UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-28006
MICROCIDE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3186021
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification Number)
850 Maude Avenue, Mountain View, California 94043
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 650-428-1550
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock, no par value, outstanding as of July 31, 1998:
10,971,930.
<PAGE>
MICROCIDE PHARMACEUTICALS, INC.
INDEX FOR FORM 10-Q
JUNE 30, 1998
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements and Notes
Condensed Balance Sheets as of June 30, 1998
and December 31, 1997 3
Condensed Statements of Operations for the three
and six months ended June 30, 1998 and June 30, 1997 4
Condensed Statements of Cash Flows for the six
months ended June 30, 1998 and June 30, 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION 11
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults in Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 13
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<PAGE>
MICROCIDE PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
(In thousands)
June 30, December 31,
1998 1997
-------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,890 $ 11,763
Short-term investments 31,024 28,624
Prepaid expenses and other current assets 1,925 1,284
-------- --------
Total current assets 35,839 41,671
-------- --------
Property and equipment, net 9,780 9,540
Other assets 885 571
-------- --------
Total assets $ 46,504 $ 51,782
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 990 $ 1,313
Construction payable 344 347
Accrued compensation 779 746
Current portion of capital lease obligations 377 612
Deferred revenue 875 786
Other accrued liabilities 675 632
-------- --------
Total current liabilities 4,040 4,436
-------- --------
Long-term portion of capital lease obligations 82 224
Accrued rent 164 226
Stockholders' equity:
Common stock 66,792 66,930
Deferred compensation (725) (1,251)
Net unrealized loss on marketable securities (58) (44)
Accumulated deficit (23,791) (18,739)
-------- --------
Total stockholders' equity 42,218 46,896
-------- --------
Total liabilities & stockholders' equity $ 46,504 $ 51,782
======== ========
NOTE: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Financial Statements.
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<PAGE>
<TABLE>
Microcide Pharmaceuticals, Inc.
Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
License and milestone fees $ -- $ -- $ -- $ 1,000
Research revenue 2,800 2,994 5,835 6,101
-------- -------- -------- --------
Total revenues 2,800 2,994 5,835 7,101
Operating expenses
Research and development 4,815 4,336 9,876 8,437
General and administrative 953 1,099 2,011 2,121
-------- -------- -------- --------
Total operating expenses 5,768 5,435 11,887 10,558
-------- -------- -------- --------
Loss from operations (2,968) (2,441) (6,052) (3,457)
Interest income 504 650 1,030 1,338
Interest expense (12) (40) (30) (93)
-------- -------- -------- --------
Net loss $ (2,476) $ (1,831) $ (5,052) $ (2,212)
======== ======== ======== ========
Net loss per share $ (0.23) $ (0.17) $ (0.46) $ (0.21)
======== ======== ======== ========
Shares used in calculation of net loss per share 10,957 10,778 10,941 10,797
<FN>
See Notes to Condensed Financial Statements.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
Microcide Pharmaceuticals, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<CAPTION>
Six Months Ended
June 30
-----------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (5,052) $ (2,212)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,466 1,258
Amortization of deferred compensation 264 295
Accrued rent (62) 32
Net unrealized gain (loss) on securities (14) 25
Changes in assets and liabilities:
Prepaid expenses and other current assets (641) (235)
Other assets (314) 6
Accounts payable (326) (1,355)
Accrued compensation and other accrued liabilities 76 389
Deferred revenue 89 125
-------- --------
Net cash used in operating activities (4,514) (1,672)
-------- --------
Cash flows used in investing activities:
Purchase of short-term investments (26,410) (62,015)
Maturities of short-term investments 24,010 61,290
Capital expenditures (1,708) (1,308)
-------- --------
Net cash provided by (used in) investing activities (4,108) (2,033)
-------- --------
Cash flows financing activities:
Principal payments on capital lease obligations (377) (582)
Repayment of shareholder note 0 35
Net proceeds from issuance of common stock 126 126
-------- --------
Net cash used in financing activities (251) (421)
-------- --------
Net decrease in cash and cash equivalents (8,873) (4,126)
Cash and cash equivalents at beginning of period 11,763 8,317
-------- --------
Cash and cash equivalents at end of period $ 2,890 $ 4,191
======== ========
Supplemental disclosure of cash flow information:
Income taxes paid $ 2 $ 21
======== ========
Interest paid $ 30 $ 81
======== ========
<FN>
See Notes to Condensed Financial Statements.
</FN>
</TABLE>
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<PAGE>
MICROCIDE PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
Microcide Pharmaceuticals, Inc. (the "Company") is a biopharmaceutical
company whose mission is to discover, develop and commercialize novel
antimicrobials for the improved treatment of serious bacterial, fungal and viral
infections. The Company's discovery and development programs address the growing
problem of bacterial drug resistance and the need for improved antifungal and
antiviral agents through two principal themes: (i) Targeted Antibiotics, which
focuses on developing novel antibiotics and antibiotic potentiators to directly
address existing bacterial resistance problems, and (ii) Targeted Genomics,
which utilizes bacterial, fungal and viral genetics to discover new classes of
antimicrobials and other novel treatments for infectious diseases.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the interim periods shown herein
are not necessarily indicative of operating results for the entire year.
This unaudited financial data should be read in conjunction with the
financial statements and footnotes contained in the Company's annual report on
Form 10-K for the year ended December 31, 1997.
2. Investments
Investment securities are classified as available-for-sale (estimated
fair value) and consist of the following investments (in thousands):
June 30, December 31,
1998 1997
------- -------
Cash equivalents and short-term investments:
Money market funds $ 4,588 $ 2,133
Corporate debt securities 26,436 37,417
------- -------
$31,024 $39,550
======= =======
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<PAGE>
3. Per Share Information
Effective December 31, 1997, the Company adopted statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128
requires the presentation of basic earnings (loss) per share and diluted
earnings (loss) per share, if more dilutive, for all periods presented. In
accordance with SFAS 128, basic net loss per share has been computed using the
weighted-average number of shares of Common Stock outstanding during the period.
Diluted net loss per share has not been presented; given the Company's net loss
position, the result would be anti-dilutive.
4. Changes in Accounting Standards
As of January 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS
130 established new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement has no impact on the
Company's net loss or stockholders' equity. SFAS 130 requires, among other
things, unrealized gains or losses on the Company's securities to be included in
comprehensive income or loss. During the six months ended June 30, 1998 and
1997, the Company's comprehensive loss amounted to $5,066,000 and $2,187,000,
respectively.
-7-
<PAGE>
MICROCIDE PHARMACEUTICALS, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
As part of the Company's strategy to enhance its research and
development capabilities and to fund, in part, its capital requirements,
Microcide has entered into collaborative agreements with three major
pharmaceutical companies. The Company has received license fees, research
support payments and milestone payments pursuant to these agreements and can
potentially receive additional research support payments, additional milestone
payments and royalty payments. License payments are typically nonrefundable
up-front payments for licenses to develop, manufacture and market products, if
any, that are developed as a result of the collaboration. Research support
payments are typically contractually obligated payments to fund research and
development over the term of the collaboration. Milestone payments are payments
contingent upon the achievement of specified milestones, such as selection of
candidates for drug development, the commencement of clinical trials or receipt
of regulatory approvals. If drugs are successfully developed and commercialized
as a result of the collaborative agreements, the Company will receive royalty
payments based upon the net sales of such drugs.
Through June 30, 1998, the Company had received in the aggregate $35.0
million in license fees, milestone payments and research support payments under
the collaborative agreements. Assuming none of the existing collaborative
agreements is terminated prior to its scheduled expiration, the Company will be
entitled to receive up to an additional $16.0 million of research support
payments. In addition, in the event that any of the collaborative agreements are
extended beyond their current terms, the Company will be entitled to receive
additional research support payments.
In the event that the Company achieves the specified research and
product development milestones, the Company will be entitled to receive
milestone payments under its collaborative agreements with the three major
pharmaceutical companies ranging from $13.0 million to $32.5 million per
product. No royalty payments have yet been received and the Company does not
expect to receive royalties based upon the net sales of drugs for a significant
number of years, if ever.
