Landlord shall, from time to time, throughout the Term:
- 6 -
<PAGE>
(a) at its sole cost, carry out as soon as possible in the
circumstances after receipt of notice thereof in writing from
the Tenant, structural repairs to the foundations, exterior
walls (excluding store-fronts and glass), structural
subfloors, the structural portions of bearing walls and
structural columns and beams which interfere with or impair
the use, occupancy or safety of the Leased Premise;
(b) carry out repairs or replacements to the Common Areas and the
Common Facilities, including the heating, ventilating and
air-conditioning systems forming part of the Common
Facilities; and
(c) repair all damage to the Leased Premises which is covered by
any insurance effected by the Landlord in accordance with the
provisions of Article 8.03 hereof to the extent of the
proceeds of such insurance applicable thereto;
PROVIDED HOWEVER that if any such repairs are necessitated by the
negligence or misconduct of the Tenant, its servants, agents, contractors,
licensees, employees or others for whom in law the Tenant is responsible, the
Tenant shall pay to the Landlord on demand the cost of such repairs and a fee of
twenty (20%) percent for the Landlord's supervisory function and interest on the
aggregate amount of both of the foregoing from the date of expenditure of the
first mentioned monies by the Landlord.
PROVIDED FURTHER that in any event the Landlord shall not be
responsible for any damages, loss or injury substained by the Tenant or any
person or persons claiming through or under it, by reason of defects giving rise
to the need for such repairs or the consequence thereof, including the
inconvenience occasioned to the Tenant by the entry of the Landlord, its
employees, servants, agents or contractors on the Leased Premises to effect such
repairs.
5.07 Landlord's Obligation to Maintain
The Landlord shall maintain and keep the Common Areas and the
Common Facilities in a state of repair and cleanliness consistent with the
standard of a firstclass development of a similar nature.
5.08 Damage and Destruction
In the event of damage or destruction of the Leased Premises
of the Building by fire, lightning, earthquake, tempest or other casualty so
that:
(a) the same is damaged or destroyed to the extent that the samc
cannot with reasonable diligence be rebuilt, repaired or
restored within one hundred and twenty (120) days of the date
of damage or destruction (as determined in the opinion in
writing of the Landlord's Architect, which written opinion
shall be delivered to the Tenant within thirty (30) days of
the occurrence of such damage or destruction) or the estimated
cost of rebuilding, repairing or restoring such damage or
destruction will exceed by $75,000 or more, the anticipated
proceeds of insurance available to the Landlord for that
purpose, then, notwithstanding any other term or condition of
this Lease to the contrary, the Landlord may terminate this
Lease by notice in writing to the Tenant given within sixty
(60) days of the occurrence of such damage or destruction,
such notice to be effective as at the date of the damage or
destruction if the Leased Premises are not capable of being
utilized by the Tenant as determined by the Landlord's
Architect and otherwise to be effective at the date specified
in such notice of termination which shall not be less than
thirty (30) days following receipt of such notice by the
Tenant and in either of such events, the Rent hereby reserved
shall be forthwith payable by the Tenant to the effective date
of the termination, the Term hereby granted shall terminate as
at that date and the Landlord may as at the effective date of
termination re-enter and take possession of the Leased
Premises and deal with the same as fully and effectively as if
these presents had not been entered into. But if within the
said period of sixty (60) days, the Landlord shall not give
notice terminating this Lease, then as soon as reasonably
practicable thereafter, the Landlord shall undertake or
continue the rebuilding, repair or restoration with all
reasonable diligence and the Basic Rent hereby reserved, or a
proportionate part thereof depending upon the proportion of
the Leased Premises that are not fit for use by the Tenant for
the intended purpose of this Lease, shall abate until the
Leased Premises have been rebuilt and made fit for the
intended purposes of this Lease;
(b) the same is damaged or destroyed to the extent that the same
can with reasonable diligence be rebuilt, repaired or restored
within one hundred and twenty (120) days of the date of such
damage or destruction (as determined in the opinion in writing
of the Landlord's Architect, which written opinion shall be
delivered to the Tenant within thirty (30) days of the
occurrence of such damage or destruction) and the Landlord is
not otherwise entitled to terminate this Lease pursuant to
Article 5.08(a) the Landlord shall as soon as reasonably
practicable after such determination, undertake or continue
the repair of the same with all reasonable diligence provided,
however, that nothing herein
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contained shall impose any obligation upon the Landlord to
complete such repair within the said period of one hundred and
twenty (120) days and the Basic Rent hereby reserved, or a
proportionate part thereof depending upon the proportion of
the Leased Premises that are not fit for use by the Tenant for
the intended purposes of this Lease, shall abate until the
Leased Premises have been rebuilt and made fit for the
intended purposes of this Lease.
5.09 Qualifications
(a) For the purposes of Article 5.08 the terms "Leased Premises"
and "Building" shall be deemed not to include the Tenant's
trade fixtures, merchandise stockin-trade furniture or any
other improvements installed in the Leased Premises by or on
behalf of the Tenant including the Tenant's Work.
(b) If the Landlord rebuilds, repairs, or restores the Building or
the Leased Premises as contemplated in Article 5.08 it will
not be required to reproduce exactly the Leased Premises or
the Building or restore the same to the exact condition that
existed before the damage or destruction provided that it
reproduces or restores or rebuilds the same to a comparable
condition and configuration.
(c) The certificate of the Landlord's Architect in charge of the
rebuilding, repair or restoration shall bind the Landlord and
the Tenant as to the state and proportion of the suitability
for occupancy of the Leased Premises and as to the date upon
which the Landlord's work of reconstruction or restoration is
completed and the Leased Premises fit for the purposes of the
Tenant.
(d) Notwithstanding any of the provisions of Article 5.08 to the
contrary, in the event the damage or destruction referred to
therein is caused by the negligence or misconduct of the
Tenant, its servants, agents, employees, contractors,
licensees or other persons for whom in law the Tenant is
responsible:
(i) and this Lease is not terminated as a result of such
damage or destruction there shall be no abatement of
Basic Rent as contemplated in Article 5.08; and
(ii) the Tenant shall indemnify and hold harmless the Landlord
from and against any liabilities, damages, costs, claims,
suits or actions of any nature whatsoever suffered by or
incurred by the Landlord as a result of such damage or
destruction and this indemnity and hold harmless covenant
shall survive the expiration of the Term.
5.10 Condition of Expiration
Upon the expiration of the Term the Tenant shall surrender and deliver
up to the Landlord vacant possession of the Leased Premises, which Leased
Premises at such time, unless the expiration of the Term has occurred pursuant
to Article 5.08(a), shall be in the condition in which the same must be
maintained during the Term pursuant to Articles 5.01 and 5.02 and as the same
must otherwise be restored pursuant to Article 9.02.
ARTICLE 6
Common Areas and Common Facilities
6.01 Tenant's Use of Parking Areas
The Tenant, its employees, suppliers and other persons not licensees or
invitees and having business with the Tenant shall be prohibited from using for
parking of vehicles and loading or unloading of vehicles any part of the
customer parking areas as such may be designed and changed from time to time by
the Landlord. Tenant and employee parking shall be limited to specified times
and places, arranged so as to cause minimal interference to business within the
Development. If requested by the Landlord the Tenant shall supply its employees'
automobile license numbers to the Landlord.
6.02 Landlord's Right to Remove Vehicles
Should the Tenant, its employees, suppliers or other persons not
licensees or invitees of the Tenant park vehicles in areas not allocated for
that purpose, the Landlord shall have the right to remove the said trespassing
vehicles and the Tenant will save harmless the Landlord from any and all damages
arising therefrom and the Tenant will pay the costs of such removal.
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6.03 Control of Common Areas and Common Facilities
The Landlord shall at all times have exclusive control and management
of the Common Areas and the Common Facilities. Such control applies to signs,
use of show windows, and the Tenant's publicity visible from the Common Areas,
as well as to the use made by the Tenant and/or the public of the Common Areas.
The Landlord shall have the right to alter, vary, designate and redesignate the
Common Areas and the Common Facilities from time to time and to interfere with
the use of the Common Areas and the Common Facilities to the extent necessary to
make such alterations or variations or any other repairs required or permitted
to be made by the Landlord under this Lease.
6.04 Merchandise on Common Area
In particular, but without in any way limiting the generality of the
provisions of Article 6.03, the Tenant shall not keep, display, or sell any
merchandise on or otherwise obstruct or use any part of the Common Areas on the
Common Facilities, except as permitted by the Landlord and except for displays
included in Development promotions when recognized and permitted by the
Landlord.
6.05 Customer Parking
The Landlord shall at all times during the Term maintain for the
benefit of licensees and invitees of the Tenant parking facilities.
ARTICLE 7
Assignment and Sub-Letting
7.01 Prohibitions
The Tenant shall not assign or transfer this Lease or the Term or any
portion thereof or let or sub-let all or any part of the Leased Premises or
grant any license with respect thereto (any of the foregoing being hereinafter
called a "Transfer") without the written consent of the Landlord first had and
obtained, which consent shall not be unreasonably withheld, provided that it
shall not be unreasonable for the Landlord to withhold its consent where the
Tenant is assigning or subletting at a profit to the Tenant.
All requests to the Landlord for consent to any Transfer shall be made
to the Landlord in writing together with payment to the Landlord of one hundred
dollars ($100.00) as a deposit on account of all costs incurred by the Landlord
in considering and processing the request for consent and such information in
writing as the Landlord might reasonably require respecting a transferee
including, without limiting the generality of the foregoing, the name, address,
business experience, financial position and banking and personal references of
such transferee, and in the event the transferee is a corporation, similar
information respecting the corporporation and its principal shareholders,
officers and directors. In addition, the request shall contain a comprehensive
summary of the terms and conditions upon which the Transfer is to occur.
Notwithstanding any provisions of this Article 7.01 to the contrary,
after the Landlord receives such request and information in writing, it shall
have the option, to be exercised by written notice within thirty (30) days after
the receipt of such request and information, to terminate this Lease and the
Term hereof on not less than thirty (30) days and not more than ninety (90) days
notice to the Tenant. If the Landlord elects to terminate this Lease as
aforesaid, the Tenant shall have the right, to be exercised by written notice to
the landlord within ten (10) days after receipt of such notice of termination,
to withdraw the request for consent to the proposed Transfer, in which case the
Tenant shall not proceed with such Transfer, the notice of termination shall be
null and void and this Lease shall continue in full force and effect in
accordance with its terms.
If the Landlord consents to a Transfer, the Landlord shall have the
following rights:
(a) to require the Tenant to enter into an agreement in writing
and under seal to implement all amendments to the Lease to
give effect to the Landlord's exercise of its foregoing
rights; and
(b) to require the Transferee to enter into an agreement directly
with the Landlord to perform and observe all the terms and
conditions of the Tenant pursuant to this Lease.
Whether or not the Landlord consents to any request to Transfer, the
Tenant shall pay reasonable costs incurred by the Landlord in considering any
request for consent to Transfer and in completing any of the documentation
involved in implementing such Transfer.
PROVIDED FURTHER that, notwithstanding any other provisions of this
Article 7.01 to the contrary, neither the Transfer nor the taking of any
documentation in relation thereto shall affect the obligation of the Tenant to
perform and observe all of the terms and conditions in this Lease to be observed
and performed by the Tenant.
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7.02 Control of Corporation
If the Tenant is a corporation, other than a corporation the shares of
which are listed on any recognized stock exchange, effective control of the
corporation shall not be changed directly or indirectly by a sale, encumbrance
or other disposition of shares or otherwise howsoever without first obtaining
the written consent of the Landlord; provided that the Landlord's consent shall
not be required for any sale or other disposition of shares by present
shareholders to and between themselves or in the event of any transmission of
shares on death and provided further that the Landlord's consent shall not be
unreasonably withheld where control of the Tenant is to pass to a subsidiary or
parent of the Tenant.
7.03 Assignment by Landlord
The Landlord may assign all or part of its interest in this Lease
without the Tenant's knowledge or consent.
ARTICLE 8
Insurance
8.01 Tenant to Insure
The Tenant, at its sole cost and expense, shall take out and keep in
force during the Term, standard fire and extended coverage, and malicious damage
insurance on the stock-in-trade, furniture, fixtures, glass, improvements and
all other contents of the Leased Premises to their full replacement value, and
comprehensive general liability insurance in an amount of not less than five
million dollars ($5,000,000) and tenant's fire legal liability insurance all in
amounts and with policies in a form satisfactory to the Landlord with insurers
acceptable to the Landlord. Each such policy shall name the Landlord as an
additional insured as its interest may appear and such comprehensive public
liability insurance shall contain a provision for cross liability as between the
Landlord and the Tenant. Each policy other than public liability policies shall
provide that the insurer shall not have any right of subrogation against the
Landlord, its servants, agents or employees on account of any loss or damage
covered by such insurance or on account of payments made to discharge claims
against or liabilities of the Landlord or Tenant covered by such insurance. The
cost or premium for each and every such policy shall be paid by the Tenant. The
Tenant shall obtain from the insurers under such policies, undertakings to
notify the Landlord in writing at least thirty (30) days prior to any
cancellation or reduction in coverage thereof. If the Tenant fails to take out
or keep in force, or provide to the Landlord proof, as hereafter contemplated,
of such insurance, the Landlord shall have the right to place such insurance on
behalf of the Tenant and to pay the premium therefor and in such event, the
Tenant shall repay to the Landlord the amount paid therefor, which repayment
shall be deemed to be Additional Rent payable on the first day of the next month
following the said payment by the Landlord. The Tenant agrees to provide the
Landlord with current copies of the insurance policies or certificates of
insurance as described herein.
8.02 Not to Affect Landlord's Insurance
The Tenant will not upon the Leased Premises do or permit to be done,
or omit to do anything which causes or has the effect of causing the rate of
insurance upon the Development or any part thereof to be increased and if the
insurance rate shall be thereby increased by any action of the Tenant, the
Tenant shall pay to the Landlord on demand as Additional Rent the amount by
which the insurance premiums shall be so increased. The Tenant will not store or
permit to be stored upon or in the Leased Premises anything of a dangerous,
inflammable or explosive nature nor anything which would have the effect of
increasing the Landlord's insurance costs or of leading to the cancellation of
such insurance. It is agreed that if any insurance policy upon the Leased
Premises shall be cancelled by the insurer by reason of the use and occupation
of the Leased Premises or any part thereof by the Tenant or by any assignee,
sub-tenant, concessionaire or licensee of the Tenant, or by anyone permitted by
the Tenant to be upon the Leased Premises, the Landlord may, at its option,
forthwith enter upon the Leased Premises and rectify the situation causing such
cancellation or rate increase, and the Tenant shall forthwith on demand pay to
the Landlord the costs of the Landlord related to such rectification together
with a supervisory fee of twenty (20%) percent of such cost and with interest on
the aggregate of the foregoing from the date funds were expended by the
Landlord.
