FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to .
Commission file number: 0-28926
MLC Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1817218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Herndon Parkway, Herndon, VA 20170
(Address, including zip code, of principal offices)
Registrant's telephone number, including area code: (703) 834-5710
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 [ ]
The number of shares of Common Stock outstanding as of February 10,
1999, was 7,467,102.
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MLC HOLDINGS, INC. AND SUBSIDIARIES
Part I. Financial Information:
Item 1. Financial Statements - Unaudited:
<S> <C>
Condensed Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1998 2
Condensed Consolidated Statements of Earnings, Three months
ended December 31, 1998 and 1997 3
Condensed Consolidated Statements of Earnings, Nine months
ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows, Nine months
ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II. Other Information:
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
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MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
As of As of
December 31, 1998 March 31, 1998
---------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,406,250 $ 18,683,796
Accounts receivable 28,515,436 16,383,314
Other receivables 6,612,903 3,801,808
Employee advances 25,136 53,582
Inventories 1,020,030 1,213,734
Investment in direct financing and sales type leases - net 75,080,815 32,495,594
Investment in operating lease equipment - net 5,618,214 7,295,721
Property and equipment - net 1,880,239 1,131,512
Other assets 11,561,170 2,136,554
===================================================
TOTAL ASSETS $ 137,720,193 $ 83,195,615
===================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable - trade $ 11,759,261 $ 6,865,419
Accounts payable - equipment 18,931,416 21,283,582
Salaries and commissions payable 544,085 390,081
Accrued expenses and other liabilities 5,356,077 3,560,181
Recourse notes payable 18,646,016 13,037,365
Nonrecourse notes payable 38,379,108 13,027,676
Deferred taxes 1,487,000 1,487,000
Income tax payable 744,789 -
---------------------------------------------------
Total Liabilities 95,847,752 59,651,304
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 2,000,000 shares authorized;
none issued or outstanding - -
Common stock, $.01 par value; 25,000,000 authorized;
7,467,102 and 6,071,505 issued and outstanding at
December 31, 1998 and March 31, 1998, respectively 74,671 60,715
Additional paid-in capital 24,972,870 11,460,331
Retained earnings 16,824,900 12,023,265
---------------------------------------------------
Total Stockholders' Equity 41,872,441 23,544,311
===================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 137,720,193 $ 83,195,615
===================================================
See Notes to Condensed Consolidated Financial Statements.
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MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
Three months ended
December 31,
1998 1997
-------------------------------------------
REVENUES
<S> <C> <C>
Sales of equipment $ 25,635,591 $ 10,797,522
Sales of leased equipment 38,053,115 7,299,836
-------------------------------------------
63,688,706 18,097,358
Lease revenues 4,745,035 3,803,385
Fee and other income 1,512,952 1,662,666
-------------------------------------------
6,257,987 5,466,051
-------------------------------------------
TOTAL REVENUES 69,946,693 23,563,409
-------------------------------------------
COSTS AND EXPENSES
Cost of sales, equipment 22,148,807 8,316,250
Cost of sales, leased equipment 37,476,294 7,308,896
-------------------------------------------
59,625,101 15,625,146
Direct lease costs 1,550,955 1,558,272
Professional and other fees 375,094 282,278
Salaries and benefits 3,106,179 2,630,773
General and administrative expenses 1,318,912 903,010
Interest and financing costs 1,140,617 396,756
Non-recurring acquisition costs - 39,103
-------------------------------------------
7,491,757 5,810,192
-------------------------------------------
TOTAL COSTS AND EXPENSES 67,116,858 21,435,338
-------------------------------------------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 2,829,835 2,128,071
-------------------------------------------
PROVISION FOR INCOME TAXES 1,131,934 850,584
-------------------------------------------
NET EARNINGS $ 1,697,901 $ 1,277,487
===========================================
NET EARNINGS PER COMMON SHARE - BASIC $ 0.24 $ 0.21
===========================================
NET EARNINGS PER COMMON SHARE - DILUTED $ 0.24 $ 0.21
===========================================
PRO FORMA NET EARNINGS (See Note 4) $ 1,697,901 $ 1,277,487
===========================================
PRO FORMA NET EARNINGS PER COMMON SHARE - BASIC $ 0.24 $ 0.21
===========================================
PRO FORMA NET EARNINGS PER COMMON SHARE - DILUTED $ 0.24 $ 0.21
===========================================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 7,189,324 6,071,305
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 7,220,060 6,188,990
See Notes to Condensed Consolidated Financial Statements.
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MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
Nine months ended
December 31,
1998 1997
------------------------------------------
REVENUES
<S> <C> <C>
Sales of equipment $ 55,740,476 $ 36,290,550
Sales of leased equipment 74,612,679 39,486,348
------------------------------------------
130,353,155 75,776,898
Lease revenues 14,994,505 11,021,736
Fee and other income 4,182,928 4,481,831
------------------------------------------
19,177,433 15,503,567
------------------------------------------
TOTAL REVENUES 149,530,588 91,280,465
------------------------------------------
COSTS AND EXPENSES
Cost of sales, equipment 47,157,230 28,401,639
Cost of sales, leased equipment 73,630,008 38,888,847
------------------------------------------
120,787,238 67,290,486
Direct lease costs 5,221,414 4,889,244
Professional and other fees 894,587 723,152
Salaries and benefits 8,508,006 7,415,657
General and administrative expenses 3,618,588 3,057,796
Interest and financing costs 2,498,012 1,372,020
Non-recurring acquisition costs - 222,557
------------------------------------------
20,740,607 17,680,426
------------------------------------------
TOTAL COSTS AND EXPENSES 141,527,845 84,970,912
------------------------------------------
EARNINGS BEFORE PROVISION FOR INCOME TAXES 8,002,743 6,309,553
------------------------------------------
PROVISION FOR INCOME TAXES 3,201,099 1,722,717
------------------------------------------
NET EARNINGS $ 4,801,644 $ 4,586,836
==========================================
NET EARNINGS PER COMMON SHARE - BASIC $ 0.73 $ 0.76
==========================================
NET EARNINGS PER COMMON SHARE - DILUTED $ 0.72 $ 0.75
==========================================
PRO FORMA NET EARNINGS (See Note 4) $ 4,801,644 $ 3,973,575
==========================================
PRO FORMA NET EARNINGS PER COMMON SHARE - BASIC $ 0.73 $ 0.66
==========================================
PRO FORMA NET EARNINGS PER COMMON SHARE - DILUTED $ 0.72 $ 0.65
==========================================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 6,540,359 6,017,920
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 6,648,754 6,127,933
See Notes to Condensed Consolidated Financial Statements.
4
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MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Nine Months Ended
December 31,
1998 1997
-------------------------------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net earnings $ 4,801,644 $ 4,586,836
Adjustments to reconcile net earnings to net cash (used in) provided by
operating activities:
Depreciation and amortization 3,850,449 3,443,864
Provision for credit losses 500,000 (13,865)
Gain on sale of operating lease equipment (5,267) (92,800)
Loss on disposal of property and equipment 9,809 -
Adjustment of basis to fair market value of equipment and investments 268,506 -
Payments from lessees directly to lenders (771,465) (1,375,099)
Compensation to outside directors - stock options - 18,283
Changes in assets and liabilities, net of effects of purchase acquisition:
Accounts receivable (5,837,220) (2,311,932)
Other receivables (2,811,095) 368,656
Employee advances 26,630 (6,649)
Inventories 1,036,507 (181,764)
Other assets (2,764,961) (1,216,167)
Accounts payable - equipment (1,397,591) 5,581,535
Accounts payable - trade (2,032,538) (496,075)
Salaries and commissions payable, accrued
expenses and other liabilities 2,195,466 (399,557)
-------------------------------------
Net cash (used in) provided by operating activities (2,931,126) 7,905,266
-------------------------------------
Cash Flows From Investing Activities:
Proceeds from sale of operating lease equipment 22,151 609,722
Purchase of operating lease equipment (1,824,989) (1,987,058)
Increase in investment in direct financing and sales-type leases (66,557,986) (6,373,493)
Purchases of property and equipment (915,346) (428,952)
Proceeds from sale of property and equipment 2,000 -
Cash used in acquisition, net of cash acquired (3,485,279) -
Increase in other assets (709,216) (353,181)
-------------------------------------
Net cash used in investing activities (73,468,665) (8,532,962)
-------------------------------------
Cash Flows From Financing Activities:
Borrowings:
Nonrecourse 53,236,003 3,587,039
Recourse 319,586 174,894
Repayments:
Nonrecourse (3,640,341) (3,364,608)
Recourse (136,833) (161,282)
Distributions to shareholders of combined companies
prior to business combination - (1,021,012)
Proceeds from issuance of capital stock, net of expenses 177,931 -
Proceeds from sale of stock, net of underwriting costs 9,725,742 2,000,000
Proceeds from lines of credit 5,440,157 362,000
-------------------------------------
Net cash provided by financing activities 65,122,245 1,577,031
-------------------------------------
5
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MLC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED - Continued
Nine Months Ended
December 31,
1998 1997
-------------------------------------
<S> <C> <C>
Net (Decrease) Increase in Cash and Cash Equivalents (11,277,546) 949,335
Cash and Cash Equivalents, Beginning of Period 18,683,796 6,654,209
-------------------------------------
Cash and Cash Equivalents, End of Period $ 7,406,250 $ 7,603,544
=====================================
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 990,676 $ 116,787
=====================================
Cash paid for income taxes $ 2,443,818 $ 257,137
=====================================
See Notes To Condensed Consolidated Financial Statements.
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MLC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated interim financial statements of MLC Holdings, Inc.
and subsidiaries (the "Company") included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission and reflect all adjustments that are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
All adjustments made were normal, recurring accruals.
These interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K (No. 0-28926) for the year ended March 31, 1998 (the "Company's
1998 Form 10-K"). Operating results for the interim periods are not necessarily
indicative of results for an entire year.
2. INVESTMENT IN DIRECT FINANCING AND SALES TYPE LEASES
The Company's investment in direct financing and sales type leases consists of
the following components:
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<CAPTION>
December 31, March 31,
1998 1998
------------------ ------------------
(In thousands)
<S> <C> <C>
Minimum lease payments $ 69,079 $ 29,968
Estimated unguaranteed residual value 15,218 7,084
Initial direct costs - net of amortization 1,452 760
Less: Unearned lease income (10,122) (5,270)
Reserve for credit losses (546) (46)
================== ==================
Investment in direct financing and sales type leases - net $ 75,081 $ 32,496
================== ==================
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3. INVESTMENT IN OPERATING LEASE EQUIPMENT
The components of the net investment in operating lease equipment are as
follows:
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<CAPTION>
December 31, March 31,
1998 1998
----------------- ------------------
(In thousands)
<S> <C> <C>
Cost of equipment under operating leases $ 14,808 $ 13,990
Initial direct costs 29 51
Accumulated depreciation and amortization (9,219) (6,745)
----------------- ------------------
Investment in operating leases - net $ 5,618 $ 7,296
================= ==================
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4. UNAUDITED PRO FORMA INCOME TAX INFORMATION
The following unaudited pro forma income tax information is presented in
accordance with Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes," as if the pooled companies, which were subchapter S
corporations prior to their business combinations with the Company, had been
subject to federal income taxes throughout the periods presented.
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Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
------------ -------------- ------------- ---------------
(In Thousands)
Net earnings before pro forma
<S> <C> <C> <C> <C>
adjustment $ 1,698 $ 1,277 $ 4,802 $ 4,587
Additional provision for income tax - - - 613
Pro forma net income ----------------------------------------------------
$ 1,698 $1,277 $ 4,802 $ 3,974
============ ============== ============= ===============
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5. NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for the reporting and presentation of comprehensive income
and its components in financial statements by requiring minimum pension
liability adjustments, unrealized gains or losses on available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive earnings. The Company currently has no items of other
comprehensive income to be reported.
8
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6. BUSINESS COMBINATION
On July 1, 1998, the Company, through a new wholly owned subsidiary, MLC Network
Solutions of Virginia, Inc., issued 263,478 common shares, valued at $3,622,822,
and cash of $3,622,836 for all the outstanding common shares of PC Plus, Inc., a
value-added reseller of PC's , related network equipment and software products
and provider of various support services to its customers from its facility in
Reston, Virginia. Subsequent to the acquisition, MLC Network Solutions of
Virginia, Inc. changed its name to PC Plus, Inc. This business combination has
been accounted for using the purchase method of accounting, and accordingly, the
results of operations of PC Plus, Inc. have been included in the Company's
consolidated financial statements from July 1, 1998. The Company's other assets
include goodwill calculated as the excess of the purchase price over the fair
value of the net identifiable assets acquired of $6,045,330, and is being
amortized on a straight-line basis over 27.5 years.
The following unaudited pro forma financial information presents the combined
results of operations of PC Plus, Inc. as if the acquisition had occurred as of
the beginning of the nine months ended December 31, 1998 and 1997, after giving
effect to certain adjustments, including amortization of goodwill. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the Company and PC Plus, Inc. constituted a single
entity during such periods.
Nine Months Ended December 31,
( in thousands)
1998 1997
--------------- -------------
Total Revenues $161,469 $116,506
Net Earnings 5,021 5,197
Net Earnings per Common Share - Basic .77 .83
Net Earnings per Common Share - Diluted .76 .81
7. OTHER DEVELOPMENT
The Company has two major customers who have filed for voluntary bankruptcy
protection. The largest is Allegheny Health, Education & Research Foundation
("AHERF") which is a Pittsburgh based not-for-profit hospital entity. The
bankruptcy court has held an auction and Tenet Healthcare, Inc. acquired AHERF's
assets. As of December 31, 1998, the Company's net book value of leases to AHERF
is approximately $1,874,000 and receivable balance is approximately $478,000.
The Company believes that the fair market value of the equipment is below its
current book balances. Depending on the decisions by the Bankruptcy Trustee and
the creditor status and ultimate repayment schedule of other claims, upon
disposal of the equipment and disposition of its claims, the Company will
probably sustain a loss, and has accordingly provided for such loss in the
statement of earnings for the nine month period ended December 31, 1998. The
amount and timing of such loss cannot be accurately estimated by the Company at
this time due to the recent filing and unknown status of many of its claims. The
Company has received a deposit on the purchase of the leased equipment from
Tenet Healthcare, Inc. which represents the total cash consideration for the
future transfer of title of the equipment once the bankruptcy court makes the
equipment available for liquidation. During the quarter ending December 31,
1998, PHP Healthcare, Inc. a lessee of the Company, was placed in receivership
by the New Jersey Insurance Commission which led to them filing for voluntary
9
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bankruptcy protection. The Company has a net book value of assets totaling
approximately $359,000 at risk with this lessee. The remainder of the lease risk
is the financial responsibility of the non-recourse lenders. The Company is
vigorously pursuing all available remedies in bankruptcy court for all prior
claims against these bankrupt lessees. The Company believes that as of December
31, 1998, its reserves are adequate to provide for the potential losses
resulting from these customers.
8. PRIVATE PLACEMENT OF EQUITY
On October 23, 1998, the Company issued 1,111,111 shares of unregistered common
stock to a single investor in a private placement for cash consideration of
$10,000,000 (per share price of $9.00). The investor also received a warrant to
purchase an additional 1,090,909 shares of common stock at an exercise price of
$11.00 per share. The warrant expires December 31, 2001.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion and analysis compares the consolidated results of
operations for the nine- and three-month periods ended December 31, 1998 to the
nine- and three-month periods ended December 31, 1997. The operating results of
these nine- and three-month periods are not necessarily indicative of operating
results in future periods. The following comparative information should be read
in conjunction with the Condensed Consolidated Financial Statements and
accompanying Notes, as well as the information presented elsewhere herein and in
the financial statements and related notes for the year ended March 31, 1998
included in the Company's 1998 Form 10-K.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
The statements contained in this report which are not historical facts may be
deemed to contain forward-looking statements with respect to events, the
occurrence of which involve risks and uncertainties, including, without
limitation, demand and competition for the Company's lease financing services
and the products to be leased by the Company, the continued availability to the
Company of adequate financing, the ability of the Company to recover its
investment in equipment through re-marketing, the ability of the Company to
manage its growth, and other risks or uncertainties detailed in the Company's
Securities and Exchange Commission filings.
The Company's results of operations are susceptible to fluctuations for a number
of reasons, including, without limitation, differences between estimated
residual values and actual amounts realized related to the equipment the Company
leases. Operating results could also fluctuate as a result of the sale by the
Company of equipment in its lease portfolio prior to the expiration of the lease
term to the lessee or to a third party. Such sales of leased equipment prior to
the expiration of the lease term may have the effect of increasing revenues and
net earnings during the period in which the sale occurs, and reducing revenues
and net earnings otherwise expected in subsequent periods.
RESULTS OF OPERATIONS - Three and Nine Months Ended December 31, 1998, Compared
to Three and Nine Months Ended December 31, 1997
Total revenues generated by the Company during the three month period ended
December 31, 1998 were $69,946,693 compared to revenues of $23,563,409 during
the comparable period in the prior fiscal year, an increase of 196.84%. During
the nine month period ended December 31, total revenues were $149,530,588 and
$91,280,465 in 1998 and 1997, respectively, an increase of 63.81%. The Company's
revenues are composed of sales and other revenue, and may vary considerably from
period to period (See "POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS").
Sales revenue, which includes sales of equipment and sales of leased equipment,
increased 251.92% to $63,688,706 during the three month period ended December
31, 1998, as compared to $18,097,358 in the corresponding period in the prior
fiscal year. For the nine month period ended December 31, 1998, sales increased
72.02% to $130,353,155 over the corresponding period in the prior year.
11
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During the three months ended December 31, 1998 and 1997, sales to MLC/CLC LLC,
an institutional equity partner of the Company, accounted for 100% of sales of
leased equipment for both periods. During the nine month periods ended December
31, sales to MLC/CLC LLC accounted for 100% and 85.9% of 1998 and 1997 sales of
leased equipment, respectively. Sales to the Company's equity joint ventures
require the consent of the relevant joint venture partner. While management
expects the continued availability of equity financing through this joint
venture, if such consent is withheld, or financing from this entity otherwise
becomes unavailable, it could have a material adverse effect upon the Company's
business, financial condition, results of operations and cash flows until other
equity financing arrangements are secured.
Sales of equipment, both new and used, are generated through the Company's
equipment brokerage and re-marketing activities, and through its valued added
reseller ("VAR") subsidiaries. Sales of equipment increased during the three
month period (137.42%) $14,836,069 compared to the corresponding period in the
prior fiscal year. For the fiscal year to date through December 31, equipment
sales increased 53.6% to $55,740,476. On a pro forma basis, had PC Plus, Inc.'s
equipment sales been included throughout the periods presented, equipment sales
would have increased 22.34% and 53.42% during the three and nine month periods
ended December 31, 1998 as compared to the comparable periods in the prior
fiscal year. The Company's brokerage and re-marketing activities accounted for
2.11% and 25.1% of equipment sales during the three month period in 1998 and
1997, respectively. During the nine month periods ended December 31, brokerage
and re-marketing activities accounted for 3.2% and 18.6% of 1998 and 1997 sales,
respectively. Brokerage and re-marketing revenue can vary significantly from
period to period, depending on the volume and timing of transactions, and the
availability of equipment for sale. Sales of equipment through the Company's VAR
subsidiaries accounted for the remaining portion of equipment sales.
The Company realized a gross margin on sales of equipment of 13.6% and 15.4% for
the three and nine month periods ended December 31, 1998, respectively, as
compared to a gross margin of 23.0% and 21.7% realized on sales of equipment
generated during the three and nine month periods, respectively, in the prior
fiscal year. This decrease in net margin percentage can be attributed to the
Company's July 1, 1998 acquisition of PC Plus, Inc., who has a concentration of
higher volume customers with lower gross margin percentages. The Company's gross
margin on sales of equipment can be effected by the mix and volume of products
sold.
The gross margin generated on sales of leased equipment represent the sale of
the equity portion of equipment placed under lease and can vary significantly
depending on the nature, and timing of the sale, as well as the timing of any
debt funding recognized in accordance with SFAS No. 125. For example, a lower
margin or a loss on the equity portion of a transaction is often offset by
higher lease earnings and/or a higher gain on the debt funding recognized under
SFAS No. 125. Additionally, leases which have been debt funded prior to their
equity sale will result in a lower sales and cost of sale figure, but the net
earnings from the transaction will be the same as had the deal been debt funded
subsequent to the sale of the equity. During the three month period ended
December 31, 1998, the Company recognized a gross margin of $576,821 on equity
sales of $38,053,115 as compared to a net loss of $9,060 on equity sales of
$7,299,836 during the same period in the prior fiscal year. For the fiscal year
to date through December 31, 1998, the Company recognized a gross margin of
$982,671 on equity sales of $74,612,679, as compared to a gross margin of
$597,501 on equity sales of $39,486,348 during the same period in the prior
fiscal year.
12
<PAGE>
The Company's lease revenues increased 24.76% to $4,745,035 for the three-month
period ended December 31, 1998, compared with the corresponding period in the
prior fiscal year. For the fiscal year to date through December 31, lease
revenues increased 36.04% to $14,994,505 for the 1998 period compared to the
same period in 1997. This increase consists of increased lease earnings and
rental revenues reflecting a higher average investment in direct financing and
sales type leases. The investment in direct financing and sales type leases at
December 31, 1998 and March 31, 1998 were $75,080,815 and $32,495,594,
respectively. The December 31, 1998 balance represents an increase of
$42,585,221 or 131.05% over the balance as of March 31, 1998. In addition, lease
revenue includes the gain or loss on the sale of certain financial assets, as
required under the provisions of Statement of Financial Accounting Standard No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," ("SFAS No. 125") which was effective beginning
January 1, 1997. During the three and nine month periods ending December 31,
1998, fewer of the Company's debt funding transactions qualified for gain on
sale treatment prescribed under SFAS No. 125 as compared to the comparable
periods in the prior fiscal year.
For the three and nine months ended December 31, 1998, fee and other income
decreased 9.00% and 6.67%, respectively, over the comparable period in the prior
fiscal year. This decrease is attributable to decreases in revenues from adjunct
services and fees, including broker fees, support fees, warranty reimbursements,
and learning center revenues generated by the Company's VAR subsidiaries.
Included in the Company's fee and other income are earnings from certain
transactions which are in the Company's normal course of business but there is
no guarantee that future transactions of the same nature, size or profitability
will occur. The Company's ability to consumate such transactions, and the timing
thereof, may depend largely upon factors outside the direct control of
management. The earnings from these types of transactions in a particular period
may not be indicative of the earnings that can be expected in future periods.
The Company's direct lease costs increased 6.79% during the nine month periods
ended December 31, 1998 as compared to the same period in the prior fiscal year.
There was a slight decrease, less than 1%, in direct lease costs for the three
month period ended December 31, 1998 as compared to December 31, 1997. Although
the largest component of direct lease costs is depreciation on operating lease
equipment, the increase is primarily attributable to an increase in the
allowance for doubtful accounts due to the increased business volume of leases
and retained lease portfolio and increased amortization of initial direct costs.