In May 1998, the Company signed an agreement to extend various
facilities leases for a 60-month term after their scheduled expiration. The
lease combines other previous agreements signed in relation to its facilities
comprising 71,210 square feet. The agreement calls for total minimum monthly
rental payments ranging from $132,000 to $152,000 beginning on October 1, 2000.
Quarterly results of operations are subject to significant fluctuations
based on the timing and amount of certain revenues earned under the
collaborative agreements. The Company expects to incur operating losses in the
future.
This Form 10-Q contains forward-looking statements based upon current
expectations, including statements with regard to the potential receipt of
additional research support payments, milestone payments and royalties from the
Company's collaborative partners, and the period of time the Company's existing
capital resources and future payments under collaborative agreements will be
sufficient to satisfy the Company's funding requirements, expectations
concerning the Company's
-8-
<PAGE>
future research and development and general and administrative expenses and
future facility needs. Such forward-looking statements involve risk and
uncertainties, including without limitation, the risk that the Company's
collaborations will be terminated, development candidates will not be
identified, development candidates which are selected will not proceed through
pre-clinical trials or will not prove safe and effective for treatment of humans
in clinical trials, or that the identification, selection, pre-clinical, and
clinical testing of development candidates will take substantially longer or be
substantially more expensive than contemplated by the Company, or that the
Company will not be able to obtain on a timely basis government regulatory
clearance required for clinical testing, manufacturing, and marketing of its
products, and the other risks and uncertainties set forth in the Company's
annual report on Form 10-K for the year ended December 31, 1997. Actual results
and timing of certain events could differ materially from those indicated in the
forward-looking statements as a result of these or other factors.
Results of Operations
Three Months Ended June 30, 1998 and 1997
Revenues. Total revenues for the second quarter of 1998 were $2.8 million, a
decrease of 6% from the $3.0 million in revenues recognized in the second
quarter of 1997, due to a decrease in research support revenues. Research
support revenue decreased in the second quarter of 1998 due primarily to lower
revenues earned from the Daiichi collaborative agreement resulting from a
decrease in reimbursable costs associated with the program. There were no
license and milestone fees earned for either period.
Research and Development Expenses. Research and development expenses for the
second quarter increased approximately 11% from $4.3 million in 1997 to $4.8
million in 1998. The increases are due primarily to higher compensation and
other employee-related expenses associated with an increase in headcount to
support the Company's corporate collaborations and its internal programs, higher
spending for research supplies and materials, higher costs relating to expanded
research and development facilities, and costs associated with providing
research support to Iconix Pharmaceuticals related to the viral research
program, partially offset by lower expenses related to assembling the Company's
molecular diversity collection. Research and development expenses are expected
to further increase in the third quarter.
General and Administrative Expenses. General and administrative expenses for the
second quarter decreased 13% from $1.1 million in 1997 to $1.0 million in 1998.
Decreased expenses primarily consisted of lower operational costs, travel and
entertainment costs, and facilities costs. General and administrative expenses
may increase in dollar amounts in the third quarter, but are expected to be at a
lower percentage of total operating expenses.
Interest Income and Expense. Interest income for the second quarter decreased
from $650,000 in 1997 to $504,000 in 1998, primarily due to a decrease in
average cash balances. Interest expense for the second quarter decreased from
$40,000 in 1997 to $12,000 in 1998 due to a decrease in capital lease balances
outstanding.
Six Months Ended June 30, 1998 and 1997
Revenues. Total revenues for the first half of 1998 were $5.8 million, a
decrease of 18% from the $7.1 million in revenues for the first half of 1997
primarily due to a decrease in license and
-9-
<PAGE>
milestone fees. In addition, research support revenue decreased from $6.1
million in the first half of 1997 to $5.8 million in the first half of 1998
primarily as a result of lower revenues earned from the Daiichi collaborative
agreement resulting from a decrease in reimbursable costs associated with the
program.
Research and Development Expenses. Research and development expenses for the
first half of 1998 were $9.9 million, an increase of approximately 17% from $8.4
million in the first half of 1997, primarily due to increased compensation and
other employee-related expenses associated with an increase in headcount to
support the Company's corporate collaborations and its internal programs, higher
spending for research supplies and materials, higher costs relating to expanded
research and development facilities, and costs associated with providing
research support to Iconix Pharmaceuticals related to the viral research
program, partially offset by lower expenses related to assembling the Company's
molecular diversity collection. Research and development expenses are expected
to further increase in the second half of 1998.
General and Administrative Expenses. General and administrative expenses for the
first half of 1998 decreased approximately 5% from $2.1 million in 1997 to $2.0
million in 1998. Decreased expenses primarily consisted of lower payroll and
related expenses, lower operational costs, and lower travel and entertainment
costs, partially offset by an increase in outside service expenses associated
with recruiting, legal and insurance activities. General and administrative
expenses may increase in dollar amounts in the second half of 1998 as compared
to the first half of 1998, but are expected to be at a lower percentage of total
operating expenses.
Interest Income and Expense. Interest income for the first half of 1998
decreased from $1.3 million in 1997 to $1.0 million in 1998, primarily due to a
decrease in average cash balances. Interest expense decreased from $93,000 in
the first half of 1997 to $30,000 in the first half of 1998 due to a decrease in
capital lease balances outstanding.
Liquidity and Capital Resources
The Company has financed its operations since inception primarily
through the sale of equity, through funds provided under collaborative
agreements, through other revenues principally consisting of sales of molecular
diversity samples and through equipment financing. As of June 30, 1998 the
Company had received approximately $64.5 million in net proceeds from the sale
of equity and approximately $36.7 million from license and milestone fees,
research support payments under collaborative agreements and sales of molecular
diversity samples.
Cash, cash equivalents and short-term investments at June 30, 1998 were
$33.9 million compared to $40.4 million at December 31, 1997. The decrease
during the first half of 1998 was due primarily to cash used by operations of
$4.5 million, $1.7 million in capital expenditures and $251,000 utilized in
financing activities which predominantly consisted of principal payments on
capital lease obligations.
The Company believes that its existing capital resources, interest
income and future payments due under collaborative agreements will enable the
Company to maintain current and planned operations at least through 1999.
-10-
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Microcide Pharmaceuticals,
Inc. was held on June 18, 1998.
<TABLE>
(b) The following Class II Directors were elected to serve for a term
of three years to expire at the Company's 2001 Annual Meeting of
Stockholders:
<CAPTION>
Name Position Term Expires
---------------------------------- --------------------------------- ------------
<S> <C> <C>
Hugh Y. Rienhoff, Jr., M.D. Class II Director 2001
John P. Walker Class II Director 2001
</TABLE>
<TABLE>
The following Class I and III Directors continue to serve their
respective terms which expire at the Company's Annual Meeting of
Stockholders in the year as noted:
<CAPTION>
Name Position Term Expires
---------------------------------- --------------------------------- ------------
<S> <C> <C>
Daniel L. Kisner, M.D. Class I Director 2000
David Schnell, M.D. Class I Director 2000
Mark B. Skaletsky Class I Director 2000
Keith A. Bostian, Ph.D. Class III Director 1999
James E. Rurka Class III Director 1999
</TABLE>
(c) The matters voted upon at the meeting and the voting results were
as follows:
<TABLE>
(i) The election of two Class II Directors for a term of three
years:
<CAPTION>
Name For Against Abstain Not Voted
--------------------------- --------- ------- ------- ---------
<S> <C> <C> <C> <C>
Hugh Y. Rienhoff, Jr., M.D. 8,582,585 128,973 - 2,226,934
John P. Walker 8,592,285 119,273 - 2,226,934
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
(ii) Approval of amendment to the Company's 1993 Amended Incentive
Stock Plan, increasing the number of shares of Common Stock
reserved for issuance from 1,880,000 to 2,280,000:
For Against Abstain Not Voted
--------- ------- ------ ---------
<S> <C> <C> <C>
8,141,242 547,396 22,920 2,226,934
</TABLE>
<TABLE>
(iii) Ratification of the appointment of Ernst & Young LLP as
independent auditors for the fiscal year ending December 31,
1998:
<CAPTION>
For Against Abstain Not Voted
--------- ------- ------ ---------
<S> <C> <C> <C>
8,686,515 13,284 11,759 2,226,934
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed with this report:
10.22 Lease agreement between the Registrant and Portola Land Co.
dated May 1998
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30,
1998.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 14, 1998
MICROCIDE PHARMACEUTICALS, INC.
