United States
Securities and Exchange
Commission
Washington D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required) For the
Fiscal Year Ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (Fee Not Required) For
the Transition Period From to .
Commission File Number: 0-28402
ARADIGM CORPORATION
California 94-3133088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
26219 Eden Landing Road, Hayward, CA 94545
(Address of principal executive offices)
Registrant's telephone number, including area code:
(510) 783-0100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period 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
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [
]
As of January 30, 1998, there were 10,632,133 shares
of common stock outstanding. The aggregate market value
of voting stock held by non-affiliates of the Registrant
was approximately $47,846,983 based upon the closing price of
the common stock on January 30, 1998 on The Nasdaq Stock
Market. Shares of common stock held by each officer,
director and holder of five percent or more of the
outstanding Common stock have been excluded in that such
persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a
conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Registrant for the
1998 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission not later than 120 days
after the close of the Registrant's fiscal year are
incorporated into Part III of this Form 10-K.
PART I
Item 1. BUSINESS
This Report on Form 10-K contains forward-
looking
statements, including, without limitation,
statements
regarding timing and results of clinical trials,
the
establishment of corporate partnering arrangements,
the
anticipated commercial introduction of the Company's
products and the timing of the Company's cash
requirements. These forward-looking statements involve
certain risks and
uncertainties that could cause actual results to
differ materially from those in such forward-looking
statements. Potential risks and uncertainties include,
without limitation, those mentioned in this report and in
particular, the factors described below in Part II, under the
heading "Risk Factors".
Overview
Aradigm is engaged in the development of novel
pulmonary drug delivery systems designed to enhance the
delivery and effectiveness of a number of existing and
development stage drugs and reduce the need for
injectable drug delivery. Aradigm's principal product
development programs are based on its AERx(TM) system,
which uses proprietary technologies to create aerosols
from liquid drug formulations for delivery locally to the
lung or systemically via the lung. The Company believes that
its systems can potentially be used to deliver a number of
existing drugs for a variety of applications and may also
offer a promising means of delivery for many new drugs
being developed by pharmaceutical and biotechnology
companies.
The Company's lead AERx product under development is
the AERx Pain Management System, which is designed to
deliver narcotic analgesics systemically by inhalation
for the
treatment of chronic and acute pain. This system is
being developed in collaboration with SmithKline Beecham
under an agreement entered into in September 1997. The
Company has completed two Phase I clinical trials and
commenced Phase II clinical trials of the AERx Pain
Management System in March 1998. There can be no
assurance that these clinical trials will be successful.
The Company is also developing the AERx Diabetes Management
System to permit diabetes patients to selfadminister insulin
without needles. The Company has completed
four clinical feasibility studies with the AERx
Diabetes Management System. In addition, based on its
breath control and compliance monitoring technologies, the
Company has also developed the SmartMist(R) Respiratory
Management System, which is designed to improve the
delivery technique and compliance of patients using
metered dose inhalers ("MDIs"). The Company obtained
510(k) clearance from the FDA for the SmartMist system
in 1996 and has recently launched this product.
However, the Company does not anticipate significant sales
of the SmartMist system until a marketing partner is
obtained for this product. The Company believes that
its current and potential products can improve the
management of certain diseases by reducing the overall
cost of therapy, enhancing patient management and
compliance and providing an improved means to administer
drugs outside of the hospital setting.
The Company's plans and intentions with respect to
the development and commercialization of its
technologies are subject to a number of risks and
uncertainties. There can be no assurance that the Company
will obtain required regulatory clearances and approvals or
that the Company will be able to successfully develop and
commercialize any of its products or potential products.
Background _ Pulmonary Drug Delivery
Pulmonary drug delivery is widely used to treat
respiratory diseases by delivering pharmaceuticals locally
to the lung and may have utility in the delivery of
drugs for systemic application by using the lung's
natural ability to transfer molecules into the
bloodstream. The potential for pulmonary delivery to the
bloodstream for systemic effect offers a noninvasive
alternative to injection that may achieve a more rapid
speed of onset and superior bioavailability than has been
shown with other approaches, such as oral, transdermal or
nasal delivery. Speed of onset is an important
therapeutic element for many drugs, including morphine for
pain management and insulin for diabetes. Pulmonary
delivery of drugs for the treatment of respiratory diseases
has proven desirable because topical application to affected
lung tissues promotes a rapid therapeutic effect and
minimizes the side effects of several important pulmonary
drugs. The Company believes that the reproducibility of
pulmonary drug delivery is a critical part of achieving
therapeutic effect and can best be realized by regulating
particle size and velocity and activating drug delivery
at the appropriate point in the inspiratory cycle.
To deliver pharmaceuticals to or through the lungs,
drugs must be transformed into a low velocity aerosol (a
suspension of drug particles in air) which can be inhaled by
the patient. Small particles (i.e., less than four microns
in diameter) are able to pass through the lung's airways
and be dispersed in the alveoli, where they may enter the
bloodstream for systemic effect. Larger particles (i.e.,
greater than four microns in diameter) typically get
deposited in the large airways, where they may be useful in
treating diseases of the lung.
Three aerosol generating technologies currently are
being used for pulmonary drug delivery: nebulizers, MDIs
and dry powder inhalers ("DPIs"). Each of these systems was
originally developed to treat lung diseases and
produces a local therapeutic effect by depositing
aerosolized medication in the large airways of the lung.
The effectiveness of these devices depends upon proper
inhalation technique to produce a consistent,
reproducible dose. In addition, the ability of
these technologies to improve the management of
major pulmonary diseases has been limited by their
inability to correct poor patient technique automatically
or to provide physicians with information on patient
inhalation and dosing patterns.
Nebulizers. Nebulizers are primarily used in hospitals
for the treatment of respiratory diseases, such as asthma.
Liquid drug is loaded into the nebulizer prior to each use,
and the patient breathes through a mouthpiece or mask as a
continuous fog of drug particles is produced. Because
nebulizers require an external power source or compressed
gas supply, they are not easily portable. Although drugs
in liquid form are easily converted to an aerosol,
nebulizers are inefficient and require several minutes
to administer a single dose of medication. Because
nebulizers produce a wide range
of
particle sizes, these devices are impractical for
systemic delivery.
MDIs. Metered dose inhalers, the most widely used system
for pulmonary drug delivery, have been in existence for
over 40 years and are used to deliver asthma drugs.
The drug is packaged in a portable canister as a
suspension or solution in a
volatile propellant, typically CFCs. To self-administer a
drug, the patient must depress the canister, releasing a
highvelocity jet of aerosolized drug, while inhaling
slowly and evenly. Although widely used, there are
certain inherent problems with the use of MDIs. A
patient must properly coordinate inhalation and
activation of the aerosol jet to optimize the
effectiveness of treatment. Several clinical studies
have demonstrated that patients routinely use MDIs
improperly, resulting in ineffective delivery. Much of
the drug is deposited at the back of the throat and
swallowed, rather than reaching the desired location
in the lung. Moreover, MDIs also produce a wide range of
particle sizes and are not optimal for the delivery of
systemic therapies.
DPIs. Dry powder inhalers, which are also used to
deliver drugs locally to the lung, have been and are being
developed by pharmaceutical companies to replace CFC-based
MDI systems. DPI drugs are formulated in solid form
and packaged in portable containers. Patients self-
administer the drug by inhaling small, dry particles.
Dry powder drug formulations present a considerable
challenge for pharmaceutical chemists because drugs must
be prepared as solids, must tolerate storage in a
solid phase and must facilitate rapid and complete
dispersion as an aerosol at the point of delivery. To date,
DPIs have been used for the local delivery of some drugs to
the lung, although several companies are now exploring the
development of DPIs for the systemic delivery of
other compounds, including proteins and peptides.
Aradigm Approach
The Company believes that its pulmonary drug
delivery technology will produce precise, reproducible
delivery of the desired drug dose, either systemically or
locally, and that its systems may be capable of
improving or enabling a wide range of pulmonary drug
delivery applications. Aradigm has combined core
competencies in physics, electrical engineering, mechanical
engineering and pharmaceutical sciences to overcome the
limitations of conventional pulmonary drug delivery
systems. Through this integrated approach, the Company
has developed technologies which address each of the
four key elements which it believes are required for the
development of effective pulmonary drug delivery products:
* Ease of Drug Formulation: The Aradigm systems
take
advantage of existing drug formulations, primarily
liquid drug formulations (aqueous or ethanol-aqueous
mixtures), thereby potentially reducing the time, cost
and risk of formulation development compared to
other pulmonary delivery technologies. Many drugs
being considered for pulmonary delivery, including
macromolecules, are
currently marketed in stable liquid formulations.
In addition, liquid formulations facilitate the
generation of small particle aerosols necessary for
efficient delivery deep into the lung.
* Efficient Precision Aerosol Generation: Aradigm
has
developed a proprietary aerosolization technology
capable of producing low velocity, small particle
aerosols at the point of delivery necessary for
efficient deposition of drug in the lung. Through
this technology, the Company believes it is able to
overcome the limitations of conventional pulmonary
drug delivery systems in which particle size and
velocity cannot be optimized for
systemic delivery.
* Automated Breath-Controlled Delivery: Since
proper
inhalation technique is needed to achieve
effective pulmonary drug delivery, Aradigm's systems are
designed to guide the patient to inhale slowly and
evenly and to automatically deliver a drug aerosol at
the correct point early in the inspiratory cycle.
Studies have shown that most patients use improper
inhalation technique, resulting in less effective
therapy, and that patient training becomes
ineffective over time. The Company believes that its
breath control technology will result in improved
patient inhalation techniques.
* Patient Compliance Monitoring: Because
patient
adherence to prescribed dosing regimens is an
important determinant of therapeutic benefit, Aradigm's
systems are also
being designed to record drug administration,
inhalation patterns and other relevant
physiological information for use by physicians to
analyze and optimize patient treatment regimens and
improve patient outcomes.
Aradigm is seeking to exploit various combinations of
these four elements to develop pulmonary drug delivery
systems which overcome the limitations of existing
systems or enable pulmonary delivery of drugs which
are currently not
deliverable systemically via the lung.
Aradigm Technology Platform
The Company's principal product platform, the AERx
system, is a novel drug delivery system that is being
developed to enable pulmonary delivery of a wide
range of liquid pharmaceuticals for local or systemic
effect. The AERx system is based on a proprietary
aerosol generation technology capable of producing low
velocity, small particles suitable for efficient and
reproducible pulmonary delivery. By also incorporating
the Company's proprietary breath control and compliance
monitoring technologies, the AERx system
is
designed to optimize the delivery of aerosolized
medications to the lung for local or systemic effect. The
AERx system aerosolizes liquid drug formulations that are
pre-packaged in proprietary unit-dose packets for
inhalation. Each unit-dose packet is comprised of (i) a
small blister package which stores a liquid drug
formulation and (ii) an aerosolization
nozzle consisting of a membrane incorporating an array
of
micromachined holes.
The AERx device creates a respirable aerosol by releasing
a mechanical actuator that is activated automatically when
the patient's inhalation is optimal for drug delivery.
The
actuator compresses the blister packet, thereby forcing
open the sealed channel and extruding the liquid drug
through the aerosolization nozzle. The aerosolized drug
produced by this process is then inhaled through the
mouthpiece of the AERx device. The aerosolization of
the liquid drug via the
disposable nozzle takes approximately one second and
produces a low velocity, fine particle aerosol necessary
for optimized
deposition within the lung. The size of the droplets
or
particles that form the emitted aerosol is dependent on
the
diameter of the nozzle holes. The diameter of
the
micromachined holes within the nozzle can be sized for
each specific clinical application, including the
creation of
larger particles for delivery of drug to the large airways
of
the lung for local effect or smaller particles for delivery
of drug deep into the lung for systemic effect.
Many drugs being considered for pulmonary
delivery,
including macromolecules, are currently marketed in
stable liquid formulations. Formulations developed for use
in the
AERx system are in liquid form, typically employing
aqueousbased solvents, similar to those used for
injections. No
propellants are required since mechanical pressure is used
to
generate the aerosol. Moreover, since the drug is stored
in
unit-dose packets, preservatives should not be needed for
most applications, further simplifying the formulation
process.
The AERx system employs a patented technology to
measure
precisely the airflow while the patient is inhaling
through
the mouthpiece of the device. Indicator lights on the
device guide the patient to inhale slowly and evenly
within a predetermined range suitable for drug
delivery. When the desired flow rate is established
early in the inspiratory cycle, the device is activated.
Breath control ensures that the patient is breathing
correctly each time a dose of
aerosolized drug is delivered. As a result, a consistent
dose of medication is delivered each time the product is
used.
The AERx system can automatically record information
about each drug administration, including dosage,
breathing
technique and other relevant physiological parameters,
for later review by the patient and health care
professionals. The Company intends to customize the
software embedded in each AERx system for the
particular therapeutic application in
order to collect and present the data most relevant
for managing each patient type. Electronic patient
identification and lock-out mechanisms can also be
incorporated in the AERx system to prevent unauthorized
use or overdose. The
Company
believes that the combined features of the AERx
system,
optimized for each application, will make the individual
AERx products effective disease management tools.
The Company has also developed the SmartMist system,
which incorporates the Company's breath control and
compliance monitoring technologies, for use with standard
MDIs for the treatment of asthma and other
respiratory diseases. The SmartMist system, which the
Company has launched, is a handheld, battery-operated
aerosol drug delivery system for
existing asthma drugs, such as beclomethasone. The
patient
inserts a standard MDI into the SmartMist system and
inhales
normally through the mouthpiece. When the desired flow rate
is
established early in the inspiratory cycle, the MDI
is automatically actuated by the SmartMist system. The
delivery of the medication is breath controlled, rather
than manually activated, eliminating the need for the
patient to coordinate pressing and breathing while using an
MDI.
Strategy
Aradigm's goal is to become the leader in the
development and commercialization of pulmonary drug delivery
products. The Company's strategy incorporates the
following principal elements:
Focus on Early Product Opportunities: The Company
is focusing its initial commercial development efforts on
product opportunities which have the potential to reach
the market quickly. The Company designed the
SmartMist system specifically to take advantage of the
shorter regulatory cycle for 510(k) clearance. Aradigm
has launched the SmartMist system, however, the Company
does not anticipate significant sales of the SmartMist
system until a marketing partner is obtained for this
product. The Company's initial therapeutic product is
expected to be the AERx Pain Management System for the
delivery of morphine. Because morphine is a well
characterized drug with a demonstrated safety profile,
the Company believes the AERx Pain Management System carries
less development risk than new drug development projects
and may require less time for regulatory approval.
For similar reasons, the Company is pursuing development
of systems for other existing pharmaceuticals, such as
insulin, that have known efficacy and safety profiles.
Nevertheless, there can be no assurance that the Company
can secure regulatory approval for its potential
products or that the Company can
successfully develop or market any such products.
Establish Broad Applicability: The Company believes that
its AERx technology can effectively deliver many
pharmaceutical products. The Company is conducting
feasibility studies on a number of compounds to
demonstrate the applicability of the AERx system to a
broad range of molecule sizes and types, including
proteins, peptides, gene vectors and
small
molecules. The Company plans to publish results from these
and other studies to promote the acceptance of the AERx
system as a viable
pulmonary drug delivery technology for a wide variety
of compounds. The Company believes this strategy will
maximize the number of commercial product opportunities for
Aradigm and will increase the interest of potential
partners to develop drugs for the AERx system, thereby
reducing the Company's dependence on any single product.
Establish Collaborative Relationships: In order to
enhance its commercial opportunities and effectively
leverage its core scientific resources, Aradigm intends to
enter into multiple collaborative relationships for
the development and
commercialization of new products utilizing its
technologies. Through product development collaborations,
Aradigm will seek access to proprietary pharmaceutical
compounds as well as to the resources and expertise
necessary to conduct late stage clinical trials and
obtain regulatory approvals. In addition, the Company will
pursue relationships with pharmaceutical and device
companies with established sales forces
and
distribution channels in the Company's target markets.
By establishing such collaborative relationships, Aradigm
intends to introduce multiple new products while avoiding
the need to establish drug discovery research and sales
and marketing capabilities for each target market. The
Company recently
established such a relationship with SmithKline
Beecham, covering the development and marketing of the
AERx Pain Management System and is also investigating the
feasibility of delivering proprietary compounds using the
AERx system for other companies. However, the Company
will need to establish additional corporate development
collaborations and there can be no assurance that it will
be able to do so on reasonable terms, or at all.
Build Strong Proprietary Position: The Company believes
that establishing a strong proprietary position in
pulmonary drug delivery could provide an important
competitive advantage in its target markets. The
Company has aggressively pursued patent protection of its
technology and as of March 13, 1998 has 28 issued United
States patents and has a number of additional United
States patent applications pending. When appropriate, the
Company also seeks international patent protection.
While there can be no assurance that any of the Company's
patents will provide a significant commercial
advantage, these patents are intended to provide
protection for important aspects of the Company's
technology, including aerosol generation, breath control,
compliance monitoring and unit-dose formulation. In
addition, the Company is developing in-house manufacturing
capability for the production of certain components of
its products, including the disposable unit-dose packet
for the AERx system, to further protect its core
technologies.
Aradigm Product Applications
The Company is developing the AERx platform based on
a comprehensive approach to pulmonary drug delivery
that
includes drug formulation, aerosol generation, patient
breath control and compliance monitoring technologies. The
Company believes that the AERx platform will be broadly
applicable to drugs that are intended for systemic
delivery, for local delivery to the lung and for
pulmonary diagnostics. The Company currently is
developing AERx products for pain
management and diabetes management. In addition, the
Company is planning to develop AERx systems for the
non-invasive delivery of certain other drugs, including
proteins, peptides, gene vectors and small molecules.
AERx Pain Management System
The Company is developing the AERx Pain Management System
as a non-
invasive, patient-controlled pulmonary drug delivery
product for treatment of chronic and acute pain. The
Company is developing and plans to commercialize this
product in collaboration with SmithKline Beecham. The
Company
has
completed two Phase I clinical trials and commenced Phase
II clinical trials of the AERx Pain Management System in
March 1998. There can be no assurance that these clinical
trials will be successful.
SmithKline Beecham and Aradigm have targeted cancer pain
and post-operative pain as the first two applications for
the AERx Pain Management System. Among cancer patients,
more than four million people worldwide suffer from pain, a
majority of whom experience multiple "breakthrough" pain
events each day. Breakthrough pain refers to acute
exacerbations of pain which "breakthrough" the
patient's baseline level of pain
medication. In the postoperative arena, 20 million
patients worldwide each year require treatment with narcotic
analgesics after surgery.
Products currently available for pain management deliver
the analgesic substance by oral, transdermal,
intravenous,
intramuscular or subcutaneous routes. Available
patient-
controlled analgesia ("PCA") products allow patients to
selfadminister pain medication on demand from a
microprocessorcontrolled
intravenous infusion pump. PCA systems are
frequently used for intravenous delivery in the
hospital
setting. Widespread adoption of PCA outside the
hospital, however, has been limited by the
requirement for an
intravenous delivery site that requires regular and
expensive maintenance. Home use of PCA can cost as much as
$4,000 per month, due partially to the home nursing
required to maintain the needle site. However, there are
currently no non-invasive pain management products that
can match the speed of
intravenous administration of narcotic analgesics for
rapid relief of breakthrough pain events.
The Company believes that a patient-controlled, non-
invasive drug delivery system that provides for rapid
uptake of medication could significantly expand the
market for pain management in the
outpatient setting and improve the
management of pain in the hospital. The AERx Pain
Management System is expected to have features similar to
current PCA systems, but without the need for intravenous
access and the
resulting impairment of patient ambulation. The AERx system
is being designed to be programmed to allow for
patient-
activated delivery in accordance with a physician-
directed dosing program. Lock-out mechanisms being
designed for the
product should eliminate the risk of inappropriate dosing,
and a patented electronic patient identification
feature should
prevent unauthorized use of the device. An
automatically maintained dosing event diary kept by the
AERx system is designed to allow the physician to
closely monitor patient use. The Company believes that
these features of the AERx Pain Management System, combined
with the inherent speed of onset of pulmonary delivery,
should provide a significant advance in pain management
with important applications in both the home and hospital
settings.
The Company has completed two U.S. Phase I clinical
trials covering the use of the AERx system to deliver
morphine. The first study, conducted at Harris
Laboratories in Lincoln,
Nebraska, involved 16 healthy volunteers given
increasing doses of morphine via the AERx system and, on
separate days, intravenous injection. At all doses
investigated, the speed and reproducibility of morphine
delivery to the bloodstream were comparable between the
AERx system and intravenous administration. The second
Phase I study, conducted with
12
healthy volunteers at Massachusetts General Hospital,
showed comparable
pharmacokinetic and pharmacodynamic
responses
between AERx delivery and intravenous administration
of
morphine. Based on the results obtained in these two Phase
I
clinical trials, Aradigm initiated Phase II clinical
testing in March 1998. Depending on the outcome of that
Phase II testing, pivotal Phase III testing of the AERx
Pain Management System for the delivery of morphine could
commence in early 1999. There can be no assurance that the
Company will be able to commence these clinical trials on
a timely basis or that
such trials, if commenced, will be successful.
In September 1997, Aradigm entered into a
product
development and commercialization agreement with
SmithKline Beecham covering use of the AERx Pain Management
System for the delivery of narcotic analgesics. The
Company and
SmithKline Beecham will collaborate on the development of
the products within this field. Under the terms of the
agreement,
SmithKline Beecham has been granted worldwide sales
and marketing rights to the AERx Pain Management System
for use with such analgesics, and Aradigm retains all
manufacturing rights. If this system receives regulatory
approval, Aradigm expects to sell devices and drug
packets to, and to receive royalties on sales by,
SmithKline Beecham.
Pursuant to the SmithKline Beecham agreement, Aradigm
could receive approximately $30 million in milestone and
product development payments and approximately $10 million
in equity investments by the time the first product
from the
collaboration is commercialized. As of December 1997,
the Company had received $14.0 million of these amounts, of
which $5.0 million resulted from the purchase of Aradigm
Common Stock by SmithKline Beecham. In addition, as a
result of its initiation of Phase II trials of the AERx
Pain Management System in March 1998, the Company
qualified to receive an additional $9 million payment
from SmithKline Beecham. Additional milestone payments
and product development payments will be paid if Aradigm
and SmithKline Beecham decide to jointly develop
additional AERx products which incorporate other narcotic
analgesics. There can be no assurance that the Company
will be able to meet the milestones under this
agreement on a timely basis, if at all.
AERx Diabetes Management System
The Company is developing the AERx Diabetes
Management System to permit diabetes patients to non-
invasively selfadminister insulin. The Company believes
that patients, when provided with a non-invasive
delivery alternative to
injection, will be more likely to self-administer insulin
as often as needed to keep tight control of their blood
glucose levels. The Company has completed four clinical
feasibility studies with the AERx Diabetes Management
System. The Company plans to complete development of and
to commercialize this system in collaboration with a
pharmaceutical company and is currently in discussions with
several potential collaborators. However, there can be no
assurance that the Company will be able to enter into any
collaboration on favorable terms or at all, or that the
Company will be able to successfully commercialize this
system, when and if it receives regulatory approval.
In healthy individuals, the pancreas secretes insulin,
which helps the body to regulate blood glucose levels.
Patients with Type I diabetes do not have the ability to
produce their own insulin and must self-inject insulin
regularly to control their disease. Patients with Type II
diabetes are unable to use efficiently the insulin that
their body produces. While they may have some impairment
in their ability to produce insulin as well, it is the
defect in their ability to use insulin efficiently that
leads to the addition of insulin to their treatment
program. By increasing the circulating insulin
concentration, the inefficiency can be partially overcome.
The Diabetes Control and Complications Trial ("DCCT")
study sponsored by National Institutes of Health from 1983
to 1993 indicated that insulin doses should be adjusted
throughout the day in response to frequently measured
blood glucose levels. The DCCT study showed that keeping
blood glucose levels as close to normal as possible slows
the onset and progression of eye, kidney and nerve
diseases often caused by diabetes. In fact, the DCCT study
demonstrated that any sustained lowering of blood glucose
levels is beneficial, even if the person has a history
of poor blood glucose control.
The Company believes that approximately 700,000
Americans suffer from Type I diabetes. Virtually all of
them are on daily insulin injection therapy, and most
are currently monitoring their own blood glucose level.
According to the Center for Disease Control, as of 1997,
approximately eight to nine million Americans have been
diagnosed with Type II diabetes. Although most patients
with Type II diabetes do not currently use insulin as part
of their therapy, in aggregate they consume the majority
of insulin used in the United States, due to their
larger numbers. The insulin market in the United States
exceeded $870 million in 1996. The direct costs associated
with diabetes are estimated to be greater than $45 billion
annually.
Patients with diabetes often avoid or limit the amount
of insulin therapy because of the pain and
inconvenience of administering the drug by injection. The
Company believes that its AERx Diabetes Management System
can provide a non-invasive method for delivery of insulin
that would be efficacious and reproducible. Clinical
studies conducted by the Company to date have
demonstrated that insulin delivered via a prototype of the
AERx Diabetes Management System achieved maximum blood
glucose reductions in healthy fasting volunteers in half
the time required for subcutaneous insulin injections. The
Company believes this more rapid onset of action could allow
diabetics to dose themselves closer to mealtimes,
better matching insulin levels to caloric intake. The
reductions in blood glucose levels were also at least
as reproducible in both magnitude and time to maximum
reduction as subcutaneous injections.
The AERx Diabetes Management System is being designed
to enable patients with diabetes to comply more effectively
with their insulin therapy, thereby lessening the risk of
long-term complications. A clinical study conducted by the
Company in healthy fasting volunteers has shown that
the way
an
individual breathes during delivery has a significant
effect on the pharmacokinetic profile of the delivered
insulin. The Company believes that its proprietary
breath control technology can be employed in the AERx
Diabetes Management System to eliminate this potential
variability as a factor in the pulmonary delivery of
insulin. Standard insulin therapies presently require that
doses of insulin given by injection be adjusted in
increments of one international unit. The AERx Diabetes
Management System is being designed to provide the same
one unit dosing adjustability. The Company believes that the
combined features of the AERx Diabetes Management System
will allow people with diabetes to achieve more consistent
and precise control over their blood glucose levels.
Additional Potential AERx Applications
The Company is evaluating the use of AERx systems to
deliver a
variety of additional pharmaceutical compounds and has
successfully evaluated a number of drugs via in vitro and
in vivo feasibility studies. Aradigm has carried out 12
human clinical trials using an early prototype AERx system
to study morphine sulfate, insulin, the diagnostic agent
(99m) Tc-DTPA, and several partners' proprietary
molecules (proteins, peptides and a small molecule).
In addition, preclinical feasibility research has been
carried out on a number of small molecules, proteins and non-
viral gene vectors.
A partial list of compounds that have been evaluated or may
be evaluated appears below:
Pharmaceutical Biologicals
Albuterol* Midazolam* Alpha Gamma
Interferon Interferon
Beclomethasone* NSAIDs Calcitonin Gene
Vectors*
Cromolyn* Pentamidine Condensed DNA Growth
Hormone
Fentanyl* Sumatriptan DNAse* IGF-1
Levorphanol Triamcinolone Erythropoietin*
* Indicates compounds which the Company has
successfully
aerosolized.
The Company has not yet acquired rights to
develop applications for any of the proprietary compounds
listed above and may not pursue or be successful in
acquiring such rights.
The Company believes that the AERx system may
have applicability for a range of compounds
developed by
pharmaceutical and biotechnology companies, including
many compounds that cannot be delivered orally. Due to their
large size and poor oral bioavailability, macromolecules
developed by the biotechnology industry are typically
developed in liquid formulations and delivered by
injection. The Company believes that the AERx platform
can potentially provide for improved delivery and broader
applications of these therapies or potential therapies.
SmartMist Respiratory Management System
The Company has developed and launched the
SmartMist Respiratory Management System to improve the
effectiveness of MDIs. The SmartMist system is a hand-
held, battery-operated aerosol drug delivery system for
existing asthma drugs such as beclomethasone. The initial
target market is individuals with moderate to
severe asthma. By improving the self-
administration of drugs via MDIs, the Company believes
that these patients will be better managed, have fewer
symptoms and will make fewer visits to the emergency room,
resulting in improved patient care and reduced health care
expenses.
Asthma is an inflammatory disease process characterized
by abnormally high responsiveness of the tracheobronchial
tree to a multitude of stimuli, such as dust, pollen
and stress. The
hallmark of the disease is reversible airway obstruction,
and the characteristic wheezing sounds are due to narrowing
of the airways. Asthma is a chronic disease which, if
properly treated, should not progress to crisis stage.
Of the estimated 14 million people with asthma in the
United States, approximately one million people with
severe asthma consume a majority of the over $5 billion
which is spent annually for direct health care costs
related to the treatment of asthma. Over half of those
dollars is spent on hospital care, including approximately
470,000 hospitalizations and 1.5
million emergency room visits resulting from acute
asthma incidents. It is believed that most
hospitalizations for treatment of asthma represent
patient management and compliance failures. The Company
believes that improvements in patient management and
compliance could reduce patient utilization of costly
acute care and the overall cost of asthma management.
Studies have shown that up to 70% of patients use their
MDIs incorrectly and that many patients revert to
incorrect
technique following training. Even patients who have
good technique are inconsistent in applying it. Proper
technique is particularly important for patients using
topical steroids, which treat the underlying inflammation
that causes asthma. Unlike short-acting bronchial
dilators, inhaled steroids can take six to eight weeks to
effect improvement noticeable to the patient. With no
immediate relief of symptoms providing feedback to the
patient, there is no way for patients using topical
steroids to know if they have received the intended drug
dose.
The management of asthma can also be improved by
monitoring patient compliance with the prescribed therapy
and recording the effect of the therapy. Peak flow,
defined as the peak velocity achieved during maximum
forced exhalation, is a direct indicator of large airway
constriction. Measurements of peak flow can be made using
commercially available electronic pulmonary function
monitors. Routine peak flow measurement has been generally
recommended by pulmonary specialists but many patients do
not diligently take and record these measurements.
The Company believes that its SmartMist system is capable
of addressing MDI limitations, such as improper
inhalation, improperly timed release of the aerosol, and
the lack of information regarding patient usage and
patient lung function following usage. The patient inserts
a standard MDI into the SmartMist system and inhales
through the mouthpiece. Indicator lights on the system
switch from red to green to guide the patient to inhale
slowly and evenly within a predetermined range suitable
for drug delivery. When the desired flow rate is
established early in the inspiratory cycle, the MDI is
automatically actuated by the SmartMist system. The
delivery of the medication is breath controlled, rather
than manually activated, eliminating the need for the
patient to coordinate pressing and breathing while using an
MDI. Additionally, the SmartMist system incorporates an
electronic peak flow meter, which quantitatively measures
the effect of therapy when the patient exhales though a
separate mouthpiece attached to the system. The peak
flow rate is displayed to the patient and recorded in
the internal memory of the product. Each system can store
approximately 90 days of data for drug
administrations, inhalation patterns and pulmonary
function that can be downloaded into a computer for review
by patients and health care professionals to enhance
patient management and compliance.
Aradigm has completed a radiolabeled asthma drug study
that demonstrates the benefits of the breath control
technology incorporated in the SmartMist system. In
addition, the Company has completed two clinical studies to
support market adoption of the SmartMist system. The first
study, which involved 40 patients with asthma, was
conducted at the University of California at San
Francisco and the National Jewish Hospital in Denver to
compare the technique of patients using the SmartMist
system with the technique of other patients using MDIs
equipped with the Technique Assessor, a research device
developed by Aradigm to measure how patients actuate
and inhale through conventional MDIs. This study showed
that patients in the SmartMist group had significantly
more MDI inhalations rated as "correct" (91% versus 46%).
The second study was conducted at Northwest Asthma and
Allergy in Seattle and involved 13 steroid-dependent
adolescent patients with asthma. The SmartMist system was
given to all 13 patients and used to evaluate patient
compliance with a medication regimen and to accurately
assess how reliably and accurately patients recorded this
information in peak flow diaries. Although
patient diaries indicated that all patients were at least
80% compliant, data recorded by the SmartMist system
revealed that only five of the 13 patients studied were 80%
compliant with the prescribed medication regimen.
The SmartMist system received 510(k) clearance from the
FDA in May 1996 and was launched in early 1998. The
SmartMist system is currently designed to be used with the
most widely prescribed MDIs, and its design may be
modified to accept additional MDI designs. The suggested
retail price for the Company's SmartMist system is $545
per unit. The Company is actively seeking corporate
partners for this product based on a strategic
decision to focus internal resources on its
growing AERx opportunities and on the belief that it
is unlikely the SmartMist system will achieve its
potential unless it is sold as part of a broader
pulmonary disease management program. To that end, the
Company has initiated discussions with several potential
pharmaceutical and disease management partners.
Sales and Marketing
The Company plans to establish collaborative
relationships, such as its agreement with SmithKline
Beecham, to develop and commercialize its AERx and
SmartMist products. Through these collaborations, Aradigm
intends to access resources and
expertise to conduct late stage clinical development and
to market and sell AERx products. The Company's
preferred partners will generally have both a
commercial and a
development presence in the target market, and will also
have a commitment to grow that market via drug delivery
technology.
Where consistent with its other objectives, Aradigm plans
to give preference to potential partners whose pipelines
contain multiple products whose value could be
enhanced by the Company's AERx pulmonary drug delivery
technology.
In order to commercialize the SmartMist system, the
Company established a
separate business unit incorporating
manufacturing, sales, marketing and customer
service
capabilities. As well, the Company is pursuing
collaborations with pharmaceutical firms, disease
management companies and managed care organizations in
order to develop the market for this product and to realize
its potential as part of a broader pulmonary disease
management program.
Manufacturing
The Company is producing the SmartMist system with
the assistance of contract manufacturers who are
providing the main components and subassemblies. The
Company performs final assembly, calibration, testing and
shipping at its facilities in California.
The Company is building its own manufacturing
capabilities for the production of key components of its
AERx drug delivery systems. The Company plans to
internally produce the
disposable nozzles, assemble the disposable unit-dose
packets and fill the drug into the unit-dose packets. The
Company also plans to perform final assembly,
calibration, testing and packaging of the AERx devices
currently under development using substantially the same
approach as it is using to produce the SmartMist
system. This manufacturing capability is expected to be
established at the Company's facilities in California.
The Company believes that it is capable of producing the
AERx unit-dose packets in volumes adequate to support Phase
II clinical trials. The Company is developing processes and
has ordered equipment that is intended to provide by the
end of 1998 the ability to produce AERx drug packets in
quantities sufficient for Phase III clinical trials
and commercial production of the AERx Pain Management
System.
The Company anticipates making significant expenditures
to provide for the high volume manufacturing required
for
multiple AERx products, if such products are
successfully developed. There can be no assurance that the
Company will be able to complete the scale-up process in a
timely manner or at a
commercially reasonable cost.
Although the majority of the materials used in the
SmartMist system or in Aradigm's potential AERx products
are readily available from multiple sources, certain
materials, including the ASICs, microprocessors, plastics
and plastic laminates, are or will be available initially
only from single sources. While the Company has
contingency plans for alternate suppliers, there can be
no assurance that the Company could find alternate
manufacturers for such components. Even if new suppliers
are secured, there can be no assurance that this would
not significantly reduce the Company's ability to supply
product during any transition.
Competition
The Company faces intense competition. The Company
believes that its products will compete on the basis
of dosage reproducibility, safety, system
efficiency, patient convenience, ability to provide
compliance data and cost. Several companies are
developing and marketing nebulizer, MDI and DPI devices
as well as other drug delivery approaches, including
aerosolization technologies. Aradigm is aware that a number
of pharmaceutical and biotechnology companies and
research institutions are working on the pulmonary delivery
of peptide and protein dry powders. There can be no
assurance that competitors will not introduce products
or processes competitive with, or superior to, those under
development by the Company. Many of the Company's
competitors are much larger and have far greater resources
than Aradigm. These competitors include companies working on
developing systems for other noninvasive routes of
delivery, such as oral, transdermal and intranasal
administration, as well as companies working on pulmonary
delivery systems. New drugs or further developments in
alternative drug delivery methods may provide greater
therapeutic benefits for a specific drug or indication or
may offer comparable performance at lower cost than the
Company's pulmonary drug delivery systems under development.
Intellectual Property and Other Proprietary Rights
The Company's business and competitive position is
dependent upon its ability to protect its proprietary
technology and avoid infringing the proprietary rights of
others.
The Company relies on patents, patent applications and
trade secret law to protect its proprietary technology. As
of March 1998, the Company has 28 United States patents
and additional United States patent applications pending.
There can be no assurance that any of the Company's
patent applications will issue or, if issued, will later
be found valid if challenged. Further, there can be no
assurance that any issued patents, or applications which
might later issue as patents, will provide the Company with
a degree of market exclusivity sufficient for
the Company to compete profitably against its
competitors. Patents can not prevent others from
developing alternative technologies which are used for
aerosolized drug delivery and patent applications do not
provide any exclusivity until and if they are issued as a
patent. Because the general idea of aerosolized drug
delivery is well established, no entity may obtain patent
protection covering all forms of aerosolized delivery of
all types of drugs. There can be no assurance that others
have not independently developed or will not develop
devices, components and methods of aerosolized drug
delivery, and obtained or will obtain patents on such,
which patents could be used to prevent the Company from
making, using or selling its patented technology.
The Company's success will depend on its ability to
obtain patents, maintain trade secrets and operate without
infringing upon the proprietary rights of others. A
substantial number of patents have been issued to
competitors in the field of aerosolized drug delivery.
These and other competitors and institutions may have
applied for other patents and may obtain additional patents
and proprietary rights relating to products or processes
similar to those of the Company. The Company may not be
able to obtain a license under any such patent and
therefore could be prevented from making products or
carrying out processes that may be important to the
business of the Company.
The Company has carried out and continues to carry
out searches of publications, including patents and
scientific papers relating to the business of the Company.
These searches are supplemented by searches done by
examiners in the United States Patent Office and other
patent offices reviewing patent applications of the
Company. Many entities are obtaining patents and
publishing papers in the field of aerosolized delivery
and there can be no assurance that the searches carried
out by the Company have found the most relevant
publications. Thus, patents may exist which would
provide competitors with the ability to prevent the
Company from making or selling its products. Further,
existing and future patents or other publications may
hinder or prevent the Company from obtaining patents
or draw into question the validity of patents already
issued to the Company.
The Company's current policy is to file patent
applications on what it deems to be important
technological developments which might relate to products
of the Company or methods of using such products. To date
all inventions have originated in the United States and all
patent applications were originally filed in the United
States. The Company also seeks to protect some of these
inventions through foreign counterpart
applications in selected other countries. The
Company
currently has National Phase applications pending in
patent offices outside of the United States. Statutory
differences in patentable subject matter may limit the
protection the Company can obtain on some of its
inventions outside of the United States. For example,
methods of treating humans are not patentable in many
countries outside of the United States. These and other
issues may prevent the Company from obtaining patent
protection outside of the United States. Further,
competitors may have obtained or could later obtain
patent protection outside of the United States which would
prevent the Company from making, using or selling
products or processes of its business in countries other
than the United States.
The Company's policy is to require its officers, employees,
consultants and advisors to execute proprietary
information and invention and assignment agreements upon
commencement of their relationships with the Company. These
agreements provide that all confidential information
developed or made known to the individual during the course
of the relationship shall be kept confidential except in
specified circumstances. These agreements also provide
that all inventions developed by the individual on behalf
of the Company shall be assigned to the Company and that
the individual will cooperate with the Company in
connection with securing patent protection on the
invention if the Company wishes to pursue such
protection. There can be no assurance, however, that these
agreements will provide meaningful protection for the
Company's inventions, trade secrets or other proprietary
information in the event of unauthorized use or disclosure
of such information.
Government Regulation
All medical devices and drugs, including the
Company's products under development, are subject to
extensive and rigorous regulation by the federal
government, principally the FDA, and by state and local
governments. If these products are marketed abroad, they
also are subject to export requirements and to regulation
by foreign governments. The regulatory clearance
process is generally lengthy, expensive
and
uncertain. The Federal Food, Drug, and Cosmetic Act (the
"FDC Act"), and other federal statutes and regulations,
govern or influence the development, testing,
manufacture, labeling, storage, approval, advertising,
promotion, sale and
distribution of such products. Failure to comply
with applicable FDA and other regulatory requirements can
result in sanctions being imposed on the Company or the
manufacturers of its products,
including warning letters, fines, product
recalls or seizures, injunctions, refusals to permit
products to be imported into or exported out of the
United States, refusals of the FDA to grant premarket
clearance or premarket approval of medical devices and drugs
or to allow the Company to enter into government supply
contracts, withdrawals of previously approved marketing
applications and criminal prosecutions.
The FDA and other regulatory agency requirements
for
manufacturing, product testing and marketing can
vary depending upon whether the product is a medical device
or a drug. Sales of the Company's products outside of the
United States are subject to foreign regulatory requirements
that may vary from country to country. The time required
to obtain clearance from a foreign country may be longer or
shorter than that required by the FDA, and clearance or
approval or other product requirements may differ. There
can be no assurance that the Company will be able to
obtain necessary regulatory clearances or approvals on a
timely basis, if at all, for any of its products under
development, and delays in receipt or failure to receive
such clearances or approvals, the loss of previously
received clearances or approvals, or failure to comply
with existing or future regulatory requirements could have
a material adverse effect on the Company.
Regulation of Medical Devices
The Company is required to file a premarket
notification ("510(k) notification") submission or
premarket approval ("PMA") application or supplement with
the FDA before it begins marketing a new medical device
or changes or modifies an existing device in a manner that
could significantly affect the device's safety or
effectiveness or changes the device's
intended use.
The FDA categorizes medical devices into one of
three regulatory classifications -- Class I, II or III --
on the basis of controls deemed by the FDA to be reasonably
necessary to assure their safety and effectiveness.
Generally, Class I devices are subject to general
controls (e.g., labeling, premarket notification, and
adherence to the current good manufacturing practice
("cGMP") regulations for medical devices). Class II
devices are subject to general and special controls
(e.g., performance standards, post-market
surveillance, patient registries and FDA guidelines).
Class III devices, which typically are life-sustaining
or lifesupporting and implantable devices, or new devices
that have been found not to be substantially equivalent
to a legally marketed predicate device, are subject to
general controls and also require clinical testing to
assure safety and
effectiveness before FDA approval is obtained. The FDA
also has the authority to require clinical testing of Class
I and II devices.
If a company can establish that a new device
is
"substantially equivalent" to a legally marketed Class I or
II medical device, or to a preamendment Class III medical
device (i.e., a Class III device in commercial distribution
prior to enactment of the Medical Device Amendments of
1976) for which the FDA has not called for PMA
applications, the company may seek clearance to market
the device by filing a 510(k) notification. The 510(k)
may need to be supported
by
appropriate data, including clinical study data,
establishing substantial equivalence to the FDA's
satisfaction. The FDA recently has been requiring a more
rigorous demonstration of substantial equivalence.
The Company may not place the device into
commercial distribution until an order of substantial
equivalence is issued by the FDA. No law or regulation
specifies the time by which the FDA must respond to a
510(k) notification. At this time, the FDA typically
responds to a 510(k) notification within 90 to 180
days, although some submissions take considerably
longer. An FDA order may declare that the device is
substantially equivalent and allow the proposed device to
be marketed in the United States. The FDA may
determine, however, that the proposed device is not
substantially equivalent or may require further
information, such
as
additional test data, before it can make a
final
determination.
If a company cannot establish that a proposed device
is substantially equivalent to a legally marketed
predicate device, the company must seek premarket approval
from the FDA through the submission of a PMA application. A
PMA application must be supported by extensive data,
including preclinical and clinical trial data, to
demonstrate the safety and
effectiveness of the device. If human clinical trials
are required and the device presents a "significant
risk," the company must file an investigational device
exemption ("IDE") application prior to commencing
clinical trials. The IDE application must be supported by
data, typically including the results of animal and
mechanical testing. If the IDE
application is not disapproved by the FDA, human
clinical trials may begin at the specified investigational
sites and with the specified number of patients 30 days
after the FDA receives the application. Sponsors of
clinical trials are permitted to sell study devices,
provided compensation does not exceed the cost of
manufacture, research, development and
handling. The clinical trials must be conducted under
the auspices of an independent institutional review board
("IRB") established pursuant to FDA regulations. If the
device does not present a significant risk, the study may
be conducted under IRB authority as a nonsignificant risk
study.
Following receipt of the PMA application, if the
FDA
determines that the application is sufficiently complete
to permit a substantive review, the agency will "file"
the application. Once the submission is filed, the FDA
begins a review of the PMA application. The FDA has 180
days to review a PMA application, although reviews more
often occur over a significantly protracted time period,
and the FDA generally takes two years or more from the
date of filing to complete its review.
The PMA process can be expensive, uncertain and lengthy.
A number of devices for which premarket approval has been
sought by other companies have never been approved. Review
time is often significantly extended by the FDA, which
may require more information or clarification of
information provided in the
submission. During the review period, an advisory
committee likely will be convened to review and evaluate
the application and provide recommendations to the FDA
as to whether the device should be approved. In addition,
the FDA will inspect the manufacturing facility to ensure
compliance with the cGMP regulations for medical
devices prior to approval of the PMA application. If
granted, the premarket approval may include significant
limitations on the indicated uses for which the product may
be marketed, and the agency may require post-marketing
studies of the device.
There can be no assurance that any required FDA or
other governmental clearance or approval will be granted,
or, if granted, will not be withdrawn. Governmental
regulation may prevent or substantially delay the
marketing of the Company's proposed products and cause the
Company to undertake costly procedures. In addition, the
extent of potentially adverse government regulation
that might arise from future administrative
regulations or policy or from legislation cannot be
predicted. Any failure to obtain or delay in obtaining
such clearances or approvals could materially and
adversely affect the Company's ability to market its
proposed products.
The FDA's Medical Device Reporting regulation
requires medical device manufacturers, distributors,
and user facilities to provide information to the agency
on deaths or serious injuries or illnesses alleged to
have been associated with the use of its devices, as well
as product malfunctions that would likely cause or
contribute to death, serious injury or serious illness if
the malfunction were to recur. In addition, the FDA
prohibits a company from promoting a cleared or approved
device for an indication for use not approved by the FDA.
In May 1996, the Company obtained 510(k) clearance from
the FDA for the initial version of its SmartMist Asthma
Management System to
guide patient self-administration of asthma
medications and compile data on drug delivery events and
lung function. The Company has launched the product but is
pursuing collaborations with pharmaceutical firms, disease
management companies and managed care organizations in
order to develop the market for this product. There can
be no assurance that the Company
will be able to fully develop and market
successfully the commercial version of the SmartMist
Asthma
Management System, or whether changes to the
commercial version of the SmartMist Asthma Management
System will necessitate the submission of a second 510(k)
notice. If the submission of a second 510(k) notice is
required, there can be no assurance that clearance can be
obtained in a timely manner or
at all. Delays in receipt of market clearance
or
restrictions on the types of asthma drugs with which
the SmartMist Asthma Management System can be used or
failure to comply with existing or future regulatory
requirements could have a material adverse effect on the
Company.
Regulation of Drugs
Different types of FDA regulations apply to various
drug products, depending upon whether they are marketed
only upon the order of a physician (i.e., they are
prescription drugs) or over-the-counter, are biological,
insulin or antibiotic drugs or are controlled drugs,
such as narcotics. Product development and approval
within this regulatory framework takes a number of
years, involves the expenditure
of
substantial resources and is uncertain. Many drug
products ultimately do not reach the market because they are
not found to be safe or effective or cannot meet the
FDA's other regulatory requirements. In addition, there
can be no
assurance that the current regulatory framework will
not change or that additional regulation will not arise
at any stage of the Company's product development that
may affect approval, delay the submission or review of an
application or require additional expenditures by the
Company.
The activities required before a new drug product may
be marketed in the United States include pre-clinical
and
clinical testing. Preclinical tests include
laboratory
evaluation of product chemistry and other characteristics
and animal studies to assess the potential safety and
efficacy of the product as formulated. Many
preclinical studies are regulated by the FDA under a
series of regulations called the current Good Laboratory
Practice regulations. Violations of these regulations can,
in some cases, lead to invalidation of the studies,
requiring such studies to be replicated.
The preclinical work necessary to administer
investigational drugs to human subjects is summarized in an
IND application to the FDA. FDA regulations provide that
human clinical trials may begin 30 days following
submission of an IND application, unless the FDA advises
otherwise or requests additional information. There is no
assurance that the submission of an IND will eventually
allow a company to commence clinical trials. Once
trials have commenced, the FDA may stop the trials by
placing them on "clinical hold" because of concerns about,
for example, the safety of the product being tested.
Clinical testing involves the administration of the drug
to healthy human volunteers or to patients under the
supervision of a qualified principal investigator, usually
a physician, pursuant to an FDA reviewed protocol. Each
clinical study is conducted under the auspices of an
IRB at each of the institutions at which the study will
be conducted. An IRB will consider, among other things,
ethical factors, the safety of human subjects, informed
consent requirements and the possible liability of the
institution. Human clinical trials typically are conducted
in three sequential phases, but the phases may overlap.
Phase I trials consist of testing the product in a small
number of patients or normal volunteers, primarily for
safety, at one or more dosage levels, as well
as
characterization of a drug's pharmacokinetic
and/or
pharmacodynamic profile. In Phase II clinical trials,
in addition to safety, the efficacy of the product is
usually evaluated in a patient population. Phase III trials
typically involve additional testing for safety and clinical
efficacy in an expanded population at geographically
dispersed sites. All of the phases of clinical studies
must be conducted in conformance with FDA's bioresearch
monitoring regulations.
A company seeking FDA approval to market a new
drug, including insulin and controlled substances, must file
a new drug application ("NDA") with the FDA pursuant to the
FDC Act. In addition to reports of the preclinical and
clinical trials conducted under an effective IND
application, the NDA includes information pertaining to
the preparation of the drug substance,
analytical methods, drug product formulation,
details on the manufacture of finished products and
proposed product packaging and labeling. Submission of a
NDA does not assure FDA approval for marketing. The
application review process generally takes several years
to complete, although reviews of treatments for cancer
and other life-threatening diseases may be accelerated or
expedited. However, the process may take substantially
longer if, among other things, the FDA has questions or
concerns about the safety or efficacy of a product. In
general, the FDA requires at least two properly conducted,
adequate and well-controlled clinical studies
demonstrating efficacy with sufficient levels of
statistical assurance.
Notwithstanding the submission of safety and efficacy
data, the FDA ultimately may decide that the application
does not satisfy all of its regulatory criteria for
approval. The FDA also may require additional clinical
tests (i.e., Phase IV clinical trials) following NDA
approval to confirm safety and efficacy.
In addition, the FDA may in some circumstances
impose restrictions on the use of the drug that may be
difficult and expensive to administer. Product approvals
may be withdrawn if compliance with regulatory requirements
are not maintained or if problems occur after the product
reaches the market. The FDA also requires reporting of
certain safety and other information that becomes
known to a manufacturer of an approved drug. The
product testing and approval process is likely to take
a substantial number of years and involves expenditure of
substantial resources. There can be
no
assurance that any approval will be granted on a timely
basis, or at all. Upon approval, a prescription drug may
only be marketed for the approved indications in the
approved dosage forms and at the approved dosage.
Among the other requirements for drug product approval
is the requirement that the prospective manufacturer
conform to the FDA's and cGMP regulations for drugs. In
complying with the cGMP regulations, manufacturers must
continue to expend time, money and effort in production,
record keeping and quality control to assure that the
product meets applicable specifications and other
requirements. The FDA periodically inspects manufacturing
facilities in the United States to assure compliance
with applicable cGMP requirements. Failure of the Company
to comply with the cGMP regulations or other FDA
regulatory requirements could have a material adverse
effect on the Company.
The Company is developing applications of its
AERx
technology for the delivery of morphine, insulin and
lung imaging agents via inhalation. The Company believes
that the
use of its AERx technology for insulin and morphine
delivery via inhalation will be subject to the drug
regulations, including conducting clinical studies pursuant
to an IND and the submission and approval of an NDA
before marketing can occur. If the Company obtains FDA
approval to market the AERx Diabetes Management System for
the delivery of insulin, each batch of unit-dose insulin-
containing packages used in the AERx Diabetes Management
System will be subject to the insulin certification
requirements.
The Company also will be subject to certain user fees
that the FDA is authorized to collect under the
Prescription Drug User Fees Act of 1992 for certain drugs,
including insulin and morphine. User fees also pertain to
the establishments where the products are made and to the
marketed prescription drug products. In addition to these
FDA requirements, the Company is
subject to foreign regulatory authorities governing
clinical trials and drug sales. Unapproved new drugs can
be exported from the United States to certain countries
for commercialization only after FDA authorization is
obtained.
In addition, due to limited experience with
chronic administration of drugs delivered via the lung for
systemic effect, the FDA may require clinical data to
demonstrate that such chronic administration is safe. There
can be no assurance that the Company will be able to present
such data in a timely manner, or at all.
Other Regulations
Products marketed outside the United States that
are
manufactured in the United States are subject to certain
FDA regulations, as well as regulation by the country in
which the products are to be sold. The Company also would be
subject to foreign regulatory requirements governing
clinical trials and medical device and drug product sales
if products are marketed abroad. Whether or not FDA
approval has been obtained, approval of a product by the
comparable regulatory authorities of foreign countries
usually must be obtained prior to commencement of
marketing of the product in those countries. The approval
process varies from country to country and the time
required may be longer or shorter than that required for
FDA approval.
The Company is subject to numerous federal, state and
local laws relating to such matters as controlled drug
substances, safe working conditions, manufacturing
practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous
substances. For example, the United States Drug
Enforcement Agency ("DEA") regulates controlled drug
substances, such as morphine and other narcotics.
Establishments handling controlled drug substances such as
morphine must, for example, be registered
and
inspected by the DEA, and may be subject to export,
import, security and production quota requirements. In
addition, advertising and promotional materials relating
to medical devices and drugs are, in certain
instances, subject to regulation by the Federal Trade
Commission or the FDA. There can be no assurance that the
Company will not be required to incur significant costs
to comply with such laws
and
regulations in the future or that such laws or
regulations will not have a material adverse effect upon
the Company's business, financial condition or results of
operations.
International Scientific Advisory Board
The Company has assembled an International
Scientific Advisory Board comprised of scientific and
development advisors that provide expertise, on a consulting
basis, in the areas of pain management, allergy
and immunology,
pharmaceutical development and drug delivery, but are
employed elsewhere on a full time basis. As a result, they
can only spend a limited amount of time on the Company's
affairs. The International Scientific Advisory Board
assists the Company on issues related to potential
product applications, product development and clinical
testing. Its members, and their affiliations and areas
of expertise, include:
Name Affiliation Area of
Expertise
Peter Byron, Ph.D. Medical College of Aerosol Science/
Virginia, Virginia Pharmaceutics
Commonwealth
University
Michael Cousins, M.D. University of Pain Management
Sydney, Australia
Peter Creticos, M.D. The Johns Hopkins
Allergy/Immunology
University School /Asthma
of Medicine
Stanley S. Davis, Ph.D. Professor of Drug Delivery
Pharmacy,
University of
Nottingham
Jeffrey Drazen, M.D. Harvard University Pulmonary
Medicine
Medical School
Lorne Eltherington, Sequoia Hospital Pain Management
M.D., Ph.D.
Richard Kitz, M.D. Harvard University Anesthesiology
Medical School,
Massachusetts
General Hospital
Lawrence M. The Johns Hopkins
Allergy/Immunology
Lichtenstein, M.D., University School
Ph.D. of Medicine
Christopher Saudek, The Johns Hopkins
Endocrinology
M.D. University School
of Medicine
Leigh Thompson, M.D., CEO, Profound
Pharmaceutical
Ph.D. Quality Resources, Product
former Chief Development
Scientific
Officer, Eli Lilly
and Company
Employees
As of December 31, 1997, the Company had 92 employees,
of whom 65 were in product development, seven were
in manufacturing, eight were in sales and marketing and 12
were in business development, finance and
administration. The Company believes that its future
success is dependent on attracting and retaining highly-
skilled scientific, sales and marketing and senior
management personnel. Competition for such skills is
intense, and there is no assurance that the
Company will continue to be able to attract and retain
highcaliber employees. The Company's employees are not
represented by any collective bargaining agreement. The
Company considers its relations with its employees to be
good.
Executive Officers of the Company
The following table sets forth certain information with
respect to the executive officers of the Company as of
December 31, 1997:
Name Age Position
Richard P. Thompson 46 President, Chief Executive
Officer and Director
R. Jerald Beers 49 Executive Vice President,
Marketing and Business
Development
R. Ray Cummings 41 Vice President, Business
Development
Maximillian D. Fiore 42 Vice President,
Engineering
Igor Gonda, Ph.D. 50 Vice President, Research &
Development
Mark A. Olbert 42 Vice President, Finance &
Administration and Chief
Financial Officer
Babatunde A. Otulana, M.D. 41 Vice President, Clinical
Affairs
Reid M. Rubsamen, M.D. 41 Vice President, Medical
Affairs, Secretary and
Director
Richard P. Thompson has been a director of the Company
and has served as the Company's President and Chief
Executive Officer since 1994 and was Chief Financial Officer
from April 1996 until December 1996. From 1991 to 1994, he
was President of LifeScan, Inc., a Johnson & Johnson
Company, a medical device manufacturing and development
company. Mr. Thompson was a founder of LifeScan and between
1981 and 1991 he held the
positions of Vice President, Operations, and later
Vice President, Sales and Marketing, at LifeScan. Mr.
Thompson holds a B.S. in biological sciences from the
University of California at Irvine and an M.B.A. from
California Lutheran College.
R. Jerald Beers has served as the Company's Executive
Vice President, Marketing and Business Development since
July 1997. From 1996 until July 1997, Mr. Beers was an
independent consultant. From 1990 to 1996, Mr. Beers
held several positions at Genentech, Inc., a
pharmaceutical company, including Vice President,
Marketing, General Manager of Genentech Canada, Inc.
and Director, Marketing Planning and Development. Mr.
Beers holds a B.A. in Political Science from Brown
University and an M.B.A. from the Kellogg School of
Management at Northwestern University.
R. Ray Cummings has served as the Company's Vice
President, Business Development since 1995. From 1994 to
1995, he served as Vice President, Business
Development of Celtrix
Pharmaceuticals. From 1992 to 1994, Mr. Cummings was
employed as Director, Corporate Licensing of G. D. Searle
and Company, a pharmaceutical company. From
1990 to 1992, he was the
Director of New Business Development and Licensing of
Immunex Corporation, another pharmaceutical company. Mr.
Cummings holds a B.S. in biological sciences from Stanford
University,
an M.S. in biochemistry and molecular biology from
Harvard University and an M.B.A. from University of
California, Berkeley.
Mr. Cummings resigned from the Company as of
January 1998.
Maximillian D. Fiore has served as the Company's
Vice President, Engineering since 1994. From 1991 to
1994, Mr. Fiore served as Director of Engineering at
Lifescan, Inc. From 1990 to 1991, Mr. Fiore was the IMX(TM)
Business Unit Research &
Development Manager for Abbott Laboratories,
a
pharmaceuticals and medical device company. Mr. Fiore holds
a B.S.E.E. and a B.S. in engineering from
Northwestern University and an M.S.E.E. in bio-
medical/microprocessor-based instrument design from
University of Wisconsin.
Igor Gonda, Ph.D. has served as the Company's
Vice President, Research and Development since 1995. From
1992 to 1995, Dr. Gonda was a Senior Scientist and Group
Leader at Genentech, Inc. Prior to joining Genentech,
Inc., Dr. Gonda was a Senior Lecturer in the
Department of Pharmacy at University of Sydney,
Australia. Dr. Gonda holds a B.Sc. in chemistry and a
Ph.D. in physical chemistry from
the
University of Leeds, United Kingdom.
Mark A. Olbert joined the Company in late 1996 as
Chief Financial
Officer and Vice President, Finance
and
Administration. Prior to joining the Company, Mr. Olbert
was with Amgen Inc., a biotechnology company, where he
spent six years in finance operations and was most recently
the Director of Mergers & Acquisitions. Prior to joining
Amgen, Mr. Olbert held financial management positions
at Ashton-Tate
and
Atlantic Richfield. Mr. Olbert holds a B.A. in
molecular biology from the State University of New York at
Buffalo and an M.B.A. from the Amos Tuck School of Business
Administration at Dartmouth College.
Babatunde A. Otulana, M.D. has served as the Company's
Vice President, Clinical Affairs since October 1997. From
1991 to 1997, Dr. Otulana was a Medical Reviewer in the
Division of Pulmonary Drug Products at the Center for Drug
Evaluation and Research, FDA. From 1992 to 1997, Dr.
Otulana also served as an Assistant Professor of
Medicine in the Division of Pulmonary
and Critical Care Medicine, Howard University
Hospital. Dr. Otulana obtained his M.D from University
of Ibadan, Nigeria and completed a Pulmonary
Fellowship at Paparuth Hospital, University of Cambridge,
United Kingdom.
Reid M. Rubsamen, M.D., founder of the Company, has been
a director of the Company and has served as the Company's
Vice President, Medical Affairs and Secretary since
1991. Dr. Rubsamen is a Board Certified anesthesiologist
having received his medical training at Pacific Medical
Center, San Francisco and Massachusetts General Hospital,
where in 1989 he served as Chief Resident in Anesthesia. He
was also a doctoral candidate in the computer science
department at the Massachusetts Institute of Technology,
leaving in 1990 to found the Company. Dr. Rubsamen holds
an A.B. in biochemistry and computer science from the
University of California, Berkeley, and an M.S. in
computer science and an M.D. from Stanford University.
Item 2. PROPERTIES
At December 31, 1997, Aradigm leased
approximately 33,000 square feet of office space in four
buildings in an office park at 26219 Eden Landing Road,
Hayward, California.
In January 1998, the Company negotiated a lease for
an additional 77,000 square feet of space at its current
site. The Company's leases for such office space expire at
various times through the year 2014. Minimum annual
payments under these leases will be approximately $843,000
and $1.1 million in 1998 and 1999, respectively. The
Company uses this space for general administrative,
product development, clinical, manufacturing and
research and development purposes. The Company believes
that its existing facilities are adequate to meet its
requirements for the near term and that additional space
will be available on commercially reasonable terms if
needed.
Item 3. LEGAL PROCEEDINGS
The Company is not currently a party to any
legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of the
Company's security holders during the quarter ended December
31, 1997.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock trades on The Nasdaq
National Market under the symbol "ARDM". Public trading of
the common stock commenced on June 20, 1996. Prior to that,
there was no public market for the common stock. The
following table sets forth, for the periods indicated,
the high and low sales prices per share (excluding
retail markup, markdowns and commissions) of the
common stock on The Nasdaq National Market:
HIGH LOW
1996
Second quarter $ 11.13 $ 9.52
(beginning June 20, 1996)
Third quarter 10.25 7.75
Fourth quarter 11.50 9.63
1997
First quarter $ 10.00 $ 8.25
Second quarter 9.38 5.63
Third quarter 14.25 5.63
Fourth quarter 15.13 8.13
As of February 28, 1998, there were approximately
181 shareholders of record and approximately 1,000
beneficial holders of the Company's common stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its
capital stock and does not anticipate paying cash
dividends in the foreseeable future, but intends to
retain its capital
resources for reinvestment in its business. Any
future
determination to pay cash dividends will be at the
discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results
of operations, capital requirements and other such factors
as the Board of Directors
deems relevant.
RECENT SALES
On October 31, 1997, the Company sold and issued, in
reliance on Section 4(2) of the Securities Act of 1938, as
amended, to SmithKline Beecham PLC 405,064 shares of the
Company's common stock for an aggregate purchase price of
$5,000,008.75 pursuant to a Stock Purchase Agreement, dated
September 30, 1997, between the Company and SmithKline Beecham PLC.