Salaries and benefits expenses increased 18.07% during the three month period
ended December 31, 1998 over the same period in the prior year. For the fiscal
year to date through December 31, 1998, salaries and benefits had increased
14.73% over the prior year. These increases reflect both the higher commission
expenses in the value added reseller businesses and the increased number of
personell employed by the Company.
Interest and financing costs incurred by the Company for the three and nine
months ended December 31, 1998 amounted to $1,140,617 and $2,498,012,
respectively, and relate to interest costs on the Company's lines of credit and
notes payable. Payment for interest costs on the majority of non-recourse and
13
<PAGE>
certain recourse notes are typically remitted directly to the lender by the
lessee. The increase in interest and financing costs are primarily due to the
Company's increased utilization of its operating lines of credit during the
three and nine month periods in the current fiscal year as compared to the prior
fiscal year.
The Company's provision for income taxes increased to $1,131,934 for the three
months ended December 31, 1998 from $850,584 for the three months ended December
31, 1997, reflecting effective income tax rates of 40% for both periods. For the
nine months ended December 31, 1998, the Company's provision for income tax was
$3,201,099 as compared to $1,722,717 during the comparable period in the prior
year, reflecting effective income tax rates of 40% and 27.3%, respectively. The
low effective income tax rate for December 31, 1997 was primarily due to the
inclusion of the net earnings of businesses acquired by the Company, which prior
to their combination with the Company had elected subchapter S corporation
status, and as such, were not previously subject to federal income tax. Pro
forma tax expense, adjusted as if the Company's subsidiaries which were
previously subchapter S corporations had been subject to income tax for the
three and nine months ended December 31, 1997, would have increased the expense
by approximately $-0- and $613,261.
The foregoing resulted in a 32.91% and 4.68% increase in net earnings for the
three and nine month periods ended December 31, 1998, respectively, as compared
to the same periods in the prior fiscal year after taking into consideration the
pro forma tax expense.
Basic and fully diluted earnings per common share were $.24 for the three months
ended December 31, 1998, as compared to $.21 for the three months ended December
31, 1997, based on weighted average common shares outstanding of 7,189,324 and
7,220,060, respectively, for 1998, and 6,071,305 and 6,188,990, respectively,
for 1997. For the fiscal year to date through December 31, 1998, the Company's
basic and fully diluted earnings per common share were $.73 and $.72,
respectively, as compared to $.76 and $.75, respectively, for the same period in
1997, based on weighted average common shares outstanding of 6,540,359 and
6,648,754, respectively, for 1998, and 6,017,920 and 6,127,933 respectively, for
1997.
LIQUIDITY AND CAPITAL RESOURCES
During the nine month period ended December 31, 1998, the Company used cash
flows in operations of $2,931,126, and used cash flows from investing activities
of $73,468,665. Cash flows generated by financing activities amounted to
$65,122,245 during the same period. The net effect of these cash flows was a net
decrease in cash and cash equivalents of $11,277,546 during the nine month
period. During the same period, the Company's total assets increased
$54,524,577, or 65.54%, primarily the result of increases in direct financing
leases and the acquisition of PC Plus, Inc., a wholly owned subsidiary, on July
1, 1998. The Company's net investment in operating lease equipment decreased
during the period, as the decrease in book value, primarily due to depreciation,
outpaced new investment in operating lease equipment.
The financing necessary to support the Company's leasing activities has
principally been provided from non-recourse and recourse borrowings.
Historically, the Company has obtained recourse and non-recourse borrowings from
money centers, regional banks, insurance companies, finance companies and
financial intermediaries.
The Company's "Accounts payable - equipment" represents equipment costs that
have been placed on a lease schedule, but for which the Company has not yet
paid. The balance of unpaid equipment cost can vary depending on vendor terms
and the timing of lease originations. As of December 31, 1998, the Company had
$18,931,416 of unpaid equipment cost, as compared to $21,283,582 at March 31,
1998.
14
<PAGE>
Prior to the permanent financing of its leases, interim financing has been
obtained through short-term, secured, recourse facilities. From June 5, 1997
until December 18, 1998, the Company had entered into the First Union Facility
with First Union National Bank, N.A., for a maximum facility limit of $35
million which bore interest at LIBOR+110 basis points, or, at the Company's
option, prime minus one percent. On December 18, 1998, MLC Holdings, Inc., with
its two wholly-owned subsidiaries, MLC Group, Inc., and MLC Federal, Inc., as
co-borrowers finalized and executed documents establishing a $50,000,000
committed recourse line of credit with First Union National Bank. Under the
terms of the successor First Union Credit Facility, a maximum amount of $50
million is available to MLC, though each draw is subject to the availability of
sufficient collateral in the borrowing base. The First Union Credit Facility is
evidenced by a credit agreement, dated as of December 31, 1998, a security
agreement and a pledge agreement both dated as of December 18, 1998. Borrowings
under the First Union Credit Facility will bear interest at LIBOR + 150 basis
points, or, at the Company's option, prime minus one-half percent. The Credit
Facility is secured by certain of the three company's assets such as chattel
paper (including leases), receivables, inventory, and equipment. In addition,
MLC Holdings, Inc. has entered into pledge agreements to pledge the common stock
of each of its subsidiaries. The availability of the line is subject to a
borrowing base, which consists of inventory, receivables, purchased assets, and
leases. Availability under the revolving lines of credit may be limited by the
asset value of equipment purchased by MLC and may be further limited by certain
covenants and terms and conditions of the facilities. In the event that MLC is
unable to sell the equipment or unable to finance the equipment on a permanent
basis within a certain period of time, the availability of credit under the
lines could be diminished or eliminated. Furthermore, in the event that
receivables collateralizing the line are uncollectible, MLC would be responsible
for repayment of the lines of credit. The First Union Credit Facility contains a
number of covenants binding on MLC requiring, among other things, minimum
tangible net worth, cash flow coverage ratios, maximum debt to equity ratio,
maximum amount of guarantees of subsidiary obligations, mergers, acquisitions,
and asset sales. The Credit Facility is a full recourse facility, secured by
first-priority blanket liens on all of MLC's assets. Availability under the
revolving lines of credit may be limited by the asset value of equipment
purchased by the Company and may be further limited by certain covenants and
terms and conditions of the facilities. The new First Union Credit Facility
expires on December 18, 1999. Other participants in the First Union Credit
Facility, each for $7,000,000, are: Riggs Bank, N.A., Key Bank, N.A., Summit
Bank, N.A., Bank Leumi USA, and Wachovia Bank., N.A.
As of December 31, 1998, the Company had an outstanding balance of $17,000,000
on the First Union Facility.
The Company's subsidiaries, MLC Network Solutions, Inc. and MLC Integrated,
Inc., and it's recently acquired subsidiary, PC Plus, Inc., have separate credit
sources to finance their working capital requirements for inventories and
accounts receivable. Their traditional business as value-added resellers of PC's
and related network equipment and software products is financed through
agreements known as "floor planning" financing where interest expense for the
first thirty to forty days is charged to the supplier/distributor but not the
reseller. These floor plan liabilities are recorded under accounts payable as
they are normally repaid within the thirty to forty day time frame and represent
an assigned accounts payable originally generated with the supplier/distributor.
If the thirty to forty day obligation is not timely liquidated, interest is then
assessed at stated contractual rates. As of December 31, 1998, MLC Network
Solutions, Inc., has floor planning availability of $2,600,000 through Deutsche
Financial, Inc. and $225,000 from IBM Credit Corporation. The outstanding
balances to these respective suppliers were $1,047,889 and $32,898 as of
December 31, 1998. MLC Integrated, Inc. has floor planning availability of
$3,000,000 from FINOVA Capital Corporation and $750,000 through IBM Credit
Corporation. The outstanding balances to these respective suppliers were
$2,045,545, and $197,640 as of December 31, 1998. In addition, MLC Integrated,
15
<PAGE>
Inc. has a line of credit in place, expiring on July 31, 1999, with PNC Bank,
N.A. to provide an asset based credit facility. The line has a maximum credit
limit of $2,500,000 and interest is based on the bank's prime rate. The
outstanding balance was $1,179,000 as of December 31, 1998. PC Plus, Inc. has
floor planning availability of $6,000,000 through NationsCredit Commercial
Corporation as of December 31, 1998. This agreement expires October 1, 1999. The
outstanding balance to this supplier was $1,956,344 as of December 31, 1998.
Non-recourse debt and debt that is partially recourse is provided by various
lending institutions. The Company has formal programs with Heller Financial,
Inc., Key Corporate Capital, Inc., and Sanwa Business Credit Corporation. These
programs require that each transaction is specifically approved and done solely
at the lender's discretion.
Through MLC/CLC, LLC, the Company has a formal joint venture agreement which
provides the equity investment financing for certain of the Company's
transactions. Firstar Equipment Finance Company ("FEFCO"), formerly Cargill
Leasing Corporation, is an unaffiliated investor which owns 95% of MLC/CLC, LLC.
FEFCO's parent company, Firstar Corporation, is a $20 billion bank holding
company which is publicly traded on the New York Stock Exchange under the symbol
"FSR". This joint venture arrangement enables the Company to invest in a
significantly greater portfolio of business than its limited capital base would
otherwise allow. A significant portion of the Company's revenue generated by the
sale of leased equipment is attributable to sales to MLC/CLC, LLC. (See "RESULTS
OF OPERATIONS").
The Company's debt financing activities typically provide approximately 80% to
100% of the purchase price of the equipment purchased by the Company for lease
to its customers. Any balance of the purchase price (the Company's equity
investment in the equipment) must generally be financed by cash flow from its
operations, the sale of the equipment lease to MLC/CLC,LLC , or other internal
means of financing. Although the Company expects that the credit quality of its
leases and its residual return history will continue to allow it to obtain such
financing, no assurances can be given that such financing will be available, at
acceptable terms, or at all.
The Company anticipates that its current cash on hand, operations and additional
financing available under the Company's credit facilities will be sufficient to
meet the Company's liquidity requirements for its operations through the
remainder of the fiscal year. However, the Company intends to continue pursuing
additional acquisitions, which are expected to be funded through a combination
of cash and the issuance by the Company of shares of its common stock. To the
extent that the Company elects to pursue acquisitions involving the payment of
significant amounts of cash (to fund the purchase price of such acquisitions and
the repayment of assumed indebtedness), the Company is likely to require
additional sources of financing to fund such non-operating cash needs.
16
<PAGE>
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results and the market price of its
stock may fluctuate. In the event the Company's revenues or earnings for any
quarter are less than the level expected by securities analysts or the market in
general, such shortfall could have an immediate and significant adverse impact
on the market price of the Company's stock. Any such adverse impact could be
greater if any such shortfall occurs near the time of any material decrease in
any widely followed stock index or in the market price of the stock of one or
more public equipment leasing and financing companies or major customers or
vendors of the Company.
The Company's quarterly results of operations are susceptible to fluctuations
for a number of reasons, including, without limitation, any reduction of
expected residual values related to the equipment under the Company's leases,
timing of specific transactions and other factors. Quarterly operating results
could also fluctuate as a result of the sale by the Company of equipment in its
lease portfolio, at the expiration of a lease term or prior to such expiration,
to a lessee or to a third party. Such sales of equipment may have the effect of
increasing revenues and net income during the quarter in which the sale occurs,
and reducing revenues and net income otherwise expected in subsequent quarters.
Given the possibility of such fluctuations, the Company believes that
comparisons of the results of its operations to immediately succeeding quarters
are not necessarily meaningful and that such results for one quarter should not
be relied upon as an indication of future performance.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during the first three quarters of fiscal 1999.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The future operating results of the Company may be affected by a number of
factors, including the matters discussed below:
The Company's strategy depends upon acquisitions and organic growth to increase
its earnings. There can be no assurance that the Company will complete
acquisitions in a manner that coincides with the end of its fiscal quarters. The
failure to complete acquisitions on a timely basis could have a material adverse
effect on the Company's quarterly results. Likewise, delays in implementing
planned integration strategies and cross selling activities also could adversely
affect the Company's business, financial condition, results of operations and
cash flows.
In addition, there can be no assurance that acquisitions will occur at the same
pace as in prior periods or be available to the Company on favorable terms, if
at all. If the Company is unable to use the Company's common stock as
consideration in acquisitions, for example, because it believes that the market
price of the common stock is too low or because the owners of potential
acquisition targets conclude that the market price of the Company's common stock
is too volatile, the Company would need to use cash to make acquisitions, and,
therefore, would be unable to negotiate acquisitions that it would account for
under the pooling-of-interests method of accounting (which is available only for
all-stock acquisitions). This might adversely affect the pace of the Company's
acquisition program and the impact of acquisitions on the Company's business,
financial condition, results of operations and cash flows. In addition, the
consolidation of the equipment leasing business has reduced the number of
companies available for sale, which could lead to higher prices being paid for
the acquisition of the remaining domestic, independent companies. The failure to
acquire additional businesses or to acquire such businesses on favorable terms
in accordance with the Company's growth strategy could have a material adverse
impact on future sales and profitability.
17
<PAGE>
There can be no assurance that companies that have been acquired or that may be
acquired in the future will achieve sales and profitability levels that justify
the investment therein. Acquisitions may involve a number of special risks that
could have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows, including adverse short-term
effects on the Company's reported operating results; diversion of management's
attention; difficulties with the retention, hiring and training of key
personnel; risks associated with unanticipated problems or legal liabilities;
and amortization of acquired intangible assets.
The Company has increased the range of products and services it offers through
acquisitions of companies offering products and services that are complementary
to the core financing and equipment brokering services that the Company has
offered since it began operations. The Company's ability to manage an aggressive
consolidation program in markets other than domestic equipment financing has not
yet been fully tested. The Company's efforts to sell additional products and
services to existing customers are in their early stages and there can be no
assurance that such efforts will be successful. In addition, the Company expects
that certain of its products and services will not be easily cross-sold and may
be marketed and sold independently of other products and services.
The Company's acquisition strategy has resulted in a significant increase in
sales, employees, facilities and distribution systems. While the Company's
decentralized management strategy, together with operating efficiencies
resulting from the elimination of duplicative functions and economies of scale,
may present opportunities to reduce costs, such strategies may initially
necessitate costs and expenditures to expand operational and financial systems
and corporate management administration. The various costs and possible
cost-savings strategies may make historical operating results not indicative of
future performance. There can be no assurance that the Company's executive
management group can continue to oversee the Company and effectively implement
its operating or growth strategies in each of the markets that it serves. In
addition, there can be no assurance that the pace of the Company's acquisitions,
or the diversification of its business outside of its core leasing operations,
will not adversely affect the Company's efforts to implement its cost-savings
and integration strategies and to manage its acquisitions profitability.
The Company operates in a highly competitive environment. In the markets in
which it operates, the Company generally competes with a large number of
smaller, independent companies, many of which are well-established in their
markets. Several of its large competitors operate in many of its geographic and
product markets, and other competitors may choose to enter the Company's
geographic and product markets in the future. No assurances can be give that
competition will not have an adverse effect on the Company's business.
18
<PAGE>
YEAR 2000 ISSUE
The Company has identified all significant hardware and software applications,
both IT and non-IT based, that will require upgrade or modification to ensure
Year 2000 compliance. The upgrade and/or modification of the majority of these
systems is substantially complete. The Company plans on completing the process
of modifying and/or upgrading its remaining systems by March 31, 1999. The total
cost of these Year 2000 compliance activities has not been, nor is it
anticipated to become, material to the Company's financial position, results of
operations or cash flows in any given year.
The Company recognizes the risks surrounding its own Year 2000 readiness, for
which it believes it has adequately addressed, as well as the risks arising from
the failure of third parties with whom it has a material relationship to
remediate their own Year 2000 issues. While the risks of third party
non-compliance may temporarily affect the ability of a third party to transact
business with the Company, the Company believes such risks are adequately
mitigated by its own contingency plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Under Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
20
<PAGE>
Item 6(a) Exhibits
Exhibit
Number Description Page
-------------- ---------------------------------------------------------------
10.28 Sublease by and between Cisco Systems ("Tenant")
and MLC Holdings, Inc. ("Subtenant")
27 Financial Data Schedule
Item 6(b) Reports on Form 8-K
During the third fiscal quarter covered by this report, the Company
filed the ollowing Current Reports on form 8-K:
Form 8-K dated October 23, 1998 and filed with the Commission on
November 13, 1998, reporting interim information regarding the issuance
of 1,111,111 shares of common stock in a private placement. No financial
statements were included.
Form 8-K dated December 18, 1998 and filed with the Commission on
December 31, 1998, reporting the establishment of a $50,000,000 line
of credit with First Union National Bank. No financial statements were
included.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
MLC Holdings, Inc.
/s/ PHILLIP G. NORTON
By: Phillip G. Norton, Chairman of the Board,
President and Chief Executive Officer
Date: February 10, 1999
/s/ STEVEN J. MENCARINI
By: Steven J. Mencarini, Senior Vice President
and Chief Financial Officer
Date: February 10, 1999
22
Cisco Systems. Inc,
170 West Tasman Drive
San Jose, California 95134-1706
Attn: Director, Worldwide Real Estate
Re: Proposed Sublease by and between Cisco Systems, Inc.
("Tenant") and MLC Holdings. Inc. ("Subtenant")
Dear Sir/Madam:
In accordance with the terms of Section 4.16 of the Lease dated
as of January 12, 1996, as amended (the "Master Lease") by and between
Tenant and TrizecHahn Spring Park/Sugarland Limited Partnership, a
Virginia limited partnership ("Landlord"), as successor in interest to The
Riggs National Bank of Washington, D.C., as Trustee of the Multi-Employer
Property Trust, a trust organized under 12 C.F.R. Section 9.18. Landlord
is willing to consent to the proposed Sublease by and between Tenant and
Subtenant, a copy of which is attached hereto as Exhibit "A" and made a
part hereof (hereinafter the "Proposed Sublease"), upon the terms and
conditions set forth below, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THE PROPOSED SUBLEASE. The Proposed Sublease as modified by this letter is
hereinafter referred to as the "Sublease".
1. Subtenant shall indemnify Landlord and its agents against all
claims, damages, costs and expenses arising out of Subtenant's failure to
perform or observe any of the terms and conditions of the Master Lease
which relate to the premises which are the subject of the Sublease
(hereinafter the "Subleased Premises"), and further agrees that if
Subtenant breaches any of such terms and conditions, Landlord shall have
all remedies against Subtenant available to Tenant thereunder. The
Sublease is in all respects subject and subordinate to the Master Lease.
<PAGE>
Cisco Systems. Inc.
October ___, 1998
Page 2
2. Tenant and Subtenant shall provide written notice to Landlord
of any extension of the Sublease in accordance with the terms thereof
prior to the commencement of any such additional term.
3. During the term of the Sublease, Tenant shall immediately
deliver to Subtenant copies of any and all notices of default of any kind
or nature delivered to or received from Landlord. Tenant represents and
warrants no Landlord that the Master Lease is in full force and effect and
that Tenant has no rights at offset or any other defenses against Landlord
to the full enforcement of the Master Lease in accordance with its terms.
4. Subtenant shall obtain and at all times during the term of the
Sublease maintain, at its sole cost and expense, policies or insurance
covering its fixtures, property and equipment installed and located in the
Subleased Premises, in such amounts as are set forth in the Master Lease.
Subtenant shall provide and keep in force during the term of the Sublease
with a company or companies approved by the Landlord a comprehensive
general liability insurance policy as set forth in the Master Lease. All
such polices of insurance shall name Tenant, Landlord and Landlord's
management agent as additional insureds.
5. Subtenant agrees that it will not assign or encumber, or
permit to be encumbered. its right or interests under the Sublease, nor
sublet the whole or any part of the Subleased Premises, without the prior
written consent of Landlord, which consent may be granted or withheld in
Landlord's sole and absolute discretion.
6. No provision of the Sublease may be amended except in a
writing signed by Tenant and Subtenant and consented to by Landlord, which
consent shall not be unreasonably denied, conditioned or delayed;
provided, however, that so long as an amendment does not, and would not
have the effect of, increasing any of Landlord's obligations or abridging
any of Landlord's rights under the Master Lease, Landlord's consent shall
not be required with respect to any amendment of (a) Section 2 of the
proposed Sublease it the same does not have the effect of causing the term
of the Sublease to extend beyond the expiration of the term of the Master
Lease, or (b) Sections 3, 4.c., 6, 7, 11, 14.e., and 14.g. of the Proposed
Sublease, so long as no such agreement results in, or purports to effect a
diminution of, or other adverse effect on, the rights of Landlord under
the Master Lease.
<PAGE>
Cisco Systems, Inc.
October __, 1998
Page 3
7. Neither the Master Lease nor the Sublease shall be deemed to
grant Subtenant any rights whatsoever against Landlord. Subtenant
acknowledges and agrees that its sole remedy for any alleged or actual
breach of its rights in connection with the Sublease shall be solely
against Tenant.
8. The Sublease shall not release Tenant from any existing or
future duty, obligation or liability to Landlord pursuant to the Master
Lease, nor shall the Sublease change, modify or amend the Master Lease in
any manner. In particular the Sublease shall not absolve (a) Tenant from
the requirements set forth (i) in Section 4.4 of the Master Lease that
Tenant obtain Landlord's prior written approval for Tenant Alterations (as
such term is defined in said Section 4.4) to the Subleased Premises, as
applicable. including, but not limited to, those contemplated by the
proposed Sublease, if any, and that any such Tenant Alterations comply
with the requirements set forth in Sections 4.4 and 4.5 of the Master
Lease, and (ii) in Section 4.16 of the Master Lease that Tenant obtain
Landlord's prior written approval for any further Subleases, or (b)
Subtenant from the requirements set forth in Sections 4.4, 4.5 and 4.16 of
the Master Lease. Further, Tenant and Subtenant acknowledge and agree that
the granting of Landlord's consent to any of the work referred to in
clause (a) (i) above shall not be deemed a representation or warranty by
Landlord of the sufficiency of the plans therefor, the quality or
character of any such work, its compliance with all applicable building
codes, or otherwise.
9. In the event Tenant is in default under any of the terms and
conditions of the Master Lease. Landlord may elect to receive directly
from Subtenant all sums due or payable to Tenant by Subtenant pursuant to
the Sublease, and upon receipt of Landlord's notice which states that
Tenant is in default under the Master Lease and which directs Subtenant to
pay all such sums directly to Landlord, Subtenant shall thereafter pay
Landlord any sums becoming due or payable under the Sublease, and Tenant
shall receive from Landlord a corresponding credit for such sums against
any and all payments then due or thereafter becoming due from Tenant.
Neither the service of such written notice nor the receipt of such direct
payments shall cause Landlord to assume any of Tenant's duties,
obligations and/or liabilities under the Sublease, nor shall such event
impose upon Landlord the duty or obligation to honor the Sublease
10. Tenant and Subtenant agree to indemnity and hold harmless
Landlord and its agents, including Landlord's management agent,
<PAGE>
Cisco Systems, Inc.
October ___, 1998
Page 4
against and from any loss, cost, expense, damage or liability, including
reasonable attorney's fees, incurred as a result of a claim by any person
or entity (i) that it is entitled to a commission finder's fee or like
payment in connection with the Sublease or (ii) relating to or arising
out of the Sublease or any related agreement or dealing.