------------------------------------------------
(Registrant)
/s/ James E. Rurka
------------------------------------------------
President, Chief Executive Officer and Director
(principal executive officer)
/s/ Matthew J. Hogan
------------------------------------------------
Chief Financial Officer
(principal financial and accounting officer)
-13-
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1.0 Basic Provisions ("Basic Provisions")
1.1. Parties: This Lease ("Lease"), dated for reference purposes only May
11, 1998 is made by and between Portola Land Company, a CA Limited
Partnership ("Lessor") and Microcide Pharmaceuticals, Inc., a Delaware
Corporation ("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 as 800, 830 and 840-850 Maude Avenue, Mountain View
located in the County of Santa Clara, State of California and
generally described as (describe briefly the nature of the property
and, if applicable, the "Project", if the property is located within a
Project) 800 Maude Avenue, consisting of approximately 18,040 s.f.,
830 Maude Avenue, consisting of approximately 17,415 s.f., and 840-850
Maude Avenue , consisting of approximately 35,755 s.f. for a total of
approximately 71,210 s.f., Santa Clara Assessors Parcel #5: 160-54-16
& 25 and 160-57-12 ("Premises"). (See also Paragraph 2)
1.3. Term: Five (5) years and 0 months ("Original Term") commencing October
1, 2000 ("Commencement Date") and ending September 30, 2005
("Expiration Date"). (See also Paragraph 3)
1.4. Early Possession: N/A ("Early Possession Date"). (See also Paragraph
3.2 and 3.3)
1.5. Base Rent: $131,739.00 per month ("Base Rent"), payable on the first
day of each month commencing October 1, 2000 (See also Paragraph 4)[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: $ none as Base Rent for the period
_______________________.
1.7. Security Deposit: $150,000.00 ("Security Deposit"). (See also
Paragraph 5)
1.8. Agreed Use: Research & Development, etc. & administration,
manufacturing, laboratory use, storage and all other uses approved by
the City of Mountain View. (See also Paragraph 6)
1.9. Insuring Party. Lessor is the "Insuring Party" unless otherwise stated
herein. (See also Paragraph 8)
1.10.Real Estate Brokers: (See also Paragraph 15)
(a) Representation: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in
this transaction (check applicable boxes):
[ ] represents Lessor exclusively ("Lessor's Broker");
[X] Cornish & Carey Commercial represents Lessee exclusively
("Lessee's Broker"); or
[ ] represents both Lessor and Lessee ("Dual Agency").
(b) Payment to Brokers: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed
to in their separate written agreement (or if there is no such
agreement, the sum of ____% of the total Base Rent for the brokerage
services rendered by said Broker.
1.11.Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (See also Paragraph 37)
1.12.Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 56 and Exhibits N/A all of which
constitute a part of this Lease.
<PAGE>
2.0 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 size set forth in this
Lease, or that may have been used in calculating rental, is an
approximation which the Parties agree is reasonable and the rental
based thereon is not subject to revision whether or not the actual
size is more or less.
2.2. (Deleted)
2.3. Compliance. If the Applicable Requirements are hereafter changed (as
opposed to being in existence at the Start Date, which is addressed in
Paragraph 6.2(e) below) so as to require during the term of this Lease
the construction of an addition to or an alteration of the Building,
the remediation of any Hazardous Substance, or the reinforcement or
other physical modification of the Building ("Capital Expenditure"),
Lessor and Lessee shall allocate the cost of such work as follows:
(a) Subject to Paragraph 2.3(d) below, if such Capital
Expenditures are required as a result of the specific and unique use
of the Premises by Lessee as compared with uses by tenants in general,
Lessee shall be fully responsible for the cost thereof, provided,
however that if Such Capital Expenditure is required during the last
two (2) years of this Lease and the cost thereof exceeds six (6)
month's Base Rent, Lessee may instead terminate this Lease unless
Lessor notifies Lessee, in writing, within ten (10) days after receipt
of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six
(6) month's Base Rent. If Lessee elects termination, Lessee shall
immediately cease the use of the Premises which requires such Capital
Expenditure and deliver to Lessor written notice specifying a
termination date at least ninety (90) days thereafter. Such
termination date shall, however, in no event be earlier than the last
day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor and Lessee shall allocate
the obligation to pay for such costs pursuant to the provisions of
Paragraph 7.1(c); provided, however, that if such Capital Expenditure
is required during the last two years of this Lease or if Lessor
reasonably determines that it is not economically feasible to pay its
share thereof, Lessor shall have the option to terminate this Lease
upon ninety (90) days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within ten (10) days after receipt of
Lessor's termination notice that Lessee will pay for such Capital
Expenditure. If Lessor does not elect to terminate, and fails to
tender its share of any such Capital Expenditure, Lessee may advance
such funds and deduct same, with Interest, from Rent until Lessor's
share of such costs have been fully paid. If Lessee is unable to
finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse
Lessee on an offset basis, Lessee shall have the right to terminate
this Lease upon thirty (30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected,
and new Applicable Requirements. If the Capital Expenditures are
instead triggered by Lessee as a result of an actual or proposed
change in use, change in intensity of use, or modification to the
Premises then, and in that event, Lessee shall be fully responsible
for the cost thereof, and Lessee shall not have any right to terminate
this Lease.
2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical, HVAC and
fire sprinkler systems, security, environmental aspects, and
compliance with Applicable Requirements), and their suitability for
Lessee's intended use, (b) Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has
made any oral or written representations or warranties with respect to
said matters other than as set forth in this Lease. In addition,
Lessor acknowledges that: (a) Broker has made no representations,
promises or warranties concerning Lessee's ability to honor the Lease
or
<PAGE>
suitability to occupy the Premises, and (b) it is Lessor's sole
responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5. Lessee as Prior Owner/Occupant. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the
Start Date Lessee was occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3.0 Term.
3.1. Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3
3.2. (Deleted)
3.3 Delay In Possession. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by
the Commencement Date. If, despite said efforts, Lessor is unable to
deliver possession as agreed, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this
Lease. Lessee shall not, however, be obligated to pay Rent or perform
its other obligations until it receives possession of the Premises. If
possession is not delivered within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing
within ten (10) days after the end of such sixty (60) day period,
cancel this Lease, in which event the Parties shall be discharged from
all obligations hereunder. If such written notice is not received by
Lessor within said ten (10) day period, Lessee's right to cancel shall
terminate. Except as otherwise provided, if possession is not tendered
to Lessee by the Start Date and Lessee (does not terminate this Lease,
as aforesaid, any period of rent abatement 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 or omissions of Lessee. If possession of the Premises is not
delivered within four (4) months after the commencement Date, this
Lease shall terminate unless other agreements are reached between
Lessor and Lessee, in writing.
3.4 Lessee Compliance. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to
provide evidence of insurance (Paragraph 8.5). Pending delivery of
such evidence, Lessee shall be required to perform all of its
obligations under this Lease from and after the Start Date, including
the payment of Rent, notwithstanding Lessees election to withhold
possession pending receipt of such evidence of insurance. Further, if
Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor
may elect to withhold possession until such conditions are satisfied.
4.0 Rent.
4.1. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be
rent ("Rent").
4.2. Payment. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction
(except as specifically permitted in this Lease), on or before the day
on which it is due. Rent 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 said month. Payment of Rent shall be
made to Lessor at its address stated herein or to such other persons
or place as Lessor may from time to time designate in writing.
Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent,
regardless of Lessor's endorsement of any check so stating.