USE OF PROCEEDS
Use of Proceeds
(1) The effective date of the Company's registration
statement filed on Form S-1 (SEC file number 0-28402) (the
"Registration Statement") for which the following information is
being disclosed is June 20, 1996.
(2) The Company's initial public offering pursuant to the
above-referenced registration statement commenced on June 20,
1996 (the "Offering").
(3) The Offering did not terminate before any securities were
sold.
(4) (i) The Offering has not terminated.
(iii) The managing underwriters were Cowen & Company,
CIBC Oppenheimer Corp. and Invemed Associates, Inc.
(iv) The Offering was for Common Stock of the Company.
(v) Pursuant to the Offering, the Company registered and
sold 2,500,000 shares of Common Stock with an aggregate
offering price of the amount registered and sold of
$27,500,000.
(vi) Following are the amount of expenses incurred (a)
from the effective date of the Registration Statement to
the ending period of the reporting period and (b) for the
Registrant's account in connection with the issuance and
distribution of the Common Stock pursuant to the Offering:
Underwriting discounts and commissions $1,925,000
Finders' Fees None
Expenses paid to or for underwriters None
Other expenses 983,412 Total
expenses $2,908,412
(vi) The net offering proceeds to the Company, after
deducting the total expenses above, were $24,591,588.
(vii) Following are the uses, including amounts, of the
net offering proceeds from the effective date of the
Registration Statement to the ending period of the reporting period:
Employee wages and benefits $10,680,575
Office space and utilities 2,410,128
Scientific supplies and equipment 2,773,467
Travel and conferences 1,331,267
Clinical trials and contracts 4,660,943
Professional services 2,735,208
Other purposes None
All of the foregoing uses were direct or
indirect payment to others.
(vii) The use of proceeds described in (vii)
above
does not represent a material change in the use
of proceeds described in the prospectus.
Item 6. SELECTED FINANCIAL DATA
Years Ended 1997 1996 1995
December 31,
(In thousands,
except per
share amounts)
Statements of
Operations
Data:
Contract and $3,685 $730 $155
license
revenues
Operating
expenses:
Research and 12,732 7,981 3,440
development
General and 6,732 2,958 2,334
administrative
Total 19,464 10,939 5,774
expenses
Loss from (15,779) (10,209) (5,619)
operations
Interest 1,329 1,179 206
income
Interest (234) (52) (20)
expense
Net loss $(14,684) $(9,082) $(5,433)
Basic and $ (1.43) $(1.49) $(5.41)
diluted net
loss per share
(1)
Shares used in
computing 10,280 6,098 1,004
basic and
diluted net
loss per share
(1)
Balance Sheet
Data:
Cash, cash $24,305 $28,534 $12,117
equivalents
and
investments
Working 15,999 23,486 11,594
capital
Total assets 30,294 30,733 13,306
Accumulated (35,827) (21,144) (12,069)
deficit
Total 18,659 27,886 12,121
shareholders'
equity
Years Ended 1994 1993
December 31,
(In thousands,
except per
share amounts)
Statements of
Operations
Data:
Contract and $125 $-
license
revenues
Operating
expenses:
Research and 2,198 926
development
General and 1,664 741
administrative
Total 3,862 1,667
expenses
Loss from (3,737) (1,667)
operations
Interest 38 13
income
Interest (34) (1)
expense
Net loss $(3,733) $(1,655)
Basic and $(4.40) $(2.12)
diluted net
loss per share
(1)
Shares used in
computing 849 780
basic and
diluted net
loss per share
(1)
Balance Sheet
Data:
Cash, cash $6,087 $1,932
equivalents
and
investments
Working 5,739 1,781
capital
Total assets 6,343 2,055
Accumulated (6,636) (2,903)
deficit
Total 5,960 1,888
shareholders'
equity
(1) See Note 1 of Notes to Financial Statement for an explanation of
shares used in computing basic and diluted net loss per share.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition
and results of operations of the Company should be
read in conjunction with the Financial Statements and
the related Notes thereto included elsewhere in this Form
10-K. Except for historical information contained herein,
the discussion in this section contains forward-looking
statements, including, without limitation, statements
regarding timing and results of clinical trials, the
establishment of corporate partnering arrangements, the
anticipated commercial introduction of the Company's
products and the timing of the Company's cash
requirements. These forward-looking statements involve
certain risks and
uncertainties that could cause actual results to
differ materially from those in such forward-
looking
statements. Potential risks and uncertainties
include, without limitation, those mentioned in this
report and in particular, the factors described in
Part II, under the heading "Risk Factors".
Overview
Since its inception in 1991, Aradigm has been engaged
in the development of pulmonary drug delivery systems.
As of December 31, 1997, the Company had an accumulated
deficit of $35.8 million. The
Company has been unprofitable since
inception and expects to incur additional operating
losses over at least the next several years as the Company's
research and development efforts, preclinical and
clinical testing activities and manufacturing scale-up
efforts expand and as the Company plans and builds its
late-stage clinical and early commercial production
capabilities. To date, Aradigm has not sold any
products and does not anticipate receiving
significant revenue from products in 1998. The sources
of working capital have been equity financing,
financing of equipment acquisitions, interest earned on
investments of cash and revenues from research and
feasibility agreements and development contracts.
Results of Operations
Years Ended December 31, 1997, 1996 and 1995
Contract and License Revenue. The Company
reported revenues from contracts and license fees of $3.7
million in 1997 compared to $730,000 in 1996 and $155,000
in 1995. The
increase in 1997 revenue was due primarily to a
development and
commercialization agreement that was executed with
SmithKline Beecham in September 1997 to develop
and
commercialize a pulmonary delivery system for
providing breakthrough pain relief using narcotic
analgesics. Under the terms of the
agreement, Aradigm could receive up to
approximately $30 million in milestones and
development
payments by the time the first product is
commercialized. Additional milestones and development costs
would be paid if SmithKline Beecham and Aradigm decided
to develop additional narcotic analgesics for delivery with
the AERx Pain Management System. Included in
1996 revenues were $500,000 of license
fees from a human clinical feasibility testing agreement
and $230,000 of contract research revenues. 1995 revenues
were derived entirely from contract research agreements.
Research and Development Expenses. Research
and
development expenses have increased each year since
the Company's inception; these expenses were $12.7
million in 1997 compared to $8.0 million in 1996 and
$3.4 million in
1995. Research and development expenses in 1997, 1996
and 1995 represented 65%, 73% and 60% of total
expenses, respectively. Research and development
expenses in 1997 increased by 60% over 1996, attributable
primarily to hiring of additional scientific personnel
and expenses associated with the expansion of research and
development efforts on the AERx system. Research and
development expenses in 1996 increased by 132% over 1995,
similarly attributable to hiring additional scientific
personnel, increased costs associated with the expansion
of research and development efforts on the AERx and
SmartMist systems and initiation of additional clinical
testing of the AERx and SmartMist systems.
These expenses represent proprietary research expenses
as well as the costs related to contract research revenue
and include salaries and benefits of scientific and
development personnel, laboratory supplies, consulting
services and the expenses associated with the
development of manufacturing processes.
The Company expects research and development
spending to increase significantly over the next few years
as the Company continues to expand its research and
development activities
to support current and potential future
collaborations and initiates commercial manufacturing of
the AERx system
General and Administrative Expenses. General
and
administrative expenses were $6.7 million in 1997 compared
to $3.0 million in 1996 and $2.3 million in 1995. General
and administrative expenses increased by 128% in 1997
compared to 1996 and 27% in 1996 compared to 1995,
attributable primarily to support of the Company's
increased research efforts, additional
facilities expense, administrative staffing,
business development and marketing activities. The
Company expects to incur greater general and administrative
expenses in the future as it expands its operations and
increases its efforts to develop collaborative
relationships with corporate partners.
Interest Income. Interest income increased to
$1.3 million in 1997 from $1.2 million in 1996 and
$206,000 in 1995. Interest income in 1997 was consistent
with that in 1996 due to similar average cash balances
during those two years. Interest income increased
significantly in 1996 compared to 1995 primarily due to
increased average cash balances in 1996 resulting from the
sales of preferred stock in December 1995 and common
stock in June 1996 in conjunction with the Company's
initial public offering.
Interest Expense. Interest expense was $234,000 in
1997 compared to $52,000 in 1996 and $20,000 in 1995.
These increases resulted primarily from higher outstanding
capital lease and equipment loan balances under the
Company's equipment lines of credit.
Net Operating Loss Tax Carryforwards. As of December
31, 1997, the Company had federal net operating loss
tax
carryforwards of approximately $35.0 million.
These carryforwards will expire beginning in the year
2006. Utilization of net operating loss carryforwards may be
subject to substantial annual limitation due to the
ownership change limitation provided for by the Internal
Revenue Code of 1986. The annual limitation may result in
the expiration of net operating loss carryforwards before
utilization.
Liquidity and Capital Resources
The Company has financed its operations since
inception primarily through private placements and public
offerings of its capital stock, proceeds from
financings of equipment acquisitions, contract research
revenue and interest earned on investments. As of December
31, 1997, the Company had received approximately $54.0
million in net proceeds from sales of its capital stock.
The Company also has a $5.0 million equipment line of
credit, of which approximately $2.9 million remains
available for purchases through September 1998. As
of
December 31, 1997, the Company had cash, cash equivalents
and short-term investments of approximately $24.3 million.
Net cash used in operating activities in 1997,
was $7.8 million compared to $7.1 million in 1996. This
increase resulted
primarily from an increase in net loss
of
$5.6 million and increases in current assets, largely
offset by net increases in accrued liabilities and deferred
revenue. Net cash used in operating activities in 1996 was
$7.1 million compared to $5.2 million in 1995. This
increase resulted primarily from an increase in net
loss of $3.6 million partially offset by an increase in
accrued liabilities and accounts payable reduced by a net
increase in current assets.
Net cash provided by investing activities in 1997
was $737,000 compared to $10.8 million net cash used in
1996. This increase resulted primarily from the Company's
receipt of net proceeds from investment maturities
partially offset by expenditures made for capital
equipment. Net cash used in investing activities in
1996 was $10.8 million compared to $535,000 in 1995.
The increase resulted primarily from the
Company's net purchase of investments and additional
capital expenditures.
Net cash provided by financing activities in 1997
was $6.4 million primarily from the receipt of proceeds
from equipment loans and issuances of common stock partially
offset by repayment of capital lease obligations. Net cash
provided by financing activities in 1996 of $24.3
million was due primarily to the receipt of net proceeds
from the Company's initial public offering. Net cash
provided by financing activities for 1995 was $11.7
million, primarily a result of $11.6 million in net
proceeds from the issuance of preferred stock.
The development of the Company's technology and
proposed products will require a commitment of substantial
funds to conduct the costly and time-consuming research and
preclinical and clinical testing activities necessary to
develop and refine such technology and proposed products
and to bring any such products to market. The
Company's future capital requirements will depend on many
factors, including continued progress in the research
and development of the Company's technology and drug
delivery systems, the ability of the Company to
establish and maintain favorable collaborative
arrangements with others, progress with preclinical
studies and clinical trials, the time and costs involved in
obtaining regulatory approvals, the cost of development and
the rate of scale up of the Company's production
technologies, the cost involved in preparing, filing,
prosecuting maintaining and enforcing patent claims and
the need to acquire licenses or other rights to new
technology.
The Company expects that its existing capital
resources, committed funding from its existing corporate
partnership with SmithKline Beecham and projected interest
income will enable the Company to maintain current and
planned operations through
at least 1998. However, there can be no assurance that
the
Company will not need to raise substantial additional
capital to fund its operations prior to such time. There
can be no assurance that additional financing will be
available on acceptable terms or at all. The Company's
cash requirements, however, may vary materially from those
now planned because of results of research and development
efforts, including capital expenditures and funding
preclinical and clinical trials, manufacturing scale-
up in connection with
the
commercialization of the SmartMist system, and
manufacturing capacity for preclinical, clinical and
full scale
manufacturing requirements of the AERx system. The Company
may seek additional funding through collaborations or
through public or private equity or debt financings.
However, there cannot be any assurance that additional
financing can be obtained on acceptable terms, or at all.
If additional funds are
raised by issuing equity securities, dilution
to
shareholders may result. If adequate funds are not
available, the Company may be required to delay, to reduce
the scope of, or to eliminate one or more of its research
and development programs, or to obtain funds through
arrangements with
collaborative partners or other sources that may require
the Company to relinquish rights to certain of its
technologies or products that the Company would not
otherwise relinquish.
As the year 2000 approaches, an issue impacting
all companies has emerged regarding how existing
application software programs and operating systems can
accommodate this date value. In brief,
many existing application software
products in the marketplace were designed to accommodate
only a two digit date position which represents the year
(e.g., "95" is stored on the system and represents the
year 1995). As a result, the year 1999 (i.e., "99") could
be the maximum date value systems will be able to
accurately process. Management is in the process of
working with its software vendors to assure that the
Company is prepared for the year 2000. Management does
not anticipate that the Company will incur significant
operating expenses or be required to invest heavily in
computer system improvements to be year 2000 compliant.
Risk Factors
Except for historical information contained herein,
the discussion in this section contains forward-
looking statements, including, without limitation,
statements regarding timing and results of clinical
trials, the
establishment of corporate partnering arrangements,
the
anticipated commercial introduction of the Company's
products and the timing of the Company's cash
requirements. These forward-looking statements involve
certain risks
and
uncertainties that could cause actual results to
differ materially from those in such forward-looking
statements.
Early Stage of Company
Aradigm, incorporated in January 1991, is in an
early stage of development, has a limited history of
operations and has generated only limited revenues to
date. The Company has only one product, the SmartMist
Respiratory Management System, cleared for commercial
sale, and virtually all of
its
potential products are in an early stage of research
or development. There can be no assurance that the
Company's research and development efforts will be
successful, that any potential products will be proven
safe and effective, that regulatory clearance or approval
for the sale of any of its
potential products will be obtained or that the
SmartMist system or any of the Company's potential
products can be
manufactured in commercial quantities or at an acceptable
cost or marketed successfully.
History of Losses; Anticipated Future Losses
The Company has not been profitable since inception
and, through December 31, 1997, has incurred a cumulative
deficit of approximately $35.8 million. The
Company expects to
continue to incur substantial losses over at least the
next several years as the Company's research and
development efforts, preclinical and clinical testing
activities, marketing and manufacturing scale-up efforts
expand and as the Company plans and builds its late stage
clinical and early commercial production capabilities. To
achieve and sustain profitable operations, the Company,
alone or with others, must successfully market and sell
the SmartMist Respiratory Management System and develop,
obtain regulatory approval for, manufacture, introduce,
market and sell products utilizing the Company's AERx
technologies. There can be no assurance that the Company
can generate sufficient product revenue to become profitable
or to sustain profitability.
Uncertainty of Successful Product Development
The Company's AERx systems are at an early stage
of
development and are being tested using patient-
operated prototypes. The AERx
systems will require substantial
additional development, preclinical and clinical testing
and investment before they can be commercialized. To
further develop its AERx systems, the Company must
address many engineering and design issues, including
ensuring that the device has the ability to deliver a
reproducible amount of
drug into the bloodstream and can be manufactured
successfully as a hand-held system. No assurance can be
made that the Company will be successful in
addressing these design, engineering and manufacturing
issues. Additionally, the
Company may need to formulate and will need to package
drugs for delivery by its AERx systems. There can be no
assurance that the Company will be able to successfully
formulate and package such drugs. The Company will need to
demonstrate that drugs delivered by its AERx systems
remain safe and
efficacious and that over time and under differing
storage conditions, such drugs will not be subject to
physical or
chemical instability or other problems that would prohibit
the AERx systems from being commercially viable. While
development efforts are at different stages for different
products, there can be no assurance that the Company will
be successful in any of its product development efforts, or
that the Company will not abandon some or all of its
proposed products. Failure by
the Company to successfully develop its potential products
in
a timely manner would have a material adverse effect on
the Company.
Uncertainty of Successful Product Commercialization
The Company's success in commercializing its
products will be dependent upon many factors, including
acceptance by
health care professionals and patients. Acceptance of
the Company's products will largely depend on demonstrating
that the Company's products are competitive with alternate
delivery systems with respect to safety, efficacy, ease
of use and price. The Company believes that market
acceptance of its SmartMist system will depend
largely upon health care
professionals and third-party payors determining that
the
SmartMist system offers medical and economic benefits
over existing asthma therapies. In addition, the SmartMist
system is specifically designed for the canisters currently
used by some of the leading manufacturers of MDIs. If,
among other things, manufacturers decide to change the
dimensions of their canisters, the Company could be
adversely affected. Moreover, MDIs use chlorofluorocarbons
("CFCs") as a propellant for the medication. The
Company is aware of initiatives and international
agreements to ban CFCs, which could have an adverse
effect on the Company. In order to commercialize the
SmartMist system, the company is pursuing collaborations
with pharmaceutical firms, disease management companies and
managed care organizations in order to develop the market
for this product and to realize its potential as part of
a broader disease management program. There can be no
assurance that the SmartMist system or the Company's
products in development will prove competitive or that the
Company will be successful in taking products from their
current state of development to commercial introduction or
success. Failure by the Company to successfully
commercialize its potential products in a timely manner
would have a material adverse effect on the Company.
Dependence Upon Collaborative Partners and Need for
Additional Collaborative Partners
The Company's commercialization strategy is dependent,
in part, on the Company's ability to enter into agreements
with collaborative partners. The Company's ability to
successfully develop and commercialize its first AERx
system, the AERx Pain Management System, is dependent on
the Company's corporate partnership with SmithKline
Beecham. SmithKline Beecham has agreed to undertake
certain collaborative activities with the Company, fund
research and development activities with the Company, make
certain payments to the Company upon achievement of certain
milestones and pay royalties to the Company if and when a
product is commercialized. If SmithKline Beecham fails to
conduct these collaborative activities in a timely manner
or at all, the preclinical or clinical development
or
commercialization of the AERx Pain Management System will
be delayed. In addition, the agreement may be
terminated by SmithKline Beecham and there can be no
assurance that
development and milestone payments will be received.
Should the Company fail to receive development funds or
achieve milestones set forth in the agreement, or should
SmithKline Beecham breach or terminate the agreement,
the Company's business, financial condition and results of
operations would be materially adversely affected.
The Company will need to enter into additional
agreements with corporate partners to conduct the
clinical trials, manufacturing, marketing and sales
necessary to commercialize its other potential products.
In addition, the Company's ability to apply the AERx
system to any proprietary drugs, including new drugs,
biotechnology drugs or established drugs in proprietary
formulations, will depend on the Company's ability to
establish and maintain corporate partnerships or other
collaborative arrangements with the holders of
proprietary rights to such drugs. There can be no
assurance that the Company will be able to establish such
additional corporate partnerships or collaborative
arrangements on favorable terms or at all, or that its
existing or any future corporate partnerships or
collaborative arrangements will be successful. In
addition, there can be no assurance that existing or
future corporate partners or collaborators will not pursue
alternative technologies or develop alternative products
either on their own or in collaboration with others,
including the Company's competitors. There can be no
assurance that disputes will not arise in the future with
the Company's existing or future corporate partners or
collaborators, and any such disagreements could lead to
delays in the research, development or commercialization of
any potential products or result in litigation or
arbitration which would be time consuming and
expensive. Should any corporate partner or collaborator
fail to develop or commercialize successfully any product to
which it has obtained rights from the Company, the
Company's business, financial condition and results
of
operations may be materially adversely affected.
Limited Manufacturing Experience
The Company has only limited experience in
manufacturing. To date,
the Company has scaled-up its manufacturing
capabilities to support the product launch of the
SmartMist system. In the event the SmartMist system
achieves market acceptance, the Company will need to
further increase its current manufacturing capacity. In
addition, the Company is in the process of increasing the
production of disposable drug packets for the AERx system
for later stage clinical trials. The Company anticipates
making significant expenditures to attempt to provide for
the high volume manufacturing required for multiple AERx
products, if such products are successfully developed.
There can be no assurance that manufacturing and quality
control problems will not arise as the Company
attempts to scale-up, or that any such scale-up can
be achieved in a timely manner or at a commercially
reasonable cost. Any failure to surmount such problems
could delay or prevent late stage clinical testing and
commercialization of the Company's products. The Company's
manufacturing facilities and those of its contract
manufacturers will be subject to periodic regulatory
inspections by the FDA and other federal and state
regulatory agencies and such facilities must comply with
good manufacturing practice ("GMP") requirements of the
FDA. There can be no assurance the Company will satisfy
such regulatory requirements and any failure to satisfy
GMP and other requirements could have a material adverse
effect on the Company.
The Company uses contract manufacturers to produce
key components, assemblies and subassemblies for its
SmartMist devices and intends to use contract manufacturers
in a similar way in connection with clinical and
commercial manufacturing of its AERx devices. There can be
no assurance that Aradigm will be able to enter into or
maintain satisfactory contract manufacturing arrangements.
Certain components of Aradigm's current and potential
products are or will be available initially only from
single sources. While the Company has contingency plans
for alternate suppliers, there can be no assurance that
the Company could find alternate suppliers for such
components. Even if new suppliers are secured, there can be
no assurance that this would not significantly reduce or
eliminate the Company's ability to supply product during
any transition. A delay of or interruption in production
could have a material adverse effect on the Company's
business, financial condition and results of operations.
Future Capital Needs; Uncertainty of Additional Funding
The Company's operations to date have
consumed substantial and increasing amounts of cash. The
negative cash flow from operations is expected to
continue in the
foreseeable future. The development of the
Company's
technology and proposed products will require a commitment
of
substantial funds. In addition, costly and time-
consuming research and preclinical and clinical testing
activities must be
conducted to develop, refine and commercialize such
technology and proposed products. The Company's future
capital requirements will depend on many factors, including
continued progress in the research and development of
the Company's technology and drug delivery systems, the
ability of the Company to establish and maintain
favorable collaborative arrangements with others,
progress with preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals,
the cost of development and the rate of scale-up of the
Company's production technologies, the cost involved in
preparing, filing, prosecuting, maintaining and enforcing
patent claims and the need to acquire licenses or other
rights to new technology.
The Company has financed its operations since
inception primarily through private placements and public
offerings of its capital stock, proceeds from
financings of equipment acquisitions, contract research
revenue and interest earned on investments. The Company
anticipates that its existing resources, anticipated
payments from its existing corporate partners and
projected interest income, will enable the Company to
maintain its current and planned operations through 1998.
However, there can be no assurance that the Company will not
need to raise substantial additional capital to fund its
operations prior to such time. There can be no assurance
that additional financing will be available on acceptable
terms or at all. If additional funds are raised by
issuing equity securities, substantial dilution to
shareholders may result. If adequate funds are not
available, the Company may be required to delay, reduce
the scope of, or eliminate one or more of its research or
development programs or obtain funds through arrangements
with collaborative partners or others that may require
the Company to relinquish rights to certain of its
technologies, product candidates or products that the
Company would not otherwise relinquish.
Dependence Upon Proprietary Technology; Uncertainty of
Patents and Proprietary Technology
The field of aerosolized drug delivery is crowded and
a substantial number of patents have been issued in this
field. Competitors and institutions may have applied
for other patents and may obtain additional patents and
proprietary rights relating to products or processes
competitive with those of the Company. Patents or other
publications may hinder or prevent the Company from
obtaining patent protection being sought or draw into
question the validity of patents already issued to the
Company. In addition, patents issued to others might
provide competitors with the ability to prevent the
Company from making its products or carrying out
processes necessary for use of its products. The Company may
not be able to obtain a license under any such patent and
may thereby be prevented from making products or carrying
out processes which are important or essential to the
business of the Company. Although issued patents are
presumed valid under federal law, none of the patents of
the Company has been challenged in litigation. There can
be no assurance that any of such patents will be found
valid if challenged. There also can be no assurance that
any of the applications will issue or if issued will later
be found valid if challenged. Further, there can be no
assurance that any issued patents or applications which
might later issue as patents will provide the Company with
a degree of market exclusivity sufficient for the Company
to profitably compete against its competitors. Pending
United
States applications are maintained in secret until they
are issued as patents and as such can not be searched
by the Company. There may be pending applications which
will later issue as patents which will create infringement
issues for the Company. Further, patents already issued to
the Company or applications of the Company which are
pending may become involved in interferences that could
be resolved in favor of competitors of the Company and
involve the expenditure of substantial financial and human
resources of the Company.
Company policy is to require its officers,
employees, consultants and advisors to execute proprietary
information and invention assignment agreements upon
commencement of their relationships with the Company. There
can be no assurance, however, that
these agreements will provide meaningful
protection for the Company's inventions, trade secrets
or other proprietary information in the event of
unauthorized use or
disclosure of such information. Violations of such
agreements are difficult to police. See "Business
_ Intellectual Property and Other Proprietary Rights."
Government Regulation; Uncertainty with Preclinical
and
Clinical Testing
All medical devices and new drugs, including
the
Company's products under development, are subject to
extensive and rigorous regulation by the federal government,
principally the FDA, and by state and local governments.
Such regulations govern the development, testing,
manufacture, labeling,
storage, premarket clearance or approval,
advertising,
promotion, sale and distribution of such products. If
medical devices or drug products are marketed abroad, they
also are subject to regulation by foreign governments.
The regulatory process for obtaining FDA
premarket
clearances or approvals for medical devices and drug
products is generally lengthy, expensive and uncertain.
Securing FDA marketing clearances and approvals often
requires the
submission of extensive clinical data and
supporting information to the FDA. Product clearances and
approvals, if granted, can be
withdrawn for failure to comply with
regulatory requirements or upon the occurrence of
unforeseen problems following initial marketing.
There can be no assurance that the Company will be
able to obtain necessary regulatory clearances or approvals
on a timely basis, if at all, for any of its
products under development, and delays in receipt or
failure to receive such clearances or approvals or failure
to comply with existing or future regulatory requirements
could have a material adverse effect on the Company.
Moreover, regulatory clearances or approvals for products
such as medical devices and new drugs, even if granted,
may include significant limitations on the uses for which
such products may be marketed. Certain changes to marketed
medical devices and new drugs are subject to additional
FDA review and clearance or approval. There can be no
assurance that any clearances or approvals that are
required, once obtained, will not be withdrawn or
that compliance with other regulatory requirements
can be
maintained. Further, failure to comply with applicable FDA
and other regulatory requirements can result in sanctions
being imposed on the Company or the manufacturers of its
products, including warning letters, fines, product recalls
or seizures, injunctions, refusals to permit products to be
imported into or exported out of the United States,
refusals of FDA to grant premarket clearance or premarket
approval of medical devices
and drugs or to allow the Company to enter into
government supply contracts, withdrawals of previously
approved marketing applications and criminal prosecutions.
The Company received 510(k) clearance from the FDA
in 1996 for the SmartMist system. The Company has
made modifications to the SmartMist system since
receiving clearance, which the Company believes do not
require the submission of new 510(k) notifications to the
FDA. There can be no assurance, however, that the FDA
would agree with any of the Company's determinations not to
submit a new 510(k) notice for any of these changes or
would not require the Company to submit a new 510(k) notice
for any of the changes made to the device. If the FDA
requires the Company to submit a new 510(k) notice for any
modification to the SmartMist system, the Company may be
prohibited from marketing the modified device until the
510(k) notice is cleared by the FDA, which could have a
material adverse effect on the Company.
The Company may also be subject to certain user fees
that the FDA is authorized to collect under the
Prescription Drug User Fees Act of 1992 for certain drugs,
including insulin and morphine. This act expired on
September 30, 1997,
and
legislation to reauthorize it has been passed by the House
and Senate. It must be reconciled in a House-Senate
conference and signed by the President to become law.
Before the Company can file for regulatory approvals
for the commercial sale of the Company's potential AERx
products, the FDA will require extensive preclinical
and clinical testing to demonstrate the safety and
efficacy of such potential products. To date, the Company
has tested an early prototype patient-operated version of
the AERx Pain Management System with morphine on a limited
number of healthy volunteers in Phase I clinical trials in
the United States. Failure of the Company to progress to
more advanced clinical trials would have a material adverse
effect on the Company. There can be no assurance that the
Company will be able to manufacture sufficient
quantities of the disposable unit-dose packets to support
any future clinical trials of the AERx system, or that the
design requirements of the AERx system will make it
feasible for development beyond the prototype currently
being used.
The timing of completion of clinical trials is
dependent upon, among other factors, the enrollment of
patients. Patient recruitment is a function of many factors,
including the size of the patient population, the
proximity of patients to clinical sites, the eligibility
criteria for the study and the existence of competitive
clinical trials. Delays in planned patient enrollment in
the Company's current trials or future clinical trials may
result in increased costs, program delays or both, which
could have a material adverse effect on the Company.
The Company also is developing applications of its
AERx system for the delivery of insulin and other compounds.
These applications are in an early stage of development
and the regulatory requirements associated with
obtaining the
necessary marketing approvals from the FDA and
other
regulatory agencies are not known. There can be no
assurance that these applications of the AERx system will
prove to be viable or that any necessary regulatory
approvals will be obtained in a timely manner, if at all.
Although the Company believes the data regarding the
Company's potential products is
encouraging, the results of initial preclinical and
clinical testing of the products under development by
the Company are not necessarily predictive of results that
will be obtained from subsequent or more extensive
preclinical and clinical testing. Furthermore, there can be
no assurance that clinical trials of products under
development will demonstrate the safety and efficacy of
such products at all or to the extent necessary to obtain
regulatory approvals. Companies in the medical device,
pharmaceutical and biotechnology industries have
suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials.
The failure to demonstrate adequately the safety and
efficacy of a therapeutic product under development
could delay or prevent regulatory approval of the product
and would have a material adverse effect on the Company.
In addition, due to limited experience with
chronic administration of drugs delivered via the lung for
systemic effect, the FDA may require clinical data to
demonstrate that such chronic administration is safe. There
can be no assurance that the Company will be able to present
such data in a timely manner, or at all.
The FDA and other regulatory agency requirements
for manufacturing, product testing and marketing can
vary depending upon whether the product is a medical device
or a drug. Manufacturers of medical devices and drugs
also are required to comply with the applicable GMP
requirements, which relate to product testing and quality
assurance as well as the corresponding maintenance of
records and documentation. There can be no assurance that
the Company will be able to comply with the applicable GMP
and other FDA regulatory requirements as it scales up its
manufacturing operations. Such failure could have a
material adverse effect on the Company.
In addition, in order for the Company to market
its products in Europe and in certain other foreign
jurisdictions, the Company and its distributors and
agents must obtain required regulatory approvals and
clearances and otherwise comply with extensive
regulations regarding safety and
quality. These regulations, including the requirements
for approvals or clearance to market and the time
required for regulatory review, vary from country to
country. There can be no assurance that the Company will
obtain regulatory approvals in such countries or that it
will not be required to incur significant costs in
obtaining or maintaining its foreign regulatory approvals.
Delays in receipt of approvals to market the Company's
products, failure to receive these approvals, or future
loss of previously received approvals could have a
material adverse effect on the Company's business,
financial condition and results of operations.
Because the Company's AERx Pain Management
System clinical studies involve morphine, the Company is
registered with the Drug Enforcement Agency ("DEA") and
its facilities are subject to inspection and DEA export,
import, security and production quota requirements. There
can be no assurance that the Company will not be required
to incur significant costs to comply with DEA regulations
in the future or that such regulations will not have a
material adverse effect on the Company.
Highly Competitive Markets; Risk of Alternative Therapies
The medical device, pharmaceutical and
biotechnology industries are highly competitive and rapidly
evolving. The Company's success will depend on its ability
to successfully
develop products and technologies for pulmonary drug
delivery. If a competing company were to develop or acquire
rights to a better pulmonary delivery device, the
Company could be
materially and adversely affected.
The Company is in competition with
pharmaceutical, biotechnology and drug delivery companies
and other entities engaged in the development of
alternative drug delivery systems or new drug research
and testing, as well as with entities producing and
developing injectable drugs. The Company is aware of a
number of companies currently seeking to develop
new products and non-invasive alternatives to
injectable drug delivery, including oral, intranasal
and transdermal delivery systems and colonic absorption
systems. The Company also is aware of other companies
currently engaged in the development and commercialization
of pulmonary drug delivery systems and enhanced
injectable drug delivery
systems. Many of the Company's competitors have
greater research and
development capabilities, experience,
manufacturing, marketing, sales, financial and
managerial resources than the
Company and represent significant
competition for the Company. Acquisitions of competing
drug delivery companies by large pharmaceutical
companies or
partnering arrangements between such companies could
enhance competitors' financial, marketing and other
resources. The Company's competitors may succeed in
developing competing technologies, obtaining FDA approval
for products more rapidly than the Company and gaining
greater market acceptance of their products than the
Company's products. There can be no assurance that
developments by others will not render some or all of
the Company's proposed products or technologies
uncompetitive or obsolete, which would have a material
adverse effect on the Company.
Dependence on Key Personnel
The Company is dependent upon a limited number of
key management and technical personnel. The loss of the
services of one or more of such key employees could have
a material adverse effect on the Company. In addition,
the Company's success will depend upon its ability to
attract and retain additional highly qualified sales,
management, manufacturing and research and development
personnel. The Company faces intense competition in its
recruiting activities, and there can be no assurance
that the Company will be able to attract or retain qualified
personnel.
Exposure to Product Liability
The research, development and commercialization
of
medical devices and therapeutic products entails
significant product liability
risks. If the Company succeeds in
commercializing products using the SmartMist system or
the AERx system and if it succeeds in developing
additional devices and new products, the use of such
products in clinical trials and the commercial sale of such
products may expose the Company to liability claims.
These claims might be made directly by consumers or by
pharmaceutical companies or others selling such products.
Companies often address the exposure of such risk by
obtaining product liability insurance. Although the
Company currently maintains limited product liability
insurance, there can be no assurance that the Company will
be able to obtain additional or maintain existing
insurance on acceptable terms, or at all, or in amounts
sufficient to protect the Company. A successful claim
brought against the Company in excess of the Company's
insurance coverage would
have a material adverse effect on the Company's business.
Uncertainty Related to Third-Party Reimbursement
In both domestic and foreign markets, sales of
the Company's current and potential products, if any, will
depend in part on the availability of reimbursement from
third-party payors such as government health
administration authorities, private health insurers and
other organizations. Third-party payors are increasingly
challenging the price and costeffectiveness of medical
products and services. Significant uncertainty exists as
to the reimbursement status of newly approved health care
products. There can be no assurance that any of the
Company's current and potential products will be
reimbursable by third-party payors. In addition, there can
be no assurance that the Company's current and potential
products will be considered cost-effective or that adequate
third-party reimbursement will be available to enable
Aradigm to maintain price levels sufficient to realize a
profit. Legislation and regulations affecting the
pricing of pharmaceuticals may change before the
Company's current and potential products are approved for
marketing and any such changes could further limit
reimbursement.
Hazardous Materials
The Company's operations involve the controlled use
of hazardous materials, chemicals and various
radioactive compounds. Although the Company believes
that its safety procedures for handling and disposing of
such materials comply with the
standards prescribed by state and federal
regulations, the risk of accidental contamination or
injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and such
liability could exceed the resources of the Company.
Possible Volatility of Stock Price
The market prices for securities of many
companies, including the Company, engaged in pharmaceutical
development activities historically have been highly
volatile and the market from time to time has experienced
significant price and volume fluctuations that are
unrelated to the operating performance of particular
companies. Prices for the Company's Common Stock may be
influenced by many factors, including investor perception
of the Company, fluctuations in the Company's operating
results and market conditions relating to the
pharmaceutical industry. In addition, announcements of
technological innovations or new commercial products by
the Company or its competitors, delays in the
development or approval of the Company's product
candidates, developments or disputes concerning patent or
proprietary rights, publicity regarding actual or
potential developments relating to
products under development by the Company or its
competitors, regulatory developments in both the United
States and foreign countries, public
concern as to the safety of
drug
technologies and economic and other external factors, as
well as period-to-period fluctuations in financial
results, may have a significant impact on the market
price of the Common
Stock. Finally, future sales of substantial amounts of
Common Stock by existing shareholders could also adversely
affect the prevailing price of the Common Stock. In the
past, following periods of volatility in the market
price of a company's securities, class action securities
litigation has often been
instituted against such a company. Any such litigation
instigated against the Company could result in substantial
costs and a diversion of management's attention and resources,
which could have a material adverse effect on the Company's
business, financial condition and operating results.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Aradigm Corporation
We have audited the accompanying balance sheets of
Aradigm Corporation as of December 31, 1997 and 1996, and
the related statements of operations, shareholders' equity,
and cash flows for each of the three years in the period
ended December 31, 1997. These financial
statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material
misstatement. An audit includes examining, on a test
basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial
position of Aradigm Corporation at December 31, 1997 and
1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG
LLP
Palo Alto, California
February 6, 1998
Aradigm Corporation
Balance Sheets
(In thousands, except share data)
December 31,
1997 1996
Assets
Current assets:
Cash and cash equivalents $15,517 $17,454
Short-term investments 8,788 8,078
Receivables 261 -
Inventories 520 -
Other current assets 409 451
Total current assets 25,495 25,983
Investments - 3,002
Property and equipment, net 4,417 1,453
Notes receivable from officers 303 220
Other assets 79 75
Total assets $30,294 $30,733
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 1,505 $ 601
Accrued clinical and other - 899
studies
Accrued compensation 728 280
Deferred revenue 6,339 169
Other accrued liabilities 342 279
Current portion of capital lease
obligations 582 269
and equipment loans
Total current liabilities 9,496 2,497
Noncurrent portion of capital
lease obligations 2,139 350
and equipment loans
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 5,000,000
shares authorized; no - -
shares issued or outstanding
Common stock, no par value, 40,000,000
shares authorized;
issued and outstanding shares: 54,976 49,821
1997 - 10,632,133; 1996 -
10,214,054
Shareholder notes receivable (386) (483)
Deferred compensation (104) (308)
Accumulated deficit (35,827) (21,144)
Total shareholders' equity 18,659 27,886
Total liabilities and $30,294 $30,733
shareholders' equity
Aradigm Corporation
Statements of Operations
(In thousands, except share and per share data)
Years ended December 31, 1997
1996 1995
Contract and license $ 3,685 $ 730 $ 155
revenues
Expenses:
Research and 12,732 7,981 3,440
development
General and 6,732 2,958 2,334
administrative
Total expenses 19,464 10,939 5,774
Loss from operations (15,779) (10,209) (5,619)
Interest income 1,329 1,179 206
Interest expense (234) (52) (20)
Net loss $(14,684) $(9,082) $ (5,433)
Basic and diluted $(1.43) $(1.49) $(5.41)
net loss per
share
Shares used in
computing basic 10,280,091 6,098,038 1,004,133
and diluted net
loss per share
Aradigm Corporation
Statement of Shareholders' Equity
(In thousands, except share data)
Preferred Stock Common Stock
Shares Amount Shares Amount
Balances at 3,503,458 $12,566 936,679 $ 114
December 31,
1994
Issuance of - - 397,375 156
common stock
Repurchase of - - (7,029) (3)
common stock
Repayment of - - - -
notes
receivable
Issuance of
Series E 2,108,452 11,553 - -
convertible
preferred
stock
Net loss - - - -
Balances at 5,611,910 24,119 1,327,025 267
December 31,
1995
Issuance of - - 662,629 350
common stock
Repurchase of - - (2,766) (1)
common stock
Issuance of
common stock
upon (5,611,910) (24,119) 5,727,166 24,119
conversion of
preferred
stock and
warrants, net
Issuance of - - 2,500,000 24,591
common stock
Deferred - - - 495
compensation
Amortization of - - - -
deferred
compensation
Net change in - - - -
unrealized
gain (loss) on
available-for-
sale
investments
Net loss - - - -
Balances at - - 10,214,054 49,821
December 31,
1996
Issuance of - - 432,513 5,164
common stock
Repurchase of - - (14,434) (9)
common stock
Repayment of - - - -
shareholder
notes
Amortization of - - - -
deferred
compensation
Net change in - - - -
unrealized
gain (loss) on
available-for-
sale
investments
Net loss - - - -
Balances at - $ - 10,632,133 $54,976
December 31,
1997
Aradigm Corporation
Statement of Shareholders' Equity
(continued)
(In thousands, except share data)
Share- Total
holder Deferred Accumu- Share-
Notes Compen- lated holders
Receiv- sation Deficit Equity able
Balances at $(84) $ - $(6,636) $ 5,960
December 31,
1994
Issuance of (143) - - 13
common stock
Repurchase of 3 - - -
common stock
Repayment of 28 - - 28
notes
receivable
Issuance of
Series E - - - 11,553
convertible
preferred
stock
Net loss - - (5,433) (5,433)
Balances at (196) - (12,069) 12,121
December 31,
1995
Issuance of (288) - - 62
common stock
Repurchase of 1 - - -
common stock
Issuance of
common stock
upon - - - -
conversion of
preferred
stock and
warrants,
net
Issuance of - - - 24,591
common stock
Deferred - (495) - -
compensation
Amortization - 187 - 187
of deferred
compensation
Net change in - - 7 7
unrealized
gain (loss)
on available-
for-sale
investments
Net loss - - (9,082) (9,082)
Balances at (483) (308) (21,144) 27,886
DecemberE31,
1996
Issuance of - - - 5,164
common stock
Repurchase of 9 - - -
common stock
Repayment of 88 - - 88
shareholder
notes
Amortization - 204 - 204
of deferred
compensation
Net change in - - 1 1
unrealized
gain (loss)
on available-
for-sale
investments
Net loss - - (14,684) (14,684)
Balances at $(386) $(104) $(35,827) $18,659
December 31,
1997
Aradigm Corporation
Statements of Cash Flows
(In thousands)
Years ended December 31,
1997 1996 1995
Cash flows from
operating activities
Net loss $(14,684) $(9,082) $(5,433)
Adjustments to
reconcile net loss
to net cash used in
operating
activities:
Depreciation and 691 389 193
amortization
Amortization of 204 187 -
deferred
compensation
Loss on disposal of - - 18
property and
equipment
Loss on sale- - - 95
leaseback
transaction
Changes in operating
assets and
liabilities:
Receivables (261) 260 (260)
Inventories and (478) (376) (39)
other current assets
Other assets (4) (8) (59)
Accounts payable 904 426 (40)
Accrued liabilities (388) 1,172 118
Deferred revenue 6,170 (61) 230
Cash used in (7,846) (7,093) (5,177)
operating activities
Cash flows from
investing activities
Capital expenditures (2,756) (811) (535)
Purchases of (27,278) (191,767)
available-for-sale
investments
Proceeds from 29,571 180,694
maturities of
available-for-sale
investments
Cash used in (463) (11,884) (535)
investing activities
Cash flows from
financing activities
Proceeds from - - 11,553
issuance of
preferred stock
Proceeds from 5,164 24,653 13
issuance of common
stock, net
Proceeds from 88 - 28
repayments of
shareholder notes
Proceeds from sale
of equipment in sale- - - 390
leaseback
transaction
Notes receivable (83) (69) (151)
from officers
Proceeds from 1,437 - -
equipment loans
Payments on lease (234) (270) (91)
obligations and
equipment loans
Cash provided by 6,372 24,314 11,742
financing activities
Net (decrease) (1,937) 5,337 6,030
increase in cash and
cash equivalents
Cash and cash 17,454 12,117 6,087
equivalents at
beginning of year
Cash and cash $ 15,517 $17,454 $12,117
equivalents at end
of year
Supplemental
investing and
financing activities
Common stock issued $ - $ 288 $ 143
in exchange for
notes receivable
Common stock
repurchased upon $ 9 $ 1 $ 3
cancellation of
shareholder notes
Acquisition of $ 899 $ 395 $ 585
equipment under
capital leases
Aradigm Corporation Notes to Financial Statements
December 31, 1997
1. Organization and Summary of Significant Accounting Policies
Organization and Basis of Presentation
Aradigm Corporation (the OCompanyO) was incorporated in
California. Through June 1997, prior to the signing of the
Company's collaborative agreement with SmithKline Beecham (see
Note 7), the Company was in the development stage. Since
inception, Aradigm has been engaged in the development and
commercialization of non-invasive pulmonary drug delivery
systems. The Company does not anticipate receiving
significant revenue from the sale of products in the upcoming
year. Principal activities to date have included obtaining
financing, recruiting management and technical personnel,
securing operating facilities, conducting research and
development, and expanding commercial production capabilities.
These factors indicate that the Company's ability to continue
its research, development and commercialization activities is
dependent upon the ability of management to obtain additional
financing as required.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Depreciation and Amortization
The Company records property and equipment at cost and
calculates depreciation using the straight-line method over
the estimated useful lives of the respective assets, generally
four to seven years. Machinery and equipment acquired under
capital leases is amortized over the useful lives of the
assets. Leasehold improvements are amortized over the shorter
of the term of the lease or useful life of the improvement.
Revenue Recognition
Contract revenues consist of revenue from collaboration
agreements and feasibility studies. The Company recognizes
revenue ratably under the agreements as costs are incurred.
Deferred revenue represents the portion of research payments
received that has not been earned. In accordance with
contract terms, up-front and milestone payments from
collaborative research agreements are considered
reimbursements for costs incurred under the agreements and,
accordingly, are generally deferred when received and
recognized as revenue based on actual efforts expended over
the remaining terms of the agreements. Non-refundable signing
or license fee payments that are not dependent on future
performance under collaborative agreements are recognized as
revenue when received. Costs of contract revenue approximate
such revenue and are included in research and development
expenses.
Net Loss Per Share
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.
Net loss per share for 1996 and 1995 have been retroactively
restated to apply the requirements of Staff Accounting
Bulletin No. 98, issued by the SEC in February 1998 ("SAB
98"). Under SAB 98, certain shares of common stock and
options to purchase shares of common stock issued at prices
substantially below the per share price of shares sold in the
Company's initial public offering previously included in the
computation of shares outstanding pursuant to Staff Accounting
Bulletin Nos. 55, 64 and 83 are now excluded from the
computation.
The following pro forma per share data, as adjusted, is
provided to show the calculation on a consistent basis for
1997, 1996 and 1995. It has been computed as described above,
but includes the retroactive effect from the date of issuance
of the conversion of convertible preferred stock to common
shares upon the closing of the Company's initial public
offering in June 1996.
A reconciliation of shares used in the calculation of
historical and pro forma, as adjusted, basic and diluted net
loss per share follows:
Year ended December 31, 1997
1996 1995
Net loss $(14,684) $(9,082) $(5,433)
Basic and Diluted
Weighted average common shares
outstanding used in computing
basic and diluted net loss 10,280,091 6,098,038 1,004,133
per share
Basic and diluted net loss per $ (1.43) $(1.49) $(5.41)
share
Pro Forma Basic and Diluted,
as adjusted
Shares used in computing basic
and diluted net loss per 10,280,091 6,098,038 1,004,133
share
Adjusted to reflect the effect - 2,529,456 3,503,468
of the assumed conversion of
preferred stock
Shares used in computing pro
forma basic and diluted net 10,280,091 8,627,494 4,507,601
loss per share, as adjusted
Pro forma basic and diluted
net loss per share, as $ (1.43) $(1.05) $(1.21)
adjusted
Had the Company been in a net income position, diluted
earnings per share would have included the shares used in the
computation of pro forma basic net loss per share as well as
an additional 222,031 shares related to outstanding options
and warrants not included above (as determined using the
treasury stock method).
Employee Benefit Plans
The Company has a 401(k) Plan which stipulates that all full
time employees with at least three months of employment can
elect to contribute to the 401(k) Plan, subject to certain
limitations, up to 20% of salary on a pretax basis. The
Company has the option to provide matching contributions but
has not done so to date.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income," and Statement of
Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related
Information," which require additional disclosures to be
adopted beginning in the first quarter of 1998 and on December
31, 1998, respectively. Under SFAS 130, the Company is
required to display comprehensive income and its components as
part of the Company's full set of financial statements. SFAS
131 requires that the Company report financial and descriptive
information about its reportable operating segments. The
Company is evaluating the impact, if any, of SFAS 130 and SFAS
131 on its future financial statement disclosures, but does
not believe the additional disclosure will be material to the
financial statements.
Reclassifications
Certain reclassifications of prior year amounts have been made
to conform with current year presentation.
2. Financial Instruments
Cash Equivalents and Investments
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. The Company places its cash and cash equivalents
in money market funds, commercial paper and corporate master
notes. The Company's short-term investments consist of
corporate notes and market auction preferred securities with
maturities ranging from 3 to 12 months. Other investments
consist of corporate notes with maturities greater than 12
months.
The Company classifies its investments as available-for-sale.
Available-for-sale investments are recorded at fair value with
unrealized gains and losses reported in the statement of
shareholders' equity. Fair values of investments are based on
quoted market prices, where available. Realized gains and
losses, which have been immaterial to date, are included in
interest and other income and are derived using the specific
identification method for determining the cost of investments
sold. Dividend and interest income is recognized when earned.
The following summarizes the Company's cash equivalents and
investments:
Estimated Fair Value
at December 31,
1997 1996
Cash and cash equivalents:
Money market fund $ 6,000 $ 17,000
Commercial paper 14,331,000 16,939,000
$ 14,337,000 $ 16,956,000
Short-term investments:
Commercial paper $ 3,272,000 $ -
Corporate notes 3,216,000 6,978,000
Market auction preferred
securities 2,300,000 1,100,000
$ 8,788,000 $8,078,000
Investments:
Corporate notes $ - $ 3,002,000
As of December 31, 1997 and 1996, the difference between the
estimated fair value and the amortized cost of available-for
sale securities was immaterial. As of December 31, 1997, the
average portfolio duration was approximately two months, and
the contractual maturity of any single investment did not
exceed six months from the balance sheet date.
3. Inventories
Inventories are stated at the lower of cost (first-in firstout
basis) or market. Inventories consist of the following:
December 31,
1997 1996
Raw materials $479,000 $ -
Finished goods 41,000 -
$520,000 $ -
4. Property and Equipment
Property and equipment consist of the following:
December 31,
1997 1996
Machinery and equipment $3,294,000 $601,000
Furniture and fixtures 434,000 273,000
Lab equipment 1,048,000 594,000
Computer equipment and software 755,000 496,000
Leasehold improvements 288,000 201,000
5,819,000 2,164,000 Less
accumulated depreciation and (1,402,000) (711,000)
amortization
$4,417,000 $1,453,000
Property and equipment at December 31, 1997 includes assets
under capitalized leases of approximately $3,322,000 ($980,000
in 1996). Accumulated amortization related to leased assets
was approximately $392,000 at December 31, 1997 ($344,000 in
1996).
5. Leases and Commitments
In August 1997, the Company obtained an additional $5.0
million equipment lease line of credit of which approximately
$2.9 million remains available at December 31, 1997 for
purchases through September 1998. Amounts borrowed under the
Company's equipment lines of credit bear interest at rates
from 10% to 15% and are collateralized by the equipment
purchased. Under the terms of the lease agreements, the
Company has the option to purchase the leased equipment at a
negotiated price at the end of each lease term. The Company
leases its office and laboratory facilities under several
operating leases expiring through the year 2014.
Future minimum lease payments under noncancelable operating
and capital leases at December 31, 1997 are as follows:
Operating Capital
Leases Leases
Years ending December 31:
1998 $843,000 $954,000
1999 1,066,000 842,000
2000 1,298,000 723,000
2001 1,620,000 684,000
2002 and thereafter 33,539,000 462,000
Total minimum lease payments $38,366,000 3,665,000
Less amount representing interest ( 944,000)
Present value of future lease 2,721,000
payments
Current portion of capital lease ( 582,000)
obligations
Noncurrent portion of capital lease $2,139,000
obligations
Rent expense under these operating leases totaled $420,000 and
$197,000 for the years ended December 31, 1997 and 1996,
respectively.
6. Shareholders' Equity
Capital Stock
In June 1996, the Company completed the initial public
offering of its common stock. The Company issued 2,500,000
shares for net proceeds of $24.6 million. Prior to the
closing of the initial public offering, the Company effected a
three-for-two split of its outstanding common stock.
Concurrent with the closing of the initial public offering,
previously outstanding shares of Series A, B, C, D and E
preferred stock were converted into 5,611,911 shares of common
stock. All share and per share data in the accompanying
financial statements has been adjusted retroactively to give
effect to the stock split.
Stock Warrants
In September 1997, in connection with a consulting agreement,
the Company issued a warrant that entitles the holder to
purchase 170,000 shares of common stock at an exercise price
of $8.96 per share. This warrant is exercisable through August
2003. In June 1995, in connection with a master lease
agreement, the Company issued a warrant that entitles the
holder to purchase 37,500 shares of common stock at an
exercise price of $4.23 per share. This warrant is exercisable
through JuneE20, 1998. At December 31, 1997, the Company has
reserved 207,500 shares of its common stock for issuance upon
exercise of these common stock warrants. No amounts have been
recorded for the above warrant issuances as the amounts were
determined to be immaterial at the time of issuance.
1996 Equity Incentive Plan
In April 1996, the Company's Board of Directors adopted and
the Company's shareholders approved the 1996 Equity Incentive
Plan (the "Plan"), which amended and restated the 1992 Stock
Option Plan. Options granted under the Plan may be either
incentive or nonstatutory stock options. At December 31,
1997, the Company had authorized 1,980,000 shares of common
stock for issuance under the Plan. Options granted under the
Plan expire no later than ten years from the date of grant.
For incentive and nonstatutory stock option grants, the option
price shall be at least 100% and 85%, respectively, of the
fair value on the date of grant, as determined by the Board of
Directors. If at any time the Company grants an option, and
the optionee directly or by attribution owns stock possessing
more than 10% of the total combined voting power of all
classes of stock of the Company, the option price shall be at
least 110% of the fair value and shall not be exercisable more
than five years after the date of grant.
Options granted under the 1996 Equity Incentive Plan are
immediately exercisable and generally vest over a period of
four years from the date of grant. Under the Plan, employees
may exercise options in exchange for a note payable to the
Company. As of December 31, 1997 and 1996, notes receivable
from shareholders of $386,000 and $483,000, respectively, were
outstanding. These notes generally bear interest at 6% and
are due and payable in regular installments over a five year
period. Any unvested stock issued is subject to repurchase
agreements whereby the Company has the option to repurchase
unvested shares upon termination of employment at the original
issue price. The common stock has voting rights but does not
have resale rights prior to vesting. During 1997, the Company
granted options to purchase 550,600 shares of common stock
none of which were exercised. The Company has repurchased a
total of 24,229 shares in accordance with these agreements. As
of December 31, 1997, 219,410 shares of the Company's common
stock remained subject to repurchase and 985,099 shares were
reserved for issuance upon exercise of options.
The following is a summary of activity under the Plan:
Options Outstanding
Shares
Available Weighted
for Grant Number of Price Per Average
of Shares Share Exercise
Options Price
Balance at 270,825 539,175 $0.10- $0.29
December 31, 1994 $0.37
Shares 150,000 - $- $-
authorized
Shares granted (290,550) 290,550 $0.33- $0.43
$0.43
Shares - (335,876) $0.33- $0.38
exercised $0.43
Shares 41,607 (41,607) $0.33- $0.39
cancelled $0.43
Balance at 171,882 452,242 $0.10- $0.30
December 31, 1995 $0.43
Shares 1,005,000 - $- $-
authorized
Shares granted (523,520) 523,520 $0.57- $3.66
$9.88
Shares - (662,629) $0.10- $0.53
exercised $5.33
Balance at 653,362 313,133 $0.10- $5.45
December 31, 1996 $9.88
Shares granted (550,600) 550,600 $6.88- $8.75
$12.88
Shares - (5,625) $5.33 $5.33
exercised
Shares 24,229 - $0.37- $0.49
repurchased $0.57
Shares 26,825 (26,825) $5.33- $6.03
cancelled $9.88
Balance at 153,816 831,283 $0.10- $7.62
December 31, 1997 $12.88
Options Outstanding and Exercisable
Weighted
Weighted Average
Average Remaining
Exercise Price Range Number Exercise Contractual
Price Life
(in years) $0.10-
$2.00 69,033 $0.46 6.6
$4.00-$6.88 188,900 $5.70 8.7
$7.00-$9.88 473,200 $8.42 9.2
$11.13-$12.88 100,150 $12.35 9.8
$0.10-$12.88 831,283 $7.62 9.0
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and the related Interpretations in accounting for
its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123"), requires use of option pricing
valuation models that were not developed for use in valuing
employee stock options. Under APB 25, the Company has generally
recognized no compensation expense with respect to such awards.
The Company recorded deferred compensation of approximately
$495,000 for the difference between the grant price and the
deemed fair value of certain of the Company's common stock
options granted in 1996. This amount is being amortized over
the vesting period of the individual options, generally a 48-
month period. Deferred compensation expense recognized in the
years ended December 31, 1997 and 1996 was approximately
$204,000 and $187,000, respectively. The weighted average fair
value of options granted during 1996 with an exercise price
below the deemed fair value of the Company's common stock on
the date of grant was $2.15. There were no such grants in
1997. The weighted average fair value of options granted
during 1997 and 1996 with an exercise price equal to the fair
value of the Company's common stock on the date of grant was
$3.35 and $5.60, respectively.
Pro forma information regarding net loss and basic and diluted
net loss per share is required by SFAS 123, which also
requires that the information be determined as if the Company
had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method
prescribed by this statement. The fair value of options was
estimated at the date of grant using the Black-Scholes option
pricing model with the following assumptions: a risk-free
interest rate ranging from 5.7%-6.4%, 5.1%-5.8% and 5.5%-7.9%
for the years ending December 31, 1997, 1996 and 1995,
respectively; a dividend yield of 0.0%; a volatility factor of
the expected market price of the Company's common stock of
0.7; and a weighted average expected option life of four
years. Options granted prior to the Company's initial public
offering in June 1996 have a volatility factor of 0.0.
For purposes of pro forma disclosure, the estimated fair value
of the options is amortized to expense over the vesting period
of the options using the straight-line method. Pro forma
information on the above basis is as follows:
Year ended December 31, 1997
1996 1995
Pro forma net loss $(14,960,000) $(9,117,000) $(5,437,000)
Net loss - as reported $(14,684,000) $(9,082,000) $(5,433,000)
Pro forma basic and $ (1.46) $ (1.50) $ (5.41)
diluted net loss per
share
Basic and diluted net $ (1.43) $ (1.49) $ (5.41)
loss per share - as
reported
The effects of applying SFAS 123 for pro forma disclosures are
not likely to be representative of the effects on reported net
loss for future years. Pro forma net loss for the year ended
December 31, 1997 reflects compensation expense for three
years' vesting, while the year ending December 31, 1998 will
reflect compensation expense for four years' vesting of
outstanding stock options.
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (the "Purchase Plan"),
150,000 shares of common stock have been authorized for
issuance. Shares may be purchased under the Purchase Plan at
85% of the lesser of the fair market value of the common stock
on the grant date or purchase date. As of December 31, 1997,
21,824 shares have been issued under the Purchase Plan.
1996 Non-Employee Directors' Stock Option Plan
The 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") authorizes the grant of 225,000 options for
the Company's common stock. As of December 31, 1997, 52,500
options have been granted under the Directors' Plan.
7. Collaborative Agreements
In September 1997, the Company executed a development and
commercialization agreement with SmithKline Beecham covering
use of the AERx Pain Management System for the delivery of
narcotic analgesics. The Company and SmithKline Beecham will
collaborate on the development of the products within this
field. Under the terms of the agreement, SmithKline Beecham
has been granted exclusive worldwide sales and marketing
rights to the AERx Pain Management System for use with such
analgesics, and Aradigm retains all manufacturing rights. If
this system receives regulatory approval, Aradigm expects to
sell devices and drug packets to SmithKline Beecham and to
receive royalties on sales by SmithKline Beecham.
Pursuant to the SmithKline Beecham agreement, Aradigm could
receive up to approximately $30 million in milestone and
product development payments, and $10 million in equity
investments if and when the first product from the
collaboration is commercialized. In October 1997, the Company
received $14 million from SmithKline Beecham under the
agreement, of which $5 million resulted from the sale of
shares of Aradigm Common Stock. Additional milestone and
product development payments will be paid if Aradigm and
SmithKline Beecham decide to jointly develop additional AERx
products which incorporate other opiates or opioids. Through
December 31, 1997, the Company has recognized total contract
revenue of $2.7 million.
In December 1996, the Company entered into a feasibility
agreement with a pharmaceutical company to determine the
feasibility of using the CompanyOs AERx(TM) Pulmonary Drug
Delivery System for the delivery of a specified drug. The
agreement provides for a $169,500 research and development
payment and a $237,500 payment upon acceptance by the
pharmaceutical company of certain specified deliverables. All
revenue under this agreement was recognized in 1997.
In December 1995, the Company entered into a feasibility
agreement with a pharmaceutical company to determine the
feasibility of using the CompanyOs AERx Pulmonary Drug
Delivery System for the delivery of a specified drug. The
agreement provided for a $260,000 research and development
payment. Under this agreement, revenues of $30,000 and
$230,000 were recognized in 1995 and 1996, respectively. In
November 1996, the Company entered into a second such
agreement with the pharmaceutical company that provided for a
$140,000 research and development payment. Costs associated
with research and development activities attributable to these
agreements are expected to approximate the revenues
recognized. The agreement also provided for a non-refundable
license fee of $500,000 upon execution of the agreement, which
was recognized as revenue in 1996.
8. Related Party Transactions
At DecemberE31, 1997, the Company has notes receivable,
including accrued interest, totaling $303,000 from officers of
the Company. Included therein are $153,000 of promissory notes
bearing interest at 6%-7% per annum, generally due and payable
three years from the date of the notes, and collateralized by
certain personal assets of the officers and a $90,000 full
recourse promissory note bearing no interest and due and
payable in SeptemberE1998.
At DecemberE31, 1997, the fair value of these notes is not
materially different from their carrying values. The fair
values were estimated using discounted cash flow analyses,
using interest rates currently offered for loans with similar
terms and to borrowers of similar credit quality.
9. Income Taxes
The Company uses the liability method to account for income
taxes as required by Statement of Financial Accounting
Standards No.E109, OAccounting for Income TaxesO. Under this
method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases
of assets and liabilities and are measured using enacted tax
rules and laws that are expected to be in effect when the
differences are expected to reverse.
Significant components of the CompanyOs deferred tax assets
are as follows:
December 31,
1997 1996
Net operating loss carryforward $13,735,000 $7,336,000
Research and development credit 1,769,000 851,000
carryforward
Other 36,000 611,000
Gross deferred tax assets 15,540,000 8,798,000
Valuation allowance (15,540,000) (8,798,000)
Net deferred tax assets $ - $ -
The valuation allowance increased by $6,742,000 and $3,751,000
in 1997 and 1996, respectively.
At December 31, 1997, the Company had net operating loss
carryforwards of approximately $35,000,000 for federal income
tax purposes expiring in the years 2006 through 2012 and net
operating losses for state income tax purposes of $33,000,000
expiring in the years 1998 through 2002. At December 31, 1997,
the Company had research and development credit carryforwards
for federal income tax purposes of approximately $1,380,000,
which expire in the years 2006 through 2012.
Because of the "change in ownership" provisions of the Tax
Reform Act of 1986, utilization of the Company's tax net
operating loss carryforwards and tax credit carryforwards may
be subject to an annual limitation in future periods. As a
result of the annual limitation, a portion of these
carryforwards may expire before ultimately becoming available
to reduce future income tax liabilities.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors
The information required by this Item concerning the
Company's directors is incorporated by reference from the
section captioned "Proposal 1: Election of Directors"
contained in the Company's Definitive Proxy Statement related
to the Annual Meeting of Shareholders to be held May 15, 1998,
to be filed by the Company with the Securities and Exchange
Commission (the "Proxy Statement").
Identification of Executive Officers
The information required by this Item concerning the
Company's executive offices is set forth in Part I of this
Report.