11. Landlord shall not be obligated to lease Subtenant any
parking spaces in the building's garage, other than such parking spaces as
Tenant would be entitled to lease under the Master Lease.
12. Section 4.a. of the Proposed Sublease is hereby amended by
deleting therefrom the language "In the event of any conflict between this
Sublease and the Master Lease, the terms of this Sublease shall control,"
and by inserting the following language in lieu thereof: "As between
Sublessee and Sublessor only, in the event of any conflict between this
Sublease and the Master Lease, the terms of this Sublease shall control."
13. Section 4.b. of the Proposed Sublease is hereby amended by
(i) deleting therefrom the language "1.39, 2, 2.1" and inserting the
following language in lieu thereof: "1.39, 2.1", (ii) deleting therefrom
the language "seventh and eighth sentences" and inserting the following
language in lieu thereof: "eighth and ninth sentences, and (iii) deleting
therefrom the language 'Section 4.2" and inserting the following language
in lieu thereof: "Section 4.2, the language "except for the alterations
that are included on the attached plan" contained in the first sentence of
Section 4.4. Sections".
14. Section 4.c. of the Proposed Sublease is hereby amended by
deleting the word "The" from the first sentence thereof and inserting the
following language in lieu thereof: "As between Sublessee and Sublessor
only, the".
15. Section 5 of the Proposed Sublease is hereby amended by
deleting the first sentence thereof in its entirety.
16. In accordance with Section 4.16 of the Master Lease, Tenant
is responsible for an administrative fee in the amount of Four Hundred
Dollars ($400.00).
<PAGE>
Cisco Systems, Inc
October 4, 1998
Page 5
If the Tenant and Subtenant are in agreement with the foregoing,
as evidence of such agreement, please countersign and return a copy of
this letter to the undersigned. Upon receipt of a fully executed
countersigned copy of this letter Landlord shall be deemed to have
granted its consent to the Sublease.
Sincerely yours,
TRIZECHAHN SPRING PARK/SUGARLAND
LIMITED PARTNERSHIP, a Virginia
limited partnership
By: TH Spring Park/Sugarland LLC, a
Virginia limited liability company,
its General Partner
By:
Name:
Its:
Accepted and Agreed;
Tenant
CISCO SYSTEMS INC.
By:
Ellen E. Jamason
Director
Worldwide Real Estate
Its
Subtenant:
MLC HOLDINGS, INC.
By:
Its Thomas B. Howard
Executive Vice President
<PAGE>
SUBLEASE AGREEMENT
I. DEFINED TERMS
Base Rent:
Months Monthly Base Rent
1-2 $13,361.83 (based on $14.00 per rentable square foot annually)
3-12 $22,788.50 (based on $14.00 per rentable square foot annually)
13-24 $23,472.15 (based on $14.42 per rentable square foot annually)
25-30 $24,176.32 (based on $14.85 per rentable square foot annually)
Broker: CB/Richard Ellis
Building: An approximately 19,533 square foot building known as 400
Herndon Parkway in Herndon, Virginia.
Effective Date: August 31, 1998
Expiration
Date: March 31, 2001
Landlord: TrizecHahn Spring Park/Sugarland Limited Partnership
Master
Lease: That certain Deed of Lease dated as of January 12,
1996, between TrizecHahn Spring Park/Sugarland
Limited Partnership as successor to the Riggs
National Bank of Washington DC, as trustee of the
Mutli-Employer Property Trust, a trust organized
under 12 C.F.R. Section 918, as landlord, and Cisco
Systems, Inc., a California corporation, as tenant.
Premises: Improved real property as more particularly described
in the Master Lease attached hereto as Exhibit A,
consisting of approximately 19,533
1
<PAGE>
rentable square feet located in the Building. The Premises
Consists of (i) the approximately 11,453 rentable square foot
portion of the Premises marked on Exhibit A as the "Phase I
Premises" (the "Phase I Premises"), and (ii) the approximately
8,080 rentable square foot portion of the Premises marked on
Exhibit A as the "Phase II Premises" (the "Phase II
Premises").
Phase I
Commencement
Date: Estimated to be October 15, 1998, however Sublessor shall give
Sublessee thirty (30) days prior written notice of exact
Commencement Date.
Phase II
Commencement
Date: December 15, 1998, however Sublessor shall give Sublessee
thirty (30) days prior written notice of exact Commencement
Date.
Security
Deposit: $22,788.50
Sublessee: MLC Holdings, Inc., a Delaware corporation
Sublessee's
Address: 11150 Sunset Hills Road
Reston, Virginia 20190
Attn: Thomas B. Howard, Executive Vice President
Phone: (703) 834-5710
Until October 1, 1998, at which point Sublessee's address will
be:
400 Herndon Parkway
Herndon, Virginia 20170
Attention: Thomas B. Howard, Executive
Vice President
Phone: (703) 834-5710
Sublessee's
Proportionate
Share: 100% of the total Rentable Area of the Building
Sublessor: CISCO SYSTEMS, INC., a California corporation
2
<PAGE>
Sublessor's
Address: 170 West Tasman Drive
San Jose, California 95134-1706
Attn: Director, Worldwide Real Estate
Term: Thirty (30) months.
Exhibits: Exhibit A - Premises Floor Plan
Exhibit B - Master Lease
II.
THIS SUBLEASE AGREEMENT ("Sublease") is entered as of the Effective Date by
and between Sublessor and Sublessee.
THE PARTIES ENTER this Sublease on the basis of the following facts,
understandings and intentions:
A. Sublessor is presently a lessee of the Premises in the Building
pursuant to the Master Lease by and between Landlord and Sublessor. A
copy of the Master Lease with all exhibits and addenda thereto is
attached hereto as Exhibit B.
B. Sublessor desires to Sublease the Premises to Sublessee and Sublessee
desires to Sublease the Premises from Sublessor on all of the terms,
covenants and conditions hereinafter set forth.
C. All of the terms and definitions in the Defined Terms section are
incorporated herein by this reference.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises of
the parties, the parties hereto agree as follows:
1. Sublease. Sublessor shall Sublease to Sublessee, and Sublessee shall
Sublease from Sublessor, the Premises for the Term upon all of the terms,
covenants and conditions herein contained. In addition, Sublessor shall lease to
Sublessee, and Sublessee shall lease from Sublessor, any and all permanent
improvements ("Improvements") on the Premises constructed and/or owned by
Sublessor, upon all of the terms, covenants and conditions herein contained. As
used herein, "Premises" shall include the Premises and the Improvements. 2.
3
<PAGE>
2. Term. Sublessor and Sublessee intend for the Term of this Sublease to
begin on the Phase I Commencement Date for the Phase I Premises, and for the
Term of the Sublease to begin on the Phase II Commencement Date for the Phase II
Premises. The Term of the Sublease shall expire with respect to both the Phase I
Premises and the Phase II Premises on the Expiration Date of this Sublease.
3. Condition of Premises.
a. Physical Condition. As of the Effective Date, Sublessee
acknowledges that Sublessee shall have conducted Sublessee's own
investigation of the Premises and the physical condition thereof, including
accessibility and location of utilities, improvements, existence of
hazardous materials, including but not limited to asbestos, asbestos
containing materials, poly-chlorinated biphenyls (PCB) and earthquake
preparedness, which in Sublessee' s judgment affect or influence
Sublessee's use of the Premises and Sublessee's willingness to enter this
Sublease. Sublessee recognizes that Sublessor would not Sublease the
Premises except on an "as is" basis and acknowledges that Sublessor has
made no representations of any kind in connection with improvements or
physical conditions on, or bearing on, the use of the Premises. Sublessee
shall rely solely on Sublessee's own inspection and examination of such
items and not on any representations of Sublessor, express or implied.
Sublessee further recognizes and agrees that neither Sublessor nor Landlord
shall be required to perform any work of construction, alteration or
maintenance of or to the Premises; provided, however, Sublessor shall
deliver the Premises to Sublessee in broom clean condition.
b. Further Inspection. Sublessee represents and warrants to Sublessor
that as of the Effective Date Sublessee shall examine and inspect all
matters with respect to taxes, income and expense data, insurance costs,
bonds, permissible uses, the Master Lease, zoning, covenants, conditions
and restrictions and all other matters which in Sublessee's judgment bear
upon the value and suitability of the Premises for Sublessee's purposes.
Sublessee has and will rely solely on Sublessee's own inspection and
examination of such items and not on any representations of Sublessor,
express or implied.
4. Sublease Subject to Master Lease.
a. Inclusions. It is expressly understood, acknowledged and agreed by
Sublessee that all of the other terms, conditions and covenants of this
Sublease shall be those stated in the Master Lease except as excluded in
Section 4.b herein, modified as appropriate in the circumstances so as to
make such Articles, and any Sections contained therein. Sublessee shall be
subject to, bound by and comply with all of said Articles and
4
<PAGE>
Sections of the Master Lease with respect to the Premises and shall satisfy
all applicable terms and conditions of the Master Lease relating to the
Premises for the benefit of both Sublessor and Landlord, it being
understood and agreed that wherever in the Master Lease the word "Tenant"
appears, for the purposes of this Sublease, the word "Sublessee" shall be
substituted, and wherever the word "Landlord" appears, for the purposes of
this Sublease, the word "Sublessor" shall be substituted; and that upon the
breach of any of said terms, conditions or covenants of the Master Lease by
Sublessee or upon the failure of Sublessee to pay Rent or comply with any
of the provisions of this Sublease, Sublessor may exercise any and all
rights and remedies granted to Landlord by the Master Lease. In the event
of any conflict between this Sublease and the Master Lease, the terms of
this Sublease shall control. It is further understood and agreed that
Sublessor has no duty or obligation to Sublessee under the aforesaid
Articles and Sections of the Master Lease other than to perform the
obligations of Sublessor as lessee under the Master Lease during the Term
of this Sublease. Whenever the provisions of the Master Lease incorporated
as provisions of this Sublease require the written consent of Landlord,
said provisions shall be construed to require the written consent of both
Landlord and Sublessor. Sublessee hereby acknowledges that it has read and
is familiar with all the terms of the Master Lease, and agrees that this
Sublease is subordinate and subject to the Master Lease and that any
termination thereof not due to a default by Sublessor thereunder shall
likewise terminate this Sublease.
b. Exclusions. The terms and provisions of the following Sections and
portions of the Master Lease are not incorporated into this Sublease: 1.5,
1.6, 1.10, 1.29, 1.30, 1.35, 1.39, 2, 2.1, 2.2.2, 2.3, 2.4, 2.5, 2.6, the
seventh sentence of 2.7, 3.1, 3.5, 4.1, the third and fourth, seventh and
eighth sentences of Section 4.2, 4.9, 4.10, 4.14, 4.20.4, 4.20.5, 4.20.6,
4.21.4, the last sentence of 4.24, 4.26 the first two sentences of 4.27,
6.20, and Exhibit C.
c. Time for Notice. The time limits provided for in the provisions of
the Master Lease for the giving of notice, making of demands, performance
of any act, condition or covenant, or the exercise of any right, remedy or
option, are amended for the purposes of this Sublease by lengthening or
shortening the same in each instance by five (5) days, as appropriate, so
that notices may be given, demands made, or any act, condition or covenant
performed, or any right, remedy or option hereunder exercised, by Sublessor
or Sublessee, as the case may be, within the time limit relating thereto
contained in the Master Lease. If the Master Lease allows only five (5)
days or less for Sublessor to perform any act, or to undertake to perform
such act, or to correct any failure relating to the Premises or this
Sublease, then Sublessee shall nevertheless be
5
<PAGE>
allowed three (3) days to perform such act, undertake such act and/or
correct such failure.
5. Landlord's Obligations. It shall be the obligation of Landlord to (i)
provide all services to be provided by Landlord under the terms of the Master
Lease and (ii) to satisfy all obligations and covenants of Landlord made in the
Master Lease. Sublessee acknowledges that Sublessor shall be under no obligation
to provide any such services or satisfy any such obligations or covenants;
provided, however, Sublessor, upon written notice by Sublessee, shall diligently
attempt to enforce all obligations of Landlord under the Master Lease.
6. Rent.
a. Base Rent. Upon execution hereof, Sublessee shall deliver the first
month's Base Rent to Sublessor, to be applied against Sublessee's first
obligation to pay Base Rent hereunder. Sublessee shall pay to Sublessor the
Base Rent in advance on the first day of each month of the Term, commencing
the Phase I Commencement Date without being invoiced by Sublessor. In the
event the first day of the Term shall not be the first day of a calendar
month or the last day of the Term is not the last day of the calendar
month, the Base Rent shall be appropriately prorated based on a thirty (30)
day month. All installments of Base Rent shall be delivered to Sublessor's
Address, or at such other place as may be designated in writing from time
to time by Sublessor, in lawful money of the United States and without
deduction or offset for any cause whatsoever.
b. Net Rental. Sublessee shall be responsible for Sublessee's
Proportionate share of all costs and expenses of every kind and nature
which may be imposed, at any time, on Sublessor pursuant to the Master
Lease (except for Base Rent, as defined in the Master Lease) including, but
not limited to, additional rent, Operating Expenses, Utilities and Real
Estate Taxes, all as defined in the Master Lease. As hereinafter used,
"Rent" shall include Base Rent and all additional charges to be paid by
Sublessee pursuant to this Section 6.b.
7. Security Deposit. Upon execution hereof, Sublessee shall deposit the
Security Deposit with Sublessor. The Security Deposit shall secure Sublessee's
obligations under this Sublease to pay Base Rent and other monetary amounts, to
maintain the Premises and repair damages thereto, to surrender the Premises to
Sublessor in clean condition and repair upon termination of this Sublease and to
discharge Sublessee's other obligations hereunder. Sublessor may use and
commingle the Security Deposit with other funds of Sublessor. If Sublessee fails
to perform Sublessee's obligations hereunder, Sublessor may, but without any
obligation to do so, apply all or any portion of the Security Deposit towards
fulfillment of Sublessee's unperformed obligations. If Sublessor does so apply
6
<PAGE>
any portion of the Security Deposit, Sublessee's failure to remit to Sublessor a
sufficient amount in cash to restore the Security Deposit to the original amount
within five (5) days after receipt of Sublessor's written demand to do so shall
constitute an event of default. Upon termination of this Sublease, if Sublessee
has then performed all of Sublessee's obligations hereunder, Sublessor shall
return the Security Deposit, or whatever amount remains of the Security Deposit
after Sublessor applied all or a portion of the Security Deposit to perform
Sublessee's obligations hereunder, to Sublessee without payment of interest.
8. Damage and Destruction.
a. Termination of Master Lease. If the Premises is damaged or
destroyed and Landlord or Sublessor exercises any option either may have to
terminate the Master Lease, if any, this Sublease shall terminate as of the
date of the termination of the Master Lease.
b. Continuation of Sublease. If the Master Lease is not terminated
following any damage or destruction as provided above, this Sublease shall
remain in full force and effect and Sublessee shall be entitled to any
reduction or abatement of Base Rent in an amount in proportion to the
corresponding reduction in base rent for the Premises which Sublessor
receives under the Master Lease.
9. Eminent Domain.
a. Total Condemnation. If all of the Premises is condemned by eminent
domain, inversely condemned or sold in lieu of condemnation, for any public
or a quasi-public use or purpose ("Condemned" or "Condemnation") , this
Sublease shall terminate as of the date of title vesting in such
proceeding, and Base Rent shall be adjusted to the date of termination.
b. Partial Condemnation. If any portion of the Premises is Condemned,
and Sublessor exercises any option to terminate the Master Lease, this
Sublease shall automatically terminate as of the date of the termination of
the Master Lease. If Sublessor has the option to terminate the Master
Lease, Sublessor shall promptly give Sublessee notice of such option and
shall exercise such option if so directed by Sublessee subject to the
relevant provisions of the Master Lease and further provided that such
partial condemnation renders the Premises unusable for Sublessee's
business, as reasonably determined by Sublessor. If this Sublease is not
terminated following any such Condemnation; this Sublease shall remain in
full force and effect. Sublessor shall diligently enforce any rights under
the Master Lease to require Lessor to rebuild the Premises. Base Rent shall
be equitably adjusted to take into account interference with
7
<PAGE>
Sublessee's ability to conduct its operations on the Premises as a result
of the Premises being Condemned.
c. Sublessee's Award. Subject to the provisions of the Master Lease,
Sublessee shall have the right to recover from the condemning authority,
but not from Sublessor, such compensation as may be separately awarded to
Sublessee in connection with costs and removing Sublessee's merchandise,
furniture, fixtures, leasehold improvements and equipment to a new
location.
10. Insurance. All insurance policies required to be carried by Sublessee,
pursuant to the Master Lease, shall contain a provision whereby Sublessor and
Landlord are each named as additional insureds under such policies.
11. Brokerage Commission. Sublessor shall pay a brokerage commission to
Broker for Sublessee's subletting of the Premises as provided for in a separate
agreement between Sublessor and Broker. Sublessee warrants for the benefit of
Sublessor that its sole contact with Sublessor or the Premises in connection
with this transaction has been directly with Sublessor and Broker. Sublessee
further warrants for the benefit of Sub-lessor that no other broker or finder
can properly claim a right to a commission or a finder's fee based upon contacts
between the claimant and Sublessee with respect to the other party or the
Premises. Sublessee shall indemnify, defend by counsel acceptable to Sublessor
and hold Sublessor harmless from and against any loss, cost or expense,
including, but not limited to, attorneys' fees and court costs, resulting from
any claim for a fee or commission by any broker or finder, other than any claims
by Broker, in connection with the Premises and this Sublease.
12. Sublessee's Indemnity. Sublessee shall defend, indemnify and hold
harmless Sublessor, its partners, employees, and agents, and Landlord, from and
against any and all claims, liabilities, suits, judgments, awards, damages,
losses, fines, penalties, costs and expenses, including reasonable attorney's
fees, that Sublessor its partners, employees and agents, and Landlord may
suffer, incur or be liable for by reason of or arising out of or related to the
breach by Sublessee of any of the duties, obligations, liabilities or covenants
applicable to Sublessee hereunder, Sublessee's occupancy or use of the Premises,
any alterations, additions or modifications made to the Premises by Sublessee or
Sublessee's negligence or willful misconduct. This indemnification shall survive
termination of this Sublease.
13. Right to Cure Sublessee's Defaults. If Sublessee shall at any time fail
to make any payment or perform any other obligation of Sublessee hereunder, then
Sublessor shall have the right, but not the obligation, after the lesser of five
(5) days'
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<PAGE>
notice to Sublessee or the time within which Landlord may act on Sublessor's
behalf under the Master Lease, or without notice to Sublessee in the case of any
emergency, and without waiving or releasing Sublessee from any obligations of
Sublessee hereunder, to make such payment or perform such other obligation of
Sublessee in such manner and to such extent as Sublessor shall deem necessary,
and in exercising any such right, to pay any incidental costs and expenses,
employ attorneys and other professionals, and incur and pay attorneys' fees and
other costs reasonably required in connection therewith. Sublessee shall pay to
Sublessor upon demand all sums so paid by Sublessor and all incidental costs and
expenses of Sublessor in connection therewith, together with interest thereon at
the Interest Rate described in the Master Lease.
14. Miscellaneous.
a. Entire Agreement. This Sublease contains all of the covenants,
conditions and agreements between the parties concerning the Premises, and
shall supersede all prior correspondence, agreements and understandings
concerning the Premises, both oral and written. No addition or modification
of any term or provision of this Sublease shall be effective unless set
forth in writing and signed by both Sublessor and Sublessee.
b. Captions. All captions and headings in this Sublease are for the
purposes of reference and convenience and shall not limit or expand the
provisions of this Sublease.
c. Landlord's Consent. This Sublease is conditioned upon Landlord's
written approval of this Sublease within fifteen (15) business days after
the Effective Date. If Landlord refuses to consent to this Sublease, this
Sublease shall terminate and neither party shall have any continuing
obligation to the other with respect to the Premises; provided Sublessor
shall return the Deposit, if previously delivered to Sublessor, to
Sublessee.
d. Authority. Each person executing this Sublease on behalf of a party
hereto represents and warrants that he or she is authorized and empowered
to do so and to thereby bind the party on whose behalf he or she is
signing.
e. Attorneys' Fees. In the event either party shall bring any action
or proceeding for damages or for an alleged breach of any provision of this
Sublease to recover rents, or to enforce, protect or establish any right or
remedy hereunder, the prevailing party shall be entitled to recover
reasonable attorneys' fees and court costs as part of such action or
proceeding.
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<PAGE>
f. Holdover. This Sublease shall terminate without further notice at
the expiration of the Sublease Term. If Sublessee holds over at the
Premises or any part thereof after the expiration or earlier termination of
the Term, such holding over shall constitute a month-to-month tenancy, at a
rent equal to one hundred fifty percent (150%) of the base rent due under
this Sublease. Nothing in the foregoing sentence shall be deemed
sublessor's permission for Sublessee to hold over, and acceptance of Base
Rent by Sublessor following expiration of termination of the Sublease shall
not constitute a renewal of this Sublease. In addition to the foregoing,
Sublessee shall indemnify, defend by counsel satisfactory to Sublessor,
protect and hold Sublessor harmless from any and all liabilities, claims,
causes of action, damages, costs or expenses (including reasonable
attorney's fees) directly or indirectly resulting from Sublessee's holding
over at the Premises beyond the expiration or termination of the Term.
g. Access. Sublessor reserves the right to enter the Premises upon
reasonable notice to Sublessee (except that in case of emergency no notice
shall be necessary) in order to inspect the Premises and/or the performance
by Sublessee of the terms of this Sublease.
h. Time. Time is of the essence of every provision of this Sublease.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed one (1) or more copies
of this Sublease, dated as of the Effective Date.
"Sublessor"
CISCO SYSTEMS, INC.
a California corporation
By:
Name: Ellen E. Jamason
Title: Director, worldwide Real Estate
"Sublessee"
MLC HOLDINGS, INC.
By:
Name: Thomas B. Howard
Title: Executive Vice President
By:
Name: Kleyton L. Parkhurst
Title: Secretary/Treasurer
11
<PAGE>
EXHIBIT A
PREMISES- FLOOR PLAN
[To Be Attached)
EXHIBIT A
---------
<PAGE>
EXHIBIT B
---------
MASTER LEASE
------------
[To Be Attached]
EXHIBIT B
---------
<PAGE>
THIS LEASE (this "Lease") is made as of December __, 1995, by and between
"Landlord" THE RIGGS NATIONAL BANK OF WASHINGTON, D.C., AS Trustee of the
- ---------- Multi-Employer Property Trust, a trust organized under 12 C.F.R.