5.0 Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, 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
<PAGE>
expense, loss or damage 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
monies with Lessor sufficient to restore said Security Deposit to the full
amount required by this Lease. Should the Agreed Use be amended to
accommodate a material change in the business of Lessee or to accommodate a
sublessee or assignee, Lessor shall have the right to increase the Security
Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a
result thereof. If a change in control of Lessee occurs during this Lease
and following such change the financial condition of Lessee is, in Lessor's
reasonable judgment, significantly reduced, Lessee shall deposit such
additional monies with Lessor as shall be sufficient to cause the Security
Deposit to be at a commercially reasonable level based on said change in
financial condition. Lessor shall not be required to keep the Security
Deposit separate from its general accounts. Within fourteen (14) days after
the expiration or termination of this Lease, if Lessor elects to apply the
Security Deposit only to unpaid Rent, and otherwise within thirty (30) days
after the Premises have been vacated pursuant to Paragraph 7.4(c) below,
Lessor shall return that portion of the Security Deposit not used or
applied by Lessor. No part of the Security Deposit shall be considered to
be held in trust, to bear interest or to be prepayment for any monies to be
paid by Lessee under this Lease.
6.0 Use.
6.1. Use. Lessee shall use and occupy the Premises only for the Agreed Use,
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 damage, waste or a
nuisance, or that disturbs owners and/or occupants of, or causes
damage to neighboring properties. Lessor shall not unreasonably
withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or the
mechanical or electrical systems therein, is not significantly more
burdensome to the Premises. If Lessor elects to withhold consent,
Lessor shall within five (5) business days after such request give
written notification of same, which notice shall include an
explanation of Lessor's 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, or waste whose presence, use, manufacture, disposal,
transportation, or release, 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
Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products
or fractions thereof. Lessee shall not engage in any activity in
or on the Premises which constitutes a Reportable Use of Hazardous
Substances without the express prior written consent of Lessor and
timely compliance (at Lessee's expense) with all Applicable
Requirements. "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/or
(iii) the presence at the Premises of a Hazardous Substance with
respect to which any Applicable Requirements requires that a
notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may
use any ordinary and customary materials reasonably required to be
used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a
Reportable Use, and does not expose the Premises or neighboring
property to
<PAGE>
any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may condition its
consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage,
contamination, injury and/or liability, including, but not limited
to, the installation (and removal on or before Lease expiration or
termination) of protective modifications (such as concrete
encasements) and/or increasing the Security Deposit.
(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, other than as
previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor, and provide Lessor with a
copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.
(c) Lessee Remediation. 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 or neighboring properties, that was
caused or materially contributed to by Lessee, or pertaining to or
involving any Hazardous Substance brought onto the Premises during
the term of this Lease, by or for Lessee, or any third party.
(d) Lessee Indemnification. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if
any, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, claims, expenses, penalties, and
attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee, or
any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration
of any Hazardous Substance under the Premises from adjacent
properties). Lessee's obligations 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, removal, remediation, restoration and/or
abatement, and shall survive the expiration or 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.
(e) Lessor Indemnification. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its
employees and lenders, harmless from and against any and all
environmental damages, including the cost of remediation, which
existed as a result of Hazardous Substances on the Premises prior
to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's
obligations, as and when required by the Applicable Requirements,
shall include, but not be limited to, the cost of investigation,
removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease.
(f) Investigations and Remediations. Lessor shall retain the
responsibility and pay for any investigations or remediation
measures required by governmental entities having Jurisdiction
with respect to the existence of Hazardous Substances on the
Premises prior to the Start Date, unless such remediation measure
is required as a result of Lessee's use (including 'Alterations,
as defined in paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall
cooperate fully in any such activities at the request of Lessor,
including allowing Lessor and Lessor's agents to have reasonable
access to the Premises at reasonable times in order to carry out
Lessor's investigative and remedial responsibilities.
<PAGE>
(g) Lessor Termination Option. If a Hazardous Substance
Condition occurs during the term of this Lease, unless Lessee is
legally responsible therefor (in which case Lessee shall make the
investigation and remediation thereof required by the Applicable
Requirements and this Lease shall continue in full force and
effect, but subject to Lessor rights under Paragraph 6.2(d) 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 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 a
termination notice, Lessee may, within ten (10) days thereafter,
give written notice to Lessor of Lessee's commitment to pay the
amount by which the cost of the remediation of such Hazardous
Substance Condition exceeds an amount equal to twelve (12) times
the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory
assurance thereof within thirty (30) days following such
commitment. In such event, this Lease shall continue in full force
and effect, and Lessor shall proceed to make such 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 provided, this
Lease shall terminate as of the date specified in Lessor's notice
of termination.
6.3. Lessee's Compliance with Applicable Requirements. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all
Applicable Requirements, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of
Lessor's engineers and/or consultants which relate in any manner to
the Premises, without regard to whether said requirements are now in
effect or become effective after the Start Date. Lessee shall, within
ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other
information 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 the failure of Lessee or the
Premises to comply with any Applicable Requirements.
6.4. Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into
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. The
cost of any such inspections shall be paid by Lessor, unless a
violation of Applicable Requirements, or a contamination is found to
exist or be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such
inspection is reasonably related to the violation or contamination.
7.0 Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.
7.1. Lessee's Obligation. *Lessee to be responsible for any required roof
repair expense due to their own negligence.
(a) In General. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with
Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or
Destruction), and 14 (Condemnation), Lessee shall, at Lessee's
sole expense, keep the Premises, Utility installations, and
Alterations in good order, condition and repair (whether or not
the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to
Lessee, and whether or not the need for such
<PAGE>
repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including,
but not limited to, all equipment or facilities, such as plumbing,
heating, ventilating, air-conditioning, electrical, lighting
facilities, boilers, pressure vessels, fire protection system,
fixtures, walls (interior and exterior), foundations, ceilings,
floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, or adjacent to the Premises. Lessee,
in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices, specifically
including the procurement and maintenance of the service contracts
required by Paragraph 7.1(b) below. 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. Lessee shall, during
the term of this Lease, keep the exterior appearance of the
Building in a first-class condition consistent with the exterior
appearance of other similar facilities of comparable age and size
in the vicinity, including, when necessary, the exterior
repainting of the Building.
(b) Service Contracts. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in
customary form and substance for, and with contractors
specializing and experienced in the maintenance of the following
equipment and improvements, if any, if and when installed on the
Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels,
(iii) fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof
covering and drains, (vi) driveways and parking lots, (vii)
clarifiers (viii) basic utility feed to the perimeter of the
Building, and (ix) any other equipment, if reasonably required by
Lessor.
(c) Replacement. Subject to Lessee's indemnification of Lessor
as set forth in Paragraph 8.7 below, and without relieving Lessee
of liability resulting from Lessee's failure to exercise and
perform good maintenance practices, if the Basic Elements
described in Paragraph 7.1(b) cannot be repaired other than at a
cost which is in excess of 50% of the cost of replacing such Basic
Elements, then such Basic Elements shall be replaced by Lessor,
and the cost thereof shall be prorated between the Parties and
Lessee shall only be obligated to pay, each month during the
remainder of the term of this Lease, on the date on which Base
Rent is due, an amount equal to the product of multiplying the
cost of such replacement by a fraction, the numerator of which is
one, and the denominator of which is the number of months of the
useful life of such replacement as such useful life is specified
pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized
balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay
its obligation at any time.
7.2. Lessor's Obligations. Subject to the provisions, of Paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have
no obligation, in any manner whatsoever, to repair and maintain the
Premises, or the equipment therein, all of which obligations are
intended to be that of the Lessee. 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, and they
expressly waive the benefit of any statute now or hereafter in effect
to the extent it is inconsistent with the terms of this Lease.
7.3. Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility
Installations" refers to all floor and window coverings, air
lines, power panels, electrical distribution, security and fire
protection systems, communication systems, lighting fixtures, HVAC
equipment, plumbing, and fencing in or on 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, other than Utility Installations or Trade Fixtures,
whether by addition or deletion. "Lessee Owned Alterations and/or
<PAGE>
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). Lessee shall not make any
Alterations or Utility Installations to 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 such consent but upon notice
to Lessor, 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 this Lease
as extended does not exceed $50,000 in the aggregate or $10,000 in
any one year.
(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. Consent shall be deemed conditioned upon Lessee's: (i)
acquiring all applicable governmental permits, (ii) furnishing
Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii)
compliance with all conditions of said permits and other
Applicable Requirements in a prompt and expeditious manner. Any
Alterations or Utility Installations shall be performed in a
workmanlike manner with good and sufficient materials. Lessee
shall promptly upon completion furnish Lessor with as-built plans
and specifications. For work which costs an amount equal to the
greater of one month's Base Rent, or $10,000, Lessor may condition
its consent upon Lessee providing 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.