Section 16(a) Compliance
The information regarding compliance with Section 16(a)
of the Securities Exchange Act of 1934, as amended, required by
this Item is incorporated by reference from the Proxy
Statement.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference from the section captioned "Executive Compensation"
contained in the Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by
reference from the section captioned "Security Ownership of
Certain Beneficial Owners and Management" contained in the
Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference from the section captioned "Certain Transactions"
and "Executive Compensation" contained in the Proxy Statement.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements.
Included in Part II of this Report:
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets --- December 31, 1997 and 1996
Statements of Operations --- Years ended December 31,
1997, 1996, and 1995
Statements of Shareholders' Equity --- Years ended
December 31, 1997, 1996 and 1995
Statements of Cash Flows --- Years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
(2) Financial Statement Schedules.
None.
(3) Exhibits.
3.1 (1) Amended and Restated Articles of Incorporation of
the Company.
3.2 (1) Bylaws of the Company
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 (1) Specimen stock certificate
4.3 (1) Amended and Restated Investor Rights Agreement,
dated December 22, 1995, among the Company and
certain of its shareholders
10.1 (1) (2) Form of Indemnity Agreement between the
Registrant and each of its directors and
officers
10.2 (1) (2) The Company's Equity Incentive Plan, as
amended (the "Equity Incentive Plan")
10.3 (1) (2) Form of the Company's Incentive Stock
Option Agreement under the Equity Incentive
Plan
10.4 (1) (2) Form of the Company's Nonstatutory Stock
Option Agreement under the Equity Incentive
Plan
10.5 (1) (2) Form of the Company's Non-Employee
Directors' Stock Option Plan
10.6 (1) (2) Form of the Company's Nonstatutory Stock
Option Agreement under the Non-Employee
Directors' Stock Option Plan
10.7 (1) (2) Form of the Company's Employee Stock
Purchase Plan
10.8 (1) (2) Form of the Company's Employee Stock
Purchase Plan Offering Document
10.9 (1)Lease Agreement for the property located at
26219 Eden Landing Road, Hayward, California,
dated November 1992 and amended November 29,
1994, between the Company and Hayward Point
Eden I Limited Partnership
10.9a Second Amendment to Lease, dated December 22,
1997, between the Company and Hayward Point
Eden I Limited Partnership
10.9b Third Amendment to Lease, dated January 28,
1998, between the Company and Hayward Point
Eden I Limited Partnership
10.10 Lease Agreement for the property located
at 26224 Executive Place, Hayward, California,
dated January 28,1998, between the Company and
Hayward Point Eden I
Limited Partnership
10.11 (1) Lease Agreement for the property located at
3930 Point Eden Way, Hayward, California, dated
February 21, 1996, between the Company and
Hayward Point Eden I Limited Partnership
10.11a First Amendment to Lease, dated June 10, 1996,
between the Company and Hayward Point Eden I
Limited Partnership
10.11b Second Amendment to Lease, dated December 22,
1997, between the Company and Hayward Point
Eden I Limited Partnership
10.11c Third Amendment to Lease, dated January 28,
1998, between the Company and Hayward Point
Eden I Limited Partnership
10.12 (1) (2)Stock Purchase Agreement and related
agreements, including Promissory Note, dated
May 19, 1994, between the Company and Richard
P. Thompson
10.13 (1) (2)Stock Purchase Agreement and related
agreements, including Promissory Note, dated
May 23, 1995, between the Company and R. Ray
Cummings
10.14 (1) (2)Note Agreement and Promissory Note Secured
by Deed of Trust, dated May 1, 1995, between
the Company and R. Ray Cummings
10.15 (1) (2)Promissory Note, dated October 26, 1995,
between the Company and Igor Gonda
10.16 (1) (2)Promissory Note, dated December
27, 1995, between the Company and Igor Gonda
10.17 (1) Master Lease Agreement and Warrant,
between the Company and Comdisco, Inc., dated
June 9, 1995
10.18 (3)(4) Product Development and Commercialization
Agreement between the Company and SmithKline
Beecham PLC
10.19 (3)(4) Stock Purchase Agreement between the
Company and SmithKline Beecham PLC
10.20 Lease Agreement for the property located at
3911 Trust Way, Hayward, California, dated March
17, 1997, between the Company and Hayward Point
Eden I Limited Partnership
10.20a First Amendment to Lease, dated December 22,
1997, between the Company and Hayward Point
Eden I Limited Partnership
10.20b Second Amendment to Lease, dated January 28,
1998, between the Company and Hayward Point
Eden I Limited Partnership
10.21 Lease Agreement for the property located in
Phase V of the Britannia Point Eden Business
Park in Hayward, California, dated January 28,
1998, between the Company and Britannia Point
Eden, LLC
23.1 Consent of Ernst & Young L.L.P., Independent
Auditors. Reference is made to page 57.
24.1 Power of Attorney. Reference is made to page
54.
- -----------------------------------------
(1)Incorporated by reference to the indicated exhibit in
the Company's Registration Statement on Form S-1 (No.
333-4236), as amended.
(2) Represents a management contract or compensatory plan or
arrangement.
(3) Incorporated by reference to the Company's Form 8-K filed
on November 11, 1997.
(4) Confidential treatment requested.
(b) Reports on Form 8-K.
A Form 8-K dated September 30, 1997, was filed on November
11, 1997. On September 30, 1997, the Company entered into a
Product Development and Commercialization Agreement (the
"Agreement") with SmithKline Beecham PLC ("SB") for the purpose
of developing and commercializing
a pulmonary drug delivery system for providing immediate
pain relief using narcotic analgesics. In connection
with the Agreement, the Company sold and issued to SB
pursuant to a Stock Purchase Agreement 405,064 shares of
the Company's common stock at an aggregate purchase price
of $5,000,008.75.
(c) Index to Exhibits.
See Exhibits listed under Item 14 (a) (3).
(d) Financial Statement Schedules.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Hayward, State of California, on the 24th day of March, 1998.
ARADIGM CORPORATION
By /s/ Richard P. Thompson
Richard P. Thompson
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints, jointly and
severally, Richard P. Thompson and Reid M. Rubsamen, M.D., and
each one of them, attorneys-in-fact for the undersigned, each
with the power of substitution, for the undersigned in any and
all capacities, to sign any and all amendments to this Report
on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities
an Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or his substitutes, may
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed
this Power of Attorney as of the date indicated opposite his
name.
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/Richard P. Thompson President, Chief March 24, 1998
Richard P. Thompson Executive Officer
and Director
(Principal Executive
Officer)
/s/Mark A. Olbert Vice President, March 24, 1998
Mark A. Olbert Finance and
Administration
and Chief Financial
Officer(Principal
Financial and
Accounting Officer)
/s/Reid M. Rubsamen Vice President, March 24, 1998
Reid M. Rubsamen,M.D. Medical Affairs,
Secretary
and Director
/s/Jared A. Anderson, Director March 24, 1998
Jared A. Anderson,
Ph.D.
/s/Ross A. Jaffe Director March 24, 1998
Ross A. Jaffe, M.D.
/s/Burton J. McMurtry Director March 24, 1998
Burton J. McMurtry,
Ph.D.
/s/Gordon W. Russell Director March 24, 1998
Gordon W. Russell
/s/Fred E. Silverstein Director March 24, 1998 Fred
E. Silverstein,
M.D.
/s/Virgil D. Thompson Director March 24,1998 Virgil
D. Thompson
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statement on Form S-8 No. 333-15947 pertaining to
the 1996 Equity Incentive Plan of Aradigm Corporation, the
Employee Stock Purchase Plan of Aradigm Corporation, and the
Non-Employee Directors' Stock Option Plan of Aradigm
Corporation of our report dated February 6, 1998, with respect
to the financial statements of Aradigm Corporation included in
the Annual Report (Form 10-K) for the year ended December 31,
1997.
ERNST & YOUNG LLP
Palo Alto, California
March 23, 1998
EXHIBIT 10.9A
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is
entered into as of December 22, 1997 between HAYWARD POINT EDEN
I LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and ARADIGM CORPORATION, a California corporation
("Tenant") previously known as Miris Medical Corporation, with
reference to the following facts:
A. Landlord and Tenant (then known as Miris Medical
Corporation) are parties to a Lease dated as of November 20,
1992, as amended by a First Amendment to Lease dated as of
November 29, 1994 (as amended, the "Lease"), covering certain
premises consisting of approximately 5,600 square feet of space
in Building H of the Britannia Point Eden Business Park (the
"Center") and commonly known as 26219 Eden Landing Road,
Hayward, California 94545 (the "Premises").
B. Concurrently with the execution of this Second
Amendment, Landlord and Tenant are negotiating over a new lease
covering portions of Building G in the Center, a new lease
covering a new building of approximately 80,000 square feet to
be constructed by Landlord or an affiliate in or adjacent to
the Center (the "Phase V Lease"), and amendments of two other
existing leases between Landlord and Tenant affecting portions
of Buildings E and H in the Center.
C. In connection with the negotiation and execution of
the leases and amendments described in the preceding paragraph,
Landlord and Tenant wish to make certain changes in the Lease
as more particularly set forth herein.
D. Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.
NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
1. Extension of Term; Rental. Effective as of the date
of execution of this Second Amendment, (a) Paragraphs 1 and 2
of the First Amendment to the Lease, as described above, are
terminated and shall be of no further force or effect; (b) the
term of the Lease is extended until the day immediately
preceding the fifth (5th) anniversary of this Second Amendment,
subject to the early termination provision hereinafter set
forth; and (c) the minimum monthly rental payable under Section
3.1(a) of the Lease during such fiveyear extended term of the
Lease, as amended hereby, shall be as follows:
Months Minimum Monthly Rental
01-12 $ 5,320.00 ($0.95/sq ft) 13-24
5,544.00 ($0.99/sq ft) 25-36
5,768.00 ($1.03/sq ft) 37-48
5,992.00 ($1.07/sq ft) 49-60
6,216.00 ($1.11/sq ft)
2. Early Termination Right. Notwithstanding any other
provisions of the Lease or of this Second Amendment, if Tenant
relocates the uses presently conducted by Tenant in the
Premises into other leased premises occupied by Tenant from
time to time in the Center (including, but not limited to, any
such relocation into the new building constructed pursuant to
the Phase V Lease following completion of construction of such
building), then Tenant shall have the right to terminate this
Lease, without penalty and without liability for any
termination payment, by not less than six (6) months prior
written notice to Landlord.
3. No Further Improvements. Tenant acknowledges that
it accepts the Premises in their presently existing condition,
"as is," for purposes of the extended term of the Lease under
this Second Amendment and that Landlord has no obligation,
under this Second Amendment or under the Lease, to further
improve the Premises for occupancy by Tenant.
4. Cross-Default. Section 14.1 of the Lease is amended
by adding thereto, as an additional event of default, the
following:
"(i) Cross-Default. Any event of default by Tenant
under (A) any other lease between Landlord and Tenant
covering any other portion of the Property from time to
time during the term of this Lease, or (B) the lease
entered into substantially concurrently herewith by Tenant
and Britannia Point Eden, LLC with respect to a new
building to be constructed in Phase V of the Center, to
the extent (under either of the foregoing clauses) such
default continues beyond any applicable cure periods
provided in the applicable lease, and to the extent
Landlord therefore has (and exercises concurrently with
any termination of this Lease) a right to terminate such
other applicable lease; provided, however, that the
default event set forth in this Section 14.1(i) shall not
apply with respect to any default under a lease described
herein to the extent Tenant has previously assigned or
transferred all of its right, title and interest under the
lease as to which such default then exists and, as a
result of such transfer, the holder of the lessee's
interest under the lease as to which such default then
exists is not a person or entity which controls, is
controlled by or is under common control with the person
or entity which is then the holder of the lessee's
interest under this Lease."
5. Brokers. Landlord and Tenant each represents and
warrants to the other that no broker participated in the
consummation of this Second Amendment, and each agrees to
indemnify, defend and hold the other party harmless against any
liability, cost or expense, including, without limitation,
reasonable attorneys' fees, arising out of any claims for
brokerage commissions or other similar compensation in
connection with any conversations, prior negotiations or other
dealings by the indemnifying party with any such broker or
other claimant.
6. Operating Expenses. The parties acknowledge that
under Section 5.1 of the Lease, Tenant's Operating Cost Share
is presently two and three hundredths percent (2.03%), based on
a square footage of 5,600 square feet for the Premises and a
square footage of 275,674 square feet for all buildings
presently owned by Landlord on the Property (as a result of a
6,000 square foot expansion of one building in 1997).
7. Assignment and Subleasing. Section 11.1 of the
Lease is amended to provide that Landlord's consent to any
proposed sublease or assignment by Tenant will not be
unreasonably withheld or delayed.
8. Full Force and Effect. Except as expressly set
forth herein, the Lease has not been modified or amended and
remains in full force and effect.
[rest of page intentionally left blank]
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Second Amendment as of the date first set forth above.
"Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By: BRITANNIA DEVELOPMENTS, INC., a California corporation,
General Partner
By: ____________________
T. J. Bristow
President
"Tenant"
ARADIGM CORPORATION, a California corporation
By: _____________________
Richard P. Thompson
Its President
17025\3044\0004rv1
EXHIBIT 10.9B
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE ("Second Amendment") is
entered into as of January 28, 1998 between HAYWARD POINT EDEN I
LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord")
and ARADIGM CORPORATION, a California corporation ("Tenant")
previously known as Miris Medical Corporation, with reference to
the following facts:
E. Landlord and Tenant (then known as Miris Medical
Corporation) are parties to a Lease dated as of November 20,
1992, as amended by a First Amendment to Lease dated as of
November 29, 1994 and a Second Amendment to Lease dated as of
December 22, 1997 (as amended, the "Lease"), covering certain
premises consisting of approximately 5,600 square feet of space
in Building H of the Britannia Point Eden Business Park (the
"Center") and commonly known as 26219 Eden Landing Road,
Hayward, California 94545.
F. Concurrently with the execution of this Third
Amendment, Landlord and Tenant are entering into a new lease
covering portions of Building G in the Center (the "New Building
G Lease") and, in connection therewith, wish to amend certain
provisions of the Lease to conform to revised versions of such
provisions incorporated in the New Building G Lease.
G. Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.
NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
9. Operating Expenses. Section 5.2 of the Lease is
amended to read in its entirety as follows:
"5.2 Definition Of Operating Expenses. Subject to
the exclusions and provisions hereinafter contained, the term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (and any
applicable adjacent property owned by Landlord and operated, for
common area purposes, on an integrated basis with the Property
as described above), including, without limitation, costs and
expenses of (i) insurance, property management, landscaping, and
operation, repair and maintenance of buildings and common areas;
(ii) all utilities and services; (iii) real and personal
property taxes and assessments or substitutes therefor,
including (but not limited to) any possessory interest, use,
business, license or other taxes or fees, any taxes imposed
directly on rents or services, any assessments or charges for
police or fire protection, housing, transit, open space, street
or sidewalk construction or maintenance or other similar
services from time to time by any governmental or quasi-
governmental entity, and any other new taxes on landlords in
addition to taxes now in effect (but excluding corporate income
taxes); (iv) supplies, equipment, utilities and tools used in
management, operation and maintenance of the Property; (v)
capital improvements to the Property or the Building, amortized
over the useful life of such capital improvements, (aa) which
reduce or will cause future reduction of other items of
Operating Expenses for which Tenant is otherwise required to
contribute or (bb) which are required by law, ordinance,
regulation or order of any governmental authority or (cc) which
constitute repairs or replacements of existing improvements in
the Premises or common areas of the Property with items of
similar quality and function, as a result of obsolescence or
ordinary wear and tear, in order to maintain and preserve the
quality, safety and usefulness of the Property, to the extent
such repairs or replacements are treated as capital items under
generally accepted accounting principles; and (vi) any other
costs (including, but not limited to, any parking or utilities
fees or surcharges) allocable to or paid by Landlord, as owner
of the Property or Building, pursuant to any applicable laws,
ordinances, regulations or orders of any governmental or quasi
governmental authority or pursuant to the terms of any
declarations of covenants, conditions and restrictions now or
hereafter affecting the Property (or any applicable adjacent
property owned by Landlord as described above). Operating
Expenses shall not include any costs attributable to increasing
the size of or otherwise expanding the Building or the costs of
the work for which Landlord is required to pay under Section 2.4
or Exhibit C. The distinction between items of ordinary
operating maintenance and repair and items of a capital nature
shall be made in accordance with generally accepted accounting
principles applied on a consistent basis. Notwithstanding
anything to the contrary contained in this Section 5.2, the
following shall not be included in Operating Expenses under this
Lease:
(A) Leasing commissions, attorneys' fees, costs,
disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, or in
connection with leasing, renovating or improving space for
tenants or other occupants or prospective tenants or other
occupants of the Building or of the land on which the
Premises are located;
(B) The cost of any service sold to any tenant
(including Tenant) or other occupant for which Landlord is
entitled to be reimbursed as an additional charge or rental
over and above the basic rent and escalations payable under
Landlord's lease with that tenant;
(C) Any depreciation on the Building;
(D) Costs of a capital nature, including but not
limited to capital improvements and alterations, capital
repairs, capital equipment and capital tools, as
determined in accordance with generally accepted
accounting principles consistently applied, except to the
extent expressly provided in clause (v) above;
(E) Expenses in connection with services or other
benefits of a type that are not offered to Tenant but that
are provided to another tenant or occupant of the Building
or land upon which the Premises are located;
(F) Overhead profit increments paid to Landlord's
subsidiaries or affiliates for management or other
services relating to the Building or the Property, or for
supplies or other materials, to the extent the cost of
such services, supplies or materials exceeds a reasonable
market rate for obtaining such services, supplies or
materials from unaffiliated parties;
(G) All interest, loan fees and other carrying costs
related to any mortgage or deed of trust or related to any
capital item, and all rental and other payments due under
any ground or underlying lease, or any lease for any
equipment ordinarily considered to be of a capital nature
(except janitorial equipment which is not affixed to the
Building);
(H) Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by
Landlord;
(I) Advertising and promotional expenditures;
(J) Costs of repairs and other work occasioned by
fire, windstorm or other casualty of an insurable nature;
(K) Any costs, fines or penalties incurred due to
violations by Landlord of any governmental rule or
authority, this Lease or any other lease affecting the
Building or the land on which the Premises are located, or
due to Landlord's negligence or willful misconduct;
(L) Management costs, to the extent they exceed a
reasonable market rate for management services provided to
comparable projects in Hayward, California and surrounding
areas;
(M) Costs for sculpture, paintings or other objects
of art, including (but not limited to) any costs for
insurance thereon or extraordinary security in connection
therewith;
(N) Wages, salaries or other compensation paid to
any executive employee above the grade of building
manager;
(O) The cost of correcting any building code or
other violations of applicable law which, on the
Commencement Date, were existing violations of laws or
codes then in effect;
(P) The cost of containing, removing or otherwise
remediating any contamination of the Building or Property
(including the underlying land and groundwater) by any
toxic or hazardous materials (including, without
limitation, asbestos and PCB's);
(Q) Any increase in real property taxes or
assessments on the Property as a result of a change in
ownership of the Property; provided, however, that the
exclusion contained in this clause (Q) shall apply only in
the determination of Operating Expenses with respect to
periods prior to the third (3rd) anniversary of the
Commencement Date, and shall not apply in the
determination of Operating Expenses with respect to any
subsequent periods during the term of this Lease; and
(R) Any other expense not specifically included or
excluded above which, under generally accepted accounting
principles and practices consistently applied, would not
be considered a normal maintenance or operating expense."
10. Operating Expense Audits. Section 5.4 of the Lease
is amended to read in its entirety as follows:
"5.4 Final Accounting For Lease Year.
(1) Within ninety (90) days after the close of
each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of
Tenant's Operating Cost Share of the Operating Expenses for
such Lease Year prepared by Landlord from Landlord's books and
records, which statement shall be final and binding on Landlord
and Tenant, subject to Tenant's audit right set forth below.
If on the basis of such statement Tenant owes an amount that is
more or less than the estimated payments for such calendar year
previously made by Tenant, Tenant or Landlord, as the case may
be, shall pay the deficiency to the other party within thirty
(30) days after delivery of the statement. Failure or
inability of Landlord to deliver the annual statement within
such ninety (90) day period shall not impair or constitute a
waiver of Tenant's obligation to pay Operating Expenses, or
cause Landlord to incur any liability for damages.
(2) Notwithstanding any other provisions of this
Section 5.4, within one (1) year after receipt of a final
statement from Landlord setting forth actual Operating Expenses
and Tenant's Operating Cost Share for any period (a
"Statement"), Tenant shall have the right to audit or inspect
Landlord's books and records relating to Operating Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided that
such audit shall be conducted only during normal business
hours, on not less than ten (10) days prior written notice to
Landlord, at a location reasonably specified by Landlord, and
at Tenant's sole cost and expense, except as hereinafter
provided. Landlord shall cooperate with Tenant in all
reasonable respects in the course of such audit, and Tenant and
its employees and agents shall be permitted to make photocopies
(at Tenant's expense) of any pertinent portions of Landlord's
books and records. Landlord shall retain its books and records
for each Lease Year for a period of at least one (1) year after
delivery to Tenant of Landlord's Statement for the applicable
Lease Year. To the extent that Tenant, on the basis of such
audit, disputes any item in the applicable Statement or in the
calculation of Tenant's obligations thereunder, Tenant shall
give Landlord written notice of the disputed items, in
reasonable detail and with reasonable supporting information,
within thirty (30) days after the earlier to occur of the
completion of Tenant's audit or the
expiration of Tenant's 1-year audit period. If Landlord and
Tenant are not able to resolve such dispute by good faith
negotiations within thirty (30) days after Tenant notifies
Landlord in writing of the disputed items, then Tenant may, by
written notice to Landlord, request an independent audit of
such books and records. The independent audit of the books and
records shall be conducted by a certified public accountant
acceptable to both Landlord and Tenant or, if the parties are
unable to agree, by a "Big Six" accounting firm designated by
Landlord and not then employed by Landlord or Tenant. The
audit shall be limited to the determination of the amount of
Operating Expenses and of Tenant's share thereof for the Lease
Year covered by the Statement, and shall be based on generally
accepted accounting principles and tax accounting principles,
consistently applied, subject to any modifications or
limitations expressly set forth in
Section 5.2 hereof. If it is determined, by mutual agreement
of Landlord and Tenant or by independent audit, that the amount
paid by Tenant for Operating Expenses for the period covered by
the Statement was incorrect, then the appropriate party shall
pay to the other party the deficiency or overpayment, as
applicable, within thirty (30) days after the final
determination of such deficiency or overpayment. All costs and
expenses of the audit shall be paid by Tenant unless the audit
shows that Landlord overstated Operating Expenses for the
period covered by the Statement by more than four percent (4%),
in which event Landlord shall pay all costs and expenses of the
audit. Each party agrees to maintain the confidentiality of
the findings of any audit in accordance with the provisions of
this Section 5.4. The provisions of this Section 5.4 shall
survive the expiration or sooner termination of this Lease."
11. Liens. Section 7.4 of the Lease is amended to read
in its entirety as follows:
"7.4 No Liens. Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, materialmen, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises. Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises. Tenant shall indemnify,
defend and hold Landlord harmless against any and all
liability, loss, damage, cost and other expenses, including,
without limitation, reasonable attorneys' fees, arising out of
claims of any lien for work performed or materials or supplies
furnished at the request of Tenant or persons claiming under
Tenant. Nothing in this Section 7.4 shall be construed to
prevent Tenant from obtaining financing on Tenant's movable
furniture, equipment and trade fixtures or from granting a
security interest in such items to one or more lenders,
provided that Tenant shall not be entitled, pursuant to this
sentence or otherwise, to encumber any alterations, additions
or improvements that are the property of Landlord and that must
remain with the Premises upon termination of this Lease, as
provided in Sections 7.2 and 7.3 hereof. Without limiting the
generality of the preceding sentence, Landlord acknowledges
that it has been advised by Tenant that Tenant is presently a
party to agreements creating liens on some or all of Tenant's
existing and/or after-acquired equipment, furniture, trade
fixtures and other personal property in favor of (a)
Transamerica Business Credit and
(b) Comdisco; nothing in this sentence shall be construed,
however, as a waiver or release by Landlord with respect to
the proviso set forth in the preceding sentence regarding
limitations on the property that Tenant is entitled to
encumber."
12. Full Force and Effect. Except as expressly set
forth herein, the Lease has not been modified or amended and
remains in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Third Amendment as of the date first set forth above.
"Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By: BRITANNIA DEVELOPMENTS, INC., a California corporation,
General Partner
By: ____________________
T. J. Bristow
President and Chief Financial Officer
"Tenant"
ARADIGM CORPORATION, a California corporation
By: _____________________
Richard P. Thompson
President
By: _____________________
Mark A. Olbert
Chief Financial Officer
17025\3044\0023
EXHIBIT 10.10
LEASE
Landlord: HAYWARD POINT EDEN I LIMITED PARTNERSHIP
Tenant: ARADIGM CORPORATION
Date: January 28, 1998
TABLE OF CONTENTS
1. PREMISES 1
1.1. Premises 1
1.2. Landlord's Reserved Rights 1
1.3. First Refusal Right 2
2. TERM 3
2.1. Term 3
2.2. Early Possession 3
2.3. Delay In Possession 3
2.4. Construction 4
2.5. Acknowledgment Of Final Completion Date 6
2.6. Holding Over 6
3. RENTAL 6
3.1. Minimum Rental 6
3.2. Late Charge 9
4. TAXES 9
4.1. Personal Property 9
4.2. Real Property 9
5. OPERATING EXPENSES 10
5.1. Payment Of Operating Expenses 10
5.2. Definition Of Operating Expenses 10
5.3. Determination Of Operating Expenses 12
5.4. Final Accounting For Lease Year 12
5.5. Proration 13
6. UTILITIES 13
6.1. Payment 13
6.2. Interruption 13
7. ALTERATIONS 14
7.1. Right To Make Alterations 14
7.2. Title To Alterations 14
7.3. Tenant Fixtures 14
7.4. No Liens 14
8. MAINTENANCE AND REPAIRS 15
8.1. Landlord's Work 15
8.2. Tenant's Obligation For Maintenance 15
(a) Good Order, Condition And Repair 15
(b) Landlord's Remedy 15
(c) Condition Upon Surrender 15
9. USE OF PREMISES 16
9.1. Permitted Use 16
9.2. Requirement Of Continued Use 16
9.3. No Nuisance 16
9.4. Compliance With Laws 16
9.5. Liquidation Sales 17
9.6. Environmental Compliance 17
9.7. ADA/Title 24 Compliance 18
10. INSURANCE AND INDEMNITY 18
10.1.Liability Insurance 18
10.2.Quality Of Policies And Certificates 19
10.3.Workers' Compensation 19
10.4.Waiver Of Subrogation 19
10.5.Increase In Premiums 19
10.6.Indemnification 20
10.7.Blanket Policy 20
11. SUBLEASE AND ASSIGNMENT 20
11.1.Assignment And Sublease Of Premises 20
11.2.Rights Of Landlord 21
12. RIGHT OF ENTRY AND QUIET ENJOYMENT 21
12.1.Right Of Entry 21
12.2.Quiet Enjoyment 21
13. CASUALTY AND TAKING 22
13.1.Termination Or Reconstruction 22
13.2.Tenant's Rights 23
13.3.Lease To Remain In Effect 23
13.4.Reservation Of Compensation 23
13.5.Restoration Of Fixtures 23
14. DEFAULT 24
14.1.Events Of Default 24
(a) Abandonment 24
(b) Nonpayment 24
(c) Other Obligations 24
(d) General Assignment 24
(e) Bankruptcy 24
(f) Receivership 24
(g) Attachment 24
(h) Insolvency 25
(i) Cross-Default 25
14.2.Remedies Upon Tenant's Default 25
14.3.Remedies Cumulative 26
15. SUBORDINATION, ATTORNMENT AND SALE 26
15.1.Subordination To Mortgage 26
15.2.Sale Of Landlord's Interest 27
15.3.Estoppel Certificates 27
15.4.Subordination to CC&R's 27
16. SECURITY 28
16.1.Deposit 28
17. MISCELLANEOUS 29
17.1.Notices 29
17.2.Successors And Assigns 29
17.3.No Waiver 29
17.4.Severability 30
17.5.Litigation Between Parties 30
17.6.Surrender 30
17.7.Interpretation 30
17.8.Entire Agreement 30
17.9.Governing Law 30
17.10. No Partnership 30
17.11. Financial Information 30
17.12. Costs 31
17.13. Time 31
17.14. Rules And Regulations 31
17.15. Brokers 31
17.16. Memorandum Of Lease 31
17.17. Corporate Authority 31
17.18. Execution and Delivery 31
17.19. Stock Warrants 32
EXHIBITS
A Location of Premises
B Real Property Description
C Construction
D Acknowledgment of Final Completion Date
E Form of Non-Disturbance and Attornment Agreement
17025\3044\0002rv5
LEASE
THIS LEASE is made and entered into as of the 28th
day of January, 1998, by and between HAYWARD POINT EDEN I
LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and ARADIGM CORPORATION, a California corporation
("Tenant").
THE PARTIES AGREE AS FOLLOWS:
1. PREMISES
1.1. Premises.
(a) Landlord leases to Tenant and Tenant hires and
leases from Landlord, on the terms, covenants and conditions
hereinafter set forth, the premises (the "Premises")
designated in Exhibit A attached hereto and incorporated
herein by this reference, consisting of approximately 40,000
square feet of space located within Building G (the
"Building") in the Britannia Point Eden Business Park (the
"Center") in the City of Hayward, County of Alameda, State of
California, commonly known as 26224 Executive Place, Hayward,
California 94545 and located on the real property (the
"Property") described in Exhibit B attached hereto and
incorporated herein by this reference, together with the
nonexclusive right to use any common areas designated from
time to time in any Declaration of Covenants, Conditions and
Restrictions or similar document affecting the Center.
(b) The Premises as designated in Exhibit A
consist of the following subspaces: (i) the "Existing Space,"
consisting of approximately 7,200 square feet of space
presently occupied by Tenant pursuant to a Lease dated as of
November 29, 1994 between Landlord and Tenant, as amended (the
"Existing Lease"); (ii) the "First Additional Space,"
consisting of approximately 8,640 square feet of space
occupied by Tandy Corporation prior to approximately
December 30, 1997; (iii) the "Second Additional Space,"
consisting of approximately 7,916 square feet of space
occupied by Adastra Systems Corporation prior to approximately
January 5, 1998; and (iv) the "Third Additional Space,"
consisting of a new addition of approximately 16,244 square
feet to be constructed by Landlord on the South side of the
Building for occupancy by Tenant pursuant to this Lease.
(c) Effective as of the Commencement Date (as
hereinafter defined), the Existing Lease shall be terminated
and shall be of no further force or effect, except that the
provisions thereof shall be deemed to remain in effect as
between Landlord and Tenant for the sole purpose of
establishing their respective rights and obligations with
respect to matters arising during or in connection with
Tenant's occupancy of the Existing Space pursuant to the
Existing Lease during the period prior to the Commencement
Date (including, but not limited to, any indemnification
obligations with respect to third party claims or other
liabilities, and any necessary adjustment between the parties,
when 1997 year-end figures are available, for estimated
Operating Expense payments and actual Operating Expense
obligations for the portion of calendar year 1997 prior to the
Commencement Date).
1.2. Landlord's Reserved Rights. Landlord reserves the
right from time to time to (i) install, use, maintain, repair
and replace pipes, ducts, conduits, wires and appurtenant
meters and equipment for service to other parts of the
Building above the ceiling surfaces, below the floor surfaces,
within the walls or leading through the Premises in locations
which will not materially interfere with Tenant's use thereof,
(ii) relocate any pipes, ducts, conduits, wires and
appurtenant meters and equipment included in the Premises
which are so located or located elsewhere outside the
Premises, (iii) make alterations or additions to the Building,
(iv) construct, alter or add to other buildings or
improvements on the Property, (v) build adjoining to the
Property, and (vi) lease any part of the Property for the
construction of improvements or buildings. Landlord may
modify or enlarge the common area, alter or relocate accesses
to the Premises, or alter or relocate any common facility.
Landlord shall not exercise rights reserved to it pursuant to
this Section 1.2 in such a manner as to materially impair
Tenant's ability to conduct its activities in the normal
manner; provided, however, that the foregoing shall not limit
or restrict Landlord's right to undertake reasonable
construction activity and Tenant's use of the Premises shall
be subject to reasonable temporary disruption incidental to
such activity diligently prosecuted.
1.3. First Refusal Right.
(a) Landlord shall not lease all or any portion of
the Option Space designated in Exhibit A hereto (the "Option
Space") at any time during the term of this Lease, except in
compliance with this Section 1.3; provided, however, that
(i) the foregoing restriction shall not apply during any
period in which Tenant is in uncured default, beyond the
expiration of any applicable cure period, under this Lease,
and (ii) Tenant's rights under this Lease with respect to the
Option Space shall in all events be subject to and subordinate
to any and all other first refusal rights, first offer rights,
renewal options and other similar rights existing as of the
date hereof in favor of any other tenants of the Center.
Landlord shall also use reasonable efforts to notify Tenant of
other vacancies or anticipated vacancies arising from time to
time in portions of the Center that are not technically part
of the Option Space, but Landlord shall have no obligation to
offer or lease any such other vacant space to Tenant (except
to the extent Landlord and Tenant, in their respective
discretion and without obligation to do so, mutually agree
upon terms for such leasing), and Tenant shall have no first
refusal right with respect to any such other vacant space.
Tenant's rights under this Section 1.3 are "personal" to
Tenant and shall expire and terminate upon any assignment of
Tenant's interest under this Lease; provided, however, that
the foregoing restriction shall not apply in the case of, and
the rights created in this Section 1.3 shall remain in full
force and effect following, either (x) a Permitted Transfer
(as defined in Section 11.1 hereof) or (y) any assignment as
part of a bulk transfer or assignment, to a single transferee,
of all of Tenant's then existing leasehold rights in the
Center or any portion thereof.
(b) If Landlord intends during the term of this
Lease to lease all or any portion of the Option Space, and if
Tenant is not then in uncured default, beyond any applicable
cure period, under this Lease, Landlord shall give written
notice of such intention to Tenant, specifying the material
terms on which Landlord proposes to lease the Option Space or
portion thereof (the "Offered Space"), and shall offer to
Tenant the opportunity to lease the Offered Space on the terms
specified in Landlord's notice. Tenant shall have seven (7)
days after the date of giving of such notice by Landlord in
which to accept such offer by written notice to Landlord.
Upon such acceptance by Tenant, the Offered Space shall be
leased to Tenant on the terms set forth in Landlord's notice
and on the additional terms and provisions set forth herein
(except to the extent inconsistent with the terms set forth in
Landlord's said notice) and the parties shall promptly execute
an amendment to this Lease adding the Offered Space to the
Premises and making any appropriate amendments to provisions
of this Lease to reflect different rent and other obligations
applicable to the Offered Space under the terms of Landlord's
said notice. If Tenant does not accept Landlord's offer
within the allotted time, Landlord shall thereafter have the
right to lease the Offered Space to a third party, at any time
within one hundred eighty (180) days after Tenant's failure to
accept Landlord's offer, at a minimum rental and on other
terms and conditions not more favorable to the lessee than the
minimum rental and other terms offered to Tenant in Landlord's
said notice; if Landlord wishes, during such 180-day period,
to lease the Offered Space on terms and conditions more
favorable to the lessee than those offered to Tenant in
Landlord's said notice, then Landlord shall first be required
to give Tenant a new notice specifying such new terms and
conditions and the procedure set forth above in this paragraph
(b) shall be re-initiated by such notice. If Tenant does not
accept Landlord's offer and Landlord does not lease the
Offered Space to a third party within the applicable 180-day
period, this first refusal right shall reattach to that space.
(c) Substantially concurrently with the parties'
execution of this Lease, Tenant and Britannia Point Eden, LLC,
an affiliate of Landlord, are entering into a lease covering a
new building of approximately 71,000 square feet to be
constructed in Phase V of the Britannia Point Eden Business
Park (the "Phase V Lease"). The Phase V Lease will have a
term several years longer than the term of this Lease. If at
any time during the term of this Lease the property covered by
the Phase V Lease comes under common ownership with the
property subject to Tenant's first refusal right set forth in
this Section 1.3, the operation of this Section 1.3 shall be
suspended during the period of such common ownership
(recognizing that the Phase V Lease contains a comparable
first refusal right covering the Option Space, which right
shall become applicable during any such period of common
ownership), but shall again become fully effective and
exercisable in accordance with its terms if such common
ownership thereafter ceases during the remaining term of this
Lease. (The parties acknowledge that the purpose of this
paragraph (c) is to coordinate the operation of this first
refusal right and the first refusal right in Section 1.4 of
the Phase V Lease in such a manner that Tenant's first refusal
right with respect to the Option Space shall exist and be
exercisable under either the Phase V Lease or this Lease at
any applicable time, during the respective terms of and in
accordance with the respective provisions of such leases, but
there shall be no period in which such first refusal right is
simultaneously in effect and exercisable under both leases.)
2. TERM
2.1. Term. The term of this Lease shall commence on the
date of mutual execution hereof by Landlord and Tenant (the
"Commencement Date"), which date shall be inserted above as
the date of this Lease, and shall end on the day immediately
preceding the date fifteen (15) years after the Final
Completion Date (as hereinafter defined), unless sooner
terminated or extended (if applicable) as hereinafter
provided. Notwithstanding the preceding sentence, however,
Tenant's rights and obligations with respect to the Third
Additional Space shall not commence until the date Landlord
tenders possession of the Third Additional Space to Tenant
with Landlord's work therein under Section 2.4 and Exhibit C
having been certified by Architect (as defined in Exhibit C
hereto) as being substantially complete, subject only to the
correction of "punch list" items as contemplated in
Section 2.4 hereof which do not, in the aggregate, materially
interfere with Tenant's ability to occupy and use the Third
Additional Space for the uses contemplated hereunder. For
purposes of this Lease, the term "Final Completion Date" shall
mean the earlier of (a) January 1, 2000 or (b) the date
construction of the Commercial Manufacturing Facility in the
Premises under Section 2.4 and Exhibit C is substantially
complete (except for correction of "punch list" items which do
not, in the aggregate, materially interfere with Tenant's
ability to use such Commercial Manufacturing Facility for the
uses contemplated hereunder).
2.2. Early Possession. If Landlord permits Tenant to
occupy, use or take possession of any portion of the Premises
other than the Existing Space (which Tenant is already
occupying pursuant to the Existing Lease) prior to the date on
which Tenant's rights and obligations with respect to such
portion of the Premises commence in accordance with
Section 2.1, such occupancy shall be subject to and upon all
the terms and conditions of this Lease, excluding the
obligation to pay rent and other charges, unless Landlord and
Tenant agree otherwise; provided, however, that such early
possession shall not advance or otherwise affect the
Commencement Date, Completion Date or termination date
determined pursuant to Section 2.1; provided further, that
Landlord shall in all events permit Tenant to have early
access to and possession of the Third Additional Space, at
reasonable times and under reasonable conditions, prior to the
completion of Landlord's work therein, solely for the purpose
of installing fixtures and equipment and other similar work
preparatory to Tenant's commencement of business in the Third
Additional Space, and Tenant shall not be required to pay rent
or Operating Expenses by reason of such early possession until
the date Tenant's obligations with respect to the Third
Additional Space would otherwise commence under Section 2.1
hereof; and provided further, that Tenant shall not interfere
with or delay Landlord's contractors by such early possession
and shall indemnify, defend and hold harmless Landlord and its
agents and employees from and against any and all claims,
demands, liabilities, actions, losses, costs and expenses,
including (but not limited to) reasonable attorneys' fees,
arising out of or in connection with Tenant's early entry upon
such portion of the Premises hereunder, excluding those which
arise out of the negligence or willful misconduct of Landlord
or its agents.
2.3. Delay In Possession. Landlord agrees to use its
best reasonable efforts to complete promptly and diligently
the work described in Section 2.4 and Exhibit C with respect
to each applicable portion of the Premises, subject to the
effects of any delays caused by or attributable to Tenant or
any other circumstances beyond Landlord's reasonable control
(excluding any financial inability); provided, however,
Landlord shall not be liable for any damages caused by any
delay in the availability of any portion of the Premises or by
any delay in the completion of Landlord's work with respect to
any such portion of the Premises, nor shall any such delay
affect the validity of this Lease or the obligations of Tenant
hereunder. Without limiting the generality of the foregoing,
the parties acknowledge that Landlord's ability to construct
and improve the Third Additional Space in accordance with
Section 2.4 and Exhibit C will depend on, among other things,
approval by the City of Hayward of the street abandonment and
building expansion required for such construction to proceed.
The parties agree to proceed diligently to pursue such City
approvals; if, despite such diligent efforts, the required
approvals are unavailable, then the provisions of this Lease
relating to the Third Additional Space shall be of no further
force or effect but (i) all other provisions of this Lease
shall remain in full force and effect with respect to the
Existing Space, First Additional Space and Second Additional
Space and (ii) Landlord shall be required to make available to
Tenant alternative space within the Center, on market terms
mutually and reasonably agreeable to Landlord and Tenant, to
house the Commercial Manufacturing Facility that is intended
for the Third Additional Space, in which event Landlord and
Tenant shall enter into a lease amendment or new lease, as
appropriate, embodying the terms of their agreement with
respect to such alternative space. Landlord expressly agrees
that to the extent the Third Additional Space never becomes
available and the Commercial Manufacturing Facility is
therefore placed in alternative space as contemplated in the
preceding sentence, since such alternative placement will
require a substantial duplication of equipment and facilities
that could have been shared between the Pilot Manufacturing
Facility and the Commercial Manufacturing Facility if both
were located in the Building, Landlord shall bear as its sole
expense, without reimbursement from Tenant by rent adjustments
or direct reimbursements or otherwise, all reasonable costs
associated with the construction of duplicate facilities and
systems in such alternative space that would have been shared
between the Pilot Manufacturing Facility and the Commercial
Manufacturing Facility if both had been located in the
Building. If the Third Additional Space does not become
available and Landlord is not able to make alternative space
in the Center available to Tenant within a time frame
reasonably consistent with Tenant's business needs, then
Tenant shall have the right, at its election, to terminate
this Lease by written notice to Landlord.
2.4. Construction.
(a) The obligation of Landlord to perform work to
improve the respective portions of the Premises for occupancy
by Tenant hereunder is set forth in Exhibit C attached hereto
and incorporated herein by this reference. As indicated
therein, it is intended by the parties that the Premises will
be subdivided, for improvement purposes, into two phases: a
"Pilot Manufacturing Facility" to occupy part or all of the
Existing Space, First Additional Space and Second Additional
Space, and a "Commercial Manufacturing Facility" to occupy the
Third Additional Space and any remaining portions of the
Existing Space, First Additional Space and Second Additional
Space. Since the rental provisions in Section 3.1 of this
Lease are defined with reference to characterization of
portions of the Premises as part of either the Pilot
Manufacturing Facility or the Commercial Manufacturing
Facility, Landlord and Tenant agree to cooperate and negotiate
diligently and in good faith to ensure that at all relevant
times hereunder, the space identified as the Pilot
Manufacturing Facility and the space identified as the
Commercial Manufacturing Facility, as such identification is
agreed upon mutually in writing from time to time by the
parties, shall comprise the entire Premises and there shall be
no part of the Premises which is not assigned to one or the
other of such two categories of space. In implementing the
preceding sentence, it is the general intent of the parties
that all of the space improved and made available for use by
Tenant prior to the Final Completion Date shall be considered
to be part of the Pilot Manufacturing Facility from and after
the date such improved space is made available for use by
Tenant, and that only those portions of the space which are
improved and made available for use by Tenant on or
substantially concurrently with the Final Completion Date
shall be considered to be part of the Commercial Manufacturing
Facility. Except as set forth in this Section 2.4 (including
paragraph (b) below) and in Exhibit C, Landlord shall have no
responsibilities or obligations with respect to preparation of
the Premises for Tenant's occupancy. Acceptance by Tenant of
possession of the applicable portions of the Premises from
time to time, after performance of such work by Landlord,
shall constitute acceptance by Tenant of such portions of the
Premises in their then completed condition, as applicable,
subject to the terms of this Section 2.4 (including paragraph
(b) below), and Landlord shall have no further responsibility
of any kind or character for improvement of such respective
portions of the Premises or in connection with such work;
provided, however, that within fifteen (15) days after the
date on which Landlord tenders to Tenant possession of any
portion of the Premises in which Landlord has performed
improvement work under Section 2.4 and Exhibit C, Tenant may
furnish to Landlord a "punch list" identifying any items or
matters in such portion of the Premises which are not
constructed in accordance with the plans and specifications
approved under Exhibit C hereto and Landlord shall promptly
and diligently correct all such matters within thirty (30)
days after receipt of such punch list at its sole cost and
expense.
(b) Notwithstanding the provisions of paragraph
(a) above, Landlord warrants to Tenant that on the date the
improvements in each respective phase of the Premises are
tendered to Tenant for Tenant's possession and commencement of
business therein, the Building systems serving such phase of
the Premises shall be in good operating order, and the
Building and the tenant improvements constructed by Landlord
in such phase (i) shall be free from material structural
defects and (ii) shall comply with all applicable covenants
and restrictions of record, statutes, ordinances, codes,
rules, regulations, orders and requirements in effect on the
date of such tender, including Title 24 of the California
Administrative Code and the Americans with Disabilities Act;
provided, however, that the foregoing warranty shall not be
construed to apply to any particular use which Tenant will
make of the Premises, except to the extent such use has been
expressly disclosed to Landlord and Architect during the
planning process for the applicable phase in such a manner and
in such detail as to reasonably permit Landlord and Architect
to take such use into consideration in designing and
constructing the applicable improvements. If it is determined
that the foregoing warranty has been violated in any respect,
then it shall be the obligation of Landlord, after receipt of
written notice from Tenant setting forth with specificity the
nature of the violation, to promptly, at Landlord's sole cost
and expense, correct the condition(s) constituting such
violation. Landlord shall also protect, indemnify, defend and
hold Tenant harmless from and against any and all liability,
loss, suits, claims, actions, costs and expenses (including,
but not limited to, reasonable attorneys' fees) arising from
any breach of the foregoing warranty. The provisions of this
Section 2.4(b) shall survive the termination of this Lease.
With respect to the foregoing warranty regarding systems being
in good operating order, Tenant's failure to give such written
notice to Landlord within ninety (90) days after tender of
possession of the applicable phase to Tenant shall give rise
to a conclusive presumption that Landlord has complied with
such warranty as to such phase. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any
representation or warranty as to the present or future
suitability of the Premises for the conduct of Tenant's
business or proposed business therein, except as expressly set
forth in this Lease.
(c) Notwithstanding any other provisions of this
Section 2.4 or of Exhibit C to the contrary, to the extent
Tenant, by mutual agreement of Landlord and Tenant as
contemplated in Exhibit C, enters into contracts directly with
the architect and/or contractor(s) for any of the tenant
improvement work in the Premises, Landlord's sole obligation
with respect to such work contracted for by Tenant shall be to
make payments with respect thereto when and as required under
Exhibit C and to cooperate with Tenant with respect to any
approvals or other actions required of Landlord under
Exhibit C in connection with such work; Landlord's warranties
under Section 2.4(b) and Landlord's obligations to make
improvements and correct "punch list" items under
Section 2.4(a) shall not apply to any improvement work
designed and/or constructed under direct contract with Tenant,
it being the intention of the parties that Tenant's sole
recourse with respect to any such work designed and/or
constructed under direct contracts with Tenant shall be solely
against the applicable contracting parties and not against
Landlord.
(d) TENANT ACKNOWLEDGES THAT THE FOREGOING
WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PHYSICAL CONDITION OF THE
BUILDING AND IMPROVEMENTS TO BE CONSTRUCTED BY LANDLORD AND
THAT LANDLORD MAKES NO OTHER WARRANTIES EXCEPT AS EXPRESSLY
SET FORTH IN THIS LEASE.
2.5. Acknowledgment Of Final Completion Date. Promptly
following the Final Completion Date, Landlord and Tenant shall
execute a written acknowledgment of the Final Completion Date,
date of termination and related matters, substantially in the
form attached hereto as Exhibit D (with appropriate
insertions), which acknowledgment shall be deemed to be
incorporated herein by this reference. Notwithstanding the
foregoing requirements, the failure of one or both parties to
execute any such written acknowledgment shall not affect the
determination of the Final Completion Date, date of
termination, square footage of the Premises and related
matters in accordance with the provisions of this Lease.
2.6. Holding Over. If Tenant holds possession of the
Premises after the term of this Lease with Landlord's written
consent, then except as otherwise specified in such consent,
Tenant shall become a tenant from month to month at one
hundred percent (100%) for the first thirty (30) days of such
holding over, and at one hundred twenty-five percent (125%)
thereafter, of the rental in effect for the period immediately
prior to such holding over and otherwise upon the terms herein
specified for the period immediately prior to such holding
over, and shall continue in such status until the tenancy is
terminated by either party upon not less than thirty (30) days
prior written notice. If Tenant holds possession of the
Premises after the term of this Lease without Landlord's
written consent, then Landlord in its sole discretion may
elect (by written notice to Tenant) to have Tenant become a
tenant either from month to month or at will, at one hundred
fifty percent (150%) of the rental (prorated on a daily basis
for an at-will tenancy, if applicable) and otherwise upon the
terms herein specified for the period immediately prior to
such holding over, or may elect to pursue any and all legal
remedies available to Landlord under applicable law with
respect to such unconsented holding over by Tenant. Tenant
shall indemnify and hold Landlord harmless from any loss,
damage, claim, liability, cost or expense (including
reasonable attorneys' fees) resulting from any delay by Tenant
in surrendering the Premises (except with Landlord's prior
written consent), including but not limited to any claims made
by a succeeding tenant by reason of such delay. Acceptance of
rent by Landlord following expiration or termination of this
Lease shall not constitute a renewal of this Lease.
3. RENTAL
3.1. Minimum Rental.
(a) Tenant shall pay to Landlord as minimum rental
for the Premises, in advance, without deduction, offset,
notice or demand, on or before the Commencement Date and on or
before the first day of each subsequent calendar month of the
term of this Lease, the following amounts per month:
(i) During the period from the Commencement
Date until the date construction of the Pilot
Manufacturing Facility under Section 2.4 and Exhibit C is
certified by Architect as being substantially complete
(except for correction of "punch list" items which do
not, in the aggregate, materially interfere with Tenant's
ability to occupy and use the Pilot Manufacturing
Facility for the uses contemplated hereunder) (the "Pilot
Facility Completion Date"), minimum monthly rental shall
be payable at the rate of One Dollar ($1.00) per square
foot per month on the aggregate area of the Premises,
which shall (for this purpose) be deemed to consist
initially of the Existing Space, the First Additional
Space and the Second Additional Space (23,756 square feet
in the aggregate), and to consist of the entire Premises
(40,000 square feet) as soon as the construction of the
Building Shell for the Third Additional Space is
certified by the architect selected by Landlord for the
Building Shell as being substantially completed, if such
substantial completion occurs prior to the Pilot Facility
Completion Date.
(ii) Beginning on the Pilot Facility
Completion Date, minimum monthly rental on the portion of
the Premises designated from time to time as the Pilot
Manufacturing Facility shall be payable at the following
rates (since the termination date for this Lease depends
on the Final Completion Date and that date is presently
uncertain, the number of months reflected in such table
exceeds the anticipated duration of the Lease; once the
actual termination date has been established, any months
reflected in the following table that fall after such
termination date shall simply be disregarded):
Months After Pilot
Facility Completion Date Minimum Rental
Rate
001-012 $ 1.25/sq ft
013-024 1.30/sq ft
024-036 1.35/sq ft
037-048 1.41/sq ft
049-060 1.46/sq ft
061-072 1.52/sq ft
073-084 1.58/sq ft
085-096 1.64/sq ft
097-108 1.71/sq ft
109-120 1.78/sq ft
121-132 1.85/sq ft
133-144 1.92/sq ft
145-156 2.00/sq ft
157-168 2.08/sq ft
169-180 2.16/sq ft
181-192 2.25/sq ft
193-204 2.34/sq ft
(iii) During the period from the Pilot
Facility Completion Date to the Final Completion Date,
minimum monthly rental on the portion of the Premises in
which construction of the Commercial Manufacturing
Facility is in progress shall continue to be payable at
the rate of One Dollar ($1.00) per square foot per month,
and for purposes of that calculation the Third Additional
Space shall be deemed to become part of the Premises on
the date the construction of the Building Shell for the
Third Additional Space is certified by the architect
selected by Landlord for the Building Shell as being
substantially completed.
(iv) Beginning on the Final Completion Date
and continuing through the expiration of the term of this
Lease, minimum monthly rental for the entire Premises
shall be payable at the applicable rates determined under
the table set forth in Section 3.1(a)(ii) above. For
purposes of applying such table, the "months" for the
entire Premises shall be counted from the Pilot Facility
Completion Date, as under Section 3.1(a)(ii) above,
notwithstanding the fact that the Commercial
Manufacturing Facility will not become subject to the
scheduled rental rates under the table until a later
date.
(v) If the obligation to pay minimum rental
hereunder commences on other than the first day of a
calendar month or if the term of this Lease terminates on
other than the last day of a calendar month, the minimum
rental for such first or last month of the term of this
Lease, as the case may be, shall be prorated based on the
number of days the term of this Lease is in effect during
such month. If an increase in minimum rental becomes
effective on a day other than the first day of a calendar
month, the minimum rental for that month shall be the sum
of the two applicable rates, each prorated for the
portion of the month during which such rate is in effect.
(b) In determining the square footage of the
Premises or of relevant portions thereof for purposes of
applying the rates per square foot set forth in
Section 3.1(a), square footages shall be as determined in good
faith by Landlord's architect on a basis consistent with that
used in measuring other leased premises within the Center,
which basis consists of measuring from the exterior faces of
exterior walls, from the dripline of overhangs and recessed
areas, and from the centerline of interior demising walls.
(c) The minimum rental amounts specified in this
Section 3.1 are based upon a base tenant improvement allowance
of Thirty and No/100 Dollars ($30.00) per square foot, or an
estimated total of One Million Two Hundred Thousand and No/100
Dollars ($1,200,000.00) (the "Tenant Improvement Allowance"),
for the work to be performed by Landlord on the Premises under
Section 2.4 and Exhibit C.
(i) If Landlord's total direct costs of its
work under Section 2.4 and Exhibit C (including, but not
limited to, payments to contractors and subcontractors
for labor, materials and profits or overhead, permit fees
and charges, sales and use taxes, testing and inspection
costs, architects', engineers' and other consulting and
professional fees, costs of power, water and other
utilities and of collection and removal of debris, and
all other related costs incurred in connection with the
design and construction of such work) (the "Direct
Costs") on the Pilot Manufacturing Facility exceed Thirty
Dollars ($30.00) per square foot times the area of the
Pilot Manufacturing Facility (as determined in accordance
with Section 3.1(b) hereof), then during the period from
the Pilot Facility Completion Date until the Final
Completion Date, Tenant shall pay additional monthly rent
to Landlord in an amount equal, for each month during
such period, to one and eight hundredths percent (1.08%)
of the amount by which such Direct Costs for the Pilot
Manufacturing Facility exceed Thirty Dollars ($30.00) per
square foot times the area of the Pilot Manufacturing
Facility as determined in accordance with Section 3.1(b)
hereof.
(ii) Beginning on the Final Completion Date,
if and to the extent that Landlord's total Direct Costs
of its work under Section 2.4 and Exhibit C on the entire
Premises (i.e., both the Pilot Manufacturing Facility and
the Commercial Manufacturing Facility) exceed, in the
aggregate, Thirty Dollars ($30.00) per square foot times
the area of the Premises (as determined in accordance
with Section 3.1(b) hereof), Tenant shall pay additional
monthly rent to Landlord as follows:
(A) If such Direct Costs exceed Thirty
Dollars ($30.00) per square foot but do not exceed
Fifty-Five Dollars ($55.00) per square foot, then
such additional monthly rent during the next 144
months of the term of this Lease (counting from the
Final Completion Date, not from the Pilot Facility
Completion Date as under Section 3.1(a)(ii) above)
shall be equal to the area of the Premises as
determined under Section 3.1(b) multiplied by
$0.01375 per square foot per month for each $1.00
per square foot by which such Direct Costs exceed
Thirty Dollars ($30.00) per square foot, with no
further additional monthly rent due under this
Section 3.1(c)(ii)(A) after such 144 months;
(B) If such Direct Costs exceed Fifty
Five Dollars ($55.00) per square foot but do not
exceed Eighty Dollars ($80.00) per square foot,
then such additional monthly rent during the next
120 months of the term of this Lease (counting from
the Final Completion Date, not from the Pilot
Facility Completion Date as under
Section 3.1(a)(ii) above) shall be equal to the
area of the Premises as determined under Section
3.1(b) multiplied by the sum of (I) $0.34 per
square foot per month plus (II) $0.01493 per square
foot per month for each $1.00 per square foot by
which such Direct Costs exceed Fifty-Five Dollars
($55.00) per square foot, and such additional
monthly rent during months 121 through 144
(counting from the Final Completion Date, not from
the Pilot Facility Completion Date as under
Section 3.1(a)(ii) above) shall be equal to $0.34
per square foot per month times the area of the
Premises as determined under Section 3.1(b), with
no further additional monthly rent due under this
Section 3.1(c)(ii)(B) after such 144 months; and
(C) If such Direct Costs exceed Eighty
Dollars ($80.00) per square foot, then such
additional monthly rent during the next 84 months
of the term of this Lease (counting from the Final
Completion Date, not from the Pilot Facility
Completion Date as under Section 3.1(a)(ii) above)
shall be equal to the area of the Premises as
determined under Section 3.1(b) multiplied by the
sum of (I) $0.71 per square foot per month plus
(II) $0.01819 per square foot per month for each
$1.00 per square foot by which such Direct Costs
exceed Eighty Dollars ($80.00) per square foot,
such additional monthly rent during months 85
through 120 (counting from the Final Completion
Date, not from the Pilot Facility Completion Date
as under Section 3.1(a)(ii) above) shall be equal
to $0.71 per square foot per month times the area
of the Premises, and such additional monthly rent
during months 121 through 144 (counting from the
Final Completion Date, not from the Pilot Facility
Completion Date as under Section 3.1(a)(ii) above)
shall be equal to $0.34 per square foot per month
times the area of the Premises, with no further
additional monthly rent due under this Section
3.1(c)(ii)(C) after such 144 months.
3.2. Late Charge. If Tenant fails to pay when due
rental or other amounts due Landlord hereunder on or before
the fifth (5th) day after such rental or other amount is due,
such unpaid amounts shall bear interest for the benefit of
Landlord at a rate equal to the lesser of fifteen percent
(15%) per annum or the maximum rate permitted by law, from the
date due to the date of payment. In addition to such
interest, Tenant shall pay to Landlord a late charge in an
amount equal to ten percent (10%) of any installment of
minimum rental and any other amounts due Landlord if not paid
in full on or before the fifth (5th) day after such rental or
other amount is due. Tenant acknowledges that late payment by
Tenant to Landlord of rental or other amounts due hereunder
will cause Landlord to incur costs not contemplated by this
Lease, including, without limitation, processing and
accounting charges and late charges which may be imposed on
Landlord by the terms of any loan relating to the Property.
Tenant further acknowledges that it is extremely difficult and
impractical to fix the exact amount of such costs and that the
late charge set forth in this Section 3.2 represents a fair
and reasonable estimate thereof. Acceptance of any late
charge by Landlord shall not constitute a waiver of Tenant's
default with respect to overdue rental or other amounts, nor
shall such acceptance prevent Landlord from exercising any
other rights and remedies available to it. Acceptance of rent
or other payments by Landlord shall not constitute a waiver of
late charges or interest accrued with respect to such rent or
other payments or any prior installments thereof, nor of any
other defaults by Tenant, whether monetary or non-monetary in
nature, remaining uncured at the time of such acceptance of
rent or other payments.
4. TAXES
4.1. Personal Property. Tenant shall be responsible for
and shall pay prior to delinquency all taxes and assessments
levied against or by reason of all alterations and additions
and all other items installed or paid for by Tenant under this
Lease, and the personal property, trade fixtures and other
property placed by Tenant in or about the Premises. Upon
request by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of payment thereof. If at any time
during the term of this Lease any of said alterations,
additions or personal property, whether or not belonging to
Tenant, shall be taxed or assessed as part of the Property,
then such tax or assessment shall be paid by Tenant to
Landlord immediately upon presentation by Landlord of copies
of the tax bills in which such taxes and assessments are
included and shall, for the purposes of this Lease, be deemed
to be personal property taxes or assessments under this
Section 4.1.
4.2. Real Property. To the extent that real property
taxes and assessments on the Premises are assessed separately
from the remainder of the Property, Tenant shall be
responsible for and shall pay prior to delinquency all such
taxes and assessments levied against the Premises. Upon
request by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of payment thereof. To the extent the
Premises are taxed or assessed as part of the Property, such
real property taxes and assessments shall constitute Operating
Expenses (as that term is defined in Section 5.2 of this
Lease) and shall be paid in accordance with the provisions of
Article 5 of this Lease.
5. OPERATING EXPENSES
5.1. Payment Of Operating Expenses.
(a) Tenant shall pay to Landlord, at the time and
in the manner hereinafter set forth, beginning on the
Commencement Date and continuing throughout the term of this
Lease, as additional rental, an amount equal to two and sixty
one hundredths percent (2.61%) ("Tenant's Operating Cost
Share") of the Operating Expenses defined in Section 5.2.
(b) Tenant's Operating Cost Share as specified in
paragraph (a) of this Section is based upon an estimated area
of 7,200 square feet for the Premises (reflecting, initially,
only the size of the Existing Space) and an aggregate area of
275,674 square feet for the buildings owned by Landlord on the
Property. As the area of the Premises increases due to the
commencement of Tenant's obligations with respect to the First
Additional Space, Second Additional Space and Third Additional
Space, respectively, and if and when the actual area of the
Premises or of the buildings owned by Landlord on the
Property, as determined in good faith by Landlord's architect
on a basis consistent with that used in measuring other leased
premises within the Center, differs from the estimated numbers
set forth above, then Tenant's Operating Cost Share shall be
adjusted to reflect the actual areas so determined.
(c) If Landlord constructs additional buildings on
the Property (or on any adjacent property owned by Landlord
and operated, for common area purposes, on an integrated basis
with the Property) from time to time, Tenant's Operating Cost
Share shall be adjusted to be equal to the percentage
determined by dividing the gross square footage of the
Premises as they then exist by the gross square footage of all
buildings located on portions of the Property owned by
Landlord (or on any applicable adjacent property owned by
Landlord as described above). In determining said percentage,
a building shall be taken into account from and after the date
on which costs and expenses attributable to such building are
first included in Operating Expenses under Section 5.2 hereof,
and the good faith determination of the gross square footage
of any such building by Landlord's architects shall be final
and binding upon the parties, absent manifest error.