Section 9.18
and
"Tenant" CISCO SYSTEMS, INC., a California corporation
- --------
<TABLE>
<CAPTION>
SECTION A: TABLE OF CONTENTS
----------------------------
<S> <C> <C> <C> <C>
SECTION 1: DEFINITIONS 1 SECTION 5: DEFAULT AND REMEDIES 25
5.1 Events of Default 25
SECTION 2: PREMISES AND TERM 5 5.2 Remedies 26
2.1 Lease of Premises 5 5.3 Right to Perform 28
2.2 Lease Term 5 5.4 Landlord's Default 28
2.3 Plans and Specifications 5
2.4 Commencement Data 6 SECTION 6: MISCELLANEOUS PROVISIONS 28
2.5 Tenant's Contribution to Tenant 6.1 Notices 28
Improvement Costs 7 6.2 Attorney's Fees and Costs 29
2.6 Memorandum of Commencement 6.3 No Accord and Satisfaction 29
Date 5 7 6.4 Successors; Joint and Several Liability 29
2.7 Use and Conduct of Business 7 6.5 Choice of Law 29
6.6 No Waiver of Remedies 29
SECTION 3: BASE RENT, ADDITIONAL RENT 6.7 Offer to Lease 29
AND OTHER SUMS PAYABLE 6.8 Force Majeure 29
UNDER LEASE 8 6.9 Landlord's Consent 30
3.1 Base Rent 8 6.10 Severability; Captions 30
3.2 Security Deposit 8 6.11 Interpretation 30
3.3 Additional Rent 8 6.12 Incorporation of Prior Agreement
3.4 Utilities 11 Amendments 30
3.5 Holdover 11 6.13 Authority 30
3.6 Late Charge 11 6.14 Time of Essence 30
3.7 Default Rate 12 6.15 Survival of Obligations 30
6.16 Consent to Service 30
SECTION 4: GENERAL PROVISIONS 12 6.17 Landlord's Authorized Agents 31
4.1 Maintenance and Repair by Landlord 12 6.18 Waiver of Jury Trial 31
4.2 Maintenance and Repair by Tenant 12 6.19 Satellite Dish 31
4.3 Common Areas/Security 13 6.20 Right of First Offer and Right of First
4.4 Tenant's Alterations 13 Refusal for Additional Space 31
4.5 Tenant's Work Performance 14
4.6 Surrender of Possession 15
4.7 Removal of Property 15
4.8 Access 15
4.9 Damage or Destruction 16
4.10 Condemnation 16
4.11 Parking 17
4.12 Indemnification 17
4.13 Tenant's Insurance 17
4.14 Landlord's Insurance [10] 18
--
4.15 Waiver of Subrogation 19
4.16 Assignment and Subletting by Tenant 21
4.17 Assignment by Landlord 21
4.18 Estoppel Certificates 22
4.19 Modification for Lender 22
4.20 Hazardous Substances 23
4.21 Access Laws 23
4.22 Quiet Enjoyment 24
4.23 Signs [13] 24
4.24 Subordination 24
4.25 Workers Compensation Immunity 24
4.26 Brokers 24
4.27 Exculpation and Limitation of
Liability 24
4.28 ERISA Representations 25
4.29 Mechanic's Liens and Tenant's 25
Personal Property Taxes 25
</TABLE>
<PAGE>
LISTING OF EXHIBITS
Exhibit A Legal Description of the Land
Exhibit B Drawing Showing Location of the Premises
Exhibit C Form of Memorandum of Commencement Date
Exhibit D Rules and Regulations
SECTION 1: DEFINITIONS
1.1 Definitions. Each underlined term in this section shall have the meaning
set forth next to that underlined term.
1.2 Access Laws: The Americans With Disabilities Act of 1990 (including the
Americans with Disabilities Act Accessibility Guidelines for Building and
Facilities), and all other Governmental Requirements relating to the
foregoing.
1.3 Additional Rent: Defined in paragraph 3.3 captioned "Additional Rent".
1.4 Base Amount: Defined in paragraph 3.3 captioned "Additional Rent".
-----------------
1.5 Bases Rent: Base Rent shall be as follows:
Initial Space:
$9,625.00/month from the Commencement Date through March
31, 1997; $9,913.75/month ($118,965.00/year) from April 1,
1997 through March 31, 1998; $10,211.16/month
($122,533.95/year) from April 1, 1998 through March 31,
1999 $10,517.50/month ($126,210.00/year) from April 1,
1999 through March 31, 2000 $10,833.03/month
($129,996.36/year) from April 1, 2000 through March 31,
2001
Additional Space:
$7,466.38/month from the Second Commencement Date through
March 31, 1997 $7,690.37/month ($92,284.44/year) from
April 1, 1997 through March 31, 1998 $7,921.08/month
($95,052.96/year) from April 1, 1998 through March 31,
1999 $8,158.71/month ($97,904.52/year) from April 1, 1999
through March 31, 2000 $8,403.47/month ($100,841.65/year)
from April 1, 2000 through March 31, 2001
1.6 Brokers: Tenant was represented in this transaction by CB Commercial Real
Estate, a licensed real estate broker. Landlord was represented in this
transaction by The Carey Winston Company, a licensed real estate broker.
1.7 Building: The Building commonly known as 400 Herndon Parkway, Herndon,
Virginia 22070 located on the Land and containing approximately 19,533
rentable square feet.
1.8 Business Day: Calendar days, except for Saturdays and Sundays and holidays
when banks are closed in Washington, D.C.
1
<PAGE>
1.9 Claims: An individual and collective reference to any and all claims,
demands, damages, injuries, losses, liens, liabilities, penalties, fines,
lawsuits, actions, other proceedings and expenses (including attorneys'
fees and court costs at trial and on appeal).
1.10 Commencement Date: August 1, 1996 (or if Tenant provides Landlord with 90
calendar days' written notice [no later than January 31, 1996] of its
election to accelerate the Commencement Date, then the Commencement Date
shall be [May 1, 1996] 90 calendar days from the date of such notice,
unless the Initial Premises are not ready for occupancy, in which event the
Commencement Date shall be the earlier to occur of: (a) twenty (20)
calendar days after the date of Substantial Completion; or (b) the date
which Tenant takes possession of the Premises. The "Second Commencement
Date" shall be January 1, 1997, unless the Additional Space is not ready
for occupancy, in which event the Second Commencement Date shall be the
earlier to occur of: (a) twenty (20) calendar days after the date of
Substantial Completion of the Additional Space; or (b) the date which
Tenant takes possession of the Additional Space.
1.11 ERISA: The Employee Retirement Income Security Act of 1974, as now or
hereafter amended and the regulations promulgated under it.
1.12 Estimated Operating Costs Allocable to the Premises: Defined in paragraph
captioned "Additional Rent".
1.13 Events of Default: One or more of those events or states of facts defined
in the paragraph captioned "Events of Default".
1.14 Governmental Agency: The United States of America, the state in which the
Land is located, any county, city, district, municipality or other
governmental subdivision, court or agency or quasi-governmental agency
having jurisdiction over the Land and any board, agency or authority
associated with any such governmental entity, including the fire department
having jurisdiction over the Land.
1.15 Governmental Requirements: Any and all statutes, ordinances, codes, laws,
rules, regulations, orders and directives of any Governmental Agency as now
or later amended.
1.16 Hazardous Substance(s): Asbestos, PCBs, petroleum or petroleum-based
chemicals or substances, urea formaldehyde or any chemical, material,
element, compound, solution, mixture, substance or other matter of any kind
whatsoever which is now or later defined, classified, listed, designated or
regulated as hazardous, toxic or radioactive by any Governmental Agency.
1.17 Land. The land upon which the Building and the other building included in
the project are located in the City of Herndon, Fairfax County, State of
Virginia, as legally described in Exhibit A attached to this Lease.
1.18 Landlord: The trust named on the first page of this Lease, or its
successors and assigns as provided in paragraph captioned "Assignment by
--------------
Landlord".
----------
1.19 Landlord's Agents: Any and all partners, officers, agents, employees,
trustees, investment advisors and consultants of Landlord.
1.20 Lease Term: Commencing on the Commencement Date, and ending five (5) years
from the Commencement Date under that certain Lease (380 Herndon) executed
concurrently herewith by Tenant, as tenant and Landlord, as landlord, for
space located in building 380 in the Project.
2
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1.21 Manager: The Carey Winston Company, or its replacement as specified by
written notice from Landlord to Tenant.
1.22 Manager's Address: P.O. Box 70556, Chevy Chase, Maryland 20813, which
address may be changed by written notice from Landlord to Tenant.
1.23 Market Lease Rate: The market rental (which shall include Tenant
Improvement Allowance and market concession) then being offered for
comparable space in first class R&D/single story office buildings
comparable in location and condition to the Building, computed as described
in the remainder of this definition. In the event Landlord and Tenant are
unable to agree on a Market Lease Rate within thirty (30) [calendar days]
Business Days after Tenant's notice of exercise of an option to extend or
within ten (10) calendar days after Landlord notifies Tenant of the
existence of Available Space, then either party may require a determination
of the Market Lease Rate by giving written notice to that effect to the
other party, which notice shall designate a real estate broker selected by
the initiating party with at least ten (10) years of experience in the
commercial leasing business in the same geographic area as the Building.
Within fifteen (15) calendar days after receipt of such notice, the other
party shall select a real estate broker with the same qualifications and
provide written notice of such selection to the initiating party. Within
fifteen (15) calendar days after selection of the second broker, the two
brokers so selected shall select a third real estate broker with the same
qualifications who (and whose firm) is not then employed as a leasing
broker or management agent by either party or any of their respective
affiliates. Each of the three brokers shall determine the net effective
market rental for the Premises within fifteen (15) calendar days after the
appointment of the third broker. The market Lease Rate shall be equal to
the arithmetic average of such three determinations; provided, however,
that if any such broker's determination deviates by more than five percent
(5%) from the median of such three determinations, the Market Lease Rate
shall be equal to the average of the two closest determinations. Landlord
and Tenant shall each pay the fees and expenses of the broker selected by
it, and the fees and expenses of the third broker shall be paid one-half by
Landlord and one-half by Tenant. If a party fails to designate a qualified
real estate broker within the time period required in this paragraph, the
"third' real estate broker shall be selected by the broker designated by
the initiating party, and those two brokers shall determine the Market
Lease Rate by averaging their determinations.
1.24 Operating Costs: Defined in paragraph captioned "Additional Rent".
1.25 Operating Costs Allocable to the Premises: Defined in paragraph captioned
"Additional Rent".
1.26 Parking Ratio: Three (3) stalls per 1000 rentable square feet of the
Premises.
1.27 Permitted Use: General office, so long as such use is consistent with
first-class R&D/single story buildings of the same or similar use as the
Building and located in the metropolitan area in which the Building is
located.
1.28 Plans and Specifications: Those certain final plans and specifications for
the Tenant Improvements which have been approved by Landlord and Tenant
pursuant to the approval procedure as set forth in the paragraph captioned
"Plans and Specifications" and any modifications to them approved in
writing by Landlord.
1.29 Prepaid Rent: [$17,091.38 to] $9,625.00 shall be paid on May 1, 1996 or the
date Tenant notifies Landlord of its election to accelerate the
Commencement Date, whichever is earlier, and shall be applied toward Base
Rent for the first full month of the Lease Term.
1.30 Premises: The portion of the Building consisting of approximately 19,533
rentable square feet, commonly known as Suite 100, 400 Herndon Parkway,
Herndon, Virginia 22070, and depicted on the plan attached to this Lease as
Exhibit B. The "Initial Premises" is the approximately 11,000 square feet
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located in the Premises, the exact location of which shall be mutually
agreed upon by Landlord and Tenant prior to January 31, 1996. The
"Additional Space" is the approximately 8,533 square feet located in the
Premises, the exact location of which shall be mutually agreed upon by
Landlord and Tenant prior to January 31, 1996. The Initial Premises and
Additional Space are collectively referred to herein as the Premises. With
the exception of the Base Rent figures contained in section 1.5 herein and
the Commencement Date definition contained in Section 1.10 herein, each
provision of this Lease shall apply to both the Initial Premises and
Additional Space as though they are one single premises. Any rights
accruing as a result of any act, occurrence or omission in either the
Initial Premises or Additional Space, shall apply to equally to the entire
Premises regardless of whether such act, occurrence or omission occurred
exclusively within either the Initial Premises or Additional Space.
1.31 Prime Rate: Defined in paragraph captioned "Default Rate".
1.32 ....the Land, and any other improvements on, in or under the Land. The
Project is commonly known as the Sugarland West Business Center - Phase 1,
and contains approximately 67,450 rentable square feet.
1.33 Property Taxes: (a) Any form of ad valorem real or assessment imposed by
any Governmental Agency on the Project; (b) any other form of tax or
assessment, license fee, license tax, tax or excise on rent or any other
levy, charge, expense or imposition made or required by any Governmental
Agency on any interest of Landlord in the Project; (c) any fee for services
charged by any Governmental Agency for any services such as fire
protection, street, sidewalk and road maintenance, refuse collection; (d)
any governmental impositions allocable to or measured by the area of any or
all of the Project or the amount of any base rent, additional rent or other
sums payable under any lease for any or all of the Project, including any
tax on gross receipts or any excise tax or other charges levied by any
Governmental Agency with respect to the possession, leasing, operation,
maintenance, alteration, repair, use or occupancy of any or all of the
Project; (e) any impositions by any Governmental Agency on any transaction
evidenced by a lease of any or all of the Project or charge with respect to
any document to which Landlord is a party creating or transferring an
interest or an estate in any or all of the Project; and (f) any increase in
any of the foregoing based upon construction of improvements by Landlord or
any other tenant of the Project which are [not] required pursuant to the
terms of this Lease or change of ownership of any or all of the Land.
Property Taxes shall not include taxes on Landlord's net income or any
inheritance, estate or gift taxes.
1.34 Punch List Work: Minor items of repair, correction, adjustment or
completion as such phrase is commonly understood in the construction
industry in the metropolitan area in which the Land is located.
1.35 Security Deposit: None
1.36 Substantial Completion: The date that: (a) Landlord deems that the Tenant
Improvements have been completed substantially in accordance with the Plans
and Specifications, subject to Punchlist Work; and (b) a certificate of
occupancy has been issued for the Premises.
1.37 Tenant: The person or entity named on the first page of this Lease.
1.38 Tenant Alterations: Defined in paragraph captioned "Tenant Alterations".
1.39 Tenant Improvement Allowance: $88,000.00 for the Initial Premises and
$68,264.00 for the Additional Space, which is the maximum amount to be
expended by Landlord for the cost of Tenant Improvements (including
architectural, engineering, permitting, construction management and space
planning fees). The cost of providing building and monument signage as set
forth in the paragraph entitled "Signs", and the cost of alterations to the
existing bathrooms as set forth in the paragraph entitled "Access Laws",
shall not be included in the Tenant Improvement Allowance.
1.40 Tenant Improvements: Those alterations or improvements to the Premises
which appear and are depicted in the Plans and Specifications.
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1.41 Tenant's Agents: Any and all officers, contractors, subcontractors,
licensees, agents, concessionaires, subtenants, servants, employees,
customers, guests, invitees or visitors of Tenant.
1.42 Tenant's Pro Rata Share: Twenty-eight and 96/100 percent (28.96%) of the
Project.
1.43 Year: A calendar year commencing January 1 and ending December 31 during
the Lease Term, or the portion of such calendar year within the Lease Term.
SECTION 2: PREMISES AND TERM
----------------------------
2.1 Lease of Premises. Landlord leases the Premises to Tenant, and Tenant leases
the Premises from Landlord, upon the terms and conditions set forth in this
Lease.
2.2 Lease Term. The Lease Term shall be for the period stated in the definition
of that term, unless earlier terminated as provided in this Lease.
2.2.1 So long as this Lease remains in full force and effect, and provided that
on Tenant's date of exercise of an option to extend and at the expiration of the
applicable term of this Lease, Tenant is not in default under this Lease beyond
any applicable cure period, Tenant shall have the option to extend the original
Lease Term for two (2) additional terms of (24) months each (the "Extension
Periods") by providing Landlord with written notice of its election to extend
not later than one hundred and fifty (150) calendar days prior to the expiration
of the Lease Term. During the Extension Period, the terms and conditions of this
Lease shall remain in force and effect, provided that, at the commencement of
the Extension Period, the Base Rent shall be adjusted [to equal ninety five
percent (95%) of] for the first two (2) options to equal the then escalated rate
and for the third and fourth options shall be adjusted to the then Market Lease
Rate. Failure to exercise any option shall terminate Tenant's right to exercise
all subsequent rights to extend the Lease Term.
2.2.2 Tenant shall have a one-time option to terminate this Lease on April 1,
1999, so long as all of the following requirements and conditions are satisfied:
(a) Tenant shall provide Landlord with written notification of its election
to terminate this Lease at least one hundred and eighty (180) calendar days
prior to April 1, 1999.
(b) A nonrefundable termination fee payable to Landlord must be made by
Tenant no less than thirty (30) Business Days prior to the termination date by
cashier's check equal to the sum of $58,000.00.
(c) As of the date of delivery of Tenant's notification of its election to
terminate and as of the date which is 90 calendar days prior to the effective
termination date. Tenant shall have an actual and imminent need to expand its
business and Landlord shall have been unable to accommodate (within the Project)
Tenant's need to expand into additional space (taking into account the
availability of space in the Project and the then current Market Rate).
(d) Illegible.................... termination date, Tenant shall not be in
default under this Lease beyond any applicable cure period, and Tenant shall not
have assigned or subleased all of the Premises. Notwithstanding the foregoing,
Tenant may retract its notice to terminate at any time provided Landlord has not
previously executed a lease agreement with any entity for all or any portion of
the Premises.
2.3 Plans and Specifications. Following execution of the Lease, Landlord and
Tenant shall cooperate in good faith to prepare, review and agree upon a final
set of plans and specifications for all of the Tenant Improvements for the
Premises (the "Plans and Specifications") together with a construction budget
based on the bid and scope of work approved by Tenant for all such work (the
"Budget"). If Tenant notifies Landlord [on or prior to January 31, 1996] of
Tenant's election to occupy the Initial Premises [on May 1, 1996] within ninety
(90) calendar days of such notice, and Landlord and Tenant have not mutually
agreed upon the final Plans and Specifications and Budget, then Landlord's
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obligation to deliver the Initial Premises [on May 1, 1996] within ninety (90)
calendar days of such notice shall be postponed one (1) day for each day after
[January 31, 1996] the day which is ninety (90) calendar days after such notice
that Landlord and Tenant are unable to mutually agree upon the Plans and
Specifications and Budget. [Tenant's right to occupy the Initial Premises on May
1, 1996 shall be waived if Tenant fails to notify Landlord on or prior to
January 31, 1996 of its election to so occupy.] Once such Plans and
Specifications are finalized and agreed upon, upon Landlord's request, Tenant
shall initial or otherwise evidence its agreement to such Plans and
Specifications. The Tenant Improvement Allowance may be disbursed to pay for the
following categories of work to the extent such work is included in the Plans
and Specifications and there are funds for such work included in the Budget: (i)
ceiling tiles, telephone and network cabling, security systems, carpeting,
painting, electrical work, plumbing, sprinkler system installation, heating,
ventilation, air conditioning, tile work, glass installation, drywall work, door
framing and associated hardware for the Premises; (ii) project manager fees,
construction manager fees, architectural services related to the installation of
the Tenant Improvements. Landlord shall contract directly with all persons or
entities performing any services relating to the Tenant Improvements or
constructing or installing any Tenant Improvements, and Landlord shall have
reasonable discretion (which discretion includes requiring that all work be
performed by union labor) to approve of all contracts with (and the identity of)
all general contractors, subcontractors, construction managers, architects and
others performing or delivering services, labor or materials relating to the
Tenant improvements. Landlord will competitively bid the Tenant Improvements
construction with a minimum of three (3) general contractors (and at least three
(3) bidders for each) which are mutually acceptable to Landlord and Tenant.
Notwithstanding the foregoing, Landlord's selection of a general contractor
shall prevail in the event of a disagreement between Landlord and Tenant. Tenant
shall have an opportunity to review and approve the terms of the bid issued by
the contractor selected pursuant to the foregoing selection process.
Disbursements from the Tenant Improvement Allowance shall be made monthly
following Landlord's receipt and approval of appropriate invoices and lien
releases, and Landlord's inspection and approval of the work to date.
Notwithstanding the preceding sentence, Landlord shall be permitted to withhold
a ten percent (10%) retention from all disbursements from the Tenant
Improvements Allowance until the entire construction is completed in accordance
with the Plans and Specifications and all governmental requirements and all
punch-list items are addressed. Within fifteen (15) calendar days after the
occurrence of the Commencement Date of the Lease, Landlord shall calculate the
amount, if any, remaining in the Tenant Improvements Allowance after all
payments from such Tenant Improvements Allowance to date and after reserving
sums necessary to pay outstanding invoices and after reserving the 10%
retainage. Any such remaining sums shall be credited to Tenant by reducing the
monthly Base Rent under the Lease by an amount necessary to allocate such
remaining sum equally over the entire initial Lease Term. The memorandum of the
Commencement Date to be signed by the parties as referenced in this Lease shall
include a confirmation of (a) the amount of the Tenant Improvements Allowance,
if any, which remains for application to reducing the Base Rent; and (c) the
exact Base Rent for each Lease year during the initial Lease Term, taking into
account any reductions to the Base Rent authorized by this paragraph.
2.4 Commencement Date. Landlord shall notify Tenant in writing of Substantial
Completion and Tenant shall commence occupancy of the Initial Premises on the
Commencement Date. Tenant shall occupy the Additional Space on the Second
Commencement Date. Tenant shall occupy the Additional Space on the Second
Commencement Date. In the event that the Tenant contends that the Tenant
Improvements have not in fact been Substantially Completed, Tenant shall notify
Landlord in writing of its objections within ten (10) calendar days after its
receipt of the Landlord's notice described in the preceding sentence. Landlord
shall have a reasonable time after its receipt of Tenant's notice in which to
take such action as may be necessary to achieve Substantial Completion, and
shall notify Tenant in writing when such action has been completed.
Notwithstanding any notification by Tenant to the contrary, taking of possession
by Tenant shall establish the Commencement Date as specified in the definition
of that term and that the Premises and Tenant Improvements are in good and
satisfactory condition, as and when possession was so taken and that the
Commencement Date occurred. Tenant acknowledges that no representations as to
the condition of the Premises have been made by Landlord, unless such are
expressly set forth in this Lease. In the event of any dispute as to whether the
Tenant Improvements have been Substantially Completed in accordance with the
Plans and Specifications, the certificate of Landlord's architect or general
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contractor shall be conclusive. If on the Commencement Date, Punch List Work for
the Tenant Improvements remains to be completed, Landlord and Tenant shall agree
on such Punch List Work prior to occupancy by Tenant and Landlord will promptly
complete it after the Commencement Date. In no event shall Punch List Work delay
or postpone the occurrence of the Commencement Date. Changes to the Plans and
Specifications shall require the written consent of Landlord and Tenant. Tenant
has Landlord's permission to enter the premises to install equipment, furniture,
phones and data cable prior to occupancy. Tenant may enter the Premises prior to
the Commencement Date to install equipment, furniture, phones and data cabling,
provided that, Tenant shall not interfere with the construction of the Tenant
Improvements. All terms of this Lease, including Tenant's indemnifications and
obligation to maintain insurance, but excluding payment of rent, shall apply to
such early entry by Tenant.