(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 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. If Lessee shall 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. If Lessor shall require, Lessee shall furnish
a surety bond 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. If Lessor elects to
participate in any such action, Lessee shall pay Lessor's
attorneys' fees and costs.
7.4. Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and
Utility Installations made by Lessee shall be the property of
Lessee, but considered a part of the Premises. Lessor may, at any
time, elect in writing to be the owner of all or any specified
part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the
expiration or termination of this Lease, become the property of
Lessor and be surrendered by Lessee with the Premises.
(b) Removal. By delivery to Lessee of written notice from
Lessor not earlier than ninety (90) and not later than thirty (30)
days prior to the end of the term of this Lease, Lessor may
require that any or all Lessee Owned Alterations or Utility
Installations be removed by the expiration or termination of this
Lease. 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.
(c) Surrender/Restoration. Lessee shall surrender the Premises
by the Expiration Date or any earlier termination date, with all
of the improvements, parts and surfaces thereof broom 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
<PAGE>
would have been prevented by good maintenance practice. Lessee
shall repair any damage occasioned by the installation,
maintenance or removal of Trade Fixtures, Lessee Owned Alterations
and/or Utility Installations, furnishings, and equipment 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
groundwater contaminated by Lessee. Trade Fixtures shall remain
the property of Lessee and shall be removed by Lessee. The failure
by Lessee to timely vacate the Premises pursuant to this Paragraph
7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
8.0 Insurance; Indemnity.
8.1. Payment for Insurance. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess
of $2,000,000 per occurrence. Premiums for policy periods commencing
prior to or extending beyond the Lease term shall be prorated to
correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) days following receipt of an invoice.
8.2. Liability Insurance.
(a) Carried by Losses. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee
and Lessor against claims for bodily injury, personal injury and
property damage based upon 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 $2,000,000 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 shall not, however, limit the liability of Lessee
nor relieve Lessee of any obligation hereunder. All insurance
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 maintain liability
insurance as described in Paragraph 8.2(a), 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. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with
loss payable to Lessor, any ground lessor, and to any Lender(s)
insuring loss or damage to the Premises. The amount of such
insurance shall be equal to the full replacement cost of the
Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the
commercially reasonable and available insurable value thereof. If
Lessor is the Insuring Party, however, Lessee Owned Alterations
and Utility Installations, Trade Fixtures, and Lessee's personal
property shall be insured by Lessee under Paragraph 8.4 rather
than by Lessor. If the coverage is available and commercially
appropriate, such 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 any lender), including
coverage for debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction
or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed
valuation provision in lieu of any coinsurance 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.
<PAGE>
Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located. If such
insurance coverage has a deductible clause, the deductible amount
shall not exceed $1,000 per occurrence, and Lessee shall be liable
for such deductible amount in the event of an Insured Loss.
(b) Rental Value. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable
to Lessor and any Lender, insuring the loss of the full Rent for
one (1) year. Said insurance shall 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 Rent from the date of any such
loss. Said insurance shall contain an agreed valuation provision
in lieu of any coinsurance clause, and the amount of coverage
shall be adjusted annually to reflect the projected Rent otherwise
payable by Lessee, for the next twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such
loss.
(c) Adjacent Premises. It the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in
the premiums for the property insurance of such building or
buildings if said increase is caused by Lessee's acts, omissions,
use or occupancy of the Premises.
8.4. Lessees Property/Business Interruption Insurance.
(a) Property Damage. Lessee shall obtain and maintain
insurance coverage on all of Lessee's personal property, Trade
Fixtures, and Lessee Owned Alterations and Utility Installations.
Such insurance shall be full replacement cost coverage with a
deductible of not to exceed $1,000 per occurrence. The proceeds
from any such insurance shall be used by Lessee for the
replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor
with written evidence that such insurance is in force.
(b) Business Interruption. Lessee shall obtain and maintain
loss of income and extra expense insurance in amounts as will
reimburse Lessee for direct or indirect loss of earnings
attributable to all perils commonly insured against by prudent
lessees in the business of Lessee or attributable to prevention of
access to the Premises as a result of such perils.
(c) No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance
specified herein are adequate to cover Lessee's property, business
operations or obligations under this Lease.
8.5. Insurance Policies. Insurance required herein shall be by companies
duly licensed or admitted 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, as set forth in the
most current issue of "Bests Insurance Guide", or such other rating as
may be required by a Lender. Lessee shall not do or permit to be done
anything which invalidates the required insurance policies. Lessee
shall, prior to the Start Date, deliver to Lessor certified copies of
policies of such insurance or certificates evidencing the existence
and amounts of the required insurance. 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. Such policies shall be for a term of at least one year,
or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance
required to be carried by it, the other Party may, but shall not be
required to, procure and maintain the same.
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 against the other, for loss of
or damage to its property arising out of or incident to the perils
required to be insured against herein. The effect of such releases and
waivers is not limited by the amount of
<PAGE>
insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage
insurance carriers 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 gross negligence or willful misconduct,
Lessee shall indemnity, 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, liens, judgments, penalties, attorneys' and
consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the use and/or occupancy of the
Premises by Lessee. If any action or proceeding is brought against
Lessor by reason of any at the foregoing matters, Lessee shall upon
notice 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
defended or 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, plumbing, HVAC or lighting fixtures, or from any other
cause, whether the 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, or from other sources or places. Lessor
shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessors negligence or
breach of this Lease, Lessor shall under no circumstances be liable
for injury to Lessee's business or for any loss of income or profit
therefrom.
9.0 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, which can reasonably be
repaired in six (6) months or less from the date of the damage or
destruction. Lessor shall notify Lessee in writing within thirty
(30) days from the date of the damage or destruction as to whether
or not the damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations
and Utility Installations and Trade Fixtures, which cannot
reasonably be repaired in six (6) months or less from the date of
the damage or destruction. Lessor shall notify Lessee in writing
within thirty (30) days from the date of the damage or destruction
as to whether or not the damage is Partial or Total.
(c) "Insured Loss" shall mean damage or destruction to
improvements on 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 Requirements, 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.
<PAGE>
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; provided,
however, that Lessee shall, at Lessor's election, make the repair of
any damage or destruction the total cost to repair of which is $10,000
or less, and, in such event, Lessor shall make any applicable
insurance proceeds available to Lessee on a reasonable basis for that
purpose. 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 (except as to the deductible which is Lessee's
responsibility) as and when required to complete said repairs. In the
event, however, such shortage 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 such funds or assurance are not received, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days
thereafter to: (i) 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, or have this Lease
terminate thirty (30) days thereafter. Lessee shall not be entitled to
reimbursement of 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, 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), Lessor may 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) terminate this Lease
by giving written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such damage. Such
termination shall be effective sixty (60) days following the date of
such notice. In the event Lessor elects to terminate this Lease,
Lessee shall have the right within ten (10) days after receipt of the
termination notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage without reimbursement
from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within thirty (30) days after making
such 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 after the required funds are available. If Lessee
does not make the required commitment, this Lease shall terminate as
of the date specified in the termination notice.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty
(60) days following such Destruction. If the damage or destruction was
caused by the gross negligence or willful misconduct of Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee, except
as provided in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
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
terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving a written termination notice to
Lessee within thirty (30) days after the date of occurrence of such
damage. Notwithstanding the foregoing, 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)
<PAGE>
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 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
commercially reasonable 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 on
the date specified in the termination notice and Lessee's option shall
be extinguished.
9.6 Abatement of Rent; Lessee's Remedies.
(a) Abatement. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for
which Lessee is not responsible under this Lease, the Rent payable
by Lessee for the period required for the repair, remediation or
restoration of such damage shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not
to exceed the proceeds received from the Rental Value insurance.
All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage,
destruction, remediation, repair or restoration except as provided
herein.