5.2. Definition Of Operating Expenses. Subject to the
exclusions and provisions hereinafter contained, the term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (and any
applicable adjacent property owned by Landlord and operated,
for common area purposes, on an integrated basis with the
Property as described above), including, without limitation,
costs and expenses of (i) insurance, property management,
landscaping, and operation, repair and maintenance of
buildings and common areas; (ii) all utilities and services;
(iii) real and personal property taxes and assessments or
substitutes therefor, including (but not limited to) any
possessory interest, use, business, license or other taxes or
fees, any taxes imposed directly on rents or services, any
assessments or charges for police or fire protection, housing,
transit, open space, street or sidewalk construction or
maintenance or other similar services from time to time by any
governmental or quasi-governmental entity, and any other new
taxes on landlords in addition to taxes now in effect (but
excluding corporate income taxes); (iv) supplies, equipment,
utilities and tools used in management, operation and
maintenance of the Property; (v) capital improvements to the
Property or the Building, amortized over the useful life of
such capital improvements, (aa) which reduce or will cause
future reduction of other items of Operating Expenses for
which Tenant is otherwise required to contribute or (bb) which
are required by law, ordinance, regulation or order of any
governmental authority or (cc) which constitute repairs or
replacements of existing improvements in the Premises or
common areas of the Property with items of similar quality and
function, as a result of obsolescence or ordinary wear and
tear, in order to maintain and preserve the quality, safety
and usefulness of the Property, to the extent such repairs or
replacements are treated as capital items under generally
accepted accounting principles; and (vi) any other costs
(including, but not limited to, any parking or utilities fees
or surcharges) allocable to or paid by Landlord, as owner of
the Property or Building, pursuant to any applicable laws,
ordinances, regulations or orders of any governmental or quasi
governmental authority or pursuant to the terms of any
declarations of covenants, conditions and restrictions now or
hereafter affecting the Property (or any applicable adjacent
property owned by Landlord as described above). Operating
Expenses shall not include any costs attributable to
increasing the size of or otherwise expanding the Building or
the costs of the work for which Landlord is required to pay
under Section 2.4 or Exhibit C. The distinction between items
of ordinary operating maintenance and repair and items of a
capital nature shall be made in accordance with generally
accepted accounting principles applied on a consistent basis.
Notwithstanding anything to the contrary contained in this
Section 5.2, the following shall not be included in Operating
Expenses under this Lease:
(A) Leasing commissions, attorneys' fees, costs,
disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, or in
connection with leasing, renovating or improving space
for tenants or other occupants or prospective tenants or
other occupants of the Building or of the land on which
the Premises are located;
(B) The cost of any service sold to any tenant
(including Tenant) or other occupant for which Landlord
is entitled to be reimbursed as an additional charge or
rental over and above the basic rent and escalations
payable under Landlord's lease with that tenant;
(C) Any depreciation on the Building;
(D) Costs of a capital nature, including but not
limited to capital improvements and alterations, capital
repairs, capital equipment and capital tools, as
determined in accordance with generally accepted
accounting principles consistently applied, except to the
extent expressly provided in clause (v) above;
(E) Expenses in connection with services or other
benefits of a type that are not offered to Tenant but
that are provided to another tenant or occupant of the
Building or land upon which the Premises are located;
(F) Overhead profit increments paid to Landlord's
subsidiaries or affiliates for management or other
services relating to the Building or the Property, or for
supplies or other materials, to the extent the cost of
such services, supplies or materials exceeds a reasonable
market rate for obtaining such services, supplies or
materials from unaffiliated parties;
(G) All interest, loan fees and other carrying
costs related to any mortgage or deed of trust or related
to any capital item, and all rental and other payments
due under any ground or underlying lease, or any lease
for any equipment ordinarily considered to be of a
capital nature (except janitorial equipment which is not
affixed to the Building);
(H) Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by
Landlord;
(I) Advertising and promotional expenditures;
(J) Costs of repairs and other work occasioned by
fire, windstorm or other casualty of an insurable nature;
(K) Any costs, fines or penalties incurred due to
violations by Landlord of any governmental rule or
authority, this Lease or any other lease affecting the
Building or the land on which the Premises are located,
or due to Landlord's negligence or willful misconduct;
(L) Management costs, to the extent they exceed a
reasonable market rate for management services provided
to comparable projects in Hayward, California and
surrounding areas;
(M) Costs for sculpture, paintings or other
objects of art, including (but not limited to) any costs
for insurance thereon or extraordinary security in
connection therewith;
(N) Wages, salaries or other compensation paid to
any executive employee above the grade of building
manager;
(O) The cost of correcting any building code or
other violations of applicable law which, on the
Commencement Date, were existing violations of laws or
codes then in effect;
(P) The cost of containing, removing or otherwise
remediating any contamination of the Building or Property
(including the underlying land and groundwater) by any
toxic or hazardous materials (including, without
limitation, asbestos and PCB's);
(Q) Any increase in real property taxes or
assessments on the Property as a result of a change in
ownership of the Property; provided, however, that the
exclusion contained in this clause (Q) shall apply only
in the determination of Operating Expenses with respect
to periods prior to the third (3rd) anniversary of the
Commencement Date, and shall not apply in the
determination of Operating Expenses with respect to any
subsequent periods during the term of this Lease; and
(R) Any other expense not specifically included or
excluded above which, under generally accepted accounting
principles and practices consistently applied, would not
be considered a normal maintenance or operating expense.
5.3. Determination Of Operating Expenses. On or before
the Commencement Date and during the last month of each
calendar year of the term of this Lease ("Lease Year"), or as
soon thereafter as practical, Landlord shall provide Tenant
notice of Landlord's estimate of the Operating Expenses for
the ensuing Lease Year or applicable portion thereof. On or
before the first day of each month during the ensuing Lease
Year or applicable portion thereof, beginning on the
Commencement Date, Tenant shall pay to Landlord Tenant's
Operating Cost Share of the portion of such estimated
Operating Expenses allocable (on a prorata basis) to such
month; provided, however, that if such notice is not given in
the last month of a Lease Year, Tenant shall continue to pay
on the basis of the prior year's estimate, if any, until the
month after such notice is given. If at any time or times it
appears to Landlord that the actual Operating Expenses will
vary from Landlord's estimate by more than five percent (5%),
Landlord may, by notice to Tenant, revise its estimate for
such year and subsequent payments by Tenant for such year
shall be based upon such revised estimate.
5.4. Final Accounting For Lease Year.
(a) Within ninety (90) days after the close of
each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of
Tenant's Operating Cost Share of the Operating Expenses for
such Lease Year prepared by Landlord from Landlord's books and
records, which statement shall be final and binding on
Landlord and Tenant, subject to Tenant's audit right set forth
below. If on the basis of such statement Tenant owes an
amount that is more or less than the estimated payments for
such calendar year previously made by Tenant, Tenant or
Landlord, as the case may be, shall pay the deficiency to the
other party within thirty (30) days after delivery of the
statement. Failure or inability of Landlord to deliver the
annual statement within such ninety (90) day period shall not
impair or constitute a waiver of Tenant's obligation to pay
Operating Expenses, or cause Landlord to incur any liability
for damages.
(b) Notwithstanding any other provisions of this
Section 5.4, within one (1) year after receipt of a final
statement from Landlord setting forth actual Operating
Expenses and Tenant's Operating Cost Share for any period (a
"Statement"), Tenant shall have the right to audit or inspect
Landlord's books and records relating to Operating Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided that
such audit shall be conducted only during normal business
hours, on not less than ten (10) days prior written notice to
Landlord, at a location reasonably specified by Landlord, and
at Tenant's sole cost and expense, except as hereinafter
provided. Landlord shall cooperate with Tenant in all
reasonable respects in the course of such audit, and Tenant
and its employees and agents shall be permitted to make
photocopies (at Tenant's expense) of any pertinent portions of
Landlord's books and records. Landlord shall retain its books
and records for each Lease Year for a period of at least one
(1) year after delivery to Tenant of Landlord's Statement for
the applicable Lease Year. To the extent that Tenant, on the
basis of such audit, disputes any item in the applicable
Statement or in the calculation of Tenant's obligations
thereunder, Tenant shall give Landlord written notice of the
disputed items, in reasonable detail and with reasonable
supporting information, within thirty (30) days after the
earlier to occur of the completion of Tenant's audit or the
expiration of Tenant's 1-year audit period. If Landlord and
Tenant are not able to resolve such dispute by good faith
negotiations within thirty (30) days after Tenant notifies
Landlord in writing of the disputed items, then Tenant may, by
written notice to Landlord, request an independent audit of
such books and records. The independent audit of the books
and records shall be conducted by a certified public
accountant acceptable to both Landlord and Tenant or, if the
parties are unable to agree, by a "Big Six" accounting firm
designated by Landlord and not then employed by Landlord or
Tenant. The audit shall be limited to the determination of
the amount of Operating Expenses and of Tenant's share thereof
for the Lease Year covered by the Statement, and shall be
based on generally accepted accounting principles and tax
accounting principles, consistently applied, subject to any
modifications or limitations expressly set forth in
Section 5.2 hereof. If it is determined, by mutual agreement
of Landlord and Tenant or by independent audit, that the
amount paid by Tenant for Operating Expenses for the period
covered by the Statement was incorrect, then the appropriate
party shall pay to the other party the deficiency or
overpayment, as applicable, within thirty (30) days after the
final determination of such deficiency or overpayment. All
costs and expenses of the audit shall be paid by Tenant unless
the audit shows that Landlord overstated Operating Expenses
for the period covered by the Statement by more than four
percent (4%), in which event Landlord shall pay all costs and
expenses of the audit. Each party agrees to maintain the
confidentiality of the findings of any audit in accordance
with the provisions of this Section 5.4. The provisions of
this Section 5.4 shall survive the expiration or sooner
termination of this Lease.
5.5. Proration. If the Commencement Date falls on a day
other than the first day of a Lease Year or if this Lease
terminates on a day other than the last day of a Lease Year,
the amount of Tenant's Operating Cost Share payable by Tenant
applicable to such first and last partial Lease Year shall be
prorated on the basis which the number of days during such
Lease Year in which this Lease is in effect bears to 365. The
termination of this Lease shall not affect the obligations of
Landlord and Tenant pursuant to Section 5.4 to be performed
after such termination.
6. UTILITIES
6.1. Payment. Commencing with the Commencement Date and
thereafter throughout the term of this Lease, Tenant shall
pay, before delinquency, all charges for water, gas, heat,
light, electricity, power, sewer, telephone, alarm system,
janitorial and other services or utilities supplied to or
consumed in or upon the Premises, including any taxes on such
services and utilities. It is the intention of the parties
that all such services shall be separately metered to the
Premises. In the event that any of such services supplied to
the Premises are not separately metered, then the amount
thereof shall be an item of Operating Expenses and shall be
paid as provided in Article 5.
6.2. Interruption. There shall be no abatement of rent
or other charges required to be paid hereunder and Landlord
shall not be liable in damages or otherwise for interruption
or failure of any service or utility furnished to or used in
the Premises because of accident, making of repairs,
alterations or improvements, severe weather, difficulty or
inability in obtaining services or supplies, labor
difficulties or any other cause, excluding the negligence and
willful misconduct and omissions of Landlord and its agents.
7. ALTERATIONS
7.1. Right To Make Alterations. Tenant shall make no
alterations, additions or improvements to the Premises, other
than interior non-structural alterations costing less than
Five Thousand Dollars ($5,000.00) in each instance, without
the prior written consent of Landlord. All such alterations,
additions and improvements shall be completed with due
diligence in a first-class workmanlike manner and in
compliance with plans and specifications approved in writing
by Landlord and all applicable laws, ordinances, rules and
regulations.
7.2. Title To Alterations. All alterations, additions
and improvements installed pursuant to this Lease shall be
part of the Building and the property of Landlord, unless
Landlord elects to require Tenant to remove the same upon the
termination of this Lease; provided, however, that the
foregoing shall not apply to Tenant's movable furniture and
trade fixtures not affixed to the Property. Under no
circumstances, however, shall Tenant be required to remove any
alterations, additions or improvements installed by Landlord
as part of Landlord's work under Section 2.4 and Exhibit C.
Moreover, if Tenant, in connection with requesting Landlord's
approval for any alteration, addition or improvement, requests
in writing that Landlord specify whether Landlord will require
Tenant to remove such alteration, addition or improvement upon
termination of this Lease, then Landlord shall not be entitled
to require such removal unless Landlord states its intention
to do so in writing to Tenant concurrently with or prior to
Landlord's approval of the requested alteration, addition or
improvement.
7.3. Tenant Fixtures. Notwithstanding the provisions of
Sections 7.1 and 7.2, Tenant may install, remove and reinstall
trade fixtures without Landlord's prior written consent,
except that any fixtures which are affixed to the Premises or
which affect the exterior or structural portions of the
Building shall require Landlord's written approval. The
foregoing shall apply to Tenant's signs, logos and insignia,
all of which Tenant shall have the right to place and remove
and replace solely with Landlord's prior written consent as to
location, size and composition. Tenant shall immediately
repair any damage caused by installation and removal of
fixtures under this Section 7.3.
7.4. No Liens. Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, materialmen, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises. Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises. Tenant shall
indemnify, defend and hold Landlord harmless against any and
all liability, loss, damage, cost and other expenses,
including, without limitation, reasonable attorneys' fees,
arising out of claims of any lien for work performed or
materials or supplies furnished at the request of Tenant or
persons claiming under Tenant. Nothing in this Section 7.4
shall be construed to prevent Tenant from obtaining financing
on Tenant's movable furniture, equipment and trade fixtures or
from granting a security interest in such items to one or more
lenders, provided that Tenant shall not be entitled, pursuant
to this sentence or otherwise, to encumber any alterations,
additions or improvements that are the property of Landlord
and that must remain with the Premises upon termination of
this Lease, as provided in Sections 7.2 and 7.3 hereof.
Without limiting the generality of the preceding sentence,
Landlord acknowledges that it has been advised by Tenant that
Tenant is presently a party to agreements creating liens on
some or all of Tenant's existing and/or after-acquired
equipment, furniture, trade fixtures and other personal
property in favor of (a) Transamerica Business Credit and
(b) Comdisco; nothing in this sentence shall be construed,
however, as a waiver or release by Landlord with respect to
the proviso set forth in the preceding sentence regarding
limitations on the property that Tenant is entitled to
encumber.
8. MAINTENANCE AND REPAIRS
8.1. Landlord's Work.
(a) Landlord shall repair and maintain or cause to
be repaired and maintained in a prompt and expeditious manner
those portions of the Building outside of the Premises, the
common areas of the Property, and the roof, foundation,
exterior walls and other structural portions of the Building.
The cost of all work performed by Landlord under this
Section 8.1 shall be an Operating Expense hereunder, except to
the extent such work (i) is required due to the negligence of
Landlord or any other tenant of the Building, (ii) is a
service to a specific tenant or tenants, other than Tenant,
for which Landlord has received or has the right to receive
full reimbursement, (iii) is a capital expense not includible
as an Operating Expense under Section 5.2 hereof, or (iv) is
required due to the negligence or willful misconduct of Tenant
or its agents, employees or invitees (in which event Tenant
shall bear the full cost of such work pursuant to the
indemnification provided in Section 10.6 hereof). Tenant
knowingly and voluntarily waives the right to make repairs at
Landlord's expense, or to offset the cost thereof against
rent, under any law, statute, regulation or ordinance now or
hereafter in effect.
(b) If Landlord fails to perform, within fifteen
(15) days after written request from Tenant (except in the
case of conditions which cannot reasonably be repaired within
fifteen (15) days, in which event this paragraph (b) shall
apply only to the extent Landlord fails to commence the
applicable maintenance or repair within such 15-day period or
thereafter fails to proceed diligently to complete the
applicable maintenance or repair), any maintenance or repair
obligation under Section 8.1(a) which relates specifically to
the Premises or the common areas immediately adjacent to the
Premises and such failure creates (or permits to exist) a risk
of material harm to persons or property, then Tenant shall
have the right to perform such maintenance or repair and
Landlord shall be obligated to reimburse Tenant for the
reasonable cost thereof, together with interest at the rate
specified in the first sentence of Section 3.2 hereof from the
date of payment by Tenant to the date of reimbursement by
Landlord, within fifteen (15) days after written notice from
Tenant of the completion and cost of such work, accompanied by
copies of invoices or other appropriate supporting
documentation. Under no circumstances, however, shall this
paragraph (b) be construed to create any contractual right of
Tenant to offset the cost of any such work against rent or
other charges falling due from time to time under this Lease.
8.2. Tenant's Obligation For Maintenance.
(a) Good Order, Condition And Repair. By
accepting possession of the Premises, and subject to
Section 2.4, Tenant acknowledges that the Premises are in good
and sanitary order, condition and repair. Except as provided
in Section 8.1 hereof, Tenant at its sole cost and expense
shall keep and maintain in good and sanitary order, condition
and repair the Premises and every part thereof, wherever
located, including but not limited to the signs, interior, the
face of the ceiling over Tenant's floor space, HVAC equipment
and related mechanical systems serving the Premises (for which
equipment and systems Tenant shall enter into a service
contract with a person or entity designated or approved by
Landlord, such approval not to be unreasonably withheld or
delayed), all doors, door checks, windows, plate glass, door
fronts, exposed plumbing and sewage and other utility
facilities, fixtures, lighting, wall surfaces, floor surfaces
and ceiling surfaces and all other interior repairs, foreseen
and unforeseen, as required.
(b) Landlord's Remedy. If Tenant, after notice
from Landlord, fails to make or perform promptly any repairs
or maintenance which are the obligation of Tenant hereunder,
Landlord shall have the right, but shall not be required, to
enter the Premises and make the repairs or perform the
maintenance necessary to restore the Premises to good and
sanitary order, condition and repair. Immediately on demand
from Landlord, the cost of such repairs shall be due and
payable by Tenant to Landlord.
(c) Condition Upon Surrender. At the expiration
or sooner termination of this Lease, Tenant shall surrender
the Premises, including any additions, alterations and
improvements thereto not removed in accordance with the terms
of this Lease, broom clean, in good and sanitary order,
condition and repair, ordinary wear and tear excepted, first,
however, removing all goods and effects of Tenant and any and
all fixtures and items required to be removed or specified to
be removed at Landlord's election pursuant to this Lease, and
repairing any damage caused by such removal. Tenant expressly
waives any and all interest in any personal property and trade
fixtures not removed from the Premises by Tenant at the
expiration or termination of this Lease, agrees that any such
personal property and trade fixtures may, at Landlord's
election, be deemed to have been abandoned by Tenant, and
authorizes Landlord (at its election and without prejudice to
any other remedies under this Lease or under applicable law)
to remove and either retain, store or dispose of such property
at Tenant's cost and expense (provided that before incurring
any such charges for Tenant's account, Landlord shall first
give Tenant ten (10) days prior written notice of Landlord's
intention to do so, so that Tenant may have an opportunity
first to correct the situation on its own behalf), and Tenant
waives all claims against Landlord for any damages resulting
from any such removal, storage, retention or disposal, except
to the extent (if any) that such damages result from the
negligence or willful misconduct or omission of Landlord or
its agents.
9. USE OF PREMISES
9.1. Permitted Use. Tenant shall use the Premises
solely for general office, sales, adminstrative marketing and
the design, development, testing and manufacturing of medical
equipment and pharmaceutical products, and for no other
purpose.
9.2. Requirement Of Continued Use. Tenant shall not at
any time abandon the Premises and shall continuously during
the term of this Lease (except during any period when
improvements are being constructed by Landlord under
Section 2.4 and Exhibit C and/or when the Premises are
unusable by reason of events described in Article 13 hereof)
conduct and carry on in the Premises the use permitted
hereunder.
9.3. No Nuisance. Tenant shall not use the Premises for
or carry on or permit upon the Premises or any part thereof
any offensive, noisy or dangerous trade, business,
manufacture, occupation, odor or fumes, or any nuisance or
anything against public policy, nor interfere with the rights
or business of any other tenants or of Landlord in the
Building or the Property, nor commit or allow to be committed
any waste in, on or about the Premises, nor make any other
unreasonable use of the Premises. Tenant shall not do or
permit anything to be done in or about the Premises, nor bring
nor keep anything therein, which will in any way cause the
Premises to be uninsurable with respect to the insurance
required by this Lease or with respect to standard fire and
extended coverage insurance with vandalism, malicious mischief
and riot endorsements.
9.4. Compliance With Laws. Tenant shall not use the
Premises or permit the Premises to be used in whole or in part
for any purpose or use that is in violation of any applicable
laws, ordinances, regulations or rules of any governmental
agency or public authority. Tenant shall keep the Premises
equipped with all safety appliances required by law, ordinance
or insurance on the Premises or any order or regulation of any
public authority because of Tenant's particular use of the
Premises. Tenant shall procure all licenses and permits
required for use of the Premises, excluding building permits
and an initial certificate of occupancy or reasonable local
equivalent thereof for Landlord's work under Section 2.4 and
Exhibit C, both of which it shall be Landlord's responsibility
to procure. Tenant shall use the Premises in strict
accordance with all applicable ordinances, rules, laws and
regulations and shall comply with all requirements of all
governmental authorities now in force or which may hereafter
be in force pertaining to the use of the Premises by Tenant,
including, without limitation, regulations applicable to
noise, water, soil and air pollution, and making such
nonstructural alterations and additions thereto as may be
required from time to time by such laws, ordinances, rules,
regulations and requirements of governmental authorities or
insurers of the Premises (collectively, "Requirements")
because of Tenant's construction of improvements in or other
particular use of the Premises. Any structural alterations or
additions required from time to time by applicable
Requirements because of Tenant's construction of improvements
in or other particular use of the Premises shall, at
Landlord's election, either (i) be made by Tenant, at Tenant's
sole cost and expense, in accordance with the procedures and
standards set forth in Section 7.1 for alterations by Tenant,
or (ii) be made by Landlord at Tenant's sole cost and expense,
in which event Tenant shall pay to Landlord as additional
rent, within thirty (30) days after demand by Landlord, an
amount equal to all reasonable costs incurred by Landlord in
connection with such alterations or additions. Any structural
alterations or additions required from time to time by
applicable Requirements for any other reason shall be
Landlord's sole obligation and expense, subject to the
possible characterization of such expenses as Operating
Expenses in accordance with Section 5.2 hereof (if
applicable). The judgment of any court, or the admission by
Tenant in any proceeding against Tenant, that Tenant has
violated any law, statute, ordinance or governmental rule,
regulation or requirement shall be conclusive of such
violation as between Landlord and Tenant.
9.5. Liquidation Sales. Tenant shall not conduct or
permit to be conducted any auction, bankruptcy sale,
liquidation sale, or going out of business sale, in, upon or
about the Premises or the Property, whether said auction or
sale be voluntary, involuntary or pursuant to any assignment
for the benefit of creditors, or pursuant to any bankruptcy or
other insolvency proceeding.
9.6. Environmental Compliance.
(a) Landlord warrants and represents to Tenant
that the Premises, Builidng and the Property presently comply
with all environmental laws and Landlord will use its best
efforts to ensure that the Premises, Building and the Property
remain in compliance with all environmental laws during the
term and any extended term hereof, including without
limitation reasonably monitoring the condition of the
Property, Building and Premises and the activities of other
tenants. Landlord's obligations under this Section 9.6(a) are
not intended to impose a greater burden on Landlord than that
set forth in Section 9.6(d) herein or as otherwise required by
law, regulation or statute, nor to relieve Tenant of any of
its express obligations under this Section 9.6.
(b) Without limiting the generality of Tenant's
obligations set forth in Section 9.4 of this Lease:
(i) Tenant shall not cause or permit any
hazardous or toxic substance or hazardous waste (as defined in
any federal, state or local law, ordinance or regulation
applicable to such substances or wastes) to be brought upon,
kept, stored or used on or about the Property without the
prior written consent of Landlord, which consent shall not be
unreasonably withheld, except that Tenant, in connection with
its permitted use of the Property as provided in Section 9.1,
may keep, store and use materials that constitute hazardous
materials which are customary for such permitted use, provided
such hazardous materials are kept, stored and used in
quantities which are customary for such permitted use and are
kept, stored and used in full compliance with clauses (ii) and
(iii) immediately below;
(ii) Tenant shall comply with all applicable
laws, rules, regulations, orders, permits, licenses and
operating plans of any governmental authority with respect to
the receipt, use, handling, generation, transportation,
storage, treatment, release and/or disposal of hazardous or
toxic substances or wastes in the course of or in connection
with the conduct of Tenant's business on the Property, and
shall provide Landlord with copies of any and all permits,
licenses, registrations and other similar documents that
authorize Tenant to conduct any such activities in connection
with Tenant's use of the Property from time to time;
(iii) Tenant shall not (A) operate on or
about the Property any facility required to be permitted or
licensed as a hazardous waste facility or for which interim
status as such is required, nor (B) store any hazardous wastes
on or about the Property for ninety (90) days or more, nor (C)
conduct any other activities on or about the Property that
could result in the property being deemed to be a "hazardous
waste facility" (including, but not limited to, any storage or
treatment of hazardous substances or hazardous wastes which
could have such a result); and
(iv) Tenant shall provide to Landlord from
time to time, upon written request by Landlord, (A) a list of
all hazardous substances and/or wastes that Tenant receives,
uses, handles, generates, transports, stores, treats or
disposes of from time to time in connection with its
operations on the Property, and (B) copies of any Material
Safety Data Sheets, hazardous waste manifests, Hazardous
Materials Management Plans, Contingency Plans and Emergency
Procedures, hazardous substance reports to the California
Department of Health Services, indusrial wastewater discharge
permits, and any other lists or inventories of hazardous
substances and/or wastes on or about the Property that Tenant
is otherwise required to prepare and file from time to time
with any governmental or regulatory authority; provided,
however, that nothing in this clause (iv) is intended to
require Tenant to prepare specially for Landlord any lists or
other documents that Tenant does not otherwise prepare or have
available in the course of Tenant's business; and provided
further, however, that if Tenant reasonably determines that
the volume of any such materials requested by Landlord is so
substantial as to make the furnishing of such materials to
Landlord unreasonably burdensome, Tenant may instead, by
written notice to Landlord, elect simply to maintain copies of
such materials to such extent and for such periods as may be
required by applicable law and to permit Landlord or its
representatives to inspect and copy (at Landlord's expense)
such materials during normal business hours at any time and
from time to time upon reasonable notice to Tenant.
(c) Tenant shall fully indemnify and hold harmless
Landlord, its successors and assigns against (i) any damages,
claims, liabilities, demands, losses, costs or expenses
(including reasonable attorneys' fees) arising from (A) any
violation of Section 9.6(b) herein, or (B) any release of
hazardous or toxic substances, or any other violation of
environmental law with respect to the Premises or Property, to
the extent any such release or violation described in this
clause (B) is caused by Tenant or its employees, agents,
contractors or assigns, and (ii) any fines, penalty payments,
reasonable attorneys' fees, sums paid in connection with any
judicial or administrative investigation or proceedings, costs
of cleanup assessed by a governmental or quasi-governmental
agency, and similar expenditures, incurred by Landlord that
relate in any way to a release of hazardous or toxic
substances, or to any other violation of environmental law
with respect to the Premises or Property, to the extent any
such release or violation described in this clause (ii) is
caused by Tenant or its agents, employees, contractors or
assigns.
(d) Landlord shall fully indemnify and hold
harmless Tenant, its successors and assigns against (i) any
damages, claims, liabilities, demands, losses, costs or
expenses (including reasonable attorneys' fees) arising from
any violation of Section 9.6(a) herein, including without
limitation any condition of the Premises, Building and/or
Property existing at the Commencement Date; (ii) any damages,
claims, liabilities, demands, losses, costs or expenses
(including reasonable attorneys' fees) arising from any
release of hazardous or toxic substances, or from any other
violation of environmental law with respect to the Property,
Building or Premises, to the extent the same is not caused by
Tenant or its employees, agents, contractors or assigns; and
(iii) any fines, penalty payments, reasonable attorneys' fees,
sums paid in connection with any judicial or administrative
investigation or proceedings, costs of cleanup assessed by a
governmental or quasi-governmental agency, and similar
expenditures, incurred by Tenant that relate in any way to a
breach by Landlord of Section 9.6(a), to any condition of the
Property, Building or Premises existing on the Commencement
Date, or to any release of hazardous or toxic substances or
other violation of environmental law caused by Landlord or its
employees, agents, contractors or assigns.
(e) The provisions of this Section 9.6 shall
survive the termination of this Lease.
9.7. ADA/Title 24 Compliance. Landlord shall deliver
and maintain the premises at its expense in compliance, as and
when required by law, with the Americans with Disabilities
Act, California Title 24 and any and all other related
governmental requirements.
10. INSURANCE AND INDEMNITY
10.1. Liability Insurance.
(a) Tenant shall procure and maintain in full
force and effect at all times during the term of this Lease,
at Tenant's cost and expense, comprehensive public liability
and property damage insurance to protect against any liability
to the public, or to any invitee of Tenant or Landlord,
arising out of or related to the use of or resulting from any
accident occurring in, upon or about the Premises, with limits
of liability of not less than (i) One Million Dollars
($1,000,000.00) for injury to or death of one person, (ii)
Three Million Dollars ($3,000,000.00) for personal injury or
death, per occurrence, and (iii) Five Hundred Thousand Dollars
($500,000.00) for property damage, or a combined single limit
of public liability and property damage insurance of not less
than Five Million Dollars ($5,000,000.00). Such insurance
shall name Landlord and its general partners and Managing
Agent as additional insureds thereunder. The amount of such
insurance shall not be construed to limit any liability or
obligation of Tenant under this Lease.
(b) Landlord shall procure and maintain in full
force and effect at all times during the term of this Lease,
at Landlord's cost and expense (but reimbursable as an
Operating Expense under Section 5.2 hereof), fire and "all
risk" extended coverage property damage insurance for the
Building and interior improvements that are the property of
Landlord and for the improvements in the common areas of the
Property, on a full replacement cost basis, with rental loss
insurance. Such insurance may include earthquake and/or flood
coverage to the extent Landlord in its discretion elects to
carry such coverage, and shall have such commercially
reasonable deductibles and other terms as Landlord in its
discretion determines to be appropriate. Landlord shall have
no obligation to carry property damage insurance for any
alterations, additions, improvements, trade fixtures or
personal property installed or maintained by Tenant on or
about the Premises.
10.2. Quality Of Policies And Certificates. All policies
of insurance required hereunder shall be issued by responsible
insurers and shall be written as primary policies not
contributing with and not in excess of any coverage that
Landlord may carry. Tenant shall deliver to Landlord copies
of policies or certificates of insurance showing that said
policies are in effect. The coverage provided by such
policies shall include the clause or endorsement referred to
in Section 10.4. If Tenant fails to acquire, maintain or
renew any insurance required to be maintained by it under this
Article 10 or to pay the premium therefor, then Landlord, at
its option and in addition to its other remedies, but without
obligation so to do, may procure such insurance, and any sums
expended by it to procure any such insurance shall be repaid
upon demand, with interest as provided in Section 3.2 hereof.
Tenant shall obtain written undertakings from each insurer
under policies required to be maintained by it to notify all
insureds thereunder at least thirty (30) days prior to
cancellation, amendment or revision of coverage.
10.3. Workers' Compensation. Tenant shall maintain in
full force and effect during the term of this Lease workers'
compensation insurance covering all of Tenant's employees
working on the Premises.
10.4. Waiver Of Subrogation. To the extent permitted by
law and without affecting the coverage provided by insurance
required to be maintained hereunder, Landlord and Tenant each
waive any right to recover against the other (i) damages for
injury to or death of persons, (ii) damage to property, (iii)
damage to the Premises or any part thereof, or (iv) claims
arising by reason of any of the foregoing, but only to the
extent that any of the foregoing damages and claims under
subparts (i)-(iv) hereof are covered, and only to the extent
of such coverage, by casualty insurance actually carried or
required to be carried hereunder by either Landlord or Tenant.
This provision is intended to waive fully, and for the benefit
of each party, any rights and claims which might give rise to
a right of subrogation in any casualty insurance carrier.
Each party shall procure a clause or endorsement on any
casualty insurance policy required under this Article 10
denying to the insurer rights of subrogation against the other
party to the extent rights have been waived by the insured
prior to the occurrence of injury or loss. Coverage provided
by insurance maintained by Tenant or Landlord under this
Article 10 shall not be limited, reduced or diminished by
virtue of the subrogation waiver herein contained.
10.5. Increase In Premiums. Tenant shall do all acts and
pay all expenses necessary to insure that the Premises are not
used for purposes prohibited by any applicable fire insurance,
and that Tenant's use of the Premises complies with all
requirements necessary to obtain any such insurance. If
Tenant uses or permits the Premises to be used in a manner
which increases the existing rate of any insurance on the
Premises carried by Landlord, Tenant shall pay the amount of
the increase in premium caused thereby, and Landlord's costs
of obtaining other replacement insurance policies, including
any increase in premium, within ten (10) days after demand
therefor by Landlord, which demand shall be accompanied by
reasonably detailed documentation supporting such demand.
10.6. Indemnification.
(a) Tenant shall indemnify, defend and hold
Landlord, its partners, shareholders, officers, directors,
affiliates, agents, employees and contractors, harmless from
any and all liability for injury to or death of any person, or
loss of or damage to the property of any person, and all
actions, claims, demands, costs (including, without
limitation, reasonable attorneys' fees), damages or expenses
of any kind arising therefrom which may be brought or made
against Landlord or which Landlord may pay or incur by reason
of the use, occupancy and enjoyment of the Premises by Tenant
or any invitees, sublessees, licensees, assignees, employees,
agents or contractors of Tenant or holding under Tenant
arising during the term of this Lease from any cause
whatsoever other than negligence or willful misconduct or
omission by Landlord, its agents or employees. Landlord, its
partners, shareholders, officers, directors, affiliates,
agents, employees and contractors shall not be liable for, and
Tenant hereby waives all claims against such persons for,
damages to goods, wares and merchandise in or upon the
Premises, or for injuries to Tenant, its agents or third
persons in or upon the Premises, arising during the term of
this Lease from any cause whatsoever other than negligence or
willful misconduct or omission by Landlord, its agents or
employees. Tenant shall give prompt notice to Landlord of any
casualty or accident of a material nature in, on or about the
Premises.
(b) Landlord shall indemnify, defend and hold
Tenant, its partners, shareholders, officers, directors,
affiliates, agents, employees and contractors, harmless from
any and all liability for injury to or death of any person or
loss of or damage to the property of any person, and all
actions, claims, demands, costs (including, without
limitation, reasonable attorneys' fees), damages or expenses
of any kind arising therefrom which may be brought or made
against Tenant or which Tenant may pay or incur, to the extent
such liabilities or other matters arise by reason of (i) any
negligence or willful misconduct or omission by Landlord, its
agents or employees, (ii) any breach by Landlord, its agents
or employees of any term of this Lease and (iii) any causes of
action or obligations the due date of performance of which
arose prior to the Commencement Date.
10.7. Blanket Policy. Any policy required to be
maintained hereunder may be maintained under a so-called
"blanket policy" insuring other parties and other locations so
long as the amount of insurance required to be provided
hereunder is not thereby diminished.
11. SUBLEASE AND ASSIGNMENT
11.1. Assignment And Sublease Of Premises. Tenant shall
not have the right or power to assign its interest in this
Lease, or make any sublease, nor shall any interest of Tenant
under this Lease be assignable involuntarily or by operation
of law, without on each occasion obtaining the prior written
consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Any purported sublease or assignment of
Tenant's interest in this Lease requiring but not having
received Landlord's consent thereto shall be void. Without
limiting the generality of the foregoing, Landlord may
withhold consent to any proposed subletting or assignment
solely on the ground that the use by the proposed subtenant or
assignee is reasonably likely to be incompatible with
Landlord's use of the balance of the Building or Property.
Notwithstanding the foregoing provisions, however, Tenant may
assign this Lease or sublet the Premises, or any portion
thereof, without Landlord's consent (but with prior or
substantially concurrent written notice to Landlord), to any
entity which controls, is controlled by, or is under common
control with Tenant; to any entity which results from a merger
or consolidation with Tenant; to any entity engaged in a joint
venture with Tenant; or to any entity which acquires
substantially all of the stock or assets of Tenant, as a going
concern, with respect to the business that is being conducted
in the Premises (hereinafter each a "Permitted Transfer"). In
addition, any sale or transfer of the capital stock of Tenant
shall be deemed a Permitted Transfer if (i) such sale or
transfer occurs in connection with any bona fide financing or
capitalization for the benefit of Tenant, or (ii) if such sale
or transfer occurs in connection with Tenant's status as a
publicly traded corporation. Landlord shall have no right to
terminate this Lease in connection with, and shall have no
right to any sums or other economic consideration resulting
from, any Permitted Transfer. In the event of a permitted
subleasing of the Premises or any portion thereof by Tenant,
Tenant will retain all sublease profits net of its underlying
obligations under this Lease. Landlord will not have the
right or option under any circumstances, other than pursuant
to the default provisions of this Lease (to the extent
applicable), to recapture any space that Tenant assigns or
subleases during the initial Lease term.
11.2. Rights Of Landlord. Consent by Landlord to one or
more assignments of this Lease, or to one or more sublettings
of the Premises, or collection of rent by Landlord from any
assignee or sublessee, shall not operate to exhaust Landlord's
rights under this Article 11, nor constitute consent to any
subsequent assignment or subletting. No assignment of
Tenant's interest in this Lease and no sublease shall relieve
Tenant of its obligations hereunder, notwithstanding any
waiver or extension of time granted by Landlord to any
assignee or sublessee, or the failure of Landlord to assert
its rights against any assignee or sublessee, and regardless
of whether Landlord's consent thereto is given or required to
be given hereunder. In the event of a default by any
assignee, sublessee or other successor of Tenant in the
performance of any of the terms or obligations of Tenant under
this Lease, Landlord may proceed directly against Tenant
without the necessity of exhausting remedies against any such
assignee, sublessee or other successor. In addition, Tenant
immediately and irrevocably assigns to Landlord, as security
for Tenant's obligations under this Lease, all rent from any
subletting of all or a part of the Premises as permitted under
this Lease, and Landlord, as Tenant's assignee, or any
receiver for Tenant appointed on Landlord's application, may
collect such rent and apply it toward Tenant's obligations
under this Lease; except that, until the occurrence of an act
of default by Tenant, beyond the expiration of any applicable
grace period, Tenant shall have the right to collect such
rent.
12. RIGHT OF ENTRY AND QUIET ENJOYMENT
12.1. Right Of Entry. Landlord and its authorized
representatives shall have the right to enter the Premises at
any time during the term of this Lease during normal business
hours and upon not less than twenty-four (24) hours prior
notice, except in the case of emergency (in which event no
notice shall be required and entry may be made at any time),
for the purpose of inspecting and determining the condition of
the Premises or for any other proper purpose including,
without limitation, to make repairs, replacements or
improvements which Landlord may deem necessary, to show the
Premises to prospective purchasers, to show the Premises to
prospective tenants, and to post notices of nonresponsibility;
provided, however, that notwithstanding anything to the
contrary contained in the preceding portion of this sentence,
Landlord shall not enter any portions of Tenant's facility
designated by Tenant as "secure" areas except on reasonable
prior notice to Tenant and except in compliance with all
conditions reasonably imposed by Tenant and/or by any
governmental authority with respect to such access (which
conditions may, by way of example but not limitation, include
a requirement that any visitors to such areas be accompanied
by a representative of Tenant at all times). Landlord shall
not be liable for inconvenience, annoyance, disturbance, loss
of business, quiet enjoyment or other damage or loss to Tenant
by reason of making any repairs or performing any work upon
the Premises unless such are the result of the negligence or
willful misconduct of Landlord or its agents, and the
obligations of Tenant under this Lease shall not thereby be
affected in any manner whatsoever, provided, however, Landlord
shall use reasonable efforts to minimize the inconvenience to
Tenant's normal business operations caused thereby.
12.2. Quiet Enjoyment. Landlord covenants that Tenant,
upon paying the rent and performing its obligations hereunder
and subject to all the terms and conditions of this Lease,
shall peacefully and quietly have, hold and enjoy the Premises
throughout the term of this Lease, or until this Lease is
terminated as provided by this Lease.
13. CASUALTY AND TAKING
13.1. Termination Or Reconstruction. If during the term
of this Lease the Premises or Building, or any substantial
part of either, (i) is damaged materially by fire or other
casualty or by action of public or other authority in
consequence thereof, (ii) is taken by eminent domain or by
reason of any public improvement or condemnation proceeding,
or in any manner by exercise of the right of eminent domain
(including any transfer in avoidance of an exercise of the
power of eminent domain), or (iii) receives irreparable damage
by reason of anything lawfully done under color of public or
other authority, this Lease shall terminate as to the entire
Premises at Landlord's or Tenant's election by written notice
given to the other party within thirty (30) days after the
damage or taking has occurred; provided, however, that with
respect to events of damage or destruction described in clause
(i) above, Landlord's termination right shall be exercisable
only if either (A) the time reasonably estimated by Landlord's
architect or contractor to be required for the repair or
restoration of the Building to the extent necessary to permit
Tenant to resume substantially all of its normal business
activities therein exceeds six (6) months from the date of the
damage or destruction in the case of damage or destruction
occurring prior to the last year of the term of this Lease, or
exceeds sixty (60) days from the date of the damage or
destruction in the case of damage or destruction occurring
during the last year of the term of this Lease, or (B) the
reasonably estimated cost of such repair or restoration is
more than one hundred five percent (105%) of the insurance
proceeds reasonably available for such repair or restoration
under the insurance required to be maintained by Landlord
pursuant to Section 10.1(b) hereof (including, in the case of
any failure by Landlord to maintain such required insurance,
any proceeds that would have been reasonably available for
such repair or restoration if Landlord had maintained such
required insurance) and Landlord, in its reasonable and good
faith judgment, determines that it is not economically and
commercially reasonable to use such proceeds for the repair or
restoration of the Premises; provided further, that with
respect to events of damage or destruction described in clause
(i) above, Tenant's termination right shall be exercisable
only if either (I) the time reasonably estimated by Landlord's
architect or contractor to be required for the repair or
restoration of the Building to the extent necessary to permit
Tenant to resume substantially all of its normal business
activities therein exceeds six (6) months from the date of the
damage or destruction in the case of damage or destruction
occurring prior to the last year of the term of this Lease, or
exceeds sixty (60) days from the date of the damage or
destruction in the case of damage or destruction occurring
during the last year of the term of this Lease, or
(II) Landlord fails to complete the repair or restoration of
the Building to the extent necessary to permit Tenant to
resume substantially all of its normal business activities
therein within six (6) months after the date of the damage or
destruction in the case of damage or destruction occurring
prior to the last year of the term of this Lease or within
sixty (60) days from the date of the damage or destruction in
the case of damage or destruction occurring during the last
year of the term of this Lease (provided, however, that so
long as Landlord is proceeding diligently and with reasonable
good faith efforts, such periods shall be extended, day for
day, by a number of days equal to the number of days of actual
delay in Landlord's completion of such repair or restoration
that are caused by weather, acts of God, strikes, shortage of
labor or materials or other circumstances beyond Landlord's
reasonable control (excluding financial inability), including
(but not limited to) acts or omissions of Tenant or its agents
or employees), or (III) Landlord advises Tenant that Landlord
intends to perform only a Partial Restoration (as defined
below) and Tenant determines reasonably and in good faith,
within thirty (30) days after Tenant is advised of the nature
and scope of the proposed Partial Restoration, that the
Premises available to Tenant following such Partial
Restoration will not be sufficient to permit Tenant to resume
normal business operations in the Premises for the uses
permitted hereunder; and provided further, that with respect
to takings or damage described in clause (ii) or (iii) above,
Landlord's and Tenant's respective termination rights shall be
exercisable only if Landlord or Tenant, as applicable,
determines reasonably and in good faith that the extent and
nature of such taking or damage is to substantially and
permanently impair Tenant's ability to conduct normal business
operations in the balance of the Premises for the uses
permitted hereunder. If neither Landlord nor Tenant elects to
terminate this Lease as hereinabove provided, Landlord shall
repair any such damage and restore the Premises (to the extent
of Landlord's work therein under Section 2.4 and Exhibit C)
and the Building as nearly as reasonably possible to the
condition existing before the damage or taking, with an
equitable abatement of Tenant's rent and Operating Expense
obligations pending completion of such repair or restoration
as contemplated in Section 13.3 below; provided, however, that
in the case of any damage or destruction described in clause
(i) above, if the reasonably estimated cost of such repair or
restoration is more than one hundred five percent (105%) of
the insurance proceeds (if any) reasonably available for such
repair or restoration under the insurance required to be
maintained by Landlord pursuant to Section 10.1(b) hereof
(including, in the case of any failure by Landlord to maintain
such required insurance, any proceeds that would have been
reasonably available for such repair or restoration if
Landlord had maintained such required insurance), Landlord may
elect to perform such repair or restoration (to the extent of
Landlord's work under Section 2.4 and Exhibit C) only to the
extent of such insurance proceeds that are (or would have
been) available (a "Partial Restoration"); and provided
further, that upon completion of such Partial Restoration,
Tenant's minimum monthly rental and Operating Expense
obligations shall be permanently adjusted, for the balance of
the remaining term of this Lease, in a fair and equitable
manner reflecting any decrease in the size and/or
functionality of the partially restored Premises for the uses
contemplated hereunder. In the event of any termination of
this Lease by Tenant or Landlord pursuant to this Section 13.1
or Section 13.2, Landlord agrees that to the extent any
portion of the Premises can still be lawfully occupied and
used by Tenant, Tenant shall have the right, at its option, to
remain in and continue to use such portion of the Premises on
a month-to-month holdover basis, terminable by Landlord or
Tenant at any time on thirty (30) days' written notice (except
that no such termination by Landlord may be effective sooner
than six (6) months after the date of the damage, destruction
or taking pursuant to which such termination arose), and
Tenant's minimum monthly rental and Operating Expense
obligations shall be adjusted, for the duration of such
holdover occupancy, in a fair and equitable manner reflecting
any decrease in the size and/or functionality of the remaining
Premises for the uses contemplated hereunder. The provisions
of the preceding sentence shall supersede any inconsistent
provisions in Section 2.6 of this Lease.
13.2. Tenant's Rights. If any portion of the Premises is
so taken by condemnation, Tenant may elect to terminate this
Lease if the portion of the Premises taken is of such extent
and nature as substantially to handicap, impede or permanently
impair Tenant's use of the balance of the Premises. Tenant
must exercise its right to terminate by giving notice to
Landlord within thirty (30) days after the nature and extent
of the taking have been finally determined. If Tenant elects
to terminate this Lease, Tenant shall also notify Landlord of
the date of termination, which date shall not be earlier than
thirty (30) days nor later than ninety (90) days after Tenant
has notified Landlord of its election to terminate, except
that this Lease shall terminate on the date of taking if the
date of taking falls on any date before the date of
termination designated by Tenant.
13.3. Lease To Remain In Effect. If neither Landlord nor
Tenant terminates this Lease as hereinabove provided, this
Lease shall continue in full force and effect, except that
minimum monthly rental and Tenant's Operating Expense
obligations shall abate to the extent Tenant's use of the
Premises is impaired for any period that any portion of the
Premises is unusable or inaccessible because of a casualty or
taking hereinabove described. Each party waives the
provisions of Code of Civil Procedure Section 1265.130,
allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial condemnation of
the Premises.
13.4. Reservation Of Compensation. Landlord reserves,
and Tenant waives and assigns to Landlord, all rights to any
award or compensation for damage to the Premises, Building,
Property and the leasehold estate created hereby, accruing by
reason of any taking in any public improvement, condemnation
or eminent domain proceeding or in any other manner by
exercise of the right of eminent domain or of anything
lawfully done by public authority, except that Tenant shall be
entitled to any and all compensation or damages paid for or on
account of Tenant's moving expenses, trade fixtures,
equipment, personal property and any leasehold improvements in
the Premises, the cost of which was borne by Tenant, but only
to the extent of the then remaining unamortized value of such
improvements computed on a straight-line basis over the term
of this Lease. Tenant covenants to deliver such further
assignments of the foregoing as Landlord may from time to time
reasonably request.
13.5. Restoration Of Fixtures. If Landlord repairs or
causes repair of the Premises after such damage or taking,
Tenant at its sole expense shall repair and replace promptly
all fixtures, equipment and other property of Tenant located
at, in or upon the Premises and all additions, alterations and
improvements and all other items installed or paid for by
Tenant under this Lease that were damaged or taken, so as to
restore the same to a condition reasonably consistent with the
conduct of the permitted uses contemplated in Section 9.1
hereof. Tenant shall have the right to make modifications to
the Premises, fixtures and improvements, subject to the prior
written approval of Landlord, which approval shall not be
unreasonably withheld or delayed. In its review of Tenant's
plans and specifications, Landlord may take into consideration
the effect of the proposed modifications on the exterior
appearance, the structural integrity and the mechanical and
other operating systems of the Building.
14. DEFAULT
14.1. Events Of Default. The occurrence of any of the
following shall constitute an event of default on the part of
Tenant:
(a) Abandonment. Abandonment of the Premises.
Tenant waives any right Tenant may have to notice under
Section 1951.3 of the California Civil Code, the terms of this
subsection (a) being deemed such notice to Tenant as required
by said Section 1951.3;
(b) Nonpayment. Failure to pay, when due, any
amount payable to Landlord hereunder, such failure continuing
for a period of five (5) days after written notice of such
failure; provided, however, that any such notice shall be in
lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 et seq., as
amended from time to time;
(c) Other Obligations. Failure to perform any
obligation, agreement or covenant under this Lease other than
those matters specified in subsection (b) hereof, such failure
continuing for fifteen (15) days after written notice of such
failure, or, if it is not possible to cure such default within
fifteen (15) days, failure to commence cure within said
fifteen (15) day period and thereafter to proceed diligently
to complete cure; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure Section 1161
et seq., as amended from time to time;
(d) General Assignment. A general assignment by
Tenant for the benefit of creditors;
(e) Bankruptcy. The filing of any voluntary
petition in bankruptcy by Tenant, or the filing of an
involuntary petition by Tenant's creditors, which involuntary
petition remains undischarged for a period of thirty (30)
days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and
continue to perform the obligations of Tenant hereunder, such
trustee or Tenant shall, in such time period as may be
permitted by the bankruptcy court having jurisdiction, cure
all defaults of Tenant hereunder outstanding as of the date of
the affirmance of this Lease and provide to Landlord such
adequate assurances as may be reasonably necessary to ensure
Landlord of the continued performance of Tenant's obligations
under this Lease. Specifically, but without limiting the
generality of the foregoing, such adequate assurances must
include assurances that the Premises continue to be operated
only for the use permitted hereunder. The provisions hereof
are to assure that the basic understandings between Landlord
and Tenant with respect to Tenant's use of the Premises and
the benefits to Landlord therefrom are preserved, consistent
with the purpose and intent of applicable bankruptcy laws;
(f) Receivership. The employment of a receiver
appointed by court order to take possession of substantially
all of Tenant's assets or the Premises, if such receivership
remains undissolved for a period of thirty (30) days;
(g) Attachment. The attachment, execution or
other judicial seizure of all or substantially all of Tenant's
assets or the Premises, if such attachment or other seizure
remains undismissed or undischarged for a period of thirty
(30) days after the levy thereof;
(h) Insolvency. The admission by Tenant in
writing of its inability to pay its debts as they become due,
the filing by Tenant of a petition seeking any reorganization
or arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future
statute, law or regulation, the filing by Tenant of an answer
admitting or failing timely to contest a material allegation
of a petition filed against Tenant in any such proceeding or,
if within thirty (30) days after the commencement of any
proceeding against Tenant seeking any reorganization or
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future
statute, law or regulation, such proceeding shall not have
been dismissed; or
(i) Cross-Default. Any event of default by Tenant
under (A) any other lease between Landlord and Tenant covering
any other portion of the Property from time to time during the
term of this Lease, or (B) the lease entered into
substantially concurrently herewith by Tenant and Britannia
Point Eden, LLC with respect to a new building to be
constructed in Phase V of the Center, to the extent (under
either of the foregoing clauses) such default continues beyond
any applicable cure periods provided in the applicable lease,
and to the extent Landlord therefore has (and exercises
concurrently with any termination of this Lease) a right to
terminate such other applicable lease; provided, however, that
the default event set forth in this Section 14.1(i) shall not
apply with respect to any default under a lease described
herein to the extent Tenant has previously assigned or
transferred all of its right, title and interest under the
lease as to which such default then exists and, as a result of
such transfer, the holder of the lessee's interest under the
lease as to which such default then exists is not a person or
entity which controls, is controlled by or is under common
control with the person or entity which is then the holder of
the lessee's interest under this Lease.
14.2. Remedies Upon Tenant's Default.
(a) Upon the occurrence of any event of default
described in Section 14.1 hereof, Landlord, in addition to and
without prejudice to any other rights or remedies it may have,
shall have the immediate right to re-enter the Premises or any
part thereof and repossess the same, expelling and removing
therefrom all persons and property (which property may be
stored in a public warehouse or elsewhere at the cost and risk
of and for the account of Tenant), using such force as may be
lawful and reasonably necessary to do so (as to which Tenant
hereby waives any claim for loss or damage that may thereby
occur, except for any such loss or damage arising from the
negligence or willful misconduct or omission of Landlord or
its agents). In addition to or in lieu of such re-entry, and
without prejudice to any other rights or remedies it may have,
Landlord shall have the right either (i) to terminate this
Lease and recover from Tenant all damages incurred by Landlord
as a result of Tenant's default, as hereinafter provided, or
(ii) to continue this Lease in effect and recover rent and
other charges and amounts as they become due.
(b) Even if Tenant has breached this Lease or
abandoned the Premises, this Lease shall continue in effect
for so long as Landlord does not terminate Tenant's right to
possession under subsection (a) hereof and Landlord may
enforce all of its rights and remedies under this Lease,
including the right to recover rent as it becomes due, and
Landlord, without terminating this Lease, may exercise all of
the rights and remedies of a lessor under California Civil
Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes
due, if lessee has right to sublet or assign, subject only to
reasonable limitations), or any successor Code section. Acts
of maintenance, preservation or efforts to relet the Premises
or the appointment of a receiver upon application of Landlord
to protect Landlord's interests under this Lease shall not
constitute a termination of Tenant's right to possession.
(c) If Landlord terminates this Lease pursuant to
this Section 14.2, Landlord shall have all of the rights and
remedies of a landlord provided by Section 1951.2 of the Civil
Code of the State of California, or any successor Code
section, which remedies include Landlord's right to recover
from Tenant (i) the worth at the time of award of the unpaid
rent and additional rent which had been earned at the time of
termination, (ii) the worth at the time of award of the amount
by which the unpaid rent and additional rent which would have
been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have
been reasonably avoided, (iii) the worth at the time of award
of the amount by which the unpaid rent and additional rent for
the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be
reasonably avoided, and (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations under this
Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the
cost of recovering possession of the Premises, expenses of
reletting, including necessary repair, renovation and
alteration of the Premises (provided that the cost of any such
renovation or alteration shall be recoverable only to the
extent reasonably necessary to make the Premises suitable for
use and occupancy by the new tenant and shall be allocated
reasonably between the unexpired portion of the term of this
Lease at the date of termination thereof and the balance, if
any, of the term of such new tenant's lease falling after the
scheduled expiration date of the term of this Lease),
reasonable attorneys' fees, and other reasonable costs. The
"worth at the time of award" of the amounts referred to in
clauses (i) and (ii) above shall be computed by allowing
interest at ten percent (10%) per annum from the date such
amounts accrued to Landlord. The "worth at the time of award"
of the amounts referred to in clause (iii) above shall be
computed by discounting such amount at one percentage point
above the discount rate of the Federal Reserve Bank of San
Francisco at the time of award.
14.3. Remedies Cumulative. All rights, privileges and
elections or remedies of Landlord contained in this Article 14
are cumulative and not alternative to the extent permitted by
law and except as otherwise provided herein.
15. SUBORDINATION, ATTORNMENT AND SALE
15.1. Subordination To Mortgage.
(a) This Lease, and any sublease entered into by
Tenant under the provisions of this Lease, shall be subject
and subordinate to any ground lease, mortgage, deed of trust,
sale/leaseback transaction or any other hypothecation for
security now or hereafter placed upon the Building, the
Property, or both, and the rights of any assignee of Landlord
or of any ground lessor, mortgagee, trustee, beneficiary or
leaseback lessor under any of the foregoing, and to any and
all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions
thereof. If any mortgagee, trustee, beneficiary, ground
lessor, sale/leaseback lessor or assignee elects to have this
Lease be an encumbrance upon the Property prior to the lien of
its mortgage, deed of trust, ground lease or leaseback lease
or other security arrangement and gives notice thereof to
Tenant, this Lease shall be deemed prior thereto, whether this
Lease is dated prior or subsequent to the date thereof or the
date of recording thereof. Tenant, and any sublessee, shall
execute such documents as may reasonably be requested by any
mortgagee, trustee, beneficiary, ground lessor, sale/leaseback
lessor or assignee to evidence the subordination herein set
forth or to make this Lease prior to the lien of any mortgage,
deed of trust, ground lease, leaseback lease or other security
arrangement, as the case may be. Upon any default by Landlord
in the performance of its obligations under any mortgage, deed
of trust, ground lease, leaseback lease or assignment, Tenant
(and any sublessee) shall attorn to the mortgagee, trustee,
beneficiary, ground lessor, leaseback lessor or assignee
thereunder upon demand and shall execute and deliver any
instrument or instruments confirming the attornment herein
provided for. Landlord shall obtain and deliver to Tenant,
within ninety (90) days after mutual execution of this Lease,
a written nondisturbance agreement from Northwestern Mutual
Life Insurance Company (the beneficiary under the existing
deed of trust on the Property) providing that Tenant's right
to quiet possession of the Premises shall not be disturbed so
long as Tenant is not in default beyond the expiration of any
applicable cure period and performs all of its obligations
under this Lease, unless this Lease is otherwise terminated
pursuant to its terms; such written nondisturbance agreement
shall either be substantially in the form attached hereto as
Exhibit E, but with such modifications as Tenant reasonably
requests (and Landlord hereby agrees to use its best efforts
to cause Northwestern Mutual Life Insurance Company to agree
to all such modifications reasonably requested by Tenant) or
be substantially in the form attached hereto as Exhibit E and
be accompanied by a side letter agreement between Landlord and
Tenant addressing, to Tenant's reasonable satisfaction, the
subject matter of the modifications requested by Tenant and
not agreed to by Northwestern Mutual Life Insurance Company.
If Landlord fails to deliver such agreement or agreement and
side letter, as applicable, to Tenant within the required
time, Tenant shall have the right to terminate this Lease by
written notice to Landlord at any time prior to Landlord's
subsequent delivery (if any) of an executed agreement or
agreement and side letter, as applicable, meeting such
requirements.
(b) Landlord specifically agrees that (i) Tenant
may conclusively rely upon any written notice Tenant receives
from any mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or assignee ("Beneficiary"),
notwithstanding any claim by Landlord contesting the validity
of any term or condition of such notice, including, but not
limited to, any default by such Beneficiary or any default
claimed by Landlord to have been committed by such
Beneficiary, and (ii) Landlord shall not make any claim of any
kind against Tenant or Tenant's leasehold interest with
respect to amounts paid to any such Beneficiary by Tenant or
any acts performed by Tenant pursuant to such written notice
from any Beneficiary.
(c) Notwithstanding anything to the contrary
contained in this Lease, Tenant shall not be required to
subordinate its interest under this Lease unless (i) such
subordination does not materially increase Tenant's
obligations or materially decrease its rights under this
Lease, and (ii) Landlord first obtains from the Beneficiary
requesting such subordination a written agreement that
provides that Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in
default beyond the expiration of any applicable cure period
and performs all of its obligations under this Lease, unless
this Lease is otherwise terminated pursuant to its terms.
15.2. Sale Of Landlord's Interest. Upon sale, transfer
or assignment of Landlord's entire interest in the Building
and Property, Landlord shall be relieved of its obligations
hereunder with respect to liabilities accruing from and after
the date of such sale, transfer or assignment.
15.3. Estoppel Certificates. Tenant shall at any time
and from time to time, within ten (10) days after written
request by Landlord, execute, acknowledge and deliver to
Landlord a certificate in writing stating: (i) that this Lease
is unmodified and in full force and effect, or if there have
been any modifications, that this Lease is in full force and
effect as modified and stating the date and the nature of each
modification; (ii) the date to which rental and all other sums
payable hereunder have been paid; (iii) that to Tenant's
actual knowledge Landlord is not in default in the performance
of any of its obligations under this Lease, that Tenant has
given no notice of default to Landlord and that to Tenant's
actual knowledge, no event has occurred which, but for the
expiration of the applicable time period, would constitute an
event of default hereunder; and (iv) such other matters as may
reasonably be requested by Landlord or any institutional
lender, mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or prospective purchaser of the
Property. Any such certificate provided under this
Section 15.3 may be relied upon by any lender, mortgagee,
trustee, beneficiary, assignee or successor in interest to
Landlord, by any prospective purchaser, by any purchaser on
foreclosure or sale, or by any grantee under a deed in lieu of
foreclosure of any mortgage or deed of trust on the Property
or Premises. Failure to execute and return within the
required time any estoppel certificate requested hereunder
shall be deemed to be an admission of the truth of the matters
set forth in the form of certificate submitted to Tenant for
execution.
15.4. Subordination to CC&R's. This Lease, and any
permitted sublease entered into by Tenant under the provisions
of this Lease, shall be subject and subordinate (a) to any
declarations of covenants, conditions and restrictions
recorded by Landlord with respect to the Property from time to
time, provided that the terms of such declarations are
reasonable and do not discriminate against Tenant relative to
other tenants occupying portions of the Property, and (b) to
the Declaration of Covenants, Conditions and Restrictions
dated June 20, 1979 and recorded on July 5, 1979 as Instrument
No. 79-130777, Alameda County Records, as amended from time to
time (the "Master Declaration"), the provisions of which
Master Declaration are an integral part of this Lease. Tenant
agrees to execute, upon request by Landlord, any documents
reasonably required from time to time to evidence the
subordination provided in this Section 15.4.
16. SECURITY
16.1. Deposit.
(a) Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of Fifty
Thousand and No/100 Dollars ($50,000.00), which sum (the
"Security Deposit") shall be held by Landlord as security for
the faithful performance of all of the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults, beyond the
expiration of any applicable grace period, with respect to any
provision of this Lease, including, without limitation, the
provisions relating to the payment of rental and other sums
due hereunder, Landlord shall have the right, but shall not be
required, to use, apply or retain all or any part of the
Security Deposit for the payment of rental or any other amount
which Landlord may spend or become obligated to spend by
reason of Tenant's default or to compensate Landlord for any
other loss or damage which Landlord may suffer by reason of
Tenant's default. If any portion of the Security Deposit is
so used or applied, Tenant shall, within thirty (30) days
after written demand therefor, deposit cash with Landlord in
an amount sufficient to restore the Security Deposit to its
original amount and Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required
to keep any deposit under this Section separate from
Landlord's general funds, and Tenant shall not be entitled to
interest thereon. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the
Security Deposit, or any balance thereof, shall be returned to
Tenant or, at Tenant's direction, to the last assignee of
Tenant's interest hereunder, at the expiration of the term of
this Lease and within ten (10) days after Tenant has vacated
the Premises. In the event of termination of Landlord's
interest in this Lease, Landlord shall transfer all deposits
then held by Landlord under this Section to Landlord's
successor in interest, whereupon Tenant agrees to release
Landlord from all liability for the return of such deposit or
the accounting thereof.