2.5 Tenant's Contribution to Tenant Improvement Costs. If the cost of the Tenant
Improvements exceeds the Tenant Improvement Allowance, Tenant shall pay to
Landlord such excess within thirty (30) Business Days after demand by Landlord.
If Tenant fails to pay to Landlord the cost of any such excess Tenant
Improvements as and when due, Landlord may elect to halt work on the Tenant
Improvements pending such timely payment, and the Commencement Date shall be
deemed to have occurred on the date that the Tenant Improvements would have been
Substantially Completed absent such interruptions and the delay by them. Upon
the expiration or sooner termination of this Lease, all Tenant Improvements and
all additions or alterations to the Premises made by Tenant or performed by
Landlord on Tenant's behalf, shall become the property of Landlord, subject only
to Tenant's right to remove property under the paragraph captioned "Tenant
Alterations". [At Landlord's election and upon notice to Tenant, Tenant shall be
required to remove all Tenant Improvements or Tenant Alterations upon the
expiration or earlier termination of this Lease].
2.6 Memorandum of Commencement Date. At Landlord's sole election, Landlord and
Tenant shall execute a Memorandum of Commencement Date in the form attached as
Exhibit C. In no event shall Tenant record this Lease or the Memorandum of
Commencement Date.
2.7 Use and Conduct of Business. The Premises are to be used only for the
Permitted Uses, and for no other business or purpose without the prior written
consent of Landlord. Landlord makes no representation or warranty as to the
suitability of the Premises for Tenant's intended use. Tenant shall, at its own
cost and expense, obtain and maintain any and all licensees, permits, and
approvals necessary or appropriate for its use, occupation and operation of the
Premises. Tenant's inability to obtain or maintain any such license, permit or
approval necessary or appropriate for its use, occupation or operation of the
Premises shall not relieve it of its obligations under this Lease, including the
obligation to pay Base Rent and Additional Rent. No act shall be done in or
about the Premises that is unlawful or that will increase the existing rate of
insurance on any or all of the Land or Building. Tenant shall not commit or
allow to be committed any waste upon the Premises, or any public or private
nuisance or other act or thing which disturbs the quiet enjoyment of any other
tenant in the Project or which would violate any of Landlord's contracts
affecting any or all of the Project, or which would create or contribute to any
work stoppage, strike, picketing, labor disruption or dispute, or which would
interfere in any way with the business of Landlord or any other tenant in the
Project or with the rights or privileges of any contractors, subcontractors,
licensees, agents, concessionaires, subtenants, servants, employees, customers,
guests, invitees or visitors or any other persons lawfully in and upon the
Project, or which would cause any impairment or reduction of the good will or
reputation of the Project. Tenant shall not, without the prior written consent
of Landlord, use any apparatus, machinery or device in or about the Premises
which will cause any substantial noise or vibration or any increase in the
normal use of electric power. Landlord warrants that the electrical power is
sufficient to the building to accommodate Tenant's use per the mutually
agreeable space plan. The cost of any improvements to the electrical systems to
the Building to accommodate power usage in excess of that set forth in the plan
shall be deducted from the Tenant Improvement Allowance. If any of Tenant's
machines and equipment should disturb the quiet enjoyment of any other tenant in
the Building, then Tenant shall provide, at its sole cost and expense, adequate
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insulation or take other such action, including removing such machines and
equipment, as may be necessary to eliminate the disturbance. Tenant shall comply
with all Governmental Requirements relating to its use, occupancy and operation
of the Premises and shall observe such reasonable rules and regulations as may
be adopted and published by Landlord from time to time for the safety, care and
cleanliness of the Premises and the Building, and for the preservation of good
order in the Building, including the Rules and Regulations attached to this
Lease as Exhibit D.
SECTION 3: BASE RENT, ADDITIONAL RENT AND OTHER SUMS PAYABLE UNDER LEASE
------------------------------------------------------------------------
3.1 Base Rent. Tenant agrees to pay Base Rent to Landlord without demand,
deduction, credit, adjustment or offset of any kind or nature, payable in lawful
money of the United States in advance, on or before the first day of each
calendar month of the Lease Term. Base Rent for any partial month at the
beginning or end of the Lease Term shall be prorated. Upon execution of this
Lease, Tenant shall pay to Landlord the amount specified in the definition of
Prepaid Rent for the month specified in the definition of that term. Base Rent
for any partial month at the beginning of the Lease Term shall be paid by Tenant
on the Commencement Date. Notwithstanding the foregoing, if Tenant exercises its
right to occupy the initial Premises in accordance with the procedures set forth
in the Lease, Tenant shall not be required to pay Base Rent or Additional Rent
from the date Tenant occupies the Initial Premises through July 31, 1996.
3.2 Security Deposit. (Intentionally Omitted).
3.3 Additional Rent. Definitions of certain terms used in this paragraph are set
forth in subparagraph 3.3.6. Tenant agrees to pay to Landlord additional rent as
computed in this paragraph (individually and collectively the "Additional
Rent"):
3.3.1 Rental Adjustment for Estimated Operating Costs. Landlord shall
furnish Tenant a written statement of Estimated Operating Costs Allocable to the
Premises for each Year and the amount payable monthly by Tenant for such costs
shall be computed as follows: one-twelfth (1/12) of the amount, if any, by which
the Estimated Operating Costs Allocable to the Premises exceeds the Base Amount
shall be Additional Rent and shall be paid monthly by Tenant for each month
during such Year after the Commencement Date. If the Commencement Date occurs on
a date other than the first day of the Year, the statement provided by Landlord
to Tenant and the computation of the monthly payment amount shall be determined
based on a proration of the excess amount over a 360-day year. If such written
statement (except the first statement, which shall be prorated pursuant to the
previous sentence) is furnished after the commencement of the Year, Tenant shall
also make a retroactive lump-sum payment equal to the amount of the monthly
payment amount multiplied by the number of months during the Year after the
Commencement Date for which no payment was paid.
3.3.2 Actual Costs. After the close of each Year during the Lease Term,
Landlord shall deliver to Tenant a written statement setting forth the Operating
Costs Allocable to the Premises during the preceding Year. If such
costs for any Year exceed the Estimated Operating Costs Allocable to the
Premises paid by Tenant to Landlord pursuant to subparagraph 3.3.1 for such
Year, Tenant shall pay the amount of such excess to Landlord within twenty (20)
Business Days after receipt of such statement by Tenant. If such statement shows
the Operating Costs Allocable to the Premises to be less than the Estimated
Operating Costs Allocable to the Premises paid by Tenant to Landlord pursuant to
subparagraph 3.3.1, then the amount of such overpayment shall be paid by
Landlord to Tenant within twenty (20) Business Days following the date of such
statement.
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3.3.3 Determination. The determination of Operating Costs Allocable to
the Premises shall be made by Landlord. Any sums payable under this Lease
pursuant to this paragraph shall be Additional Rent and, in the event of
nonpayment of such sums, Landlord shall have the same rights and remedies with
respect to such nonpayment as it has with respect to nonpayment of the Base Rent
due under this Lease. In the event that Landlord in its reasonable discretion
determines that it would be more equitable to allocate any Operating Cost to
only the Building, Landlord reserves the right to do so with appropriate
adjustments to Tenant's Pro Rata Share of such Cost so that the allocation is to
those tenants who occupy the Building.
3.3.4 End of Term. If this Lease shall terminate on a day other than
the last day of a Year, the amount of any adjustment between Estimated Operating
Costs Allocable to the Premises and Operating Costs Allocable to The Premises
with respect to the Year in which such termination occurs shall be prorated on
the basis which the number of calendar days from the commencement of such Year
(to and including such termination date) bears to 360; and any amount payable by
Landlord to Tenant or Tenant to Landlord with respect to such adjustment shall
be payable within twenty (20) Business Days after delivery of the statement of
Operating Costs Allocable to the Premises with respect to such Year. Landlord's
and Tenant's obligations under this paragraph shall survive the expiration or
other termination of this Lease.
3.3.5 Offsets. Tenant shall pay Additional Rent and other sums due
under this Lease to Landlord without demand, deduction, adjustment, credit or
offset of any kind or nature, in lawful money of the United States as and when
due, at the offices of Manager at Manager's Address, or to such other party or
at such other place as Landlord may from time to time designate in writing.
3.3.6 Definitions. Each underlined term in this subparagraph shall have
the meaning set forth next to that underlined term:
Base Amount. Zero (0).
Estimated Operating Costs Allocable to the Premises: Landlord's
estimate of Operating Costs Allocable to the Premises for a Year
to be given by Landlord to Tenant pursuant to subparagraph 3.3.1.
Operating Costs: All expenses paid or incurred by Landlord for
maintaining, operating, owning and repairing any or all of the
Project and the personal property used in conjunction with such
maintenance, operation, ownership and repair, including all
expenses paid or incurred by Landlord for: (a) utilities,
including electricity, water, gas, sewers, refuse collection,
telephone charges, cable television or other electronic or
microwave signal reception, steam, heat, cooling or any other
service which is now or in the future considered a utility and
which are not payable directly by tenants in the Project; (b)
supplies; (C) cleaning (including window washing), landscaping
(including irrigating, trimming, moving, fertilizing, seeding and
replacing plants), snow removal and other services; (d) security
services, if any; (e) insurance; (f) management fees (which shall
be limited to what is normal and customary in the Herndon/Reston
market for similar buildings); (g) Property Taxes, tax consultant
fees and expenses, and costs of appeals of any Property Taxes; (h)
services of independent contractors; (i) compensation (including
employment taxes) of all persons who perform duties in connection
with any service, repair, maintenance, replacement or improvement
or other work included in this subparagraph; (j) license, permit
and inspection fees; (k) assessments and special assessments due
to deed restrictions, declarations or owners associations; (l)
rental of any machinery or equipment; (m) audit fees and
accounting services related to the Project, and charges for the
computation of the rents and charges payable by tenants in the
Project (but only to the extent the cost of such fees and services
are in addition to the cost of the management fee); (n) the cost
of improvements, repairs or replacements; (o) maintenance and
service contracts; (p) depreciation of machinery and equipment
used in operating, maintaining or repairing; (q) legal fees; (r)
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roof repair and maintenance; and (s) any other expense or charge
which in accordance with generally accepted accounting and
management principles would be considered an expense of
maintaining, operating, owning or repairing the Project. Without
limiting the foregoing, Operating Costs shall include exterior
painting; resealing and restriping parking areas and driveways;
and capital improvement which may reduce Operating Costs; provided
that capital improvements, whether installed before or after the
Commencement Date, shall be amortized with market interest over
their estimated useful lives as determined by Landlord pursuant to
Generally Accepted Accounting Procedures and only the amortization
installments and interest attributable to the Lease Term shall be
an Operating Cost under this Lease.
Operating Costs shall not include any of the following:
removal of Hazardous Substances which is Landlord's
responsibility (other than Landlord's maintenance and repair
obligations set forth in the paragraph entitled "Maintenance and
Repair by Landlord") under the terms of this Lease; removal of
Hazardous Substances which is Tenant's responsibility under the
terms of this Lease; ground rent; interest and amortization of
funds borrowed by Landlord for items other than capital
improvements; leasing commissions and advertising, and space
planning expenses incurred in procuring tenants; and salaries,
wages, or other compensation paid to officers or executives of
Landlord in their capacities as officers and executives; the cost
of any alterations or improvements to common areas, exterior open
space or any other space including retail space in the building
or access ways, sidewalks and/or parking facilities servicing the
Building which are Landlord's responsibility under the section of
this Lease entitled Access Laws; capital improvement costs of the
Lease, whether principal or interest except as provided above in
this definition; cost directly resulting from the negligence or
willful misconduct of the Landlord, or Landlord's Agents; cost
for which Landlord is reimbursed by any insurance required to be
carried
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under the Lease or actually carried by Landlord; cost for any
structural replacement or redesign; cost of fees relating to the
defense of Landlord's title or interest in the real estate
containing the Building or any part thereof unless such defense
is the direct or indirect result of Tenant or Tenant's Agents'
actions; expenses in connection with services or other benefits
of a type which are not made available to Tenant but which are
provided to another tenant; renovation of the Building made
necessary by the exercise of eminent domain; any cost incurred
by Landlord or an affiliate of the Landlord for the provision of
any goods or services, to the extent such costs exceed the cost
then prevailing in transaction between unrelated parties (the
preceding exclusion shall not apply to the use of union labor by
Landlord or Tenant for construction of the Tenant Improvements);
cost of administrating the affairs of the partnership comprising
the Landlord which are unrelated to the maintenance and
management of the Building; costs, fines, interest, penalties
and legal fees or costs incurred by Landlord in connection with
late payment of taxes, utility bills or other failures by
Landlord to make prompt payment when due; taxes for Landlord's
income taxes, corporation or unincorporated business taxes as
well as inheritance, succession, transfer, capital gains, sales
taxes or franchise; legal fees, costs and expenses to collect
rent arrears, to recover possession space or to compel full
performance under leases of space in the Building.
Upon Tenant's request, Landlord shall submit to Tenant a
statement showing the actual annual operating costs on a
line-by-line basis for each year, and Tenant's pro rata share
thereof. The Landlord shall use generally accepted accounting
principles in determining operating expense pass throughs.
In no event shall Operating Costs, excluding real estate taxes
and insurance, exceed any prior year's amount by more than seven
percent (7%).
Operating Costs Allocable to the Premises: The product of
------------------------------------------
Tenant's Pro Rata Share times Operating Costs.
3.4 Utilities. Tenant shall contract directly and pay for all water, gas, heat,
light, power, telephone. sewer, and other utilities used on or from the Premises
together with any taxes, penalties, surcharges or similar charges relating to
such utilities. If any such service is not separately metered to the Premises,
the cost therefor shall be an Operating Cost under this Lease.
3.5 Holdover. If Tenant shall, without the prior written consent of Landlord,
hold over after the expiration or termination of the Lease Term, Tenant shall be
deemed to be occupying the Premises under a month-to-month tenancy, which
tenancy may be terminated as provided by the laws of the state in which the
Premises are located. During such tenancy, Tenant agrees to pay to Landlord one
hundred fifty percent (150%) the rate of Base Rent in effect on the expiration
or termination of the Lease Term, plus all Additional Rent and other sums
payable under this Lease, and to be bound by all of the other covenants and
conditions specified in this Lease, so far as applicable. The preceding
provisions shall not be construed as consent for Tenant to hold over.
3.6 Late Charge. If Tenant fails to make any payment of Base Rent, Additional
Rent or other amount when due under this Lease, Tenant shall also pay a late
charge equal to five percent (5%) of the amount of any such payment. Landlord
and Tenant agree that this charge compensates Landlord for the administrative
costs caused by the delinquency. The parties agree that Landlord's damage would
be difficult to compute and the amount stated in this paragraph represents a
reasonable estimate of such damage. Assessment or payment of the late charge
contemplated in this paragraph shall not excuse or cure any Event of Default or
breach by Tenant under this Lease or impair any other right or remedy provided
under this Lease or under law.
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3.7 Default Rate. Any Base Rent, Additional Rent or other sum payable under this
Lease which is not paid when due shall bear interest at a rate equal to the
lesser of: (a) the published prime rate of The Riggs National Bank of
Washington. D.C. or such other national banking institution designated by
Landlord if such bank ceases to publish a prime rate (the "Prime Rate"), then in
effect, plus four (4) percentage points, or (b) the maximum rate of interest per
annum permitted by applicable law (the "Default Rate"), but the payment of such
interest shall not excuse or cure any Event of Default or breach by Tenant under
this Lease or impair any other right or remedy provided under this Lease or
under law.
SECTION 4: GENERAL PROVISIONS
-----------------------------
4.1 Maintenance and Repair by Landlord. Subject to the paragraphs captioned
"Damage or Destruction" and "Condemnation", Landlord shall maintain the public
and common areas of the Project in reasonably good order and condition, except
for ordinary wear and tear, and damage occasioned by the act or omission of
Tenant or Tenant's Agents which shall be paid for entirely by Tenant upon demand
by Landlord, less any proceeds (after subtracting Landlord's deductible)
actually received by Landlord under Landlord's insurance. In the event any or
all of the Project becomes in need of maintenance or repair which Landlord is
required to make under this Lease, Tenant shall immediately give written notice
to Landlord, and Landlord shall, subject to Force Majeure delays and reasonable
delays for labor (including contracting for such labor) or materials, be
obligated to commence such maintenance or repairs within ten (10) Business Days
after Landlord's receipt of such notice.
4.2 Maintenance and Repair by Tenant: Except as is expressly set forth as
Landlord's responsibility pursuant to the paragraph captioned "Maintenance and
Repair by Landlord", Tenant shall at Tenant's sole cost and expense keep and
maintain the Premises in good condition and repair, including without
limitation, the HVAC systems, dock equipment, trash removal, interior painting,
flooring, wall coverings, cleaning of the interior side of all exterior glass,
plumbing and utility fixtures and installations, replacement of all light bulbs
and broken windows (including without limitation any exterior windows), exterior
and interior doors, roof penetrations and membranes in connection with Tenant's
installation and use of its satellite dish, and interior preventative
maintenance (including without limitation a preventative maintenance contract
for the HVAC systems). If Tenant fails to maintain or repair the Premises in
accordance with this paragraph, then Landlord may, but shall not be required to,
enter the Premises upon two (2) Business Days prior written notice to Tenant (or
immediately without any notice in the case of an emergency) to perform such
maintenance or repair at Tenant's sole cost and expense. Tenant shall pay to
Landlord the cost of such maintenance or repair within ten (10) Business Days of
written demand from Landlord: Landlord shall pay for damage occasioned by the
act or omission of Tenant or Tenant's Agent if the damage is covered under the
Landlord's
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insurance. Landlord represents and warrants that to the best actual knowledge of
Landlord's senior trust officer in charge of the Property, without duty of
inquiry or investigation, that as of the Commencement Date; the HVAC system in
the Premises is in good condition and repair. Tenant shall pay to Landlord upon
demand, the first $2,000.00 per occurrence, towards any HVAC repair and/or
system replacement not covered by the preventative maintenance contract.
Landlord shall be responsible for any such costs, per occurrence, in excess of
$2,000.00, provided that if Tenant fails to maintain the HVAC preventative
maintenance contract or such repair or replacement is caused Tenant or Tenant's
Agents negligence or misconduct, then Tenant shall pay all of the cost of such
repair or replacement. Notwithstanding the foregoing, Landlord shall pay the
full cost, without any contribution by Tenant, for any HVAC repair and/or
replacement required in the Initial Space during the first five (5) months after
the Commencement Date and for any HVAC repair and/or replacement required in the
Additional Space during the first five (5) months after the Second Commencement
Date: Landlord may use its own contractor for any HVAC repair and/or
replacement, whether during or after such five (5) month period.
4.3 Common Areas/Security. The common areas of the Project shall be subject to
Landlord's sole management and control. Without limiting the generality of the
immediately preceding sentence, Landlord reserves the exclusive right to
install, construct, remove, maintain and operate lighting systems, facilities,
improvements, equipment and signs on, in or to all parts of the common areas;
increase, reduce or change the number, size, height, layout, or locations of
walks, driveways and truckways or parking areas now or later forming a part of
the Project; make alterations or additions to the Project or common area; close
temporarily all or any portion of the common areas to make repairs, changes or
to avoid public dedication; grant easements, or replat or subdivide or make
other changes to the Land, as Landlord shall deem necessary; place, relocate and
operate utility lines through, over or under the Project; and use or permit the
use of all or any portion of the roofs of the Project. Landlord has no duty or
obligation to provide any security services in, on or around the Premises or
Project, and Tenant recognizes that security services, if any, provided by
Landlord will be for the sole benefit of Landlord and the protection of
Landlord's property and under no circumstances shall Landlord be responsible
for, and Tenant waives any rights with respect to, Landlord providing security
or other protection for Tenant or Tenant's Agents or property in, on or about
the Premises or Project. Landlord reserves the right to reallocate parking and
driveway locations and to build additional improvements in the common areas so
long as Tenant's Parking Ratio is maintained. If Landlord closes the Common
Areas to make repairs not covered by the section entitled Damage or Destruction,
and such closure prevents Tenant from obtaining any access to the Premises, then
the Base Rent shall be abated for the duration of such total lack of access. It
Tenant is unable to access the Premises due to such repairs to the Common Areas
for a period of thirty (30) consecutive days, then Tenant may terminate this
Lease upon thirty (30) days prior written notice to Landlord. Tenant shall have
the right to use the conduit which runs from the Building to the building
commonly referred to as 380 Herndon without any payment of Base Rent or
Additional Rent to Landlord. Landlord makes no representation or warranty as to
the suitability of such conduit for Tenant's intended use. Landlord shall not be
liable to Tenant for any Claims which Tenant may have against Landlord
associated with Tenant's use of the conduit, all of such Claims. whether now
existing or created in the future. being waived by Tenant. Tenant shall use the
conduit in compliance with all Governmental Requirements and shall pay any and
all costs of compliance resulting from Tenant's use of the conduit. Tenant shall
indemnify, defend and hold harmless Landlord and Landlord's Agents from and
against any and all Claims, arising in whole or in part out of Tenant's use of
the conduit.
4.4 Tenant Alterations. Tenant shall not make any alterations, additions or
improvements in or to the Premises, or make changes to locks on doors, or add,
disturb or in any way change any floor covering, wall covering, fixtures,
plumbing or wiring (individually and collectively "Tenant Alterations"), without
first obtaining the written consent of Landlord which may he withheld in
Landlord's discretion except for the alterations that are included on the
attached plan. If Landlord approves of the Tenant Alterations, then, at Tenant's
election, Landlord may perform such work at Tenant's sole cost and expense using
architects and contractors selected by Landlord consistent with the process set
forth in 2.3 herein. Tenant shall deliver to Landlord full and complete plans
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and specifications for any proposed Tenant Alterations and, if consent by
Landlord is given, all such work shall be performed at Tenant's expense. Without
limiting the generality of the foregoing, Landlord may require Tenant, at
Tenant's sole cost and expense, to obtain and provide to Landlord proof of
insurance coverage. All Tenant Alterations to the Premises shall become the
property of Landlord (other than the free standing air conditioning units) and
shall remain upon and be surrendered with the Premises upon the expiration or
earlier termination of this Lease, unless Landlord's consent to such Tenant
Alterations is conditioned upon Tenant removing the Tenant Alterations upon the
expiration or earlier termination of this Lease. If Tenant fails to remove any
such Tenant Alterations as required by Landlord's consent, Landlord may do so
and Tenant shall pay the entire cost thereof to Landlord within ten (10)
Business Days after Tenant's receipt of Landlord's written demand therefor.
Nothing contained in this paragraph or the paragraph captioned "Tenant's Work
Performance" shall be deemed a waiver of the provisions of the paragraph
captioned "Mechanic's Liens.