(b) Remedies. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and
meaningful way, such repair or restoration 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 and such repair or restoration is not
commenced within thirty (30) days thereafter, this Lease shall
terminate as of the date specified in said notice. If the repair
or restoration is commenced within said thirty (30) days, this
Lease shall continue in full force and effect. "Commence" 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 Termination-Advance Payments. Upon termination of this Lease pursuant
to Paragraph 6.2(g) or 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.
9.8 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.
10.0 Real Property Taxes.
10.1.Definition of "Real Property Taxes". As used herein, the term "Real
Property Taxes" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax
(other than inheritance, personal income or estate taxes); improvement
bond; and/or license fee imposed upon or levied against any legal or
equitable interest of Lessor in the Premises, Lessor's right to other
income therefrom, and/or Lessor's business of leasing, by any
authority having the direct or indirect power to tax and where the
funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county, or
other local taxing authority of a jurisdiction within which the
Premises are located. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase
<PAGE>
therein, imposed by reason of events occurring during the term of this
Lease, including but not limited to, a change in the ownership of the
Premises.
10.2. (a) Payment of Taxes. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to
Paragraph 10.2(b), all such payments shall be made at least ten (10)
days prior to any delinquency date. Lessee shall promptly furnish
Lessor with satisfactory evidence that such taxes have been paid. If
any such taxes shall cover any period of time prior to or after the
expiration or termination of this Lease, Lessee's share of such taxes
shall be prorated to cover only that portion of the tax bill
applicable to the period that this Iease is in effect, and Lessor
shall reimburse Lessee for any overpayment. If Lessee shall fail to
pay any required Real Property Taxes, Lessor shall have the right to
pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) Advance Payment. In the event Lessee incurs a late charge
on any Rent payment, Lessor may, at Lessor's option, estimate the
current Real Property Taxes, and require that such taxes be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to
the installment due, at least twenty (20) days prior to the applicable
delinquency date, or (ii) monthly in advance with the payment of the
Base Rent. If Lessor elects to require payment monthly in advance, the
monthly payment shall be an amount equal to the amount of the
estimated installment of taxes divided by the number of months
remaining before the month in which said installment becomes
delinquent. When the actual amount of the applicable tax bill is
known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable
taxes. If the amount collected by Lessor is insufficient to pay such
Real Property Taxes when due, Lessee, shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All
moneys paid to Lessor under this Paragraph may be intermingled with
other moneys of Lessor and shall not bear interest. In the event of a
Breach by Lessee in the performance of its obligations under this
Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may at the option of Lessor, be treated as an
additional Security Deposit.
10.3. Joint Assessment. If the Premises are not separately assessed,
Lessee'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 conclusively determined
by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available.
10.4. Personal Property Taxes. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations,
Utility Installations, Trade Fixtures, furnishings, equipment and all
personal property of Lessee. When possible, Lessee shall cause such
property to be assessed and billed separately from the real property
of Lessor. If any of Lessee's said personal 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.
11.0 Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to
be determined by Lessor, of all charges jointly metered.
12.0 Assignment and Subletting.
12.1. Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or encumber (collectively, "assign or
assignment") or sublet all or any part of Lessee's interest in
this Lease or in the Premises without Lessor's prior written
consent.
<PAGE>
(b) A change in the control of Lessee shall constitute an
assignment requiring 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, 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 by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented
at the time of the execution 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, whichever was or is greater, shall be
considered an assignment of this Lease to which Lessor may
withhold its consent. "Net Worth of Lessee" shall mean the net
worth of Lessee (excluding any guarantors) established under
generally accepted accounting principles.
(d) An assignment or subletting without 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 unapproved
assignment or subletting as a noncurable Breach, Lessor may
either: (i) terminate this Lease, or (ii) upon thirty (30) days
written notice, increase the monthly Base Rent to one hundred ten
percent (110%) of the Base Rent then in effect. 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 one hundred ten percent (110%) of
the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease
term shall be increased to One Hundred Ten Percent (110%) of the
scheduled adjusted rent.
(e) Lessee's remedy for any breach of 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, or (iii) alter the primary liability of Lessee for the
payment of Rent or for the performance of any other obligations to
be performed by Lessee.
(b) Lessor may accept 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 Rent or
performance shall constitute a waiver or estoppel of Lessor's
right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor
may proceed directly against Lessee, any Guarantors or anyone else
responsible for the performance of Lessee's obligations under this
Lease, including any assignee or sublessee, without first
exhausting Lessor's remedies against any other person or entity
responsible therefore to Lessor, or any security held by Lessor.
(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 fee
of $1,000 or ten percent (10%) of the current monthly Base Rent
applicable to the portion of the Premises which is the subject of
the proposed assignment or sublease, whichever is greater, as
consideration for Lessor's considering and processing said
request. Lessee agrees to provide Lessor with such other or
additional information and/or documentation as may be reasonably
requested.
<PAGE>
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such
sublease, be deemed 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
to in writing.
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:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor
may collect such Rent and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach shall
occur in the performance of Lessee's obligations, Lessee may
collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection
of Rent, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to
such sublessee. 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 all Rent due and to
become due under the sublease. Sublessee shall rely upon any such
notice from Lessor and shall pay all Rents to Lessor without any
obligation or right to inquire as to whether such Breach exists,
notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require 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 prior Defaults or Breaches
of such sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessors 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.
13.0 Default; Breach; Remedies.
13.1. Default; Breach. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions of
rules under this Lease. A "Breach" is defined as the occurrence of one
or more of the following Defaults, and the failure of Lessee to cure
such Default within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of
security, or where the coverage of the property insurance
described in Paragraph 8.3 is jeopardized as a result thereof, or
without providing reasonable assurances to minimize potential
vandalism.
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether
to Lessor or to a third party, when due, to provide reasonable
evidence of insurance or surety bond, or to fulfill any obligation
under this Lease which endangers or threatens life or property,
where such failure continues for a period of three (3) business
days following written notice to Lessee.
<PAGE>
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the
service contracts, (ii) the rescission of an unauthorized
assignment or subletting, (iv) a Tenancy Statement, (v) a
requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) 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 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, 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; 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 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 of any general arrangement or assignment for the benefit of
creditors; (ii) becoming a "debtor" as defined in 11 U.S.C. ss.
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 that any financial statement of Lessee or of
any Guarantor given to Lessor 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
basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide 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 falls to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Lessor may, at its option, 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 upon
receipt of 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 by Lessee to be
by cashier's check. In the event of a Breach, Lessor may, 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:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and
Lessee shall immediately surrender possession to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the
unpaid Rent which had been
<PAGE>
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 relating, including necessary renovation and
alteration of the Premises, reasonable 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 the District within which the Premises are
located at the time of award plus one percent (1%). Efforts by
Lessor to mitigate damages caused by Lessee's Breach of this Lease
shall not waive Lessor's right to recover damages under Paragraph
12. If termination of this Lease is obtained through the
provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding any 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. If a notice
and grace period required under Paragraph 13.1 was not previously
given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also
constitute the notice required by Paragraph 13.1. In such case,
the applicable grace period required by Paragraph 13.1 and the
unlawful detainer statute shall run concurrently, 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 and
recover the Rent as it becomes due, in which event Lessee may
sublet or assign, subject only to reasonable limitations. Acts of
maintenance, efforts to relet, and/or the appointment of a
receiver to protect the Lessor's interests, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under
the laws or judicial decisions of the state wherein the Premises
are located. 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. Any agreement for free or abated rent or other
charges, 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. Upon Breach 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, 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
of Rent will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to
<PAGE>
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed upon Lessor
by any Lender. Accordingly, if any Rent shall not be received by
Lessor within five (5) days after such amount shall be due, then,
without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each 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 such late payment. 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 the exercise
of 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 any provision of this Lease to the contrary, Base Rent
shall, at Lessor's option, become due and payable quarterly in
advance.
13.5.Interest. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments
(such as Base Rent) or within thirty (30) days following the date on
which it was due for non-scheduled payment, shall bear interest from
the date when due, as to scheduled payments, or the thirty-first
(31st) day after it was due as to non-scheduled payments. The interest
("Interest") charged shall be equal to the prime rate reported in the
Wall Street Journal as published closest prior to the date when due
plus four percent (4%), but shall not exceed the maximum rate allowed
by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6. Breach by Lessor.