(b) In lieu of the Security Deposit, Tenant may
deliver to Landlord at any time, and shall thereafter maintain
in full force and effect during the remaining term of this
Lease, an irrevocable standby letter of credit in the amount
of the required Security Deposit, issued in favor of Landlord
by a commercial bank or trust company approved in writing by
Landlord (which approval shall not be unreasonably withheld or
delayed), in form reasonably satisfactory to Landlord (the
"Letter of Credit"), to be held by Landlord as security for
the faithful performance of all the payment obligations of
Tenant under this Lease during the initial term hereof,
subject to the following terms and conditions (and upon
delivery of any such Letter of Credit by Tenant, if Landlord
is then already holding a cash Security Deposit from Tenant,
Landlord shall promptly return such cash Security Deposit to
Tenant):
(i) Landlord shall be entitled (but shall not
be required) to draw against the Letter of Credit and receive
and retain proceeds thereof upon any default by Tenant, beyond
the expiration of any applicable cure periods, in the payment
of any rent or other amounts required to be paid by Tenant
under this Lease (a "monetary default") or upon any other
default, beyond the expiration of any applicable cure periods,
in Tenant's obligations under this Lease (a "non-monetary
default"). The amount of any such draw shall be, with respect
to a monetary default, the amount due from Tenant to Landlord,
and, in the event of a non-monetary default, an amount
estimated by Landlord, in its reasonable discretion, to be the
amount necessary to cure such default. Within thirty (30)
days following any draw by Landlord against the Letter of
Credit, Tenant shall cause the amount of the Letter of Credit
to be restored to the full amount of the required Security
Deposit pursuant to paragraph (a) above. Landlord's
entitlement to draw against the Letter of Credit shall not
limit or impair in any way Landlord's other rights and
remedies, following any default by Tenant, under any other
applicable provision of this Lease or under applicable law.
(ii) Notwithstanding any provisions of
subparagraph (i) above, Landlord shall also be entitled (but
shall not be required) to draw against the then remaining
balance of the Letter of Credit in full and to receive the
entire proceeds of such draw if the Letter of Credit will
expire as of a date prior to the expiration of the initial
term of this Lease and Tenant fails to provide to Landlord an
extension or replacement of such Letter of Credit, in at least
the amount of the required Security Deposit, at least thirty
(30) days prior to the scheduled expiration date of such
existing Letter of Credit.
(iii) Any amount drawn or received by
Landlord pursuant to a draw under the Letter of Credit that is
not immediately used or applied by Landlord to remedy a
default by Tenant shall be retained by Landlord as a cash
Security Deposit on the terms set forth in paragraph (a)
above.
17. MISCELLANEOUS
17.1. Notices. All notices, consents, waivers and other
communications which this Lease requires or permits either
party to give to the other shall be in writing and shall be
deemed given when delivered personally (including delivery by
private courier or express delivery service) or four (4) days
after deposit in the United States mail, registered or
certified mail, postage prepaid, addressed to the parties at
their respective addresses as follows:
To Tenant: Aradigm Corporation
26219 Eden Landing Road
Hayward, CA 94545
Attn: Richard P. Thompson
President and C.E.O.
with copy to: Mark A. Olbert, Vice President &
CFO
Aradigm Corporation
26219 Eden Landing Road
Hayward, CA 94545
To Landlord: Hayward Point Eden I Limited
Partnership
c/o Britannia Developments, Inc.
1939 Harrison Street, Suite 412
Park Plaza Building
Oakland, CA 94612
Attn: T. J. Bristow
with copy to: Folger Levin & Kahn LLP
Embarcadero Center West
275 Battery Street, 23rd Floor
San Francisco, CA 94111 Attn:
Donald E. Kelley, Jr.
or to such other address as may be contained in a notice at
least fifteen (15) days prior to the address change from
either party to the other given pursuant to this Section.
Rental payments and other sums required by this Lease to be
paid by Tenant shall be delivered to Landlord at Landlord's
address provided in this Section, or to such other address as
Landlord may from time to time specify in writing to Tenant,
and shall be deemed to be paid only upon actual receipt.
17.2. Successors And Assigns. The obligations of this
Lease shall run with the land, and this Lease shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the original
Landlord named herein and each successive Landlord under this
Lease shall be liable only for obligations accruing during the
period of its ownership of the Property, which liability shall
survive, but future liability under the Lease shall then pass
to the successor lessor.
17.3. No Waiver. The failure of either party to seek
redress for violation, or to insist upon the strict
performance, of any covenant or condition of this Lease shall
not be deemed a waiver of such violation, or prevent a
subsequent act which would originally have constituted a
violation from having all the force and effect of an original
violation.
17.4. Severability. If any provision of this Lease or
the application thereof is held to be invalid or
unenforceable, the remainder of this Lease or the application
of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable shall not be
affected thereby, and each of the provisions of this Lease
shall be valid and enforceable, unless enforcement of this
Lease as so invalidated would be unreasonable or grossly
inequitable under all the circumstances or would materially
frustrate the purposes of this Lease.
17.5. Litigation Between Parties. In the event of any
litigation between the parties hereto growing out of this
Lease, the prevailing party shall be reimbursed for all
reasonable costs, including, but not limited to, reasonable
accountants' fees and attorneys' fees. "Prevailing party"
within the meaning of this Section shall include, without
limitation, a party who dismisses an action for recovery
hereunder in exchange for payment of the sums allegedly due,
performance of covenants allegedly breached or consideration
substantially equal to the relief sought in the action.
17.6. Surrender. A voluntary or other surrender of this
Lease by Tenant, or a mutual termination thereof between
Landlord and Tenant, shall not result in a merger but shall,
at the option of Landlord, operate either as an assignment to
Landlord of any and all existing subleases and subtenancies,
or a termination of all or any existing subleases and
subtenancies. This provision shall be contained in any and
all assignments or subleases made pursuant to this Lease.
17.7. Interpretation. The provisions of this Lease shall
be construed as a whole, according to their common meaning,
and not strictly for or against Landlord or Tenant. The
captions preceding the text of each Section and subsection
hereof are included only for convenience of reference and
shall be disregarded in the construction or interpretation of
this Lease.
17.8. Entire Agreement. This written Lease, together
with the exhibits hereto, contains all the representations and
the entire understanding between the parties hereto with
respect to the subject matter hereof. Any prior
correspondence, memoranda or agreements are replaced in total
by this Lease and the exhibits hereto. This Lease may be
modified only by an agreement in writing signed by each of the
parties.
17.9. Governing Law. This Lease and all exhibits hereto
shall be construed and interpreted in accordance with and be
governed by all the provisions of the laws of the State of
California.
17.10. No Partnership. Nothing contained in this
Lease shall be construed as creating any type or manner of
partnership, joint venture or joint enterprise with or between
Landlord and Tenant.
17.11. Financial Information. From time to time
Tenant shall promptly provide directly to prospective lenders
and purchasers of the Property designated by Landlord such
financial information pertaining to the financial status of
Tenant as Landlord may reasonably request; provided, Tenant
shall be permitted to provide such financial information in a
manner which Tenant deems reasonably necessary to protect the
confidentiality of such information. In addition, from time
to time, Tenant shall provide Landlord with such financial
information pertaining to the financial status of Tenant as
Landlord may reasonably request. Landlord agrees that all
financial information supplied to Landlord by Tenant shall be
treated as confidential material, and shall not be
disseminated to any person or entity (including any entity
affiliated with Landlord, except as otherwise expressly
provided below) without Tenant's prior written consent, except
that Landlord shall be entitled to provide such information,
subject to reasonable precautions to protect the confidential
nature thereof, (i) to Landlord's partners and professional
advisors, solely for use in connection with Landlord's
execution and enforcement of this Lease, and (ii) to
prospective lenders and/or purchasers of the Property, solely
for use in connection with their bona fide consideration of a
proposed financing or purchase of the Property, provided that
such prospective lenders and/or purchasers are not engaged in
businesses directly competitive with the business then being
conducted by Tenant. For purposes of this Section, without
limiting the generality of the obligations provided herein,
(A) it shall be deemed reasonable for Landlord to request
copies of Tenant's most recent audited annual financial
statements, or, if audited statements have not been prepared,
unaudited financial statements for Tenant's most recent fiscal
year, accompanied by a certificate of Tenant's chief financial
officer that such financial statements fairly present Tenant's
financial condition as of the date(s) indicated, and (B)
during any period when Tenant has a class of publicly-traded
securities and is a reporting company under the Securities
Exchange Act of 1934, it shall be deemed sufficient compliance
with Tenant's obligations under this Section for Tenant to
provide, upon Landlord's request, copies of Tenant's most
recent quarterly and annual filings (and any Form 8-K filings
since the most recent of such quarterly or annual filings)
with the Securities and Exchange Commission.
Landlord and Tenant recognize the need of Tenant to
maintain the confidentiality of information regarding its
financial status and the need of Landlord to be informed of,
and to provide to its partners and to prospective lenders and
purchasers of the Property financial information pertaining
to, Tenant's financial status. Landlord and Tenant agree to
cooperate with each other in achieving these needs within the
context of the obligations set forth in this Section.
17.12. Costs. If Tenant requests the consent of
Landlord under any provision of this Lease for any act that
Tenant proposes to do hereunder, including, without
limitation, assignment or subletting of the Premises, Tenant
shall, as a condition to doing any such act and the receipt of
such consent, reimburse Landlord promptly for any and all
reasonable costs and expenses incurred by Landlord in
connection therewith, including, without limitation,
reasonable attorneys' fees.
17.13. Time. Time is of the essence of this Lease,
and of every term and condition hereof.
17.14. Rules And Regulations. Tenant shall observe
and obey such rules and regulations as Landlord may promulgate
from time to time for the safety, care, cleanliness, order and
use of the Premises, the Building and the Property, provided
that any such rules and regulations shall not unreasonably
interfere with Tenant's access to, or use of, the Premises.
17.15. Brokers. Landlord shall pay a commission to
Cornish & Carey Commercial, in connection with and contingent
upon the mutual execution of this Lease, in accordance with a
separate agreement between Landlord and such broker. Landlord
and Tenant each represents and warrants to the other that no
other broker participated in the consummation of this Lease,
and each agrees to indemnify, defend and hold the other party
harmless against any liability, cost or expense, including,
without limitation, reasonable attorneys' fees, arising out of
any claims for brokerage commissions or other similar
compensation in connection with any conversations, prior
negotiations or other dealings by the indemnifying party with
any such other broker or other claimant.
17.16. Memorandum Of Lease. At any time during the
term of this Lease, either party, at its sole expense, shall
be entitled to record a memorandum of this Lease and, if
either party so elects, both parties agree to cooperate in the
preparation, execution, acknowledgement and recordation of
such document in reasonable form.
17.17. Corporate Authority. Each of the persons
signing this Lease on behalf of Landlord and Tenant,
respectively, warrants that he or she is fully authorized to
do so and, by so doing, to bind Landlord or Tenant, as
applicable.
17.18. Execution and Delivery. Submission of this
Lease for examination or signature by Tenant does not
constitute an agreement or reservation of or option for lease
of the Premises. This instrument shall not be effective or
binding upon either party, as a lease or otherwise, until
executed and delivered by both Landlord and Tenant. This
Lease may be executed in one or more counterparts and by
separate parties on separate counterparts, but each such
counterpart shall constitute an original and all such
counterparts together shall constitute one and the same
instrument.
17.19. Stock Warrants. As a material inducement to
Landlord's execution of this Lease, within thirty (30) days
after mutual execution of this Lease Tenant shall deliver to
Landlord, subject to compliance with all applicable securities
laws, a warrant or warrants, registered in the name(s) of
Landlord or its designee(s) (provided that such designee(s)
are partners of Landlord or are shareholders, members or
affiliates, directly or indirectly, of Landlord or of one or
more of its partners or are approved in writing by Tenant,
which approval shall not be unreasonably withheld or delayed)
and in form and substance reasonably satisfactory to Landlord,
providing for the purchase of an aggregate of Sixty Thousand
(60,000) shares of Tenant's common stock. Such warrants shall
have an exercise price equal to one hundred twenty-five
percent (125%) of the closing market price of Tenant's common
stock on the date of mutual execution of this Lease, shall
include reasonable registration rights and shall be
exercisable at any time up from the Initial Exercise Date (as
defined below) until the seventh (7th) anniversary of the date
of execution of this Lease. For purposes of the preceding
sentence, the "Initial Exercise Date" (to be defined in more
detail in the form of warrant itself) shall be the earlier to
occur of (i) the date on which Landlord has substantially
completed the construction of and/or payment for, as
applicable, all improvements to be constructed or paid for by
Landlord under this Lease and the landlord under the Phase V
Lease has substantially completed the construction of and/or
payment for, as applicable, all improvements to be constructed
or paid for by such landlord under the Phase V Lease, or
(ii) the later to occur of (A) January 1, 2000 or (B) the date
on which Landlord has substantially completed the construction
of and/or payment for, as applicable, all improvements to be
constructed or paid for by Landlord under this Lease as of
January 1, 2000 (but excluding any such obligations to the
extent the performance thereof has been delayed beyond
January 1, 2000 by circumstances beyond the reasonable control
of Landlord, including (but not limited to) weather,
casualties and other acts of God, labor disputes and acts or
omissions of Tenant or its agents or employees, but excluding
any financial inability of Landlord) and the landlord under
the Phase V Lease has substantially completed the construction
of and/or payment for, as applicable, all improvements to be
constructed or paid for by such landlord under the Phase V
Lease as of January 1, 2000 (but excluding any such
obligations to the extent the performance thereof has been
delayed beyond January 1, 2000 by circumstances beyond the
reasonable control of such landlord, including (but not
limited to) weather, casualties and other acts of God, labor
disputes and acts or omissions of Tenant or its agents or
employees, but excluding any financial inability of such
landlord).
IN WITNESS WHEREOF, the parties hereto have
executed this Lease as of the day and year first set forth
above.
"Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By: Britannia Developments, Inc., a California corporation,
Its General Partner
By: ____________________
T.J. Bristow
President and
Chief Financial Officer
"Tenant"
ARADIGM CORPORATION, a California corporation
By: __________________________
Richard P. Thompson
President
By: _________________________
Mark A. Olbert
Chief Financial Officer
17025\3044\0002rv5
EXHIBITS
EXHIBIT A Location of Premises
EXHIBIT B Real Property Description
EXHIBIT C Construction
EXHIBIT D Acknowledgment of Final Completion
Date
EXHIBIT E Form of Non-Disturbance and
Attornment Agreement
REAL PROPERTY DESCRIPTION
Improved real property located in the City of Hayward, County
of Alameda, State of California, more particularly described
as follows:
Lots 2, 3, 4, 5 and 7, Tract 4019, filed June 28, 1979, Map
Book 110, Pages 97, 98 and 99, Alameda County Records.
Subject to easements, restrictions and other matters of record
affecting title.
CONSTRUCTION
Landlord, at its sole cost and expense, shall undertake
and diligently complete, subject to delays for causes beyond
its reasonable control, construction of (a) a structural shell
of approximately 16,244 square feet for the Third Additional
Space in accordance with the Building Shell Description at the
end of this Exhibit C, and (b) tenant improvements in the
Existing Space, First Additional Space, Second Additional
Space and Third Additional Space in accordance with plans and
specifications to be mutually approved by Landlord and Tenant,
which approval shall not be unreasonably withheld or delayed;
provided, however, that the parties may by mutual agreement,
as contemplated below and in Section 2.4(c) of the Lease,
determine instead that Tenant will contract for the design
and/or construction of the tenant improvements subject to
reimbursement by Landlord to the extent provided below. The
parties contemplate that the construction of the tenant
improvements in the Premises will be performed in two separate
phases, the first being the construction of a Pilot
Manufacturing Facility occupying approximately 23,756 square
feet of the Premises and the second being the construction of
a Commercial Manufacturing Facility occupying the remainder of
the Premises. The allocation of space in the Premises between
the Pilot Manufacturing Facility and the Commercial
Manufacturing Facility shall be determined by mutual agreement
of Landlord and Tenant, and shall be subject to change by
their mutual agreement from time to time.
All such work hereunder shall be performed in a neat and
workmanlike manner and shall conform to all applicable
governmental codes, laws and regulations in force at the time
such work is completed. Landlord and Tenant shall both use
their best endeavors to develop, review and approve all
working drawings, final drawings, specifications, changes (if
applicable) and other matters promptly, diligently and within
such time periods as may be reasonably requested by the other
party or by the architects, contractors and other
professionals engaged in the design and construction of the
work.
Landlord has agreed to provide a base tenant improvement
allowance of up to Thirty Dollars ($30.00) per square foot, or
approximately One Million Two Hundred Thousand Dollars
($1,200,000) in the aggregate for an estimated 40,000 square
feet of space in the Premises, for the tenant improvements
described in the initial paragraph hereof (the "Base Tenant
Improvement Allowance"). Landlord has also agreed to provide
an additional tenant improvement allowance of up to Seventy
Dollars ($70.00) per square foot, or approximately Two Million
Eight Hundred Thousand Dollars ($2,800,000) in the aggregate
for an estimated 40,000 square feet of space in the Premises,
for the tenant improvements described in the initial paragraph
hereof (the "Additional Tenant Improvement Allowance").
Landlord's total direct costs of design and construction of
the tenant improvement work in the Premises under Section 2.4
and this Exhibit C (but not of the building shell for the
Third Additional Space or of any exterior work involving
reconfiguration of streets, sidewalks, parking areas and
landscaping to accommodate the expansion of the Building,
which shell and exterior work shall be Landlord's sole cost
and expense), including, but not limited to, payments to
contractors or subcontractors for labor, materials and profits
or overhead, permit fees and charges, sales and use taxes,
testing and inspection costs, architects', engineers' and
other consulting and professional fees, costs of power, water
and other utilities and of collection and removal of debris,
and all other related costs incurred in connection with the
design and construction of the tenant improvement work shall
be chargeable against the Base Tenant Improvement Allowance
and, to the extent that allowance is exhausted, against the
Additional Tenant Improvement Allowance. Any amounts charged
against the Additional Tenant Improvement Allowance shall
result in a rental adjustment pursuant to Section 3.1(c) of
the Lease. Any such costs of the tenant improvements in
excess of the combined Base and Additional Tenant Improvement
Allowances shall be payable solely by Tenant, within thirty
(30) days after written request by Landlord accompanied by
evidence reasonably satisfactory to Tenant of the nature and
amount of the expense or work for which such payment is
requested; provided, however, that Tenant shall have no
liability for excess costs to the extent such costs are
attributable to changes in the Approved Plans and
Specifications (as hereinafter defined) for which Tenant's
approval was required under this Exhibit C and which were
nevertheless implemented without Tenant's approval.
Notwithstanding any contrary provisions contained in the
Lease, Landlord agrees that Tenant shall have no obligation to
remove, at the expiration of the term of the lease, any
improvements constructed by Landlord pursuant to this
Exhibit C.
The general contractor for the building shell shall be
Concrete Shell Structures, Inc., or any other licensed and
qualified general contractor selected by Landlord. The
architect for the building shell shall be Chamorro Design
Group, or any other licensed and qualified architect selected
by Landlord. The general contractor for the tenant
improvements shall be any licensed and qualified general
contractor selected by Tenant, subject to written approval by
Landlord (which approval shall not be unreasonably withheld or
delayed). The architect for the tenant improvements
("Architect") shall be any licensed and qualified architect
selected by Tenant, subject to written approval by Landlord
(which approval shall not be unreasonably withheld or
delayed). The costs and fees of Architect with respect to the
tenant improvements (but not any such fees with respect to the
building shell or any common area improvements) shall be
chargeable against the Tenant Improvement Allowances.
Landlord and Tenant shall determine by mutual agreement
whether the contracts with Architect, with the general
contractor for the tenant improvements and with other
consultants or professionals with respect to the tenant
improvements shall be entered into by Landlord or Tenant. If
such contracts are entered into by Tenant, then
(i) Section 2.4(c) of the Lease shall define Landlord's
obligations with respect to the work performed under such
contracts and (ii) to the extent Landlord is responsible under
this Exhibit C for the costs incurred under such contracts,
Landlord shall make payments to Tenant or to the applicable
parties providing goods and services, as Landlord and Tenant
may agree, on a monthly or other regular basis, subject to
receipt of such invoices, lien releases, certifications and
other documentation as Landlord may reasonably require.
Landlord and Tenant shall jointly cause Architect to
prepare initial plans and specifications for each phase of the
tenant improvements in the Premises, which plans and
specifications shall be mutually approved (such approval not
to be unreasonably withheld or delayed) by Landlord and Tenant
(the "Approved Plans and Specifications"). Landlord and
Tenant shall then jointly cause Architect to produce detailed
working drawings, based on the Approved Plans and
Specifications, for submission to the City of Hayward for
building permit approval. Any material changes from the
Approved Plans and Specifications shall be subject to mutual
approval (not unreasonably withheld or delayed) by Landlord
and Tenant, provided, however, that any changes required from
time to time in the Approved Plans and Specifications, working
drawings and/or final plans and specifications as a result of
applicable law or governmental requirements, or at the
insistence of any other third party whose approval may be
required with respect to such improvements, or as a result of
unanticipated conditions encountered in the course of
construction, may be implemented by Landlord after prior
notice to Tenant (if Landlord is the contracting party who is
responsible for construction of the applicable improvements),
but shall not require Tenant's approval or consent.
All material subcontracts for the tenant improvements
shall be competitively bid under the joint direction of
Landlord and Tenant, except as otherwise provided herein.
Landlord and Tenant shall consult with one another regarding
all design and cost matters relating to the tenant
improvements, including (but not limited to) bidding of
material subcontracts as described in the preceding sentence,
and both parties shall have access on an "open book" basis to
all bids, contracts and other cost-related information
regarding the tenant improvements. Without limiting the
generality of the foregoing, cost aspects of any changes
requested by Tenant from time to time in the Approved Plans
and Specifications, working drawings and/or final plans and
specifications shall be subject to mutual approval by Landlord
and Tenant; cost aspects of any changes required from time to
time in the Approved Plans and Specifications, working
drawings and/or final plans and specifications as a result of
applicable law or governmental requirements, or at the
insistence of any other third party whose approval may be
required with respect to such improvements, or as a result of
unanticipated conditions encountered in the course of
construction, shall not require Tenant's approval or consent,
but Tenant shall at all times have access to the details of
the cost aspects of such changes (including estimates and
actual expenses) for information purposes. Notwithstanding
any other provisions of this paragraph, however, to the extent
Tenant contracts directly with the general contractor for any
of the tenant improvements, Tenant shall not be required to
obtain Landlord's prior approval of or joint participation in
the bidding of material subcontracts to the extent Tenant
reasonably determines that such prior approval or joint
participation is impractical as a result of the construction
timetable and timing requirements for the work contracted for
by Tenant; but Tenant shall nevertheless keep Landlord as
fully informed as the circumstances reasonably permit and
shall in all events provide Landlord with full "open book"
access at all reasonable times, on request by Landlord, to all
bids, contracts and other information relating to the tenant
improvements contracted for by Tenant.
BUILDING SHELL DESCRIPTION
The building structure shall be a conventional tilt-up
concrete structure or such other kind of structure as Landlord
may reasonably select. Supported on concrete spread footings,
the floor slab shall be 5" reinforced concrete over a membrane
and engineered fill. The roof shall be a panelized wood roof
supported by steel columns, girders, and open web metal
joists. The built-up roofing membrane shall utilize a 4-ply
system with a mineral surfaced cap sheet. Notwithstanding the
foregoing description of building shell characteristics, any
of such characteristics may be changed in whole or in part by
mutual agreement of Landlord and Tenant.
BUILDING SHELL shall include, but not be limited to:
Building envelope
Exterior concrete walks
Parking areas
Landscaping and irrigation
Roof drains and drain lines-
Roof top mechanical screen
Fire sprinklers at roof elevation
Trash enclosures
Utilities:
- site lighting
- electric transformer
- underground electrical to building pull-section
- gas to exterior meter on building
- telephone conduit to building
- site storm drain system
- main sanitary sewer line under ground floor slab
TENANT IMPROVEMENTS not constituting part of the Building
Shell, and therefore chargeable against the Tenant Improvement
Allowances, shall include, but not be limited to:
Toilet cores
Interior partitioning
Interior finishes
Millwork
Specialty items, such as skylights
HVAC system
Building exhaust system
Thermal building insulation
Fire sprinkler drops below roof elevation
Utilities:
- all electrical beyond pull section, including
electrical main disconnect and distribution panels
- gas piping beyond main gas meter
- telephone conduit beyond utility co. termination
point
- sanitary sewer lines to main line under ground
floor
- lab gas piping for all lab utilities, i.e. natural
gas, compressed air, vacuum, etc.
- utility connection fees based on items that are
part of tenant improvements
ACKNOWLEDGMENT OF FINAL COMPLETION DATE
This Acknowledgment is executed as of _________________,
19___, by HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware
limited partnership ("Landlord"), and ARADIGM CORPORATION, a
California corporation ("Tenant"), pursuant to Section 2.5 of
the Lease dated January ___, 1998 between Landlord and Tenant
(the "Lease") covering premises located at 26224 Executive
Place, Hayward, CA 94545 (the "Premises").
Landlord and Tenant hereby acknowledge and agree as
follows:
1. The Final Completion Date under the Lease is
__________________, 19___.
2. The termination date under the Lease shall be
_________________, 20___, subject to any applicable provisions
of the Lease for any extension or early termination thereof.
3. The square footage of the Premises as completed, for
purposes of calculating minimum monthly rental under
Section 3.1(a) of the Lease, is ___________ square feet.
4. The final cost of the tenant improvements for the
Premises is . Based on that cost, the
applicable rental adjustment (if any) and/or payment (if any)
required under the Lease is as follows (if none, so state):
.
5. Tenant accepts the Premises and acknowledges the
satisfactory completion of all improvements therein (if any)
required to be made by Landlord, subject only to any
applicable "punch list" or similar procedures specifically
provided under the Lease.
EXECUTED as of the date first set forth above.
"Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By: Britannia Developments, Inc., a California corporation,
Its General Partner
By: ____________________
T.J. Bristow
President and
Chief Financial Officer
"Tenant"
ARADIGM CORPORATION, a California corporation
By: __________________________
Mark A. Olbert
Vice President and
Chief Financial Officer
17025\3044\0002rv5
EXHIBIT 10.11A
First Amendment to Lease
This First Amendment to Lease ("First Amendment") is executed
this 10th day of June 1996 between Hayward Point Eden I
Limited Partnership ("Landlord"), and Aradigm Corporation a
California Corporation ("Tenant") with reference to the
following facts:
A. Landlord and Tenant are parties to a Lease dated as of
February 21, 1996 (the "Lease"), covering approximately 9,286
sq. ft. of space commonly known as 3930 Point Eden Way,
Hayward, California (the "Premises").
B. Landlord and Tenant wish to enter into this First
Amendment to confirm the revised minimum rental and Tenant
improvement allowance.
Now, Therefore, in consideration of the mutual covenants
and obligations contained herein, Landlord and Tenant agree as
follows:
1. Clause 3.1(c) is amended such that in addition to the
tenant improvement allowance of $5.00 per sq. ft. or
$46,430.00 stated in this Clause, Landlord will provide a
further $100,000.00 towards the total cost of the Tenant
improvements.
2. Clause 3.1(c) Minimum Rental is amended as follows:
Months Minimum Rental
0-12 $
10,275.50
13-24 $
10,554.08
25-36 $
10,843.80
Clause 3.1.(d) is
unchanged.
3. The following is added to Clause 2.1.
"In the event that Tenant exercises its Termination
Rights under this Clause Tenant shall pay on or before the
Termination Date the unamortized portion (assuming straightline
amortization over a period of 36 months from the
Commencement Date) of the $100,000.00 additional T.I.
allowance:
4. Subject only to the provisions of this First Amendment,
the Lease has not been modified or amended and remains in full force
and effect.
In Witness Whereof, Landlord and Tenant have executed
this First Amendment as of the date set forth above.
"Landlord "Tenant"
Hayward Point Eden I Partnership Aradigm Corporation
A Delaware Limited Partnership
By: By
T.J. Bristow, President Richard Thompson Britannia
Developments, Inc. President
Its: Managing Partner
EXHIBIT 10.11B
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is
entered into as of December 22, 1997 between HAYWARD POINT
EDEN I LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and ARADIGM CORPORATION, a California corporation
("Tenant"), with reference to the following facts:
A. Landlord and Tenant are parties to a Lease dated as
of February 21, 1996, as amended by a First Amendment to Lease
dated as of June 10, 1996 (as amended, the "Lease"), covering
certain premises consisting of approximately 9,286 square feet
of space in Building E of the Britannia Point Eden Business
Park (the "Center") and commonly known as 3930 Point Eden Way,
Hayward, California 94545 (the "Original Space"). The location
of the Original Space in the Building is as designated in
Exhibit A attached hereto and incorporated herein by this
reference.
B. Concurrently with the execution of this Second
Amendment, Landlord and Tenant are negotiating over a new lease
covering portions of Building G in the Center, a new lease
covering a new building of approximately 80,000 square feet to
be constructed by Landlord or an affiliate in or adjacent to
the Center (the "Phase V Lease"), and amendments of two
existing leases between Landlord and Tenant affecting portions
of Building H in the Center.
C. In connection with the negotiation and execution of
the leases and amendments described in the preceding paragraph,
Landlord and Tenant wish to bring additional premises in
Building E under the Lease and to make various other changes in
the Lease as more particularly set forth herein.
D. Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.
NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows, effective immediately
upon the date of mutual execution hereof as specified above
(the "Effective Date"):
1. Additional Space. In addition to the Original Space
as defined above, the Premises governed by the Lease shall
include, subject to the terms of this Second Amendment and of
the Lease as amended hereby, an additional 13,564 square feet
of space in the Building designated as "Additional Space" in
Exhibit A attached hereto and incorporated herein by this
reference (the "Additional Space"). Landlord lease to Tenant
and Tenant hires and leases from Landlord the Additional Space,
subject to all the terms and conditions of the Lease as amended
by this Second Amendment.
2. Term. Section 2.1 of the Lease is amended to
provide that the term of the Lease shall expire on June 30,
1999 with respect to the Original Space and on December 31,
2000 with respect to the Additional Space, unless sooner
terminated (as to either or both of such spaces) in accordance
with its terms or unless extended (as to the Original Space
only) in accordance with its terms. Section 2.1 of the Lease
is also amended to delete all previously existing provisions
for an early termination right by Tenant. Section 2.1 of the
Lease is further amended to add the following at the end
thereof:
"Notwithstanding any other provisions of this Lease to
the contrary:
(A) If Tenant relocates the uses presently conducted
by Tenant in the Original Space into either (i) the space
to be occupied by Tenant in Building G in the Center or
(ii) the new building to be constructed pursuant to the
Phase V Lease (following completion of construction of
such building), then Tenant shall have the right to
terminate this Lease as to the Original Space, without
penalty and without liability for any termination payment,
by delivering to Landlord not less than six (6) months'
prior written notice. The termination payment described
in Section 2.1(C) of this Lease (relating to payment of
the unamortized portion of certain tenant improvement
costs) shall have no application to any termination by
Tenant under the circumstances described in the preceding
sentence.
(B) Tenant shall have the right to terminate this
Lease as to the Additional Space at any time, without
penalty and without liability for any termination payment,
by delivering to Landlord not less than three (3) months'
prior written notice.
(C) If Tenant duly elects to extend the term of this
Lease by an additional 10-year period with respect to the
Original Space pursuant to Section 2.7(b) of this Lease,
then Tenant shall have the right to terminate such
extended term, effective as of the end of the seventh
(7th) year thereof, by giving not less than six (6)
months' prior written notice to Landlord; provided, that
Tenant's exercise of such early termination right shall be
conditioned upon Tenant's payment to Landlord in cash, on
or before the effective date of such early termination, of
a termination payment in an amount equal to the sum of (i)
three (3) months' worth of minimum
monthly rent at the rate that would have been in effect
for the three (3) months immediately following the
effective date of such early termination, plus (ii) an
amount equal to the unamortized portion of any tenant
improvement costs incurred by Landlord for additional
tenant improvements (if any) to the Original Space under
Paragraph 5 of the Second Amendment to this Lease in
connection with Tenant's exercise of its option for the
extended 10-year term (such unamortized portion to be
calculated on the basis of a straight-line amortization of
such improvement costs over the period from the date such
additional tenant improvements are completed and tendered
for occupancy and use by Tenant, subject only to "punch
list" items not materially impairing Tenant's ability to
use such additional tenant improvements for their intended
purpose, to the originally scheduled expiration date of
the extended 10-year term)."
3. Options to Extend Term. Section 2.7 of the Lease is
amended to read in its entirety as follows:
"2.7. Options to Extend Term.
(a) Tenant shall have the option to extend the
term of this Lease with respect to the Original Space
only, at the minimum rental set forth in Section 3.1(d)
and otherwise upon all the terms and provisions set forth
herein with respect to the initial term of this Lease, for
up to two (2) additional periods of one (1) year each,
commencing upon expiration of the initial term hereof.
Exercise of the first such option shall be by written
notice to Landlord at least six (6) months prior to the
expiration of the initial term hereof with respect to the
Original Space; exercise of the second such option, if the
first such option is duly and timely exercised by Tenant,
shall be by written notice to Landlord at least six (6)
months prior to the expiration of the first extended term
hereof with respect to the Original Space. If Tenant is
in default hereunder (beyond the expiration of any
applicable cure period) on the date of such notice, then
the option and Tenant's attempted exercise thereof shall
be of no force or effect, the extended term shall not
commence and this Lease shall expire as to the Original
Space at the end of the then current term hereof (or at
such earlier time as Landlord may elect pursuant to the
default provisions of this Lease).
(b) Tenant shall also have an option to extend
the term of this Lease with respect to the Original Space
only, at the minimum rental set forth in Section 3.1(d)
and otherwise upon all the terms and provisions set forth
herein with respect to the initial term of this Lease, for
one (1) additional term of ten (10) years, commencing upon
delivery of Tenant's notice of exercise of such option and
expiring on the day immediately preceding the tenth
anniversary of such date of delivery (subject to possible
exercise of Tenant's early termination right under Section
2.1(C) of this Lease). Exercise of such option shall be
by written notice to Landlord at least six (6) months
prior to expiration of the initial term of this Lease with
respect to the Original Space or, in the event either or
both of the 1-year extensions under Section 2.7(a) is duly
and timely exercised by Tenant with respect to the
Original Space, by written notice to Landlord at least six
(6) months prior to expiration of
the then current extended term of this Lease with respect
to the Original Space. If Tenant is in default hereunder
(beyond the expiration of any applicable cure period) on
the date of such notice, then the option and Tenant's
attempted exercise thereof shall be of no force or effect,
the extended term shall not commence and this Lease shall
expire with respect to the Original Space at the end of
the then current term hereof (or at such earlier time as
Landlord may elect pursuant to the default provisions of
this Lease). If Tenant duly and timely exercises its
extension option under this Section 2.7(b), any remaining
portion of the initial term of this Lease with respect to
the Original Space or of any extended term duly elected
under Section 2.7(a) hereof with respect to the Original
Space shall be superseded and terminated as of the
commencement of such 10-year extended term, and any
remaining unexercised extension options under Section
2.7(a) with respect to the Original Space shall expire and
be of no further force or effect.
(c) Except as expressly set forth in this
Section 2.7, Tenant shall have no right to extend the term
of this Lease beyond its prescribed term."
4. Improvement of Additional Space. Landlord shall
have no obligation to construct or perform any tenant
improvements in the Original Space in connection with the
execution of this Second Amendment, it being the intention of
the parties that Tenant shall continue to occupy such Original
Space on an "as is" basis, except as otherwise provided in
Paragraph 5 hereof (if applicable). Landlord shall make
available a tenant improvement allowance of Ten Dollars
($10.00) per square foot (total of $135,640.00 based on an area
of 13,564 square feet) for the construction of improvements by
Landlord in the Additional Space in one or more phases (as
Landlord and Tenant may mutually agree), in accordance with
plans and specifications to be developed by Landlord (in
consultation with Tenant) and mutually approved by Landlord and
Tenant, which approval shall not be unreasonably withheld or
delayed. Following such mutual approval of plans and
specifications, Landlord shall undertake and diligently
complete, subject to delays for causes beyond its reasonable
control, construction of such improvements in the Additional
Space in accordance with the approved plans and specifications.
Such work shall be performed in a neat and workmanlike manner
and shall conform to all applicable governmental codes, laws
and regulations in force at the time such work is completed.
Such work shall be at Landlord's sole cost and expense, up to
the maximum tenant improvement allowance specified above; any
direct costs of such work (including, but not limited to,
payments to contractors and subcontractors for labor and
materials, permit fees and charges, sales and use taxes,
testing and inspection costs, architects', engineers' and other
consulting and professional fees, costs of power, water and
other utilities and of collection and removal of debris, and
all other related costs incurred in connection with the design
and construction of the work) in excess of such maximum tenant
improvement allowance shall be Tenant's sole responsibility,
cost and expense and shall be paid by Tenant to Landlord in
cash within thirty (30) days after written request by Landlord
to Tenant, accompanied by invoices and other supporting
documentation reasonably evidencing the costs for which such
payment or reimbursement is requested. Landlord agrees to
consult with Tenant regarding all design and cost matters
relating to the tenant
improvements, including (but not limited to) bidding of
subcontracts where appropriate, and to give Tenant access on an
"open book" basis to all bids, contracts and other costrelated
information regarding the tenant improvements. Notwithstanding
any contrary provisions contained in the Lease, Landlord agrees
that Tenant shall have no obligation to remove, at the
expiration of the term of the Lease, any improvements
constructed pursuant to this Paragraph 4, unless (and then only
to the extent that) Landlord advises Tenant of such requirement
in writing prior to construction of the applicable improvement.
5. Improvements in Connection with Ten-Year Term. If
Tenant duly and timely exercises its option for an extended 10
year term with respect to the Original Space under
Section 2.7(b) of the Lease (as amended by this Second
Amendment), Tenant and Landlord shall negotiate in good faith
over any additional tenant improvements that Tenant may wish to
have constructed in the Original Space, over the amount of any
tenant improvement allowance that Landlord may be willing to
make available for such additional tenant improvements in the
Original Space, and over the manner in which any such tenant
improvement allowance will be amortized in the form of
additional rent over such extended term. To the extent Landlord
and Tenant reach mutual agreement upon any such improvements and
allowance with respect to the Original Space, they shall enter
into a further Lease amendment reflecting the terms of such
agreement and Landlord shall proceed to design and construct the
agreed-upon improvements in accordance with the procedure set
forth in Paragraph 4 of this Second Amendment, subject to any
modifications of such procedure that may be agreed upon by
Landlord and Tenant as part of their agreement regarding the
additional improvements.
6. Revised Minimum Monthly Rental.
(a) Section 3.1(a) of the Lease is amended to provide
that the minimum monthly rental for the Original Space,
beginning on the Effective Date, shall be as follows:
Months Minimum Monthly Rental
001-012 $ 9,286.00 ($1.00/sq ft) 013-
6/30/99 9,657.00 ($1.04/sq ft)
Section 3.1(a) of the Lease is further amended to provide that
the minimum monthly rental for the Additional Space, beginning
on the Effective Date, shall be as follows:
Months Minimum Monthly Rental
001-012 $ 13,564.00 ($1.00/sq ft) 013-024
14,107.00 ($1.04/sq ft) 025-12/31/00
14,649.00 ($1.08/sq ft)
(b) Section 3.1(d) of the Lease is amended to provide
that if Tenant duly and timely exercises any of its options to
extend the term of the Lease under Section 2.7 thereof (as
amended hereby) with respect to the Original Space, the minimum
monthly rental payable for the Original Space during such
extended term(s) shall be as follows (all indicated numbers of
months are to be counted from the Effective Date, and any months
extending beyond the actual extended term of the Lease as
determined pursuant to the applicable provisions of this Second
Amendment shall be disregarded):
Months Minimum Monthly Rental
7/1/99-024 $ 9,657.00 ($1.04/sq ft) 025-036
10,029.00 ($1.08/sq ft)
037-048 10,400.00 ($1.12/sq ft)
049-060 10,865.00 ($1.17/sq ft)
061-072 11,329.00 ($1.22/sq ft)
073-084 11,793.00 ($1.27/sq ft)
085-096 12,258.00 ($1.32/sq ft)
097-108 12,722.00 ($1.37/sq ft)
109-120 13,186.00 ($1.42/sq ft)
121-132 13,743.00 ($1.48/sq ft)
133-144 14,300.00 ($1.54/sq ft)
145-156 14,858.00 ($1.60/sq ft)
157-168 15,508.00 ($1.67/sq ft)
7. Operating Expenses. Tenant's Operating Cost Share
under Section 5.1 of the Lease is changed to eight and twenty
nine hundredths percent (8.29%), reflecting a combined area of
22,850 square feet for the Original Space and Additional Space
and a total area of 275,674 square feet for the buildings owned
by Landlord on the Property. If the size of the Premises
changes due to termination of this Lease with respect to either
(but not both) of the Original Space and the Additional Space,
or if the total area of the buildings owned by Landlord on the
Property changes, Tenant's Operating Cost Share shall be further
adjusted in strict proportion to such changes in size or area.
8. Cross-Default. Section 14.1 of the Lease is amended
by adding thereto, as an additional event of default, the
following:
"(i) Cross-Default. Any event of default by Tenant
under (A) any other lease between Landlord and Tenant
covering any other portion of the Property from time to
time during the term of this Lease, or (B) the lease
entered into substantially concurrently herewith by Tenant
and Britannia Point Eden, LLC with respect to a new
building to be constructed in Phase V of the Center, to the
extent (under either of the foregoing clauses) such default
continues beyond any applicable cure periods provided in
the applicable lease, and to the extent Landlord therefore
has (and exercises concurrently with any termination of
this Lease) a right to terminate such other applicable
lease; provided, however, that the default event set forth
in this Section 14.1(i) shall not apply with respect to any
default under a lease described herein to the extent Tenant
has previously assigned or transferred all of its right,
title and interest under the lease as to which such default
then exists and, as a result of such transfer, the holder
of the lessee's interest under the lease as to which such
default then exists is not a person or entity which
controls, is controlled by or is under common control with
the person or entity which is then the holder of the
lessee's interest under this Lease."
9. Brokers. Landlord and Tenant each represents and
warrants to the other that no broker participated in the
consummation of this Second Amendment, and each agrees to
indemnify, defend and hold the other party harmless against any
liability, cost or expense, including, without limitation,
reasonable attorneys' fees, arising out of any claims for
brokerage commissions or other similar compensation in
connection with any conversations, prior negotiations or other
dealings by the indemnifying party with any such broker or other
claimant.
10. Full Force and Effect. Except as expressly set forth
herein, the Lease has not been modified or amended and remains
in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Second Amendment as of the date first set forth above.
"Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By: BRITANNIA DEVELOPMENTS, INC., a California corporation,
General Partner
By: ____________________
T. J. Bristow
President
"Tenant"
ARADIGM CORPORATION, a California corporation
By: _____________________
Richard P. Thompson
Its President
17025\3044\0005rv2
EXHIBIT 10.11C
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE ("Third Amendment") is
entered into as of January 28, 1998 between HAYWARD POINT EDEN I
LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord")
and ARADIGM CORPORATION, a California corporation ("Tenant"),
with reference to the following facts:
A. Landlord and Tenant are parties to a Lease dated as
of February 21, 1996, as amended by a First Amendment to Lease
dated as of June 10, 1996 and a Second Amendment to Lease dated
as of December 22, 1997 (as amended, the "Lease"), covering
certain premises consisting of approximately 9,286 square feet
of space in Building E of the Britannia Point Eden Business Park
(the "Center") and commonly known as 3930 Point Eden Way,
Hayward, California 94545.
B. Concurrently with the execution of this Third
Amendment, Landlord and Tenant are entering into a new lease
covering portions of Building G in the Center (the "New Building
G Lease") and, in connection therewith, wish to amend certain
provisions of the Lease to conform to revised versions of such
provisions incorporated in the New Building G Lease.
C. Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.
NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
6. Operating Expenses. Section 5.2 of the Lease is
amended to read in its entirety as follows:
"5.2 Definition Of Operating Expenses. Subject to
the exclusions and provisions hereinafter contained, the term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (and any
applicable adjacent property owned by Landlord and operated, for
common area purposes, on an integrated basis with the Property
as described above), including, without limitation, costs and
expenses of (i) insurance, property management, landscaping, and
operation, repair and maintenance of buildings and common areas;
(ii) all utilities and services; (iii) real and personal
property taxes and assessments or substitutes therefor,
including (but not limited to) any possessory interest, use,
business, license or other taxes or fees, any taxes imposed
directly on rents or services, any assessments or charges for
police or fire protection, housing, transit, open space, street
or sidewalk construction or maintenance or other similar
services from time to time by any governmental or quasi-
governmental entity, and any other new taxes on landlords in
addition to taxes now in effect (but excluding corporate income
taxes); (iv) supplies, equipment, utilities and tools used in
management, operation and maintenance of the Property; (v)
capital improvements to the Property or the Building, amortized
over the useful life of such capital improvements, (aa) which
reduce or will cause future reduction of other items of
Operating Expenses for which Tenant is otherwise required to
contribute or (bb) which are required by law, ordinance,
regulation or order of any governmental authority or (cc) which
constitute repairs or replacements of existing improvements in
the Premises or common areas of the Property with items of
similar quality and function, as a result of obsolescence or
ordinary wear and tear, in order to maintain and preserve the
quality, safety and usefulness of the Property, to the extent
such repairs or replacements are treated as capital items under
generally accepted accounting principles; and (vi) any other
costs (including, but not limited to, any parking or utilities
fees or surcharges) allocable to or paid by Landlord, as owner
of the Property or Building, pursuant to any applicable laws,
ordinances, regulations or orders of any governmental or quasi
governmental authority or pursuant to the terms of any
declarations of covenants, conditions and restrictions now or
hereafter affecting the Property (or any applicable adjacent
property owned by Landlord as described above). Operating
Expenses shall not include any costs attributable to increasing
the size of or otherwise expanding the Building or the costs of
the work for which Landlord is required to pay under Section 2.4
or Exhibit C. The distinction between items of ordinary
operating maintenance and repair and items of a capital nature
shall be made in accordance with generally accepted accounting
principles applied on a consistent basis. Notwithstanding
anything to the contrary contained in this Section 5.2, the
following shall not be included in Operating Expenses under this
Lease:
(A) Leasing commissions, attorneys' fees, costs,
disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, or in
connection with leasing, renovating or improving space for
tenants or other occupants or prospective tenants or other
occupants of the Building or of the land on which the
Premises are located;
(B) The cost of any service sold to any tenant
(including Tenant) or other occupant for which Landlord is
entitled to be reimbursed as an additional charge or
rental over and above the basic rent and escalations
payable under Landlord's lease with that tenant;
(C) Any depreciation on the Building;
(D) Costs of a capital nature, including but not
limited to capital improvements and alterations, capital
repairs, capital equipment and capital tools, as
determined in accordance with generally accepted
accounting principles consistently applied, except to the
extent expressly provided in clause (v) above;
(E) Expenses in connection with services or other
benefits of a type that are not offered to Tenant but that
are provided to another tenant or occupant of the Building
or land upon which the Premises are located;
(F) Overhead profit increments paid to Landlord's
subsidiaries or affiliates for management or other
services relating to the Building or the Property, or for
supplies or other materials, to the extent the cost of
such services, supplies or materials exceeds a reasonable
market rate for obtaining such services, supplies or
materials from unaffiliated parties;
(G) All interest, loan fees and other carrying costs
related to any mortgage or deed of trust or related to any
capital item, and all rental and other payments due under
any ground or underlying lease, or any lease for any
equipment ordinarily considered to be of a capital nature
(except janitorial equipment which is not affixed to the
Building);
(H) Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by
Landlord;
(I) Advertising and promotional expenditures;
(J) Costs of repairs and other work occasioned by
fire, windstorm or other casualty of an insurable nature;
(K) Any costs, fines or penalties incurred due to
violations by Landlord of any governmental rule or
authority, this Lease or any other lease affecting the
Building or the land on which the Premises are located, or
due to Landlord's negligence or willful misconduct;
(L) Management costs, to the extent they exceed a
reasonable market rate for management services provided to
comparable projects in Hayward, California and surrounding
areas;
(M) Costs for sculpture, paintings or other objects
of art, including (but not limited to) any costs for
insurance thereon or extraordinary security in connection
therewith;
(N) Wages, salaries or other compensation paid to
any executive employee above the grade of building
manager;
(O) The cost of correcting any building code or
other violations of applicable law which, on the
Commencement Date, were existing violations of laws or
codes then in effect;
(P) The cost of containing, removing or otherwise
remediating any contamination of the Building or Property
(including the underlying land and groundwater) by any
toxic or hazardous materials (including, without
limitation, asbestos and PCB's);
(Q) Any increase in real property taxes or
assessments on the Property as a result of a change in
ownership of the Property; provided, however, that the
exclusion contained in this clause (Q) shall apply only in
the determination of Operating Expenses with respect to
periods prior to the third (3rd) anniversary of the
Commencement Date, and shall not apply in the
determination of Operating Expenses with respect to any
subsequent periods during the term of this Lease; and
(R) Any other expense not specifically included or
excluded above which, under generally accepted accounting
principles and practices consistently applied, would not
be considered a normal maintenance or operating expense."
7. Operating Expense Audits. Section 5.4 of the Lease
is amended to read in its entirety as follows:
"5.4 Final Accounting For Lease Year.
(1) Within ninety (90) days after the close of
each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of
Tenant's Operating Cost Share of the Operating Expenses for
such Lease Year prepared by Landlord from Landlord's books and
records, which statement shall be final and binding on Landlord
and Tenant, subject to Tenant's audit right set forth below.
If on the basis of such statement Tenant owes an amount that is
more or less than the estimated payments for such calendar year
previously made by Tenant, Tenant or Landlord, as the case may
be, shall pay the deficiency to the other party within thirty
(30) days after delivery of the statement. Failure or
inability of Landlord to deliver the annual statement within
such ninety (90) day period shall not impair or constitute a
waiver of Tenant's obligation to pay Operating Expenses, or
cause Landlord to incur any liability for damages.
(2) Notwithstanding any other provisions of this
Section 5.4, within one (1) year after receipt of a final
statement from Landlord setting forth actual Operating Expenses
and Tenant's Operating Cost Share for any period (a
"Statement"), Tenant shall have the right to audit or inspect
Landlord's books and records relating to Operating Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided that
such audit shall be conducted only during normal business
hours, on not less than ten (10) days prior written notice to
Landlord, at a location reasonably specified by Landlord, and
at Tenant's sole cost and expense, except as hereinafter
provided. Landlord shall cooperate with Tenant in all
reasonable respects in the course of such audit, and Tenant and
its employees and agents shall be permitted to make photocopies
(at Tenant's expense) of any pertinent portions of Landlord's
books and records. Landlord shall retain its books and records
for each Lease Year for a period of at least one (1) year after
delivery to Tenant of Landlord's Statement for the applicable
Lease Year. To the extent that Tenant, on the basis of such
audit, disputes any item in the applicable Statement or in the
calculation of Tenant's obligations thereunder, Tenant shall
give Landlord written notice of the disputed items, in
reasonable detail and with reasonable supporting information,
within thirty (30) days after the earlier to occur of the
completion of Tenant's audit or the expiration of Tenant's 1-
year audit period. If Landlord and Tenant are not able to
resolve such dispute by good faith negotiations within thirty
(30) days after Tenant notifies Landlord in writing of the
disputed items, then Tenant may, by written notice to Landlord,
request an independent audit of such books and records. The
independent audit of the books and records shall be conducted
by a certified public accountant acceptable to both Landlord
and Tenant or, if the parties are unable to agree, by a "Big
Six" accounting firm designated by Landlord and not then
employed by Landlord or Tenant. The audit shall be limited to
the determination of the amount of Operating Expenses and of
Tenant's share thereof for the Lease Year covered by the
Statement, and shall be based on generally accepted accounting
principles and tax accounting principles, consistently applied,
subject to any modifications or limitations expressly set forth
in
Section 5.2 hereof. If it is determined, by mutual agreement
of Landlord and Tenant or by independent audit, that the amount
paid by Tenant for Operating Expenses for the period covered by
the Statement was incorrect, then the appropriate party shall
pay to the other party the deficiency or overpayment, as
applicable, within thirty (30) days after the final
determination of such deficiency or overpayment. All costs and
expenses of the audit shall be paid by Tenant unless the audit
shows that Landlord overstated Operating Expenses for the
period covered by the Statement by more than four percent (4%),
in which event Landlord shall pay all costs and expenses of the
audit. Each party agrees to maintain the confidentiality of
the findings of any audit in accordance with the provisions of
this Section 5.4. The provisions of this Section 5.4 shall
survive the expiration or sooner termination of this Lease."
8. Liens. Section 7.4 of the Lease is amended to read
in its entirety as follows:
"7.4 No Liens. Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, materialmen, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises. Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises. Tenant shall indemnify,
defend and hold Landlord harmless against any and all
liability, loss, damage, cost and other expenses, including,
without limitation, reasonable attorneys' fees, arising out of
claims of any lien for work performed or
materials or supplies furnished at the request of Tenant or
persons claiming under Tenant. Nothing in this Section 7.4
shall be construed to prevent Tenant from obtaining financing
on Tenant's movable furniture, equipment and trade fixtures or
from granting a security interest in such items to one or more
lenders, provided that Tenant shall not be entitled, pursuant
to this sentence or otherwise, to encumber any alterations,
additions or improvements that are the property of Landlord and
that must remain with the Premises upon termination of this
Lease, as provided in Sections 7.2 and 7.3 hereof. Without
limiting the generality of the preceding sentence, Landlord
acknowledges that it has been advised by Tenant that Tenant is
presently a party to agreements creating liens on some or all
of Tenant's existing and/or after-acquired equipment,
furniture, trade fixtures and other personal property in favor
of (a) Transamerica Business Credit and (b) Comdisco; nothing
in this sentence shall be construed, however, as a waiver or
release by Landlord with respect to the proviso set forth in
the preceding sentence regarding limitations on the property
that Tenant is entitled to encumber."
9. Full Force and Effect. Except as expressly set
forth herein, the Lease has not been modified or amended and
remains in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Third Amendment as of the date first set forth above.
"Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By: BRITANNIA DEVELOPMENTS, INC., a California corporation,
General Partner
By: ____________________
T. J. Bristow
President and Chief Financial Officer "Tenant"
ARADIGM CORPORATION, a California corporation
By: _____________________
Richard P. Thompson
President
By: _____________________
Mark A. Olbert
Chief Financial Officer
17025\3044\0021
EXHIBIT 10.20
LEASE
BETWEEN
HAYWARD POINT EDEN I LIMITED PARTNERSHIP
("Landlord")
and
ARADIGM CORPORATION ("Tenant")
TABLE OF CONTENTS
1 PREMISES 1
1.1 Premises 1
1.2 Landlord's Reserved Rights 1
2 TERM 1
2.1 Term 1
2.2 Early Possession 2
2.3 Delay in Possession 2
2.4 Construction 2
2.5 Acknowledgement of Lease Commencement 2
2.6 Holding Over 2
2.7 Option to extend Term 2
3 RENTAL 3
3.1. Minimum Rental 3
3.2. Late Charge 4
4 TAXES 4
4. 1. Personal Property 4
4.2. Real Property 4
5 OPERATING EXPENSES 4
5.1. Payment of Operating Expenses 4
5.2. Definition of Operating Expenses 4
5.3. Determination of Operating Expenses 5
5.4. Final Accounting for Lease Year 5
5.5. Proration 5
6 UTILITIES 5
6.1. Payment 5
6.2. Interruption 6
7 ALTERATIONS 6
7. l. Right to Make Alterations 6
7.2. Title to Alterations 6
7.3. Tenant Fixtures 6
7.4. No Liens 6
8 MAINTENANCE AND REPAIRS 6
8.1. Landlord's Work 6
8.2. Tenant's Obligation for Maintenance 6
(a) Good Order, Condition and Repair 6
(b) Landlord's Remedy 7
(c) Condition Upon Surrender 7
9 USE OF PREMISES 7
9.1. Permitted Use 7
9.2. Requirement of Continued Use 7
9.3. No Nuisance 7
9.4. Compliance with Laws 7
9.5. Liquidation Sales 8
9.6. Environmental Compliance 8
9.7. ADA / Title 24 Compliance 8
10 INSURANCE AND INDEMNITY 8
10.1. Liability Insurance 8
10.2. Quality of Policies and Certificates 9
10.3. Workers' Compensation 9
10.4. Waiver of Subrogation 9
10.5. Increase in Premiums 9
10.6. Indemnification 9
10.7. Blanket Policy 10
11 SUBLEASE AND ASSIGNMENT 10
11.1. Assignment and Sublease of Premises 10
11.2. Rights of Landlord 10
12 RIGHT OF ENTRY AND QUIET ENJOYMENT 11
12.1. Right of Entry 11
12.2. Quiet Enjoyment 11
13 CASUALTY AND TAKING 11
13.1. Termination or Reconstruction 11
13.2. Tenant's Rights 11
13.3 Lease to remain in Effect 11
13.4. Reservation of Compensation 12
13.5. Restoration of Fixtures 12
14 DEFAULT 13
14.1. Events of Default 12
(a) Abandonment 12
(b) Nonpayment 13
(c) Other Obligations ..... 13
(d) General Assignment 13
(e) Bankruptcy 13
(f) Receivership 14
(g) Attachment 14
(h) Insolvency 14
14.2. Remedies Upon Tenant's Default 14
14.3. Remedies Cumulative 14
15 SUBORDINATION, ATTORNMENT AND SALE 15
15.1. Subordination to Mortgage 15
15.2. Sale of Landlord's Interest 15
15.3. Estoppel Certificates 15
15.4. Subordination to CC&R's 16
16 SECURITY 16
16.1. Deposit 16
17 MISCELLANEOUS 16
17.1. Notices 16
17.2. Successors and Assigns 17
17.3. No Waiver 17
17.4. Severability 17
17.5. Litigation Between Parties 18
17.6. Surrender 18
17.7. Construction 18
17.8. Entire Agreement 18
17.9. Governing Law 18
17.10. No Partnership 18
17.l1. Financial Information 18
17.12. Costs 18
17.13. Time 19
17.14. Rules and Regulations 19
17.15. Memorandum of Lease 19
17.16. Corporate Authority 19
EXHIBITS
A Location of Premises
B Real Property Description
C Construction
D Acknowledgment of Lease Commencement
LEASE
THIS LEASE is made and entered into as of the 17th day of
March, 1997, by and between HAYWARD POINT EDEN I LIMITED
PARTNERSHIP, a DELAWARE LIMITED PARTNERSHIP hereinafter called
"Landlord", and ARADIGM CORPORATION, a CALIFORNIA CORPORATION,
hereinafter called "Tenant."
THE PARTIES AGREE AS FOLLOWS:
1. PREMISES
1.1. Premises. Landlord leases to Tenant and Tenant hires
and leases from Landlord on the terms, covenants and
conditions hereinafter set forth, the premises (the
"Premises") designated in Exhibit A attached hereto and
incorporated herein by this reference, consisting of
approximately 9,660 square feet of space located within
Building H (the "Building") in the Britannia Point Eden
Business Park (the "Center") in the City of Hayward, County of
Alameda, State of California, commonly known as 3911 Trust
Way, Hayward, CA 94545 and located on the real property (the
"Property") described in Exhibit B attached hereto and
incorporated herein by this reference, together with the
nonexclusive right to use any common areas designated from
time to time in any Declaration of Covenants, Conditions and
Restrictions or similar document affecting the Center.
1.2. Landlord's Reserved Rights. Landlord reserves the
right from time to time to (i) install, use, maintain, repair
and replace pipes, ducts, conduits, wires and appurtenant
meters and equipment for service to other parts of the
Building above the ceiling surfaces, below the floor surfaces,
within the walls or leading through the Premises in locations
which will not materially interfere with Tenant's use thereof,
(ii) relocate any pipes, ducts, conduits, wires and
appurtenant meters and equipment included in the Premises
which are so located or located elsewhere outside the
Premises, (iii) make alterations or additions to the Building,
(iv) construct, alter or add to other buildings or
improvements on the Property, (v) build adjoining to the
Property, and (vi) lease any part of the Property for the
construction of improvements or buildings. Landlord may modify
or enlarge the common area, alter or relocate accesses to the
Premises, or alter or relocate any common facility. Landlord
shall not exercise rights reserved to it pursuant to this
Section 1.2 in such a manner as to materially impair Tenant's
ability to conduct its activities in the normal manner;
provided, however, that the foregoing shall not limit or
restrict Landlord's right to undertake reasonable construction
activity and Tenant's use of the Premises shall be subject to
reasonable temporary disruption incidental to such activity
diligently prosecuted.
2. TERM
2.1. Term. The term of this Lease shall commence on the
earlier to occur of (i) the date which is five (5) days after
the date Landlord notifies Tenant that Landlord's work
pursuant to Section 2.4 and Exhibit C is substantially
complete, or (ii) the date Tenant takes occupancy of part of
the Premises (except as otherwise provided in Section 2.2),
the earlier of such dates being herein called the
"Commencement Date," and shall end on the day immediately
preceding the date 36 months thereafter, unless sooner
terminated or extended (if applicable) as hereinafter
provided.
However, in the event that Tenant moves into larger space
at Britannia Point Eden or any other Britannia Developments
project during the term of this lease, then this lease may be
terminated by Tenant with no penalty to Tenant.
However in the event that Tenant exercises its
Termination Rights under this Clause Tenant shall pay on or
before the Termination Date the unamortized portion (assuming
straight-line amortization over a period of 36 months from the
Commencement Date) of the $150,000.00 additional T.I.
allowance described in Section 3.1 (c) which is actually
expended on tenant improvement work.
2.2. Early Possession. If Landlord permits Tenant to
occupy or use the Premises prior to the Commencement Date set
forth in Section 2.1, such occupancy shall be subject to and
upon all the terms and conditions of this Lease, excluding the
obligation to pay rent and other charges, unless Landlord and
Tenant agree otherwise; provided, however, that such early
possession shall not advance or otherwise affect the
termination date set forth in Section 2.1; and provided
further, that Tenant shall not interfere with or delay
Landlord's contractors by such early possession and shall
indemnify, defend and hold harmless Landlord and its agents
and employees from and against any and all claims, demands,
liabilities, actions, losses, costs and expenses, including
(but not limited to) reasonable attorneys' fees, arising out
of or in connection with Tenant's early entry upon the
Premises hereunder, excluding those which arise out of the
negligence or willful misconduct of Landlord or its agents.
2.3. Delay in Possession. Landlord agrees to use its best
reasonable efforts to complete promptly the work described in
Section 2.4 and Exhibit C; provided, however, Landlord shall
not be liable for any damages caused by any delay in the
completion of such work, nor shall any such delay affect the
validity of this Lease or the obligations of Tenant hereunder.
2.4. Construction. The obligation of Landlord to perform
work to improve the Premises for occupancy is set forth in
Exhibit C attached hereto and incorporated herein by this
reference. Except as set forth in Exhibit C, Landlord shall
have no responsibilities or obligations with respect to
preparation of the Premises for Tenant's occupancy. Acceptance
by Tenant of possession of the Premises after performance of
such work, if any, by Landlord shall constitute acceptance by
Tenant of such work in its then completed condition subject to
the terms of this paragraph and Landlord shall have no further
responsibility of any kind or character for improvement of the
Premises or in connection with such work; provided, however,
that within fifteen (I 5) days after the Commencement Date,
Tenant may furnish to Landlord a "punch list" identifying any
items or matters in the Premises which are not constructed in
accordance with the plans and specifications approved under
Exhibit C hereto and Landlord shall promptly and diligently
correct all such matters within 30 days of receipt of such
punch list at its sole cost and expense.
2.5. Acknowledgment Of Lease Commencement. Upon
commencement of the term of this Lease, Landlord and Tenant
shall execute a written acknowledgment of the Commencement
Date, date of termination and related matters, substantially
in the form attached hereto as Exhibit D (with appropriate
insertions), which acknowledgment shall be deemed to be
incorporated herein by this reference.
2.6 Holding Over. If Tenant holds possession of the
Premises after the term of this Lease, with Landlord's written
consent, then except as otherwise specified in such consent,
Tenant shall become a tenant from month to month at 125% the
rental and otherwise upon the terms herein specified for the
period immediately prior to such holding over and shall
continue in such status until the tenancy is terminated by
either party upon not less than thirty (30) days prior written
notice. Tenant shall indemnify and hold Landlord harmless from
any loss, damage, claim, liability, cost or expense (including
reasonable attorneys' fees) resulting from any delay by Tenant
in surrendering the Premises (except with Landlord's prior
written consent), including but not limited to any claims made
by a succeeding tenant by reason of such delay. Acceptance of
rent by Landlord following expiration or termination of this
Lease shall not constitute a renewal of this Lease.