4.5 Tenant's Work Performance. If Tenant elects to perform the Tenant
Alterations at Tenant's sole cost and expense, all Tenant Alterations shall be
performed by contractors employed by Tenant under one or more construction
contracts, in form and content approved in advance in writing by Landlord (which
approval shall be subject to Landlord's reasonable approval and may include a
requirement that the prime contractor and the respective subcontractors: (a) be
parties to, and bound by, a collective bargaining agreement with a labor
organization affiliated with the Building and Construction Trades Council of the
AFL-CIO and (b) employ only members of such labor organizations to perform work
within their respective jurisdictions). Tenant's contractors, workers and
suppliers shall work in harmony with and not interfere with workers or
contractors of Landlord or other tenants of Landlord. If Tenant's contractors,
workers or suppliers do, in the opinion of Landlord, cause such disharmony or
interference, Landlord's consent to the continuation of such work may be
withdrawn upon written notice to Tenant. All Tenant Alterations shall be (1)
completed in accordance with the plans and specifications approved by Landlord;
(2) completed in accordance with all Governmental Requirements; (3) carried out
promptly in a good and workmanlike manner; (4) of all new materials; and (5)
free of defect in materials and workmanship. Tenant shall pay for all damage to
the Premises and Project caused by Tenant or Tenant's Agents. Tenant shall
indemnify, defend and hold harmless Landlord and
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Landlord's Agents from any Claims arising as a result of any defect in design,
material or workmanship of any Tenant Alterations.
4.6 Surrender of Possession. Subject to the last subparagraph of the paragraph
captioned "Insurance", Tenant shall, at the expiration or earlier termination of
this Lease, surrender and deliver the Premises to Landlord in as good condition
as when received by Tenant from Landlord or as later improved, reasonable use
and wear excepted.
4.7 Removal of Property. Upon expiration or earlier termination of this Lease,
Tenant may remove its trade fixtures, office supplies and moveable office
furniture and equipment not attached to the Premises; provided that (a) such
removal is completed prior to the expiration or earlier termination of this
Lease; (b) Tenant is not in default of any covenant or condition of this Lease
at the time of such removal; and (c) Tenant immediately repairs all damage
caused by or resulting from such removal. All other property in the Premises and
any Tenant Alterations (including wall-to-wall carpeting, paneling, wall
covering or lighting fixtures and apparatus) or any other article affixed to the
floor, walls or ceiling of the Premises, shall become the property of Landlord
and shall remain upon and be surrendered with the Premises unless removal of any
such item was a condition of Landlord's consent to any proposed Tenant
Alteration. Tenant waives all rights to any payment or compensation for such
Tenant Alterations. If Tenant shall fail to remove any of its property of any
nature from the Premises or Project at the expiration or earlier termination of
this Lease or when Landlord has the right of re-entry, Landlord may, at its
option, remove and store such property without liability for loss of or damage
to such property, such storage to be for the account and at the expense of
Tenant. If Tenant fails to pay the cost of storing any such property, after it
has been stored for a period of twenty (20) Business Days or more, Landlord may,
at its option, after it has been stored for a period of twenty (20) Business
Days or more, sell or permit to be sold, any or all such property at public or
private sale (and Landlord may become a purchaser at such sale), in such manner
and at such times and places as Landlord in its sole discretion may deem proper,
without notice to Tenant, and Landlord shall apply the proceeds of such sale:
first to the cost and expense of such sale, including reasonable attorney's fees
actually incurred; second to the payment of the costs or charges for storing any
such property; third to the payment of any other sums of money which may then be
or later become due Landlord from Tenant under this Lease; and, fourth the
balance, if any, to Tenant.
4.8 Access. Tenant shall permit Landlord and Landlord's Agents to enter into the
Premises at any time on at least two (2) Business Days' notice (except in case
of emergency), for the purpose of inspecting the same or for the purpose of
repairing, altering or improving the Premises or the Building. Nothing contained
in this paragraph shall be deemed to impose any obligation upon Landlord not
expressly stated elsewhere in this Lease. When reasonably necessary, Landlord
may temporarily close Building or Project entrances, Building doors or other
facilities, without liability to Tenant by reason of such closure and without
such action by Landlord being construed as an eviction of Tenant or as relieving
Tenant from the duty of observing or performing any of the provisions of this
Lease. Landlord shall have the right to enter the Premises for the purpose of
showing the Premises to prospective tenants within the period of one-hundred
twenty (120) Business Days prior to the expiration or sooner termination of this
Lease and to erect on the Premises a suitable sign indicating the Premises are
available. Landlord or Landlord's Agent shall arrange to meet with Tenant for a
joint inspection of the Premises prior to vacating for the purpose of
determining Tenant's responsibilities for repairs and restoration. In the event
of Tenant's failure to give such notice or arrange such joint inspection,
Landlord's inspection at or after Tenant's vacating the Premises shall be
conclusively deemed correct for purposes of determining Tenant's responsibility
for repairs and restoration. Landlord shall not be liable for the consequences
of admitting by passkey, or refusing to admit to the Premises, Tenant or any of
Tenant's Agents, or other persons claiming the right of admittance.
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4.9 Damage or Destruction
4.9.1 If the Premises are damaged by fire, earthquake or other
casualty, Tenant shall give immediate written notice thereof to Landlord. If
Landlord estimates that the damage can be repaired within one hundred-twenty
(120) Business Days after Landlord is notified by Tenant of such damage and if
there are sufficient insurance proceeds available to repair such damage, then
Landlord shall proceed with reasonable diligence to restore the Premises to
substantially the condition which existed prior to the damage and this Lease
shall not terminate. If, in Landlord's estimation, the damage cannot be repaired
within such 120 Business Day period or if there are insufficient insurance
proceeds available to repair such damage, Landlord may elect in its absolute
discretion to either: (a) terminate this Lease or (b) restore the Premises to
substantially the condition which existed prior to the damage and this Lease
will continue. If Landlord elects the option set forth in clause (b), then (1)
the Lease Term shall be extended for the time required to complete such
restoration, not to exceed 120 Business Days, (2) Landlord shall not be required
to repair or restore fixtures, improvements or other property of Tenant.
4.9.2 If the Building or Project is damaged by fire, earthquake
or other casualty and more than fifty percent (50%) of the Building or Project
is rendered untenantable, without regard to whether the Premises are affected by
such damage, Landlord may in its absolute discretion elect to terminate this
Lease by notice in writing to Tenant within forty (40) Business Days after the
occurrence of such damage. Such notice shall be effective twenty (20) Business
Days after receipt by Tenant unless a later date is set forth in Landlord's
notice. The foregoing notwithstanding, if the Building or Project is damaged by
fire, earthquake or other casualty, and more than fifty percent (50%) of the
Building or Project is rendered untenable and Tenant cannot reasonably conduct
its business on the Premises, and Tenant actually ceases to operate its business
on the Premises, rent for the entire Premises shall abate as of the time of such
occurrence, and for the duration the Tenant cannot and does not reasonably
conduct its business on the Premises.
4.9.3 Notwithstanding anything contained in this Lease to the
contrary, if there is damage to the Premises or Project and the holder of any
indebtedness secured by a mortgage or deed of trust covering any such property
requires that the insurance proceeds be applied to such indebtedness, then
Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant within fifteen (15) Business Days after such
requirement is made by such holder. 4.10 Condemnation. If all of the
Premises, or such portions of the Building as may be required for the Tenant's
reasonable use of the Premises, are taken by eminent domain or by conveyance in
lieu thereof, this Lease shall automatically terminate as of the date the
physical taking occurs, and all Base Rent, Additional Rent and other sums
payable under this Lease shall be paid to that date. In case of taking of a part
of the Premises or a portion of the Building not required for the Tenant's
reasonable use of the Premises and not exceeding twenty-five percent (25%) of
the Premises, then this Lease shall continue in full force and effect and the
Base Rent shall be equitably reduced based on the proportion by which the floor
area of the Premises is reduced, such reduction in Base Rent to be effective as
of the date the physical taking occurs, Additional Rent and all other sums
payable under this Lease shall not be abated but Tenant's Pro Rata Share may be
redetermined as equitable under the circumstances. Landlord reserves all rights
to damages or awards for any taking by eminent domain relating to the Premises,
Project and the unexpired term of this Lease. Tenant assigns to Landlord any
right Tenant may have to such damages or award and Tenant shall make no claim
against Landlord for damages for termination of its leasehold interest or
interference with Tenant's business. Tenant shall have the right, however, to
claim and recover from the condemning authority compensation for any loss to
which Tenant may be entitled for Tenant's moving expenses or other relocation
costs; provided that such expenses or costs may be claimed only if they are
awarded separately in the eminent domain proceedings and not as a part of the
damages recoverable by Landlord. The foregoing notwithstanding, if the Building
or Project is condemned, and more than fifty percent (50%) of the Building or
Project is rendered untenable and Tenant cannot reasonably conduct its business
on the Premises, and Tenant actually ceases to operate its business on the
Premises, rent for the entire Premises shall abate as of the time of such
occurrence, and for the duration the Tenant cannot and does not reasonably
conduct its business on the Premises.
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4.11 Parking. Tenant shall have the nonexclusive privilege to use parking spaces
on the Land in common with other tenants of Landlord, but only in areas
reasonably designated by Landlord; provided that. Tenant shall have the
exclusive right to use twelve (12) parking spaces on the Land as reasonably
designated by Landlord. Tenant's parking privileges shall be subject to the
rules and regulations relating to parking adopted by Landlord from time to time.
Landlord shall have the right to grant designated, reserved parking stalls to
other tenants in the Project. In no event shall the number of parking stalls
used by Tenant and Tenant's Agents exceed the number of stalls allocated to
Tenant in the definition of the Parking Ratio. Landlord shall have no obligation
whatsoever to monitor or police the use of the parking or other common areas.
The exclusive parking spaces shall be provided at Landlord's sole cost and
expense [(subject to Operating Cost),] during the Lease Term and renewals of
this Lease and shall be designated "Reserved Cisco" and shall be in close
proximity to the entrance of the Building, the exact location of which shall be
[mutually agreed upon by Landlord and] designated on Exhibit B. Notwithstanding
the foregoing. Operating Costs applicable to the maintenance and repair of such
spaces (excluding the initial designation expenses) shall be passed through to
Tenant.
4.12 Indemnification.
4.12.1 Tenant shall indemnify, defend and hold harmless Landlord
and Landlord's Agents from and against any and all Claims, arising in whole or
in part out of (a) the possession, use or occupancy of the Premises or the
business conducted therein, or (b) any act, omission or negligence of Tenant or
Tenant's Agents. Neither Landlord nor Landlord's Agents shall, to the extent
permitted by law, have any liability to Tenant, or to Tenant's Agents, for any
Claims arising out of any cause whatsoever, including, repair to any portion of
the Premises; interruption in the use of the Premises or any equipment therein;
any accident or damage resulting from any use or operation by Landlord, Tenant
or any person or entity of heating, cooling, electrical, sewerage or plumbing
equipment or apparatus; termination of this Lease by reason of damage to the
Premises or Project; fire, robbery, theft, vandalism, mysterious disappearance
or any other casualty; actions of any other tenant of the Project or of any
other person or entity; Landlord's or Landlord's Agents' inability to furnish
any service required of Landlord for a period in excess of five (5) Business
Days or due to Force Majeure delays as specified in this Lease; or leakage in
any part of the Premises or the Project from rain, ice or snow, or from drains,
pipes or plumbing fixtures in the Premises or the Project; except for Claims
arising: (i) solely out of the gross negligence or willful misconduct of
Landlord in failing to repair or maintain the Project as required by this Lease
after notice by Tenant as required by the paragraph captioned "Maintenance and
Repair by Landlord" or (ii) as provided in 4.12.2; provided that, in no event
shall Landlord be responsible for any interruption to Tenant's business or for
any indirect or consequential losses suffered by Tenant or Tenant's Agents. The
obligations of this paragraph shall be subject to the paragraph entitled "Waiver
of Subrogation".
4.12.2 Subject to the terms of subsection 4.12.1 of this Lease,
Landlord shall indemnify, defend and hold harmless Tenant from and against any
and all Claims for matters occurring in the Common Areas and which arise solely
out of Landlord's or Landlord's Agents' gross negligence or willful misconduct.
The obligations of this paragraph shall be subject to the paragraph entitled
"Waiver of Subrogation".
4.13 Tenant's Insurance.
4.13.1 Tenant shall, throughout the Lease Term, including any
portion of the Lease Term during which Tenant may vacate the Premises, if any,
and at Tenant's own expense, keep and maintain in full force and effect:
(a) A policy of comprehensiv covering Tenant's obligations under the
paragraph captioned "Indemnification", insuring against claims of bodily injury
and death or property damage or loss with a combined single limit at the
Commencement Date of this Lease of not less than Two Million Dollars
($2,000,000.00), which limit shall be reasonably increased during the Lease Term
at Landlord's request to reflect both increases in liability exposure arising
from inflation as well as from changing use of the Premises, which policy shall
be payable on an "occurrence" rather than a "claims made" basis, and which
policy names Landlord and Manager and, at Landlord's request Landlord's mortgage
lender(s) or investment advisors, as additional insured;
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(b) A policy of extended property insurance (including earthquake, flood
and what is commonly called "all risk") covering Tenant's Improvements and
Tenant's Alterations, furniture, fixtures, equipment, inventory, and other
personal property located on the Premises, in the greater of: (1) one hundred
percent (100%) of the current replacement value of such property or (2) One
Hundred Thousand Dollars ($100,000.00); and
(c)Business interruption insurance in an amount sufficient to cover costs,
damages, lost income, expenses, Base Rent, Additional Rent and all other sums
payable under this Lease, should any or all of the Premises not be usable for a
period of up to six (6) months.
4.13.2 All insurance policies required under this paragraph shall be
with companies with Best's rating of A or better, and each policy shall provide
that it is not subject to cancellation or reduction in coverage except after
thirty (30) calendar days' written notice to Landlord. Tenant shall deliver to
Landlord and, at Landlord's request Landlord's mortgage lender(s), prior to the
Commencement Date and from time to time thereafter, certificates evidencing the
existence and amounts of all such policies.
4.13.3 If Tenant fails to acquire or maintain any insurance or provide
any certificate required by this paragraph, Landlord may, but shall not be
required to, obtain such insurance or certificates and the costs associated with
obtaining such insurance or certificates shall be payable by Tenant to Landlord
on demand.
4.14 Landlord's Insurance. Landlord shall, throughout the Lease Term, keep
and maintain in full force and effect:
(a) A policy of commercial general liability insurance, insuring against
claims of bodily injury and death or property damage or loss with a combined
single limit at the Commencement Date of not less than Five Million Dollars
($5,000,000.00), which policy shall be payable on an "occurrence" rather than a
"claims made" basis; and
(b) A policy of extended property insurance (including what is commonly
called "all risk") covering the Building and Landlord's personal property, if
any, located on the Property in the amount of one hundred percent (100%) of the
current replacement value of such property.
The deductibles under both policies are Operating Costs. Such policies
may be "blanket" policies which cover other properties owned by Landlord.
4.15 Waiver of Subrogation. Notwithstanding anything in this Lease to the
contrary, Landlord and Tenant hereby each waive and release the other from any
and all Claims or any loss or damage that may occur to the Premises, Project or
personal property located therein, by reason of fire or other casualty
regardless of cause or origin, including the negligence or misconduct of
Landlord, Tenant, Landlord's Agents or Tenant's Agents, but only to the extent
of the insurance proceeds paid to such releasor under its policies of insurance.
Each party to this Lease shall promptly give to its insurance company written
notice of the mutual waivers contained in this subparagraph, and shall cause its
insurance policies to be properly endorsed, if necessary, to prevent the
invalidation of any insurance coverages by reason of the mutual waivers
contained in this subparagraph.
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4.16 Assignment and Subletting by Tenant.
4.16.1 Tenant shall not have the right to assign, transfer, mortgage or
encumber this Lease in whole or in part, nor sublet the whole or any part of the
Premises, nor allow the occupancy of all or any part of the Premises by another,
without first obtaining Landlord's consent, which consent shall not be
unreasonably withheld, conditioned or delayed, subject to paragraph 4.16.3.
Notwithstanding any permitted assignment or subletting, Tenant shall at all
times remain directly, primarily and fully responsible and liable for the
payment of all sums payable under this Lease and for compliance with all of its
other obligations as tenant under this Lease. Upon the occurrence of an Event of
Default if the Premises or any part of the Premises are then subject to an
assignment or subletting, Landlord, in addition to any other remedies provided
in this Lease or by law, may at its option collect directly from such assignee
or subtenant all rents becoming due to Tenant under such assignment or sublease
and apply such rents against any sums due to Landlord from Tenant under this
Lease, and no such collection shall be construed to constitute a novation or
release of Tenant from the further performance of Tenant's obligations under
this Lease. Tenant makes an absolute assignment to Landlord of such assignments
and subleases and any rent, security deposits and other sums payable under such
assignments and subleases as collateral to secure the performance of the
obligations of Tenant under this Lease. The foregoing notwithstanding, any
wholly owned subsidiaries or affiliates of Cisco's can sublease the space
without Landlord's approval, provided that such wholly owned subsidiary's or
affiliate's use of the Premises complies with the provisions herein and does not
disturb the integrity of the Project.
4.1 6.2 In the event Tenant desires to assign this Lease or to sublet
all or any portion of the Premises, Tenant shall give written notice of such
desire to Landlord setting forth the name of the proposed subtenant or assignee,
the proposed term, the nature of the proposed subtenant's or assignee's business
to be conducted on the Premises, the rental rate, and any other particulars of
the proposed subletting or assignment that Landlord may reasonably request.
Without Limiting the preceding sentence, Tenant shall also provide Landlord
with: (a) such financial information as Landlord may reasonably request
concerning the proposed subtenant or assignee, including recent financial
statements certified as accurate and complete by a certified public accountant
and by the president, managing partner or other appropriate officer of the
proposed subtenant or assignee; (b) proof satisfactory to Landlord that the
proposed subtenant or assignee will immediately occupy and thereafter use the
entire Premises (or any sublet portion of the Premises) for the remainder of the
Lease Term (or for the entire term of the sublease, if shorter) in compliance
with the terms of this Lease except for the amount of rent due, which may be
more or less than the amount set forth herein provided that Tenant reaffirms its
primary liability under this Lease; and (c) a copy of the proposed sublease or
assignment or letter of intent. At the same time that Tenant provides Landlord
with notice of its desire to assign or sublease, Tenant shall pay to Landlord
the sum of $400 as Landlord's fee for processing such proposed assignment and
sublease, including attorneys' fees incurred by Landlord with respect to such
processing. Receipt of such fee shall not obligate Landlord to approve the
proposed assignment or sublease.
4.16.3 In determining whether to grant or withhold consent to a proposed
assignment or sublease, Landlord may consider, in good faith, any commercial
factor it deems relevant. Without limiting what may be construed as a factor
considered by Landlord in good faith, Tenant agrees that any one or more of the
following will be proper grounds for Landlord's disapproval of a proposed
assignment or sublease:
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(a) The proposed assignee or subtenant is or will be unwilling or
unable to execute and deliver to Landlord an ERISA Certificate in the form
consistent with the provisions of the paragraph entitled "ERISA Representations"
as may be updated by Landlord, or Landlord believes that the proposed assignment
or sublease would constitute a prohibited transaction under or otherwise violate
ERISA;
(b) The proposed assignee or subtenant does not, in Landlord's
good faith judgment, have sufficient financial worth to insure the full and
timely performance under this Lease;
(c) Landlord has received insufficient evidence of the financial
worth or creditworthiness of the proposed assignee or subtenant to make the
determination set forth in clause (b);
(d) Landlord has received from any prior lessor of the proposed
assignee or subtenant a negative report concerning such prior lessor's
experience with the proposed assignee or subtenant;
(e) Landlord has had prior negative leasing experience with the
proposed assignee or subtenant;
(f) The use of the Premises by the proposed assignee or subtenant
will not be [identical] in compliance with the Permitted Uses;
(g) In Landlord's reasonable judgment, the proposed assignee or
subtenant is engaged in a business, or the Premises or any part of the Premises
will be used in a manner, that is not in keeping with the then standards of the
Building or Project, or that is not compatible with the businesses of other
tenants in the Building or Project, or that is inappropriate for the Building or
Project, or that will violate any negative covenant as to use contained in any
other lease of space in the Project;
The use of the Premises by the proposed assignee or subtenant
will violate any Governmental Requirement or such proposed use may create a
violation of Access Laws;
(i) Tenant is in default of any obligation of Tenant under this
Lease, or Tenant has defaulted under this Lease on three (3) or more occasions
during the twenty-four (24) months preceding the date that Tenant shall request
such consent;
(j) Landlord does not approve, in its reasonable discretion, of
any of the tenant improvements required for the proposed assignee or subtenant;
or
(k) Landlord has had contact with the proposed assignee or
subtenant, in the six (6) months preceding Tenant's request. regarding the
leasing of space by such proposed assignee or subtenant in the Project, unless
Landlord no longer has space sufficient for such assignee's or subtenant's
needs.
4.16.4 Within fifteen (15) Business Days after Landlord's receipt of all
required information to be supplied by Tenant pursuant to this paragraph,
Landlord shall notify Tenant of Landlord's approval, disapproval or conditional
approval of any proposed assignment or subletting. Landlord shall have no
obligation to respond unless and until all required information has been
submitted. In the event Landlord approves of any proposed assignment or
subletting, Tenant and the proposed assignee or sublessee shall execute and
deliver to Landlord an assignment (or subletting) and assumption agreement in
form and content satisfactory to Landlord.
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4.16.5 If Landlord consents to any assignment or sublease and Tenant
receives rent or any other consideration, either initially or over the term of
the assignment or sublease, in excess of the Base Rent and Additional Rent (or,
in the case of a sublease of a portion of the Premises, in excess of the amount
per square foot payable by Tenant under this Lease), Tenant shall pay to
Landlord fifty percent (50%) of such excess; provided that prior to splitting
such excess, Tenant shall be entitled to recover one hundred percent (100%) of
all costs incurred by Tenant in connection with such assignment or subleasing
(including all leasing commissions paid to unrelated parties).