(a) Notice of Breach. 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, a reasonable time shall in no event be less than thirty
(30) days after receipt by Lessor, and any Lender 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 are reasonably
required for its performance, then Lessor shall not be in breach if
performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
(b) Performance by Lessee on Behalf of Lessor. In the event
that neither Lessor nor Lender cures said breach within thirty (30)
days after receipt of said notice, or if having commenced said cure
they do not diligently pursue it to completion, then Lessee may elect
to cure said breach at Lessee's expense and offset from Rent an amount
equal to the greater of one month's Base Rent or the Security Deposit,
and to pay an excess of such expense under protest, reserving Lessee's
right to reimbursement from Lessor. Lessee shall document the cost of
said cure and supply said documentation to Lessor.
14.0 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 (collectively "Condemnation"), this Lease shall terminate as to the
part taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of any
building portion of the premises, or more than twenty-five percent (25%) of
the land area portion of the premises 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 affect as to the portion of the
Premises remaining, except that the Base Rent shall be reduced in
proportion to the reduction in utility of the Premises caused by such
Condemnation. Condemnation awards and/or payments shall be the property of
Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold, the value of the part
<PAGE>
taken, or for severance damages; provided, however, that Lessee shall
be entitled to any compensation for Lessee's relocation expenses, loss
of business goodwill and/or Trade Fixtures, without regard to whether
or not this Lease is terminated pursuant to the provisions of this
Paragraph. All Alterations and Utility Installations made to the
Premises by Lessee, for purposes of Condemnation only, shall be
considered the property of the Lessee and Lessee shall be entitled to
any and all compensation which is payable therefor. In the event that
this Lease is not terminated by reason of the Condemnation, Lessor
shall repair any damage to the Premises caused by such Condemnation.
15.0 Brokers' Fee.
15.1 (Deleted)
15.2 (Deleted)
15.3 Representations and Indemnities of Broker Relationships. 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) in connection with this Lease, and that no one other
than said named Brokers is entitled to any commission or finders fee
in connection herewith. 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.
16.0 Estoppel certificates.
(a) 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
"Estoppel Certificate" 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.
(b) If the Responding Party shall fail to execute or deliver
the Estoppel Certificate within such ten day period, the
Requesting Party may execute an Estoppel Certificate stating that:
(i) the Lease is in full force and effect without modification
except as may be represented by the Requesting Party, (ii) there
are no uncured defaults in the Requesting Party's performance, and
(iii) if Lessor is the Requesting Party, not more than one month's
rent has been paid in advance. Prospective purchasers and
encumbrancers, may rely upon the Requesting Party's Estoppel
Certificate, and the Responding Party shall be estopped from
denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall
deliver to any potential lender or purchaser designated by Lessor
such financial statements 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.
17.0 Definition of Lessor. 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 this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. 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.
Notwithstanding the above, and subject to the provisions of Paragraph 20
below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible
with regard to the potential duties and liabilities of Lessor pertaining to
Hazardous Substances as outlined in Paragraph 6 above.
<PAGE>
18.0 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.
19.0 Days. Unless otherwise specifically indicated to the contrary the word
"days" as used in this Lease shall mean and refer to calendar days.
20.0 Limitation on Liability. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall
look to the Premises, and to no other assets of Lessor, for the
satisfaction of any liability of Lessor with respect to this Lease, and
shall not seek recourse against the individual partners of Lessor, or its
or their individual partners, directors, officers or shareholders, or any
of their personal assets for such satisfaction.
21.0 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.
22.0 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. The liability
(including court costs and Attorneys' fees), of any Broker with respect to
negotiation, execution, delivery or performance by either Lessor or Lessee
under this Lease or any amendment or modification hereto shall be limited
to an amount up to the fee received by such Broker pursuant to this Lease;
provided, however, that the foregoing limitation on each Broker's liability
shall not be applicable to any gross negligence or willful misconduct of
such Broker.
23.0 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
courier) 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 notices. Either Party may by
written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice. A copy of all
notices to Lessor shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter
designate in writing.
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 guarantee next
day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices
transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt, provided a copy is
also delivered via delivery or mail. If notice is received on a
Saturday, Sunday or legal holiday, it shall be deemed received on the
next business day.
<PAGE>
24.0 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. The acceptance of Rent by Lessor shall not be a waiver of any
Default or Breach by Lessee. Any payment 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.
25.0 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 applicable thereto.
26.0 No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination.
Nothing contained herein shall be construed as consent by Lessor to any
holding over by Lessee.
27.0 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.
28.0 Covenants and Conditions; Construction of Agreement. All provisions of this
Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include this
plural and vice versa. This Lease shall not be construed as if prepared by
one of the parties, but rather according to its fair meaning as a whole, as
if both parties had prepared it.
29.0 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.
30.0 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 upon the Premises, to any and all
advances made on the security thereof, and to all renewals,
modifications, and extensions thereof. Lessee agrees that the holders
of any such Security Devices (in this Lease together referred to as
"Lessor's Lender") shall have no liability or obligation to perform
any of the obligations of Lessor under this Lease. Any Lender may
elect to have this Lease and/or any Option granted hereby superior to
the lien of its Security Device by giving written notice thereof to
Lessee, whereupon this Lease and such Options shall be deemed prior to
such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
<PAGE>
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 a commercially reasonable
non-disturbance agreement (a "Non-Disturbance Agreement") from the
Lender which Non-Disturbance Agreement provides that Lessee's
possession of the Premises, 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.
Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Security
Device, which is secured by the Premises. In the event that Lessor is
unable to provide the Non-Disturbance Agreement within said sixty (60)
days, then Lessee may, at Lessee's option, directly contact Lessor's
lender and attempt to negotiate for the execution and delivery of a
Non-Disturbance Agreement.
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 subordination,
attornment and/or Non-Disturbance Agreement provided for herein.
31.0 Attorneys' Fees. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter 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' fees 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. In addition, Lessor shall be entitled
to attorneys' fees, costs 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.
32.0 Lessor's Access; Showing Premises; Repairs. Lessor and Lessors 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 as Lessor
may deem necessary. All such activities shall be without abatement of rent
or liability to Lessee. Lessor may at any time place on the Premises any
ordinary "For Sale" signs and Lessor may during the last six (6) months of
the term hereof place on the Premises any ordinary "For Lease" signs.
Lessee may at any time place on or about the Premises any ordinary "For
Sublease" sign.
33.0 Auctions. Lessee shall not conduct, nor permit to be conducted, any auction
upon the Premises without Lessor's prior written consent. Lessor shall not
be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34.0 Signs. Except for ordinary "For Sublease" signs, Lessee shall not place any
sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35.0 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
<PAGE>
hereof by Lessor for Breach by Lessee, shall automatically terminate any
sublease or lesser estate in the Premises; provided, however, that Lessor
may elect to continue any one or all existing subtenancies. Lessor's
failure within ten (10) days following any such event to elect 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.
36.0 Consents. Except 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, 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 upon receipt of an invoice and supporting documentation therefor.
Lessor's consent to any act, assignment or subletting shall not constitute
an acknowledgment 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. 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. In the event that either Party disagrees with any
determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its
reasons in writing and in reasonable detail within ten (10) business days
following such request.
37.0 Guarantor.
37.1. Execution. The Guarantors, if any, shall each execute a guaranty 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.
37.2. Default. It shall constitute a Default of the Lessee if any Guarantor
fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party
signing on Guarantor's behalf to obligate Guarantor, and in the case
of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, (b)
current financial statements, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38.0 Quiet Possession. Subject to payment by Lessee of the Rent 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
and quiet enjoyment of the Premises during the term hereof.
39.0 Options.
39.1. Definition. "Option" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on
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, and cannot be assigned
or exercised by anyone other than said original Lessee and only while
the original Lessee is in full possession of the Premises and, if
requested by Lessor, with Lessee certifying that Lessee has no
intention of thereafter assigning or subletting.
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 have been validly exercised.
39.4. Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option: (i)
during the period commencing with the giving of any notice of
Default and continuing until said Default is cured, (ii) during
the period of time any Rent is unpaid (without regard to whether
notice thereof is given Lessee), (iii) during the time Lessee is
in Breach of this Lease, or (iv) in the event that Lessee has been
given three (3) or more notices of separate Default, whether or
not the Defaults are cured, during the twelve (12) month period
immediately preceding the exercise of the Option.