8.03 Landlord to Insure
The Landlord shall throughout the Term, carry fire insurance with
normal coverage endorsements in respect of the buildings and improvements
forming part of the Development (but excluding the Tenant's trade fixtures,
merchandise, stock-in-trade, furniture or any other improvements installed in
the Leased Premises by or on behalf of the Tenant including the Tenant's Work)
in an amount not less than ninety (90) percent of the full replacement cost
(excluding the cost of foundations, footings, underground utilities and
architects and other fees associated with these items) from time to time, on a
stated amount basis, provided that such insurance, without further consent or
notice to the Tenant, may not have a deductible amount, provided that such
deductible amount shall not exceed three (3%) percent of the amount insured
under such policy or policies. The Landlord may, but shall not be obligated to,
carry such other insurance including public liability insurance and rental loss
insurance related to the Lands or such risks and perils in relation thereto or
the Landlord's interest
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derived therein as the Landlord may so determine. All such insurance so obtained
by the Landlord shall be for the sole benefit of the Landlord and the Tenant
shall be entitled to no interest therein or benefit thereof.
ARTICLE 9
Tenant Alterations
9.01 Painting, Decorating and Alterations
The Tenant may, provided it first obtains the consent of the Landlord,
at any time and from time to time at its expense, paint and decorate, in
accordance with the manner and standard referred to in Article 5.01, the
interior of the Leased Premises and make such changes, alterations, additions
and improvements in and to the Leased Premises as will in the judgment of the
Tenant better adapt the Leased Premises for the purposes of its business;
provided, however, that no changes, alterations, additions or improvements to
the structure, any perimeter wall, the sprinkler system, the heating,
ventilating, air-conditioning, plumbing, electrical or mechanical equipment or
the concrete floor or the roof shall be made without the prior written consent
of the Landlord, and without the use of contractors or other qualified workmen
approved by the Landlord. All changes, alterations, additions and improvements,
whether structural or otherwise, shall be carried out in accordance with the
reasonable requirements or rules of the Landlord and shall comply with all
applicable statutes, regulations or bylaws of any municipal, provincial or other
governmental authority. As part of the process of the Landlord's examination and
approval of the Tenant's plans and specifications, materials may, in addition to
being submitted to the Landlord's Architect, be submitted by the Landlord to
other architects, engineers, and special consultants, and progress and
completion of the work may require supervision and/or inspection by the Landlord
or any of the foregoing persons on behalf of the Landlord. Any fees and costs
incurred by the Landlord in relation to the foregoing will be paid by the Tenant
to the Landlord within fifteen (15) days of billing. The Tenant shall pay to the
Landlord the amount of the increase for any insurance coverage of the Landlord
directly attributable to any action by the Tenant as hereinbefore in this
Article 9.01 provided and the Tenant covenants that such insurance shall not
thereby be made liable to avoidance or cancellation by the insurer by reason of
such changes, alterations, additions or improvements.
9.02 Landlord's Property
At the expiration of the Term all changes, alterations, additions and
improvements made to or installed upon or in the Leased Premises whether made
pursuant to this Article 9 or otherwise and which in any manner are attached in,
to on or under the floors, walls or ceilings (other than unattached movable
trade fixtures) shall remain upon and be surrendered to the Landlord with the
Leased Premises as part thereof, without disturbance, molestation or injury and
shall be and become the absolute property of the Landlord without any payment or
indemnity by the Landlord or any third party to the Tenant or any other party.
Notwithstanding the foregoing provisions of this Article 9.02, unless the Lease
has been terminated pursuant to Article 5.08(a) the Landlord may by notice in
writing require the Tenant to remove the aforesaid changes, alterations,
additions and improvements in whole or in part, in which event the Tenant shall
remove the same and restore to the extent so requested that Leased Premises to
the state in which they were prior to the commencement of any of the Tenant's
Work and shall make good any damage or injury caused to the Leased Premises
resulting from such installation and removal, reasonable wear and tear and the
Landlord's repair obligations only excepted. The obligations of the Tenant under
this Article 9.02 shall survive the expiration of the Term.
9.03 Prohibitions
The Tenant, its employees, agents and representatives, are expressly
prohibited from entering upon the roof of the Building or any Other Buildings
for any reason whatsoever. The Tenant shall not make any repairs, openings or
additions to any part of the exterior of the Leased Premises, nor place any
attachments, decorations, signs or displays in or upon any Common Area or the
exterior of the Leased Premises failing which the Tenant will be held
responsible for all ensuing costs and damages whether to remove such items or to
effect repairs needed as a result of such acts and shall pay the cost thereof to
the Landlord forthwith on demand together with a supervisory fee to the
Landlordof twenty (20%) percent of such cost as well as interest on the
aggregate of the foregoing from the date funds are so expended by the Landlord.
9.04 No Liens
The Tenant covenants with the Landlord that it will not permit, do, or
cause anything to be done to the Leased Premises during the period of
construction and fixturing of the Leased Premises or at any time which would
allow any lien, lis pendens, judgment or certificate of any court or any
mortgage, charge or encumbrance of any nature whatsoever to be imposed or to
remain upon the Leased Premises or the Development. In the event of the
registration of any lien or other encumbrance as aforesaid, the Tenant shall at
its own expense immediately cause the same to be discharged. Should the Tenant
fail to discharge such lien or encumbrance within two (2) days of notice from
the Landlord so to do, the Landlord shall be at liberty to pay and discharge
such lien or encumbrance and any amount so paid by the Landlord together with
any disbursements and costs incurred by the Landlord on a solicitor-client basis
together with interest on any such amounts from the date of expenditure of such
funds by the Landlord shall be paid by the Tenant to the Landlord forthwith.
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ARTICLE 10
Public Utilities and Taxes
10.01 Public Utilities, Business Tax and Machinery Tax
The Tenant shall pay and discharge as the same fall due all charges for
utilities provided to or consumer on the Leased Premises during the Term
including telephone installations, water, electrical power, gas and telephone
charges metered separately or charged separately by the authority providing the
same to the Leased Premises as well as any charges of any such authority based
thereon for treatment or other facilities and all other charges similar in
nature, and shall also pay and discharge as the same fall due all business taxes
and rates, floor space and personal property taxes, licence fees or similar fees
which may be imposed by any municipal, legislative or other authority in respect
of the use or occupancy of the Leased Premises or any personal property situate
thereon or in respect of any fixtures, machinery, equipment or apparatus
installed in the Leased Premises (or elsewhere in the Development by the
Tenant).
PROVIDED ALWAYS that if any of the aforesaid utilities are provided to
the Leased Premises through a common metering device or on any other shared
basis with any other premises or portions of the Building or the Development,
the Tenant shall pay to the Landlord forthwith on demand, from time to time by
the Landlord, the Tenant's share of the cost thereof based on such allocation as
the Landlord may reasonably determine in relation to the other premises or
portions of the Building or the Development being so served.
10.02 Payment of Real Property Taxes by Landlord
The Landlord shall, without derogating from any of the Tenant's
obligations with respect to payment of Additional Rent, pay or cause to be paid
when due to the municipality or other taxing authorities having jurisdiction all
Real Property Taxes, PROVIDED ALWAYS that the Landlord may postpone such payment
to the extent permitted by law if pursuing in good faith any appeal against the
imposition thereof.
10.03 Increase in Real Property Taxes Attributable to Tenant
The Tenant shall from time to time if requested by the Landlord, pay to
the Landlord forthwith on demand by the Landlord, an amount equal to any
increase in the amount of Real Property Taxes by reason of any installation,
alteration, or use made in or to the Leased Premises by or for the benefit of
the Tenant or any party claiming by or through the Tenant
10.04 Goods and Services Tax
Despite any other section or clause of this Lease, the Tenant shall pay
to the Landlord upon demand an amount equal to any and all Goods and Services
Tax, it being the intention of the parties that the Landlord shall be fully
reimbursed by the Tenant with respect to any and all Goods and Services Tax at
the full tax rate applicable from time to time in respect of the Rent payable
for the lease of the Leased Premises pursuant to this Lease. The amount of the
Goods and Services Tax so payable by the Tenant shall be calculated by the
Landlord in accordance with the applicable legislation and shall be paid to the
Landlord at the same time as the amounts to which such Goods and Services Tax
apply and is payable to the Landlord under the terms of this Lease or upon
demand at such other time or times as the Landlord from time to time determines.
Despite any other section or clause in this Lease, the amount payable by the
Tenant under this paragraph shall be deemed not to be Rent, but the Landlord
shall have all of the same remedies for and rights of recovery of such amount as
it has for recovery of Rent under this Lease. As referred to herein "Goods and
Services Tax" means the tax imposed under part IX of the Excise Tax Act (Canada)
or any similar tax hereafter imposed in substitution therefor or in addition
thereto.
ARTICLE 11
Exclusion of Liability and Indemnity
11.01 Exclusion of Liability
It is agreed between the Landlord and the Tenant that:
(a) the Landlord, its agents, servants and employees shall not be
liable for damage or injury to any property of the Tenant
which is entrusted to the care or control of the Landlord, its
agents, servants or employees;
(b) the Landlord, its agents, servants and employees shall not be
liable nor responsible in any way for any personal or
consequential injury of any nature whatsoever that may be
suffered or sustained by the Tenant or any employee, agent,
customer, invitee or licensee of the Tenant or any other
person who may be upon the Leased Premises or the Development
or for any loss of or damage or injury to any property
belonging to the Tenant or to its employees or to any other
person while such property is on the Leased Premises or the
Development and, in particular (without limiting the
generality of the
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foregoing) the Landlord shall not be liable for any damage or
damages of any nature whatsoever to any such property caused
by the failure by reason of a breakdown or other cause, to
supply adequate drainage, snow or ice removal, or by reason of
the interruption of any public utility or service or in the
event that steam, water, rain or snow may leak into, issue or
flow from any part of the Development or from the water,
steam, sprinkler, or drainage pipes or plumbing works the
same, or from another place or quarter or for any damage
caused by any thing done or omitted by any tenant, but the
Landlord shall, after notice of the same and where it is
within its obligation so to do, use all reasonable diligence
to remedy such condition, failure or interruption of service
when not directly or indirectly attributable to the Tenant,
and the Tenant shall not be entitled to any abatement of Rent
in respect of any such condition, failure or interruption of
service; and
(c) the Landlord, its agents, servants, employees or contractors
shall not be liable for any damage suffered to the Leased
Premises or the contents thereof by reason of the Landlord,
its agents, servants, employees or contractors entering upon
the Leased Premises to undertake any examination thereof or
any work therein or in the case of an emergency.
11.02 Indemnification
Notwithstanding any other provision of this Lease to the contrary, the
Tenant shall:
(a) be liable to the Landlord for; and
(b) indemnify and hold harmless the Landlord, its agents,
advisors, servants and employees from and against:
any and all liabilities, claims, suits or actions, costs, damages and expenses
(and without limiting the generality of the foregoing, any direct losses, costs,
damages and expenses of the Landlord including costs on a solicitor-client
basis) which may be brought or made against the Landlord, or which the Landlord
may pay or incur as a result of or in connection with:
(c) any breach, violation or non-performance of any covenant,
condition or agreement in this Lease set forth and contained
on the part of the Tenant to be fulfilled, kept, observed and
performed;
(d) any damage to property, including property of the Landlord,
occasioned by the operations of the Tenant's business on, or
the Tenant's occupation of, the Leased Premises; or
(e) any injury to person or persons, including death resulting at
any time therefrom, occasioned by the operation of the
Tenant's business on, or the Tenant's occupation of, the
Leased Premises;
such indemnity and hold harmless to survive the expiration of the Term.
ARTICLE 12
Landlord's Rights and Remedies
12.01 Default
If and whenever:
(a) the Rent hereby reserved, or any part thereof, be not paid
when due, or there is non-payment of any other sum which the
Tenant is obligated to pay under any provisions hereof, and
such default shall continue for ten (10) days after notice by
the Landlord requiring the Tenant to rectify the same;
(b) the Term or any goods, chattels, equipment or other personal
property of the Tenant, shall be taken or be exigible in
execution or attachment, or if a writ of execution shall issue
against the Tenant;
(c) the Tenant shall become insolvent or commit any act of
bankruptcy or become bankrupt or take the benefit of any Act
that maybe in force for bankrupt or insolvent debtors, or
become involved in a winding-up proceeding, voluntary or
otherwise, or if a receiver shall be appointed for the
business, property, affairs or revenues of the Tenant, or if
any governmental authority should take possession of the
business or property of the Tenant;
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(d) the Tenant shall fail to commence business actively and
diligently from and on the Leased Premises within thirty (30)
days after the Commencement Date;
(e) the Tenant shall make a bulk sale of its goods or move or
commence, attempt or threaten to move its goods, chattels and
equipment out of the Leased Premises (other than in the
routine course of its business) or shall, for a period of ten
(10) consecutive days (without the prior written consent of
the Landlord), fail to conduct business from the Leased
Premises;
(f) the Tenant shall vacate or abandon the Leased Premises in
whole or in part;
(g) the Tenant shall transfer or purport to Transfer any portion
or all of the Term of the Leased Premises without the written
consent of the Landlord or control of the Tenant if a
corporation is changed without the prior written consent of
the Landlord, in either case as required pursuant to Article
7;
(h) the Tenant shall fail to remedy any condition giving rise to
cancellation, threatened cancellation, reduction or threatened
reduction of any insurance policy on the Development or any
part thereof within twenty-four (24) hours after notice
thereof by the Landlord; or
(i) the Tenant shall not observe, perform and keep any other of
the covenants, agreements, provisions, stipulations and
conditions herein to be observed, performed and kept by the
Tenant and shall persist in such failure for ten (10) days
after notice by the Landlord requiring that the Tenant remedy,
correct, desist or comply (or in the case of any such breach
which reasonably would require more than ten (10) days to
rectify unless the Tenant shall commence rectification within
the said ten (10) day period and thereafter promptly and
diligently and continuously proceed with the rectification of
the breach);
then and in any of such cases at the option of the Landlord, the full amount of
the current month's and the next ensuing three (3) month's Rent shall
immediately become due and payable as Additional Rent and the Landlord may
immediately distrain for the same, together with any arrears then unpaid; and
the Landlord may without notice or any form of legal process forthwith re-enter
upon and take possession of the Leased Premises or any part thereof in the name
of the whole and remove and sell the Tenant's goods, chattels, equipment and any
other property therefrom, any rule of law or equity to the contrary
notwithstanding; and the Landlord may seize and sell such goods, chattels,
equipment and other property of the Tenant as are in the Leased Premises or at
any place to which the Tenant or any other person may have removed them in the
same manner as if they had remained and been distrained upon the Leased
Premises; and such sale may be effected in the discretion of the Landlord either
by public auction or by private treaty, and either in bulk or by individual
item, or partly by one means and partly by another, all as the Landlord in its
entire discretion may decide, and the Tenant waives and renounces the benefit of
any present or future statute or amendments thereto taking away or limiting the
Landlord's right of distress.