4.17 Assignment by Landlord. Landlord shall have the right to transfer and
assign, in whole or in part, its rights and obligations under this Lease and in
any and all of the Project. If Landlord sells or transfers any or all of the
Building, including the Premises, Landlord and Landlord's Agents shall, upon
consummation of such sale or transfer, be released automatically from any
liability relating to obligations or covenants under this Lease to be performed
or observed after the date of such transfer, and in such event, Tenant agrees to
look solely to Landlord's successor-in-interest with respect to such liability;
provided that, as to the Security Deposit and Prepaid Rent, Landlord shall not
be released from liability therefor unless Landlord has delivered (by direct
transfer or credit against the purchase price) the Security Deposit or Prepaid
Rent to its successor-in-interest. 4.18 Estoppel Certificates. Tenant
shall, from time to time, upon the written request of Landlord, execute,
acknowledge and deliver to Landlord or its designee a confirmation of Landlord's
completed estoppel certificate that Landlord has accurately completed on behalf
of Tenant provided Landlord delivers such certificate to Tenant consistent with
items set forth in this section. (a) the date this Lease was executed and the
date it expires; (b) the date Tenant entered into occupancy of the Premises; (c)
the amount of monthly Base Rent and Additional Rent and the date to which such
Base Rent and Additional Rent have been paid; and (d) certifying that (1) this
Lease is in full force and effect and has not been assigned, modified,
supplemented or amended in any way (or specifying the date of the agreement so
affecting this Lease); (2) Landlord is not in breach of this Lease (or, if so, a
description of each such breach) and that no event, omission or condition has
occurred which would result, with the giving of notice or the passage of time,
in a breach of this Lease by Landlord; (3) this Lease represents the entire
agreement between the parties with respect to the Premises; (4) all required
contributions by Landlord to Tenant on account of Tenant Improvements have been
received; (5) on the date of execution. there exist no defenses or offsets which
the Tenant has against the enforcement of this Lease by the Landlord; (6) no
Base Rent, Additional Rent or other sums payable under this Lease have been paid
in advance except for Base Rent and Additional Rent for the then current month;
(7) no security has been deposited with Landlord (or, if so, the amount of such
security). It is intended that any such statement delivered pursuant to this
paragraph may be relied upon by a prospective purchaser or mortgagee of
Landlord's interest or an assignee of any such mortgagee; and (8) such other
information as may be reasonably requested by Landlord. If Tenant fails to
respond within ten (10) Business Days of its receipt of a written request by
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Landlord as provided in this paragraph, Tenant shall be deemed to have admitted
the accuracy of any information supplied by Landlord to a prospective purchaser,
mortgagee or assignee.
4.19 Modification for Lender. If, in connection with obtaining construction,
interim or permanent financing for the Building or Land, Landlord's lender, if
any, shall request reasonable modifications to this Lease as a condition to such
financing, Tenant will not unreasonably withhold or delay its consent to such
modifications; provided that such modifications do not increase the obligations
of Tenant under this Lease or materially adversely affect Tenant's rights under
this Lease.
4.20 Hazardous Substances.
4.20.1 Tenant agrees that neither Tenant, any of Tenant's Agents will
store, place, generate, manufacture, refine, handle, or locate on, in, under or
around the Project any Hazardous Substance, except for storage, handling and use
of reasonable quantities of cleaning fluids and office supplies in the Premises
to be used in the ordinary course of Tenant's business in the Premises as
reasonably necessary to accomplish the Permitted Use; provided that, (a) the
storage, handling and use of such permitted Hazardous Substances must at all
times conform to all Governmental Requirements and to applicable fire, safety
and insurance requirements; (b) the types and quantities of permitted Hazardous
Substances which are stored in the Premises must be reasonable and appropriate
to the nature and size of Tenant's operation in the Premises and reasonable and
appropriate for a first-class R&D/single story office building of the same or
similar use and in the same market area as the Building; (c) no Hazardous
Substance shall be spilled or disposed of on, in, under or around the Land or
Building or otherwise discharged from the Premises or any area adjacent to the
Land or Building; and (d) in no event will Tenant be permitted to store, handle
or use on, in, under or around the Premises any Hazardous Substance which will
increase the rate of fire or extended coverage insurance on the Land or
Building, unless: (1) such Hazardous Substance and the expected rate increase
have been specifically disclosed in writing to Landlord; (2) Tenant has agreed
in writing to pay any rate increase related to each such Hazardous Substance;
and (3) Landlord has approved in writing each such Hazardous Substance, which
approval shall be subject to Landlord's discretion.
4.20.2 Tenant shall indemnify, defend and hold harmless Landlord and
Landlord's Agents from and against any and all Claims arising out of any breach
of any provision of this paragraph, which expenses shall also include laboratory
testing fees, personal injury claims, clean-up costs and environmental
consultants' fees. Tenant agrees that Landlord may be irreparably harmed by
Tenant's breach of this paragraph and that a specific performance action may
appropriately be brought by Landlord; provided that, Landlord's election to
bring or not bring any such specific performance action shall in no way limit,
waive, impair or hinder Landlord's other remedies against Tenant.
4.20.3 As of the execution date of this Lease, Tenant represents and
warrants to Landlord that, except as otherwise disclosed by Tenant to Landlord,
Tenant has no intent to bring any Hazardous Substances on, in or under the
Premises except for the type and quantities authorized in the first paragraph of
the section entitled "Hazardous Substances".
4.20.4 Landlord shall indemnify, defend and hold harmless Tenant from
and against any Claims arising out of Hazardous Substances located on, in, under
or around the Project if and to the extend they (a) first occurred and were
pre-existing prior to the date of execution of this Lease, or (b) were caused or
created by the negligence or willful misconduct of Landlord during the Lease
Term.
4.20.5 Landlord represents and warrants to Tenant that as of the date of
this Lease, to the best actual knowledge of Landlord's senior trust officer in
charge of the Project, without duty of inquiry or investigation, there are no
Hazardous Materials located in the Building or the Premises in violation of any
applicable Governmental Requirements.
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4.20.6 Landlord shall indemnify, defend and hold harmless Tenant from
and against any and all Claims, excluding interruption of business and
consequential damages, arising directly from the use, generation storage or
disposal of Hazardous Materials by Landlord in the Building.
4.21 Access Laws.
4.21.1 Tenant agrees to notify Landlord immediately if Tenant receives
notification or otherwise becomes aware of: (1) any condition or situation on,
in, under or around the Premises which may constitute a violation of any Access
Laws or (2) any threatened or actual lien, action or notice that the Project or
any part of the Project is not in compliance with any Access Laws. If Tenant is
responsible for such condition, situation, lien, action or notice under this
paragraph, Tenant's notice to Landlord shall include a statement as the actions
Tenant proposes to take in response to such condition, situation, lien, action
or notice.
4.21.2 Tenant shall not alter or permit any assignee or subtenant or any
other person to alter the Premises in any manner which would violate any Access
Laws or increase Landlord's responsibilities for compliance with Access Laws,
without the prior written approval of the Landlord. In connection with any such
approval, Landlord may require a certificate of compliance with Access Laws from
an architect, engineer or other person acceptable to Landlord. Tenant agrees to
pay the reasonable fees incurred by such architect, engineer or other third
party in connection with the issuance of such certificate of compliance.
Landlord's consent to any proposed Tenant Alteration shall (a) not relieve
Tenant of its obligations or indemnities contained in this paragraph or this
Lease or (b) be construed as a warranty that such proposed alternation complies
with any Access Law.
4.21.3 After Substantial Completion, Tenant shall be solely responsible
for all costs and expenses relating to or incurred in connection with: (a)
failure of the Premises to comply with the Access Laws; and (b) bringing the
Building and the common areas of the Building into compliance with Access Laws,
if and to the extent such noncompliance arises out of or relates to: (1)
[Tenant's use of the Premises; (2)] any Tenant Alterations to the Premises; or
[(3)] 2 any Tenant Improvements constructed in the Premises at the request of
Tenant other than those constructed prior to the Commencement Date.
4.21.4 Landlord shall be responsible for all costs and expenses relating
to or incurred in connection with: (i) bringing the common areas of the Building
into compliance with Access Laws, unless such costs and expenses are Tenant's
responsibility as provided in the preceding subparagraph, and (ii) altering the
bathrooms in the Premises to the extent required by the Access Laws in existence
prior to the Commencement Date.
4.21.5 Tenant agrees to indemnify, defend and hold harmless Landlord and
Landlord's Agents from and against any and all Claims arising out of or relating
to any failure of Tenant or Tenant's Agents to comply with Tenant's obligations
under this paragraph.
4.21.6 The provisions of this paragraph shall supersede any other
provisions in this Lease regarding Access Laws, to the extent inconsistent with
the provisions of any other paragraphs.
4.22 Quiet Enjoyment. Landlord covenants that Tenant, upon paying Base Rent,
Additional Rent and all other sums payable under this Lease and performing all
covenants and conditions required of Tenant under this Lease shall and may
peacefully have, hold and enjoy the Premises without hindrance or molestation by
Landlord.
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4.23 Signs. Subject to compliance with all Governmental Requirements, Tenant
shall have the right to one (1) sign on the Building exterior to be installed by
Landlord. Landlord shall also include Tenant's name on one (1) monument sign to
be located on the Land. The exact size, appearance [,] and location [and cost]
of such signs shall be subject to Landlord's prior written approval and shall be
consistent with the Project signage then in existence for the Building. Any and
all costs in connection with the such signage shall be borne by Landlord, except
that Tenant agrees to maintain any such signage located on doors or entrances to
the Premises in good condition and repair. Tenant shall not inscribe an
inscription, or post, place, or in any manner display any sign, notice, picture,
placard or poster or any advertising matter whatsoever, anywhere in or about the
Land, Building or Project at places visible (either directly or indirectly as an
outline or shadow on a glass pane) from anywhere outside the Premises without
first obtaining Landlord's written consent. Any such consent by Landlord shall
be upon the understanding and condition that Tenant shall remove the same at the
expiration or sooner termination of this Lease.
4.24 Subordination. Tenant subordinates this Lease and all rights of Tenant
under this Lease to any mortgage, deed of trust, ground lease or vendor's lien,
or similar instrument which may from time to time be placed upon the Premises
(and all renewals, modifications, replacements and extensions of such
encumbrances), and each such mortgage, deed of trust, ground lease or lien or
other instrument shall be superior to and prior to this Lease; provided that
Landlord provides Tenant with a commercially reasonable nondisturbance agreement
on the standard form of the applicable lender or ground lessor. Notwithstanding
the foregoing, the holder or beneficiary of such mortgage, deed of trust, ground
lease, vendor's lien or similar instrument shall have the right to subordinate
or cause to be subordinated any such mortgage, deed of trust, ground lease,
vendor's lien or similar instrument to this Lease. Tenant further covenants and
agrees that if the lender or ground lessor acquires the Premises as a purchaser
at any foreclosure sale or otherwise, Tenant shall recognize and attorn to such
party as landlord under this Lease, and shall make all payments required
hereunder to such new landlord without deduction or set-off and, upon the
request of such purchaser or other successor, execute, deliver and acknowledge
documents confirming such attornment; provided that, Landlord provides Tenant
with a commercially reasonable nondisturbance agreement on the standard form of
the applicable lender or ground lessor. Tenant waives the provisions of any law
or regulation, now or hereafter in effect, which may give or purport to give
Tenant any right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder in the event that any such foreclosure or
termination or other proceeding is prosecuted or completed. Landlord represents
and warrants that as of the date of this Lease, that no loan by Landlord as
borrower is secured by the Project.
4.25 Workers Compensation Immunity. If and to the extent that Tenant is
obligated to indemnify, defend or hold harmless Landlord or Landlord's Agents
from any Claims arising from its use of the Premises or any act or failure to
act by Tenant or Tenant's Agents or otherwise, Tenant expressly waives, to and
in favor of Landlord and Landlord's Agents, its statutory workers compensation
act employers immunity relative to any injury to an employee or employees of
Tenant.
4.26 Brokers. Each party to this Lease shall indemnify, defend and hold harmless
the other party from and against any and all Claims asserted against such other
party by any real estate broker, finder or intermediary relating to any act of
the indemnifying party in connection with this Lease. Notwithstanding the
foregoing, CS Commercial, Inc shall be entitled to a broker's commission in
connection with the full execution of this lease. Landlord shall pay CB
Commercial's commission.
4.27 Exculpation and Limitation of Liability. Landlord has executed this Lease
by its trustee signing solely in a representative capacity. Notwithstanding
anything contained in this Lease to the contrary, Tenant confirms that the
covenants of Landlord are made and intended, not as personal covenants of the
trustee, or for the purpose of binding the trustee personally, but solely in the
exercise of the representative powers conferred upon the trustee by its
principal. Liability with respect to the entry and performance of this Lease by
or on behalf of Landlord, however it may arise, shall be asserted and enforced
only against the Landlord's estate and interest in the Building and Landlord
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shall have no personal liability in the event of any claim against Landlord
arising out of or in connection with this Lease, the relationship of Landlord
and Tenant or Tenant's use of the Premises. Further, in no event whatsoever
shall any Landlord's Agent have any liability or responsibility whatsoever
arising out of or in connection with this Lease, the relationship of Landlord
and Tenant or Tenant's use of the Premises. Any and all personal liability, if
any, beyond that which may be asserted under this paragraph, is expressly waived
and released by Tenant and by all persons claiming by, through or under Tenant.
4.28 ERISA Representations. Tenant represents and warrants to Landlord that,
with the exception of this Lease, neither the Tenant nor any affiliate of the
Tenant is a tenant under a lease or any other tenancy arrangement: (a) with: (1)
The Riggs National Bank of Washington, D.C., as Trustee of the Multi-Employer
Property Trust; (2) the Multi-Employer Property Trust; (3) The National Bank of
Washington Multi-Employer Property Trust, the previous name of the
Multi-Employer Property Trust; (4) Alameda Industrial Properties Joint Venture;
(5) Harman International Business
Campus Joint Venture; (6) Beaverton-Redmond Tech Properties; (7) Corporate Drive
Corporation as trustee of the Corporate Drive Nominee Realty Trust; (8) Goldbelt
Place Joint Venture; (9) Boca 1515; or (10) Arboretum Lakes-I, L.L.C.; or (b)
involving any property in which the entities named in clauses (a)(1), (a)(2) or
(a)(3 are known by the Tenant to have an ownership interest.
4.29 Mechanic's Liens and Tenant's Personal Property Taxes.
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4.29.1 Tenant shall have no authority, express or implied, to create or
place any lien or encumbrance of any kind or nature whatsoever upon, or in any
manner to bind, the interest of Landlord or Tenant in the Premises or to charge
the rentals payable under this Lease for any Claims in favor of any person
dealing with Tenant, including those who may furnish materials or perform labor
for any construction or repairs. Tenant shall pay or cause to be paid all sums
legally due and payable by it on account of any labor performed or materials
furnished in connection with any work performed on the Premises on which any
lien is or can be validly and legally asserted against its leasehold interest in
the Premises and Tenant shall indemnify, defend and hold harmless Landlord from
any and all Claims arising out of any such asserted Claims. Tenant agrees to
give Landlord immediate written notice of any such Claim.
4.29.2 Tenant shall be liable for all taxes levied or assessed against
personal property, furniture or fixtures placed by Tenant in the Premises. If
any such taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property and Landlord elects to pay them or if the
assessed value of Landlord's property is increased by inclusion of such personal
property, furniture or fixtures and Landlord elects to pay the taxes based on
such increase, Tenant shall reimburse Landlord for the sums so paid by Landlord,
upon demand by Landlord.
SECTION 5: DEFAULT AND REMEDIES
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5.1 Events of Default.
5.1.1 The occurrence of any one or more of the following events shall
constitute a material default and breach of this Lease by Tenant ("Event of
Default"):
(a) abandonment (without paying Base Rent or Additional Rent) of
all or any portion of the Premises;
(b) failure by Tenant to make any payment of Base Rent,
Additional Rent or any other sum payable by Tenant under this Lease within five
(5) Business Days after receipt from Landlord of written notice that such rent
is past due, provided that, Tenant shall only be entitled to such notice twice
in any 12-month period, and after such second notice, failure to pay shall be an
Event of Default five (5) Business Days after its due date.
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(c) failure by Tenant to observe or perform any covenant or
condition of this Lease, other than the making of payments, where such failure
shall continue for a period of ten (10) Business Days after written notice from
Landlord;
(d) (1) the making by Tenant of any general assignment or general
arrangement for the benefit of creditors; (2) the filing by or against Tenant of
a petition in bankruptcy, including reorganization or arrangement, unless, in
the case of a petition filed against Tenant, the same is dismissed within twenty
(20) Business Days; (3) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located in the Premises or of
Tenant's interest in this Lease; (4) any execution, levy, attachment or other
process of law against any property of Tenant or Tenant's interest in this
Lease; (5) adjudication that Tenant is bankrupt; (6) the making by Tenant of a
transfer in fraud of creditors; or (7) the failure of Tenant to generally pay
its debts as they become due; or
(e) any information furnished by or on behalf of Tenant to
Landlord in connection with the entry of this Lease is determined to have been
materially false, misleading or incomplete when made.
5.1.2 Tenant shall notify Landlord promptly of any Event of Default or
any facts, conditions or events which, with the giving of notice or passage of
time or both, would constitute an Event of Default.
5.1.3 If a petition in bankruptcy is filed by or against Tenant, and if
this Lease is treated as an "unexpired lease" under applicable bankruptcy law in
such proceeding, then Tenant agrees that Tenant shall not attempt nor cause any
trustee to attempt to extend the applicable time period within which this Lease
must be assumed or rejected.
5.2 Remedies. If any Event of Default occurs, Landlord may at any time after
such occurrence, with or without notice or demand except as stated in this
paragraph, and without limiting Landlord in the exercise of any right or remedy
at law which Landlord may have by reason of such Event of Default, exercise the
rights and remedies, either singularly or in combination, as are specified or
described in the subparagraphs of this paragraph:
5.2.1 Landlord may terminate this Lease and all rights of Tenant under
this Lease either immediately or at a later date by giving Tenant written notice
that this Lease is terminated. If Landlord so terminates this Lease, then
Landlord may recover from Tenant the sum of:
(a) the unpaid Base Rent, Additional Rent and all other sums
payable under this Lease which have been earned at the time of termination, and
interest on such sums at the Default Rate; plus
(b) the amount by which the unpaid Base Rent, Additional Rent and
all other sums payable under this Lease which would have been earned after
termination until the time of award exceeds the amount of such rental loss, if
any, as Tenant affirmatively proves could have been reasonably avoided and
interest on such excess at the Default Rate; plus
(c) the amount by which the aggregate of the unpaid Base Rent,
Additional Rent and all other sums payable under this Lease for the balance of
the Lease Term after the time of award exceeds the amount of rental loss, if
any, as Tenant affirmatively proves could be reasonably avoided, with such
difference being discounted to present value at the Prime Rate at the time of
award; plus
(d) any other amount necessary to compensate Landlord for the
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
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result from such failure, including, leasing commissions, tenant improvement
costs, renovation costs and advertising costs; plus
(e) all such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to
time by applicable law.
5.2.2 If Tenant abandons or surrenders (without paving Base Rent
or Additional Rent) the Premises without Landlord's consent, or if Landlord
re-enters the Premises as provided in subparagraph 5.2.3 or takes possession of
the Premises pursuant to legal proceedings or through any notice procedure
provided by law, then, if Landlord does not elect to terminate this Lease,
Landlord may, from time to time, without terminating this Lease, either (a)
recover all Base Rent, Additional Rent and all other sums payable under this
Lease as they become due or (b) relet the Premises or any part of the Premises
on behalf of Tenant for such term or terms, at such rent or rents and pursuant
to such other provisions as Landlord, in its sole discretion, may deem
advisable, all with the right, at Tenant's cost, to make alterations and repairs
to the Premises and recover any deficiency from Tenant as set forth in
subparagraph 5.2.5.
5.2.3 Upon an Event of Default, Landlord shall also have the
right, with or without terminating this Lease, to re-enter the Premises and
remove all persons and property from the Premises. Landlord may cause property
so removed from the Premises to be stored in a public warehouse or elsewhere at
the expense and for the account of Tenant.
5.2.4 Upon an Event of Default, Landlord shall also have the
right, without terminating this Lease, to accelerate and recover from Tenant the
sum of all unpaid Base Rent, Additional Rent and all other sums payable under
the then remaining term of the Lease, discounting such amount to present value
at the Prime Rate.
5.2.5 None of the foregoing remedial actions, singly or in
combination, shall be construed as an election by Landlord to terminate this
Lease unless Landlord has in fact given Tenant written notice that this Lease is
terminated: any act by Landlord to maintain or preserve the Premises; any
efforts by Landlord to relet the Premises; any repairs or alterations made by
Landlord to the Premises; any re-entry, repossession or reletting of the
Premises by Landlord pursuant to this paragraph; or the appointment of a
receiver, upon the initiative of Landlord, to protect Landlord's Interest under
this Lease. If Landlord takes any of the foregoing remedial action without
terminating this Lease, landlord may nevertheless at any time after taking any
such remedial action terminate this Lease by written notice to Tenant.
5.2.6 If Landlord relets the Premises, Landlord shall apply the
revenue from such reletting as follows: first to the payment of any indebtedness
other than Base Rent, Additional Rent or any other sums payable under this Lease
by Tenant to Landlord; second to the payment of any cost of reletting (including
finders' fees and leasing commissions); third to the payment of the cost of any
alterations, improvements, maintenance and repairs to the Premises; and fourth
to the payment of Base Rent, Additional Rent and other sums due and payable and
unpaid under this Lease. Landlord shall hold and apply the residue, if any, to
payment of future Base Rent, Additional Rent and other sums payable under this
Lease as the same become due, and shall deliver the eventual balance, if any, to
Tenant. Should revenue from letting during any month, after application pursuant
to the foregoing provisions, be less than the sum of the Base Rent, Additional
Rent and other sums payable under this Lease and Landlord's expenditures for the
Premises during such month, Tenant shall pay the deficiency to Landlord
immediately upon demand.
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5.2.7 Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies provided in this Lease or by law
(all such remedies being cumulative), nor shall pursuit of any remedy provided
in this Lease constitute a forfeiture or waiver of any Base Rent, Additional
Rent or other sum payable under this Lease or of any damages accruing to
Landlord by reason of the violation of any of the covenants or conditions
contained in this Lease.
5.3 Right to Perform. If Tenant shall fail to pay any sum of money, other than
Base Rent or Additional Rent, required to be paid by it under this Lease or
shall fail to perform any other act on its part to be performed under this
Lease, and Tenant shall fail to commence to cure such default within twenty (20)
Business Days after notice of such failure by Landlord, or such shorter time if
reasonable under the circumstances, or Tenant shall fail to continuously and
diligently prosecute such cure to completion, then Landlord may, but shall not
be obligated to, and without waiving or releasing Tenant from any obligations of
Tenant, make such payment or perform such other act on Tenant's part to be made
or performed as provided in this Lease. Landlord shall have (in addition to any
other right or remedy of Landlord) the same rights and remedies in the event of
the nonpayment of sums due under this paragraph as in the case of default by
Tenant in the payment of Base Rent.
5.4 Landlord's Default. In the event that Landlord defaults under or breaches
this Lease, Tenant shall notify Landlord of such default or breach in writing,
and Tenant shall not exercise any right or remedy which Tenant may have under
this Lease or at law if Landlord commences to cure such default or breach within
twenty (20) Business Days after receipt of Tenant's notice and thereafter
diligently prosecutes the cure to completion.
SECTION 6: MISCELLANEOUS PROVISIONS
6.1 Notices. Any notice, request or written communication required or permitted
to be delivered under this Lease shall be: (a) in writing; (b) transmitted by
personal delivery, express or courier service, United States Postal Service in
the manner described below, or electronic means of transmitting written
material; and (c) deemed to be delivered on the earlier of the date received or
four (4) Business Days after having been deposited in the United States Postal
Service, postage prepaid. Such writings shall be addressed to Landlord or
Tenant, as the case may be, at the respective designated addresses set forth
opposite their signatures, or at such other address(es) as they may, after the
execution date of this Lease, specify by written notice delivered in accordance
with this paragraph, with copies to the persons at the addresses, if any,
designated opposite each party's signature. Those notices which contain a notice
of breach or default or a demand for performance may be sent by any of the
methods described in clause (b) above, but if transmitted by personal delivery
or electronic means, shall also be sent concurrently by certified or registered
mail, return receipt requested.