<PAGE>
(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) 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 prior to the commencement of
the extended term, (i) Lessee fails to pay Rent for a period of
thirty (30) days after such Rent becomes due (without any
necessity of Lessor to give notice thereof), (ii) Lessor gives to
Lessee three (3) or more notices of separate Default during any
twelve (12) month period, whether or not the Defaults are cured,
or (iii) if Lessee commits a Breach of this Lease.
40.0 Multiple Buildings. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable
rules and regulations which Lessor may make from time to time for the
management, safety, and care of said properties, including the care and
cleanliness of the grounds and including the parking, loading and unloading
of vehicles, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
41.0 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.
42.0 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.
43.0 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.
44.0 Authority. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, 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. Each party shall, within thirty (30) days after request, deliver to
the other party satisfactory evidence of such authority.
45.0 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.
46.0 Offer. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease
to the other Party. This Lease is not intended to be binding until executed
and delivered by all Parties hereto.
47.0 Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. 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 a Lender in connection with the obtaining of normal
financing or refinancing of the Premises.
48.0 Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49.0 Mediation and Arbitration of Disputes. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease is not attached to this Lease.
<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.
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE
PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL
INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY
OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- --------------------------------------------------------------------------------
<TABLE>
The parties hereto, have executed this Lease at the place and on the dates
specified above their respective signatures.
<CAPTION>
<S> <C>
Executed at: Palo Alto, CA Executed at: Mountain View
- ----------------------------------------------------- -----------------------------------------------
on: May 11, 1998 on: May 6, 1998
- ----------------------------------------------------- -----------------------------------------------
By LESSOR: By LESSEE:
Microcide Pharmaceuticals, Inc.
- ----------------------------------------------------- -----------------------------------------------
Portola Land Co.
- ----------------------------------------------------- -----------------------------------------------
By: /s/ William J. Hurwick By: /s/ Matthew J. Hogan
- ----------------------------------------------------- -----------------------------------------------
Name Printed: William J. Hurwick Name Printed: Matthew J. Hogan
- ----------------------------------------------------- -----------------------------------------------
Title: Partner/Property Manager Title: Chief Financial Officer
- ----------------------------------------------------- -----------------------------------------------
Address: Address:
- ----------------------------------------------------- -----------------------------------------------
- ----------------------------------------------------- -----------------------------------------------
Telephone: (650) 688-8550 Telephone: ( )
- ----------------------------------------------------- -----------------------------------------------
Facsimile: (650) 321-0717 Facsimile: ( )
- ----------------------------------------------------- -----------------------------------------------
Federal ID No. Federal ID No.
- ----------------------------------------------------- -----------------------------------------------
</TABLE>
<PAGE>
LEASE ADDENDUM
ADDENDUM TO THE LEASE DATED MAY 11, 1998, BY AND BETWEEN PORTOLA LAND COMPANY, A
CALIFORNIA LIMITED PARTNERSHIP, LANDLORD, AND MICROCIDE PHARMACEUTICALS, INC., A
CALIFORNIA CORPORATION TENANT, FOR THOSE PREMISES LOCATED AT 800, 830, 840, 850
MAUDE AVENUE, MOUNTAIN VIEW, CALIFORNIA.
50.0 Base Rent: (Paragraph 1.5): The Base Rent shall be as follows:
Months of Term Sq. Ft./NNN Base Rent
-------------- ----------- ---------
01-12 71,210 @ $1.85 $ 131,739
13-24 71,210 @ $1.92 $ 136,723
25-36 71,210 @ $1.99 $ 141,708
37-48 71,210 @ $2.06 $ 146,693
49-60 71,210 @ $2.13 $ 151,677
51.0 Options: (Paragraph 39) Lessor shall grant Lessee one (1) five (5) year
option to renew the Lease. Such option shall be at the then "fair market
rent" (FMR) for comparable office and R&D buildings in the Mountain View
area. The definition of FMR shall be mutually agreed upon by Lessor and
Lessee and take into account that the laboratory improvements paid for by
Lessee shall not be used in determining the FMR.
Lessee must give Lessor no less than nine (9) months prior written notice
of its intent to exercise such lease option extension. It is further agreed
that the Base Rent for said lease option extension shall in no event be
less than the rental rate of the last month preceding such lease option
extension.
52.0 Operating Expenses: In addition to the Base Rent referred to in Paragraphs
1.5 and 50 respectively, Lessee shall reimburse Lessor, when so required,
for all operating expenses incurred in the maintenance and operations of
the Premises, including, but not limited to, building and common area
maintenance (parking, landscaping, lighting) costs of insurance, repairs,
operations, management (not to exceed 2% of the Base Rent) and real estate
taxes. Lessee shall have the right to verify all operating expenses.
53.0 Improvements to the Premises by Lessor: Lessor, at Lessor's sole cost and
expense shall repair, slurry seal and stripe the parking lot within sixty
(60) days following commencement of the lease term, or as soon as
reasonably possible, weather permitting.
54.0 Assignment and Subletting: (Paragraph 12). Lessor reserves the right,
and/or option, conditional upon thirty (30) days written notice to
recapture all or part of the premises, and therefore terminate the Lease.
This provision shall apply only in the event that Lessee subleases in
excess of 18,000 square feet for an aggregate term, including options of
more than eighteen (18) months. Should Lessor not elect to recapture all or
part of the Premises, then Lessor and Lessee shall split the excess rents
50%/50% after Lessee has deducted brokerage commissions, if applicable.
55.0 Moveable Equipment, Trade Fixtures: Upon the Lease termination, Lessee, at
Lessee's sole cost and expense, shall have the right to remove its
emergency generator and fume hoods. Laboratory case work and shelving, at
the option of Lessor, shall remain the property of Lessor. See Addendum A
<PAGE>
LEASE ADDENDUM
56.0 Lease Execution Contingency: This Lease is subject to Lessor receiving a
termination release of any on-going rights that Quickturn Systems may
currently hold with respect to 800 and 830 Maude Avenue.
Landlord: PORTOLA LAND COMPANY, A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ William J. Hurwick Date: May 11, 1998
-------------------------------------- ----------------------
William J. Hurwick
Tenant: MICROCIDE PHARMACEUTICALS, INC., A CALIFORNIA CORPORATION
By: /s/ Matthew J. Hogan Date: May 6, 1998
-------------------------------------- ----------------------
Matthew J. Hogan
<PAGE>
ADDENDUM A
55.0 Moveable Equipment, Trade Fixtures: Upon the Lease termination, Lessee, at
Lessee's sole cost and expense, shall have the right to remove the
following:
1. Fume Hoods
2. Laboratory Casework and shelving (830 and 800 Maude Avenue only)
3. Laboratory casework and shelving at 850 Maude, at the option of Lessor,
shall remain the property of Lessor.
4. RO water system
5. Compressed air system
6. Vacuum system
7. Uninterruptable power supply (UPS)
8. Telephone switch
9. Environmental rooms
10. Hazardous Materials Storage Shed
Landlord: PORTOLA LAND COMPANY, A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ William J. Hurwick Date: May 11,1998
-------------------------------------- ----------------------
William J. Hurwick
Tenant: MICROCIDE PHARMACEUTICALS INC., A CALIFORNIA CORPORATION
By: /s/ Matthew J. Hogan Date: May 6,1998
-------------------------------------- ----------------------
Matthew J. Hogan
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001010915
<NAME> Microcide Pharmaceuticals, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,890
<SECURITIES> 31,024
<RECEIVABLES> 1,143
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,839
<PP&E> 17,963
<DEPRECIATION> 8,182
<TOTAL-ASSETS> 46,504
<CURRENT-LIABILITIES> 4,040
<BONDS> 0
0
0
<COMMON> 64,477
<OTHER-SE> 1,532
<TOTAL-LIABILITY-AND-EQUITY> 46,504
<SALES> 0
<TOTAL-REVENUES> 2,800
<CGS> 0
<TOTAL-COSTS> 5,768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (2,476)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,476)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,476)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