12.02 Consequences of Default
If and whenever the Landlord is entitled to re-enter the Leased
Premises, the Landlord may terminate this Lease and the Term by giving written
notice of termination to the Tenant or by posting notice of termination in the
Leased Premises, and in such event the Tenant will forthwith vacate and
surrender the Leased Premises. Alternatively, the Landlord may from time to time
without terminating the Tenant's obligations under this Lease, make alterations
and repairs considered by the Landlord necessary to facilitate a sub-letting and
sub-let the Leased Premises or any part thereof as agent of the Tenant for such
term or terms and at such rent or rents and upon such other terms and conditions
as the Landlord in its sole discretion considers advisable. Upon each subletting
all rent and other monies received by the Landlord from the sub-letting shall be
applied first to the payment of indebtedness other than Rent due hereunder from
the Tenant to the Landlord, second to the payment of costs and expenses of the
sub-letting including brokerage fees and solicitors fees and the cost of
alterations and repairs, and third to the payment of Rent due and unpaid
hereunder. The residue, if any, shall be held by the Landlord and applied in
payment of future Rent as it becomes due and payable. If the Rent received from
the sub-letting during a month and any surplus then held by the Landlord to the
credit of the Tenant is less than the Rent to be paid during that month by the
Tenant, the Tenant will pay the deficiency to the Landlord. The deficiency will
be calculated and paid monthly. No re-entry by the Landlord will be construed as
an election on its part to terminate this Lease unless a written notice of that
termination is given to the Tenant or posted as aforesaid. Despite a subletting
without termination, the Landlord may elect at any time to terminate this Lease
for a previous breach. If the Landlord so terminates this Lease, the Tenant
shall pay to the Landlord on demand therefor:
(a) Basic Rent and Additional Rent accrued due up to the time of
re-entry or termination, whichever is later, plus the next
three (3) months' Rent payable as Additional Rent as provided
in Article 12.01;
(b) all costs payable by the Tenant pursuant to the provisions of
this Lease up until the date of re-entry or termination,
whichever is later;
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(c) such expenses as the Landlord may incur or has incurred in
connection with re-entering or terminating and re-letting, or
collecting sums due or payable by the Tenant or realizing upon
assets seized including brokage expenses, legal fees and
disbursements determined on a full indemnity basis, and
including the expense of keeping the Leased Premises in good
order and repairing or maintaining the same or preparing the
Leased Premises for re-letting; and
(d) as liquidated damages for the loss of Rent and other income of
the Landlord expected to be derived from this Lease during the
period which would have constituted the unexpired portion of
the Term had the Lease not been so terminated, the amount, if
any, by which the rental value of the Lease Premises for such
period established by reference to the terms and provisions of
this Lease exceeds the rental value of the Leased Premises for
such period established by reference to the terms and
provisions upon which the Landlord relets them, if such
re-letting is accomplished within a reasonable time after
termination of this Lease, and otherwise with reference to all
market and other relevant circumstances. Rental value is to be
computed in each case by reducing to present worth at an
assumed interest rate of ten percent (10%) per annum all Rent
and other amounts to become payable for such period and where
the ascertainment of amounts to become payable requires the
same, the Landlord may make estimates and assumptions of fact
which will govern unless shown to be unreasonable or
erroneous;
such obligations of the Tenant to survive the expiration of the Term.
12.03 Non-Waiver
The failure of the Landlord to insist in any one or more cases upon the
strict performance of any of the covenants of this Lease or to exercise any
option herein contained shall not be construed as a waiver or a relinquishment
for the future of such covenant or option and the acceptance of Rent by the
Landlord with knowledge of the breach by the Tenant of any covenants or
conditions of this Lease shall not be deemed to be a waiver of such breach and
no waiver by the Landlord of any provisions of this Lease shall be deemed to
have been made unless expressed in writing by the Landlord.
12.04 Right of Landlord to Perform Tenant's Covenants
If at any time and so often as the same shall happen, the Tenant shall
make default in the observance or performance of any of the Tenant's covenants
herein contained, then the Landlord may, but shall not be obligated to, without
waiving or releasing the Tenant from its obligations under the terms of this
Lease, itself observe and perform the covenant or covenants in respect of which
the Tenant is in default, and in that connection may pay such monies as may be
required or as the Landlord may reasonably deem expedient and the Landlord may
thereupon charge all monies so paid and expended by it to the Tenant together
with interest thereon from the date upon which the Landlord shall have paid out
the same; provided however that if the Landlord commences and completes either
the performance of any such covenant or covenants or any part thereof, the
Landlord shall not be obliged to complete such performance or be later obliged
to act in like fashion.
12.05 Time for Payment and Legal Costs
Unless otherwise expressly provided in this Lease, all sums and costs
paid by the Landlord, including costs paid between solicitor and client, on
account of any default by the Tenant under this Lease, shall be payable to the
Landlord by the Tenant forthwith, with interest thereon at the rate aforesaid
from date of payment of such sums or costs by the Landlord.
Unless otherwise expressly provided in the Lease, all amounts (other
than Rent) required to be paid by the Tenant to the Landlord pursuant to this
Lease shall be payable on demand at the place designated by the Landlord for
payment of Rent and if not so paid within ten (10) days of such demand shall be
treated as Rent in arrears and the Landlord may, in addition to any other remedy
it may have for the recovery of the same, distrain for the amount thereof as
Rent in arrears.
12.06 Remedies Cumulative
All rights and remedies of the Landlord in this Lease contained shall
be cumulative and not alternative and are not dependent the one on the other and
mention of any particular remedy or remedies of the Landlord in respect of any
default by the Tenant shall not preclude the Landlord from any other remedy in
respect thereof, whether available at law or in equity or as expressly provided
for herein.
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ARTICLE 13
Mortgages and Assignment by Landlord
13.01 Sale or Financing of Development
The Landlord may sell, transfer, lease, mortgage, encumber or otherwise
dispose of the Development or any portion thereof or any interest of the
Landlord therein, in every case without the consent of the Tenant, and the
rights of the Landlord under this Lease may be mortgaged, charged, transferred
or assigned in conjunction therewith. The Tenant acknowledges that in the event
of the sale or lease by the Landlord of the lands or a portion thereof
containing the Leased Premises or the assignment by the Landlord of this Lease
or of any interest of the Landlord hereunder, to the extent that any such
purchaser, lessee or assignee has assumed the covenants and obligations of the
Landlord hereunder, the Landlord shall, without further written agreement, be
freed and relieved of liability upon such covenants and obligations.
13.02 Subordination and Acknowledgement
This Lease shall at the option of the Landlord or the mortgagee under
any mortgage now or hereafter existing affecting the Development, exercisable at
any time and from time to time by the Landlord or such mortgagee, be either
subject and subordinate to such mortgage and accordingly not binding upon such
mortgagee or alternatively rank prior to such mortgage and accordingly be
binding upon such mortgagee. On request at any time and from time to time of the
Landlord or such mortgagee, the Tenant shall either postpone and subordinate
this Lease or any caveat based thereon to such mortgage with the intent and
effect that this Lease and all rights of the Tenant shall be subject to the
rights of such mortgagee as fully as if the mortgage (regardless of when made)
had been made prior to the making of this Lease, or alternatively to attorn to
such mortgagee and become bound to it as its tenant of the Leased Premises for
the then expired residue of the Term and upon the terms and conditions contained
in this Lease, in each case as the Landlord or such mortgagee may require.
Without limiting the foregoing (and notwithstanding that any previous attornment
or subordination in favour of such mortgagee shall have been given) the Tenant
shall execute promptly the appropriate instrument of postponement and
subordination or alternatively the appropriate instrument of attornment, as the
case may be, in order to give effect to the foregoing.
13.03 Offset Statement
Within ten (10) days following request therefor by the Landlord, from
time to time, the Tenant shall execute and deliver to the Landlord and if
required by the Landlord, to any mortgagee, assignee, or transferee of the Lease
or the Development, a certificate in writing as to the then status of this
Lease, including whether it is in full force and effect, as modified or
unmodified, confirming the Tent payable hereunder, the state of accounts between
the Landlord and the Tenant and the existence or non-existence of defaults and
any other matters pertaining to the Lease which the Landlord shall request be
included in such certificate.
13.04 Registration
The Tenant shall not without the consent of the Landlord register this
Lease against title to the Lands. The Tenant will, at the cost and expense of
the Tenant, cause this Lease to be registered in the appropriate Land Title
Office in the Province of British Columbia upon the request of the Landlord in
the event that the Landlord requires the same to be registered in priority to
any mortgage, trust deed or trust indenture which may now or at any time
hereafter affect in whole or in part the Leased Premises or the Development and
the Tenant shall execute promptly any certificate or other instrument which may
from time to time be requested by the Landlord to give effect to the provisions
of this Article 13.04.
ARTICLE 14
Overholding Tenant
14.01 No Tacit Renewal
In the event the Tenant remains in possession of the Leased Premises
after the end of the Term and without the execution and delivery of a new lease,
there shall be no tacit renewal of this Lease and the Term hereby granted and
the Tenant shall be deemed to be occupying the Leased Premises as a Tenant from
month to month on the terms and conditions contained herein except that the
Basic Rent shall be one hundred and fifty percent (150%) of the monthly
instalment of Basic Rent required to be paid pursuant to this Lease in the
immediately preceding Year of the Term, but otherwise on the terms and
conditions of this Lease which shall be read with such changes as are
appropriate to a monthly tenancy; provided however that this provision shall not
authorize the Tenant to so overhold where the Landlord has objected to such over
holding or has required the Tenant to vacate the Leased Premises.
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ARTICLE 15
Quiet Possession
15.01 Quiet Possession
Upon the Tenant paying the Rent hereby reserved and all other charges
herein provided and observing, performing and keeping the covenants and
agreements herein contained, the Tenant shall and may peaceably possess and
enjoy the Leased Premises for the Term granted without any interruption or
disturbance from the Landlord or any person or persons lawfully claiming by,
from or under it.
ARTICLE 16
Legal Relationships
16.01 No Partnership
Nothing contained in this Lease nor in any acts of the Landlord and
Tenant pursuant to this Lease shall be deemed to create any relationship between
the parties hereto other than the relationship of Landlord and Tenant, it being
expressly provided that there is no intention to create a relationship of
partners or a joint venture.
16.02 Joint and Several Liability
Should the Tenant comprise two (2) or more persons, each of them, and
not one for the other or others, shall be jointly and severally bound with the
other or others for the due performance of the obligations of the Tenant
hereunder. Where required by the context hereof the singular shall include the
plural and the masculine gender shall include either the feminine or neuter
genders, as the case may be and vice versa.
16.03 Successors and Assigns
This Lease and everything herein contained shall enure to the benefit
of and be binding upon the parties hereto, to successors and assigns of the
Landlord, and the approved successors and assigns of the Tenant.
ARTICLE 17
Notices
17.01 Notices
Any notices herein provided or permitted to be given by the Tenant to
the Landlord shall, except in the event of actual or threatened mail strike
during which time all notices must be delivered, be sufficiently given if
delivered or sent by registered mail, postage prepaid, posted within British
Columbia addressed to the Landlord at:
Bentall Property Management
3100 - Three Bentall Centre
595 Burrard Street
P.O. Box 49001
Vancouver, B.C.
V7X 1B1
or to such other address as might be designated in writing by the Landlord from
time to time, and any notice herein provided or permitted to be given by the
Landlord to the Tenant shall, except in the event of actual or threatened mail
strike during which time all notices must be delivered, be sufficiently given if
delivered or mailed, postage prepaid and posted within British Columbia,
addressed to the Tenant at the Leased Premises.
Notice given as aforesaid, posted in British Columbia, shall be
conclusively deemed to have been given on the third business day following the
day on which such notice was mailed, or if delivered, on the date of delivery.
The Landlord may at any time given in writing to the Tenant of a change of
address for the Landlord and from and after the giving of such notice the
address therein specified shall be deemed to be the address of the Landlord for
the giving of notice hereunder. The word "notice" in this Article 17.01 shall be
deemed to include any request, statement, demand, or other writing in this Lease
provided or permitted to be given by the Landlord to the Tenant or by the Tenant
to the Landlord.
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ARTICLE 18
General
18.01 Collateral Representations and Agreements
The Tenant acknowledges that the Leased Premises are taken without
representation of any kind on the part of the Landlord or its agent other than
as set forth herein, that the plans attached as Schedule "A" set forth the
general layout of the Building and shall not be deemed to be a representation or
agreement of the Landlord that the Building will be exactly as indicated on such
plans, and that nothing contained in the Lease shall be construed so as to
prevent the Landlord from varying or altering the location or size of parking
areas, driveways, sidewalks or from erecting additional buildings or extending
buildings after the Commencement Date and without limiting the foregoing, the
Landlord shall have the unrestricted right to add additional lands to the
Development, which upon such addition, these additional lands will be included
within the definition of the Lands and Development, to construct additional
buildings from time to time on the Lands, add or change any building, or alter
the ingress and egress to the Development and to change the loading or unloading
facilities and service entrances from time to time without in any way being
responsible to the Tenant, provided only that the Landlord shall at all times
provide reasonable access to the Leased Premises across the Lands for the
Tenant, its employees, suppliers, agents, licencees and invitees. Subject to the
foregoing and to the obligations of the Landlord to maintain at all times
adequate parking facilities, the Landlord may transfer or dispose of portions of
the Lands to the owners of abutting property, or dedicate or transfer to the
municipal authorities portions of the Lands for road-widening and other
purposes, and when and so often as the Landlord shall dispose or transfer or
dedicate any portion of the Lands, then the reference herein to the Lands shall
mean and refer to the portion of the Lands remaining after any such transfer,
disposition or dedication together with any adjacent land which may be acquired
by the Landlord on any such transfer, disposition or dedication. The Tenant
further agrees that no representative of or agent of the Landlord is or shall be
authorized or permitted to make any representation with reference to this Lease,
or to vary or modify this Lease in any way, and that this Lease contains all the
agreements and conditions made between the Landlord and the Tenant hereto
respecting the Leased Premises other than for any provisions of the Agreement,
if any, on which this Lease is based and which are specifically stated therein
to survive the execution and delivery of this Lease. Any addition to or
alteration of or change in this Lease or other agreements hereafter made or
conditions created, to be binding, must be made in writing and signed by the
Landlord and the Tenant.