2.7 Option To Extend Term. Tenant shall have the option
to extend the term of this Lease, at the minimum rental set
forth in Section 3.1(d) and otherwise upon all the terms and
provisions set forth herein with respect to the initial term
of this Lease, for up to one additional period of two (2)
years, commencing upon expiration of the initial term hereof.
Exercise of such option shall be by written notice to Landlord
at least six (6) months and not more than eight (8) months
prior to the expiration of the initial term hereof. If Tenant
is in default hereunder on the date of such notice or on the
date any extended term is to commence, then the option shall
be of no force or effect, the extended term shall not commence
and this Lease shall expire at the end of the then current
term hereof (or at such earlier time as Landlord may elect
pursuant to the default provisions of this Lease). Except as
expressly set forth in this Section 2.7, Tenant shall have no
right to extend the term of this Lease beyond its prescribed
term.
3. RENTAL
3.1. Minimum Rental.
(a) Tenant shall pay to Landlord as minimum rental
for the Premises, in advance, without deduction, offset,
notice or demand, on or before the Commencement Date and on or
before the first day of each subsequent calendar month of the
term of this Lease, the following amounts per month:
Months Minimum Rental
0-12 $10,566.43 13-
24 $10,856.23 24-36
$11,157.62
If the obligation to pay minimum rental hereunder
commences on other than the first day of a calendar month or
if the term of this Lease terminates on other than the last
day of a calendar month, the minimum rental for such first or
last month of the term of this Lease, as the case may be,
shall be prorated based on the number of days the term of this
Lease is in effect during such month. If an increase in
minimum rental becomes effective on a day other than the first
day of a calendar month, the minimum rental for that month
shall be the sum of the two applicable rates, each prorated
for the portion of the month during which such rate is in
effect.
(b) The minimum rental amount specified in this Section
3.1 is based upon an area of 9,660 square feet for the
Premises.
(c) The minimum rental amounts specified in this Section
3.1 are based upon a tenant improvement allowance of
$140,000.00 (the "Phase I Allowance") for the work to be
performed by Landlord on the Premises under Section 2.4 and
Exhibit C. (This total Phase I Allowance is made up as to an
initial $40,000.00 plus $100,00.00 additional T.I.'s amortized
at 12% over the term.) If landlord's total direct costs of
such work (including, but not limited to, construction costs,
permit fees and charges, architects', engineers' and other
consulting and professional fees and all other related costs
incurred in connection with the design and construction of the
work) (the "Direct Costs") are less than $140,000.00 then
Tenant's minimum monthly rental hereunder, beginning on the
Commencement Date and continuing throughout the term hereof,
shall be reduced, by $33.21 for each $1,000.00 reduction in
Tenant Improvement costs below the allowance of $140,000.00.
In addition to the Phase I Allowance, Landlord hereby agrees
that, at any time during the term of this Lease, Tenant shall
be entitled to request Landlord to construct additional tenant
improvements (the "Additional Improvements"), for which
Landlord shall provide additional financing, up to a maximum
amount of $50,000.00 (the "Phase II Allowance"). Following the
completion of construction of the Additional Improvements,
Tenant's then minimum monthly rental hereunder shall be
increased in such an amount as to amortize the total Direct
Costs of the Additional Improvements at 12% over the remaining
term of this Lease. Landlord will not be obligated to spend
more than $190,000.00, including both the Phase I Allowance
and the Phase II allowance, on T.I.'s. Any such increase shall
be paid for by Tenant.
Notwithstanding the above, Landlord will pay for repair
or replacement of HVAC system in office section of Premises
i.e. 8,160 square feet including any necessary roof repairs.
Such costs will not be part of the T.I. allowance.
(d) If Tenant properly exercises its right to extend the
term of this Lease pursuant to Section 2.7 hereof, the minimum
rental during the extended term shall be adjusted as to Clause
3.1 (a).
Months Minimum Rental
37-48 $8,149.64
49-60 $8,475.62
3.2. Late Charges. If Tenant fails to pay when due
rental or other amounts due Landlord hereunder, such unpaid
amounts shall bear interest for the benefits of Landlord at a
rate equal to the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the date due to the
date of payment. In addition to such interest, Tenant shall
pay to Landlord a late charge in an amount equal to ten
percent (10%) of any installment of minimum rental and any
other amounts due Landlord if not paid in full on or before
the fifth (5th) day after such rental or other amount is due.
Tenant acknowledges that late payment by Tenant to Landlord of
rental or other amounts due hereunder will cause Landlord to
incur costs not contemplated by this Lease, including, without
limitation, processing and accounting charges and late charges
which may be imposed on Landlord by the terms of any loan
relating to the Property. Tenant further acknowledges that it
is extremely difficult and impractical to fix the exact amount
of such costs and that the late charge set forth in this
Section 3.2 represents a fair and reasonable estimate thereof.
Acceptance of any late charge by Landlord shall not constitute
a waiver of Tenant's default with respect to overdue rental or
other amounts, nor shall such acceptance prevent Landlord from
exercising any other rights and remedies available to it.
Acceptance of rent or other payments by Landlord shall not
constitute a waiver of late charges or interest accrued with
respect to such rent or other payments or any prior
installments thereof, nor of any other defaults by Tenant,
whether monetary or non-monetary in nature, remaining
unsecured at the time of such acceptance of rent or other
payments.
4. TAXES
4.1 Personal Property. Tenant shall be responsible for
and shall pay prior to delinquency all taxes and assessments
levied against or by reason of all alterations and additions
and all other items installed or paid for by Tenant under this
Lease, and the personal property, trade fixtures and all of
the property placed by Tenant in or about the Premises. Upon
request by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of payment thereof. If at any time
during the term of this Lease any said alterations, additions
or personal property, whether or not belonging to Tenant,
shall be taxed or assessed as part of the Property, then such
tax or assessment shall be paid by Tenant to Landlord
immediately upon presentation by Landlord of copies of the tax
bills in which such taxes and assessments are included and
shall, for the purposes of this Lease, be deemed to be
personal property taxes or assessments under this Section 4.1.
4.2. Real Property. To the extent that real property
taxes and assessments on the Premises are assessed separately
from the remainder of the Property, Tenant shall be
responsible for and shall pay prior to delinquency all such
taxes and assessments levied against the Premises. Upon
request by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of payment thereof. To the extent the
Premises and taxes or assessed as part of the Property, such
real property taxes and assessments shall constitute Operating
Expenses (as that term is defined in
Section 5.2 of this Lease) and shall be paid in accordance
with provisions of Article 5 of this Lease.
5. OPERATING EXPENSES
5.1. Payment Of Operating Expenses.
(a) Tenant shall pay to Landlord, at the time in
the manner hereinafter set forth, as additional rental, an
amount equal to three point five eight percent (3.58%)
("Tenant's Operating Cost Share") of the Operating Expenses
defined in Section 5.2.
(b) Tenant's Operating Cost Share as specified in
paragraph (a) of the Section is based upon an area of 9,660
square feet for the Premises and an aggregate area of 269,674
square feet for the buildings owned by Landlord on the
Property.
5.2. Definition Of Operating Expenses. Subject to the
exclusions and provisions hereinafter contained, the-term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (or on any
applicable adjacent property owned by Landlord as describe
above), including, without limitation, (i) insurance, property
management, building maintenance, landscaping and common area
maintenance; (ii) all utilities and services; (iii) real and
personal property taxes and assessments or substitutes
therefor and new taxes on landlords in addition to taxes now
in effect; (iv) supplies, equipment, utilities and tools used
in management, operation and maintenance; (v) capital
improvements to the Building, amortized over the useful life
of such capital improvement (aa) which reduce or will cause
future reduction of other items of Operating Expenses for
which Tenant is otherwise required to contribute or (bb) of
which Tenant has use or which benefit Tenant; and (vi) any
other costs allocable to or paid by Landlord, as owner of the
Building, pursuant to the terms of any declarations of
covenants, conditions and restrictions affecting the Property
(or on any applicable adjacent property owned by Landlord as
described above). Capital improvements shall not include any
costs attributable to increasing the size of otherwise
expanding the Building or the costs of the work for which
Landlord is required to pay under Section 2.4. The distinction
between items of ordinary operating maintenance and repair and
items of a capital nature shall be made in accordance with
generally accepted accounting principles applied on a
consistent basis.
5.3. Determination Of Operating Expenses. On or before
the Commencement Date and during the last month of each
calendar year of the term of this Lease ("Lease Year"), or as
soon thereafter as practical, Landlord shall provide Tenant
notice of Landlord's estimate of the Operating Expenses for
the ensuing Lease Year or applicable portion thereof. On or
before the first day of each month during the ensuing Lease
Year or applicable portion thereof, beginning on the
Commencement Date, Tenant shall pay to Landlord Tenant's
Operating Cost Share of the portion of such estimated
Operating Expenses allocable (on a pro rata basis) to such
month; provided, however, that if such notice is not give in
the last month of a Lease year, Tenant shall continue to pay
on the basis of the prior year's estimate, if any, until the
month after such notice is given. If at any time or times it
appears to Landlord that the actual Operating Expenses will
vary from Landlord's estimate by more than five percent (5%),
Landlord may, by notice to Tenant, revise its estimate for
such year and subsequent payments by Tenant for such year
shall be based upon such revised estimate.
5.4. Final Accounting For Lease Year. Within ninety
(90) days after the close of each Lease Year, or as soon after
such 90-day period as practicable, Landlord shall deliver to
Tenant a statement of Tenant's Operating Cost Share of the
Operating Expenses for such Lease Year prepared by Landlord
from Landlord's books and records, which statement shall be
final and binding on Landlord and Tenant. If on the basis of
such statement Tenant owes an amount that is more or less than
the estimated payments for such calendar year previously made
by Tenant, Tenant or Landlord, as the case may be, shall pay
the deficiency to the other party within thirty (30) days
after delivery of the statement. Failure or inability of
Landlord to deliver the annual statement within such ninety
(90) day period shall not impair or constitute a waiver of
Tenant's obligation to pay Operating Expenses, or cause
Landlord to incur any liability for damages.
5.5. Proration. If the Commencement Date falls on a day
other than the first day of a Lease Year or if this Lease
terminates on a day other than the last day of a Lease Year,
the amount of Tenant's Operating Cost Share payable by Tenant
applicable to such first and last partial Lease Year shall be
prorated on the basis which the number of days during such
Lease Year in which this Lease is in effect bears to 365. The
termination of this Lease shall not affect the obligations of
Landlord and Tenant pursuant to Section 5.4 to be performed
after such termination.
6. UTILITIES
6.1. Payment. Commencing with the Commencement Date and
thereafter throughout the term of this Lease, Tenant shall
pay, before delinquency, all charges for water, gas, heat,
light, electricity, power, sewer, telephone, alarm system,
janitorial and other services or utilities supplied to or
consumed in or upon the Premises, including any taxes on such
service and utilities It is the intention of the parties that
all such services shall be separately metered to the Premises.
In the event that any of such services supplied to the
Premises are not separately metered, then the amount thereof
shall be an item of Operating Expenses and shall be paid as
provided in Article 5.
6.2 Interruption. There shall be no abatement of rent or
other charges required to be paid hereunder and Landlord shall
not be liable in damages or otherwise for interruption or
failure of any service or utility furnished to or used in the
Premises because of accident, making of repairs, alterations
or improvements, severe weather, difficulty or inability in
obtaining services or supplies, labor difficulties or any
other cause, excluding the negligence and willful misconduct
and omissions of Landlord and its agents.
7. ALTERATIONS
7.1. Right To Make Alterations. Tenant shall make no
alterations, additions or improvements to the Premises, other
than interior non-structural alterations costing less than
Five Thousand Dollars ($5,000.00) in each instance, without
the prior written consent of Landlord. All such alterations,
additions and improvements shall be completed with due
diligence in a first-class workmanlike manner and in
compliance with plans and specifications approved in writing
by Landlord and all applicable laws, ordinances, rules mid
regulations.
7.2. Title To Alterations. All alterations, additions and
improvements installed pursuant to this Lease shall be part of
the Building and property of Landlord, unless Landlord elects
to require Tenant to remove the same upon the termination of
this Lease; provided, however, that the foregoing shall not
apply to Tenant's movable furniture and trade fixtures not
affixed to the Property.
7.3. Tenant Fixtures. Notwithstanding the foregoing,
Tenant may install, remove and reinstall trade fixtures
without Landlord's prior written consent, except that any
fixtures which are affixed to the Premises or which affect the
exterior or structural portions of the Building shall require
Landlord's written approval. The foregoing shall apply to
Tenant's signs, logos and insignia, all of which Tenant shall
have the right to place and remove and replace solely with
Landlord's prior written consent as to location, size and
composition. Tenant shall immediately repair any damage caused
by installation and remove of fixtures under this Section 7.3.
7.4. No Liens. Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, vendors, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises. Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises. Tenant shall indemnify,
defend and hold Landlord harmless against liability, loss,
damage, cost and all other expenses, including, without
limitation, reasonable attorneys' fees arising out of claims
of any lien for work perforated or materials or supplies
furnished at the request of Tenant or persons claiming under
Tenant.
8. MAINTENANCE AND REPAIRS
8.1. Landlord's Work. Landlord shall repair and maintain
or cause to be repaired and maintained in a prompt and
expeditious manner those portions of the Building outside of
the Premises, the common areas of the Property, and the roof,
exterior walls and other structural portions of the Building,
The cost of all work performed by Landlord under this Section
8.1 shall be Operating Expense hereunder, except to the extent
such work (i) is required due to the negligence of Landlord or
any other tenant of the Building, (ii) is a service to a
specific tenant or tenants, other than Tenant, for which
Landlord has received or has the right to receive full
reimbursement, (iii) is a capital expense not to be included
as Operating Expense under Section 5.2 hereof, or (iv) is
required due to the negligence or willful misconduct of Tenant
or its agents, employees or invitees (in which event Tenant
shall bear the full cost of such work pursuant to the
indemnification provided in Section 10.6 hereof).
8.2. Tenant's Obligation for Maintenance.
(a) Good Order. Condition and Repair. By accepting
possession of the Premises, and subject to Section 2.4, Tenant
acknowledges that the Premises are in good and sanitary order,
condition and repair. Except as provided in Section 8.1
hereof, Tenant at its sole cost and expense shall keep and
maintain in good and sanitary order, condition and repair of
the Premises and every part thereof, wherever located,
including but not limited to the signs, interior, the face of
the ceiling over Tenant's floor space, HVAC equipment and
related mechanical systems service the Premises (for which
equipment and systems Tenant shall enter into a service
contract with a person or entity designated or approved by
Landlord, such approval not to be unreasonably withheld), all
doors, door checks, windows, plate glass, door fronts, exposed
plumbing and sewage and other utility facilities, fixtures,
lighting, wall surfaces, floor surfaces and ceiling surfaces
and all other interior repairs, foreseen and unforeseen, as
required.
(b) Landlord's Remedy. If Tenant, after notice from
Landlord, fails to make or perform promptly any repairs or
maintenance which are the obligation of Tenant hereunder,
Landlord shall have the right, but shall not be required, to
enter the Premises and make the repairs or perform the
maintenance necessary to restore the Premises to good and
sanitary order, condition and repair. Immediately on demand
from the Landlord, the cost of such, repairs shall be due and
payable by Tenant to Landlord.
(c) Condition Upon Surrender. At the expiration or
sooner termination of this Lease, Tenant shall surrender the
Premises, including any additions, alterations and improvement
not removed in accordance with the terms hereof, thereto,
broom clean, in good and sanitary order, condition and repair,
ordinary Wear and tear excepted, first, however, removing all
goods and effects of Tenant and all fixtures and items
required to be removed or specified to be removed at
Landlord's election pursuant to this Lease, and repairing any
damage cause by such removal. Tenant shall not have the flight
to remove fixtures or equipment if Tenant is in default
hereunder unless Landlord specifically waives this provision
in writing.
9. USE OF PREMISES
9.1. Permitted Use. Tenant shall use the Premises solely
for general office, sales, administrative marketing and the
design, development, testing and manufacturing of medical
equipment and pharmaceutical products, and for no other
purpose.
9.2. Requirement Of Continued Use. Tenant shall not at
any time abandon the Premises and shall continuously during
the term of this Lease (except during any period where the
Premises are unusable by reason of events described in Article
13 hereof) conduct and carry on in the Premises the use
permitted hereunder.
9.3. No Nuisance. Tenant shall not use the Premises for
or carry on or permit upon the Premises or any part thereof
any offensive, noisy or dangerous trade, business,
manufacture, it occupation, odor or fumes, or any nuisance or
anything against public policy, nor interfere with the rights
or business of any other tenants or of Landlord in the
Building, nor make any other unreasonable use of the Premises.
Tenant shall not do or permit anything to be done in or about
the Premises, not bring nor keep anything therein, which will
in any way cause the Premises to be uninsurable with respect
to the insurance required by this Lease or with respect to
standard fire and extended coverage insurance with vandalism,
malicious mischief and riot endorsements.
9.4. Compliance With Laws. Tenant shall not use the
Premises or permit the Premises to be used in whole or in part
for any purpose or use that is in violation of any applicable
laws, ordinances, regulations or rules of any governmental
agency or public authority. Tenant shall keep the Premises
equipped with all safety appliances required by law, ordinance
or insurance on the Premises or any order or regulation of
public authority because of Tenant's particular use of the
Premises. Tenant shall procure all licenses and permits
required for use of the Premises. Tenant shall use the
Premises in strict accordance with all applicable ordinances,
rules, laws and regulations and shall comply with all
requirements of all governmental authorities now in force or
which may hereafter be in force pertaining to the use of the
Premises by Tenant, including, without limitation, regulations
applicable to noise, water, soil and air pollution, and making
such nonstructural alterations and additions thereto as may be
required from time to time by such laws, ordinances, rules,
regulations and requirements of governmental authorities or
insurers of the Premises (collectively, "Requirements")
because of Tenant's construction of improvements in or other
particular use of the Premises.
9.5. Liquidation Sales. Tenant shall not conduct or
permit to be conducted any bankruptcy sale, liquidation sale,
or going out of business sale, in, upon or about the Premises
whether said auction or sale be voluntary, involuntary or
pursuant to any assignment for the benefit of creditors, or
pursuant to any bankruptcy or other insolvency proceeding.
9.6. Environmental Compliance.
(a) Landlord warrants and represents to Tenant that
the Premises, Building and the Property presently comply with
all environmental laws and Landlord will use its best efforts
to ensure that the Premises, Building and the Property remain
in compliance with all environmental laws during the term and
extended term hereof, including without limitation reasonably
monitoring the condition of the Property, Building and
Premises and the activities of other tenants. Landlord's
obligations under this Section 9.6.(a) is not intended to
impose a greater burden on the Landlord than that set forth in
Section 9.6.(c) herein or as otherwise required by law,
regulation or statute;
(b) Tenant shall fully indemnify and hold harmless
Landlord, its successors and assigns against (i) any damages,
claims, liabilities, demands, losses, costs or expenses
(including reasonable attorneys' fees) arising from any
Hazardous Substance Releases or violation of environmental law
with respect to the Premises caused by Tenant, or its
employees, agents, contractors or assigns) and (ii) any fines,
penalty payments, reasonable attorneys' fees, sums paid in
connection with any judicial or administrative investigation
or proceedings, costs of cleanup assessed by a governmental or
quasi-governmental agency, and similar expenditures, incurred
by landlord that relate in any way to a Hazardous Substance
Release(s) by Tenant or violation of environmental law caused
by Tenant;
(c) Landlord shall fully indemnify and hold harmless
Tenant, its successors and assigns against (i) any damages,
claims, liabilities, demands, losses, costs or expenses
(including reasonable attorneys' fees) arising from any
violation of Section 9.6. (a) herein, including without
limitation any condition of the Premises, Building and/or
Property existing at the Commencement Date; (ii) any damages,
claims, liabilities, demands, losses, costs or expenses
(including reasonable attorneys' fees) arising from any
Hazardous Substance Releases or violation of environmental law
with respect to the Property, Building or Premises that is not
caused by Tenant or its employees, agents, contractors, or
assigns, and (iii) any fines, penalty payments, reasonable
attorneys' fees, sums paid in connection with any judicial or
administrative investigation or proceedings, costs of cleanup
assessed by a governmental or quasi-governmental agency, and
similar expenditures, incurred by Tenant that relate in any
way to breach by Landlord of the warranties in Section
9.6.(a), to any condition of the Property, Building, or
Premises existing on the Commencement Date, or to any
Hazardous Substance Release(s) or violations or environmental
law caused by landlord, as provided above.
9.7. ADA/Title 24 Compliance. Landlord shall deliver and
maintain the Premises at its expense and in compliance, as and
when required by law, with the Americans with Disabilities
Act, California Title 24 and any and all other related
government requirements.
10. INSURANCE AND INDEMNITY
10.1. Liability Insurance.
(a) Tenant shall procure and maintain in full force and
effect at all times during the term on this Lease, at Tenant's
cost and expense comprehensive public liability and property
damage insurance to protect against any liability to the
public, or to any invitee of Tenant or Landlord, arising out
of or related to the use of or result from any accident
occurring in, upon or about the Premises, with limits to or
death of one person, (i) One Million Dollars ($1,000,000.00)
for injury or death of one person, (ii) Three Million Dollars
($3,000,000.00) for personal injury to or death, per
occurrence, and (iii) Five Hundred Thousand Dollars
($500,000.00) for property damage, or a combined single limit
of public liability and property damage insurance of not less
than Five Million Dollars ($5,000,000.00). Such insurance
shall name Landlord and its general partners and Managing
Agent as additional insured thereunder.
(b) Landlord shall procure and maintain in full force
and effect at all times during the term of this Lease, at
Landlord's cost and expense (but reimbursable as an Operating
Expense under Section 5.2 hereof), fire and "all risk"
extended coverage property damage insurance for the Building
and interior improvements that are the property of Landlord
and for the improvements in the common areas of the Property,
on a full replacement cost basis, with rental loss insurance.
Such insurance may include earthquake and/or flood coverage to
the extent Landlord in its discretion elects to carry such
coverage, and shall have such commercially reasonable
deductibles and other terms as Landlord in its discretion
determines to be appropriate. Landlord shall have no
obligation to carry property damage insurance for any
alterations, additions, improvements, trade fixtures or
personal property installed or maintained by Tenant on or
about the Premises.
10.2. Quality Of Policies and Certificates. All
policies of insurance required hereunder shall be issued by
responsible insurers and shall be written as primary policies
not contributing with and not in excess of any coverage that
Landlord may carry. Tenant shall deliver to Landlord copies of
policies or certificates of insurance showing that said
policies are in effect. The coverage provided by such policies
shall include the clause or endorsement referred to in Section
10.4 If Tenant fails to acquire, maintain or renew any
insurance required to be maintained by it under this Article
10 or to pay the premium thereof, then Landlord, at its option
and in addition to its other remedies, but without obligation
so to do, may procure such insurance, and any sums expended by
it to procure any such insurance shall be repaid upon demand,
with interest as provided in Section 3.2 hereof. Tenant shall
obtain written undertakings from each insurer under policies
required to be maintained by it to notify all insured
thereunder at least thirty (30) days prior to cancellation,
amendment or revision of coverage.
10.3. Worker's Compensation. Tenant shall maintain in
full force and effect during the term of this Lease worker's
compensation insurance covering all of Tenant's employees
working on the Premises.
10.4. Waiver of Subrogation. To the extent permitted
by law and without affecting the coverage provided by
insurance required to be maintained hereunder, Landlord and
Tenant each, waive any right to recover against the other (i)
damages for injury to or death of persons, (ii) damage to
property, (iii) damage to the Premises or any past thereof, or
(iv) claims arising by reason of any of the foregoing, but
only to the extent that any of the foregoing damages and
claims under subparts (i)-(iv) hereof are covered, and only to
the extent of such coverage, by insurance actually carried or
required to be carried hereunder by either Landlord or Tenant.
This provision is intended to waive fully, and for the benefit
of each party, any rights and claims which might give rise to
a right of subrogation in any insurance carrier. Each party
shall procure a clause or endorsement on any policy required
under this Article 10 denying to the insurer rights of
subrogation against the other party to the extent rights have
been waived by the insured prior to the occurrence of injury
or loss. Coverage provided by insurance maintained by Tenant
under this Article 10 shall not be limited, reduced or
diminished by virtue of the subrogation waiver herein
contained.
10.5. Increase In Premiums. Tenant shall do all acts
and pay all expenses necessary to insure that the Premises are
not used for purposes prohibited by any applicable fire
insurance, and that Tenant's use of the Premises complies with
all requirements necessary to obtain any such insurance. If
Tenant uses or permits the Premises to be used in a manner
which increases the existing rate of any insurance on the
Premises carried by Landlord, Tenant shall pay the amount of
the increase in premium caused thereby, and Landlord's cost of
obtaining other replacement insurance policies, including any
increase in premium, within ten (10) days after demand
therefor by Landlord.
10.6. Indemnification.
(a) Tenant shall indemnify, defend and hold Landlord,
its partners, shareholders, officers, directors, affiliates,
agents, employees and contractors, harmless from any and all
liability for injury to or death of any person, or loss of or
damage to the property of any person, and all actions, claims,
demands, costs (including, without limitation, reasonable
attorneys' fees), damages or expenses of any kind arising
therefrom which may be brought or made against Landlord or
which Landlord may pay or incur by reason of the use,
occupancy and enjoyment of the Premises by Tenant or any
invitees, sublessees, licensees, assignees, employees, agents
or contractors of Tenant or holding under Tenant from any
cause whatsoever other than negligence or willful misconduct
or omission by Landlord, its agents or employees. Landlord,
its partners, shareholders, officers, directors, affiliates,
agents, employees and contractors shall not be liable for, and
Tenant hereby waives all claims against such persons for
damages to goods, wares and merchandise in or upon the
Premises, or for injuries to Tenant, its agents or third
persons in or upon the Premises, from any cause whatsoever
other than negligence or willful misconduct or omission by
Landlord, its agents or employees. Tenant shall give prompt
notice to Landlord of any casualty or accident of a material
nature in, on or about the Premises.
(b) Landlord shall indemnify, defend and hold Tenant,
its partners, shareholders, officers, directors, affiliates,
agents, employees and contractors, harmless from any and all
liability for injury to or death of any person or loss of or
damage to the property of any person, and all actions, claims,
demands, costs (including, without limitation, reasonable
attorneys' fees), damages or expenses of any kind arising
therefrom which may be brought or made against Tenant or which
Tenant may pay or incur to the extent such liabilities or
other matters arise by reason of (i) any negligence or willful
misconduct or omission by landlord, its agents or employees,
(ii) any breach by Landlord, its agents or employees of any
term of this Lease and (iii) any causes of action or
obligations the due date of performance of which arose prior
to the Commencement Date.
10.7. Blanket Policy. Any policy required to be
maintained hereunder may be maintained under a so-called
"blanket-policy" insuring other parties and other locations so
long as the amount of insurance required to be provided
hereunder is not thereby diminished.
11. SUBLEASE AND ASSIGNMENT
11.1. Assignment And Sublease Of Premises. Tenant
shall not have the right or power to assign its interest in
this Lease, or make any sublease, nor shall any interest of
Tenant under this Lease be assignable involuntarily or by
operation of law, without on each occasion obtain the prior
written consent of Landlord, which consent shall not be
unreasonably withheld. Any purported sublease or assignment of
Tenant's interest in this Lease requiring but not having
received Landlord's consent thereto shall be void. Without
limiting the generality of the foregoing, Landlord may
withhold consent to any proposed subletting or assignment
solely on the ground that the use by the proposed subtenant or
assignee is reasonably likely to be incompatible with
Landlord's use of the balance of the Building or Property.
Tenant may assign this Lease or sublet the Premises, or
any portion thereof, without Landlord's consent, to any entity
which controls, is controlled by, or is under common control
with Tenant; to any entity which results from a merger or
consolidation with Tenant; to any entity engaged in a joint
venture with Tenant; or to any entity which acquires
substantially all of the stock or assets of Tenant, as a going
concern, with respect to the business that is being conducted
in the Premises (hereinafter each a "Permitted Transfer"). In
addition, any sale or transfer of the capital stock of Tenant
shall be deemed a Permitted Transfer if (i) such sale or
transfer occurs in connection with any bona fide financing or
capitalization for the benefit of Tenant, or (ii) if such sale
or transfer occurs in connection with Tenant's status as a
publicly traded corporation. Landlord shall have no right to
terminate the Lease in connection with, and shall have no
right to any sums or other economic consideration resulting
from, any Permitted Transfer.
Tenant will retain all sublease profits net of its
underlying lease.
Landlord will not have any right to or option to
recapture any space that Tenant assigns or subleases during
the initial sublease term.
11.2. Rights Of Landlord. Consent by Landlord to one or more
assignments of this Lease or to one or more sublettings of the
Premises, or collection of rent by Landlord from any assignee
or sublessee, shall not operate to exhaust Landlord's rights
under Article II, nor constitute consent to any subsequent
assignment or subletting. No assignment of Tenant's interest
in this Lease and no sublease shall relieve Tenant of its
obligations hereunder, notwithstanding any waiver or extension
of time granted by Landlord to any assignee or sublessee, or
the failure of Landlord to assert its rights against any
assignee or sublessee, and regardless of whether Landlord's
consent thereto is given or required to be give hereunder. In
the event of default by any assignee, sublessee or other
successor of Tenant in the performance of any of the terms or
obligations of Tenant under this Lease, Landlord may proceed
directly against Tenant without the necessity of exhausting
remedies against any such assignee, sublessee or other
successor. In addition Tenant immediately and irrevocably
assigns to Landlord as security for Tenant's obligations under
this Lease, all rent from any subletting of all or a part of
the Premises as permitted under this Lease, and Landlord, as
Tenant's assignee for Tenant, or any receiver for Tenant
appointed on Landlord's application, may collect such rent and
apply it toward Tenant's obligation under this Lease; except
that, until the occurrence of an act of default by Tenant,
beyond the expiration of any applicable grace period, Tenant
shall have the right to collect such rent.
12. RIGHT OF ENTRY AND QUIET ENJOYMENT
12.1. Right of Entry. Landlord and its authorized
representatives shall have the right to enter the Premises at
any reasonable time during the term of this Lease during
normal business hours and upon not less than twenty-four (24)
hours' prior notice, except in the case of emergency, for the
purpose of inspecting and determining the condition of the
Premises or for any other proper purpose including, with
limitation, to make repairs, replacements or improvements
which Landlord may deem necessary, to show the Premises to
prospective Purchasers, to show the premises to prospective
tenants, and to post notices of non-responsibility. Landlord
shall not be liable for inconvenience, annoyance, disturbance,
loss of business, quiet enjoyment or other damage or loss to
Tenant by reason of making any repairs or performing any work
upon the Premises unless such are the result of the negligence
or willful misconduct of Landlord or its agents, and the
obligations of Tenant under this Lease shall not thereby be
affected in any manner whatsoever, provided, however, Landlord
shall use reasonable efforts to minimize the inconvenience to
Tenant's normal business operations cause thereby.
12.2. Quiet Enjoyment. Landlord covenants that
Tenant, upon paying the rent and performing its obligations
hereunder and subject to all the terms and conditions of this
Lease, shall peacefully and quietly have, hold and enjoy the
Premises throughout the term of this Lease, or until this
Lease is terminated as provided by this Lease.
13. CASUALTY AND TAKING
13.1. Termination Or Reconstruction. If during the
term of this Lease the Premises or Building, or any
substantial part of either, (i) is damaged materially by fire
or other casualty or by action of public or other authority in
consequence thereof, (ii) is taken by eminent domain or by
reason of any public improvement or condemnation proceeding,
or in any manner by an exercise of the right of eminent domain
(including any transfer in avoidance of exercise of the power
of eminent domain), or (iii) receives irreparable damage by
reason of anything lawfully done under color of public or
other authority, this Lease shall terminate as to the entire
Premises at Landlord's election by written notice given to
Tenant within sixty (60) days after the damage or taking has
occurred. If Landlord does not elect to terminate this Lease
as hereinabove provided, Landlord shall repair any such damage
and restore the Premises and the Building as nearly as
reasonably possible to the condition existing before the
damage or taking within six (6) months.
13.2. Tenant's Rights. If any portion of the Premises
is so taken by condemnation, the Tenant may elect to terminate
this Lease if the portion of the Premises taken is of such
extent and nature as substantially to handicap, impede or
permanently impair Tenant's use of the balance of the
Premises. Tenant must exercise its right to terminate by
giving notice to Landlord within thirty (30) days after the
nature and extent of the taking have been finally determined.
If Tenant elects to terminate this Lease, Tenant shall also
notify Landlord of the date of termination, which date shall
not be earlier than thirty (30) days nor later than ninety
(90) days after Tenant has notified Landlord of its election
to terminate, except that this Lease shall terminate on the
date of taking if the date of taking falls on any date before
the date of termination designated by Tenant.
13.3. Lease To Remain In Effect. If neither Landlord
nor Tenant terminates this Lease as hereinabove provided, this
Lease shall continue in full force and effect, except that
minimum monthly rental and Tenant's Operating Cost Share shall
abate to the extent Tenant's use of the Premises is impaired
for any period that any portion of the Premises is unusable or
inaccessible because of a casualty or taking hereinabove
described. Each party waives the provisions of Code of Civil
Procedure Section 1265.130, allowing either party to petition
the Superior Court to terminate this Lease in the event of a
partial condemnation of the Premises.
13.4. Reservation Of Compensation. Landlord reserves,
and Tenant waives and assigns to Landlord, all rights to any
award or compensation for damage to the Premises, Building,
Property and the leasehold estate created hereby, accruing by
reason of any taking in public improvement, condemnation or
eminent domain proceeding or in any other manner by exercise
of the right of eminent domain or of anything lawfully done by
public authority, except that Tenant shall be entitled to any
and all compensation or damages paid for or on account of
Tenant's moving expenses, trade fixtures, equipment, personal
property and any leasehold improvements in the Premises, the
cost of which was borne by Tenant, but only to the extent of
the then remaining unamortized value of such improvements
computed on a straight-line basis over the term of this Lease.
Tenant covenants to deliver such further assignments of the
foregoing as Landlord may from time to time reasonably
request.
13.5. Restoration of Fixtures. If Landlord repairs or
causes repair of the Premises after such damage or taking,
Tenant at its sole expense shall repair and replace promptly
all fixtures, equipment and other property of Tenant located
at, in or upon the Premises and all additions, alterations and
improvements and all other items installed or paid for by
Tenant under this Lease that were damaged or taken, so as to
restore the same as nearly as reasonably possible to the
condition existing immediately prior to the damage or taking.
Tenant shall have the right to make modifications to the
Premises, fixtures and improvements, subject to the prior
written approval of Landlord. In its review of Tenant's plans
and specifications, Landlord may take into consideration the
effect of the proposed modifications on the exterior
appearance, the structural integrity and the mechanical and
other operating systems of the Building.
14. DEFAULT
14.1. Events Of Default. The occurrence of any of the
following shall constitute an event of default on the part of
Tenant:
(a) Abandonment. Abandonment of the Premises.
Tenant waives any right Tenant may have to notice under
Section 1951.3 of the California Civil Code, the terms of this
subsection (a) being deemed such notice to Tenant as required
by said Section 1951.3;
(b) Nonpayment. Failure to pay, when due, any
amount payable to Landlord hereunder, such failure continuing
for a period of five (5) days after receipt of written, notice
of such failure;
(c) Other Obligations. Failure to perform any
obligation, agreement or covenant under this Lease, other than
those matters specified in subsection (b) hereof, such failure
continuing for fifteen (15) days after written notice of such
failure. If is not possible to cure such default within
fifteen (15) days. Tenant shall commence cure within said
fifteen (15) day period and shall proceed diligently to
complete cure;
(d) General Assignment. A general assignment by
Tenant for the benefit of creditors;
(e) Bankruptcy. The filing of any voluntary
petition in bankruptcy by Tenant or the filing of an
involuntary petition by Tenant's creditors, which involuntary
petition remains undischarged for a period of thirty (30)
days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and
continue to perform the obligations of Tenant hereunder, such
trustee or Tenant shall, in such time period as may be
permitted by the bankruptcy court having jurisdiction, cure
all defaults of Tenant hereunder outstanding as of the date of
the affirmance of this Lease and provide to Landlord such
adequate assurances as may be reasonably necessary to ensure
Landlord of the continued performance of Tenant's obligations
under this Lease. specifically, but without limiting the
generality of the foregoing, such adequate assurances must
include assurances that the Premises continue to be operated
only for the use permitted hereunder. The provisions hereof
are to assure that the basic understandings between Landlord
and Tenant with respect to Tenant's use of the Premises and
the benefits to Landlord therefrom are preserved, consistent
with the purpose and intent of applicable bankruptcy laws;
(f) Receivership. The employment of a receiver
appointed by court order to take possession of substantially
all of the Tenant's assets or the Premises, if such a
receivership remains undissolved for a period of thirty (30)
days;
(g) Attachment. The attachment, execution or other
judicial seizure of all or substantially all of Tenant's
assets or the Premises, if such attachment or other seizure
remains undismissed or undischarged for a period of thirty
(30) days after levy thereof; or
(h) Insolvency. The admission by Tenant in writing
of its inability to pay its debts as they become due, the
filing by Tenant of a petition seeking any reorganization or
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future
statute, law or regulation, the filing by Tenant of an answer
admitting or failing timely to contest a material allegation
of a petition filed against Tenant in any such proceeding or,
if within thirty (30) days after the commencement of any
proceeding against Tenant seeking any reorganization or
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future
statute, law or regulation, such proceeding shall not have
been dismissed.
14.2. Remedies Upon Tenant's Default.
(a) Upon the occurrence or any event of default
described in Section 14.1 hereof, Landlord, in addition to and
without prejudice to any other rights or remedies it may have,
shall have the immediate right to re-enter the Premises or any
part thereof and repossess the same, expelling and removing
therefrom all persons and property (which property may be
stored in a public warehouse or elsewhere at the cost and risk
of and for the account of Tenant), using such force as may be
necessary to do so (as to which Tenant hereby waives any claim
for loss or damage that may thereby occur). In addition to or
in lieu of such re-entry and without prejudice to any other
rights or remedies it may have, Landlord shall have the right
either (i) to terminate this Lease and recover from Tenant all
damages incurred by Landlord as results of Tenant's default,
as hereinafter provided, or (ii) to continue this Lease in
effect and recover rent and other charges and amounts as they
become due.
(b) Even if Tenant has breached this Lease or
abandoned the Premises, this Lease shall continue in effect
for so long as Landlord does not terminate Tenant's right to
possession under subsection (a) hereof and Landlord may
enforce all of its rights and remedies under this Lease,
including the right to recover rent as it becomes due, and
Landlord, without terminating this Lease, may exercise all of
the rights and remedies of a lessor under California Civil
Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes
due, if lessee has right to sublet or assign, subject only to
reasonable limitations), or any successor Code section. Acts
of maintenance, preservation or efforts to relate the Premises
or the appointment of a receiver upon application of Landlord
to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession.
(c) If Landlord terminates this Lease pursuant to
this Section 14.2, Landlord shall have all the rights and
remedies of a landlord provided by Section 1951.2 of the Civil
Code of the State of California, or any successor Code
section.
14.3. Remedies Cumulative. All rights, privileges and
elections or remedies of Landlord contained in this Article 14
are cumulative and not alternative to the extent permitted by
law and except as otherwise provided herein.
15. SUBORDINATION, ATTORNMENT AND SALE
15.1. Subordination to Mortgage. This Lease, and any
sublease entered into by Tenant under the provisions of this
Lease, shall be subject and subordinate to any ground lease,
mortgage, deed of trust, sale/leaseback transaction or any
other or any other hypothecation for security now or hereafter
placed upon the Building, the Property, or both, and the
rights of any assignee of Landlord or mortgagee, trustee,
beneficiary, landlord or leaseback lessor under any of the
foregoing, and to any and all advances made on the security
thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. If any mortgagee,
trustee, beneficiary, ground lessor, sale/leaseback lessor or
assignee elects to have this Lease be an encumbrance upon the
Property prior to the lien of its mortgage, deed of trust,
ground lease or leaseback lease or other security arrangement
and gives notice thereof to Tenant, this Lease shall be deemed
prior thereto, whether this Lease is dated prior or subsequent
to the date thereof or the date of recording thereof Tenant,
and any sublessee, shall execute such documents as many
reasonably be requested by any mortgagee, trustee,
beneficiary, ground lessor, sale/leaseback lessor or assignee
to evidence the subordination herein set forth or to make this
Lease prior to the lien of any mortgage, deed of trust, ground
lease, leaseback lease or other security arrangement, as the
case may be, and if Tenant fails to do so within fifteen (15)
days after demand from Landlord, Tenant constitutes and
appoints Landlord as Tenant's attorney-in-fact and in Tenant's
name, place and stead to do so. Upon any default by Landlord
in the performance of its obligations under any mortgage, deed
of trust, ground lease, leaseback lease or assignment, Tenant
(and any sublessee) shall attorn to the mortgagee, trustee,
beneficiary, ground lessor, leaseback lessor or assignee
thereunder upon demand and shall execute and deliver any
instrument or instruments confirming the attornment herein
provided for.
Landlord specifically agrees that (i) Tenant may
conclusively rely upon any written notice Tenant receives from
any mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or assignee ("Beneficiary"),
notwithstanding any claim by Landlord contesting the validity
of any term or condition of such notice, including, but not
limited to, any default claimed by lender and (ii) that
Landlord shall not make any claim of any kind against Tenant
or Tenant's leasehold interest with respect to amounts paid to
lender by Tenant or any acts performed by Tenant pursuant to
such written notice.
Notwithstanding anything to the contrary contained in
this Lease, Tenant shall not be required to subordinate its
interest under this Lease unless (i) such subordination does
not materially increase Tenant's obligations or materially
decrease its rights under this Lease, and (ii) Landlord first
obtains from the mortgagee, trustee, beneficiary, ground
lessor, leaseback lessor or assignee requesting said
subordination a written agreement that provides that Tenant's
right to quiet possession of the Premises shall not be
disturbed so long as Tenant is not in default and performs all
of its obligations under this Lease, unless this Lease is
otherwise terminated pursuant to its terms.
15.2. Sale of Landlord's Interest. Upon sale,
transfer or assignment of Landlord's entire interest in the
Building and Property, Landlord shall be relieved of its
obligations hereunder with respect to liabilities accruing
from and after the date of such sale, transfer or assignment.
15.3. Estoppel Certificates. Tenant shall at any time
and from time to time, within ten (10) days after written
request by Landlord, execute, acknowledge and deliver to
Landlord a certificate in writing, stating: (i) that this
Lease is unmodified and in full force and effect, or if there
have been any modifications, that this Lease is in full force
and effect as modified and stating the date and the nature of
each modification; (ii) the date to which rental and all other
sums payable hereunder have been paid; (iii) that to Tenants
actual knowledge Landlord is not in default in the performance
of any obligations under this Lease, that Tenant has given no
notice of default to the Landlord and that, to Tenant's actual
knowledge no event has occurred which, but for the expiration
of the applicable time period, would constitute an event of
default hereunder; and (iv) such other matters as may
reasonably be requested by Landlord or any institutional
lender, mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or prospective purchaser of the
Property. Any such certificate provided under this Section
15.3 may be relied upon by any lender, mortgagee, trustee,
beneficiary, assignee or successor in interest to the
Landlord, by any prospective purchaser, by any purchaser on
foreclosure or sale, or upon any grant of a deed in lieu of
foreclosure of any mortgage or deed of trust on the Property
or premises, or by any other third party. Failure to execute
and return within the required time any estoppel certificate
requested hereunder shall be deemed to be an admission of the
truth of the matters set forth in the form of certificate
submitted to Tenant for execution.
15.4. Subordination to CC&R'S. This Lease, and any
permitted sublease entered into by Tenant under the provisions
of this Lease, shall be subject and subordinate (a) to any
declarations of covenants, conditions and restrictions
recorded by Landlord with respect to the Property from time to
time, provided that the terms of such declarations are
reasonable and do not discriminate against Tenant relative to
other tenants occupying portions of the Property, and (b) to
the Declaration of Covenants, Conditions and Restrictions
dated June 20, 1979 and recorded on July 5, 1979 as Instrument
No. 79-130777, Alameda County Records, as amended from time to
time (the "Master Declaration"), the provisions of which
Master Declaration are an integral part of this Lease. Tenant
agrees to execute, upon request by Landlord, any documents
reasonably required from time to time to evidence the
subordination provided in this Section 15.4.
16. SECURITY
16.1. Deposit. Concurrently with Tenant's execution
of this Lease, Tenant shall deposit with Landlord the sum of
Ten Thousand, Five Hundred Sixty Six Dollars and Forty Three
Cents ($10,566.43), which sum (the "Security Deposit") shall
be held by Landlord as security for the faithful performance
of all the terms, covenants, and conditions of this Lease to
be kept and performed by Tenant during the term hereof. If
Tenant defaults beyond the expiration of any applicable grace
period, with respect to any provision of this Lease,
including, without limitation, the provisions relating to the
payment of rental and other sums due hereunder, Landlord shall
have the right, but shall not be required, to use, apply or
retain all or any part of the Security Deposit for the payment
of rental or any other amount which Landlord may spend or may
become obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any
portion of the Security Deposit is so used or applied, Tenant
shall, within ten (10) days after written demand therefor,
deposit cash with Landlord in a sufficient amount to restore
the Security Deposit to its original amount and Tenant's
failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep any deposit under this
Section separate from Landlord's general funds, and Tenant
shall not be entitled to interest thereon. If Tenant fully and
faithfully performs every provision of this Lease to be
performed by it, the Security Deposit, or any balance thereof,
shall be returned to Tenant or, at Tenant s direction, to the
last assignee of Tenant's interest hereunder, at the
expiration of the term of this Lease and within ten (10) days
after Tenant has vacated the Premises. In the event of
termination of Landlord's interest in this Lease, Landlord
shall transfer all deposits then held by Landlord under this
Section to Landlord's successor in interest, whereupon Tenant
agrees to release Landlord from all liability for the return
of such deposit or the accounting thereof.
17. MISCELLANEOUS
17.1. Notices. All notices, consents, waivers and
other communications which this Lease requires or permits
either party to give to the other shall be in writing and
shall be deemed given when delivered personally (including
delivery by private courier or express delivery service) or
four (4) days after deposit in the United States mail,
registered or certified mail, postage prepaid, addressed to
the parties at their respective addresses as follows:
To Tenant: Aradigm Corporation
26219 Eden Landing Road
Hayward, CA 94545
Attn: Richard P. Thompson
President and C. E. O.
(after Commencement Date, same as
above)
with copy to: Mark A. Olbert, Vice President & CFO
Aradigm Corporation
26219 Eden Landing Road
Hayward, CA 94545
To Landlord: Hayward Point Eden I Limited
Partnership
c/o Britannia Developments, Inc. 1939
Harrison Street, Suite 412 Park Plaza
Building
Oakland, CA 94612
Attn: T. J. Bristow
with copy to: Folger, Levin & Kahn
Embarcadero Center West
275 Battery Street, 23rd Floor
San Francisco, CA 94111
Attn: Donald E. Kelley, Jr.
or to such other address as may be contained in a notice at
least fifteen (15) days prior to the address change from
either party to the other given pursuant to this Section.
Rental payments and other sums required by this Lease to be
paid by Tenant shall be delivered to Landlord at Landlord's
address provided in this Section, or to such other address as
Landlord may from time to time specify in writing to Tenant,
and shall be deemed to be paid only upon actual receipts.
17.2. Successors And Assigns. The obligations of this
Lease shall run with the land, and this Lease shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the original
Landlord named herein and each successive Landlord under this
Lease shall be liable only for obligations accruing during the
period of its ownership of the Property, which liability shall
survive, but future liability under the Lease shall then pass
to the successor lessor.
17.3. No Waiver. The failure of Landlord to seek
redress for violation, or to insist upon the strict
performance, of any covenant or condition of this Lease shall
not be deemed a waiver of such violation, or prevent a
subsequent act which would originally have constituted a
violation from having all the force and effect of an original
violation.
17.4. Severability. If any provision of this Lease or
the application thereof is held to be invalid or
unenforceable, the remainder of this Lease or the application
of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable shall not be
affected thereby, and each of the provisions of this Lease
shall be valid and enforceable, unless enforcement of this
Lease as so invalidated would be unreasonable or grossly
inequitable under all the circumstances or would materially
frustrate the purposes of this Lease.
17.5. Litigation Between Parties. In the event of any
litigation between the parties hereto growing out of this
Lease, the prevailing party shall be reimbursed for all
reasonable costs, including, but not limited to, reasonable
accountants' fees and attorneys' fees. "Prevailing Party"
within the meaning of this Section shall include, without
limitation, a party who dismisses all action for recovery
hereunder in exchange for payment of the sums allegedly due,
performance of covenants allegedly breached or consideration
substantially equal to the relief sought in the action.
17.6. Surrender. A voluntary or other surrender of
this Lease by Tenant, or a mutual termination thereof between
Landlord and Tenant, shall not result in a merger but shall,
at the option of Landlord, operate either as an assignment to
Landlord of any and all existing subleases and subtenancies,
or a termination of all or any existing subleases and
subtenancies. This provision shall be contained in any and all
assignments or subleases made pursuant to this Lease.
17.7. Construction. The provisions of this Lease
shall be construed as a whole according to their common
meaning and not strictly for or against Landlord or Tenant.
The captions preceding the text of each Section and subsection
hereof are included only for convenience of reference and
shall be disregarded in the construction or interpretation of
this Lease.
17.8. Entire Agreement. This written Lease, together
with the exhibits hereto, contains all the representations and
the entire understandings between the parties hereto with
respect to the subject matter hereof. Any prior
correspondence, memoranda or agreements are replaced in total
by this Lease and the exhibits hereto. This Lease may be
modified only by all agreement in writing signed by each of
the parties.
17.9. Governing Law. This Lease and all exhibits
hereto shall be construed and interpreted in accordance with
and be governed by all the provisions of the laws of the State
of California.
17.10. No Partnership. Nothing contained in this Lease
shall be construed as creating any type or manner of
partnership, joint venture or joint enterprise with or between
Landlord and Tenant.
17.11. Financial Information. From time to time Tenant
shall promptly provide directly to prospective lenders and
purchasers of the Premises designated by Landlord such
financial information pertaining to the financial status of
Tenant as Landlord may reasonably request; provided, Tenant
shall be permitted to provide such financial information in a
manner which Tenant deems reasonably necessary to protect the
confidentiality of such information. In addition, from to
time, Tenant shall provide Landlord with such financial
information pertaining to the financial status of Tenant as
Landlord may reasonably request. Landlord agrees that all
financial information supplied to Landlord by Tenant shall be
treated as confidential material, and shall not be
disseminated to any party or entity (including any entity
affiliated with Landlord) without Tenant's prior written
consent. For purposes of this Section, without limiting the
generality of the obligations provided herein, it shall be
deemed reasonable for Landlord to request copies of Tenant's
most recent audited annual financial statements, or, if
audited statements have not been prepared, unaudited financial
statements for Tenant's most recent fiscal year, accompanied
by a certificate of Tenant's chief financial officer that such
financial statements fairly present Tenant's financial
condition as of the date(s) indicated.
Landlord and Tenant recognize the need of Tenant to
maintain the confidentiality of information regarding its
financial status and the need of Landlord to be informed of,
and to provide to prospective lenders and purchasers of the
Premises, financial information pertaining to Tenant's
financial status. Landlord and Tenant agree to cooperate with
each other in achieving these needs within the context of the
obligations set forth in this Section.
17.12. Costs. If Tenant requests the consent of
Landlord under any provisions of this Lease for any act that
Tenant proposes to do hereunder, including, without
limitation, assignment or subletting of the Premises, Tenant
shall, as a condition to doing any such act and the receipt of
such consent, reimburse Landlord promptly for any and all
reasonable costs and expenses incurred by Landlord in
connection therewith, including, without limitation,
reasonable attorneys' fees.
7.13. Time. Time is of the essence for this Lease,
and of every term and condition hereof.
17.14. Rules and Regulations. Tenant shall observe and
obey such rules and regulations as Landlord may promulgate
from time to time for the safety, care, cleanliness, order and
use of the Premises and the Building, provided that any such
rules and regulations shall not unreasonably interfere with
Tenant's access to, or use of, the Premises.
17.15. Memorandum Of Lease. At any time during the
term of this Lease, either party, at its sole expense, shall
be entitled to record a memorandum of this Lease and, if
either party so elects, both parties agree to cooperate in the
preparation, execution, acknowledgment and recordation of such
document in reasonable form.
17.16. Corporate Authority. The person signing this
Lease on behalf of Tenant warrants that he or she is fully
authorized to do so and, by so doing, to bind Tenant.
In Witness Whereof, the parties hereto have executed
this Lease as of the day and year first set forth above.
"Landlord "Tenant"
Hayward Point Eden I Aradigm Corporation
Limited Partnership, a California Corporation
A Delaware Limited Partnership
By: Britannia Developments, By
Inc., a California corporation Richard
Thompson
Its Managing Partner. Its President
By:
T.J. Bristow
President
Exhibit A
LOCATION OF PREMISES
Exhibit B
REAL PROPERTY DESCRIPTION
Real property located in the City of Hayward, County of Alameda,
State of California, more particularly described as follows;
Lots 1,2, 3, 4, 5 and 7, Tract 4019, filed June 28, 1979,
Map Book 110, Pages 97, 98 and 99, Alameda County Records.
Subject to easements, restrictions and other matters of
record affecting title.
Exhibit C
CONSTRUCTION
Landlord, at its sole cost and expense, shall undertake
and diligently complete, subject to delays for causes beyond
its reasonable control, leasehold improvements in accordance
with plans and specifications to be prepared by Landlord,
subject to approval by Tenant, which approval shall not be
unreasonably withheld or delayed. Such work shall be performed
in a neat and workmanlike manner and shall conform to all
applicable governmental codes, laws and regulations in force
at the time such work is completed.
The Tenant Improvements include, but are not limited to:
1. Replacement of the carpeting in the office area with
upgraded carpeting and in the side are with tile.
2. Replacement of the countertop and cabinets in the
kitchen area to include new countertop and cabinets
as well as dishwasher and garbage disposal.
3. Replacement of the acoustical tiles in the office
area and damaged tiles elsewhere.
4. Creating large conference room in front office area.
5. Addition of new countertop and cabinets in copy
room.
6. Running l" compressed air and vacuum lines from
utility room to the side area.
7. Building L-shaped wall and reception area.
However, Landlord will be solely responsible for: (i.e.
not part of T.I. allowance).
1. Repair or replacement of HVAC system in office
section of Premises.
2. Renovation of the restrooms to bring up to building
code and appropriate appearance. This includes
replacement of the tank toilets and inlet water line
to meet ADA requirements, replacement of the stall
partitions due to rust, replacement of the flooring
due to lifting, replacement of the countertops due
to delamination, replacement of the sinks due to
cracks and improvement in the lighting.
Exhibit D
ACKNOWLEDGMENT OF LEASE COMMENCEMENT
This Acknowledgment is executed as of
__________________,19___, by HAYWARD POINT EDEN 1 LIMITED
PARTNERSHIP, a DELAWARE LIMITED PARTNERSHIP ("Landlord"), and
_____________________________________________________________,
a ________________________ ("Tenant"), pursuant to Section
2.5. of the Lease dated __________________, 19 , between
Landlord and Tenant (the "Lease") covering premises located at
____________________________________________________________,
Hayward, CA 94545 (the "Premises")
Landlord and Tenant hereby acknowledge and agree as
follows:
1. The Commencement Date under the Lease is
_________________,19___.
2. The termination date under the Lease shall be
___________________, 19___, subject to any applicable
[provisions of the Lease for any extension or early
termination thereof].
3. The final cost of the Tenant improvements for the
Premises is ____________. Based on that cost, the applicable
rental adjustment (if any) and/or payment (if any) required
under the Lease is as follows (if none, so state):
4. Tenant accepts the Premises and acknowledges the
satisfactory completion of all improvements therein (if any)
required to be made by Landlord, subject only to any
applicable "punch list" or similar procedures specifically
provided under the Lease.
EXECUTED as of the date first set forth above.
"Landlord "Tenant"
Hayward Point Eden I
Limited Partnership,
a Delaware Limited Partnership a
By: Britannia Developments, By
Inc., a California corporation
Its Managing Partner. Its:
By:
T.J. Bristow
President
EXHIBIT 10.20A
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") is entered
into as of December 22, 1997 between HAYWARD POINT EDEN I
LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and ARADIGM CORPORATION, a California corporation
("Tenant"), with reference to the following facts:
D. Landlord and Tenant are parties to a Lease dated
March 17, 1997 (the "Lease"), covering certain premises
consisting of approximately 9,660 square feet of space in
Building H of the Britannia Point Eden Business Park (the
"Center") and commonly known as 3911 Trust Way, Hayward,
California 94545 (the "Premises").
E. Concurrently with the execution of this Amendment,
Landlord and Tenant are negotiating over a new lease covering
portions of Building G in the Center, a new lease covering a
new building of approximately 80,000 square feet to be
constructed by Landlord or an affiliate in or adjacent to the
Center (the "Phase V Lease"), and amendments of two other
existing leases between Landlord and Tenant affecting portions
of Buildings E and H in the Center.
F. In connection with the negotiation and execution of
the leases and amendments described in the preceding paragraph,
Landlord and Tenant wish to make certain changes in the Lease
as more particularly set forth herein.
G. Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.
NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
10. Early Termination Right. Notwithstanding the
provisions of Section 2.1 of the Lease, if Tenant relocates the
uses presently conducted by Tenant in the Premises into the new
building constructed pursuant to the Phase V Lease (following
completion of construction of such building), then Tenant shall
have the right to terminate the Lease, without penalty and
without liability for any termination payment, by delivering to
Landlord not less than six (6) months' prior written notice.
The termination payment described in the last paragraph of
Section 2.1 of the Lease (relating to payment of the
unamortized portion of certain tenant improvement costs) shall
have no application to any termination by Tenant under the
circumstances described in the preceding sentence.
11. Cross-Default. Section 14.1 of the Lease is amended
by adding thereto, as an additional event of default, the
following:
"(i) Cross-Default. Any event of default by Tenant
under (A) any other lease between Landlord and Tenant
covering any other portion of the Property from time to
time during the term of this Lease, or (B) the lease
entered into substantially concurrently herewith by Tenant
and Britannia Point Eden, LLC with respect to a new
building to be constructed in Phase V of the Center, to
the extent (under either of the foregoing clauses) such
default continues beyond any applicable cure periods
provided in the applicable lease, and to the extent
Landlord therefore has (and exercises concurrently with
any termination of this Lease) a right to terminate such
other applicable lease; provided, however, that the
default event set forth in this Section 14.1(i) shall not
apply with respect to any default under a lease described
herein to the extent Tenant has previously assigned or
transferred all of its right, title and interest under the
lease as to which such default then exists and, as a
result of such transfer, the holder of the lessee's
interest under the lease as to which such default then
exists is not a person or entity which controls, is
controlled by or is under common control with the person
or entity which is then the holder of the lessee's
interest under this Lease."
12. Brokers. Landlord and Tenant each represents and
warrants to the other that no broker participated in the
consummation of this Amendment, and each agrees to indemnify,
defend and hold the other party harmless against any liability,
cost or expense, including, without limitation, reasonable
attorneys' fees, arising out of any claims for brokerage
commissions or other similar compensation in connection with
any conversations, prior negotiations or other dealings by the
indemnifying party with any such broker or other claimant.
13. Operating Expenses. The parties acknowledge that
under Section 5.1 of the Lease, Tenant's Operating Cost Share
is presently three and fifty hundredths percent (3.50%), based
on a square footage of 9,660 square feet for the Premises and
a square footage of 275,674 square feet for all buildings
presently owned by Landlord on the Property (as a result of a
6,000 square foot expansion of one building in 1997).
14. Full Force and Effect. Except as expressly set
forth herein, the Lease has not been modified or amended and
remains in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Amendment as of the date first set forth above.
"Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By: BRITANNIA DEVELOPMENTS, INC., a California corporation,
General Partner
By: ____________________
T. J. Bristow
President
"Tenant"
ARADIGM CORPORATION, a California corporation
By: _____________________
Richard P. Thompson
Its President
17025\3044\0003rv1
EXHIBIT 10.20B
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE ("Amendment") is entered
into as of January 28, 1998 between HAYWARD POINT EDEN I LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord") and
ARADIGM CORPORATION, a California corporation ("Tenant"), with
reference to the following facts:
H. Landlord and Tenant are parties to a Lease dated
March 17, 1997, as amended by a First Amendment to Lease dated
as of December 22, 1997 (as amended, the "Lease"), covering
certain premises consisting of approximately 9,660 square feet
of space in Building H of the Britannia Point Eden Business Park
(the "Center") and commonly known as 3911 Trust Way, Hayward,
California 94545.
I. Concurrently with the execution of this Amendment,
Landlord and Tenant are entering into a new lease covering
portions of Building G in the Center (the "New Building G
Lease") and, in connection therewith, wish to amend certain
provisions of the Lease to conform to revised versions of such
provisions incorporated in the New Building G Lease.
J. Terms used herein as defined terms but not
specifically defined herein shall have the meanings assigned to
such terms in the Lease.