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6.2 Attorney's Fees and Costs. In the event either party requires the services
of an attorney in connection with enforcing the terms of this Lease, or in the
event suit is brought for the recovery of Base Rent, Additional Rent or any
other sums payable under this Lease or for the breach of any covenant or
condition of this Lease, or for the restitution of the Premises to Landlord or
the eviction of Tenant during the Lease Term or after the expiration or earlier
termination of this Lease, the substantially prevailing party shall be entitled
to a reasonable sum for attorney's and parallel's fees and court costs,
including costs of appeal.
6.3 No Accord and Satisfaction. No payment by Tenant or receipt by Landlord of
an amount less than the Base Rent or Additional Rent or any other sum due and
payable under this Lease shall be deemed to be other than a payment on account
of the Base Rent, Additional Rent or other such sum, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment be
deemed an accord and satisfaction, nor preclude Landlord's right to recover the
balance of any amount payable or Landlord's right to pursue any other remedy
provided in this Lease or at law.
6.4 Successors: Joint and Several Liability. Except as provided in the paragraph
captioned "Exculpation and Limitation of Liability" and subject to the paragraph
captioned "Assignment and Subletting by Landlord", all of the covenants and
conditions contained in this Lease shall apply to and be binding upon Landlord
and Tenant and their respective heirs, executors, administrators, successors and
assigns. In the event that more than one person, partnership, company,
corporation or other entity is included in the term "Tenant," then each such
person, partnership, company, corporation or other entity shall be jointly and
severally liable for all obligations of Tenant under this Lease.
6.5 Choice of Law. This Lease shall be construed and governed by the laws of the
state in which the Land is located.
6.6 No Waiver of Remedies. The waiver by Landlord of any covenant or condition
contained in this Lease shall not be deemed to be a waiver of any subsequent
breach of such covenant or condition nor shall any custom or practice which may
develop between the parties in the administration of this Lease be construed to
waive or lessen the rights of Landlord to insist on the strict performance by
Tenant of all of the covenants and conditions of this Lease. No act or thing
done by Landlord or Landlord's Agents during the Lease Term shall be deemed an
acceptance or a surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless made in writing and signed by
Landlord. The mention in this Lease of any particular remedy shall not preclude
Landlord from any other remedy it might have, either under this Lease or at law,
nor shall the waiver of or redress for any violation of any covenant or
condition in this Lease or in any of the rules or regulations attached to this
Lease or later adopted by Landlord, prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation. The receipt by Landlord of Base Rent, Additional Rent or any
other sum payable under this Lease with knowledge of a breach of any covenant or
condition in this Lease shall not be deemed a waiver of such breach. The failure
of Landlord to enforce any of the rules and regulations attached to this Lease
or later adopted, against Tenant or any other tenant in the Project, shall not
be deemed a waiver. Any waiver by Landlord must be in writing and signed by
Landlord to be effective.
6.7 Offer to Lease. The submission of this Lease to Tenant or its broker or
other agent does not constitute an offer to Tenant to lease the Premises. This
Lease shall have no force or effect until: (a) it is executed and delivered by
Tenant to Landlord; and (b) it is executed and delivered by Landlord to Tenant.
6.8 Force Majeure. In the event that Landlord shall be delayed, hindered in or
prevented from the performance of any act or obligation required under this
Lease by reason of acts of God, strikes, lockouts, labor troubles or disputes,
inability to procure or shortage of materials or labor, failure of power or
utilities, delay in transportation, fire, vandalism, accident, flood, severe
weather, other casualty, Governmental Requirements (including mandated changes
in the Plans and Specifications or the Tenant Improvements resulting from
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changes in pertinent Governmental Requirements or interpretations thereof),
riot, insurrection, civil commotion, sabotage, explosion, war, natural or local
emergency, acts or omissions of others, including Tenant, or other reasons of a
similar or dissimilar nature not solely the fault of, or under the exclusive
control of, Landlord, then performance of such act shall be excused for the
period of the delay and the period for the performance of any such act shall be
extended for the period equivalent to the period of such delay.
6.9 Landlord's Consent. Unless otherwise provided in this Lease, whenever
Landlord's consent or approval is required under the terms of this Lease, such
consent shall be subject to Landlord's judgment or discretion exercised in good
faith and shall be delivered in writing.
6.10 Severability: Captions. If any clause or provision of this Lease is
determined to be illegal, invalid, or unenforceable under present or future
laws, the remainder of this Lease shall not be affected by such determination,
and in lieu of each clause or provision that is determined to be illegal,
invalid or unenforceable, there be added as a part of this Lease a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and be legal, valid and enforceable. Headings or
captions in this Lease are added as a matter of convenience only and in no way
define, limit or otherwise affect the construction or interpretation of this
Lease.
6.11 Interpretation. Whenever a provision of this Lease uses the term (a)
"include" or "including", that term shall not be limiting but shall be construed
as illustrative, (b) "covenant", that term shall include any covenant,
agreement, term or provision, and (c) "at law", that term shall mean at law or
in equity, or both. This Lease shall be given a fair and reasonable
interpretation of the words contained in it without any weight being given to
whether a provision was drafted by one party or its counsel.
6.12 Incorporation of Prior Agreement: Amendments. This Lease contains all of
the agreements of the parties to this Lease with respect to any matter covered
or mentioned in this Lease, and no prior agreement or understanding pertaining
to any such matter shall be effective for any purpose. No provision of this
Lease may be amended or added to except by an agreement in writing signed by the
parties to this Lease or their respective successors in interest.
6.13 Authority. If Tenant is a partnership, company, corporation or other
entity, each individual executing this Lease on behalf of Tenant represents and
warrants to Landlord that he or she is duly authorized to so execute and deliver
this Lease and that all partnership, company, corporation or other entity
actions and consents required for execution of this Lease have been given,
granted or obtained. If Tenant is a partnership, company, corporation or other
entity, it shall, within ten (10) Business Days after demand by Landlord,
deliver to Landlord satisfactory evidence of the due authorization of this Lease
and the authority of the person executing this Lease on its behalf.
6.14 Time of Essence. Time is of the essence with respect to the performance of
every covenant and condition of this Lease.
6.15 Survival of Obligations. Notwithstanding anything contained in this Lease
to the contrary or the expiration or earlier termination of this Lease, any and
all obligations of either party accruing prior to the expiration or termination
of this Lease shall survive the expiration or earlier termination of this Lease,
and either party shall promptly perform all such obligations whether or not this
Lease has expired or terminated. Such obligations shall include any and all
indemnity obligations set forth in this Lease. Tenant's options contained in
this Lease shall, subject to their terms, be effective during any extensions or
renewals of the Lease Term.
6.16 Consent to Service. Tenant irrevocably consents to the service of process
of any action or proceeding at the address of the Premises. Nothing in this
paragraph shall affect the right to serve process in any other manner permitted
by law.
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6.17 Landlord's Authorized Agents. Notwithstanding anything contained in the
Lease to the contrary, including without limitation, the definition of
Landlord's Agents, only officers of the Riggs National Bank of Washington, D.C.,
are authorized to amend, renew or terminate this Lease, or to compromise any of
Landlord's claims under this Lease or to bind Landlord in any manner. Without
limiting the effect of the previous sentence, no property manager or broker
shall be considered an authorized agent of Landlord to amend, renew or terminate
this Lease or to compromise any of Landlord's claims under this Lease or to bind
Landlord in any manner.
6.18 Waiver of Jury Trial. Landlord and Tenant agree to waive trial by jury in
any action, proceeding or counterclaim brought by either against the other on
any matter arising out of or relating in any way to this Lease.
6.19 Satellite Dish. If requested by Tenant, Landlord shall allow Tenant to
place a satellite dish or antenna on the roof of the Building, at Tenant's sole
cost (which shall not be deducted from the Tenant Improvement Allowance),
subject to Landlord's reasonable judgment with respect to aesthetic, structural
and maintenance related issues and so long as it does not interfere with any
other facilities already in place at the Building and further subject to all
applicable governmental rules, regulations and statutes. At the expiration or
sooner termination of this Lease, Tenant shall be required to remove the
satellite dish or antenna installed pursuant to this section and to restore the
Building to a condition comparable to that which existed prior to the
installation of Tenant's satellite dish or antenna excluding reasonable wear and
tear, and casualty loss (to the extent such loss is covered by insurance).
Further, all costs associated with the installation, maintenance, operations and
removal of the satellite dish or antenna described herein shall be the sole
responsibility of Tenant. In addition, provided that there is no interruption in
the operation of the satellite dish or antenna located on the roof of the
Building, Landlord shall have the right to require Tenant to temporarily
relocate said satellite dish to a different location so as to allow Landlord to
make any structural repairs to the Building and to maintain or replace the
Building roof. The cost of said relocation shall be borne by Tenant. Further,
Tenant hereby agrees to indemnify and hold Landlord and Landlord's Agents,
harmless from and against any and all losses, liabilities, claims, damages
and/or expenses, including reasonable attorneys' fees, resulting from or arising
out of the satellite dish or antenna, including, but not limited to, claims
involving injuries attributable, in part, or in whole, to the installation, use,
maintenance, repair, or removal of said satellite dish or antenna.
6.20 Right of First Offer and Right of First Refusal for Additional Space.
During the first thirty-six (36) months of the Lease Term and any extensions and
renewals, and provided that Tenant is not in default under this Lease beyond any
applicable cure period, Tenant shall have, subject to the rights of other
tenants in the Project existing on the date of this Lease, the right of first
offer and right of first refusal with respect to space in the Project which will
become vacant and available after the expiration or termination of any existing
leases (including any extensions or renewals of such existing leases) (the
"Available Space"). Tenant's right of first offer is subject to the following
terms and procedures. If during the first (18) months of the Lease Term, such
Available Space comes into existence or up to three (3) months prior to the date
that Landlord anticipates that such Available Space will come into existence,
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Landlord shall offer such Available Space for lease to Tenant on the same terms
and conditions contained in this Lease (including a base rental rate for the
Available Space commensurate on a per square footage with the Base Rent then in
effect under this Lease, and including the same Base Rent escalations. The
tenant improvement allowance for the Available Space will be a pro rata amount
of the per square foot tenant improvement allowance used in this Lease. The
formula for calculating the tenant improvement allowance for the available space
shall be: the number of months the Tenant will occupy the Available Space
divided by thirty six (36) months. This fraction will be multiplied by the
Tenant Improvement Allowance per square feet ($8.00 per rentable square foot)
and then multiplied by the rentable square footage of the Available Space to
derive at the maximum amount Landlord will expend for the tenant improvement
allowance for the Available Space. After the first (18) months of the Lease
Term, if such Available Space comes into existence or up to three (3) months
prior to the date that Landlord anticipates that such Available Space will come
into existence, Landlord shall offer such Available Space for lease to Tenant at
95% of the Market Lease Rate and for a term co-terminus with the Lease Term. The
co-terminus provision in the preceding sentence does not apply to any right of
first refusal Tenant may have under this Lease. Tenant shall have the right to
accept such offer by providing Landlord with written acceptance within ten (10)
Business Days after receipt of Landlord's offer. Such acceptance by Tenant shall
only be valid and binding upon Landlord if Tenant executes an amendment to this
Lease adding the Additional Space within twenty (20) [days] Business Days of
Landlord's offer to Tenant. Tenant's right to offer shall be waived if not
exercised in strict conformance with this section. Time is of the essence.
Tenant's right of first refusal is subject to the following procedures. If
Tenant fails to exercise its right of first offer on any Available Space, and
Landlord subsequently offers to Available Space to a third party, Landlord shall
notify Tenant that the
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offer and first refusal as described in this paragraph shall
terminate in the event that Tenant has assigned or Leased all or any portion of
the Premises.
IN WITNESS WHEREOF, this Lease has been executed the day and year first above
set forth.
Designated Address for Landlord: LANDLORD;
C/o Riggs Trust Group THE RIGGS NATIONAL BANK OF WASHINGTON, D.C.
Attn: Maria Fleming as Trustee of the Multi-Employer Property
808 17th Street, NW Trust, a trust organized under 12 C.F.R.
Washington, DC 20006 Section 9.18.
Facsimile 202/835-6887
with copoy to Manager at: By: _______________________________________
Name: ______________________________
Carey Winston Company Its: ______________________________
5550 Friendship Boulevard
Chevy Chase, Maryland 20815
Facsimile: 703-734-2837
Designated Address for Tenant:
TENANT\
400 Herndon Parkway
Suite 100 CISCO SYSTEMS, INC., a
Herndon, Virginia 22070 California corporation
Facsimile:
By:_____________________________________
Name: ___________________________
Its: ___________________________
LANDLORD ACKNOWLEDGEMENT
)
DISTRICT OF COLUMBIA ) SS.
)
On this 16th day of January, 1995/6, before me personally appeared
Maria Fleming, to me known to be a Senior Trust Officer of The Riggs National
Bank of Washington, D.C. the Trustee of the Multi-Employer Property Trust, the
national banking association that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said national banking association as trustee, for the uses and purposes therein
mentioned, and on oath stated that she was authorized to execute said
instrument.
IN WITHNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year first above written.
Name: ____________________________________
NOTARY PUBLIC in and for the District of
Columbia,Residing at______________________
My appointment expires:___________________
TENANT ACKNOLEDGEMENT (CORPORATION)
State of California )
) ss.
County of San Mateo )
On this 2nd day of January, 1995/6, before me a Notary Public in and for the
State of California, personally appeared Nancy Bareilles _______________________
- -------------------------------------------------------------------------------,
the Director, Real Estate and Facilities of Cisco Systems, Inc., the California
33
<PAGE>
corporation that executed the within and foregoing instrument, and acknowledged
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that s/he/they was/were
authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed the day and year
first as above written.
Name: _________________________________
NOTARY PUBLIC in and for the State of
California ____________________________
My appointment expires:________________
34
<PAGE>
EXHIBIT A to Lease (400 Herndon)
LEGAL DESCRIPTION OF LAND
-------------------------
PARCEL F-1, SUGARLAND INDUSTRIAL PARK, as the same is more particularly
described in that Deed of Resubdivision dated June 22, 1982, recorded in Deed
Book 5692, page 308, among the land records of Fairfax County, Virginia, said
Parcel F-1, being a resubdivision of Parcel F, Sugarland Industrial Park, as the
same is duly dedicated, platted and recorded in Deed Book 4080, page 182, among
the aforesaid land records.
<PAGE>
EXHIBIT B to Lease (400 Herndon)
DRAWING SHOWING LOCATION OF THE PREMISES
----------------------------------------
<PAGE>
EXHIBIT C to Lease (400 Herndon)
FORM OF MEMORANDUM OF COMMENCEMENT DATE
---------------------------------------
The Riggs National Bank of Washington, D.C., as Trustee of the
Multi-Employer Property Trust, a trust organized under 12 C.F.R. Section 9.18,
as Landlord, and Cisco Systems, Inc., a California corporation as Tenant,
executed that certain Lease dated as of ______, 199 __ (the "Lease").
The Lease contemplates that upon satisfaction of certain conditions
Landlord and Tenant will agree and stipulate as to certain provisions of the
Lease. All such conditions precedent to that stipulation have been satisfied.
Landlord and Tenant agree as follows:
1. The Commencement Date of the Lease is __________________________ 2.
The Termination Date of the Lease is ___________________________ 3. The
Premises consist of _____________________ rentable square feet.
4. Base Rent is as follows:
through ; $ per month
---------------- -------------- ---------
through ; $ per month
---------------- -------------- ---------
through ; $ per month
---------------- -------------- ---------
through ; $ per month
---------------- -------------- ---------
5. Tenant's Pro Rata Share is _______________ percent (________ %).
IN WITNESS WHEREOF, the parties have caused this Memorandum to be duly executed
as of __________, 199__
LANDLORD: TENANT:
The Riggs National Bank of Cisco Systems, Inc., a California
Washington, D.C., as Trustee corporation
of the Multi-Employer Property
Trust, a trust Organized under By:
12 C.F.R.\Section 9.18 -----------------------------
Name:
-----------------------------
Its:
-----------------------------
By: __________________________
Name: ________________________
Its: _________________________
)
DISTRICT OF COLUMBIA ) ss.
)
On this _____ day of __________________, 199__, before me personally
appeared ________________________, to me known to be a ____________________ of
The Riggs National Bank of Washington, D.C, the Trustee of the Multi-Employer
Property Trust, the national banking association that executed the within and
foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said national banking association as trustee, for the
uses and purposes therein mentioned, and on oath stated that _____________ was
authorized to execute said instrument.
IN WITNESS WHEROF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
Name: ___________________________________
NOTARY PUBLIC in and for the District of
Columbia, residing at ___________________
My appointment expires:__________________
TENANT ACKNOWLEDGEMENT (CORPORATION)
------------------- )
) ss.
- -------------------- )
On this _______ day of ____________, 199__, before me, a Notary Public in and
for the ______________ of _______________________, personally appeared
___________________________________________ the______________________________ of
<PAGE>
Cisco Systems Inc., the California corporation that executed the within and
foregoing instrument. and acknowledged said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that s/he/they was/were authorized to execute said
instrument.
WITNESS my hand and official seal hereto affixed the day and year first as
above written.
Name: ___________________________________________
NOTARY PUBLIC in and for the _________ of ________
residing at ______________________________________
My appointment expires: _________________________
[NOTARIAL SEAL]
<PAGE>
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building or
Land without the prior written consent of the Landlord. Landlord shall have the
right to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person chosen by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades,
screens or hanging plants or other similar objects attached to or used in
connection with any window or door of the Premises, Tenant shall immediately
discontinue such use. No awning shall be permitted on any part of the Premises.
Tenant shall not place anything against or near glass partitions or doors or
windows which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalk, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Building. The halls,
passages, exits, entrances, elevators, escalators and stairways are not open to
the general public. Landlord shall in all cases retain the right to control and
prevent access to such areas of all persons whose presence in the judgment of
Landlord would be prejudicial to the safety, character, reputation and interest
of the Land. Building and the Building's tenants; provided that nothing in this
Lease contained shall be construed to prevent such access to persons with whom
any Tenant normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities. Tenant shall not go upon the
roof of the Building.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only. and Landlord reserves the
right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the
Premises shall be provided exclusively through Tenant. Tenant shall not cause
any unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Premises. Landlord shall not in any way be responsible to any
Tenant for any loss of property on the Premises, however occurring, or for any
damage to any Tenant's property by the janitor.
6. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions for
their installation.
7. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by Governmental Requirements. Landlord shall have the right to
prescribe the weight, size and position of all equipment, materials, furniture
or other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord. stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight. Business machines and mechanical
equipment belonging to Tenant, which cause noise or vibration that may be
transmitted to the structure of the Building or to any space in the Building or
to any other tenant in the Building, shall be placed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. The persons employed to move such equipment in or
out of the Building must be acceptable to landlord. Landlord will not be
responsible for loss of, or damage to, any such equipment or other property from
any cause, and all damage done to the Building by maintaining or moving such
equipment or other property shall be repaired at the expense of Tenant.
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8.Tenant shall not use or keep in the Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities permitted by the Lease. Tenant shall not use or permit to be used in
the Premises any foul or noxious gas or substance, or permit or allow the
Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors or
vibrations nor shall Tenant bring into or keep in or about the Premises any
birds or animals.
9. Tenant shall not use any method of heating or air-conditioning other
than that supplied by Landlord. Landlord understands that there will be a
freestanding AC unit installed in the Premises.
10. Tenant shall not waste any utility provided by Landlord and agrees
to cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air-conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice.
11. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
Should Landlord change the street address of the Building, Landlord shall pay
for all reasonable fees of such stationery, cards, literature. etc.
12. Tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons. Landlord
shall not be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. Landlord reserves the right to
prevent access to the Building in case of invasion, mob, riot, public excitement
or other commotion by closing the doors or by other appropriate action.
13. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
14. Tenant shall not obtain for use on the Premises ice, drinking
water, food, beverage, towel or other similar services, except at such hours and
under such regulations as may be fixed by Landlord.
15. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be deposited
in them. The expenses of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by Tenant if it or its employees or
invitees shall have caused it.
16. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any ether goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Building. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in the Lease.
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<PAGE>
17. Tenant shall not install any radio or television antenna,
loudspeaker or ether device on the roof or exterior walls of the Building.
Tenant shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
18. Tenant shall not mark, drive nails, screws or drill into the
partitions, woodwork or plaster or in any way deface the Premises. Landlord
reserves the right to direct electricians as to where and how telephone and
telegraph wires are to be introduced to the Premises. Tenant shall not cut or
bore holes for wires. Tenant shall not affix any floor covering to the floor of
the Premises in any manner except as approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule. Notwithstanding the
foregoing Tenant, shall be permitted to do normal decorating with pictures, etc.
19. Tenant shall not install, maintain or operate upon the Premises any
vending machine without the written consent of Landlord.
20. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in the Building or Land are prohibited, and
Tenant shall cooperate to prevent the same.
21. Landlord reserves the right to exclude or expel from the Building
and Land any person who, in Landlord's judgment. is intoxicated. under the
influence of liquor or drugs or in violation of any of these Rules and
Regulations.
22
23.
24. Tenant shall not use in the Premises or in the public halls of the
Building any hand truck except those equipped with tires and side guards or such
other material-handling equipment as Landlord may approve. Tenant shall not
bring any other vehicles kind into the Building.
25. Without the prior written consent of Landlord, Tenant shall not use
the name of the Building in connection with promoting or advertising the
business of Tenant except as Tenant's address.
26. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Law or any governmental agency.
27. Tenant assumes any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed.
28. The requirements of Tenant will be attended to only upon
appropriate application to the Manager of the Building or an authorized
individual. Employees of Landlord are not required to perform any work or do
anything outside of their regular duties unless special instructions from
Landlord, and no employee of Landlord is required to admit Tenant to any space
other than the Premises without specific instructions from Landlord.
29. Tenant shall not park its vehicle; in any parking areas designated
by Landlord as areas for parking by visitors......Building or Land. Tenant shell
not leave vehicles in the parking areas overnight nor park any vehicles in the
Building parking areas other than automobiles, motorcycles, motor driven or
nonmotor driven bicycles or four-wheeled trucks.
30. Landlord may waive any one or more of these Rules and Regulations
for the benefit of Tenant or any other tenant no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of any other
person, nor prevent Landlord from thereafter revoking such waiver and enforcing
any such Rules and Regulations against any or all of the tenants of the
Building.
31. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole, in part, the covenants and
conditions of any lease of premises in the Building. If any provision of these
Rules and Regulations conflicts with any provision of the Lease, the terms of
the Lease shall prevail.
32. Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for safety
and security, the care and cleanliness of the Building and Land and the
preservation of good order in Building. Tenant agrees to abide by all the Rules
and Regulations stated in this exhibit and any additional rules and regulations
which so made by Landlord.
33. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant and Tenant's Agents.
3
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