18.02 Management of Development
The Tenant acknowledges to the Landlord that the Development may be
managed by such party or parties as the Landlord may in writing designate and to
all intents and purposes the manager of the Development shall be the party at
the Development authorized to deal with the Tenant on behalf of the Landlord.
18.03 Time of the Essence
Time shall be of the essence of this Lease.
18.04 Unavoidable Delays
In the event that the Landlord shall be delayed, hindered or prevented
from the performance of any covenant hereunder by Force Majeure, the performance
of such covenant shall be excused for the period during which such performance
is rendered impossible and the time for performance thereof shall be extended
accordingly, but this shall not excuse the Tenant from the prompt payment of
Rent or any other amount required to be paid by the Tenant under the provisions
of this Lease.
18.05 Accord and Satisfaction
No payment by the Tenant hereunder or receipt by the Landlord of a
lesser amount than the payment of Basic Rent or Additional Rent or any other
payments herein stipulated shall be deemed to be other than on account of the
stipulated sum, nor shall any endorsement or statement on any cheque or any
letter accompanying any cheque or payment be deemed an accord and satisfaction,
and the Landlord may accept such cheque or payment without prejudice to the
Landlord's right to recover the balance due or pursue any other remedy provided
in this Lease.
18.06 Competition Act
No provision of this Lease is intended to apply or to be enforceable to
the extent that it might give rise to any offence under the Competition Act, RSC
1970 Chapter 23 or any statute that may be substituted therefor, as from time to
time amended.
18.07 Covenants
Each of the terms and conditions of this Lease to be performed and
observed by the Tenant or by the Landlord, as the case may be, is and shall be
construed as a covenant of the party so required to perform and observe the
same.
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18.08 Consent or Approval of Landlord
Wherever and whenever the consent, approval or permission of the
Landlord is required by the Tenant pursuant to the terms of this Lease, and
unless otherwise specifically provided, the Landlord shall have the right to
withhold or grant such consent, approval or permission in its sole and arbitrary
discretion. Such consent, approval or permission must be in writing to be
effective, and such consent, approval or permissions must be obtained prior to
the taking of the action to which the same refers.
18.09 For Lease Signs
The Landlord shall have the right during the last six (6) months of the
Term to place upon the Leased Premises, a notice of reasonable dimensions
stating that the Leased Premises are for lease and the Tenant shall not obscure
or remove such notice or permit the same to be obscured or removed.
18.10 The Commercial Tenancy Act
Each of the Landlord and the Tenant waives any and all provisions of
the Commercial Tenancy Act (British Columbia) or any statute that may be
substituted therefore, as from time to time amended, to the extent that the same
are inconsistent with or conflict with the terms and conditions of this Lease.
18.11 No Exclusivity
This Lease shall not in any way be construed as giving to or conferring
upon the Tenant any rights to carry on any business or undertaking in or from
the Leased Premises to the exclusion of third parties in the Development.
18.12 Schedules
Any and all schedules attached hereto are deemed to be incorporated
into and form part hereof.
18.13 Applicable Law
This Lease shall be governed by and construed in accordance with the
laws in force in the Province of British Columbia.
18.14 Headings
The index and headings in this Lease are inserted for convenience of
reference only and shall not affect the construction of this Lease or any
provision hereof.
18.15 Tenant's Acceptance
The Tenant hereby accepts the Lease of the Leased Premises to be held
by the Tenant, subject to the conditions, restrictions and covenants set forth
herein
18.16 Arbitration
If at any time the parties herein are unable within the time specified,
or if no time is specified, then within a reasonable time to reach agreement on
any matter which is to be settled by mutual agreement, then such matter shall be
submitted and referred to a single arbitrator pursuant to the Commercial
Arbitration Act of British Columbia, whose decision shall be final and binding
on the parties hereto.
18.17 Severability
Should any provision of this Lease be unenforceable it shall be
considered separate and severable from the remaining provision of this Lease,
which shall remain in force and be binding as though the said provision had not
been included.
ARTICLE 19
Definitions
In this Lease, the following words, phrases and expressions are used
with the meanings described as follows:
19.01 "Additional Rent" for a Lease Year or portion thereof means in addition
to the Basic Rent all other amounts which shall become due and payable hereunder
by the Tenant to the Landlord and includes the amounts which is the aggregate
of:
(i) the Tenant's Proportionate Share of the HVAC Costs,
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(ii) the Tenant's Proportionate Share of the Building Operation and
Maintenance Costs,
(iii) the Tenant's Proportionate Share of the Development Operation
and Maintenance Costs, and
(iv) the Tenant's Proportionate Share of the Tax Cost.
In each case the items comprising or being deducted from the aforesaid Costs or
Cost are to be allocated to such Lease Year by the Landlord in accordance with
generally accepted accounting practice, provided that if the Term commences
other than at the beginning of a Lease Year or ends other than at the conclusion
of a Lease Year a pro rata adjustment of the aforesaid costs for such Lease
Year shall be made based on the length of the Term falling within such Lease
Year, provided further that the Tax Cost shall, unless otherwise specifically
stated in the enabling legislation giving rise thereto, be deemed to accrue
equally from day to day in the calendar year to which the same related and
shall, if adjustment is required as aforesaid, be adjusted on that basis and not
on a straight pro rata basis as provided aforesaid.
19.02 "Area of Leased Premises" means the area of the Leased Premises
measured from a perpendicular line drawn at right angles from the edge of the
roof to the ground for all exterior walls, doors and windows and from the centre
line of all interior walls separating the Leased Premises from adjoining
premises, which area for all purposes of this Lease unless otherwise determined
by recalculation of the Landlord's Architect following completion of the
Tenant's Work or any subsequent construction by the Tenant is the area set forth
in Basic Term .01.
19.03 "Basic Rent" means the annual rent payable by the Tenant to the
Landlord in accordance with Article 2.01 for each Year of the Term, being the
amount set forth in Basic Term .02.
19.04 "Basic Term" means each of those terms defined as such at the
commencement of this Lease.
19.05 "Building" means the building in which the Leased Premises are located
as shown on Schedule "A" hereto.
19.06 "Building Operation and Maintenance Costs" means all of the Landlord's
costs, charges and expenses for operating, maintaining, managing, repairing
(excluding repairs of a structural nature), rebuilding, inspecting, insuring,
supervising and administering the Building including the Common Areas and Common
Facilities of the Building, if any, and includes without limiting the generality
of the foregoing:
(a) the cost of lighting, heating, ventilating, air-conditioning
and supplying water and other utilities to the Common
Facilities and Common Areas, as aforesaid; cleaning and
janitorial services relating to the Building; repairs and
replacements to the Building other than structural repairs
required to be carried out by the Landlord pursuant to Article
5.06(a) but including any changes made to the Building,
whether or not structural in nature, required by any
governmental or other agencies which regulate the operation of
the Development, insurance premiums for any insurance required
or permitted to be carried by the Landlord pursuant to the
terms of this Lease and related only to the Building;
(b) an administration fee to the Landlord equal to fifteen (15%)
percent of the aggregate of the aforesaid costs, charges and
expenses; and
(c) depreciation, at rates determined by the Landlord, but not to
exceed the maximum permitted to the Landlord under the
provisions of the Income Tax Act, Canada, from time to time or
any legislation substituted therefore on the equipment and
machinery employed in operating or maintaining repairing or
replacing the Common Areas or the Common Facilities of the
Building, if any, and a carrying cost at the rate of two (2%)
percent above prime, from time to time, of the Canadian
chartered bank designated by the Landlord on the undepreciated
portion of the costs of such equipment and machinery;
and there shall be excluded from such costs the following:
(i) payments of principal and interest under any mortgage or
mortgages on the Development; and
(ii) corporate, income, profits or excess profits taxes assessed
upon the income of the Landlord;
and there shall be deducted from such costs the amount of proceeds actually
recovered by the Landlord from insurance and relating to damage, the cost of
repair of which was included in Building Operation and Maintenance Costs.
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19.07 "Commencement Date" means the first day of October 1994.
19.08 "Common Areas" means those areas located either in the Building or on
the Lands but not in any Other Building, that are not intended for lease and
designated (which designation may be changed from time to time) by the Landlord
as Common Areas set aside by the Landlord for the common or joint use and
benefit of the Tenant, its employees, customers and other entities in common
with others entitled to the use and benefit of such areas in the manner and for
the purposes established or altered pursuant to the terms of this Lease.
19.09 "Common Facilities" means the electrical, heating, ventilating, air
conditioning, plumbing and drainage equipment, any music and public address
systems, installations and any enclosures constructed therefor, fountains,
service rooms, customer and service stairways, escalators, signs, lamps,
standards, public washroom facilities and all other facilities which are
provided and designated (and which designation may be changed from time to time)
by the Landlord for the common or joint use and benefit of the occupants of the
Development.
19.10 "Development" means the Lands, Buildings, Other Buildings and all
buildings and improvements existing on the Lands from time to time.
19.11 "Development Operation and Maintenance Costs" means all of the
Landlord's costs, charges and expenses of operating, maintaining, managing,
repairing, rebuilding, inspecting, insuring, supervising and administering the
Development, other than the Building or any Other Building, including the Common
Areas and the Common Facilities and include without limiting the generality of
the foregoing:
(a) the cost of lighting, heating, ventilating, air-conditioning
and supplying water and other utilities to the Common Areas
and Common Facilities; cleaning, janitorial services, snow and
ice removal, striping or repairing parking areas; supervising,
policing and security; painting, planting or landscaping,
operating and maintaining the garbage compaction equipment, if
any; the cost of maintaining, repairing, replacing or leasing
the pylon signs and public address, intercom, music, and alarm
systems; repairs and replacements to the Development, business
taxes, place of business taxes and other taxes levied in
respect thereof or fairly attributable to the Common Areas or
the Common Facilities; insurance premiums for any insurance
required or permitted to be carried by the Landlord pursuant
to the terms of this Lease other than for the Building or any
Other Building; supplies, personnel wages and payroll
expenses:
(b) an administration fee to the Landlord equal to fifteen (15%)
percent of the aggregate of the aforesaid costs, charges and
expenses; and
(c) depreciation, at rates determined by the Landlord, but not to
exceed the maximum permitted to the Landlord under the
provisions of the Income Tax Act (Canada) from time to time or
any legislation substituted therefor, on the equipment and
machinery employed in operating, maintaining, repairing or
replacing the Common Areas or the Common Facilities and a
carrying cost at the rate of two (2%) percent above prime,
from time to time, of the Canadian chartered bank designated
by the Landlord, on the undepreciated portion of the costs of
such equipment and machinery;
and there shall be excluded from such costs the following:
(i) payments of principal and interest under any mortgage or
mortgages on the development;
(ii) corporate, income, profits or excess profits taxes assessed
upon the income of the Landlord; and
(iii) Building Operation and Maintenance Costs;
and there shall be deducted from such costs the amount of proceeds actually
recovered by the Landlord from insurance and relating to damage, the cost of
repair of which was included in Development Operation and Maintenance costs.
19.12 "Force Majeure" means any cause beyond the control of the Landlord
delaying, hindering or preventing the Landlord from performing any term,
covenant or act required hereunder and, without limiting the generality of the
foregoing, includes lock-outs (including lock-outs decreed or recommended for
its members by a recognized contractors' association of which the Landlord is a
member or to which the Landlord is otherwise bound), strikes, labour disputes,
inability to procure materials or services, restrictive governmental laws or
regulations, fire, act of God, riots, insurrection, sabotage, rebellion and war.
19.13 "Gross Leaseable Area" means the aggregate floor area (expressed in
square meters or square feet), from time to time, determined by the Landlord's
Architect of all premises leased to or intended to be leased to tenants and
located within the area to which the measurement is being applied.
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19.14 "HVAC Costs" includes with respect to the Building:
(a) all of the Landlord's costs, charges and expenses of
operating, maintaining, managing, replacing, repairing and
supervising the apparatus for heating, ventilating and air
conditioning installed in the Building, from time to time,
other than those part of such apparatus installed by or on
behalf of the Tenant or any other tenant (the "HVAC System");
and
(b) an administrative fee equal to fifteen (15%) percent of the
total of the costs, charges and expenses incurred by the
Landlord under the preceding provision of this definition;
19.15 "Landlord's Architect" means an architect or engineer from time to time
selected by the Landlord for the purpose of making any certification or
determination in accordance with the terms of this Lease.
19.16 "Landlord's Work" means the work specified in Schedule "B" hereto.
19.17 "Lands" means those lands located in the City of Richmond, in the
Province of British Columbia legally described as:
Firstly: Parcel Identifier 003-406-385 and 003-406-407
Lots l and 2
Section 32
Block 5 North, Range 5 West
New Westminster District, Plan 71192
Secondly: Parcel Identifier 006-280-595
Lot B, Section 32,
Block 5 North, Range 5 West,
New Westminster District, Plan 73672
Thirdly: Parcel Identifier 003-473-392
Lot 7, Section 32,
Block 5 North, Range 5 West
New Westminster District, Plan 64718
19.18 "Lease" means this agreement, including any and all schedules attached
hereto as the same may be amended from time to time.
19.19 "Lease Year" means each calendar year in which a portion of the Term
falls, provided that the Landlord, if it deems the same convenient or necessary
for its accounting purposes, may, from time to time, by notice to the Tenant
alter the Lease Year to any other twelve (12) month period in which a portion of
the Term falls by specifying an annual date, being the first day of a calendar
month, upon which a subsequent Lease Year is to commence and in such event the
current Lease Year shall terminate on the day preceding the specified date.
19.20 "Leased Premises" means that portion of the Building outlined in red on
Schedule "A" hereto, subject to such minor variations as may occur in the course
of construction of the Building by the Landlord.
19.21 "Other Buildings" means any building or buildings existing on the Lands
from time to time containing premises that are leased or intended to be leased
to tenants, but excluding the Building.
19.22 "Permitted Use" means the use set forth in Basic Term .03.
19.23 "Prime Rate" means the rate of interest expressed as an annual rate, at
the relevant time or times, determined by the Toronto-Dominion Bank at its main
branch in Vancouver, British Columbia, as a reference rate for commercial demand
loans to its major commercial borrowers determined in Canadian dollars and made
by such bank in Canada and adjusted from time to time.
19.24 "Real Property Taxes" means all general, special, local improvement,
school and other taxes, levies, rates and charges levied, assessed or imposed
against the Development or any part thereof and all business taxes, assessments,
rates and levies, including any corporation capital tax, levied, assessed or
imposed on the Landlord in respect of the ownership or management of the
Development by municipal or other governmental authority having jurisdiction,
whether of a nature now or hereafter levied, assessed or imposed, together with
the cost to the Landlord of contesting, appealing or negotiating the same in
good faith but excluding those taxes and fees of the Tenant or other tenants
referred to in Article 10.01 hereof.