NOW, THEREFORE, in consideration of the mutual agreements
set forth herein and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
15. Operating Expenses. Section 5.2 of the Lease is
amended to read in its entirety as follows:
"5.2 Definition Of Operating Expenses. Subject to
the exclusions and provisions hereinafter contained, the term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (and any
applicable adjacent property owned by Landlord and operated, for
common area purposes, on an integrated basis with the Property
as described above), including, without limitation, costs and
expenses of (i) insurance, property management, landscaping, and
operation, repair and maintenance of buildings and common areas;
(ii) all utilities and services; (iii) real and personal
property taxes and assessments or substitutes therefor,
including (but not limited to) any possessory interest, use,
business, license or other taxes or fees, any taxes imposed
directly on rents or services, any assessments or charges for
police or fire protection, housing, transit, open space, street
or sidewalk construction or maintenance or other similar
services from time to time by any governmental or quasi-
governmental entity, and any other new taxes on landlords in
addition to taxes now in effect (but excluding corporate income
taxes); (iv) supplies, equipment, utilities and tools used in
management, operation and maintenance of the Property; (v)
capital improvements to the Property or the Building, amortized
over the useful life of such capital improvements, (aa) which
reduce or will cause future reduction of other items of
Operating Expenses for which Tenant is otherwise required to
contribute or (bb) which are required by law, ordinance,
regulation or order of any governmental authority or (cc) which
constitute repairs or replacements of existing improvements in
the Premises or common areas of the Property with items of
similar quality and function, as a result of obsolescence or
ordinary wear and tear, in order to maintain and preserve the
quality, safety and usefulness of the Property, to the extent
such repairs or replacements are treated as capital items under
generally accepted accounting principles; and (vi) any other
costs (including, but not limited to, any parking or utilities
fees or surcharges) allocable to or paid by Landlord, as owner
of the Property or Building, pursuant to any applicable laws,
ordinances, regulations or orders of any governmental or quasi
governmental authority or pursuant to the terms of any
declarations of covenants, conditions and restrictions now or
hereafter affecting the Property (or any applicable adjacent
property owned by Landlord as described above). Operating
Expenses shall not include any costs attributable to increasing
the size of or otherwise expanding the Building or the costs of
the work for which Landlord is required to pay under Section 2.4
or Exhibit C. The distinction between items of ordinary
operating maintenance and repair and items of a capital nature
shall be made in accordance with generally accepted accounting
principles applied on a consistent basis. Notwithstanding
anything to the contrary contained in this Section 5.2, the
following shall not be included in Operating Expenses under this
Lease:
(A) Leasing commissions, attorneys' fees, costs,
disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, or in
connection with leasing, renovating or improving space
for tenants or other occupants or prospective tenants or
other occupants of the Building or of the land on which
the Premises are located;
(B) The cost of any service sold to any tenant
(including Tenant) or other occupant for which Landlord is
entitled to be reimbursed as an additional charge or
rental over and above the basic rent and escalations
payable under Landlord's lease with that tenant;
(C) Any depreciation on the Building;
(D) Costs of a capital nature, including but not
limited to capital improvements and alterations, capital
repairs, capital equipment and capital tools, as
determined in accordance with generally accepted
accounting principles consistently applied, except to the
extent expressly provided in clause (v) above;
(E) Expenses in connection with services or other
benefits of a type that are not offered to Tenant but that
are provided to another tenant or occupant of the Building
or land upon which the Premises are located;
(F) Overhead profit increments paid to Landlord's
subsidiaries or affiliates for management or other
services relating to the Building or the Property, or for
supplies or other materials, to the extent the cost of
such services, supplies or materials exceeds a reasonable
market rate for obtaining such services, supplies or
materials from unaffiliated parties;
(G) All interest, loan fees and other carrying costs
related to any mortgage or deed of trust or related to any
capital item, and all rental and other payments due under
any ground or underlying lease, or any lease for any
equipment ordinarily considered to be of a capital nature
(except janitorial equipment which is not affixed to the
Building);
(H) Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by
Landlord;
(I) Advertising and promotional expenditures;
(J) Costs of repairs and other work occasioned by
fire, windstorm or other casualty of an insurable nature;
(K) Any costs, fines or penalties incurred due to
violations by Landlord of any governmental rule or
authority, this Lease or any other lease affecting the
Building or the land on which the Premises are located, or
due to Landlord's negligence or willful misconduct;
(L) Management costs, to the extent they exceed a
reasonable market rate for management services provided to
comparable projects in Hayward, California and surrounding
areas;
(M) Costs for sculpture, paintings or other objects
of art, including (but not limited to) any costs for
insurance thereon or extraordinary security in connection
therewith;
(N) Wages, salaries or other compensation paid to
any executive employee above the grade of building
manager;
(O) The cost of correcting any building code or
other violations of applicable law which, on the
Commencement Date, were existing violations of laws or
codes then in effect;
(P) The cost of containing, removing or otherwise
remediating any contamination of the Building or Property
(including the underlying land and groundwater) by any
toxic or hazardous materials (including, without
limitation, asbestos and PCB's);
(Q) Any increase in real property taxes or
assessments on the Property as a result of a change in
ownership of the Property; provided, however, that the
exclusion contained in this clause (Q) shall apply only in
the determination of Operating Expenses with respect to
periods prior to the third (3rd) anniversary of the
Commencement Date, and shall not apply in the
determination of Operating Expenses with respect to any
subsequent periods during the term of this Lease; and
(R) Any other expense not specifically included or
excluded above which, under generally accepted accounting
principles and practices consistently applied, would not
be considered a normal maintenance or operating expense."
16. Operating Expense Audits. Section 5.4 of the Lease
is amended to read in its entirety as follows:
"5.4 Final Accounting For Lease Year.
(1) Within ninety (90) days after the close of
each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of
Tenant's Operating Cost Share of the Operating Expenses for
such Lease Year prepared by Landlord from Landlord's books and
records, which statement shall be final and binding on Landlord
and Tenant, subject to Tenant's audit right set forth below.
If on the basis of such statement Tenant owes an amount that is
more or less than the estimated payments for such calendar year
previously made by Tenant, Tenant or Landlord, as the case may
be, shall pay the deficiency to the other party within thirty
(30) days after delivery of the statement. Failure or
inability of Landlord to deliver the annual statement within
such ninety (90) day period shall not impair or constitute a
waiver of Tenant's obligation to pay Operating Expenses, or
cause Landlord to incur any liability for damages.
(2) Notwithstanding any other provisions of this
Section 5.4, within one (1) year after receipt of a final
statement from Landlord setting forth actual Operating Expenses
and Tenant's Operating Cost Share for any period (a
"Statement"), Tenant shall have the right to audit or inspect
Landlord's books and records relating to Operating Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided that
such audit shall be conducted only during normal business
hours, on not less than ten (10) days prior written notice to
Landlord, at a location reasonably specified by Landlord, and
at Tenant's sole cost and expense, except as hereinafter
provided. Landlord shall cooperate with Tenant in all
reasonable respects in the course of such audit, and Tenant
and its employees and agents shall be permitted to make
photocopies (at Tenant's expense) of any pertinent portions of
Landlord's books and records. Landlord shall retain its books
and records for each Lease Year for a period of at least one
(1) year after delivery to Tenant of Landlord's Statement for
the applicable Lease Year. To the extent that Tenant, on the
basis of such audit, disputes any item in the applicable
Statement or in the calculation of Tenant's obligations
thereunder, Tenant shall give Landlord written notice of the
disputed items, in reasonable detail and with reasonable
supporting information, within thirty (30) days after the
earlier to occur of the completion of Tenant's audit or the
expiration of Tenant's 1-year audit period. If Landlord and
Tenant are not able to resolve such dispute by good faith
negotiations within thirty (30) days after Tenant notifies
Landlord in writing of the disputed items, then Tenant may, by
written notice to Landlord, request an independent audit of
such books and records. The independent audit of the books and
records shall be conducted by a certified public accountant
acceptable to both Landlord and Tenant or, if the parties are
unable to agree, by a "Big Six" accounting firm designated by
Landlord and not then employed by Landlord or Tenant. The
audit shall be limited to the determination of the amount of
Operating Expenses and of Tenant's share thereof for the Lease
Year covered by the Statement, and shall be based on generally
accepted accounting principles and tax accounting principles,
consistently applied, subject to any modifications or
limitations expressly set forth in
Section 5.2 hereof. If it is determined, by mutual agreement
of Landlord and Tenant or by independent audit, that the amount
paid by Tenant for Operating Expenses for the period covered by
the Statement was incorrect, then the appropriate party shall
pay to the other party the deficiency or overpayment, as
applicable, within thirty (30) days after the final
determination of such deficiency or overpayment. All costs and
expenses of the audit shall be paid by Tenant unless the audit
shows that Landlord overstated Operating Expenses for the
period covered by the Statement by more than four percent (4%),
in which event Landlord shall pay all costs and expenses of the
audit. Each party agrees to maintain the confidentiality of
the findings of any audit in accordance with the provisions of
this Section 5.4. The provisions of this Section 5.4 shall
survive the expiration or sooner termination of this Lease."
17. Liens. Section 7.4 of the Lease is amended to read
in its entirety as follows:
"7.4 No Liens. Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, materialmen, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises. Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises. Tenant shall indemnify,
defend and hold Landlord harmless against any and all
liability, loss, damage, cost and other expenses, including,
without limitation, reasonable attorneys' fees, arising out of
claims of any lien for work performed or materials or supplies
furnished at the request of Tenant or persons claiming under
Tenant. Nothing in this Section 7.4 shall be construed to
prevent Tenant from obtaining financing on Tenant's movable
furniture, equipment and trade fixtures or
from granting a security interest in such items to one or more
lenders, provided that Tenant shall not be entitled, pursuant
to this sentence or otherwise, to encumber any alterations,
additions or improvements that are the property of Landlord and
that must remain with the Premises upon termination of this
Lease, as provided in Sections 7.2 and 7.3 hereof. Without
limiting the generality of the preceding sentence, Landlord
acknowledges that it has been advised by Tenant that Tenant is
presently a party to agreements creating liens on some or all
of Tenant's existing and/or after-acquired equipment,
furniture, trade fixtures and other personal property in favor
of (a) Transamerica Business Credit and (b) Comdisco; nothing
in this sentence shall be construed, however, as a waiver or
release by Landlord with respect to the proviso set forth in
the preceding sentence regarding limitations on the property
that Tenant is entitled to encumber."
18. Full Force and Effect. Except as expressly set forth
herein, the Lease has not been modified or amended and remains
in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Second Amendment as of the date first set forth above.
"Landlord"
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited
partnership
By: BRITANNIA DEVELOPMENTS, INC., a California corporation,
General Partner
By: ____________________
T. J. Bristow
President and Chief Financial Officer "Tenant"
ARADIGM CORPORATION, a California corporation
By: _____________________
Richard P. Thompson
President
By: _____________________
Mark A. Olbert
Chief Financial Officer
17025\3044\0022
EXHIBIT 10.21
LEASE
Landlord: BRITANNIA POINT EDEN, LLC
Tenant: ARADIGM CORPORATION
Date: January 28, 1998
TABLE OF CONTENTS
1. PREMISES 1
1.1. Premises 1
1.2. Landlord's Reserved Rights 1
1.3. First Refusal Right 1
1.4. Additional First Refusal Right 2
2. TERM 3
2.1. Term 3
2.2. Early Possession 3
2.3. Delay In Possession 4
2.4. Construction 4
2.5. Acknowledgment Of Lease Commencement 5
2.6. Holding Over 5
3. RENTAL 6
3.1. Minimum Rental 6
3.2. Late Charge 7
4. TAXES 7
4.1. Personal Property 7
4.2. Real Property 7
5. OPERATING EXPENSES 8
5.1. Payment Of Operating Expenses 8
5.2. Definition Of Operating Expenses 8
5.3. Determination Of Operating Expenses 10
5.4. Final Accounting For Lease Year 11
5.5. Proration 11
6. UTILITIES 12
6.1. Payment 12
6.2. Interruption 12
7. ALTERATIONS 12
7.1. Right To Make Alterations 12
7.2. Title To Alterations 12
7.3. Tenant Fixtures 12
7.4. No Liens 12
8. MAINTENANCE AND REPAIRS 13
8.1. Landlord's Work 13
8.2. Tenant's Obligation For Maintenance 13
(a) Good Order, Condition And Repair 13
(b) Landlord's Remedy 14
(c) Condition Upon Surrender 14
9. USE OF PREMISES 14
9.1. Permitted Use 14
9.2. Requirement Of Continued Use 14
9.3. No Nuisance 14
9.4. Compliance With Laws 14
9.5. Liquidation Sales 15
9.6. Environmental Compliance 15
9.7. ADA/Title 24 Compliance 17
10. INSURANCE AND INDEMNITY 17
10.1.Liability Insurance 17
10.2.Quality Of Policies And Certificates 17
10.3.Workers' Compensation 17
10.4.Waiver Of Subrogation 17
10.5.Increase In Premiums 18
10.6.Indemnification 18
10.7.Blanket Policy 18
11. SUBLEASE AND ASSIGNMENT 18
11.1.Assignment And Sublease Of Premises 18
11.2.Rights Of Landlord 19
12. RIGHT OF ENTRY AND QUIET ENJOYMENT 19
12.1.Right Of Entry 19
12.2.Quiet Enjoyment 20
13. CASUALTY AND TAKING 20
13.1.Termination Or Reconstruction 20
13.2.Tenant's Rights 21
13.3.Lease To Remain In Effect 21
13.4.Reservation Of Compensation 21
13.5.Restoration Of Fixtures 22
14. DEFAULT 22
14.1.Events Of Default 22
(a) Abandonment 22
(b) Nonpayment 22
(c) Other Obligations 22
(d) General Assignment 22
(e) Bankruptcy 22
(f) Receivership 23
(g) Attachment 23
(h) Insolvency 23
(i) Cross-Default 23
14.2.Remedies Upon Tenant's Default 23
14.3.Remedies Cumulative 24
15. SUBORDINATION, ATTORNMENT AND SALE 24
15.1.Subordination To Mortgage 24
15.2.Sale Of Landlord's Interest 25
15.3.Estoppel Certificates 25
15.4.Subordination to CC&R's 25
16. SECURITY 26
16.1.Deposit 26
17. MISCELLANEOUS 27
17.1.Notices 27
17.2.Successors And Assigns 27
17.3.No Waiver 27
17.4.Severability 28
17.5.Litigation Between Parties 28
17.6.Surrender 28
17.7.Interpretation 28
17.8.Entire Agreement 28
17.9.Governing Law 28
17.10. No Partnership 28
17.11. Financial Information 28
17.12. Costs 29
17.13. Time 29
17.14. Rules And Regulations 29
17.15. Brokers 29
17.16. Memorandum Of Lease 29
17.17. Corporate Authority 29
17.18. Execution and Delivery 29
17.19. Signage 30
EXHIBITS
A Location of Premises
B Real Property Description
C Construction
D Acknowledgment of Lease Commencement
LEASE
THIS LEASE is made and entered into as of the _____
day of January, 1998, by and between BRITANNIA POINT EDEN,
LLC, a California limited liability company ("Landlord") and
ARADIGM CORPORATION, a California corporation ("Tenant").
THE PARTIES AGREE AS FOLLOWS:
1. PREMISES
1.1. Premises. Landlord leases to Tenant and Tenant
hires and leases from Landlord, on the terms, covenants and
conditions hereinafter set forth, the premises (the
"Premises") designated in Exhibit A attached hereto and
incorporated herein by this reference, consisting of a two
story (or mixed-level) biotech building of approximately
71,000 square feet (the "Building") to be constructed by
Landlord in Phase V of the Britannia Point Eden Business Park
(the "Center") in the City of Hayward, County of Alameda,
State of California. The real property on which the Building
is to be constructed (the "Property") is more particularly
described in Exhibit B attached hereto and incorporated herein
by this reference. Landlord also grants to Tenant, pursuant
to this Lease and throughout the term of this Lease, the
nonexclusive right to use any common areas in the Property
designated from time to time in any Declaration of Covenants,
Conditions and Restrictions or similar document affecting the
Center.
1.2. Landlord's Reserved Rights. Landlord reserves the
right from time to time to (i) install, use, maintain, repair
and replace pipes, ducts, conduits, wires and appurtenant
meters and equipment for service to other parts of the
Building above the ceiling surfaces, below the floor surfaces,
within the walls or leading through the Premises in locations
which will not materially interfere with Tenant's use thereof,
(ii) relocate any pipes, ducts, conduits, wires and
appurtenant meters and equipment included in the Premises
which are so located or located elsewhere outside the
Premises, (iii) make alterations or additions to the Building,
(iv) construct, alter or add to other buildings or
improvements on the Property, (v) build adjoining to the
Property, and (vi) lease any part of the Property for the
construction of improvements or buildings. Landlord may
modify or enlarge the common area, alter or relocate accesses
to the Premises, or alter or relocate any common facility.
Landlord shall not exercise rights reserved to it pursuant to
this Section 1.2 in such a manner as to materially impair
Tenant's ability to conduct its activities in the normal
manner; provided, however, that the foregoing shall not limit
or restrict Landlord's right to undertake reasonable
construction activity and Tenant's use of the Premises shall
be subject to reasonable temporary disruption incidental to
such activity diligently prosecuted.
1.3. First Refusal Right.
(a) Landlord shall not lease all or any portion of
the Option Space designated in Exhibit A hereto (the "Option
Space") at any time during the term of this Lease, except in
compliance with this Section 1.3; provided, however, that
(i) the foregoing restriction shall not apply during any
period in which Tenant is in uncured default, beyond the
expiration of any applicable cure period, under this Lease,
and (ii) Tenant's rights under this Lease with respect to the
Option Space shall in all events be subject to and subordinate
to any and all other first refusal rights, first offer rights,
renewal options and other similar rights existing as of the
date hereof in favor of any other tenants of the Center.
Tenant's rights under this Section 1.3 are "personal" to
Tenant and shall expire and terminate upon any assignment of
Tenant's interest under this Lease; provided, however, that
the foregoing restriction shall not apply in the case of, and
the rights created in this Section 1.3 shall remain in full
force and effect following, either (x) a Permitted Transfer
(as defined in Section 11.1 hereof) or (y) any assignment as
part of a bulk transfer or assignment, to a single transferee,
of all of Tenant's then existing leasehold rights in the
Center or any portion thereof.
(b) If Landlord intends during the term of this
Lease to lease all or any portion of the Option Space, and if
Tenant is not then in uncured default, beyond any applicable
cure period, under this Lease, Landlord shall give written
notice of such intention to Tenant, specifying the material
terms on which Landlord proposes to lease the Option Space or
portion thereof (the "Offered Space"), and shall offer to
Tenant the opportunity to lease the Offered Space on the terms
specified in Landlord's notice. Tenant shall have seven (7)
days after the date of giving of such notice by Landlord in
which to accept such offer by written notice to Landlord.
Upon such acceptance by Tenant, the Offered Space shall be
leased to Tenant on the terms set forth in Landlord's notice
and on the additional terms and provisions set forth herein
(except to the extent inconsistent with the terms set forth in
Landlord's said notice) and the parties shall promptly execute
an amendment to this Lease adding the Offered Space to the
Premises and making any appropriate amendments to provisions
of this Lease to reflect different rent and other obligations
applicable to the Offered Space under the terms of Landlord's
said notice. If Tenant does not accept Landlord's offer
within the allotted time, Landlord shall thereafter have the
right to lease the Offered Space to a third party, at any time
within one hundred eighty (180) days after Tenant's failure to
accept Landlord's offer, at a minimum rental and on other
terms and conditions not more favorable to the lessee than the
minimum rental and other terms offered to Tenant in Landlord's
said notice; if Landlord wishes, during such 180-day period,
to lease the Offered Space on terms and conditions more
favorable to the lessee than those offered to Tenant in
Landlord's said notice, then Landlord shall first be required
to give Tenant a new notice specifying such new terms and
conditions and the procedure set forth above in this paragraph
(b) shall be re-initiated by such notice. If Tenant does not
accept Landlord's offer and Landlord does not lease the
Offered Space to a third party within the applicable 180-day
period, this first refusal right shall reattach to that space.
1.4. Additional First Refusal Right.
(a) Landlord shall not lease all or any portion of
the Additional Option Space designated in Exhibit A hereto
(the "Additional Option Space") at any time during the term of
this Lease, except in compliance with this Section 1.4;
provided, however, that (i) the foregoing restriction shall
not apply during any period in which Tenant is in uncured
default, beyond the expiration of any applicable cure period,
under this Lease, (ii) Tenant's rights under this Lease with
respect to the Option Space shall in all events be subject to
and subordinate to any and all other first refusal rights,
first offer rights, renewal options and other similar rights
existing as of the date hereof in favor of any other tenants
of the Center, and (iii) the provisions of this Section 1.4
shall become applicable only at such time (if any) as the
property on which the Additional Option Space is located comes
under common ownership with the Property, and shall remain in
effect only for so long as such common ownership continues.
(The parties acknowledge that substantially concurrently with
the execution of this Lease, Tenant and Hayward Point Eden I
Limited Partnership, an affiliate of Landlord which is also
the present owner of the property on which the Additional
Option Space is located, are entering into a Lease covering
certain premises commonly known as 26224 Executive Place,
Hayward, California (the "Building G Lease"); that the
Building G Lease contains a first refusal right substantially
identical to this Section 1.4 and likewise covering the
Additional Option Space; and that the purpose of clause (iii)
of the preceding sentence is to coordinate the operation of
such counterpart first refusal right provisions in such a
manner that Tenant's first refusal right with respect to the
Additional Option Space shall exist and be exercisable under
either the Building G Lease or this Lease at any applicable
time, during the respective terms of and in accordance with
the respective provisions of such leases, but there shall be
no period in which such first refusal right is simultaneously
in effect and exercisable under both leases.) Landlord shall
also use reasonable efforts to notify Tenant of other
vacancies or anticipated vacancies arising from time to time
in portions of the Center that are not technically part of the
Option Space, but Landlord shall have no obligation to offer
or lease any such other vacant space to Tenant (except to the
extent Landlord and Tenant, in their respective discretion and
without obligation to do so, mutually agree upon terms for
such leasing), and Tenant shall have no first refusal right
with respect to any such other vacant space. Tenant's rights
under this Section 1.4 are "personal" to Tenant and shall
expire and terminate upon any assignment of Tenant's interest
under this Lease; provided, however, that the foregoing
restriction shall not apply in the case of, and the rights
created in this Section 1.4 shall remain in full force and
effect following, either (x) a Permitted Transfer (as defined
in Section 11.1 hereof) or (y) any assignment as part of a
bulk transfer or assignment, to a single transferee, of all of
Tenant's then existing leasehold rights in the Center or any
portion thereof.
(b) If Landlord intends, during the term of this
Lease and during any period when this Section 1.4 is in
effect, to lease all or any portion of the Additional Option
Space, and if Tenant is not then in uncured default, beyond
any applicable cure period, under this Lease, Landlord shall
give written notice of such intention to Tenant, specifying
the material terms on which Landlord proposes to lease the
Additional Option Space or portion thereof (the "Additional
Offered Space"), and shall offer to Tenant the opportunity to
lease the Additional Offered Space on the terms specified in
Landlord's notice. Tenant shall have seven (7) days after the
date of giving of such notice by Landlord in which to accept
such offer by written notice to Landlord. Upon such
acceptance by Tenant, the Additional Offered Space shall be
leased to Tenant on the terms set forth in Landlord's notice
and on the additional terms and provisions set forth herein
(except to the extent inconsistent with the terms set forth in
Landlord's said notice) and the parties shall promptly execute
an amendment to this Lease adding the Additional Offered Space
to the Premises and making any appropriate amendments to
provisions of this Lease to reflect different rent and other
obligations applicable to the Additional Offered Space under
the terms of Landlord's said notice. If Tenant does not
accept Landlord's offer within the allotted time, Landlord
shall thereafter have the right to lease the Additional
Offered Space to a third party, at any time within one hundred
eighty (180) days after Tenant's failure to accept Landlord's
offer, at a minimum rental and on other terms and conditions
not more favorable to the lessee than the minimum rental and
other terms offered to Tenant in Landlord's said notice; if
Landlord wishes, during such 180-day period, to lease the
Additional Offered Space on terms and conditions more
favorable to the lessee than those offered to Tenant in
Landlord's said notice, then Landlord shall first be required
to give Tenant a new notice specifying such new terms and
conditions and the procedure set forth above in this paragraph
(b) shall be re-initiated by such notice. If Tenant does not
accept Landlord's offer and Landlord does not lease the
Additional Offered Space to a third party within the
applicable 180-day period, this first refusal right shall
reattach to that space.
2. TERM
2.1. Term. The term of this Lease shall commence on the
earlier to occur of (i) the date which is five (5) days after
the date Landlord notifies Tenant that Landlord's work
pursuant to Section 2.4 and Exhibit C on the Building shell
and core and on the first phase (approximately 36,000 square
feet) of interior improvements has been certified by Architect
(as defined in Exhibit C) as being substantially complete,
subject only to the completion of "punch list" items as
contemplated in Section 2.4 hereof which do not, in the
aggregate, materially interfere with Tenant's ability to
occupy and use the first phase of such improvements for the
uses contemplated hereunder, or (ii) the date Tenant takes
occupancy of the Premises (except as otherwise provided in
Section 2.2) for the purpose of commencing the conduct of
Tenant's business therein, the earlier of such dates being
herein called the "Commencement Date," and shall end on the
day immediately preceding the date seventeen (17) years
thereafter, unless sooner terminated or extended (if
applicable) as hereinafter provided.
2.2. Early Possession. If Landlord permits Tenant to
occupy, use or take possession of the Premises prior to the
Commencement Date determined under Section 2.1, such
occupancy, use or possession shall be subject to and upon all
the terms and conditions of this Lease, excluding the
obligation to pay rent and other charges, unless Landlord and
Tenant agree otherwise; provided, however, that such early
possession shall not advance or otherwise affect the
Commencement Date or the termination date determined under
Section 2.1; provided further, that Landlord shall in all
events permit Tenant to have early access to and possession of
the respective phases of the Premises, at reasonable times and
under reasonable conditions, prior to the completion of
Landlord's work therein, solely for the purpose of installing
fixtures and equipment and other similar work preparatory to
the commencement of business in the Premises, and Tenant shall
not be required to pay rent or increased rent by reason of
such possession except to the extent such rent or increased
rent is otherwise required under Section 3.1 hereof without
regard to Tenant's early access to and possession of the
applicable phase for the limited purposes set forth in this
proviso; and provided further, that Tenant shall not interfere
with or delay Landlord's contractors by such early possession
and shall indemnify, defend and hold harmless Landlord and its
agents and employees from and against any and all claims,
demands, liabilities, actions, losses, costs and expenses,
including (but not limited to) reasonable attorneys' fees,
arising out of or in connection with Tenant's early entry upon
such portion of the Premises hereunder, excluding those which
arise out of the negligence or willful misconduct of Landlord
or its agents.
2.3. Delay In Possession. Landlord agrees to use its
best reasonable efforts to complete promptly and diligently
the work described in Section 2.4 and Exhibit C, subject to
the effects of any delays caused by or attributable to Tenant
or any other circumstances beyond Landlord's reasonable
control (excluding any financial inability); provided,
however, that except as set forth in the following sentence of
this Section 2.3, Landlord shall not be liable for any damages
caused by any delay in the completion of such work, nor shall
any such delay affect the validity of this Lease or the
obligations of Tenant hereunder. Notwithstanding any other
provisions of this Lease, however, if Landlord's work on the
Building shell pursuant to Section 2.4 and Exhibit C is not
substantially complete by the date which is eighteen (18)
months after Landlord and Tenant have reached mutual written
agreement upon the general size and configuration of the
Building (which subjects are still under discussion by the
parties as of the date of this Lease), then Tenant shall be
entitled to terminate this Lease by written notice to Landlord
at any time prior to substantial completion of Landlord's work
on the Building shell under Section 2.4 and Exhibit C;
provided, however, that the 18-month period described in this
sentence shall be extended, day for day, for a period of time
equal to the length of any actual delay in substantial
completion of Landlord's Building shell work that is caused by
or attributable to acts or omissions of Tenant or its agents
or employees.
2.4. Construction.
(a) The obligation of Landlord to construct the
Building and to improve the Premises for occupancy by Tenant
hereunder is set forth in Exhibit C attached hereto and
incorporated herein by this reference. The parties
contemplate that Landlord will construct the interior
improvements in the Premises in three phases, delivering to
Tenant the Building core and shell and first phase of interior
improvements (approximately 36,000 square feet) on the
Commencement Date, the second phase of interior improvements
(approximately 17,500 square feet) on or about the first
anniversary of the Commencement Date, and the third phase of
interior improvements (approximately 17,500 square feet) on or
about the second anniversary of the Commencement Date. Except
as set forth in this Section 2.4 (including paragraph (b)
below) and in Exhibit C, Landlord shall have no
responsibilities or obligations with respect to preparation of
the Premises for Tenant's occupancy. Acceptance by Tenant of
possession of the applicable phases of the Premises from time
to time, after performance of such work by Landlord, shall
constitute acceptance by Tenant of such phases in their then
completed condition, as applicable, subject to the terms of
this Section 2.4 (including paragraph (b) below), and Landlord
shall have no further responsibility of any kind or character
for improvement of such respective phases of the Premises or
in connection with such work; provided, however, that within
fifteen (15) days after the date on which Landlord tenders to
Tenant possession of any phase of improvements in the
Premises, Tenant may furnish to Landlord a "punch list"
identifying any items or matters in such phase which are not
constructed in accordance with the plans and specifications
approved under Exhibit C hereto and Landlord shall promptly
and diligently correct all such matters within thirty (30)
days after receipt of such punch list at its sole cost and
expense.
(b) Notwithstanding the provisions of paragraph
(a) above, Landlord warrants to Tenant that on the date the
improvements in each respective phase of the Premises are
tendered to Tenant for Tenant's possession and commencement of
business therein, the Building systems serving such phase of
the Premises shall be in good operating order, and the
Building and the tenant improvements constructed by Landlord
in such phase (i) shall be free from material structural
defects and (ii) shall comply with all applicable covenants
and restrictions of record, statutes, ordinances, codes,
rules, regulations, orders and requirements in effect on the
date of such tender, including Title 24 of the California
Administrative Code and the Americans with Disabilities Act;
provided, however, that the foregoing warranty shall not be
construed to apply to any particular use which Tenant will
make of the Premises, except to the extent such use has been
expressly disclosed to Landlord and Architect during the
planning process for the applicable phase in such a manner and
in such detail as to reasonably permit Landlord and Architect
to take such use into consideration in designing and
constructing the applicable improvements. If it is determined
that the foregoing warranty has been violated in any respect,
then it shall be the obligation of Landlord, after receipt of
written notice from Tenant setting forth with specificity the
nature of the violation, to promptly, at Landlord's sole cost
and expense, correct the condition(s) constituting such
violation. Landlord shall also protect, indemnify, defend and
hold Tenant harmless from and against any and all liability,
loss, suits, claims, actions, costs and expenses (including,
but not limited to, reasonable attorneys' fees) arising from
any breach of the foregoing warranty. The provisions of this
Section 2.4(b) shall survive the termination of this Lease.
With respect to the foregoing warranty regarding systems being
in good operating order, Tenant's failure to give such written
notice to Landlord within one hundred twenty (120) days after
tender of possession of the applicable phase to Tenant shall
give rise to a conclusive presumption that Landlord has
complied with such warranty as to such phase. Tenant
acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty as to the present or
future suitability of the Premises for the conduct of Tenant's
business or proposed business therein, except as expressly set
forth in this Lease.
(c) Notwithstanding any other provisions of this
Section 2.4 or of Exhibit C to the contrary, to the extent
Tenant, by mutual agreement of Landlord and Tenant as
contemplated in Exhibit C, enters into contracts directly with
the architect and/or contractor(s) for any of the tenant
improvement work in the Premises, Landlord's sole obligation
with respect to such work contracted for by Tenant shall be to
make payments with respect thereto when and as required under
Exhibit C and to cooperate with Tenant with respect to any
approvals or other actions required of Landlord under
Exhibit C in connection with such work; Landlord's warranties
under Section 2.4(b) and Landlord's obligations to make
improvements and correct "punch list" items under
Section 2.4(a) shall not apply to any improvement work
designed and/or constructed under direct contract with Tenant,
it being the intention of the parties that Tenant's sole
recourse with respect to any such work designed and/or
constructed under direct contracts with Tenant shall be solely
against the applicable contracting parties and not against
Landlord.
(d) TENANT ACKNOWLEDGES THAT THE FOREGOING
WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO THE PHYSICAL CONDITION OF THE
BUILDING AND IMPROVEMENTS TO BE CONSTRUCTED BY LANDLORD AND
THAT LANDLORD MAKES NO OTHER WARRANTIES EXCEPT AS EXPRESSLY
SET FORTH IN THIS LEASE.
2.5. Acknowledgment Of Lease Commencement. Upon
commencement of the term of this Lease, Landlord and Tenant
shall execute a written acknowledgment of the Commencement
Date, date of termination and related matters, substantially
in the form attached hereto as Exhibit D (with appropriate
insertions), which acknowledgment shall be deemed to be
incorporated herein by this reference. Notwithstanding the
foregoing requirements, the failure of one or both parties to
execute such written acknowledgment shall not affect the
determination of the Commencement Date, date of termination,
square footage of the Premises and related matters in
accordance with the provisions of this Lease.
2.6. Holding Over. If Tenant holds possession of the
Premises after the term of this Lease with Landlord's written
consent, then except as otherwise specified in such consent,
Tenant shall become a tenant from month to month at one
hundred percent (100%) for the first thirty (30) days of such
holding over, and one hundred twenty-five percent (125%)
thereafter, of the rental in effect for the period immediately
prior to such holding over and otherwise upon the terms herein
specified for the period immediately prior to such holding
over, and shall continue in such status until the tenancy is
terminated by either party upon not less than thirty (30) days
prior written notice. If Tenant holds possession of the
Premises after the term of this Lease without Landlord's
written consent, then Landlord in its sole discretion may
elect (by written notice to Tenant) to have Tenant become a
tenant either from month to month or at will, at one hundred
fifty percent (150%) of the rental (prorated on a daily basis
for an at-will tenancy, if applicable) and otherwise upon the
terms herein specified for the period immediately prior to
such holding over, or may elect to pursue any and all legal
remedies available to Landlord under applicable law with
respect to such unconsented holding over by Tenant. Tenant
shall indemnify and hold Landlord harmless from any loss,
damage, claim, liability, cost or expense (including
reasonable attorneys' fees) resulting from any delay by Tenant
in surrendering the Premises (except with Landlord's prior
written consent), including but not limited to any claims made
by a succeeding tenant by reason of such delay. Acceptance of
rent by Landlord following expiration or termination of this
Lease shall not constitute a renewal of this Lease.
3. RENTAL
3.1. Minimum Rental.
(a) Tenant shall pay to Landlord as minimum rental
for the Premises, in advance, without deduction, offset,
notice or demand, on or before the Commencement Date and on or
before the first day of each subsequent calendar month of the
term of this Lease, the following amounts per month:
Months Minimum Rental
001-012 $ 43,200.00 ($1.20/sq ft) 013-
024 66,875.00 ($1.25/sq ft)
024-036 92,300.00 ($1.30/sq ft)
037-048 95,850.00 ($1.35/sq ft)
049-060 99,400.00 ($1.40/sq ft)
061-072 103,660.00 ($1.46/sq ft)
073-084 107,920.00 ($1.52/sq ft)
085-096 112,180.00 ($1.58/sq ft)
097-108 116,440.00 ($1.64/sq ft)
109-120 121,410.00 ($1.71/sq ft)
121-132 126,380.00 ($1.78/sq ft)
133-144 131,350.00 ($1.85/sq ft)
145-156 136,320.00 ($1.92/sq ft)
157-168 142,000.00 ($2.00/sq ft)
169-180 147,680.00 ($2.08/sq ft)
181-192 153,360.00 ($2.16/sq ft)
193-204 159,750.00 ($2.25/sq ft)
If the obligation to pay minimum rental hereunder commences on
other than the first day of a calendar month or if the term of
this Lease terminates on other than the last day of a calendar
month, the minimum rental for such first or last month of the
term of this Lease, as the case may be, shall be prorated
based on the number of days the term of this Lease is in
effect during such month. If an increase in minimum rental
becomes effective on a day other than the first day of a
calendar month, the minimum rental for that month shall be the
sum of the two applicable rates, each prorated for the portion
of the month during which such rate is in effect.
(b) The minimum rental amounts specified in
Section 3.1(a) are based an estimated area of 36,000 square
feet for the first phase of interior improvements to be
tendered to Tenant on the Commencement Date, on an estimated
area of 17,500 additional square feet for the second phase of
interior improvements to be tendered to Tenant on or about the
first anniversary of the Commencement Date (for a total
estimated area of 53,500 square feet), and on an estimated
area of 17,500 additional square feet for the third phase of
interior improvements to be tendered to Tenant on or about the
second anniversary of the Commencement Date (for a total
estimated area of 71,000 square feet upon full occupancy). If
the actual commencement dates for Tenant's occupancy of the
second and third phases of the improvements differ from those
assumed above or if the actual area of any of the applicable
phases of the improvements or of the Premises as a whole
during any relevant period in the term of this Lease, as
determined in good faith by Landlord's architect on a basis
consistent with that used in measuring other leased premises
within the Center (which basis consists of measuring from the
exterior faces of exterior walls, from the dripline of
overhangs and recessed areas, and from the centerline of
interior demising walls), differs from the estimated areas set
forth above (due to expansion, at Tenant's request, of the
first or second phase of interior improvements, acceleration
of Tenant's occupancy of the second or third phase of interior
improvements, delay of Landlord's completion of the second or
third phase of interior improvements, or for any other
reason), then the minimum rentals specified in Section 3.1(a)
for the appropriate period(s) shall be adjusted
proportionately to reflect the actual area of the Premises, as
so determined by Landlord's architect, occupied by or
available for occupancy by Tenant during the applicable
period.
3.2. Late Charge. If Tenant fails to pay when due
rental or other amounts due Landlord hereunder on or before
the fifth (5th) day after such rental or other amount is due,
such unpaid amounts shall bear interest for the benefit of
Landlord at a rate equal to the lesser of fifteen percent
(15%) per annum or the maximum rate permitted by law, from the
date due to the date of payment. In addition to such
interest, Tenant shall pay to Landlord a late charge in an
amount equal to ten percent (10%) of any installment of
minimum rental and any other amounts due Landlord if not paid
in full on or before the fifth (5th) day after such rental or
other amount is due. Tenant acknowledges that late payment by
Tenant to Landlord of rental or other amounts due hereunder
will cause Landlord to incur costs not contemplated by this
Lease, including, without limitation, processing and
accounting charges and late charges which may be imposed on
Landlord by the terms of any loan relating to the Property.
Tenant further acknowledges that it is extremely difficult and
impractical to fix the exact amount of such costs and that the
late charge set forth in this Section 3.2 represents a fair
and reasonable estimate thereof. Acceptance of any late
charge by Landlord shall not constitute a waiver of Tenant's
default with respect to overdue rental or other amounts, nor
shall such acceptance prevent Landlord from exercising any
other rights and remedies available to it. Acceptance of rent
or other payments by Landlord shall not constitute a waiver of
late charges or interest accrued with respect to such rent or
other payments or any prior installments thereof, nor of any
other defaults by Tenant, whether monetary or non-monetary in
nature, remaining uncured at the time of such acceptance of
rent or other payments.
4. TAXES
4.1. Personal Property. Tenant shall be responsible for
and shall pay prior to delinquency all taxes and assessments
levied against or by reason of all alterations and additions
and all other items installed or paid for by Tenant under this
Lease, and the personal property, trade fixtures and other
property placed by Tenant in or about the Premises. Upon
request by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of payment thereof. If at any time
during the term of this Lease any of said alterations,
additions or personal property, whether or not belonging to
Tenant, shall be taxed or assessed as part of the Property,
then such tax or assessment shall be paid by Tenant to
Landlord immediately upon presentation by Landlord of copies
of the tax bills in which such taxes and assessments are
included and shall, for the purposes of this Lease, be deemed
to be personal property taxes or assessments under this
Section 4.1.
4.2. Real Property. To the extent that real property
taxes and assessments on the Premises are assessed separately
from the remainder of the Property, Tenant shall be
responsible for and shall pay prior to delinquency all such
taxes and assessments levied against the Premises. Upon
request by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of payment thereof. To the extent the
Premises are taxed or assessed as part of the Property, such
real property taxes and assessments shall constitute Operating
Expenses (as that term is defined in Section 5.2 of this
Lease) and shall be paid in accordance with the provisions of
Article 5 of this Lease.
5. OPERATING EXPENSES
5.1. Payment Of Operating Expenses.
(a) Tenant shall pay to Landlord, at the time and
in the manner hereinafter set forth, as additional rental, an
amount equal to fifty-one and eighty-two hundredths percent
(51.82%) ("Tenant's Operating Cost Share") of the Operating
Expenses defined in Section 5.2.
(b) Tenant's Operating Cost Share as specified in
paragraph (a) of this Section is based upon an estimated area
of 71,000 square feet for the Premises and an aggregate area
of 137,000 square feet for the buildings to be constructed by
Landlord on the Property. The parties have explicitly agreed
that Tenant's Operating Cost Share from and after the
Commencement Date shall be based upon the total area of the
Building, notwithstanding the fact that Tenant will only be
occupying a portion of the Building prior to completion of the
third phase of interior improvements. If the actual area of
the Premises (when fully completed) or of the buildings owned
by Landlord on the Property, as determined in good faith by
Landlord's architect on a basis consistent with that used in
measuring other leased premises within the Center, differs
from the estimated numbers set forth above, then Tenant's
Operating Cost Share shall be adjusted to reflect the actual
areas so determined.
(c) If Landlord constructs additional buildings on
the Property (or on any adjacent property owned by Landlord
and operated, for common area purposes, on an integrated basis
with the Property) from time to time, Tenant's Operating Cost
Share shall be adjusted to be equal to the percentage
determined by dividing the gross square footage of the
Premises as they then exist by the gross square footage of all
buildings located on portions of the Property owned by
Landlord (or on any applicable adjacent property owned by
Landlord as described above). In determining said percentage,
a building shall be taken into account from and after the date
on which costs and expenses attributable to such building are
first included in Operating Expenses under Section 5.2 hereof,
and the good faith determination of the gross square footage
of any such building by Landlord's architects shall be final
and binding upon the parties, absent manifest error.
Notwithstanding the foregoing provisions of this paragraph
(c), Landlord represents to Tenant that it is presently
Landlord's intention to account for Operating Expenses related
to the Property separately from operating expenses for the
adjacent property owned by an affiliate of Landlord (Britannia
Point Eden Business Park Phases I through IV, which contain
several premises occupied by Tenant under separate leases),
and to continue such separate accounting even if such adjacent
property comes under common ownership with the Property. If
such intention changes in the future, however, and operating
expenses from such adjacent property begin to be accounted for
on a consolidated basis with Operating Expenses for the
Property under Section 5.2 hereof, then Tenant's Operating
Cost Share shall be adjusted to reflect the inclusion of the
gross square footage of the buildings on such adjacent
property, in the manner contemplated in this paragraph (c).
5.2. Definition Of Operating Expenses. Subject to the
exclusions and provisions hereinafter contained, the term
"Operating Expenses" shall mean the total costs and expenses
incurred by or allocable to Landlord for management, operation
and maintenance of the Building and the Property (and any
applicable adjacent property owned by Landlord and operated,
for common area purposes, on an integrated basis with the
Property as described above), including, without limitation,
costs and expenses of (i) insurance, property management,
landscaping, and operation, repair and maintenance of
buildings and common areas; (ii) all utilities and services;
(iii) real and personal property taxes and assessments or
substitutes therefor, including (but not limited to) any
possessory interest, use, business, license or other taxes or
fees, any taxes imposed directly on rents or services, any
assessments or charges for police or fire protection, housing,
transit, open space, street or sidewalk construction or
maintenance or other similar services from time to time by any
governmental or quasi-governmental entity, and any other new
taxes on landlords in addition to taxes now in effect (but
excluding corporate income taxes); (iv) supplies, equipment,
utilities and tools used in management, operation and
maintenance of the Property; (v) capital improvements to the
Property or the Building, amortized over the useful life of
such capital improvements, (aa) which reduce or will cause
future reduction of other items of Operating Expenses for
which Tenant is otherwise required to contribute or (bb) which
are required by law, ordinance, regulation or order of any
governmental authority or (cc) which constitute repairs or
replacements of existing improvements in the Premises or
common areas of the Property with items of similar quality and
function, as a result of obsolescence or ordinary wear and
tear, in order to maintain and preserve the quality, safety
and usefulness of the Property, to the extent such repairs or
replacements are treated as capital items under generally
accepted accounting principles; and (vi) any other costs
(including, but not limited to, any parking or utilities fees
or surcharges) allocable to or paid by Landlord, as owner of
the Property or Building, pursuant to any applicable laws,
ordinances, regulations or orders of any governmental or quasi
governmental authority or pursuant to the terms of any
declarations of covenants, conditions and restrictions now or
hereafter affecting the Property (or any applicable adjacent
property owned by Landlord as described above). Operating
Expenses shall not include any costs attributable to
increasing the size of or otherwise expanding the Building or
the costs of the work for which Landlord is required to pay
under Section 2.4 or Exhibit C. The distinction between items
of ordinary operating maintenance and repair and items of a
capital nature shall be made in accordance with generally
accepted accounting principles applied on a consistent basis.
Since Tenant will be the sole occupant of the Building,
Landlord shall make available for review by Tenant on an "open
book" basis all contracts, accounting records and similar
information reasonably requested by Tenant relating to the
Operating Expenses incurred with respect to the Building, and
shall consult with Tenant regarding any questions or
suggestions or requests by Tenant regarding the nature and
amount of such Operating Expenses and the necessity or
appropriateness of specific components thereof; provided,
however, that in all events the final decision with respect to
the nature, amount and necessity or appropriateness of such
Operating Expenses and specific components thereof shall be
made by Landlord alone, in its sole discretion.
Notwithstanding anything to the contrary contained in this
Section 5.2, the following shall not be included in Operating
Expenses under this Lease:
(A) Leasing commissions, attorneys' fees, costs,
disbursements and other expenses incurred in connection
with negotiations or disputes with tenants, or in
connection with leasing, renovating or improving space
for tenants or other occupants or prospective tenants or
other occupants of the Building or of the land on which
the Premises are located;
(B) The cost of any service sold to any tenant
(including Tenant) or other occupant for which Landlord
is entitled to be reimbursed as an additional charge or
rental over and above the basic rent and escalations
payable under Landlord's lease with that tenant;
(C) Any depreciation on the Building;
(D) Costs of a capital nature, including but not
limited to capital improvements and alterations, capital
repairs, capital equipment and capital tools, as
determined in accordance with generally accepted
accounting principles consistently applied, except to the
extent expressly provided in clause (v) above;
(E) Expenses in connection with services or other
benefits of a type that are not offered to Tenant but
that are provided to another tenant or occupant of the
Building or land upon which the Premises are located;
(F) Overhead profit increments paid to Landlord's
subsidiaries or affiliates for management or other
services relating to the Building or the Property, or for
supplies or other materials, to the extent the cost of
such services, supplies or materials exceeds a reasonable
market rate for obtaining such services, supplies or
materials from unaffiliated parties;
(G) All interest, loan fees and other carrying
costs related to any mortgage or deed of trust or related
to any capital item, and all rental and other payments
due under any ground or underlying lease, or any lease
for any equipment ordinarily considered to be of a
capital nature (except janitorial equipment which is not
affixed to the Building);
(H) Any compensation paid to clerks, attendants or
other persons in commercial concessions operated by
Landlord;
(I) Advertising and promotional expenditures;
(J) Costs of repairs and other work occasioned by
fire, windstorm or other casualty of an insurable nature;
(K) Any costs, fines or penalties incurred due to
violations by Landlord of any governmental rule or
authority, this Lease or any other lease affecting the
Building or the land on which the Premises are located,
or due to Landlord's negligence or willful misconduct;
(L) Management costs, to the extent they exceed a
reasonable market rate for management services provided
to comparable projects in Hayward, California and
surrounding areas;
(M) Costs for sculpture, paintings or other
objects of art, including (but not limited to) any costs
for insurance thereon or extraordinary security in
connection therewith;
(N) Wages, salaries or other compensation paid to
any executive employee above the grade of building
manager;
(O) The cost of correcting any building code or
other violations of applicable law which, on the
Commencement Date, were existing violations of laws or
codes then in effect;
(P) The cost of containing, removing or otherwise
remediating any contamination of the Building or Property
(including the underlying land and groundwater) by any
toxic or hazardous materials (including, without
limitation, asbestos and PCB's);
(Q) Any increase in real property taxes or
assessments on the Property as a result of a change in
ownership of the Property; provided, however, that the
exclusion contained in this clause (Q) shall apply only
in the determination of Operating Expenses with respect
to periods prior to the third (3rd) anniversary of the
Commencement Date, and shall not apply in the
determination of Operating Expenses with respect to any
subsequent periods during the term of this Lease; and
(R) Any other expense not specifically included or
excluded above which, under generally accepted accounting
principles and practices consistently applied, would not
be considered a normal maintenance or operating expense.
5.3. Determination Of Operating Expenses. On or before
the Commencement Date and during the last month of each
calendar year of the term of this Lease ("Lease Year"), or as
soon thereafter as practical, Landlord shall provide Tenant
notice of Landlord's estimate of the Operating Expenses for
the ensuing Lease Year or applicable portion thereof. On or
before the first day of each month during the ensuing Lease
Year or applicable portion thereof, beginning on the
Commencement Date, Tenant shall pay to Landlord Tenant's
Operating Cost Share of the portion of such estimated
Operating Expenses allocable (on a prorata basis) to such
month; provided, however, that if such notice is not given in
the last month of a Lease Year, Tenant shall continue to pay
on the basis of the prior year's estimate, if any, until the
month after such notice is given. If at any time or times it
appears to Landlord that the actual Operating Expenses will
vary from Landlord's estimate by more than five percent (5%),
Landlord may, by notice to Tenant, revise its estimate for
such year and subsequent payments by Tenant for such year
shall be based upon such revised estimate.
5.4. Final Accounting For Lease Year.
(a) Within ninety (90) days after the close of
each Lease Year, or as soon after such 90-day period as
practicable, Landlord shall deliver to Tenant a statement of
Tenant's Operating Cost Share of the Operating Expenses for
such Lease Year prepared by Landlord from Landlord's books and
records, which statement shall be final and binding on
Landlord and Tenant, subject to Tenant's audit right set forth
below. If on the basis of such statement Tenant owes an
amount that is more or less than the estimated payments for
such calendar year previously made by Tenant, Tenant or
Landlord, as the case may be, shall pay the deficiency to the
other party within thirty (30) days after delivery of the
statement. Failure or inability of Landlord to deliver the
annual statement within such ninety (90) day period shall not
impair or constitute a waiver of Tenant's obligation to pay
Operating Expenses, or cause Landlord to incur any liability
for damages.
(b) Notwithstanding any other provisions of this
Section 5.4, within one (1) year after receipt of a final
statement from Landlord setting forth actual Operating
Expenses and Tenant's Operating Cost Share for any period (a
"Statement"), Tenant shall have the right to audit or inspect
Landlord's books and records relating to Operating Expenses
(and to any other additional rent payable by Tenant under this
Lease) for the period covered by the Statement, provided that
such audit shall be conducted only during normal business
hours, on not less than ten (10) days prior written notice to
Landlord, at a location reasonably specified by Landlord, and
at Tenant's sole cost and expense, except as hereinafter
provided. Landlord shall cooperate with Tenant in all
reasonable respects in the course of such audit, and Tenant
and its employees and agents shall be permitted to make
photocopies (at Tenant's expense) of any pertinent portions of
Landlord's books and records. Landlord shall retain its books
and records for each Lease Year for a period of at least one
(1) year after delivery to Tenant of Landlord's Statement for
the applicable Lease Year. To the extent that Tenant, on the
basis of such audit, disputes any item in the applicable
Statement or in the calculation of Tenant's obligations
thereunder, Tenant shall give Landlord written notice of the
disputed items, in reasonable detail and with reasonable
supporting information, within thirty (30) days after the
earlier to occur of the completion of Tenant's audit or the
expiration of Tenant's 1-year audit period. If Landlord and
Tenant are not able to resolve such dispute by good faith
negotiations within thirty (30) days after Tenant notifies
Landlord in writing of the disputed items, then Tenant may, by
written notice to Landlord, request an independent audit of
such books and records. The independent audit of the books
and records shall be conducted by a certified public
accountant acceptable to both Landlord and Tenant or, if the
parties are unable to agree, by a "Big Six" accounting firm
designated by Landlord and not then employed by Landlord or
Tenant. The audit shall be limited to the determination of
the amount of Operating Expenses and of Tenant's share thereof
for the Lease Year covered by the Statement, and shall be
based on generally accepted accounting principles and tax
accounting principles, consistently applied, subject to any
modifications or limitations expressly set forth in
Section 5.2 hereof. If it is determined, by mutual agreement
of Landlord and Tenant or by independent audit, that the
amount paid by Tenant for Operating Expenses for the period
covered by the Statement was incorrect, then the appropriate
party shall pay to the other party the deficiency or
overpayment, as applicable, within thirty (30) days after the
final determination of such deficiency or overpayment. All
costs and expenses of the audit shall be paid by Tenant unless
the audit shows that Landlord overstated Operating Expenses
for the period covered by the Statement by more than four
percent (4%), in which event Landlord shall pay all costs and
expenses of the audit. Each party agrees to maintain the
confidentiality of the findings of any audit in accordance
with the provisions of this Section 5.4. The provisions of
this Section 5.4 shall survive the expiration or sooner
termination of this Lease.
5.5. Proration. If the Commencement Date falls on a day
other than the first day of a Lease Year or if this Lease
terminates on a day other than the last day of a Lease Year,
the amount of Tenant's Operating Cost Share payable by Tenant
applicable to such first and last partial Lease Year shall be
prorated on the basis which the number of days during such
Lease Year in which this Lease is in effect bears to 365. The
termination of this Lease shall not affect the obligations of
Landlord and Tenant pursuant to Section 5.4 to be performed
after such termination.
6. UTILITIES
6.1. Payment. Commencing with the Commencement Date and
thereafter throughout the term of this Lease, Tenant shall
pay, before delinquency, all charges for water, gas, heat,
light, electricity, power, sewer, telephone, alarm system,
janitorial and other services or utilities supplied to or
consumed in or upon the Premises, including any taxes on such
services and utilities. It is the intention of the parties
that all such services shall be separately metered to the
Premises. In the event that any of such services supplied to
the Premises are not separately metered, then the amount
thereof shall be an item of Operating Expenses and shall be
paid as provided in Article 5.
6.2. Interruption. There shall be no abatement of rent
or other charges required to be paid hereunder and Landlord
shall not be liable in damages or otherwise for interruption
or failure of any service or utility furnished to or used in
the Premises because of accident, making of repairs,
alterations or improvements, severe weather, difficulty or
inability in obtaining services or supplies, labor
difficulties or any other cause, excluding the negligence and
willful misconduct and omissions of Landlord and its agents.
7. ALTERATIONS
7.1. Right To Make Alterations. Tenant shall make no
alterations, additions or improvements to the Premises, other
than interior non-structural alterations costing less than
Five Thousand Dollars ($5,000.00) in each instance, without
the prior written consent of Landlord. All such alterations,
additions and improvements shall be completed with due
diligence in a first-class workmanlike manner and in
compliance with plans and specifications approved in writing
by Landlord and all applicable laws, ordinances, rules and
regulations.
7.2. Title To Alterations. All alterations, additions
and improvements installed pursuant to this Lease shall be
part of the Building and the property of Landlord, unless
Landlord elects to require Tenant to remove the same upon the
termination of this Lease; provided, however, that the
foregoing shall not apply to Tenant's movable furniture and
trade fixtures not affixed to the Property. Under no
circumstances, however, shall Tenant be required to remove any
alterations, additions or improvements installed by Landlord
as part of Landlord's work under Section 2.4 and Exhibit C.
Moreover, if Tenant, in connection with requesting Landlord's
approval for any alteration, addition or improvement, requests
in writing that Landlord specify whether Landlord will require
Tenant to remove such alteration, addition or improvement upon
termination of this Lease, then Landlord shall not be entitled
to require such removal unless Landlord states its intention
to do so in writing to Tenant concurrently with or prior to
Landlord's approval of the requested alteration, addition or
improvement.
7.3. Tenant Fixtures. Notwithstanding the provisions of
Sections 7.1 and 7.2, Tenant may install, remove and reinstall
trade fixtures without Landlord's prior written consent,
except that any fixtures which are affixed to the Premises or
which affect the exterior or structural portions of the
Building shall require Landlord's written approval. The
foregoing shall apply to Tenant's signs, logos and insignia,
all of which Tenant shall have the right to place and remove
and replace solely with Landlord's prior written consent as to
location, size and composition. Tenant shall immediately
repair any damage caused by installation and removal of
fixtures under this Section 7.3.
7.4. No Liens. Tenant shall at all times keep the
Premises free from all liens and claims of any contractors,
subcontractors, materialmen, suppliers or any other parties
employed either directly or indirectly by Tenant in
construction work on the Premises. Tenant may contest any
claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus
estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required
to release the lien from the Premises. Tenant shall
indemnify, defend and hold Landlord harmless against any and
all liability, loss, damage, cost and other expenses,
including, without limitation, reasonable attorneys' fees,
arising out of claims of any lien for work performed or
materials or supplies furnished at the request of Tenant or
persons claiming under Tenant. Nothing in this Section 7.4
shall be construed to prevent Tenant from obtaining financing
on Tenant's movable furniture, equipment and trade fixtures or
from granting a security interest in such items to one or more
lenders, provided that Tenant shall not be entitled, pursuant
to this sentence or otherwise, to encumber any alterations,
additions or improvements that are the property of Landlord
and that must remain with the Premises upon termination of
this Lease, as provided in Sections 7.2 and 7.3 hereof.
Without limiting the generality of the preceding sentence,
Landlord acknowledges that it has been advised by Tenant that
Tenant is presently a party to agreements creating liens on
some or all of Tenant's existing and/or after-acquired
equipment, furniture, trade fixtures and other personal
property in favor of (a) Transamerica Business Credit and
(b) Comdisco; nothing in this sentence shall be construed,
however, as a waiver or release by Landlord with respect to
the proviso set forth in the preceding sentence regarding
limitations on the property that Tenant is entitled to
encumber.
8. MAINTENANCE AND REPAIRS
8.1. Landlord's Work.
(a) Landlord shall repair and maintain or cause to
be repaired and maintained in a prompt and expeditious manner
those portions of the Building outside of the Premises, the
common areas of the Property, and the roof, foundation,
exterior walls and other structural portions of the Building.
The cost of all work performed by Landlord under this
Section 8.1 shall be an Operating Expense hereunder, except to
the extent such work (i) is required due to the negligence of
Landlord or any other tenant of the Building, (ii) is a
service to a specific tenant or tenants, other than Tenant,
for which Landlord has received or has the right to receive
full reimbursement, (iii) is a capital expense not includible
as an Operating Expense under Section 5.2 hereof, or (iv) is
required due to the negligence or willful misconduct of Tenant
or its agents, employees or invitees (in which event Tenant
shall bear the full cost of such work pursuant to the
indemnification provided in Section 10.6 hereof). Tenant
knowingly and voluntarily waives the right to make repairs at
Landlord's expense, or to offset the cost thereof against
rent, under any law, statute, regulation or ordinance now or
hereafter in effect.
(b) If Landlord fails to perform, within fifteen
(15) days after written request from Tenant (except in the
case of conditions which cannot reasonably be repaired within
fifteen (15) days, in which event this paragraph (b) shall
apply only to the extent Landlord fails to commence the
applicable maintenance or repair within such 15-day period or
thereafter fails to proceed diligently to complete the
applicable maintenance or repair), any maintenance or repair
obligation under Section 8.1(a) which relates specifically to
the Premises or the common areas immediately adjacent to the
Premises and such failure creates (or permits to exist) a risk
of material harm to persons or property, then Tenant shall
have the right to perform such maintenance or repair and
Landlord shall be obligated to reimburse Tenant for the
reasonable cost thereof, together with interest at the rate
specified in the first sentence of Section 3.2 hereof from the
date of payment by Tenant to the date of reimbursement by
Landlord, within fifteen (15) days after written notice from
Tenant of the completion and cost of such work, accompanied by
copies of invoices or other appropriate supporting
documentation. Under no circumstances, however, shall this
paragraph (b) be construed to create any contractual right of
Tenant to offset the cost of any such work against rent or
other charges falling due from time to time under this Lease.
8.2. Tenant's Obligation For Maintenance.
(a) Good Order, Condition And Repair. By
accepting possession of the Premises, and subject to
Section 2.4, Tenant acknowledges that the Premises are in good
and sanitary order, condition and repair. Except as provided
in Section 8.1 hereof, Tenant at its sole cost and expense
shall keep and maintain in good and sanitary order, condition
and repair the Premises and every part thereof, wherever
located, including but not limited to the signs, interior, the
face of the ceiling over Tenant's floor space, HVAC equipment
and related mechanical systems serving the Premises (for which
equipment and systems Tenant shall enter into a service
contract with a person or entity designated or approved by
Landlord, such approval not to be unreasonably withheld or
delayed), all doors, door checks, windows, plate glass, door
fronts, exposed plumbing and sewage and other utility
facilities, fixtures, lighting, wall surfaces, floor surfaces
and ceiling surfaces and all other interior repairs, foreseen
and unforeseen, as required.
(b) Landlord's Remedy. If Tenant, after notice
from Landlord, fails to make or perform promptly any repairs
or maintenance which are the obligation of Tenant hereunder,
Landlord shall have the right, but shall not be required, to
enter the Premises and make the repairs or perform the
maintenance necessary to restore the Premises to good and
sanitary order, condition and repair. Immediately on demand
from Landlord, the cost of such repairs shall be due and
payable by Tenant to Landlord.
(c) Condition Upon Surrender. At the expiration
or sooner termination of this Lease, Tenant shall surrender
the Premises, including any additions, alterations and
improvements thereto not removed in accordance with the terms
of this Lease, broom clean, in good and sanitary order,
condition and repair, ordinary wear and tear excepted, first,
however, removing all goods and effects of Tenant and any and
all fixtures and items required to be removed or specified to
be removed at Landlord's election pursuant to this Lease, and
repairing any damage caused by such removal. Tenant expressly
waives any and all interest in any personal property and trade
fixtures not removed from the Premises by Tenant at the
expiration or termination of this Lease, agrees that any such
personal property and trade fixtures may, at Landlord's
election, be deemed to have been abandoned by Tenant, and
authorizes Landlord (at its election and without prejudice to
any other remedies under this Lease or under applicable law)
to remove and either retain, store or dispose of such property
at Tenant's cost and expense (provided that before incurring
any such charges for Tenant's account, Landlord shall first
give Tenant ten (10) days prior written notice of Landlord's
intention to do so, so that Tenant may have an opportunity
first to correct the situation on its own behalf), and Tenant
waives all claims against Landlord for any damages resulting
from any such removal, storage, retention or disposal, except
to the extent (if any) that such damages result from the
negligence or willful misconduct or omission of Landlord or
its agents.
9. USE OF PREMISES
9.1. Permitted Use. Tenant shall use the Premises
solely for general office, sales, adminstrative marketing and
the design, development, testing and manufacturing of medical
equipment and pharmaceutical products, and for no other
purpose.
9.2. Requirement Of Continued Use. Tenant shall not at
any time abandon the Premises and shall continuously during
the term of this Lease (except during any period when the
Premises are unusable by reason of events described in
Article 13 hereof) conduct and carry on in the Premises the
use permitted hereunder.
9.3. No Nuisance. Tenant shall not use the Premises for
or carry on or permit upon the Premises or any part thereof
any offensive, noisy or dangerous trade, business,
manufacture, occupation, odor or fumes, or any nuisance or
anything against public policy, nor interfere with the rights
or business of any other tenants or of Landlord in the
Building or the Property, nor commit or allow to be committed
any waste in, on or about the Premises, nor make any other
unreasonable use of the Premises. Tenant shall not do or
permit anything to be done in or about the Premises, nor bring
nor keep anything therein, which will in any way cause the
Premises to be uninsurable with respect to the insurance
required by this Lease or with respect to standard fire and
extended coverage insurance with vandalism, malicious mischief
and riot endorsements.
9.4. Compliance With Laws. Tenant shall not use the
Premises or permit the Premises to be used in whole or in part
for any purpose or use that is in violation of any applicable
laws, ordinances, regulations or rules of any governmental
agency or public authority. Tenant shall keep the Premises
equipped with all safety appliances required by law, ordinance
or insurance on the Premises or any order or regulation of any
public authority because of Tenant's particular use of the
Premises. Tenant shall procure all licenses and permits
required for use of the Premises, excluding building permits
and an initial certificate of occupancy or reasonable local
equivalent thereof for Landlord's work under Section 2.4 and
Exhibit C, both of which it shall be Landlord's responsibility
to procure. Tenant shall use the Premises in strict
accordance with all applicable ordinances, rules, laws and
regulations and shall comply with all requirements of all
governmental authorities now in force or which may hereafter
be in force pertaining to the use of the Premises by Tenant,
including, without limitation, regulations applicable to
noise, water, soil and air pollution, and making such
nonstructural alterations and additions thereto as may be
required from time to time by such laws, ordinances, rules,
regulations and requirements of governmental authorities or
insurers of the Premises (collectively, "Requirements")
because of Tenant's construction of improvements in or other
particular use of the Premises. Any structural alterations or
additions required from time to time by applicable
Requirements because of Tenant's construction of improvements
in or other particular use of the Premises shall, at
Landlord's election, either (i) be made by Tenant, at Tenant's
sole cost and expense, in accordance with the procedures and
standards set forth in Section 7.1 for alterations by Tenant,
or (ii) be made by Landlord at Tenant's sole cost and expense,
in which event Tenant shall pay to Landlord as additional
rent, within thirty (30) days after demand by Landlord, an
amount equal to all reasonable costs incurred by Landlord in
connection with such alterations or additions. Any structural
alterations or additions required from time to time by
applicable Requirements for any other reason shall be
Landlord's sole obligation and expense, subject to the
possible characterization of such expenses as Operating
Expenses in accordance with Section 5.2 hereof (if
applicable). The judgment of any court, or the admission by
Tenant in any proceeding against Tenant, that Tenant has
violated any law, statute, ordinance or governmental rule,
regulation or requirement shall be conclusive of such
violation as between Landlord and Tenant.