19.25 "Rent" means Basic Rent and Additional Rent.
19.26 "Tax Cost" means the cost of Real Property Taxes.
19.27 "Tenant's Proportionate Share" means:
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<PAGE>
(a) in relation to each of Building Operation and Maintenance
Costs and HVAC Costs the proportion that the Area of the
Leased Premises is of the Gross Leaseable Area of the
Building; and
(b) in relation to Development Operation and Maintenance Costs,
and Tax Cost, the proportion that the Area of the Leased
Premises is of the Gross Leaseable Area of the Development.
19.28 "Tenant's Work" has the meaning set out in Article 3.01 hereof.
19.29 "Term" means the term of the Lease, as set out in Basic Term 0.4.
19.30 "Year of the Term" means each successive twelve (12) month period of
the Term, the first of which commences on the Commencement Date.
ARTICLE 20
Special Clauses
20.01 Early Occupancy
For the period commencing September 1, 1994 and ending the day before
the Commencement Date the Tenant shall be permitted to conduct its business in a
portion of the Leased Premises, being approximately 1,500 square feet. During
such period the Tenant shall pay to the Landlord in respect of the portion so
used as Rent, $1,113.75 per month and all other provisions of this Lease shall
be applicable.
20.02 Delayed Occupancy
If the Tenant has not completed the Tenant's Work and occupancy of the
Leased Premises is delayed due to the Landlord's failure to complete the
Landlord's Work then Basic Rent and Additional Rent shall abate until sixty (60)
days' following the completion of the Landlord's Work.
20.03 Tenant Improvement Allowance
Provided the Tenant has executed this Lease the Landlord shall
contribute a sum equal to $7.50 per square foot of the Area of the Leased
Premises (the "Allowance") toward the leasehold improvements constructed in the
Leased Premises. Payment of the Allowance shall be based upon the Tenant
providing bona fide paid invoices to the Landlord evidencing the Tenant spent at
minimum $95,000.00 on leasehold improvements constructed in the Leased Premises.
The Landlord shall pay the Allowance to the Tenant within five (5) business days
of receipt of such paid invoices.
The parties agree that the Tenant shall re-pay to the Landlord the
Allowance amortized over five (5) years at an interest rate of ten percent
(10%), being equal to $15,200.00 per annum in equal monthly instalments of
$1,266.67 each in advance on the first day of each calendar month from the
Commencement Date, based on a rate of $1.90 per square foot of the Area of the
Leased Premises per annum. It is further agreed that at any time during the
Term, the Tenant may, at its sole option, re-pay the Allowance in full to the
Landlord without penalty.
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<PAGE>
20.04 Deposit
A deposit in the sum of $15,755.60 (the "Deposit) has been paid by the
Tenant to Royal LePage Real Estate Services Ltd. The Deposit shall be retained
by Royal LePage Real Estate Services Ltd. with interest accruing to the Tenant's
benefit until the Commencement Date. On the Commencement Date the Deposit,
including the accrued interest, shall be transferred to the Landlord to be held
without liability for interest and applied by the Landlord against the Rent
(including Goods and Services Tax) first accruing due during the Term with the
balance to be held without liability for interest as a security deposit. If the
Tenant fails to take possession of the Leased Premises within fifteen (15) days
of the Leased Premises being ready for occupancy, the Landlord may, at its sole
option, terminate this Lease, whereupon the Deposit shall be retained by the
Landlord as liquidated damages and not as a penalty.
IN WITNESS WHEREOF the parties hereto have executed this agreement by
their respective duly authorized officers in that behalf, as of the day and year
first above written.
BENTALL PROPERTIES LTD. )
)
)
Per: /s/ Timothy P. Hogan )
- ------------------------------------------)
Authorized Signatory )
)
)
Per: /s/ Don Weber )
- ------------------------------------------)
Authorized Signatory )
THE CORPORATE SEAL of )
WESTMINSTER MANAGEMENT CORPORATION )
was hereunto affixed in the presence of: )
)
/s/ David Greenwood )
- ------------------------------------------)
Authorized Signatory )
)
)
/s/ Evangeline Brightman )
- ------------------------------------------)
Authorized Signatory )
THE CORPORATE SEAL of )
APPLIED VASCULAR ENGINEERING CANADA, INC. )
was hereunto affixed in the presence of: )
)
/s/ Creg W. Dance )
- ------------------------------------------)
Authorized Signatory )
)
)
)
- ------------------------------------------)
Authorized Signatory )
- 24 -
<PAGE>
SCHEDULE "A**
PLAN OF THE PREMISES
MAP OF BUILDING 5
KNIGHTSBRIDGE BUSINESS PARK
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<PAGE>
SCHEDULE "B"
LANDLORD'S WORK
The Landlord shall be solely responsible for the demising wall and the
preparation of electrical services.
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<PAGE>
SCHEDULE "C"
Attached to and forming part of the Lease dated the 10th day of AUGUST, 1994.
BETWEEN:
BENTALL PROPERTIES LTD. and
WESTMINSTER MANAGEMENT CORPORATION
(the "Landlord")
AND:
APPLIED VASCULAR ENGINEERING CANADA INC.
(the "Tenant")
1. Signs may be illuminated with the Landlord's approval but in no case will
they be allowed to flash or rotate.
2. The use of any electronic signage or other form of reader board signage
shall be approved at a preliminary design stage with the Landlord. All
signage must be approved by the Landlord at the time of approval of the
final design of the Leased Premises.
3. The Building may have a free standing "suit case" sign provided by Landlord
to identify building only. No other form of free standing signage shall be
allowed.
4. Signs featuring general advertising shall not be permitted.
5. Free standing roof signs shall not be permitted.
6. Signs affixed to fascias shall not protrude above the roof level of a
building nor the upper level of the fascia to which they are attached. No
external supporting structures shall be visible.
7. Signs may include the registend trademark or symbol of a company if the
signage complies with the intent of these guidelines, and is to the
Landlord's satisfaction.
8. The Tenant reserves the right to identify itself and its associated
companies on a sign supplied by the Tenant above the front office windows
at a location to be mutually agreeable to the Landlord and the Tenant and
the size, type and style of the sign shall be subject to the approval of
the Landlord.
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<PAGE>
SCHEDULE "D"
INTENTIONALLY DELETED
- 28 -
<PAGE>
SCHEDULE "E"
ENVIRONMENTAL COVENANTS
1. Definitions
In this Schedule:
"Hazardous Substance" means:
(a) any radioactive material;
(b) any explosive;
(c) any substance that, if added to any water, would degrade or
alter or form part of a process of degradation or alteration
of the quality of that water to the extent that it is
detrimental to its use by man or by any animal, fish or plant;
(d) any solid, liquid, gas or odour or combination of any of them
that, if emitted into the air, would create or contribute to
the creation of a condition of the air that:
(i) endangers the health, safety or welfare of persons or
the health or animal life;
(ii) interferes with normal enjoyment of life or property;
or
(iii) causes damage to plant life or to property;
(e) any toxic substance;
(f) any substance declared to be hazardous or toxic under any Law,
Regulation or Order (as defined below) now or hereafter
enacted or promulgated by any governmental authority having
jurisdiction over the Landlord, the Tenant, the Leased
Premises or the Development of which the Leased Premises form
a part; and
(g) any other substance which is or may become hazardous,
dangerous or toxic to persons or property;
"Laws" means all applicable federal, provincial, state, municipal, or
local laws, by-laws, statutes, or ordinances, including, without
limitation, the following: the Canadian Environmental Protection Act,
the British Columbia Waste Management Act and other applicable laws
relating to the environment, occupational safety, product liability and
transportation;
"Regulations" mean all rules, regulations or the like promulgated
under or pursuant to any Laws; and
"Orders" mean all applicable orders, decisions, or the like rendered by
any ministry, department or administrative or regulatory agency.
2. Tenant's Covenant as to Use
Without limiting the generality of the covenants of the Tenant in the Lease
contained including Basic Term .03 thereof, the Tenant covenants and agrees
that the Tenant will not bring upon the Leased Premises or any part thereof
any Hazardous Substances if at any time, notwithstanding the foregoing
covenant of the Tenant, there shall be any Hazardous Substances upon the
Leased Premises or a part thereof whether or not brought thereupon by the
Tenant, the Tenant shall, at its own expense:
(a) immediately give the Landlord notice specifying the nature and location
of the Hazardous Substances and thereafter give the Landlord from time
to time written notice of the extent and nature of the Tenant's
compliance with the following provisions of this paragraph;
(b) promptly remove the Hazardous Substances from the Leased Premises in a
manner which conforms with all Laws, Regulations and Orders governing
the movement of the same and the reasonable requirements of the
Landlord in connection with the movement; and
(c) if requested by the Landlord, obtain at the Tenant's cost and expense
from an independent consultant designated or approved by the Landlord
verifying the complete and proper removal thereof from the Leased
Premises or, if such is not the case, reporting as to the extent and
nature of any failure to comply with the foregoing provisions of this
paragraph.
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<PAGE>
3. Compliance with Laws
Without limiting the generality of the covenants of the Tenant in the Lease
contained including Section 4.09 thereof, the Tenant shall, at its own cost
and expense, comply with all Laws, Regulations and Orders from time to time
in force relating to the Landlord, the Tenant, the business of the Tenant,
the Leased Premises or the Development relating to Hazardous Substances and
the protection of environment and shall immediately give written notice to
the Landlord of the occurrence of any event in the Leased Premises or on
the Development or a contravention thereof and, if the Tenant shall, either
alone or with others, cause the occurrence of such event, the Tenant shall,
at its own expense:
(a) immediately give the Landlord notice of the occurrence and the
contravention and thereafter give the Landlord from time to time
written notice of the extent and nature of the Tenant's compliance with
the following provisions of this paragraph;
(b) promptly remedy the contravention in a manner which conforms with all
Laws, Regulations and Orders governing the movement of the same; and
(c) if requested by the Landlord, obtain at the Tenant's cost and expense
from an independent consultant designated or approved by the Landlord
verifying the complete and proper remedying of the contravention or, if
such is not the case, reporting as to the extent and nature of any
failure to comply with the foregoing provisions of this paragraph.
The Tenant shall, at its own expense, remedy any damage to the Leased
Premises and the Development caused by such event within the Leased
Premises or by the performance of the Tenant's obligations under this
paragraph as a result of such occurrence. If the Tenant fails to do so, the
Landlord may at its option remedy the damage, and may recover its cost and
expenses of so doing from the Tenant as additional rental under the Lease.
If any governmental authority having jurisdiction shall require the
clean-up of any Hazardous Substances held, released, spilled, abandoned or
placed upon the Leased Premises or the Development or released into the
environment by the Tenant in the course of the Tenant's business or as a
result of the Tenant's use or occupancy of the Leased Premises, then the
Tenant shall, at its own expense, prepare all necessary studies, plans and
proposals and submit the same for approval, provide all bonds and other
security required by governmental authorities having jurisdiction and carry
out the work required and shall keep the Landlord fully informed and
provide to the Landlord full information with respect to the proposed plans
and comply with the Landlord's reasonable requirements with respect to such
plans. The Tenant agrees that if the Landlord determines, in its own
discretion, that the Landlord, its property or its reputation is placed in
any jeopardy by the requirement for any such work, the Landlord may itself
undertake such work or any part thereof at the cost and expense of the
Tenant.
4. Enquiries by Landlord
The Tenant hereby authorizes the Landlord to make enquiries from time to
time of any government or governmental agency with respect to the Tenant's
compliance with any and all laws and regulations pertaining to the Tenant,
the Tenant's business and the Leased Premises including without limitation
Laws, Regulations and Orders pertaining to Hazardous Substances and the
protection of the environment; and the Tenant covenants and agrees that the
Tenant will from time to time provide to the Landlord such written
authorization as the Landlord may reasonably require in order to facilitate
the obtaining of such information.
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<PAGE>
5. Event of Default
The presence of any Hazardous Substances in the Leased Premises without the
prior written approval of the Landlord shall be considered to be a default
for the purposes of the Lease.
6. Ownership of Hazardous Substances
If the Tenant shall bring or create upon the Development or the Leased
Premises any Hazardous Substance or if the conduct of the Tenant's business
shall cause thereto be any Hazardous Substance upon the Development or the
Leased Premises then, notwithstanding any rule of law to the contrary, such
Hazardous Substance shall be and remain the sole and exclusive property of
the Tenant and shall not become the property of Landlord notwithstanding
the degree of affixation of the Hazardous Substance or the goods containing
the Hazardous Substance to the Leased Premises or the Development and
notwithstanding the expiry or earlier termination of this Lease.
7. Survival of Covenants
The obligations of the Tenant hereunder relating to Hazardous Substances
shall survive the expiry or earlier termination of this Lease save only
that, to the extent that the performance of those obligations requires
access to or entry upon the Leased Premises or the Development or any part
thereof, the Tenant shall have such entry and access only at such times and
upon such terms and conditions as the Landlord may from time to time
specify; and the Landlord may, at the Tenant's cost and expense, itself or
by its agents, servants, employees, contractors and subcontractors,
undertake the performance of any necessary work in order to complete such
obligations of the Tenant; but having commenced such work, the Landlord
shall have no obligation to the Tenant to complete such work.
8. Right to Use Hazardous Substances
Notwithstanding anything to the contrary herein or in the Lease contained,
the Landlord acknowledges and agrees that the Tenant uses certain
substances and materials in the conduct of the Tenant's business which
would be considered Hazardous Substances hereunder. Accordingly, the
Landlord hereby consents and agrees to the presence of such Hazardous
Substances upon the Development and the Leased Premises, provided the
following conditions are met:
(a) the Tenant shall only bring upon the Development and upon the Leased
Premises such Hazardous Substances as are reasonably required for the
conduct of its business operations within the Leased Premises, and
shall forthwith remove from the Development and from the Leased
Premises any Hazardous Substances which are no longer required for such
business operations;
(b) under no circumstances will the Tenant use the Leased Premises or any
portion thereof to stockpile or warehouse Hazardous Substances, other
than in such reasonable quantities as may be required for its business
operations within the Leased Premises;
(c) the Tenant will comply fully with all Laws, Regulations and Orders
related to the transportation, storage, use and disposal of all
Hazardous Substances so brought upon the Development or the Leased
Premises by the Tenant; and
(d) save for the right to bring Hazardous Substances upon the Development
and the Leased Premises for use as aforesaid, the Tenant shall be bound
by all of the other terms and conditions of this Schedule including,
without limitation, the obligation to remedy any damage to the Leased
Premises or to the Development caused by the Tenant's exercise of its
rights hereunder.
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ADDENDUM TO LEASE
and
LEASE AMENDING AGREEMENT
THIS AGREEMENT dated for reference the 21st day of July, 1997.
BETWEEN: BENTALL PROPERTIES LTD.
a body corporate, having its head office at
Suite 1800, Four Bentall Centre, in the City
of Vancouver, in the Province of British
Columbia and
WESTMINSTER MANAGEMENT CORPORATION, a body
corporate, having a business office at Suite
600, 355 Burrard Street, in the City of
Vancouver, in the Province of British
Columbia
(hereinafter referred to as the "Landlord")
OF THE FIRST PART
AND: ARTERIAL VASCULAR ENGINEERING
CANADA, INC., a body corporate, having a
business office at Suite 260, 13155 Delf
Place, Richmond, British Columbia V6V 2V4
(hereinafter referred to as the "Tenant")
OF THE SECOND PART
WHEREAS:
A. By a lease dated the 10th day of August, 1994, as amended (the "Lease"), the
Landlord leased to the Tenant (formerly known as Applied Vascular Engineering
Canada, Inc.) for a term (the "Term") of 5 years, commencing on the lst day of
November, 1994 and ending on the 3lst day of October, 1999, certain premises
known as Suite 260 (the "Premises") containing an area of approximately 8,000
square feet shown outlined in red on the plan attached to the Lease as Schedule
"A", located in Building 5 of Knightsbridge Business Park, 13155 Delf Place (the
"Building") in the City of Richmond in the Province of British Columbia.
B. Pursuant to an addendum to lease dated for reference September 1, 1995 and a
lease extension and amending agreement dated for reference December 31, 1996
(collectively the "Addendum"), the Tenant agreed to lease from the Landlord
certain premises (the "Additional Premises"), having an area of approximately
5,052 square feet located in Building 7 of Knightsbridge Business Park 13140
Delf Place, in the City of Richmond, in the Province of British Columbia, on the
same terms and conditions as set out in the lease for a term of one (1) year and
ten (10) months expiring on the 30th day of June, 1997.
C. The Landlord and the tenant have agreed:
(i) to extend the term of the Tenant's lease of the Additional
Premises pursuant to the Addendum for a further period of 2
months so as to expire the 31st day of August, 1997;
(ii) that the Tenant shall lease from the Landlord additional premises
located in Building 8 of Knightsbridge Business Park, 13200 Delf
Place, in the City Richmond, in the Province of British Columbia
containing an area of approximately 7,381 square feet (the
"Building 8 Premises") as shown outlined in blue on the plan
marked Schedule "A" attached to this Agreement, for a term (the
"Building 8 Premises Term") of 4 years and 2 months commencing on
July 1, 1997 and ending on August 31, 2001;
(iii) that the Tenant shall lease from the Landlord additional premises
adjacent to the Premises containing an area of approximately
9,330 square feet ("Suite 250") as shown cross-hatched on the
plan marked Schedule "B" attached to this Agreement, for a term
(the "Suite 250 Term") of 4 years commencing on September 1, 1997
and ending on August 31, 2001; and
-1-
<PAGE>
(iv) to extend the Term of the Lease for the Premises for a further
period of one (1) year and ten (10) months commencing on the 1st
day of November, 1999 and ending on the 31st day of August, 2001,
all on the terms and conditions set out in this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the sum of ten
Dollars ($10.00) now paid by the Tenant to the Landlord, the receipt of which is
hereby acknowledged, and the mutual covenants and agreements herein set forth,
the parties hereto covenant and agree as follows:
1. The recitals as hereinbefore set out are true in substance and in fact.
2. The term of the Tenants lease of the Additional Premises pursuant to the
Addendum is extended as of the 1st day of July, 1997 for a further term of
two (2) months expiring on the 31st day of August, 1997 upon the same terms
and conditions as contained in the Addendum, except for there shall be no
further right of extension beyond the 31st day of August, 1997.
3. The Landlord hereby demises and leases to the Tenant the Building 8
Premises during the Building 8 Premises Term upon the following terms and
conditions:
(a) The Tenant acknowledges and agrees that it is accepting possession of
the Building 8 Premises in an "as is, where is" condition as of the
commencement of the Fixturing Period (as hereinafter defined). The
Tenant shall be responsible for its own improvements to the Building 8
Premises and shall have a Rent (as defined in the Lease) free period
(the "Fixturing Period") commencing July 1, 1997 and ending August 31,
1997 for the purposes of carrying out the design, construction and
fixturing of the Building 8 Premises (the "Tenant's Work"). The
Tenant's Work shall be in accordance with professional plans and
specifications which have been previously approved in writing by the
Landlord. Should the Tenant require additional utilities because of the
nature of its business, in excess of those already provided to the
Building 8 Premises, then the Tenant shall be responsible for the cost
of installing and/or supplying such additional utilities, subject to
the Landlord's prior approval. All costs associated with the Tenant's
Work shall be borne solely by the Tenant. The Tenant will be
responsible for obtaining all necessary approvals and building permits
from regulatory authorities for the commencement and completion of the
Tenant's Work. If occupancy for the purposes of carrying on day to day
business occurs prior to September 1, 1997, all terms of this Agreement
will be applicable from the date the Tenant takes possession and
commences operation of its day to day business in the Building 8
Premises except for the payment of Rent which shall commence as of
September 1, 1997;
(b) the Tenant shall pay to the Landlord a basic rental for the Building 8
Premises of $51,667.00 per annum, plus applicable goods and services
tax, based on an annual rental rate of $7.00 per square foot of the
rentable area of the Building 8 premises, in equal monthly installments
of $4,305.58 each in advance on the first day of each calender month
during the Building 8 Premises Term commencing September 1, 1997;
(C) commencing September 1, 1997 and for the balance of the Building 8
Premises Term, the Tenant shall pay to the Landlord Additional Rent
with respect to the Building 8 Premises Term in accordance with the
terms of the Lease;
(d) the Landlord shall have the right to measure the Building 8 Premises in
accordance with the provisions of Section 19.02 of the Lease, which
determination shall be final and binding on the parties, and if such
determination is different than as set out in Recital C. (ii) of this
Agreement all sums payable as Rent under this Agreement, the
calculation of which is affected by the change in area, shall be
adjusted retroactive to September 1, 1997 to give effect to the
measured area;
(e) the Tenant shall use the Building 8 Premises for the same purpose as
set out in Basic Term .03 of the Lease;
(f) during the period July 1, 1997 to August 31, 2001, the Tenant shall
have the right to use, free of charge, surface parking stalls
surrounding Building 8 at a ratio of two (2) stalls per 1,000 square
feet of the rentable area of the Building 8 premises; and
(g) all the terms of the Lease shall apply to the lease of the Building 8
Premises pursuant to this Agreement except to the extent that they
conflict with the Agreement or are clearly inapplicable to, or
inappropriate to be applied to, this Agreement and the Building 8
Premises. For greater certainty, but without limiting the foregoing,
any terms of the Lease with respect to free rent periods or tenant
improvement allowances, and other inducements or incentives do not
apply to the lease of the Building 8 Premises under this Agreement.
-2-
<PAGE>
4. The Landlord hereby demises and leases to the Tenant Suite 250 during the
Suite 250 Term upon the following terms and conditions:
(a) The Tenant acknowledges and agrees that it is accepting possession of
Suite 250 in an "as is, where is" condition as of September 1, 1997.
Prior to September 1, 1997, the Landlord shall be responsible for
ensuring that all mechanical, electrical and plumbing services are in
proper working condition. The Tenant shall be responsible for its own
improvments to Suite 250. Should the Tenant require additional
utilities because of the nature of its business, in excess of those
already provided to Suite 250, then the Tenant shall be responsible for
the cost of installing and/or supplying such additional utilities,
subject to the Landlord's prior approval;
(b) the Tenant shall pay to the Landlord a basic rental for Suite 250 of
$65,310.00 per annum, plus applicable goods and services tax, based on
an annual rental rate of $7.00 per square foot of the rentable area of
Suite 250, in equal monthly installments of $5,442.50 each in advance
on the first day of each calendar month during the Suite 250 Term
commencing September 1, 1997;
(c) commencing September 1, 1997 and for the balance of the Suite 250 Term,
the Tenant shall pay to the Landlord Additional Rent with respect to
Suite 250 Term in accordance with the terms of the Lease;
(d) the Landlord shall have the right to measure Suite 250 in accordance
with the provisions of Section 19.02 of the Lease, which determination
shall be final and binding on the parties, and if such determination is
different than as set out in Recital C. (iii) of this Agreement all
sums payable as Rent under this Agreement, the calculation of which is
affected by the change in area, shall be adjusted retroactive to
September l, 1997 to give effect to the measured area;
(e) the Tenant shall use Suite 250 for the same purpose as set out in Basic
Term .03 of the Lease;
(f) during the period September 1, 1997 to August 31, 2001, the Tenant
shall have the right to use, free of charge, surface parking stalls
surrounding Suite 250 at a ratio of two (2) stalls per 1,000 square
feet of the rentable area of Suite 250; and
(g) all the terms of the Lease shall apply to the lease of Suite 250
pursuant to this Agreement except to the extent that they conflict with
the Agreement or are clearly inapplicable to, or inappropriate to be
applied to, this Agreement and Suite 250. For greater certainty, but
without limiting the foregoing, any terms of the Lease with respect to
free rent periods or tenant improvement allowances, and other
inducements or incentives do not apply to the lease of Suite 250 under
this Agreement.
5. The Term of the Tenant's lease of the Premises pursuant to the Lease is
extended as of the 1st day of November, 1999 for a further Term of one (1)
year and ten (10) months expiring on the 31st day of August, 2001 (the
"Extension Period") upon the same terms and conditions as contained in the
Lease, except for:
(a) the Tenant will accept the Premises in an "as is, where is" condition;
(b) the Landlord has no responsibility or liability for making any
renovations, alterations or improvements in or to the Premises;
(c) all further renovations, alterations or improvements in or to the
Premises are the sole responsibility of the Tenant and shall be
undertaken and completed at the Tenant's expense and strictly in
accordance with the provisions of the Lease;
(d) during the Extension Period, the Tenant shall pay as Basic Rent the sum
of $56,000.00 per annum, in equal monthly installments of $4,666.67,
based on an annual rate of $7.00 per square foot of the Area of the
Leased Premises;
(e) the provisions for free Basic Rent and the Allowance as set out in
Section 2.01 and 20.03 of the Lease respectively shall not apply during
the Extension Period; and
(f) the Lease shall be amended pursuant to the amendments contained in
Paragraph 6 of this Agreement.
6. The parties acknowledge and agree that as and from the 1st day of July,
1997, the Lease is amended to provide as follows:
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<PAGE>
(a) Basic Term .04 of the Lease is amended by deleting "Five (5) years" and
substituting therefor "Six (6) years and ten (10) months, so as to
expire August 3l, 2001."
(b) Section 3.02 of the Lease is amended by deleting from line one
"opinion" and substituting therefor "reasonable judgment".
(c) Section 4.03 of the Lease is amended by:
(i) deleting from subparagraph (a) "entire" and substituting therefor
"substantially all of"; and
(ii) inserting in the last sentence of the provision "substantially"
before "vacate".
(d) Section 4.04 of the Lease is amended by:
(i) inserting in line one after "Landlord", (which approval shall not
be unreasonably withheld)";
(ii) inserting in line one before the word "request", "reasonable";
(iii) inserting at the end of the first sentence"; provided, however,
that the Landlord agrees that signs substantially similar to
those previously utilized by the Tenant on properties of the
Landlord are hereby expressly approved";
(iv) inserting at the end of the second sentence "(which approval
shall not be unreasonably withheld)";
(v) deleting in line ten "may" and substituting therefor "shall".
(e) Section 4.05 of the Lease is amended by inserting in line five after
"thereof", ",other than normal course wear and tear,".
(f) Section 4.06 of the Lease is amended by inserting in line two after the
word "otherwise", "other than customary snack and beverage dispensing
machines,".
(g) Section 4.08 of the Lease is amended by:
(i) deleting in line three "and" and substituting therefor "during
the Tenant's normal business hours and by customary means, or";
(ii) inserting in line three before "approved", "may otherwise by
reasonably".
(h) Section 4.10 of the Lease is amended by:
(i) inserting in line one before "best", "reasonable";
(ii) inserting in line three before "judgement", "reasonable";
(iii) inserting in line eight before "rules", "such reasonably
necessary".
(i) Section 5.01 of the Lease is amended by:
(i) inserting at the beginning of line one "Except as otherwise
stated in this Lease,";
(ii) inserting in line eleven before "acceptable", "reasonably".
(j) Section 5.03 of the Lease is amended by inserting in line two after
"hours", "in a manner that shall not unreasonably interfere with the
business or operations of the Tenant".
(k) Section 5.04 of the Lease is amended by deleting in line one
"forthwith" and substituting therefor "as prompty as practicable in the
reasonable judgement of the Landlord".
(l) Section 5.05 of the Lease is amended by:
(i) inserting in line two after "hours", "in a manner that shall not
unreasonably interfere with the business operations of the
Tenant";
(ii) inserting in line three after "shall", "reasonably".
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(m) Section 5.06(c) of the Lease is amended by deleting "to the extent of
the proceeds of such insurance applicable thereto".
(n) Section 5.08 of the Lease is amended by deleting all references to
"sixty (60) days" and substituting therefor "forty five (45) days".
(o) Section 5.09(d)(ii) of the Lease is deleted in its entirety.
(p) The first sentence of Section 6.01 of the Lease is deleted in its
entirety.
(q) Section 8.02 of the Lease is amended by inserting in line six after
"nature", "other than such items and in a manner as are described in
Schedule "E"".
(r) Section 9.01 of the Lease is amended by:
(i) inserting in line seven after "Landlord", "(which consent shall
not be unreasonably withheld)";
(ii) inserting at the end of the first sentence, "(which consent shall
not be unreasonably withheld)".
(s) Section 9.01 of the Lease is amended by inserting at the beginning of
the provision, "Subject to Section 1.02,".
(t) Section 9.03 of the Lease is amended by inserting in line four after
"Premises", "other than as permitted under Section 4.04 and Schedule
"C",".
(u) Section 9.04 of the Lease is amended by deleting reference to "two (2)
days" and substituting therefor "seven (7) days".
(v) Section 10.01 of the Lease is amended by deleting in line two
"consumer" and substituting therefor "consumed".
(w) Section 11.01 (a) and (b) of the Lease is amended by inserting at the
beginning of each subparagraph, "other than as may be caused by the
Landlord's gross negligence or willful misconduct,".
(x) Section 12.01 of the Lease is amended by:
(i) inserting in subparagraph (f) before "vacate", "substantially";
(ii) deleting in subparagraph (i) all references to "ten (10) days"
and substituting therefor "ten (10) business days".