9.5. Liquidation Sales. Tenant shall not conduct or
permit to be conducted any auction, bankruptcy sale,
liquidation sale, or going out of business sale, in, upon or
about the Premises or the Property, whether said auction or
sale be voluntary, involuntary or pursuant to any assignment
for the benefit of creditors, or pursuant to any bankruptcy or
other insolvency proceeding.
9.6. Environmental Compliance.
(a) Landlord warrants and represents to Tenant
that the Premises, Builidng and the Property presently comply
with all environmental laws and Landlord will use its best
efforts to ensure that the Premises, Building and the Property
remain in compliance with all environmental laws during the
term and any extended term hereof, including without
limitation reasonably monitoring the condition of the
Property, Building and Premises and the activities of other
tenants. Landlord's obligations under this Section 9.6(a) are
not intended to impose a greater burden on Landlord than that
set forth in Section 9.6(d) herein or as otherwise required by
law, regulation or statute, nor to relieve Tenant of any of
its express obligations under this Section 9.6.
(b) Without limiting the generality of Tenant's
obligations set forth in Section 9.4 of this Lease:
(i) Tenant shall not cause or permit any
hazardous or toxic substance or hazardous waste (as defined in
any federal, state or local law, ordinance or regulation
applicable to such substances or wastes) to be brought upon,
kept, stored or used on or about the Property without the
prior written consent of Landlord, which consent shall not be
unreasonably withheld, except that Tenant, in connection with
its permitted use of the Property as provided in Section 9.1,
may keep, store and use materials that constitute hazardous
materials which are customary for such permitted use, provided
such hazardous materials are kept, stored and used in
quantities which are customary for such permitted use and are
kept, stored and used in full compliance with clauses (ii) and
(iii) immediately below;
(ii) Tenant shall comply with all applicable
laws, rules, regulations, orders, permits, licenses and
operating plans of any governmental authority with respect to
the receipt, use, handling, generation, transportation,
storage, treatment, release and/or disposal of hazardous or
toxic substances or wastes in the course of or in connection
with the conduct of Tenant's business on the Property, and
shall provide Landlord with copies of any and all permits,
licenses, registrations and other similar documents that
authorize Tenant to conduct any such activities in connection
with Tenant's use of the Property from time to time;
(iii) Tenant shall not (A) operate on or
about the Property any facility required to be permitted or
licensed as a hazardous waste facility or for which interim
status as such is required, nor (B) store any hazardous wastes
on or about the Property for ninety (90) days or more, nor (C)
conduct any other activities on or about the Property that
could result in the property being deemed to be a "hazardous
waste facility" (including, but not limited to, any storage or
treatment of hazardous substances or hazardous wastes which
could have such a result); and
(iv) Tenant shall provide to Landlord from
time to time, upon written request by Landlord, (A) a list of
all hazardous substances and/or wastes that Tenant receives,
uses, handles, generates, transports, stores, treats or
disposes of from time to time in connection with its
operations on the Property, and (B) copies of any Material
Safety Data Sheets, hazardous waste manifests, Hazardous
Materials Management Plans, Contingency Plans and Emergency
Procedures, hazardous substance reports to the California
Department of Health Services, indusrial wastewater discharge
permits, and any other lists or inventories of hazardous
substances and/or wastes on or about the Property that Tenant
is otherwise required to prepare and file from time to time
with any governmental or regulatory authority; provided,
however, that nothing in this clause (iv) is intended to
require Tenant to prepare specially for Landlord any lists or
other documents that Tenant does not otherwise prepare or have
available in the course of Tenant's business; and provided
further, however, that if Tenant reasonably determines that
the volume of any such materials requested by Landlord is so
substantial as to make the furnishing of such materials to
Landlord unreasonably burdensome, Tenant may instead, by
written notice to Landlord, elect simply to maintain copies of
such materials to such extent and for such periods as may be
required by applicable law and to permit Landlord or its
representatives to inspect and copy (at Landlord's expense)
such materials during normal business hours at any time and
from time to time upon reasonable notice to Tenant.
(c) Tenant shall fully indemnify and hold harmless
Landlord, its successors and assigns against (i) any damages,
claims, liabilities, demands, losses, costs or expenses
(including reasonable attorneys' fees) arising from (A) any
violation of Section 9.6(b) herein, or (B) any release of
hazardous or toxic substances, or any other violation of
environmental law with respect to the Premises or Property, to
the extent any such release or other violation described in
this clause (B) is caused by Tenant or its employees, agents,
contractors or assigns, and (ii) any fines, penalty payments,
reasonable attorneys' fees, sums paid in connection with any
judicial or administrative investigation or proceedings, costs
of cleanup assessed by a governmental or quasi-governmental
agency, and similar expenditures, incurred by Landlord that
relate in any way to a release of hazardous or toxic
substances, or to any other violation of environmental law
with respect to the Premises or Property, to the extent any
such release or violation described in this clause (ii) is
caused by Tenant or its agents, employees, contractors or
assigns.
(d) Landlord shall fully indemnify and hold
harmless Tenant, its successors and assigns against (i) any
damages, claims, liabilities, demands, losses, costs or
expenses (including reasonable attorneys' fees) arising from
any violation of Section 9.6(a) herein, including without
limitation any condition of the Premises, Building and/or
Property existing at the Commencement Date; (ii) any damages,
claims, liabilities, demands, losses, costs or expenses
(including reasonable attorneys' fees) arising from any
release of hazardous or toxic substances, or from any other
violation of environmental law with respect to the Property,
Building or Premises, to the extent the same is not caused by
Tenant or its employees, agents, contractors or assigns; and
(iii) any fines, penalty payments, reasonable attorneys' fees,
sums paid in connection with any judicial or administrative
investigation or proceedings, costs of cleanup assessed by a
governmental or quasi-governmental agency, and similar
expenditures, incurred by Tenant that relate in any way to a
breach by Landlord of Section 9.6(a), to any condition of the
Property, Building or Premises existing on the Commencement
Date, or to any release of hazardous or toxic substances or
other violation of environmental law caused by Landlord or its
employees, agents, contractors or assigns.
(e) The provisions of this Section 9.6 shall
survive the termination of this Lease.
9.7. ADA/Title 24 Compliance. Landlord shall deliver
and maintain the premises at its expense in compliance, as and
when required by law, with the Americans with Disabilities
Act, California Title 24 and any and all other related
governmental requirements.
10. INSURANCE AND INDEMNITY
10.1. Liability Insurance.
(a) Tenant shall procure and maintain in full
force and effect at all times during the term of this Lease,
at Tenant's cost and expense, comprehensive public liability
and property damage insurance to protect against any liability
to the public, or to any invitee of Tenant or Landlord,
arising out of or related to the use of or resulting from any
accident occurring in, upon or about the Premises, with limits
of liability of not less than (i) One Million Dollars
($1,000,000.00) for injury to or death of one person, (ii)
Three Million Dollars ($3,000,000.00) for personal injury or
death, per occurrence, and (iii) Five Hundred Thousand Dollars
($500,000.00) for property damage, or a combined single limit
of public liability and property damage insurance of not less
than Five Million Dollars ($5,000,000.00). Such insurance
shall name Landlord and its general partners and Managing
Agent as additional insureds thereunder. The amount of such
insurance shall not be construed to limit any liability or
obligation of Tenant under this Lease.
(b) Landlord shall procure and maintain in full
force and effect at all times during the term of this Lease,
at Landlord's cost and expense (but reimbursable as an
Operating Expense under Section 5.2 hereof), fire and "all
risk" extended coverage property damage insurance for the
Building and interior improvements that are the property of
Landlord and for the improvements in the common areas of the
Property, on a full replacement cost basis, with rental loss
insurance. Such insurance may include earthquake and/or flood
coverage to the extent Landlord in its discretion elects to
carry such coverage, and shall have such commercially
reasonable deductibles and other terms as Landlord in its
discretion determines to be appropriate. Landlord shall have
no obligation to carry property damage insurance for any
alterations, additions, improvements, trade fixtures or
personal property installed or maintained by Tenant on or
about the Premises.
10.2. Quality Of Policies And Certificates. All policies
of insurance required hereunder shall be issued by responsible
insurers and shall be written as primary policies not
contributing with and not in excess of any coverage that
Landlord may carry. Tenant shall deliver to Landlord copies
of policies or certificates of insurance showing that said
policies are in effect. The coverage provided by such
policies shall include the clause or endorsement referred to
in Section 10.4. If Tenant fails to acquire, maintain or
renew any insurance required to be maintained by it under this
Article 10 or to pay the premium therefor, then Landlord, at
its option and in addition to its other remedies, but without
obligation so to do, may procure such insurance, and any sums
expended by it to procure any such insurance shall be repaid
upon demand, with interest as provided in Section 3.2 hereof.
Tenant shall obtain written undertakings from each insurer
under policies required to be maintained by it to notify all
insureds thereunder at least thirty (30) days prior to
cancellation, amendment or revision of coverage.
10.3. Workers' Compensation. Tenant shall maintain in
full force and effect during the term of this Lease workers'
compensation insurance covering all of Tenant's employees
working on the Premises.
10.4. Waiver Of Subrogation. To the extent permitted by
law and without affecting the coverage provided by insurance
required to be maintained hereunder, Landlord and Tenant each
waive any right to recover against the other (i) damages for
injury to or death of persons, (ii) damage to property, (iii)
damage to the Premises or any part thereof, or (iv) claims
arising by reason of any of the foregoing, but only to the
extent that any of the foregoing damages and claims under
subparts (i)-(iv) hereof are covered, and only to the extent
of such coverage, by casualty insurance actually carried or
required to be carried hereunder by either Landlord or Tenant.
This provision is intended to waive fully, and for the benefit
of each party, any rights and claims which might give rise to
a right of subrogation in any casualty insurance carrier.
Each party shall procure a clause or endorsement on any
casualty insurance policy required under this Article 10
denying to the insurer rights of subrogation against the other
party to the extent rights have been waived by the insured
prior to the occurrence of injury or loss. Coverage provided
by insurance maintained by Tenant or Landlord under this
Article 10 shall not be limited, reduced or diminished by
virtue of the subrogation waiver herein contained.
10.5. Increase In Premiums. Tenant shall do all acts and
pay all expenses necessary to insure that the Premises are not
used for purposes prohibited by any applicable fire insurance,
and that Tenant's use of the Premises complies with all
requirements necessary to obtain any such insurance. If
Tenant uses or permits the Premises to be used in a manner
which increases the existing rate of any insurance on the
Premises carried by Landlord, Tenant shall pay the amount of
the increase in premium caused thereby, and Landlord's costs
of obtaining other replacement insurance policies, including
any increase in premium, within ten (10) days after demand
therefor by Landlord, which demand shall be accompanied by
reasonably detailed documentation supporting such demand.
10.6. Indemnification.
(a) Tenant shall indemnify, defend and hold
Landlord, its partners, shareholders, officers, directors,
affiliates, agents, employees and contractors, harmless from
any and all liability for injury to or death of any person, or
loss of or damage to the property of any person, and all
actions, claims, demands, costs (including, without
limitation, reasonable attorneys' fees), damages or expenses
of any kind arising therefrom which may be brought or made
against Landlord or which Landlord may pay or incur by reason
of the use, occupancy and enjoyment of the Premises by Tenant
or any invitees, sublessees, licensees, assignees, employees,
agents or contractors of Tenant or holding under Tenant
arising during the term of this Lease from any cause
whatsoever other than negligence or willful misconduct or
omission by Landlord, its agents or employees. Landlord, its
partners, shareholders, officers, directors, affiliates,
agents, employees and contractors shall not be liable for, and
Tenant hereby waives all claims against such persons for,
damages to goods, wares and merchandise in or upon the
Premises, or for injuries to Tenant, its agents or third
persons in or upon the Premises, arising during the term of
this Lease from any cause whatsoever other than negligence or
willful misconduct or omission by Landlord, its agents or
employees. Tenant shall give prompt notice to Landlord of any
casualty or accident of a material nature in, on or about the
Premises.
(b) Landlord shall indemnify, defend and hold
Tenant, its partners, shareholders, officers, directors,
affiliates, agents, employees and contractors, harmless from
any and all liability for injury to or death of any person or
loss of or damage to the property of any person, and all
actions, claims, demands, costs (including, without
limitation, reasonable attorneys' fees), damages or expenses
of any kind arising therefrom which may be brought or made
against Tenant or which Tenant may pay or incur, to the extent
such liabilities or other matters arise by reason of (i) any
negligence or willful misconduct or omission by Landlord, its
agents or employees, (ii) any breach by Landlord, its agents
or employees of any term of this Lease and (iii) any causes of
action or obligations the due date of performance of which
arose prior to the Commencement Date.
10.7. Blanket Policy. Any policy required to be
maintained hereunder may be maintained under a so-called
"blanket policy" insuring other parties and other locations so
long as the amount of insurance required to be provided
hereunder is not thereby diminished.
11. SUBLEASE AND ASSIGNMENT
11.1. Assignment And Sublease Of Premises. Tenant shall
not have the right or power to assign its interest in this
Lease, or make any sublease, nor shall any interest of Tenant
under this Lease be assignable involuntarily or by operation
of law, without on each occasion obtaining the prior written
consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Any purported sublease or assignment of
Tenant's interest in this Lease requiring but not having
received Landlord's consent thereto shall be void. Without
limiting the generality of the foregoing, Landlord may
withhold consent to any proposed subletting or assignment
solely on the ground that the use by the proposed subtenant or
assignee is reasonably likely to be incompatible with
Landlord's use of the balance of the Building or Property.
Notwithstanding the foregoing provisions, however, Tenant may
assign this Lease or sublet the Premises, or any portion
thereof, without Landlord's consent (but with prior or
substantially concurrent written notice to Landlord), to any
entity which controls, is controlled by, or is under common
control with Tenant; to any entity which results from a merger
or consolidation with Tenant; to any entity engaged in a joint
venture with Tenant; or to any entity which acquires
substantially all of the stock or assets of Tenant, as a going
concern, with respect to the business that is being conducted
in the Premises (hereinafter each a "Permitted Transfer"). In
addition, any sale or transfer of the capital stock of Tenant
shall be deemed a Permitted Transfer if (i) such sale or
transfer occurs in connection with any bona fide financing or
capitalization for the benefit of Tenant, or (ii) if such sale
or transfer occurs in connection with Tenant's status as a
publicly traded corporation. Landlord shall have no right to
terminate this Lease in connection with, and shall have no
right to any sums or other economic consideration resulting
from, any Permitted Transfer. In the event of a permitted
subleasing of the Premises or any portion thereof by Tenant,
Tenant will retain all sublease profits net of its underlying
obligations under this Lease. Landlord will not have the
right or option under any circumstances, other than pursuant
to the default provisions of this Lease (to the extent
applicable), to recapture any space that Tenant assigns or
subleases during the initial Lease term.
11.2. Rights Of Landlord. Consent by Landlord to one or
more assignments of this Lease, or to one or more sublettings
of the Premises, or collection of rent by Landlord from any
assignee or sublessee, shall not operate to exhaust Landlord's
rights under this Article 11, nor constitute consent to any
subsequent assignment or subletting. No assignment of
Tenant's interest in this Lease and no sublease shall relieve
Tenant of its obligations hereunder, notwithstanding any
waiver or extension of time granted by Landlord to any
assignee or sublessee, or the failure of Landlord to assert
its rights against any assignee or sublessee, and regardless
of whether Landlord's consent thereto is given or required to
be given hereunder. In the event of a default by any
assignee, sublessee or other successor of Tenant in the
performance of any of the terms or obligations of Tenant under
this Lease, Landlord may proceed directly against Tenant
without the necessity of exhausting remedies against any such
assignee, sublessee or other successor. In addition, Tenant
immediately and irrevocably assigns to Landlord, as security
for Tenant's obligations under this Lease, all rent from any
subletting of all or a part of the Premises as permitted under
this Lease, and Landlord, as Tenant's assignee, or any
receiver for Tenant appointed on Landlord's application, may
collect such rent and apply it toward Tenant's obligations
under this Lease; except that, until the occurrence of an act
of default by Tenant, beyond the expiration of any applicable
grace period, Tenant shall have the right to collect such
rent.
12. RIGHT OF ENTRY AND QUIET ENJOYMENT
12.1. Right Of Entry. Landlord and its authorized
representatives shall have the right to enter the Premises at
any time during the term of this Lease during normal business
hours and upon not less than twenty-four (24) hours prior
notice, except in the case of emergency (in which event no
notice shall be required and entry may be made at any time),
for the purpose of inspecting and determining the condition of
the Premises or for any other proper purpose including,
without limitation, to make repairs, replacements or
improvements which Landlord may deem necessary, to show the
Premises to prospective purchasers, to show the Premises to
prospective tenants, and to post notices of nonresponsibility.
Landlord shall not be liable for inconvenience, annoyance,
disturbance, loss of business, quiet enjoyment or other damage
or loss to Tenant by reason of making any repairs or
performing any work upon the Premises unless such are the
result of the negligence or willful misconduct of Landlord or
its agents, and the obligations of Tenant under this Lease
shall not thereby be affected in any manner whatsoever,
provided, however, Landlord shall use reasonable efforts to
minimize the inconvenience to Tenant's normal business
operations caused thereby.
12.2. Quiet Enjoyment. Landlord covenants that Tenant,
upon paying the rent and performing its obligations hereunder
and subject to all the terms and conditions of this Lease,
shall peacefully and quietly have, hold and enjoy the Premises
throughout the term of this Lease, or until this Lease is
terminated as provided by this Lease.
13. CASUALTY AND TAKING
13.1. Termination Or Reconstruction. If during the term
of this Lease the Premises or Building, or any substantial
part of either, (i) is damaged materially by fire or other
casualty or by action of public or other authority in
consequence thereof, (ii) is taken by eminent domain or by
reason of any public improvement or condemnation proceeding,
or in any manner by exercise of the right of eminent domain
(including any transfer in avoidance of an exercise of the
power of eminent domain), or (iii) receives irreparable damage
by reason of anything lawfully done under color of public or
other authority, this Lease shall terminate as to the entire
Premises at Landlord's or Tenant's election by written notice
given to the other party within thirty (30) days after the
damage or taking has occurred; provided, however, that with
respect to events of damage or destruction described in clause
(i) above, Landlord's termination right shall be exercisable
only if either (A) the time reasonably estimated by Landlord's
architect or contractor to be required for the repair or
restoration of the Building to the extent necessary to permit
Tenant to resume substantially all of its normal business
activities therein exceeds six (6) months from the date of the
damage or destruction in the case of damage or destruction
occurring prior to the last year of the term of this Lease, or
exceeds sixty (60) days from the date of the damage or
destruction in the case of damage or destruction occurring
during the last year of the term of this Lease, or (B) the
reasonably estimated cost of such repair or restoration is
more than one hundred five percent (105%) of the insurance
proceeds reasonably available for such repair or restoration
under the insurance required to be maintained by Landlord
pursuant to Section 10.1(b) hereof (including, in the case of
any failure by Landlord to maintain such required insurance,
any proceeds that would have been reasonably available for
such repair or restoration if Landlord had maintained such
required insurance) and Landlord, in its reasonable and good
faith judgment, determines that it is not economically and
commercially reasonable to use such proceeds for the repair or
restoration of the Premises; provided further, that with
respect to events of damage or destruction described in clause
(i) above, Tenant's termination right shall be exercisable
only if either (I) the time reasonably estimated by Landlord's
architect or contractor to be required for the repair or
restoration of the Building to the extent necessary to permit
Tenant to resume substantially all of its normal business
activities therein exceeds six (6) months from the date of the
damage or destruction in the case of damage or destruction
occurring prior to the last year of the term of this Lease, or
exceeds sixty (60) days from the date of the damage or
destruction in the case of damage or destruction occurring
during the last year of the term of this Lease, or
(II) Landlord fails to complete the repair or restoration of
the Building to the extent necessary to permit Tenant to
resume substantially all of its normal business activities
therein within six (6) months after the date of the damage or
destruction in the case of damage or destruction occurring
prior to the last year of the term of this Lease or within
sixty (60) days from the date of the damage or destruction in
the case of damage or destruction occurring during the last
year of the term of this Lease (provided, however, that so
long as Landlord is proceeding diligently and with reasonable
good faith efforts, such periods shall be extended, day for
day, by a number of days equal to the number of days of actual
delay in Landlord's completion of such repair or restoration
that are caused by weather, acts of God, strikes, shortage of
labor or materials or other circumstances beyond Landlord's
reasonable control (excluding financial inability), including
(but not limited to) acts or omissions of Tenant or its agents
or employees), or (III) Landlord advises Tenant that Landlord
intends to perform only a Partial Restoration (as defined
below) and Tenant determines reasonably and in good faith,
within thirty (30) days after Tenant is advised of the nature
and scope of the proposed Partial Restoration, that the
Premises available to Tenant following such Partial
Restoration will not be sufficient to permit Tenant to resume
normal business operations in the Premises for the uses
permitted hereunder; and provided further, that with respect
to takings or damage described in clause (ii) or (iii) above,
Landlord's and Tenant's respective termination rights shall be
exercisable only if Landlord or Tenant, as applicable,
determines reasonably and in good faith that the extent and
nature of such taking or damage is to substantially and
permanently impair Tenant's ability to conduct normal business
operations in the balance of the Premises for the uses
permitted hereunder. If neither Landlord nor Tenant elects to
terminate this Lease as hereinabove provided, Landlord shall
repair any such damage and restore the Premises (to the extent
of Landlord's work therein under Section 2.4 and Exhibit C)
and the Building as nearly as reasonably possible to the
condition existing before the damage or taking, with an
equitable abatement of Tenant's rent and Operating Expense
obligations pending completion of such repair or restoration
as contemplated in Section 13.3 below; provided, however, that
in the case of any damage or destruction described in clause
(i) above, if the reasonably estimated cost of such repair or
restoration is more than one hundred five percent (105%) of
the insurance proceeds (if any) reasonably available for such
repair or restoration under the insurance required to be
maintained by Landlord pursuant to Section 10.1(b) hereof
(including, in the case of any failure by Landlord to maintain
such required insurance, any proceeds that would have been
reasonably available for such repair or restoration if
Landlord had maintained such required insurance), Landlord may
elect to perform such repair or restoration (to the extent of
Landlord's work under Section 2.4 and Exhibit C) only to the
extent of such insurance proceeds that are (or would have
been) available (a "Partial Restoration"); and provided
further, that upon completion of such Partial Restoration,
Tenant's minimum monthly rental and Operating Expense
obligations shall be permanently adjusted, for the balance of
the remaining term of this Lease, in a fair and equitable
manner reflecting any decrease in the size and/or
functionality of the partially restored Premises for the uses
contemplated hereunder. In the event of any termination of
this Lease by Tenant or Landlord pursuant to this Section 13.1
or Section 13.2, Landlord agrees that to the extent any
portion of the Premises can still be lawfully occupied and
used by Tenant, Tenant shall have the right, at its option, to
remain in and continue to use such portion of the Premises on
a month-to-month holdover basis, terminable by Landlord or
Tenant at any time on thirty (30) days' written notice (except
that no such termination by Landlord may be effective sooner
than six (6) months after the date of the damage, destruction
or taking pursuant to which such termination arose), and
Tenant's minimum monthly rental and Operating Expense
obligations shall be adjusted, for the duration of such
holdover occupancy, in a fair and equitable manner reflecting
any decrease in the size and/or functionality of the remaining
Premises for the uses contemplated hereunder. The provisions
of the preceding sentence shall supersede any inconsistent
provisions in Section 2.6 of this Lease.
13.2. Tenant's Rights. If any portion of the Premises is
so taken by condemnation, Tenant may elect to terminate this
Lease if the portion of the Premises taken is of such extent
and nature as substantially to handicap, impede or permanently
impair Tenant's use of the balance of the Premises. Tenant
must exercise its right to terminate by giving notice to
Landlord within thirty (30) days after the nature and extent
of the taking have been finally determined. If Tenant elects
to terminate this Lease, Tenant shall also notify Landlord of
the date of termination, which date shall not be earlier than
thirty (30) days nor later than ninety (90) days after Tenant
has notified Landlord of its election to terminate, except
that this Lease shall terminate on the date of taking if the
date of taking falls on any date before the date of
termination designated by Tenant.
13.3. Lease To Remain In Effect. If neither Landlord nor
Tenant terminates this Lease as hereinabove provided, this
Lease shall continue in full force and effect, except that
minimum monthly rental and Tenant's Operating Expense
obligations shall abate to the extent Tenant's use of the
Premises is impaired for any period that any portion of the
Premises is unusable or inaccessible because of a casualty or
taking hereinabove described. Each party waives the
provisions of Code of Civil Procedure Section 1265.130,
allowing either party to petition the Superior Court to
terminate this Lease in the event of a partial condemnation of
the Premises.
13.4. Reservation Of Compensation. Landlord reserves,
and Tenant waives and assigns to Landlord, all rights to any
award or compensation for damage to the Premises, Building,
Property and the leasehold estate created hereby, accruing by
reason of any taking in any public improvement, condemnation
or eminent domain proceeding or in any other manner by
exercise of the right of eminent domain or of anything
lawfully done by public authority, except that Tenant shall be
entitled to any and all compensation or damages paid for or on
account of Tenant's moving expenses, trade fixtures,
equipment, personal property and any leasehold improvements in
the Premises, the cost of which was borne by Tenant, but only
to the extent of the then remaining unamortized value of such
improvements computed on a straight-line basis over the term
of this Lease. Tenant covenants to deliver such further
assignments of the foregoing as Landlord may from time to time
reasonably request.
13.5. Restoration Of Fixtures. If Landlord repairs or
causes repair of the Premises after such damage or taking,
Tenant at its sole expense shall repair and replace promptly
all fixtures, equipment and other property of Tenant located
at, in or upon the Premises and all additions, alterations and
improvements and all other items installed or paid for by
Tenant under this Lease that were damaged or taken, so as to
restore the same to a condition reasonably consistent with the
conduct of the permitted uses contemplated in Section 9.1
hereof. Tenant shall have the right to make modifications to
the Premises, fixtures and improvements, subject to the prior
written approval of Landlord, which approval shall not be
unreasonably withheld or delayed. In its review of Tenant's
plans and specifications, Landlord may take into consideration
the effect of the proposed modifications on the exterior
appearance, the structural integrity and the mechanical and
other operating systems of the Building.
14. DEFAULT
14.1. Events Of Default. The occurrence of any of the
following shall constitute an event of default on the part of
Tenant:
(a) Abandonment. Abandonment of the Premises.
Tenant waives any right Tenant may have to notice under
Section 1951.3 of the California Civil Code, the terms of this
subsection (a) being deemed such notice to Tenant as required
by said Section 1951.3;
(b) Nonpayment. Failure to pay, when due, any
amount payable to Landlord hereunder, such failure continuing
for a period of five (5) days after written notice of such
failure; provided, however, that any such notice shall be in
lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 et seq., as
amended from time to time;
(c) Other Obligations. Failure to perform any
obligation, agreement or covenant under this Lease other than
those matters specified in subsection (b) hereof, such failure
continuing for fifteen (15) days after written notice of such
failure, or, if it is not possible to cure such default within
fifteen (15) days, failure to commence cure within said
fifteen (15) day period and thereafter to proceed diligently
to complete cure; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure Section 1161
et seq., as amended from time to time;
(d) General Assignment. A general assignment by
Tenant for the benefit of creditors;
(e) Bankruptcy. The filing of any voluntary
petition in bankruptcy by Tenant, or the filing of an
involuntary petition by Tenant's creditors, which involuntary
petition remains undischarged for a period of thirty (30)
days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and
continue to perform the obligations of Tenant hereunder, such
trustee or Tenant shall, in such time period as may be
permitted by the bankruptcy court having jurisdiction, cure
all defaults of Tenant hereunder outstanding as of the date of
the affirmance of this Lease and provide to Landlord such
adequate assurances as may be reasonably necessary to ensure
Landlord of the continued performance of Tenant's obligations
under this Lease. Specifically, but without limiting the
generality of the foregoing, such adequate assurances must
include assurances that the Premises continue to be operated
only for the use permitted hereunder. The provisions hereof
are to assure that the basic understandings between Landlord
and Tenant with respect to Tenant's use of the Premises and
the benefits to Landlord therefrom are preserved, consistent
with the purpose and intent of applicable bankruptcy laws;
(f) Receivership. The employment of a receiver
appointed by court order to take possession of substantially
all of Tenant's assets or the Premises, if such receivership
remains undissolved for a period of thirty (30) days;
(g) Attachment. The attachment, execution or
other judicial seizure of all or substantially all of Tenant's
assets or the Premises, if such attachment or other seizure
remains undismissed or undischarged for a period of thirty
(30) days after the levy thereof;
(h) Insolvency. The admission by Tenant in
writing of its inability to pay its debts as they become due,
the filing by Tenant of a petition seeking any reorganization
or arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future
statute, law or regulation, the filing by Tenant of an answer
admitting or failing timely to contest a material allegation
of a petition filed against Tenant in any such proceeding or,
if within thirty (30) days after the commencement of any
proceeding against Tenant seeking any reorganization or
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future
statute, law or regulation, such proceeding shall not have
been dismissed; or
(i) Cross-Default. Any event of default by Tenant
under (A) any other lease between Landlord and Tenant covering
any other portion of the Property from time to time during the
term of this Lease, or (B) any lease in effect from time to
time between Tenant and Hayward Point Eden I Limited
Partnership or any other affiliate of Landlord with respect to
any other building in the Britannia Point Eden Business Park,
to the extent (under either of the foregoing clauses) such
default continues beyond any applicable cure periods provided
in the applicable lease, and to the extent the applicable
landlord therefore has (and exercises concurrently with any
termination of this Lease) a right to terminate such other
applicable lease; provided, however, that the default event
set forth in this Section 14.1(i) shall not apply with respect
to any default under a lease described herein to the extent
Tenant has previously assigned or transferred all of its
right, title and interest under the lease as to which such
default then exists and, as a result of such transfer, the
holder of the lessee's interest under the lease as to which
such default then exists is not a person or entity which
controls, is controlled by or is under common control with the
person or entity which is then the holder of the lessee's
interest under this Lease.
14.2. Remedies Upon Tenant's Default.
(a) Upon the occurrence of any event of default
described in Section 14.1 hereof, Landlord, in addition to and
without prejudice to any other rights or remedies it may have,
shall have the immediate right to re-enter the Premises or any
part thereof and repossess the same, expelling and removing
therefrom all persons and property (which property may be
stored in a public warehouse or elsewhere at the cost and risk
of and for the account of Tenant), using such force as may be
lawful and reasonably necessary to do so (as to which Tenant
hereby waives any claim for loss or damage that may thereby
occur, except for any such loss or damage arising from the
negligence or willful misconduct or omission of Landlord or
its agents). In addition to or in lieu of such re-entry, and
without prejudice to any other rights or remedies it may have,
Landlord shall have the right either (i) to terminate this
Lease and recover from Tenant all damages incurred by Landlord
as a result of Tenant's default, as hereinafter provided, or
(ii) to continue this Lease in effect and recover rent and
other charges and amounts as they become due.
(b) Even if Tenant has breached this Lease or
abandoned the Premises, this Lease shall continue in effect
for so long as Landlord does not terminate Tenant's right to
possession under subsection (a) hereof and Landlord may
enforce all of its rights and remedies under this Lease,
including the right to recover rent as it becomes due, and
Landlord, without terminating this Lease, may exercise all of
the rights and remedies of a lessor under California Civil
Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes
due, if lessee has right to sublet or assign, subject only to
reasonable limitations), or any successor Code section. Acts
of maintenance, preservation or efforts to relet the Premises
or the appointment of a receiver upon application of Landlord
to protect Landlord's interests under this Lease shall not
constitute a termination of Tenant's right to possession.
(c) If Landlord terminates this Lease pursuant to
this Section 14.2, Landlord shall have all of the rights and
remedies of a landlord provided by Section 1951.2 of the Civil
Code of the State of California, or any successor Code
section, which remedies include Landlord's right to recover
from Tenant (i) the worth at the time of award of the unpaid
rent and additional rent which had been earned at the time of
termination, (ii) the worth at the time of award of the amount
by which the unpaid rent and additional rent which would have
been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have
been reasonably avoided, (iii) the worth at the time of award
of the amount by which the unpaid rent and additional rent for
the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be
reasonably avoided, and (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations under this
Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the
cost of recovering possession of the Premises, expenses of
reletting, including necessary repair, renovation and
alteration of the Premises (provided that the cost of any such
renovation or alteration shall be recoverable only to the
extent reasonably necessary to make the Premises suitable for
use and occupancy by the new tenant and shall be allocated
reasonably between the unexpired portion of the term of this
Lease at the date of termination thereof and the balance, if
any, of the term of such new tenant's lease falling after the
scheduled expiration date of the term of this Lease),
reasonable attorneys' fees, and other reasonable costs. The
"worth at the time of award" of the amounts referred to in
clauses (i) and (ii) above shall be computed by allowing
interest at ten percent (10%) per annum from the date such
amounts accrued to Landlord. The "worth at the time of award"
of the amounts referred to in clause (iii) above shall be
computed by discounting such amount at one percentage point
above the discount rate of the Federal Reserve Bank of San
Francisco at the time of award.
14.3. Remedies Cumulative. All rights, privileges and
elections or remedies of Landlord contained in this Article 14
are cumulative and not alternative to the extent permitted by
law and except as otherwise provided herein.
15. SUBORDINATION, ATTORNMENT AND SALE
15.1. Subordination To Mortgage.
(a) This Lease, and any sublease entered into by
Tenant under the provisions of this Lease, shall be subject
and subordinate to any ground lease, mortgage, deed of trust,
sale/leaseback transaction or any other hypothecation for
security now or hereafter placed upon the Building, the
Property, or both, and the rights of any assignee of Landlord
or of any ground lessor, mortgagee, trustee, beneficiary or
leaseback lessor under any of the foregoing, and to any and
all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions
thereof. If any mortgagee, trustee, beneficiary, ground
lessor, sale/leaseback lessor or assignee elects to have this
Lease be an encumbrance upon the Property prior to the lien of
its mortgage, deed of trust, ground lease or leaseback lease
or other security arrangement and gives notice thereof to
Tenant, this Lease shall be deemed prior thereto, whether this
Lease is dated prior or subsequent to the date thereof or the
date of recording thereof. Tenant, and any sublessee, shall
execute such documents as may reasonably be requested by any
mortgagee, trustee, beneficiary, ground lessor, sale/leaseback
lessor or assignee to evidence the subordination herein set
forth or to make this Lease prior to the lien of any mortgage,
deed of trust, ground lease, leaseback lease or other security
arrangement, as the case may be. Upon any default by Landlord
in the performance of its obligations under any mortgage, deed
of trust, ground lease, leaseback lease or assignment, Tenant
(and any sublessee) shall attorn to the mortgagee, trustee,
beneficiary, ground lessor, leaseback lessor or assignee
thereunder upon demand and shall execute and deliver any
instrument or instruments confirming the attornment herein
provided for. Landlord shall obtain and deliver to Tenant,
within thirty (30) days after mutual execution of this Lease,
a written nondisturbance agreement from Slough Parks
Incorporated (the beneficiary under the existing deed of trust
on the Property), in form reasonably satisfactory to Tenant,
providing that Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in
default beyond the expiration of any applicable cure period
and performs all of its obligations under this Lease, unless
this Lease is otherwise terminated pursuant to its terms; if
Landlord fails to deliver such agreement to Tenant within the
required time, Tenant shall have the right to terminate this
Lease by written notice to Landlord at any time prior to
Landlord's subsequent delivery (if any) of an executed
agreement meeting such requirements.
(b) Landlord specifically agrees that (i) Tenant
may conclusively rely upon any written notice Tenant receives
from any mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or assignee ("Beneficiary"),
notwithstanding any claim by Landlord contesting the validity
of any term or condition of such notice, including, but not
limited to, any default by such Beneficiary or any default
claimed by Landlord to have been committed by such
Beneficiary, and (ii) Landlord shall not make any claim of any
kind against Tenant or Tenant's leasehold interest with
respect to amounts paid to any such Beneficiary by Tenant or
any acts performed by Tenant pursuant to such written notice
from any Beneficiary.
(c) Notwithstanding anything to the contrary
contained in this Lease, Tenant shall not be required to
subordinate its interest under this Lease unless (i) such
subordination does not materially increase Tenant's
obligations or materially decrease its rights under this
Lease, and (ii) Landlord first obtains from the Beneficiary
requesting such subordination a written agreement that
provides that Tenant's right to quiet possession of the
Premises shall not be disturbed so long as Tenant is not in
default beyond the expiration of any applicable cure period
and performs all of its obligations under this Lease, unless
this Lease is otherwise terminated pursuant to its terms.
15.2. Sale Of Landlord's Interest. Upon sale, transfer
or assignment of Landlord's entire interest in the Building
and Property, Landlord shall be relieved of its obligations
hereunder with respect to liabilities accruing from and after
the date of such sale, transfer or assignment.
15.3. Estoppel Certificates. Tenant shall at any time
and from time to time, within ten (10) days after written
request by Landlord, execute, acknowledge and deliver to
Landlord a certificate in writing stating: (i) that this Lease
is unmodified and in full force and effect, or if there have
been any modifications, that this Lease is in full force and
effect as modified and stating the date and the nature of each
modification; (ii) the date to which rental and all other sums
payable hereunder have been paid; (iii) that to Tenant's
actual knowledge Landlord is not in default in the performance
of any of its obligations under this Lease, that Tenant has
given no notice of default to Landlord and that to Tenant's
actual knowledge, no event has occurred which, but for the
expiration of the applicable time period, would constitute an
event of default hereunder; and (iv) such other matters as may
reasonably be requested by Landlord or any institutional
lender, mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or prospective purchaser of the
Property. Any such certificate provided under this
Section 15.3 may be relied upon by any lender, mortgagee,
trustee, beneficiary, assignee or successor in interest to
Landlord, by any prospective purchaser, by any purchaser on
foreclosure or sale, or by any grantee under a deed in lieu of
foreclosure of any mortgage or deed of trust on the Property
or Premises. Failure to execute and return within the
required time any estoppel certificate requested hereunder
shall be deemed to be an admission of the truth of the matters
set forth in the form of certificate submitted to Tenant for
execution.
15.4. Subordination to CC&R's. This Lease, and any
permitted sublease entered into by Tenant under the provisions
of this Lease, shall be subject and subordinate (a) to any
declarations of covenants, conditions and restrictions
recorded by Landlord with respect to the Property from time to
time, provided that the terms of such declarations are
reasonable and do not discriminate against Tenant relative to
other tenants occupying portions of the Property, and (b) to
the Declaration of Covenants, Conditions and Restrictions
dated June 20, 1979 and recorded on July 5, 1979 as Instrument
No. 79-130777, Alameda County Records, as amended from time to
time (the "Master Declaration"), the provisions of which
Master Declaration are an integral part of this Lease. Tenant
agrees to execute, upon request by Landlord, any documents
reasonably required from time to time to evidence the
subordination provided in this Section 15.4.
16. SECURITY
16.1. Deposit.
(a) Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of Ninety
Two Thousand Three Hundred and No/100 Dollars ($92,300.00),
which sum (the "Security Deposit") shall be held by Landlord
as security for the faithful performance of all of the terms,
covenants, and conditions of this Lease to be kept and
performed by Tenant during the term hereof. If Tenant
defaults, beyond the expiration of any applicable grace
period, with respect to any provision of this Lease,
including, without limitation, the provisions relating to the
payment of rental and other sums due hereunder, Landlord shall
have the right, but shall not be required, to use, apply or
retain all or any part of the Security Deposit for the payment
of rental or any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any
portion of the Security Deposit is so used or applied, Tenant
shall, within thirty (30) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore
the Security Deposit to its original amount and Tenant's
failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep any deposit under this
Section separate from Landlord's general funds, and Tenant
shall not be entitled to interest thereon. If Tenant fully
and faithfully performs every provision of this Lease to be
performed by it, the Security Deposit, or any balance thereof,
shall be returned to Tenant or, at Tenant's direction, to the
last assignee of Tenant's interest hereunder, at the
expiration of the term of this Lease and within ten (10) days
after Tenant has vacated the Premises. In the event of
termination of Landlord's interest in this Lease, Landlord
shall transfer all deposits then held by Landlord under this
Section to Landlord's successor in interest, whereupon Tenant
agrees to release Landlord from all liability for the return
of such deposit or the accounting thereof.
(b) In lieu of the Security Deposit, Tenant may
deliver to Landlord at any time, and shall thereafter maintain
in full force and effect during the remaining term of this
Lease, an irrevocable standby letter of credit in the amount
of the required Security Deposit, issued in favor of Landlord
by a commercial bank or trust company approved in writing by
Landlord (which approval shall not be unreasonably withheld or
delayed), in form reasonably satisfactory to Landlord (the
"Letter of Credit"), to be held by Landlord as security for
the faithful performance of all the payment obligations of
Tenant under this Lease during the initial term hereof,
subject to the following terms and conditions (and upon
delivery of any such Letter of Credit by Tenant, if Landlord
is then already holding a cash Security Deposit from Tenant,
Landlord shall promptly return such cash Security Deposit to
Tenant):
(i) Landlord shall be entitled (but shall not
be required) to draw against the Letter of Credit and receive
and retain proceeds thereof upon any default by Tenant, beyond
the expiration of any applicable cure periods, in the payment
of any rent or other amounts required to be paid by Tenant
under this Lease (a "monetary default") or upon any other
default, beyond the expiration of any applicable cure periods,
in Tenant's obligations under this Lease (a "non-monetary
default"). The amount of any such draw shall be, with respect
to a monetary default, the amount due from Tenant to Landlord,
and, in the event of a non-monetary default, an amount
estimated by Landlord, in its reasonable discretion, to be the
amount necessary to cure such default. Within thirty (30)
days following any draw by Landlord against the Letter of
Credit, Tenant shall cause the amount of the Letter of Credit
to be restored to the full amount of the required Security
Deposit pursuant to paragraph (a) above. Landlord's
entitlement to draw against the Letter of Credit shall not
limit or impair in any way Landlord's other rights and
remedies, following any default by Tenant, under any other
applicable provision of this Lease or under applicable law.
(ii) Notwithstanding any provisions of
subparagraph (i) above, Landlord shall also be entitled (but
shall not be required) to draw against the then remaining
balance of the Letter of Credit in full and to receive the
entire proceeds of such draw if the Letter of Credit will
expire as of a date prior to the expiration of the initial
term of this Lease and Tenant fails to provide to Landlord an
extension or replacement of such Letter of Credit, in at least
the amount of the required Security Deposit, at least thirty
(30) days prior to the scheduled expiration date of such
existing Letter of Credit.
(iii) Any amount drawn or received by
Landlord pursuant to a draw under the Letter of Credit that is
not immediately used or applied by Landlord to remedy a
default by Tenant shall be retained by Landlord as a cash
Security Deposit on the terms set forth in paragraph (a)
above.
17. MISCELLANEOUS
17.1. Notices. All notices, consents, waivers and other
communications which this Lease requires or permits either
party to give to the other shall be in writing and shall be
deemed given when delivered personally (including delivery by
private courier or express delivery service) or four (4) days
after deposit in the United States mail, registered or
certified mail, postage prepaid, addressed to the parties at
their respective addresses as follows:
To Tenant: Aradigm Corporation
26219 Eden Landing Road
Hayward, CA 94545
Attn: Richard P. Thompson
President and C.E.O.
with copy to: Mark A. Olbert, Vice President &
CFO
Aradigm Corporation
26219 Eden Landing Road Hayward,
CA 94545
To Landlord: Britannia Point Eden, LLC
1939 Harrison Street, Suite 412
Park Plaza Building
Oakland, CA 94612
Attn: T. J. Bristow
with copy to: Folger Levin & Kahn LLP
Embarcadero Center West
275 Battery Street, 23rd Floor
San Francisco, CA 94111 Attn:
Donald E. Kelley, Jr.
or to such other address as may be contained in a notice at
least fifteen (15) days prior to the address change from
either party to the other given pursuant to this Section.
Rental payments and other sums required by this Lease to be
paid by Tenant shall be delivered to Landlord at Landlord's
address provided in this Section, or to such other address as
Landlord may from time to time specify in writing to Tenant,
and shall be deemed to be paid only upon actual receipt.
17.2. Successors And Assigns. The obligations of this
Lease shall run with the land, and this Lease shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the original
Landlord named herein and each successive Landlord under this
Lease shall be liable only for obligations accruing during the
period of its ownership of the Property, which liability shall
survive, but future liability under the Lease shall then pass
to the successor lessor.
17.3. No Waiver. The failure of either party to seek
redress for violation, or to insist upon the strict
performance, of any covenant or condition of this Lease shall
not be deemed a waiver of such violation, or prevent a
subsequent act which would originally have constituted a
violation from having all the force and effect of an original
violation.
17.4. Severability. If any provision of this Lease or
the application thereof is held to be invalid or
unenforceable, the remainder of this Lease or the application
of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable shall not be
affected thereby, and each of the provisions of this Lease
shall be valid and enforceable, unless enforcement of this
Lease as so invalidated would be unreasonable or grossly
inequitable under all the circumstances or would materially
frustrate the purposes of this Lease.
17.5. Litigation Between Parties. In the event of any
litigation between the parties hereto growing out of this
Lease, the prevailing party shall be reimbursed for all
reasonable costs, including, but not limited to, reasonable
accountants' fees and attorneys' fees. "Prevailing party"
within the meaning of this Section shall include, without
limitation, a party who dismisses an action for recovery
hereunder in exchange for payment of the sums allegedly due,
performance of covenants allegedly breached or consideration
substantially equal to the relief sought in the action.
17.6. Surrender. A voluntary or other surrender of this
Lease by Tenant, or a mutual termination thereof between
Landlord and Tenant, shall not result in a merger but shall,
at the option of Landlord, operate either as an assignment to
Landlord of any and all existing subleases and subtenancies,
or a termination of all or any existing subleases and
subtenancies. This provision shall be contained in any and
all assignments or subleases made pursuant to this Lease.
17.7. Interpretation. The provisions of this Lease shall
be construed as a whole, according to their common meaning,
and not strictly for or against Landlord or Tenant. The
captions preceding the text of each Section and subsection
hereof are included only for convenience of reference and
shall be disregarded in the construction or interpretation of
this Lease.
17.8. Entire Agreement. This written Lease, together
with the exhibits hereto, contains all the representations and
the entire understanding between the parties hereto with
respect to the subject matter hereof. Any prior
correspondence, memoranda or agreements are replaced in total
by this Lease and the exhibits hereto. This Lease may be
modified only by an agreement in writing signed by each of the
parties.
17.9. Governing Law. This Lease and all exhibits hereto
shall be construed and interpreted in accordance with and be
governed by all the provisions of the laws of the State of
California.
17.10. No Partnership. Nothing contained in this
Lease shall be construed as creating any type or manner of
partnership, joint venture or joint enterprise with or between
Landlord and Tenant.
17.11. Financial Information. From time to time
Tenant shall promptly provide directly to prospective lenders
and purchasers of the Property designated by Landlord such
financial information pertaining to the financial status of
Tenant as Landlord may reasonably request; provided, Tenant
shall be permitted to provide such financial information in a
manner which Tenant deems reasonably necessary to protect the
confidentiality of such information. In addition, from time
to time, Tenant shall provide Landlord with such financial
information pertaining to the financial status of Tenant as
Landlord may reasonably request. Landlord agrees that all
financial information supplied to Landlord by Tenant shall be
treated as confidential material, and shall not be
disseminated to any person or entity (including any entity
affiliated with Landlord, except as otherwise expressly
provided below) without Tenant's prior written consent, except
that Landlord shall be entitled to provide such information,
subject to reasonable precautions to protect the confidential
nature thereof, (i) to Landlord's partners and professional
advisors, solely for use in connection with Landlord's
execution and enforcement of this Lease, and (ii) to
prospective lenders and/or purchasers of the Property, solely
for use in connection with their bona fide consideration of a
proposed financing or purchase of the Property, provided that
such prospective lenders and/or purchasers are not engaged in
businesses directly competitive with the business then being
conducted by Tenant. For purposes of this Section, without
limiting the generality of the obligations provided herein,
(A) it shall be deemed reasonable for Landlord to request
copies of Tenant's most recent audited annual financial
statements, or, if audited statements have not been prepared,
unaudited financial statements for Tenant's most recent fiscal
year, accompanied by a certificate of Tenant's chief financial
officer that such financial statements fairly present Tenant's
financial condition as of the date(s) indicated, and (B)
during any period when Tenant has a class of publicly-traded
securities and is a reporting company under the Securities
Exchange Act of 1934, it shall be deemed sufficient compliance
with Tenant's obligations under this Section for Tenant to
provide, upon Landlord's request, copies of Tenant's most
recent quarterly and annual filings (and any Form 8-K filings
since the most recent of such quarterly or annual filings)
with the Securities and Exchange Commission.
Landlord and Tenant recognize the need of Tenant to
maintain the confidentiality of information regarding its
financial status and the need of Landlord to be informed of,
and to provide to its partners and to prospective lenders and
purchasers of the Property financial information pertaining
to, Tenant's financial status. Landlord and Tenant agree to
cooperate with each other in achieving these needs within the
context of the obligations set forth in this Section.
17.12. Costs. If Tenant requests the consent of
Landlord under any provision of this Lease for any act that
Tenant proposes to do hereunder, including, without
limitation, assignment or subletting of the Premises, Tenant
shall, as a condition to doing any such act and the receipt of
such consent, reimburse Landlord promptly for any and all
reasonable costs and expenses incurred by Landlord in
connection therewith, including, without limitation,
reasonable attorneys' fees.
17.13. Time. Time is of the essence of this Lease,
and of every term and condition hereof.
17.14. Rules And Regulations. Tenant shall observe
and obey such rules and regulations as Landlord may promulgate
from time to time for the safety, care, cleanliness, order and
use of the Premises, the Building and the Property, provided
that any such rules and regulations shall not unreasonably
interfere with Tenant's access to, or use of, the Premises.
17.15. Brokers. Landlord shall pay a commission to
Cornish & Carey Commercial, in connection with and contingent
upon the mutual execution of this Lease, in accordance with a
separate agreement between Landlord and such broker. Landlord
and Tenant each represents and warrants to the other that no
other broker participated in the consummation of this Lease,
and each agrees to indemnify, defend and hold the other party
harmless against any liability, cost or expense, including,
without limitation, reasonable attorneys' fees, arising out of
any claims for brokerage commissions or other similar
compensation in connection with any conversations, prior
negotiations or other dealings by the indemnifying party with
any such other broker or other claimant.
17.16. Memorandum Of Lease. At any time during the
term of this Lease, either party, at its sole expense, shall
be entitled to record a memorandum of this Lease and, if
either party so elects, both parties agree to cooperate in the
preparation, execution, acknowledgement and recordation of
such document in reasonable form.
17.17. Corporate Authority. Each of the persons
signing this Lease on behalf of Landlord and Tenant,
respectively, warrants that he or she is fully authorized to
do so and, by so doing, to bind Landlord or Tenant, as
applicable.
17.18. Execution and Delivery. Submission of this
Lease for examination or signature by Tenant does not
constitute an agreement or reservation of or option for lease
of the Premises. This instrument shall not be effective or
binding upon either party, as a lease or otherwise, until
executed and delivered by both Landlord and Tenant. This
Lease may be executed in one or more counterparts and by
separate parties on separate counterparts, but each such
counterpart shall constitute an original and all such
counterparts together shall constitute one and the same
instrument.
17.19. Signage. Tenant shall have the right to
install, subject to Section 7.3 hereof and to compliance with
applicable laws and City requirements, with the Master
Declaration and with any other covenants, conditions,
restrictions and sign criteria applicable to the Center, and
subject to Landlord's approval as to design, size, materials,
location and other pertinent characteristics (which approval
shall not be unreasonably withheld or delayed), up to two (2)
exterior signs on the Building, in addition to monument
signage rights consistent with those provided to other tenants
in the Center.
IN WITNESS WHEREOF, the parties hereto have executed this
Lease as of the day and year first set forth above.
"Landlord"
BRITANNIA POINT EDEN, LLC, a California limited liability
company
By: ____________________
T.J. Bristow
President & Manager
"Tenant"
ARADIGM CORPORATION, a California corporation
By: __________________________
Richard P. Thompson
President
By: __________________________
Mark A. Olbert
Chief Financial Officer
1 EXHIBITS
EXHIBIT A Location of Premises
EXHIBIT B Real Property Description
EXHIBIT C Construction
EXHIBIT D Acknowledgment of Lease
Commencement
REAL PROPERTY DESCRIPTION
Improved real property located in the City of Hayward, County
of Alameda, State of California, more particularly described
as follows:
Lot 1, Tract 4019, filed June 28, 1979, Map Book 110, Pages
97, 98 and 99, Alameda County Records.
Subject to easements, restrictions and other matters of record
affecting title.
CONSTRUCTION
Landlord, at its sole cost and expense (except as
otherwise expressly provided herein), shall undertake and
diligently complete, subject to delays for causes beyond its
reasonable control, construction of (a) a structural shell of
approximately 71,000 square feet for the Building in
accordance with the Building Shell Description at the end of
this Exhibit C, the general configuration and size of which
building shell shall be mutually approved by Landlord and
Tenant and shall be appropriate for the biotech uses
contemplated by Tenant under the Lease, and (b) tenant
improvements in the Building in accordance with plans and
specifications to be mutually approved by Landlord and Tenant,
which approval shall not be unreasonably withheld or delayed;
provided, however, that the parties may by mutual agreement,
as contemplated below, determine that Tenant will contract for
the design and/or construction of the tenant improvements
subject to reimbursement by Landlord to the extent provided
below. All such work shall be performed in a neat and
workmanlike manner and shall conform to all applicable
governmental codes, laws and regulations in force at the time
such work is completed. Landlord and Tenant shall both use
their best endeavors to develop, review and approve all
working drawings, final drawings, specifications, changes (if
applicable) and other matters promptly, diligently and within
such time periods as may be reasonably requested by the other
party or by the architects, contractors and other
professionals engaged in the design and construction of the
work.
Landlord has agreed to provide a base tenant improvement
allowance of up to Thirty Dollars ($30.00) per square foot, or
approximately Two Million One Hundred Thirty Thousand Dollars
($2,130,000) in the aggregate for an estimated 71,000 square
feet of space in the Building, for the tenant improvements
described in the preceding paragraph (the "Tenant Improvement
Allowance"). Landlord's total direct costs of design and
construction of the tenant improvement work under Section 2.4
and this Exhibit C (but not of the building shell and core as
described below, which shall be Landlord's sole cost and
expense), including, but not limited to, payments to
contractors or subcontractors for labor and materials, permit
fees and charges, sales and use taxes, testing and inspection
costs, architects', engineers' and other consulting and
professional fees, costs of power, water and other utilities
and of collection and removal of debris, and all other related
costs incurred in connection with the design and construction
of the tenant improvement work, shall be chargeable against
the Tenant Improvement Allowance. Any and all such costs of
the tenant improvements in excess of the Tenant Improvement
Allowance shall be payable solely by Tenant, within thirty
(30) days after written request by Landlord accompanied by
evidence reasonably satisfactory to Tenant of the nature and
amount of the expense or work for which such payment is
requested; provided, however, that Tenant shall have no
liability for excess costs to the extent such costs are
attributable to changes in the Approved Plans and
Specifications (as hereinafter defined) for which Tenant's
approval was required under this Exhibit C and which were
nevertheless implemented without Tenant's approval.
Notwithstanding any contrary provisions contained in the
Lease, Landlord agrees that Tenant shall have no obligation to
remove, at the expiration of the term of the lease, any
improvements constructed by Landlord pursuant to this
Exhibit C.
The general contractor for the building shell shall be
Concrete Shell Structures, Inc., or any other licensed and
qualified general contractor selected by Landlord; the
architect for the building shell shall be Chamorro Design
Group or any other licensed and qualified architect selected
by Landlord. The general contractor and the architect
("Architect") for the tenant improvements shall be selected by
mutual agreement of Landlord and Tenant. The costs and fees
of Architect with respect to the tenant improvements (but no
such fees with respect to the building shell or any common
area improvements) shall be chargeable against the Tenant
Improvement Allowance. Landlord and Tenant shall determine by
mutual agreement whether the contracts with Architect, with
the general contractor for the tenant improvements and with
other consultants or professionals with respect to the tenant
improvements shall be entered into by Landlord or Tenant. If
such contracts are entered into by Tenant, then to the extent
Landlord is responsible under this Exhibit C for the costs
incurred under such contracts, Landlord shall make payments to
Tenant or to the applicable parties providing goods and
services, as Landlord and Tenant may agree, on a monthly or
other regular basis, subject to receipt of such invoices, lien
releases, certifications and other documentation as Landlord
may reasonably require.
Landlord and Tenant shall jointly cause Architect to
prepare initial plans and specifications for the tenant
improvements in the Premises, which plans and specifications
shall be mutually approved (such approval not to be
unreasonably withheld or delayed) by Landlord and Tenant (the
"Approved Plans and Specifications"). Landlord and Tenant
shall then jointly cause Architect to produce detailed working
drawings, based on the Approved Plans and Specifications, for
submission to the City of Hayward for building permit
approval. Any material changes from the Approved Plans and
Specifications shall be subject to mutual approval (not
unreasonably withheld or delayed) by Landlord and Tenant,
provided, however, that any changes required from time to time
in the Approved Plans and Specifications, working drawings
and/or final plans and specifications as a result of
applicable law or governmental requirements, or at the
insistence of any other third party whose approval may be
required with respect to such improvements, or as a result of
unanticipated conditions encountered in the course of
construction, may be implemented by Landlord after prior
notice to Tenant (if Landlord is the contracting party who is
responsible for construction of the applicable improvements),
but shall not require Tenant's approval or consent.
All material subcontracts for the tenant improvements
shall be competitively bid under the joint direction of
Landlord, Tenant, Architect and the general contractor.
Landlord and Tenant shall consult with one another regarding
all design and cost matters relating to the tenant
improvements, including (but not limited to) bidding of
material subcontracts as described in the preceding sentence,
and both parties shall have access on an "open book" basis to
all bids, contracts and other cost-related information
regarding the tenant improvements. Without limiting the
generality of the foregoing, cost aspects of any changes
requested by Tenant from time to time in the Approved Plans
and Specifications, working drawings and/or final plans and
specifications shall be subject to mutual approval by Landlord
and Tenant; cost aspects of any changes required from time to
time in the Approved Plans and Specifications, working
drawings and/or final plans and specifications as a result of
applicable law or governmental requirements, or at the
insistence of any other third party whose approval may be
required with respect to such improvements, or as a result of
unanticipated conditions encountered in the course of
construction, shall not require Tenant's approval or consent,
but Tenant shall at all times have access to the details of
the cost aspects of such changes (including estimates and
actual expenses) for information purposes.
The parties acknowledge that tenant improvements will be
constructed and occupied on a phased basis, with the first
phase consisting of approximately 36,000 square feet and the
second and third phases each consisting of approximately
17,500 square feet, and with the second phase to be completed
and delivered on or about the first anniversary of the
Commencement Date and the third phase to be completed and
delivered on or about the second anniversary of the
Commencement Date. Any material changes in the delivery time,
size or other aspects of such phasing of the tenant
improvements shall be subject to mutual approval by Landlord
and Tenant.
[rest of page intentionally left blank]
BUILDING SHELL DESCRIPTION
The building structure shall be a conventional tilt-up
concrete structure. Supported on concrete spread footings,
the floor slab shall be 5" reinforced concrete over a membrane
and engineered fill. The roof shall be a panelized wood roof
supported by steel columns, girders, and open web metal
joists. The built-up roofing membrane shall utilize a 4-ply
system with a mineral surfaced cap sheet. Notwithstanding the
foregoing description of building shell characteristics, any
of such characteristics may be changed in whole or in part by
mutual agreement of Landlord and Tenant.
BUILDING SHELL shall include, but not be limited to:
Building envelope
Exterior concrete walks
Parking areas
Landscaping and irrigation
Roof drains and drain lines
Roof top mechanical screen
Fire sprinklers at roof elevation
Trash enclosures
Utilities:
- site lighting
- electric transformer
- underground electrical to building pull-section
- gas to exterior meter on building
- telephone conduit to building
- site storm drain system
- main sanitary sewer line under ground floor slab
TENANT IMPROVEMENTS not constituting part of the Building
Shell, and therefore chargeable against the Tenant Improvement
Allowance, shall include, but not be limited to:
Toilet cores
Interior partitioning
Interior finishes
Millwork
Specialty items, such as skylights
HVAC system
Building exhaust system
Thermal building insulation
Fire sprinkler drops below roof elevation
Utilities:
- all electrical beyond pull section, including
electrical main disconnect and distribution panels
- gas piping beyond main gas meter
- telephone conduit beyond utility co. termination
point
- sanitary sewer lines to main line under ground
floor
- lab gas piping for all lab utilities, i.e. natural
gas, compressed air, vacuum, etc.
- utility connection fees based on items that are
part of tenant improvements
ACKNOWLEDGMENT OF LEASE COMMENCEMENT
This Acknowledgment is executed as of _________________,
19___, by BRITANNIA POINT EDEN, LLC, a California limited
liability company ("Landlord"), and ARADIGM CORPORATION, a
California corporation ("Tenant"), pursuant to Section 2.5 of
the Lease dated January ___, 1998 between Landlord and Tenant
(the "Lease") covering premises located at ______ Point Eden
Way, Hayward, CA 94545 (the "Premises").
Landlord and Tenant hereby acknowledge and agree as
follows:
1. The Commencement Date under the Lease is
__________________, 19___.
2. The termination date under the Lease shall be
_________________, 20___, subject to any applicable provisions
of the Lease for any extension or early termination thereof.
3. The square footage of the Building, as built, is
________ square feet; the square footage of the first phase of
tenant improvements in the Premises initially occupied by
Tenant is __________ square feet.
4. Tenant accepts the Premises and acknowledges the
satisfactory completion of the first phase of improvements
therein by Landlord, subject only to any applicable "punch
list" or similar procedures specifically provided under the
Lease.
EXECUTED as of the date first set forth above.
"Landlord"
BRITANNIA POINT EDEN, LLC, a California limited liability
company
By: ____________________
T.J. Bristow
President & Manager
"Tenant"
ARADIGM CORPORATION, a California corporation
By: __________________________
Mark A. Olbert
Vice President and
Chief Financial Officer
17025\3044\0006rv3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,517
<SECURITIES> 8,788
<RECEIVABLES> 261
<ALLOWANCES> 0
<INVENTORY> 520
<CURRENT-ASSETS> 25,495
<PP&E> 4,417
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,294
<CURRENT-LIABILITIES> 9,496
<BONDS> 0
0
0
<COMMON> 54,976
<OTHER-SE> (490)
<TOTAL-LIABILITY-AND-EQUITY> 30,294
<SALES> 0
<TOTAL-REVENUES> 3,685
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (234)
<INCOME-PRETAX> (14,684)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,684)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,684)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