(y) Section 12.06 of the Lease is amended by deleting in line one "the
Landlord" and substituting therefor "either party".
(z) Section 16.02 of the Lease is deleted in its entirety.
(aa) The following shall be added to the Lease as Section 20.04:
"20.04 Pre-Authorized Payment Plan
The Tenant authorizes the Landlord to withdraw monthly Rent
payments from the Tenant's account by way of direct withdrawals, as may
be arranged from time to time between financial institutions
administering the Tenant's and the Landlord's accounts. The Tenant
further agrees to execute and provide whatever further documentation,
account information, cancelled cheques or otherwise, which are
reasonably requested by the Landlord in order to assist the Landlord in
the administration of a pre-authorized payment procedure for monies
owing or accruing due as Rent under this Lease.".
(bb) The following shall be added to the Lease as Section 20.05:
"20.05 Extension of Term
The Tenant, provided it has not been in material default during
the period July 1, 1997 to and including August 31, 2001, shall have
one option to extend the Term of the Lease for a further period of 5
years (the "Extended Term"), such option to be exercised upon nine (9)
months' written notice to the Landlord, prior to August 31,
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<PAGE>
2001, not to be given sooner than fifteen (15) months prior to August
31, 2001. The Extended Term shall be on the same terms and conditions
as the initial Term except for Basic Rent, any free rent allowance,
fixturing period, tenant improvement allowance or other incentive or
inducement and except for this option to extend.
The Basic Rent payable by the Tenant during the Extended Term
shall be negotiated and agreed upon between the parties prior to the
commencement of the Extended Term based on the prevailing fair market
Basic Rent at the commencement of the Extended Term for similarly
improved premises of similar size, quality, use and location in office
buildings of a similar size, quality and location in Richmond, British
Columbia. Failing such agreement, then within two (2) months prior to
the commencement of the Extended Term, Basic Rent shall be determined
by arbitration under the provisions of the Commercial Arbitration Act
(British Columbia) and in accordance with this Section 20.05 provided
that the Basic Rent payable shall not in any case be less than that
payable by the Tenant during the period July 1, 2000 to August 31,
2001. For greater certainty; this option to extend is applicable to the
premises known as the Premises, the Building 8 Premises and Suite 205."
(cc) Schedule "C" to the Lease is amended by:
(i) inserting in line two of Paragraph 2 before "approved",
"reasonably";
(ii) inserting in line two of Paragraph 7 before "satisfaction",
"reasonable";
(iii) inserting in Paragraph 8:
(1) line two before "mutually", "reasonably";
(2) line three before "approval","reasonable".
(dd) Schedule "E" to the Lease is amended by inserting at the end of the
first sentence in Paragraph 8, ", such substances including without
limitation isopropanol, nitric acid, sulfuric acid, phosphoric acid,
synergy cleaner, oxalic acid, cidex (gluteraldehyde) and epoxy".
7. The Tenant represents and warrants that it has the right, full power and
authority to agree to these amendments to the Lease, and other provisions
contained in this Agreement.
8. The parties confirm that in all other respects, the terms, covenants and
conditions of the Lease remain unchanged and in full force and effect,
except as modified by this Agreement. It is understood and agreed that all
terms and expressions when used in this Agreement shall, unless a contrary
intention is expressed herein, have the same meanings as ascribed to them
in the Lease.
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<PAGE>
9. This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators and
assigns as the case may be.
IN WITNESS WHEREOF the Landlord and the Tenant have executed this Agreement on
the day and year first above written.
BENTALL PROPERTIES LTD.
Per: /s/ Timothy P. Hogan
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Authorized Signatory
Per /s/ Don Weber
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Authorized Signatory
THE CORPORATE SEAL of
WESTMINSTER MANAGEMENT COROPORATION
was hereunto affixed in the presence of: [SEAL]
/s/ David Greenwood
- ------------------------------------
Authorized Signatory
/s/ Evangeline Brightman
- ------------------------------------
Authorized Signatory
THE CORPORATE SEAL of
ARTERIAL VASCULAR ENGINEERING CANADA,
INC. was hereunto affixed in the presence of:
/s/ Creg W. Dance
- ------------------------------------
Authorized Signatory
- ------------------------------------
Authorized Signatory
Susan Milne
Witness
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<PAGE>
SCHEDULE "A"
[MAP]
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<PAGE>
SCHEDULE "B"
[MAP]
DELF PLACE
BUILDING 5
KNIGHTBRIDGE BUSINESS PARK
-9-
================================================================================
[LOGO] Bank of America Amended and
Restated
Business Loan Agreement
National Trust and Savings Association
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This Amended and Restated Business Loan Agreement ("Agreement") dated as of
August 21, 1997, is between Bank of America National Trust and Savings
Association (the "Bank") and Arterial Vascular Engineering, Inc. (the
"Borrower"). This Agreement amends, and as amended, restates in full that
certain Business Loan Agreement dated as of August 20, 1997, between the Bank
and the Borrower.
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 Line of Credit Amount.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is the lesser of:
(i) Twenty Million Dollars ($20,000,000) or
(ii) the loan value of the marketable securities pledged to the
Bank. The loan value of a marketable security will be a
percentage of its fair market value. The fair market value
will be determined by the Bank from time to time in its sole
discretion. The percentage applied to a particular marketable
security will be the percentage listed on Attachment A. The
percentage can be changed by the Bank at any time for
reasonable cause. The Bank's records of the applicable
percentage will be controlling.
If at any time the total amount of principal outstanding under the line
of credit exceeds this limit, the Borrower will immediately either
increase the loan value of marketable securities or other acceptable
collateral pledged to the Bank, or reduce the total amount outstanding
in order to comply with this limit. If any of the pledged assets are
margin stock, the Borrower will provide the Bank a Form U-1 Purpose
Statement, and the Bank and the Borrower will comply with the
restrictions imposed by Regulation U of the Federal Reserve, which may
require a reduction in the loan value of the margin stock pledged to
the Bank.
The Bank is prohibited from accepting as collateral certain Ineligible
Securities while they are being underwritten or privately placed by
BancAmerica Securities, Inc. The Bank and the Borrower shall comply
with these restrictions. BancAmerica Securities, Inc. is a wholly-owned
subsidiary of BankAmerica Corporation, and is a registered
broker-dealer which is permitted to underwrite and deal in certain
Ineligible Securities. "Ineligible Securities" means securities which
may not be underwritten or dealt in by member banks of the Federal
Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C.
s.s. 24, Seventh), as amended.
(b) This is a revolving line of credit providing for cash advances. During
the availability period, the Borrower may repay principal amounts and
reborrow them.
1.2 Availability Period. The line of credit is available between the date
of this Agreement and August 31, 1998 (the "Expiration Date") unless the
Borrower is in default.
1.3 Interest Rate.
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Bank's Reference Rate.
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<PAGE>
(b) The Reference Rate is the rate of interest publicly announced from time
to time by the Bank in San Francisco, California, as its Reference
Rate. The Reference Rate is set by the Bank based on various factors,
including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans. The Bank may price loans to its customers at,
above, or below the Reference Rate. Any change in the Reference Rate
shall take effect at the opening of business on the day specified in
the public announcement of a change in the Bank's Reference Rate.
1.4 Repayment Terms.
(a) The Borrower will pay interest on September 1, 1997, and then monthly
thereafter until payment in full of any principal outstanding under
this line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than
the Expiration Date.
(c) Any interest period for any optional interest rate (as described below)
shall expire no later than the Expiration Date.
1.5 Optional Interest Rates. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect the optional interest rates listed
below during interest periods agreed to by the Bank and the Borrower. The
optional interest rates shall be subject to the terms and conditions described
later in this Agreement. Any principal amount bearing interest at an optional
rate under this Agreement is referred to as a "Portion." The following optional
interest rates are available:
(a) the LIBOR Rate plus 0.50 percentage point.
(b) the Cayman Rate plus .50 percentage point.
2. OPTIONAL INTEREST RATES
2.1 Optional Rates. Each optional interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and on the first
day each month during the interest period. At the end of any interest period,
the interest rate will revert to the rate based on the Reference Rate, unless
the Borrower has designated another optional interest rate for the Portion. No
Portion will be converted to a different interest rate during the applicable
interest period. Upon the occurrence of an event of default under this
Agreement, the Bank may terminate the availability of optional interest rates
for interest periods commencing after the default occurs.
2.2 LIBOR Rate. The election of LIBOR Rates shall be subject to the
following terms and requirements:
(a) The interest period during which the LIBOR Rate will be in effect will
be one, two, three, or six months. The first day of the interest period
must be a day other than a Saturday or a Sunday on which the Bank is
open for business in California, New York and London and dealing in
offshore dollars (a "LIBOR Banking Day"). The last day of the interest
period and the actual number of days during the interest period will be
determined by the Bank using the practices of the London inter-bank
market.
(b) Each LIBOR Rate Portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Inter-Bank Offered Rate
------------------------------
(1.00 - Reserve Percentage)
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<PAGE>
Where,
(i) "London Inter-Bank Offered Rate" means the interest rate at
which the Bank's London Branch, London, Great Britain, would
offer U.S. dollar deposits for the applicable interest period
to other major banks in the London inter-bank market at
approximately 11:00 a.m. London time two (2) London Banking
Days before the commencement of the interest period. A "London
Banking Day" is a day on which the Bank's London Branch is
open for business and dealing in offshore dollars.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in Federal Reserve Board Regulation D,
rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(d) The Borrower shall irrevocably request a LIBOR Rate Portion no later
than 12:00 noon San Francisco time on the LIBOR Banking Day preceding
the day on which the London Inter-Bank Offered Rate will be set, as
specified above.
(e) The Borrower may not elect a LIBOR Rate with respect to any principal
amount which is scheduled to be repaid before the last day of the
applicable interest period.
(f) Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid and a prepayment fee as
described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement. The prepayment fee shall be equal to the amount (if
any) by which:
(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been
prepaid, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market,
or other appropriate money market selected by the Bank, for a
period starting on the date on which it was prepaid and ending
on the last day of the interest period for such Portion (or
the scheduled payment date for the amount prepaid, if
earlier).
(g) The Bank will have no obligation to accept an election for a LIBOR Rate
Portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of a LIBOR Rate Portion are not
available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR
Rate Portion.
2.3 Cayman Rate. The election of Cayman Rates shall be subject to the
following terms and requirements:
(a) The interest period during which the Cayman Rate will be in effect will
be one, two, three or six months. The last day of the interest period
will be determined by the Bank using the practices of the offshore
dollar inter-bank market.
(b) Each Cayman Rate Portion will be for an amount not less than Five
Hundred Thousand Dollars ($500,000).
(c) The Borrower may not elect a Cayman Rate with respect to any principal
amount which is scheduled to be repaid before the last day of the
applicable interest period.
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<PAGE>
(d) The "Cayman Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
Cayman Rate = Cayman Base Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Cayman Base Rate" means the interest rate at which the Bank's
Grand Cayman Branch, Grand Cayman, British West Indies, would
offer U.S. dollar deposits for the applicable interest period
to other major banks in the offshore dollar inter-bank market.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board
Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and
will include, but not be limited to, marginal, emergency,
supplemental, special, and other reserve percentages.
(e) Each prepayment of a Cayman Rate Portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of
accrued interest on the amount prepaid, and a prepayment fee as
described below. A "prepayment" is a payment of an amount on a date
earlier than the scheduled payment date for such amount as required by
this Agreement. The prepayment fee shall be equal to the amount (if
any) by which:
(i) the additional interest which would have been payable during
the interest period on the amount prepaid had it not been
prepaid, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the domestic
certificate of deposit market, the eurodollar deposit market,
or other appropriate money market selected by the Bank for a
period starting on the date on which it was prepaid and ending
on the last day of the interest period for such Portion (or
the scheduled payment date for the amount prepaid, if
earlier).
(f) The Bank will have no obligation to accept an election for a Cayman
Rate Portion if any of the following described events has occurred and
is continuing:
(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of a Cayman Rate Portion are not
available in the offshore dollar inter-bank market; or
(ii) the Cayman Rate does not accurately reflect the cost of a
Cayman Rate Portion.
3. FEES, EXPENSES AND DEPOSITS
3.1 Fees.
(a) Loan Fee. The Borrower agrees to pay a Five Thousand Dollar ($5,000)
fee due on the date of this Agreement. The Bank acknowledges receipt of
such fee.
(b) Unused Commitment Fee. The Borrower agrees to pay a fee on any
difference between the Commitment and the amount of credit it actually
uses, determined by the weighted average credit outstanding during the
specified period. The fee will be calculated at 0.125% per year. This
fee is due on January 1, 1998, and on the first day of each following
quarter until the expiration of the availability period.
3.2 Expenses. The Borrower agrees to immediately repay the Bank for
expenses that include, but are not limited to, filing, recording and search
fees, appraisal fees, title report fees and documentation fees.
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<PAGE>
3.3 Reimbursement Costs. The Borrower agrees to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement. Expenses include, but are not limited to,
reasonable attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
4. COLLATERAL
4.1 Personal Property. The Borrower's obligations to the Bank under this
Agreement will be secured by personal property the Borrower now owns or will own
in the future as listed below. The collateral is further defined in security
agreement(s) executed by the Borrower. In addition, all personal property
collateral securing this Agreement shall also secure all other present and
future obligations of the Borrower to the Bank (excluding any consumer credit
covered by the federal Truth in Lending law, unless the Borrower has otherwise
agreed in writing). All personal property collateral securing any other present
or future obligations of the Borrower to the Bank shall also secure this
Agreement.
(a) Stock and other securities.
5. DISBURSEMENTS, PAYMENTS AND COSTS
5.1 Requests for Credit. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
5.2 Disbursements and Payments. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory
notes.
5.3 Telephone and Telefax Authorization.
(a) The Bank may honor telephone or telefax instructions for advances or
repayments or for the designation of optional interest rates given by
any one of the individuals authorized to sign loan agreements on behalf
of the Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 14989-00617, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone or telefax
instructions it reasonably believes are made by any individual
authorized by the Borrower to give such instructions. This indemnity
and excuse will survive this Agreement's termination.
5.4 Direct Debit (Pre-Billing).
(a) The Borrower agrees that the Bank will debit the Borrower's deposit
account number 14989-00617, or such other of the Borrower's accounts
with the Bank as designated in writing by the Borrower (the "Designated
Account") on the date each payment of interest and any fees from the
Borrower becomes due (the "Due Date"). If the Due Date is not a banking
day, the Designated Account will be debited on the next banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due Date
(the "Billed Amount"). The calculation will be made on the
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<PAGE>
assumption that no new extensions of credit or payments will be made
between the date of the billing statement and the Due Date, and that
there will be no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued
Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the
Billed Amount for the following Due Date will be increased by
the amount of the discrepancy. The Borrower will not be in
default by reason of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the
Billed Amount for the following Due Date will be decreased by
the amount of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without
compounding. The Bank will not pay the Borrower interest on any
overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account
to cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
5.5 Banking Days. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. All payments and disbursements which would be due on a
day which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on
the next banking day.
5.6 Taxes.
(a) If any payments to the Bank under this Agreement are made from outside
the United States, the Borrower will not deduct any foreign taxes from
any payments it makes to the Bank. If any such taxes are imposed on any
payments made by the Borrower (including payments under this
paragraph), the Borrower will pay the taxes and will also pay to the
Bank, at the time interest is paid, any additional amount which the
Bank specifies as necessary to preserve the after-tax yield the Bank
would have received if such taxes had not been imposed. The Borrower
will confirm that it has paid the taxes by giving the Bank official tax
receipts (or notarized copies) within 30 days after the due date.
(b) Payments made by the Borrower to the Bank will be made without
deduction of United States withholding or similar taxes. If the
Borrower is required to pay U.S. withholding taxes, the Borrower will
pay such taxes in addition to the amounts due to the Bank under this
Agreement. If the Borrower fails to make such tax payments when due,
the Borrower indemnifies the Bank against any liability for such taxes,
as well as for any related interest, expenses, additions to tax, or
penalties asserted against or suffered by the Bank with respect to such
taxes.
5.7 Additional Costs. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments
for credit.
5.8 Interest Calculation. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest
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<PAGE>
or a higher fee than if a 365-day year is used. Instalments of principal which
are not paid when due under this Agreement shall continue to bear interest until
paid.
5.9 Default Rate. Upon the occurrence and during the continuation of any
default under this Agreement, principal amounts outstanding under this Agreement
will at the option of the Bank bear interest at a rate which is 2.0 percentage
point(s) higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any default.
6. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
6.1 Authorizations. Evidence that the execution, delivery and performance
by the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
6.2 Governing Documents. A copy of the Borrower's articles of
incorporation.
6.3 Security Agreements. Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest), which the Bank requires.
6.4 Evidence of Priority. Evidence that security interests and liens in
favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
6.5 Insurance. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
6.6 Environmental Questionnaire. A completed Bank form Environmental
Questionnaire.
6.7 Other Items. Any other items that the Bank reasonably requires.
7. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
7.1 Organization of Borrower. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
7.2 Authorization. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
7.3 Enforceable Agreement. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
7.4 Good Standing. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
7.5 No Conflicts. This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.
7.6 Financial Information. All financial and other information that has
been or will be supplied to the Bank is:
- --------------------------------------------------------------------------------
-7-
<PAGE>
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's (and any guarantor's) financial condition.
(b) in compliance with all government regulations that apply.
7.7 Lawsuits. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
7.8 Collateral. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
7.9 Permits, Franchises. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
7.10 Other Obligations. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
7.11 Income Tax Matters. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
7.12 No Tax Avoidance Plan. The Borrower's obtaining of credit from the Bank
under this Agreement does not have as a principal purpose the avoidance of U.S.
withholding taxes.
7.13 No Event of Default. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
7.14 Location of Borrower. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
8. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
8.1 Use of Proceeds. To use the proceeds of the credit only for
construction of a new manufacturing facility in Santa Rosa, CA.
8.2 Financial Information. To provide the following financial information
and statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:
(a) Within 120 days of the Borrower's fiscal year end, the Borrower's
annual financial statements. These financial statements must be audited
(with an unqualified opinion) by a Certified Public Accountant ("CPA")
acceptable to the Bank.
(b) Within 120 days of the Borrower's fiscal year end, copies of the
Borrower's Form 10-K Annual Report.
(c) Copies of the Borrower's Form 10-Q quarterly Report within 45 days
after the date of filing with the Securities and Exchange Commission.
(d) Within 30 days of the period's end, the Borrower's monthly brokerage
statements. These statements will reflect individual securities held
including CUSIP numbers, by type and market value.
8.3 Notices to Bank. To promptly notify the Bank in writing of:
(a) any substantial dispute between the Borrower (or any guarantor) and any
government authority.
- --------------------------------------------------------------------------------
-8-
<PAGE>
(b) any failure to comply with this Agreement.
(c) any material adverse change in the Borrower's (or any guarantor's)
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit.
(d) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
8.4 Books and Records. To maintain adequate books and records.
8.5 Audits. To allow the Bank and its agents to inspect the Borrower's and
examine, audit and make copies of books and records at any reasonable time. If
any of the Borrower's properties, books or records are in the possession of a
third party, the Borrower authorizes that third party to permit the Bank or its
agents to have access to perform inspections or audits and to respond to the
Bank's requests for information concerning such properties, books and records.
8.6 Compliance with Laws. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
8.7 Preservation of Rights. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
8.8 Maintenance of Properties. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
8.9 Perfection of Liens. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
8.10 Cooperation. To take any action reasonably requested by the Bank to
carry out the intent of this Agreement.
8.11 Insurance. To maintain insurance as is usual for the business it is in.
8.12 Additional Negative Covenants. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
9. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. "Hazardous substances" means any substance,
material or waste that is or becomes designated or regulated as "toxic,"
"hazardous," "pollutant," or "contaminant" or a similar designation or
regulation under any federal, state or local law (whether under common law,
statute, regulation or otherwise) or judicial or administrative interpretation
of such, including without limitation petroleum or natural gas. This indemnity
will survive repayment of the Borrower's obligations to the Bank.
10. DEFAULT
If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled
- --------------------------------------------------------------------------------
-9-
<PAGE>
"Bankruptcy," below, with respect to the Borrower, then the entire debt
outstanding under this Agreement will automatically be due immediately.
10.1 Failure to Pay. The Borrower fails to make a payment under this
Agreement when due.
10.2 Lien Priority. The Bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this loan.
10.3 False Information. The Borrower (or any guarantor) has given the Bank
false or misleading information or representations.
10.4 Bankruptcy. The Borrower (or any guarantor) files a bankruptcy
petition, a bankruptcy petition is filed against the Borrower (or any guarantor)
or the Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.
10.5 Receivers. A receiver or similar official is appointed for the
Borrower's (or any guarantor's) business, or the business is terminated.
10.6 Government Action. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantor's)
financial condition or ability to repay.
10.7 Material Adverse Change. A material adverse change occurs in the
Borrower's (or any guarantor's) business condition (financial or otherwise),
operations, properties or prospects, or ability to repay the credit.
10.8 Cross-default. Any default occurs under any agreement in connection
with any credit the Borrower (or any guarantor) has obtained from anyone else or
which the Borrower (or any guarantor) has guaranteed.
10.9 Default Under Related Documents. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is violated or no longer in effect.
10.10 Other Bank Agreements. The Borrower (or any guarantor) fails to meet
the conditions of, or fails to perform any obligation under any other agreement
the Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.
10.11 Other Breach Under Agreement. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article. This includes any failure or
anticipated failure by the Borrower to comply with any financial covenants set
forth in this Agreement, whether such failure is evidenced by financial
statements delivered to the Bank or is otherwise known to the Borrower or the
Bank.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 California Law. This Agreement is governed by California law.
11.3 Successors and Assigns. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees; provided
that such actual or potential participants or assignees shall agree to treat all
financial information exchanged as confidential. If a participation is sold or
the loan is assigned, the purchaser will have the right of set-off against the
Borrower.
- --------------------------------------------------------------------------------
-10-
<PAGE>
11.4 Arbitration.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered
in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury
to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by California
law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent
of the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises
from or relates to an obligation to the Bank secured by real property
located in California. In this case, both the Borrower and the Bank
must consent to submission of the claim or controversy to arbitration.
If both parties do not consent to arbitration, the controversy or claim
will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or a panel
of referees) selected under the auspices of the American
Arbitration Association in the same manner as arbitrators are
selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or
the panel) will be entered as a judgment in the court that
appointed the referee, in accordance with the provisions of
California Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
- --------------------------------------------------------------------------------
-11-
<PAGE>
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration if
the other party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank which is
secured by real property located in California at the time of the
proposed submission to arbitration, this right is limited according to
the provision above requiring the consent of both the Borrower and the
Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
11.5 Severability; Waivers. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
11.6 Administration Costs. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
11.7 Attorneys' Fees. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. In
the event that any case is commenced by or against the Borrower under the
Bankruptcy Code (Title 11, United States Code) or any similar or successor
statute, the Bank is entitled to recover costs and reasonable attorneys' fees
incurred by the Bank related to the preservation, protection, or enforcement of
any rights of the Bank in such a case. As used in this paragraph, "attorneys'
fees" includes the allocated costs of in-house counsel.
11.8 One Agreement. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
11.9 Indemnification. The Borrower will indemnify and hold the Bank harmless
from any loss, liability, damages, judgments, and costs of any kind relating to
or arising directly or indirectly out of (a) this Agreement or any document
required hereunder, (b) any credit extended or committed by the Bank to the
Borrower hereunder, and (c) any litigation or proceeding related to or arising
out of this Agreement, any such document, or any such credit, except, in each
case, to the extent that such loss liability, damages, judgments or costs are
due to the gross negligence or willful misconduct of the Bank. This indemnity
includes but is not limited to attorneys' fees (including the allocated cost of
in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries
- --------------------------------------------------------------------------------
-12-
<PAGE>
and all of their directors, officers, employees, agents, successors, attorneys,
and assigns. This indemnity will survive repayment of the Borrower's obligations
to the Bank. All sums due to the Bank hereunder shall be obligations of the
Borrower, due and payable immediately without demand.
11.10 Notices. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
11.11 Headings. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
11.12 Counterparts. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
This Agreement is executed as of the date stated at the top of the first page.
[LOGO]
Bank of America Arterial Vascular Engineering, Inc.
National Trust and Savings Association
X /s/ Joni Topper X /s/ Bradly A. Jendersee
-------------------------- --------------------------
By: Joni Topper By: Bradly A. Jendersee
Title: Vice President Title: Chairman of the Board
X /s/ John D. Miller
--------------------------
By: John D. Miller
Title: Chief Financial Officer
Address where notices to the Bank Address where notices to the Borrower
are to be sent: are to be sent:
Santa Rosa Commercial Banking Office #1498
10 Santa Rosa Avenue, 2nd Floor 3576 Unocal Place
Santa Rosa, CA 95404 Santa Rosa, CA 95403
- --------------------------------------------------------------------------------
-13-
<PAGE>
<TABLE>
Attachment "A"
Acceptable Securities and Advance Rates
<CAPTION>
- ------------------------------------------------------------ ------------------------ ---------------
Acceptable Securities Minimum Rating Maximum
Advance
- ------------------------------------------------------------ ------------------------ ---------------
<S> <C> <C>
U.S. marketable securities (common stock and convertible A+, A, or A- 75% of Market
securities) with current market price in excess of $15 Value (MV)
excluding BankAmerica Corporation common stock
- ------------------------------------------------------------ ------------------------ ---------------
U.S. Corporate and Municipal Bonds and preferred stock S&P: AAA, AA 80% MV
Moody's Aaa & Aa*
- ------------------------------------------------------------ ------------------------ ---------------
U.S. Government issued or guaranteed (e.g. Treasury Bills, less than 1 year 90% MV**
Notes, Bonds, GNMA, MBSs) 1-5 Years 85% MV**
more than 5 years 80% MV**
- ------------------------------------------------------------ ------------------------ ---------------
U.S. Government sponsored (e.g. Farm Credit, Federal Home 75% MV**
Loan Bank Board, FNMA)
- ------------------------------------------------------------ ------------------------ ---------------
Bankers Acceptances Call for acceptability 90% of
Discount
Value (DV)
- ------------------------------------------------------------ ------------------------ ---------------
Commercial Paper issued by U.S. Companies A1/P1 90% (DV)
- ------------------------------------------------------------ ------------------------ ---------------
* Most conservative rating applies
- ------------------------------------------------------------ ------------------------ ---------------
**Advance not to exceed par value
- ------------------------------------------------------------ ------------------------ ---------------
</TABLE>
<TABLE>
EXHIBIT 11.1
ARTERIAL VASCULAR ENGINEERING, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
<CAPTION>
Year Ended June 30,
-------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Primary
Weighted average common shares outstanding 30,947 23,851 17,916
Weighted average common equivalent shares assuming
conversion of stock options under the treasury stock method 697 2,291 5,647
Common and common equivalent shares pursuant to Staff
Accounting Bulletin No. 83
-- 2,118 3,631
------- ------- -------
Shares used in per share calculation 31,644 28,260 27,194
======= ======= =======
Net income $21,750 $20,440 $ 6,640
======= ======= =======
Net income per share $0.69 $0.71 $0.24
======= ======= =======
Net income per share is presented under the primary basis as the effect of dilution under the fully diluted basis is less
than 3%.
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
(All Subsidiaries are Wholly Owned by the Registrant)
Arterial Vascular Engineering Canada, Inc. (Canada)
AVE International Sales, Inc. (Barbados)
AVE Manufacturing, Inc. (California)
Arterial Vascular Engineering UK Limited (United Kingdom)
Arterial Vascular Engineering GmbH (Germany)
Arterial Vascular Engineering SARL (France)
Arterial Vascular Engineering B.V. (the Netherlands)
AVE Arterial Vascular Engineering (Schweiz) AG (Switzerland)
Proprietary Extrusion Technologies, Inc. (California)
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-3254, 333-3468 and 333-22089) pertaining to the Stock Option
Agreements, the 1996 Equity Incentive Plan and the 1996 Non-Employee Directors'
Stock Option Plan of Arterial Vascular Engineering, Inc., of our report dated
July 25, 1997, except as to the first paragraph of Note 5 as to which the date
is August 21, 1997, with respect to the consolidated financial statements and
schedule of Arterial Vascular Engineering, Inc., included in the Annual Report
(Form 10-K) for the year ended June 30, 1997.
ERNST & YOUNG LLP
Palo Alto, California
September 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE
30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH
</LEGEND>
<CIK> 0001007047
<NAME> Arterial Vascular Engineering, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 25,036
<SECURITIES> 62,192
<RECEIVABLES> 23,930
<ALLOWANCES> 1,080
<INVENTORY> 7,302
<CURRENT-ASSETS> 124,265
<PP&E> 24,334
<DEPRECIATION> 2,575
<TOTAL-ASSETS> 147,979
<CURRENT-LIABILITIES> 9,779
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 138,169
<TOTAL-LIABILITY-AND-EQUITY> 147,979
<SALES> 79,420
<TOTAL-REVENUES> 79,420
<CGS> 16,217
<TOTAL-COSTS> 16,217
<OTHER-EXPENSES> 33,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33,461
<INCOME-TAX> 11,711
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,750
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
